While this sentiment must be respected, yet the real issue is not to be shirked. What is the best tax system? That is the real question. Is our present individualistic, helter skelter system as good as the proposed coöperative system? Local self-government has gone to seed in many places, not omitting New England. The federal government already has prescribed rules for taxing national banks. The states follow these rules. In like manner the federal government could wisely establish rules for, or do the actual work of assessing incomes, interstate commerce, and other forms of business enterprise. In this matter we should be governed by the wider questions of cost and efficiency, rather than by any doctrinaire principles of states' rights. The danger lies on the side of too much decentralization of the assessing power. The taxing power-the vital thing— will in any event remain exactly where it is now. Hence the cry to "save the local assessor" is a belated cry. It is an administrative reform we seek, not a legislative reform.

4. Future Development

The ideal method of assessing property would have a minimum of arbitrary procedure. Exact mathematical formulas in determining values are desirable but unattainable. But progress must be towards the use of rules which are simple and applicable, and machinery which combines simplicity with low cost and high efficiency. This means no duplication and much coöperation. This means precision and publicity.

Coöperation in assessment and collection of taxes, as outlined in the preceding pages, will lead to a division of the field of taxation, a division based on administrative experience, not on preconceived theory. It will also lead, it is hoped, to a business-like coördination of the federal administrative machinery itself, which is now represented by the following organs and functions: the interstate commerce commission which is now gathering and publishing facts regarding the values of our greater public utilities; the bureau of the census in the department of manufactures; the bureau of statistics in the department of agriculture which collects and publishes statistics concerning crop values; the treasury department which determines the size of incomes and administers the federal income tax.

THE WISCONSIN INCOME TAX

BY KOSSUTH KENT KENNAN, LL.D.,

Attorney at Law, Milwaukee, Wisconsin.

Prior to 1912, the history of state income taxes in this country failed to disclose a single instance in which the tax had been successful as a revenue producer or had justified itself as a practical or desirable method of taxation. No one can peruse Dr. Kinsman's excellent monograph on the Income Tax in American Commonwealths without being struck by the uniformly meagre and unsatisfactory results obtained. Of all the states Virginia has probably had the largest experience with income taxes, yet the amount raised annually in that state for the past twenty years will average far below $100,000. This, too, in spite of the fact that the state has taxed incomes for nearly three-quarters of a century and that during that period nearly every known form of income taxation has been tried.

In the face of these experiences it is somewhat remarkable that the people of Wisconsin should suddenly—and apparently spontaneously-reach the conclusion that a state income tax was necessary and desirable.

History. In 1903 a joint resolution to amend the constitution so as to authorize the levy of an income tax was introduced in the legislature and was passed in both houses with but one dissenting vote. Both political parties favored the amendment in their platforms, but there was no discussion of the subject and it seemed to be taken for granted by the politicians that the theory of income taxation was one of those things which could be safely advocated without any danger of its ever going into actual operation. The first amendment proved abortive owing to a technical defect in the required notice of election. In 1905 the resolution was again introduced and passed with but little debate, the proposed amendment being as follows:

"Taxes may also be imposed on incomes, privileges and occupations, which taxes may be graduated and progressive and reasonable exemptions may be provided."

When the amendment came up for legislative ratification in 1907 there was only one vote against it and, when put to the test of popular vote in 1908, it was carried by the decisive majority of 85,696 to 37,729.

A first draft of a state income tax law was introduced at the legislative session of 1909. A "recess committee" of three senators and four assemblymen was appointed to investigate the subject and report in two years to the next session. This committee held public meetings in all the larger cities of the state and invited discussion, suggestions and criticism from all possible sources. When the bill reached the legislature in 1911, the first real opposition to the measure made itself felt. Upwards of sixty amendments were proposed,many of them of such an absurd character as to indicate that they were made solely to defeat the law. Toward the end of the session the need of expert assistance was felt and Dr. Kinsman was engaged to redraft the bill while the members of the tax commission rendered valuable assistance.

The Wisconsin income tax law was passed in June of the year 1911 and by its terms was made to apply to all income earned in that year. In the suit which was immediately brought in the state supreme court to test the constitutionality of the law, a great many points were raised against the validity of the act, and the case was argued by lawyers of learning and ability. The court, in its opinion sustaining the law, said:

By this Act the legislature has, in substance, declared that the state's system of taxation shall be changed from a system of uniform taxation of property (which so far as personal property is concerned has proven a failure) to a system which shall be a combination of two ideas, namely, taxation of persons progressively, according to ability to pay, and taxation of real property uniformly, according to value.

The Wisconsin income tax act is quite lengthy and only a few of its more salient features can be mentioned.

Income. The law begins with the usual futile attempt to define income. For example, it provides that the term "income" shall include rent, interest, wages, dividends, profits and royalties "and all other income (!) of any kind derived from any source whatever except as hereinafter exempted."

The inclusion under the head of income of "the estimated rental of residence property occupied by the owner thereof" has been the cause of much complaint. There seems to be a considerable class

of people whose mental processes are not quite equal to the task of understanding this requirement.

Deductions. The usual deductions for business expenses, losses, dividends, interest paid on indebtedness, interest from exempt bonds, salaries of federal officials, and pensions are allowed. Amounts paid for taxes may also be deducted but only such as are paid upon the property which produced the income. In other words the taxes paid on unproductive property, cannot be deducted from gross income. Moneys received from life insurance by persons legally dependent on the deceased are exempt up to $10,000.

Exemptions. The exemptions consist of: $800 for a single person; $1,200 for husband and wife; $200 for each child under eighteen years of age; $200 for each dependent.

These exemptions apply only to individuals who are residents of the state. Non-residents and corporations are required to pay the tax on their whole net income arising from sources within the state.

Rates. The scale of rates for individuals is progressive from one to six per cent, the latter figure being the maximum. While the increase in percentage of rate is accelerated with the progression, the basis of taxable income to which the rate applies advances uniformly by steps of $1,000. This may be illustrated by the following table:

These rates are not as high as they may seem at first glance. For example, although the rate prescribed for the twelfth thousand is 5 per cent, the amount of tax to be paid on $12,000 would be $355, or 2.9582 per cent of that sum. The point at which the maximum rate is reached corresponds closely with that at which it is attained in a number of foreign countries. For example, the average amount of taxable income at which the maximum rate is reached in Prussia, Saxony, Norway, Sweden, Denmark, England and six of her colonial possessions is $14,390.

The rates for corporations are, at the beginning, practically double those for individuals and the maximum rate of six per cent is reached with the seventh thousand of taxable income. As in the case of individuals, the grades or steps of taxable income are uniform at $1,000 each and the rate advances from 2 per cent to the first $1,000 to 24 for the second, 3 for the third, 3 for the fourth, 4 for the fifth, 5 for the sixth and 6 for all above $6,000.

This scale of rates was adopted by the legislature of 1913 as a substitute for a scheme contained in the original law which attempted to adjust the rates according to the proportion which the net income bore to the assessed value of the property used in producing the income. The original plan was found to be impracticable and to some extent inequitable. During the year it was in force it was found that the average rate paid by individuals was 1.96 per cent while the average for corporations was 5.4 per cent. Under the present law a corporation would need to have a taxable income of $30,000 before the last mentioned rate would be reached; but that sum is more than six times the average corporate taxable net income.

Penalties. The severest of the penalties are those prescribed for the violation of the secrecy of returns. They include fines of not less than one hundred nor more than five hundred dollars, imprisonment in the county jail from one to six months and imprisonment in the state prison for not more than two years, in the discretion of the court.

For failure to make returns, or intentionally false or fraudulent returns the penalties are a fine not to exceed five hundred dollars, or imprisonment not to exceed one year, or both in the discretion of the court. In addition authority is given to double the amount of the omitted tax and this is the only penalty which has thus far been enforced. A somewhat curious provision is that which makes