New-York tribune., 1920-12-12
By DR.. Robert Murray Haig

By DR.. Robert Murray Haig
Professor Of Economics, Columbia
University
THIS is practical, workaday world,
full Of imperfecticns. Most econo-
mists. popular superstition to the
contrary, Notwithstanding, are fairly
conversant with the facts Of modern
business life and fairly we'll aware
Of the practical difficulties Of fit
ting abstract conceptions to the
environment Of the market place.
Certainly odifications-serious modi-
fications-must be made In the
general definition Of income. as
formulated by economists, to fit it for
use as the item OF not income entered
on Form 1O40 or Form 1920, and the
scientific economist in advising the
legislator would be the last to suggest
an attempt to follow the implications
Of his analysis without regard to the
LIMITATIONS imposed by the actual con-
ditions under which the law must
function. Such course would be any
thing but scientific.
The point to be grasped very clearly,
however, is this: Those notifications
to which he would consent and which,
indeed, he Is among the first to urge,
are merely notifications, merely con-
cessions made to the exigencies OF q
given situation. For example, one
might urge that no tax be placed on
gain arising from the appreciation
of fixed asset until it is actually
sold. But the recommendation should
not be urged on the ground that the
appreciation Is not income until it is
sold. The economic fact is that the
owner Of that asset comes into pos
the increase in the value Of that asset
is sufficient In amount and definite
enough in character to be susceptible
OF precise evaluation in terms Of
money.
Again, one might urge that no tax
be placed on the services which one
actually enjoys when he lives in his
own home rather than a rented one.
But, again, that recommendation should
net be supported by the assertion tAa.
this item is not income. 1t is income
whenever IL is buSCcptiUAS Va O"@iu
ton in terms Of money. Neither the
economist nor the courts should be
asked TO say that it is not income.
That is not the real question In either
of the illustrations given.
Item Of Income
The real question is, rather, is 1t
justifiable to treat this item Of income
in some special. wa. as compared with
other items of income because of spe-
cial circumstances surrounding It's re-
ceipt? Thus it is futile and silly, from
an administrative point of view. to at
tempt to include in the income tax re-
turn q money estimate of the income
which the man receives when he lives in
his own house. The Wisconsin authori-
ties, after attempting to list such in
come for several years, have decided
that the game is not worth the candle.
To the writer it seems unfortunate
that the question as TO- the constitu-
tionality of the Federal income tax on
specific items is turning 80 largely on
the question as to whether the items
are or are not income. The items most
controverted certainly eall within the
definition Of income established by the
analysis Of business facts made by both
the economist and the accountant.
Moreover, the concept Of income is,
after all, essentially an economic con-
cept, and if the legal concept estab-
lshed by court Interpretation under a
particular constitutional provision or
amendment departs in very funda-
mental fashion from the economic con-
cept, injustices may arise of such mag
nitude as to necessitate either the aban-
donment of the income tax or the adop-
tlon of a constitutional amendment
. wi oily
hensive definition of income
The difficulty could be avoided If the
broad economic concept of income were
frankl. accepted with its single test as
to whether the item resulted in an i'm
provement in economic power capable
Of being evaluated. The oues ions
which the courts would then be called
upon to consider would be as to whether
the notifications made by Congress and
by the Treasury, in attempting to con-
struct a concept of taxable income
proximately just, are notifications
which are reasonable and in conform
ity with the various constitutional
guarantees.
True Net Income
1t goes without saying that taxable
income under an income tax law should
.-HPA S"A1'i$~SS - AC@AL5 do NT8CClCaHle
the true net income as defined by the
analysis of the economist and the ac-
countant. How close an approximation
IS possible depends upon the perfec-
tion of the environment in which the
tax must live. No unnecessary de-
parture from the true concept should
be made. The mperfections of our
present economic environment which
are of most significance to this prob
lem fall into three classes:
The imperfections Of the economic
standard of value.
The imperfections VI accounting
practice
The imperfections Of the administra-
ton.
A perfect income tax is attainable
only when no notifications need be
made because of imperfections in our
standard value, our accounting and
our administration. These classes will
be taken up in turn.
Economic Standard of Value
That variations occur from time to
tine in the price level and in the value
Of money Is we'll known to every per-
son whose resources during recent