New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1917-05-02
State Bonds Not Taxable
Interest on Them Is Exempt Under
ANY Federal Income Tax Law

To the Editor Of The Tribune.
/ Sir: In newspaper discussion Of the war
revenue bill comments have been made con-
corning the possibility of tax being I'M
posed on income derived from the interest OF
state and municipal bonds. Such securities
have been and are being bought by investors
upon the announcement that the interest Is
not taxable under the Federal income tax law,
but a considerable doubt seems to prevail
now as to whether or not such interest can
be taxed by Congress as part Of the extraor-
binary war revenue legislation.
There is no room for doubt about TINS
matter, and for the security Of investors ana
the information Of the public it should not be
supposed that the question of the power OF
Congress remains unsettled by Supreme Court
decisions. The fact is that the question has
been efectually settled by recent decisions
The doubt as to the present power OF Con-
gress TO tax the incomes In question arose
from the language of the Sixteenth (lncome
taxi Amendment to the Constitution, which
reads: The Congress shall have power to lay
and collect taxes on incomes from whatever
source derived, without apportiOnment among
the several states, and without regard to any
census or enumeration
This amendment was promulgated early IN
1913. Prior to its adoption 1T had been de-
cded by the Supreme Court lin Pollock VS..
Farmers Loan and Trust Company that in
come from state and municipal bonds could
not be taxed. In the final decision in this
case (l5S L. S. COL the court said: I'VE
have unanimously held in this case that, so
, far as this law operates on the receipts
from municipal bonds it cannot be sustained,
because it IS tax on the power of the
states and on their instrumentaltles to Dor
row money, and consequently repugnant to
the Constitution"
After the adoption Of the income tax amend
ment it was believed by some that the words
therein from whatever source derived" gave
TO Congress power to tax incomes from all
sources, which power Congress did not have
before, as shown by Supreme Court decisions,
including the one quoted above, decided IN
1895, and also the case Of Collector VS.. Day
I'll Wall, 113), decided in 1871, which es-
tablished that Congress did not have power to
tax the incomes of the officers and employees
of states, counties and municipalities. How
ever, all doubt as to the meaning of the in
come tax amendment must now be set aside
for the Supreme Court has established 1t IN
two cases. Brushaber VS.. Union Pacific Rail
way Company gao U. s., u and Stanton vs.
Baltic Mining Company ct al. GAO L. S., 1882,
both decided early in 1915
1t is because of these constitutional limita-
tons of its power that Congress exempted
from tax in the income tax laws of 1913 and
1916 all incomes derived from interest on
state and municipal securities and the in
comes of state and municipal officers and
employees Congress taxes the incomes OF
members Of Congress ard of the Cabinet at
Washington and of Federal officers gener-
ally Except judges, but does not tax the
incomes OF the Governors Of our states or
of the Mayors and other officers of the cities
and towns throughout the country. Certainly
no reasons of public policy could justify
euch discrimination, or the taxation of all
other investments while eXempting state and
municipal bonds. These determinations are
made necessary by the lack of power in Con-
gress to do otherwise.
RALPH T. KEYSER.
New York, April 2s, 1917.