Income Tax

a direct tax levied by a government upon the income of individuals. As a rule it is collected annually. As a matter of public policy small incomes are exempted. This on the score that the poor have little enough without paying an income tax. The same line of argument that leads to letting off a person of small income altogether prompts the so-called progressive or graduated tax, the rate of which increases as the income increases. As a matter of history it may be stated that an income tax in force in France prior to the French Revolution followed a scale according to which the rate increased as the income diminished. The peasant was required to give up a larger share of his pittance than was taken from the income of the wealthy.

An income tax is common in Europe. England led the way. In 1798 Pitt proposed that all persons having an income in excess of $300 a year pay an income tax to carry on the Napoleonic Wars. The rate was progressive. The schedule started with a tax of $2.50 on an income of $300, and rose to ten per cent of large incomes. This tax was abolished in 1802, but another was levied in its stead. Save for the years when the British government was supported by a corn tax, that is to say, by a tariff on food stuffs for revenue, an income tax has been one of the chief sources of revenue. The present income tax was enacted substantially in 1880. Incomes are divided into five schedules:

Under the British plan the owner of property is taxed, not on his actual income, but on the income he ought to obtain by right management. It is difficult to point out an essential difference between the taxes on property in schedule and a straight American real estate tax. The details of exemption and graduation are interesting, but would not be in place here. The rates vary from year to year. The proposed rate is a prominent feature of the annual budget submitted by the government to Parliament. The lowest rate for 1909 was 3.75 per cent, and the income tax for the United Kingdom, $165,000,000.

As stated, an income tax prevails throughout Europe. Prussia, beginning in 1811, levied a progressive tax of .6 to 4 per cent on incomes in excess of $225. Austria adopted this form of tax in 1812, and now fixes the upper limit at five per cent. Italy, 1906, taxed all incomes above $40 at a uniform rate of 12 per cent. In 1907 France imposed a heavy income tax. The amount exempted is greater per person in the cities than in the villages. The rate is progressive and varies from 3 per cent on labor to 10 per cent on incomes of $100,000 or over. The progressive income tax of Japan rises by leaps to 68 per cent on the few incomes above $50,000.

An income tax has never been popular in the United States. Americans object to making their private affairs known. It is advocated as a means of taxing the rich and letting the poor go free. Advocates of public ownership suggest a heavy progressive confiscatory income tax as a means of driving private persons and corporations out of business. An income tax was proposed in 1812 as a war measure, but did not carry. In 1861 Congress levied a tax of three per cent on all incomes above $800. In 1862 the exemption was reduced to $600 and the tax was placed at 3 per cent on incomes up to $10,000. Larger incomes paid 5 per cent. In 1864 Congress, in straits for money, revised the schedule again. The rates were placed at 5, 7 1/2, and 10 per cent. The incomes were classified at $600-$5,000; $5,000-$10,000; and incomes above $10,000. This tax remained in force until 1872, save that the exemption was raised to $1,000 and later to $2,000. During the Civil War, while the necessities of the government were great, citizens showed no little degree of patriotism. The tax in 1866 yielded nearly $73,000,000. As soon as the crisis was by, a practice of concealment became general; in 1873, the last year of the tax, it yielded but $5,000,000. The Wilson tariff act of 1894 contained an income tax provision which the supreme court in 1895 declared unconstitutional. President Taft advocated an income tax in lieu of an excessive protective tariff.

Massachusetts has carried an income tax law on the statute books since colonial times, but it is a dead letter. In the days following the Civil War, when Virginia was striving to recruit her shattered finances, a uniform income tax of 1 per cent was levied on all incomes above $600. South Carolina has levied a progressive income tax. Salaries of state and federal officials and incomes under $2,500 are exempt. The rate, starting at 1 per cent on an income of $2,500, rises by steps to 3 per cent on incomes of $15,000 or over. The tendency (1910) is toward taxation of incomes.