New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1921-09-06
Taxing State Bonds Income
Extent Of Congressional Power Under
Sixteenth Amendment

To the Editor of The Tribune.
Sir: Has Congress the constitutional
power to tax the income from state
bonds?
Article I, Section 2, Of the Constitu
ton provides that direct taxes shall be
apportioned among the several states.
Section 8 of the same article provides
that "The Congress shall have power
to lay and collect taxes, duties, i'm
posts" etc.
Article XVI of the amendments pro-
vides: "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
Nowhere in the instrument itself is
there any express provision limiting
the power Of Congress to tan the in
come from state bonds. Such limita-
ton rests upon an implied prohibition,
arising from judicial Interpretation.
The court has held that Congress can
not so exercise its broad taxing power
as to impair the power of the states to
fully perform their functions. Under
this sound Interpretation it is clear
that tax laid upon the income from
state bonds in such manner as to i'm
pair the states capacity to borrow in
competition with other borrowers
would be unconstitut ional.
Sound common sense, as we'll as wise
legal Interpretation, dictates that Con-
gress ought not to have power to de-
stroy the states or any one of them by
an exercise of the taxing power, re-
CARELESS of the form of words used in
the tax clauses. The principle is of
the very essence of the Constitution
itself, not requiring specific embodi-
ment in words. To preserve the Union
of states the states must be preserved
as we'll as the Union.
Recognizing the soundness of this
principle and the firm foundation upon
which it rests, the question at once
arises: Does the taxation of income
from state bonds involve necessarily
any impairment Of the functions of the
state?
A law taxing the income of the bonds
of the State of New York at 10 per
cent and of other states at per cent
would violate this constitutional prin-
ciple. Again, a law that taxed income
from state bonds at 10 per cent and
general income from other sources at
per cent would be also violation of
this principle. There are doubtless
many other examples of unconstitu-
tlonal ways to tax such income.
On the other hand, there is a con-
sttutional way to do it. If all the in
come from all the bonds of all the
states is taxed at the same rate and
under the same terms as all other in
come, no state suffers any impairment
OF its borrowing capacity. Each state
stands in exactly the same relative
position in bidding for loans as be-
fore any income tax was laid. Other
things being equal, the several states
can borrow on exactly the same terms
as before; so long as the tax law is
Of such a character that it does not,
as matter of actual fact, place any
state in substantially worse position
in the money market. no sound con-
stitutional objection exists.
The present income tax law places
a handicap upon the borrowing ca
pacity of private enterprise, in COM
petition with public extravaganza. 1t
also furnishes a broad field of tax
free investment for the funds Of
favored class.
Congress now has the power to tax
the income from state bonds. 1t is
only necessary to exercise the power
with sound legal discrimination.
HAROLD H. FLOWER.
Deerfield, Mass, Sept. /, 1921.