New-York tribune., 1920-12-12
Notifications Needed in
Present Definition of Income
Changed Conditions in Business Result of De.
faton Necessitate New Method of Detsx..
mining What Is Income, Economist Savs

situation is particularly unjust nna.,
our present system. If complete nsr;
odical revaluations were used in detar
mining income there would still hs
relative equality as between ditferent
taxpayers. But as the situation now
stands, the transactions are closed IN
haphazard and uneven fashion
man who happens to sell out A. ~
peak of the price curves is taxed d v.re .rc
unequally IS compared with the ma.
who continues his transaction unt;i
period of lower price levels.
Appreciations in Value
It should also be borne in mind t,..
this element is of some influence evsn
IN an income tax such as that in forca
IN Great Britain, where appreciations
III property values are not taxed. f.,
an item OF inventory included in ones
accounts at the beginning of the veo.
and sold in the course Of the wear sTi w,,l
reflect the change in the prices dnr;rn
The period held.
II 1t were possible to modify n.
concept Of taxab income 50 as t,cl,,nS
mate this variation It would certs;nIv
be desirable to do So The prosnsc,
for a complete so ution of the difcnit,
pointed out, however. is Identical wiz
the prospect for perfect monstarv
standard. But an approximate solution
might be realized if we were able to
evolve satisfactory index of the level
OF prices. II we knew accurately what
the change IN price IN g ven year hac
been 1t might be possible to qualify
the results shown by comparison ~
the balance sheets for the beginning
and the end of the period in such
way as to eliminate the influence Of
the changing standard. But even this
refinement is not likely TO be intro
duced soon. Indeed, the desirabilitv
and urgency of Its introduction are de-
pendent largely upon the complete se-
luton of the accounting problem.
which solution is certainly uAt immi-
nent.
Accounting Practice Emperfections
Until such time as every one keeps
accounts and the accounts furnish q
perfect record Of every ones economic
position the concept of taxable income
must De modified in order to meet the
problem presented by the shortcomings
of accounting practice. Dozens of IT,
lustrations of how the concept Is mod-
fled in our statute because Of the ncccs-
sity of allowing for the imperfections
and incompleteness of accounts will
occur to every one.
While the accounting ideal as sisted
by the leading theorists in the sc-
counting field is in entire harmony
with the economic analysis, It should
be pointed out that many so-called ac-
counting principles which are generally
accepted are little more than rules Of
action formulated during an obsolete
period, when the use Of accounts for
1~;o
the chief PURPOSES of the accounts
were to provide basis for apnica-
tions for credit and for the distribu-
tion of dividends rules which tended
toward a conservative statement Of
profits were certainly full Of virtue.
The increase in the tax burden has
added a new primary USE for the ac-
counts use which demands certain
qualities which are not important in
the other cases.
To form an entirely satisfactory
basis for the imposition Of income
taxes the accounts must reflect the full,
true economic position Of the tax
payer. and in Sc f~i as arbitrary rules
of inventory valuations operate to
build up hidden reserves or other ac-
counting practices tend to befog the
picture they must ultimately be elm
truly scientific accounting.
Administration Tmperfections
A lively regard for the limitations o.
the administration is essential to the
successful formulation of tax stat
ute. This is factor which ws
have failed to recognize sufficiently In
this country Many of the modifca-
tions which our statute makes in the
concept of income are obviously de-
signed to simplify the problem Of ad-
ministration, but in spite of the num-
ber and character of these modifca-
tions there appears to be grave ques-
tion as to whether they have suf-
ficient to reduce the administrative
task to manageable proportions. The
British. with their splendid civil serv-
ice, are appalled, at the burden we place
upon our inadequate Treasury staff.
Certainly such changes in the abstract
definition Of income as are necessary
to make the statute practical and
workable must be accepted, provided
the cost in terms Of inequity is not 60
great as to make some available alter
native tax q more attractive method OF
raising the revenue
In addition to notifications on the
above grounds, notifications Of two
additional types are often urged Those
who are convinced that taxation should
be used for the furtherance Of SOCIAL
ends often demand special modifica-
tions. For example, those who sre
deeply impressed with the desirability
of increasing the amount Of economic
capital demand special treatment Of the
individual surplus of corporations, or
reCuced surtax rates upon that portion
Of individual incomes which are saved
and reinvested. There are others who
on social grounds believe in diff
ferentiation between earned and un-
earned income.
(The foregoing article is based on
an address by Professor Haig,
achich started discussions last week
at a tar conference held at Column
b;a University under the auspices Of
the Institute Of Arts and Sciences.
The discussions wiu be continued on
Monday, Tuesday, Thursday on6
Friday evenings of this week.-Fs~
,aancidl Editor.)