The abatement in the law of 1894 was

for married couples. $4,000). In the United States the same abatement is allowed on all incomes regardless of their amounts. In England the amount of the abatement decreases as the amount of the income increases. There the largest abatement allowed is £160 ($800) and that only in case the income does not exceed £400 ($2,000). Incomes totalling between £400 and £500 are allowed an abatement of £150; those between £500 and £600, an abatement of £120; and those between £600 and £700, an abatement of £70; but incomes in excess of £700 are allowed no abatement. However, additional allowances are made for life insurance, charity, and hospital expenses, and if a man's income is under £500, he is allowed an additional abatement of £10 for each child under sixteen years.

In Prussia, 900 marks ($214) is exempt, and if a person is assessed for a taxable income of not over 3,000 marks ($714) he is allowed a deduction of 50 marks ($12) for each child under fourteen, or for each relative that he is legally bound to support. In case the income is between 3,000 and 6,500 marks, there is a reduction of one grade if three or four children or relatives have to be supported, and a reduction of two grades if the number is five or more. In Austria the regular abatement is 1,200 crowns ($240); in Italy, 400 lire ($77.20); in New Zealand, £300 ($1,500); in New South Wales, £200 ($1,000); and in Queensland, £200 if the income is entirely from personal exertion. Most of these countries allow some additional abatements, for example, for life insurance, children, or other causes of expense which it is thought should not be discouraged.

As compared with other countries, then, it is evident that our $3,000 abatement is high. It is most frequently criticised as being so high as to make the tax, in effect, a class tax upon the rich, which can be voted by the poor, and a sectional tax upon the East and Northeast, which is voted by the West and Southwest. There is much truth in these criticisms; and a survey of the states and congressmen ranged on the different sides of the amendment and of the new law confirms this statement.

But, notwithstanding this fact, something may be said in justification of the abatement, high as it is. The standard of living is higher in the United States than in most countries; and it is to be noted that abatements elsewhere are highest where the standard of living is highest, namely, in the English colonies. As compared with previous United States income taxes, the differences in

abatements are not so great as they appear; $3,000 has no more purchasing power today than $2,000 had in 1894. The same is true of the Civil War taxes, and these, it should be noted, were emergency measures.

In any consideration of the new income tax, it should be kept in mind that it is a supplementary and not an exclusive source of revenue. According to the Treasury estimates it will not produce half as much as the lowered tariff rates, to say nothing of other taxes. The new tariff schedule, though less objectionable than the former one, may still be considered a class tax which discriminates against consumers, that is, against those with small incomes; hence equity calls for an offsetting class tax upon the rich. There is some truth in the objection that the masses will take little interest in governmental extravagance because they pay none of the new tax, but the same objection applies with almost equal strength to the tariff so far as any practical effects are concerned. Although state and local taxes are paid largely by the middle classes, expenditure seems to be accompanied by about as much extravagance and graft as in the case of federal finances. There are numerous exceptions, particularly in the smaller local units, but in neither case does the individual taxpayer as such have sufficient interest to cause or justify the inconvenience and expense of an effective protest.

If the tax hits the East and particularly New York City especially hard, it is because these are the localities of the large incomes; and they will be able to pay in proportion. Many receivers of large incomes, in fact, the most conspicuous ones, did not live in New York City originally, but moved there because of its advantages as a commercial and financial center, or as a place to spend large incomes. Not only has much of the wealth of this American metropolis been accumulated elsewhere, but a large share of it still comes directly or indirectly from other parts of the country. The same is true of other large centers. These incomes arise from oil, sugar, steel, railroads, and a thousand different forms of wealth which minister to the wants of our 100,000,000 people and which at the same time levy tribute and keep it pouring into the great centers, and particularly into the coffers of the nation's captains of industry.

Such incomes are not local but national in the highest degree and should therefore most appropriately be assessed for national taxes. These centers and their wealthy residents have cause for

satisfaction and thanksgiving that their incomes are so bountiful, and that the country has provided them with such great opportunities, rather than occasion for criticising the requirement of a moderate contribution to the nation which has rendered such incomes possible. To collect taxes on these incomes by apportionment, whether according to population or area, would be manifestly unjust, and it was because of this injustice that the constitutional amendment was necessary.

Without doubt, the desire to level incomes, and the willingness of politicians to cater to the prejudices of the masses have had some part in the demand for the income tax. The movement is a part of the great unrest of the present generation which will produce many radical changes before it has spent itself. But past experience indicates that, though radical in their entirety, they will be brought about very gradually. Formerly the income tax was objected to, no doubt, as being an entering wedge rather than because of its immediate effects. Today opposition to the principle receives little support from any source. If the time shall ever arrive when this tax is the chief or exclusive source of revenue, to make it a class tax upon the rich, which can be increased or decreased at the will of those who do not pay it but who receive the benefits of its expenditure, will be as unjust as the making of any other tax a class tax for the benefit of other classes. But it is doubtful if it would be more unjust, in such a case, than have been tariffs and other taxes from time immemorial.

Another important consideration is the matter of administration. The new law provides for the same abatement upon all individual incomes with only one exception, that is, in case of married couples an additional deduction of $1,000 is permitted. These abatements are high enough so that they may be considered to include the numerous small abatements which other countries allow for children, insurance premiums, hospital expenses, etc. Many varying abatements add much to the complexity of administration.

Furthermore, high abatement, which permits the escape of such a large proportion of the incomes, at the same time permits the avoidance of the assessment of those incomes which involve the most expense in proportion to the revenue obtained. To reach the smallest incomes, indirect taxes are more practicable. A substantial lowering of the abatement would not increase revenue receipts as fast as it would multiply difficulties of assessment and collection.

But most important of all, we have not yet developed adequate assessment machinery. As we collect a mass of data and as we train a corps of expert administrators, the abatement may be lowered and more incomes included, but to do so in the beginning would clog the machinery. The same principle is applicable to the rate. A very high rate will cause much more evasion and often produce less revenue than a low one. Later, after the collection of data and the training of administrators, such evasion, even under higher rates, becomes less probable and possible. From this standpoint, the additional tax rates may be considered rather high to start with, but inasmuch as most incomes liable to this tax will arise from corporate or other sources which are difficult to conceal, this objection will be relatively unimportant.

For reasons such as these it is important to view the new income tax, not as an ideal or perfected system, but as the first step in the introduction of a vast and more or less complex system. As administrative machinery is developed and as it becomes desirable to reduce tariffs still further, it will become more feasible to lower the abatements, to extend and differentiate the applications, and to make the tax a more comprehensive, a more remunerative, and a more equitable revenue producer.

The exemption of interest from United States bonds is in accordance with uniform past policy and consequently tends to uphold and strengthen the present high credit of the national government. To many of the ill-informed who do not understand the capitalization of a tax, such exemption will seem a species of class favoritism; and to avoid this class feeling there is some justification for taxing such incomes. In the long run, it makes little difference to a government whether it taxes its bonds or not, provided it always follows the same practice. The modern tendency is toward taxing them rather than toward exemption as in the past. The exemption of interest from the bonds of the states and minor subdivisions, and also of the compensation of officers and employees of these local governments was made for constitutional reasons, as well as for the sake of comity and political expediency. A line of court decisions from John Marshall down has set up the doctrine that no state has the right to tax the instrumentalities of the federal government, because the power to tax is the power to destroy, and, conversely, that the federal government has not the right to tax the instrumentalities of the state governments. It may require a new decision of the Supreme Court to determine

whether or not the sixteenth amendment set aside the application of this doctrine in part, though Professor Seligman has made out a very strong case for its continued applicability. In this connection it is interesting to note that the institution of the tax apparently, and probably actually, caused an increase in the price of the exempt bonds in November during which month the first collections at the source began. Such a change is in harmony with the theory of capitalization. The justification of the discrimination in favor of the receivers of these various forms of exempted incomes must stand upon political and legal rather than upon economic grounds.

The exemption of the capital value of inheritances from the income tax is a recognition of their taxation by the states and as such tends to promote harmony in the separation of the sources of federal and state revenues.

Of the deductions allowed for expenses in the computing of net incomes, those for losses, depreciation, and worthless debts will doubtless cause much trouble and necessitate many rulings on the part of the Commissioner of Internal Revenue. Though the law says that personal, living, and family expenses shall not be allowable deductions, it leaves open the old and important matter of rental value of residence property. It should have stated definitely that such rental values were to be returned as taxable income; otherwise a renter of a home will be discriminated against and the owner-occupier favored. The owner-occupier of a Fifth Avenue mansion whose rental value is $100,000 would pay no tax on such enjoyable value, while the renter of a similar mansion, or of a tenement, if he has income enough to bring him within the pale of taxation, would pay a tax on what he paid for rent. The ruling that will have to be made on this point may or may not decide it correctly. An improper ruling would probably cause less protest than a proper one.

The provision allowing an individual to deduct corporate dividends from returns for purposes of the normal tax does not prevent the tax from being a discrimination against that particular form of income in case the individual does not have other net income equal to the amount of the $3,000 (or $4,000) abatement. It is true that he does not have to pay the normal tax upon this corporate dividend again (it has been paid once by the corporation);

'Political Science Quarterly, vol. XXV (June, 1910), p. 193.