Evening star., 1937-06-27
BY JOHN c. HENRY.

into current pressure for
tighter tax laws, with conse-
4 quent fewer opportunities for
avoidance Of tax obligations, Senators
Lonergan Of Connecticut and Byrd Of
Virginia have achieved Senate COM
mittee consideration during the last
week Of their efforts to bring two ma
jor classiflcations Of individual income
under Federal revenue laws.
Broadly, the two classifications are:
% Compensation paid to State and
local officials and employees, and (2)
income from Federal, State and
municipal securities.
At the moment the only progress in
attacking these two wide-open avenues
through which millions OF dollars of
potential Federal revenue is escaping
has been the brief hearings under way
before subcommittee of the Senate
Judiciary Committee on constitutional
amendment proposals Of the two Sen
ators named It is the intention of
both. however. to bring the issues to
the Senate floor during consideration
Va ~lldtCNSI lCSLoldtloIl may iCCOll
from the tax avoidance hearings.
Overhauling Seen.
Expectation that q thorough over
hauling Of the tax structure will be
made next Winter upon specific rec
ommenda tions Of the White House
and Treasury Departments should af-
ford even better opportunity for en-
listing support for the two proposals
in the event they make no appreciate
progress this year.
The two issues. although actually
separate ones, have a common legal
background.
To begin with. there is nothing in
the Constitution which expressly pro-
hibits taxation by Federal and State
governments OF the instrumentalities
Of the other. The Supreme Court,
however. has established through a
long line of decisions that such tax
alton would infringe upon the consti-
tutional doctrine of sovereignty Of
Federal and State governments.
The basis for the consistent denial
VI llSllIS W SuAll GdAollOll. bllOS lilo
ing constitutional amendments SEEM
insly necessary. was enunciated first
in 1919 in the case of Mccullough VS..
Maryland. an instance in which the
State attempted to tax the issuance OF
currency by branch Of the Bank of
the United States
Holding that the power to tax
involves the power to destroy" the
court declared that the tax principle
involved. If carried to excess, would
defeat all the ends OF government.
In 1912, the court extended the
same reasoning to apply to salaries OF
Federal employees. refusing to allow
Erie County. Pa. to tax the salary OF
one Capt. Daniel Dobbins of the United
States Revenue Service
In 1870. the court took a consistent
position in converse circumstances OF
the Federal Government attempting to
tax the income Of a Massachusetts,
judge. In its decision on that case
the court made the following clear-cut
statement of its reasoning:
1T Is admitted that there is no ex-
press provision in the Constitution
that prohibits the general government
from taxing the means and instru.
mentalities OF the State. nor is there
any prohibiting the States from taxing
the means and instrumentalities ol
that government. In both cases, the
exemption rests upon necessary i'm.
plications and is upheld by the grea'
law Of self preservation: as any gov
ernment, whose means employed II
conducting its operations Is subjec'
to the control Of another and distinc'
government, can exist only at tn.
mercy Of that government. OF wha'
avail are these means If another power
may tax them at discretion"
There has been a line drawn. how
ever, beyond which his immunity doe
not extend, the distinction being es
tablished between governmental ant
proprietary functions by servants O
the sovereign units.
Some Denied Immunity.
This distinction was made clear II
1905, when the Supreme Court upheld
| . fCQcO2I OCCuk>0tkOIuA IAA OAA o0OAA~
Of the State Of South Carolina dis
pensing liquor under . State dis
pensary system. The courts argu
ment was that the liquor busines
formerly had been a private enter
prise, that 1t had been subject II
taxation by the Government ant
that it WAS q profit-making project, a
far as the State was concerned. Il
other words. 1t was proprietary.
The court followed the same rea
soning in 1884 in connection with
Federal tax applied to the Ohio de
partment of liquor control.
With this question 30 largely on
Of judicial determination, other locs
activities which have been denie
Federal tax immunity include opera