Evening star., 1939-05-16

Wy bAlC OupI C4llC SOuIJ UI CIlC OIllLcO
States. The reason Federal bonds
have not been fully taxable Is be-
cause the market for them would
be unfavorable in comparison with
State and municipal bonds unless
the tax-exempt feature was in
cluded. Therefore, it may be said
that the barrier imposed by the
strong indications in our court de-
cisions is the real reason why both
State and Federal bonds have not
been taxed. There is no question
but that the Federal Government
could declare the future issues of
its bonds to be subject to the in
come tax. The question of whether
or not the Federal Government
might impose its income tax on
State bonds is more difficult from
a legal standpoint. It is my judg-
ment that the recent trend of de-
cisions in the Supreme Court in
dicates that the early minority views
Of men like the late Justice Holmes
and of Justice Brandeis, not to
mention members of the present
court, will prevail as they have pre-
vailed on the public salary tax ques-
ton.
Not Exact Precedent.
The OKeefe case holding the
public salary tax constitutional is
not, legally speaking, an exact prece-
dent for holding a tax on bonds to
be constitutional; but the OKeefe
case Is a strong indication that the
court will consider that subject
favorably. Strange to say since the
adoption of the 10Th amendment
in 1918 there has been no ruling
from the Supreme Court precisely
upon the question involved here.
The court has indicated at various
times that it adhered to the rule
In the famous Pollock case, decided
IN 1896, Notwithstanding the adop-
ton of the 18th amendment in 1913.
The Congress had several times be-
fore that case was decided taxed
the income on governmental bonds;
five times during the Civil War they
imposed such tax. In 1894 it
imposed such tax. The 1894 Act
was declared unconstitutional in
the case referred to. The reasoning
was, that one sovereignty should
not be permitted to tax the instru-
mentalities of another sovereignty
I do not propose to make a legal
argument here, but merely to refer
to the position taken by the court
Basing its reasoning upon the prop
osition advanced by Chief Justice
Marshall in 1919 in the Mccullough
VS.. Maryland case in which he used
the famous phrase, The power to
tax involves the power to destroy >
the court in the Pollock case held
that tax by the Federal Govern
ment on the income of a private
citizen or corporation, derived from
a municipal bond was a tax on the
source and laid such a burden upon
the municipality that it was an un-
constitutional interference by one
sovereignty with another. Each OF
the Civil War Acts and the 1894
Act taxed income from municipal
bonds in common with all other in
comes under phraseology describing
the income as coming from any
other source whatever" In the
Pollock case the Supreme Court
found that income from municipal
bonds were intended by Congress
to be taxable under. that phrase
and, of course, held that such tax
alton was unconstitutional.
Not Only Question.
Immediately thereafter arose the
agitation for the 18th amendment
based largely upon the holding of
the Pollock case that no income
could be taxed unless it was appor-
toned among the several States ac-
cording to population. But that
was not the only question in the
Pollock case. The municipal bond
question was also in it and was de-
cided in it. The income tax amend
ment was fully discussed for many
years and finally adopted in 1918
1t reads:
THE Congress shall have power
to lay and collect taxes on in
comes from whatever source de-
rived without apportionment
among the several States and
without regard to any census or
enumeration"
You will note the similarity be-
tween the phrases in the Civil Wal
Acts and in the 1894 Acts, from any
source whatever" and the phrase
from whatever source derived
contained in the 18th amendment
1t would be supposed that this
plain language would admit of nc
misconstruction. 1t was in sense
identical and in form practically
identical with the prior statutory
language which the court held taxed
municipal bond interest. This view
is heightened by the fact that Chief
Justice Hughes, who was then Gov
ernor of New York. stated in q
message to the New York State
Legislature in 1910, submitting the
18th amendment for ratification OF
rejection, the following:
THE comprehensive words, from
whatever source derived If taken
in their natural sense, would in
clude not only incomes from ordi-
nary real or personal property,
but also incomes derived from
State and municipal securities.
1T is certainly significant that
the words, from whatever source
derived, have been introduced
into the proposed amendment as
If it were the intention to make
it impossible for the claim to be
urged that the income from any
property, even though it consists
of the bonds of the State or of
municipality organized by it,
will be removed from the reach
of the taxing power of the Fed
eral Government.
"The immunity from Federal
taxation that the State and it's
instrumentalities of government
now enjoy is derived not from
any express provision of the Fed
eral Constitution, but from what
has been deemed to be necessary
implication. Who can say that