The sun., 1915-10-15
INCOME TAX
'ATTHESOURCE'
MAY BE KILLED
Withholding Clause Is Bit
terly Attacked i'm the
Supreme Court.
JUSTICES ADMIT
THEY ARE SURPRISED

WASHINGTON. Oct. 1.-THE with
holding clause OF the Federal income
tax law is under heavy fire in the
United States Supreme Court. Able
lawyers who heard the arguments to-
day and the comments of the Justices
admit they would not he surprised II
the court held that feature to he un-
constitutional.
otherwise the law seems able to with
stand successfully attacks from eminent
counsel. The attacking lawyers have
admitted in open court that they are
hot contendng that an income tax. as
such. is unconstitutional, but they
charge that the present law is dis
criminatory statute and therefore class
legislation and that the operation Of
the withholding clause" under which
the Government appears to be taking
private property for public use without
just compensation, is In violation Of the
due process clause Of the Federal Con-
stitution and that feature ought to fall.
The comments from the bench were
not favorable to the law in the argu-
ulents to-day. julien T. Davies OF New
York had explained how corporation
might withhold the tax Of one OF its
bondholders as required by the law.
choosing between that risk and the
greater one of incurring cumulative
penalties for rot 80 doing
Gould Not Recover.
Later the corporation would learn
that the bundhoder was exempt, but
would discover that it could not recover
from the Government, because 1t could
not sue for the benefit of the bond
n In the
case of a corporation like the Union
Pacific Railroad Company. which guar
sntecs its bonds free of taxation OF any
kind, the corporation would reimburse
tho bondholder ands at the same time
lose the amount IL had paid the Govern.
ment.
Chief Justice White asked II the at
torney meant to say that the Govern
ment was doing that sort OF thing. The
attorney replied that it was doing pre-
cisely that thing.
"preposterous. replied the Cnel
Justice. IL never heard OF such thing
II was pointed out In court to-day that
under the Withholding clause the cor
porations in many instances were eN'
pending as high as $4,000 year II
clerical help in an effort to collect th'
Governments taxes ana II was nam
tained that this amounted TO taking
compensation.
The Withholding at the source is TN
keystone feature of the law. Secretar!
AlcAdoo and others having contended tina
I. without il many incomes would escap'
the Government draguet.
The efforts of attorneys to attack th'
) graduated surtax as unconstitutional be
cause it was "A graduated tax and arbi
trary and discriminatory We're cut shor
by the Chief Justice, who told the attor
Neys that the Supreme Court had upheld
the graduated tax in the inheritance Ia!
case of knowlton against Moore.
says Law Discriminates.
William ID. Guthrie attacked the Law
as discriminatory in that II taxed the ac
cumulated profits of a partnership or o
the individual taxpayers higher than /
old those Of the corporations engaged il
the same line OF business and under tn
same circumstances.
Mr.. Guthrie appeared for Dodge Bros
OF Detroit, automobile manufacturers
y lie asserted that as fact his clients ha
,. paid - tax of sj6.0oo under the incom
Tax act on an income that represente
accumulated surplus turned back int
the business while a corporation en-
gagged in the same line OF business pai
$4,000 through the exemptions allowe
10 corpora tions, but not given to ind
>iduals. Mr.. Guthrie argued that thi
vas discriminatory and unconstitutiona
Arguments will go on tomorrow
Charles \. Snow of Boston. appearin
for the Baltic Mining Company wit
William l.. Guthrie and Julien T. Davie!
made up the battery IN opposition to III
constitutionality OF the law. The Gov
ernment case will be handled by In
Attorney-General, So.icitor-ieneral an
Assistant Attorney General Wallace.