Semi-weekly herald., 1913-05-29
INCOME TAX BILL SAFE
AGAINST COURT DECISIONS

WASHINGTON, d. c., May 2S.-
Double -riveted, air-tight, bomb-proof
and safe from any assaultsl That is
the condition of the new income tax
law, according to its author, Repre-
sentative Cordell Hull of Tennessee.
He says the bill is absolutely imprag
nable against attack in the courts.
1t has been drawn with such care, Hull
declares, that no high-priced corpora
ton lawyer can pick flaw in it which
might imperil its enforcement. Re-
ports that the new law was to be
tested in the courts have reached con-
gress. Hull and the members of the
house ways and means committee
which drew the new law declare that
if such attempts are made they will
meet with signal failure. They as
sorted there was little ground for
alarm that such legal methods would
be resorted to, and the constitutional
ity of the whole tariff bill was not
endangered. They admitted, of course,
that if the income tax feature of the
Wilson Underwood bill was declared
void by the courts, the whole tariff
bill would go by the board and ne
cessitate re-enactment of an entirely
new measure by congress.
'The two chief features of the bill
|, which have. beea under fire." said Rep
4 .A.,& TI,,I 10 tho fsnr
the clauses fixing the graduated tax
the surtax upon incomes according
to their size-and the provision for
taxation of dividends of insurance
companies. Both are beyond criticism
of any fair minded person, and also
beyond the reach of persons who would
attack their constitutionalty in the
federal courts. The graduated sys-
tenn of taxation has been approved
by the federal judiciary. The New
Jersey district court and the court of
appeals for that circuit have sustained
the validity of such graduated plans"
"The New Jersey case tested the
graduated tax system as applied to
inheritance taxes, squarely in point
with the similar system in the income
tax bill. The federal courts declared
in the inheritance tax cases that it
was folly to assert that the govern
ment could not put into operation the
most equitable taxation system known
that of taxing highest the persons
who are best able to meet the tax.
This is exactly what the income tax
bill will do; it will reach the wealthy
men who are best able to bear the
heavier burden of taxation. 1t will
also reach a whole lot of wealthy
men who have never contributed their
just share to the expense of main
tanning the government
As to the second contested feature
of the new law, which relates to tax
ing dividends" of insurance COM
panies, and which has provoked loud
protests from the big insurance com
panies of the east and also reams of
newspaper vitrol, Hull said:
"In drawing that part of the bill
we used exactly the word prescribed
in federal court decisions, to prevent
any test of the law in the courts. If
you will examine the bill carefully
you will note that we declare that
dividends of the insurance compa-
nies are taxable. We did not use the
word revenue, or income, or proceeds
but the word dividends This has
been construed by the federal judi
ciary in the case of Knowlton VS..
Moore, to mean the actual profits of
the companies, derived not from over
charges to policy holders upon their
premiums, but on their actual proceeds
from investments, loads, real estate
rentals, etc. The courts decided that
the question of dividends is question
of fact and not of law They declare
that the facts must necessarily be as
certained in each particular case"
When asked how the actual opera
tion of the insurance clause would
occur, Hull said;
"The insurance companies in max
ing their income tax returns to the
federal authorities will deduct from
their taxable income all excess money
construed as overcharges in premiums
upon policies If the federal authori-
ties deem that the incomes of the conf
panies should include certain pay
ments to policy holders, constituting
each individual case upon its merits,
and contending that such payments
are not in fact premium overcharges
but revenue from invested capital.