Evening star. [volume] (Washington, D.C.) 1854-1972, 1909-09-22

experience, the income tax Is levied IN
only exceptional instances on the in
dividual directly. 1t is first levied on the
declared dividends of corporations; sec
hands OF the tenants, and finally on the
individual, with respect to matters that
are not covered by rents and corporate
investments. Another distinction which
is made in the English law. and which
commends itself to every one with
sense of Justice is that the income tax
on passive and permanent investments
like the stocks and bonds in corpora
ton should be higher than on earned In
comes: that is, incomes earned by the
services Of the individual as salary or as
a professional income.
Difference in Favor Of Earnings.
Earned incomes thus described are
really proceeds of an application OF the
capital Of individuals, which Is being
consumed and will be entirely used up
at the end OF his professional life OF
twenty or thirty years; whereas the in
come from corporate and business invest
ments will continue permanently without
regard to whether the owner lives or
dies, and will pass on by succession or law
undiminished and without reducing the
capital. This distinction justifies making
difference between q tax upon the IN
come Of corporations and that OF indi-
viduals, where they earn their income by
services. either by making the rate less
or by not taking the earned incomes at
ALL The latter Is the effect Of the corpo-
ration tax.
Another criticism Of the corporation
tax in the present bill Is that only shares
Of stock in corporate enterprises are thus
taxed, and that those who own bonds Sc
cured by mortgages upon the entire prop
erty or plant OF the corporation do not
pay any tax at all. This is true. and the
defect was fully recognized by those VINO
drafted the corporation tax. They would
have been glad, II possible. to impose
tax upon the bondholders. who are only
less interested in the earnings and sue
cess of the corporations than are stock
holders, but the difficulty of including
them and of collectine\ from the corpora
ton before the payment of interest on the.
bonds an income tax proportioned to a
percentage Of interest to be paid on the
bonds was that Congress could not use a
corporation to recoup itself in the pay
n1ent of such a tax from the interest to
be paid, because thus to impose a tax on
the bondholder proportioned to the inter
est he received would be In violation OF
Supreme Court, as an income tax not
apportioned among the states.
Bonds to Be Included.
Now, II the proposed amendment to
the Constitution authorizing the imposing
of an income tax without apportioning 1t
among the states according to population
passes. 1t will be possible to add to our
corporation tax the feature Of imposing
tax on the bonded interest In that cor
poration by a percentage tax upon inter-
est to be paid, thus reducing the amount
of interest which the corporation would
pay to the bondholders to the extent OF
the tax collected. This would make the
corporation tax more beneficial meas
ure and one reaching interests that ought
to be reached, because under modern sys-
TENS OF financing corporations the bond
holders and stockholders are all of them
in sense joint investors, and a corpora
ton income tax ought to include them
all.
Under the conditions that existed with
reference to the Constitution it seems to
me clear that the corporation tax is. an
equitable burden. one reaching active
business, not too heavy to retard 1t, but
from those who are successful in bust
ness. 1t is a tax easily collected-one
that no corporation cam escape-one in
which perjury cannot play any important
part at all in an effort to escape it.
Affords Important Data.
Another feature Of it is that incl
dentally 1t will give the federal govern
ment an opportunity to secure most valu-
able information In respect to the conduct
of corporations, their actual financial con-
dition, which they are required to show
in general terms in a public return. In
addition, the law provides the means. I'M
der proper limitations, Of investigating
fully and in detail their course of busi-
ness. Indirectly. 1t would help very much
in another revision, whenever that shall
come, because corporations engaged in
business said to be affected by the tariff
will have upon record in Washington their
exact financial condition from year to
year in the matter OF their incomes, their
expenditures and their debts.
Having said this much with respect
to the corporation tax as 1t Is, want to
say few words in favor Of the passage
of the income tax amendment as proposed
by Congress to the states. Assuming the
constitutional authority to have been
given, l am opposed to a general individ-
ual income tax law, except in times of
great national stress. ! am opposed to 1t
because of the difficulty already alluded
to. that it puts such premium on perjury
as to have led other governments to
abandon that method Of levying an In
come tax and of imposing the tax where
ever possible on the sources Of income in
the hands of those who are not ultimately
to pay it,
Income Tax for Time Of Need.
THE instance have already given of
an increase of 100 per cent in the pro-
ceeds Of the tax when changed from a
personal tax to one upon the sources Of
income, like our corporation tax, is
most forcible argument in favor Of the
proposition-that the inquisitorial feature
Of an income tax levied directly upon the
person, together with the inevitable OPP
portunities for escape from the tax by
use Of perjury, makes it desirable, If pos
sible, to avoid such a direct method Of
levying an income tax.
But / am most strongly in favor of
adoption by the states Of the amendment
authorizing Congress to impose an in
come tax without apportioning it among
the states according to population; and /
am strongly in favor of this because in
times Of great stress of war, or If some
other calamity were to visit this country
and we should need to strain our re-
sources. the income tax would be one of
the essential instruments by which we
could collect large amount of money to
enable us to meet the exigencies.
If the income tax amendment passes.
as ! hope 1t may, we can then enlarge
the corporation tax so as to include a
proper burden on bondholders in corpor.
atoms. as well as upon the shareholders
xI,t