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63d OoNQKKss\ aTrM4T>i? f Document 
 
 1st Sesmn / SENATE | ^^^ ^^^ 
 
 THE INCOME TAX 
 
 OPINIONS 
 
 OF 
 
 HON. JOHN K. SHIELDS 
 
 OF TENNESSEE' 
 
 HON. CORDELL HULL 
 
 OF TENNESSEE " 
 
 AND 
 
 THURLOW M. GORDON 
 
 SPECIAL ASSISTANT TO THE 
 ATTORNEY GENERAL 
 
 ON THE PROPOSED INCOME-TAX PROVISION OF 
 THE PENDING TARIFF BILL 
 
 PRESENTED BY MR. WILLIAMS 
 August 26, 1913.— Ordered to be printed 
 
 WASHINGTON 
 1913 
 
A>^E^-o^l 
 
THE INCOME TAX. 
 
 Memorandum Peepaked by Kepresentative HxnLL, of Tennessee, 
 
 August 5, 1913. 
 
 The amendment proposed by Senator Root on July 18, 1913, is 
 based upon the theorjr that the proposed income-tax law can not 
 reach for taxation any income accruing prior to the date of its taking 
 effect, which was required to be taxed under the rule of apportion- 
 ment under the decision in the Pollock case, even though such 
 income accrued subsequent to the ratification and promulgation of the 
 income-tax amendment to the Constitution. The essence of this 
 contention is that within the meaning of the proposed tax law the 
 tax is limited to the particular income as a specific fund out of which 
 the tax is to be taken, and also that such income becomes principal 
 whenever received, and that principal, therefore, can only be reached 
 for taxation by apportionment, notwithstanding the effect of the 
 recent amendment and the usual method of levying and measuring 
 income taxes by the rule of uniformity as embraced in the proposed 
 law and in former laws and practices of the United States Govern- 
 ment. 
 
 Prior to the Pollock decision Congress had exercised the broadest 
 power to impose the tax on incomes by the rule of uniformity, from 
 whatsoever source derived. The great question raised in the Pollock 
 case did not go to the power of Congress to impose the tax, but to the 
 question of whether the power had been exercised according to the 
 method prescribed by the Constitution — that is to say, whether a 
 power to tax, limited only by one exception and two qualifications, 
 was being used according to the restrictions as to the method pre- 
 scribed for its exercise. The Pollock decision held that only certain 
 classes of incomes were excise taxes and as such leviable by the rule 
 of uniformity, while certain other classes, viz, rent of real estate, and 
 incomes derived from invested personality, were of such a nature that 
 a tax laid upon the same constituted a direct tax, and which must fall 
 under the rule of apportionment. Prior to this decision the policy 
 of the Government and the decisions of the courts were to the effect 
 that all taxes upon incomes being considered excise taxes might be 
 levied under the rule of uniformity and might be measured by the 
 income accruiag during the preceding year or preceding years. 
 
 The income-tax act of August 5, 1861, provided that the tax should 
 be assessed "upon the annual income for the year preceding the 
 1st of January, 1862," thus including the income that had accrued 
 during the seven months next preceding the passage of the law. The 
 act of July 14, 1862, required the tax to be imposed upon the income 
 that had accrued during the previous six and one-half months of that 
 year prior to the date of the passage of the act. 
 
4 THE INCOME TAX. 
 
 The English act of June 28, 1853, hkewise applied to all income 
 accruing from the 5th day of the preceding April. 
 
 In the case of Stockdale v. Insurance Co. (20 Wal., 331) the Supreme 
 Court said: 
 
 The right of Congress to have imposed this tax by a new statute, although the 
 measure of it was governed by the income of the past years, can not be doubted; much 
 less can it be doubted that it could impose such a tax on the income of the current year, 
 though part of that year had elapsed when the statute was passed. The joint resolution 
 of July 4, 1864, imposed a tax of 5 per cent on all income of the preceding year, 
 although one tax on it had already been paid; and no one doubted the validity of the 
 act or attempted to resist it. 
 
 The soundness of this language was later sustained in the case of 
 Patton V. Brady (104 U. S., 608). 
 
 In the case of Maine v. Grand Trunk Ry. (142 U. S., 217-229) the 
 Supreme Court suggested that income for one year might properly be 
 taken for the measure of all future years. 
 
 Again — 
 
 unless the Constitution prohibits retrospective legislation, the basis of the assessment 
 of taxes may as lawfully be retrospective as the reverse; that is to say, it may as well 
 have regard to benefits theretofore received as to those that may be assessed thereafter. 
 (Cooley on Taxation, 3d Ed., 492.) 
 
 Retrospective legislation is not prohibited. 
 
 In Drexel So Co. v. Commonwealth (46 Pa. St., 31, at p. 40) the 
 Supreme Court saiid: 
 
 It is clearly constitutional as well as expedient in levying a tax upon profits or 
 income to take as a measure of taxation the profits or income of the preceding year. 
 To tax is legal, and to assume as a standard the transactions immediately prior is cer- 
 tainly not unreasonable. 
 
 Additional authorities might be cited to the same effect. As stated, 
 these authorities only had m mind the imposition of an income tax 
 as an excise or indirect tax by the rule of uniformity, whereas it should 
 be borne in niind that under the Pollock decision incomes from rent of 
 real estate and invested personalty are direct taxes, and until the 
 ratification of the recent amendment could only be levied by appor- 
 tionment. The recent amendment, however, provided that Congress 
 might impose a tax on incomes without apportionment, whether con- 
 sidered as direct or indirect taxes. It is evident, therefore, that in so 
 doing the rule of uniformity must govern. The question then arises 
 as to whether Congress may thus impose a tax upon all incomes from 
 whatever source derived, whether considered direct or indirect taxes, 
 in the same manner in all essential respects that it had, previous to 
 the Pollock decision, imposed the tax upon incomes as an excise and 
 under the rule of uniformity. If so, it necessarily follows that the tax 
 may be measured by all income accruing from and after the ratifica- 
 tion of the constitutional amendment. 
 
 Does not the very nature and purpose of a tax on incomes accord 
 with the foregoing view ? In the broad and usual sense of tax laws 
 the Government, for example, might impose a tax upon property 
 according to its value by a direct and specific levy upon the property 
 itself, and in concrete form, either real or personal ; this would be done 
 by apportionment; or if it was sought to impose a capitation tax, 
 which is one upon the person solely, without any reference to his prop- 
 erty, real or personal, this would be effected by apportionment, while, 
 
THE INCOME TAX. 5 
 
 upon the other hand, a tax laid upon any business, or franchise, or 
 employment, or income would fall under the rule of uniformity. 
 
 The Pollock decision held the income tax invalid not on the ground 
 tha,t income could become capital and escape the tax, but on account 
 of its origin; that it was, in effect, a tax on realty and personalty. 
 The only proper inquiry in the light of the recent amendment, there- 
 fore, is not as to the origin or disposition of the income in question, 
 but what amount of income accrued to a taxable individual during a 
 given period. It must follow that the account of annual income 
 required of a citizen is for the purpose solely of ascertaining what 
 amount of tax ought to be imposed upon him in consequence of his 
 having made profits and collected by the Government not necessarily 
 out of the specific income in question but from the general property 
 of the taxpayer as well. (61 North Carolina, 87.) 
 
 This view refutes the theory both that income may become prin- 
 cipal, and thereby escape taxation, and also the objection as to retro- 
 spective legislation. 
 
 In the language of the Supreme Court (8 Wal., 234) : 
 
 The tax is payable by the person because of Ms income, according to its amount and 
 without reference to the way in which it was obtained. 
 
 The proposed measure would require no act of the citizen until the 
 1st of January next. It would assess and coUect a tax off the indi- 
 vidual during next year. Until the 1st day of January the citizen 
 could not balance off against his gross profits his losses, expenses, etc., 
 and ascertain his net income for the preceding year. Until the close 
 of the year the citizen could not know whether his income would be 
 absorbed by losses, expenses, etc., or otherwise disposed of without 
 even being received, nor in fact could he know whether he would have 
 any net income until he had balanced his receipts and expenditures 
 after the end of the year. Within the meaning of the proposed tax 
 the cumulating items of profit must necessarily remain in abeyance 
 until the expenditures for the year are deducted therefrom at the end 
 of the year before it could be known whether there was any sum 
 remaining that would or could become capital. 
 
 The framers of the Constitution prescribed two great classes of 
 taxes. The sole practical basis for this division related to the method 
 of their imposition, viz, those that were to be apportioned were 
 called direct taxes, while those to be levied by the rule of uniformity 
 were called indirect taxes. No court has ever inquired whether a 
 tax is direct or indirect except for the purpose of determining whether 
 it shall be levied under the one or the other rule just stated. Income 
 from real estate and invested personalty is now as fully exposed to 
 the taxing power of the Government under the rule of uniformity as 
 is income from trades, professions, etc. The inquiry is not whether 
 profits from any source are property, but are they income. If so, 
 they are taxable. 
 
 "Hie Pollock decision held that as to certain classes such profits 
 were property and not income; but the recent amendment, in its 
 necessary effect, revoked this doctrine and said they shall be treated 
 as any other kind of income for the purpose of an income tax. 
 
 Under the proposed measure income is both the subject and the 
 measurement of the tax. The recent amendment gives Congress the 
 
6 THE INCOME TAX. 
 
 power to tax all classes of income without apportionment. Cer- 
 tainly, then, Congress may measure the tax by the same income. 
 The Supremo Court has held that where the power to lay a tax exists 
 it may be measured by the income from property not in itself taxable. 
 (Flint V. Stone Tracy Co., 220 U. S., 107; U. S. Express Co. v. Minn., 
 223 U. S., 335.) 
 
 The constitutional amendment simply exempts the entire tax to 
 which it relates from the rule of apportionment. It then becomes 
 utterly immaterial to inquire whether the tax is direct or indirect or 
 as to the origin or source of the income or its disposition — -the only 
 inquiry pertment and necessary is. What amount of net income 
 accrued to an individual during a given taxing period ? The tax is 
 thereupon measured by the same and collected out of his general 
 property. 
 
 From any viewpoint it must be agreed that Congress would impose 
 a tax with respect to the annual net income of the citizen, and the tax 
 to be measured by such income, whether the same or parts thereof be 
 considered property or otherwise. Had the recent amendment been a 
 part of the Constitution when the Pollock case was decided there is no 
 reason to suppose that even for the purpose of income taxation any 
 class of income would have been held to be property in the taxing sense 
 whatever its character or nature may have been considered in other 
 senses. Before the recent amendment the direct tax was considered 
 a tax in terms on property, real or personal, whereas all other taxes 
 related to businesses, privileges, franchises, etc., though measured by 
 different methods. 
 
 These latter taxes are taken from the general property of the 
 citizen, just as the former, though not imposed in terms thereon. 
 The recent amendment simply transferred certain categories of 
 income from one of the great clases of taxes to the other, to all intents 
 and purposes if not in name. This transfer makes all incomes con- 
 form to the tax-meaning definition of the same as prescribed by all 
 the courts, text writers, commentators on the Constitution, and acts 
 of Congress prior to the Pollock decision. 
 
 Income has been defined as "the gain which proceeds from labor, 
 business, or property of any kind; the profits of commerce or business." 
 (44 Pa. St., 347; 42 L. A., 428; 28 L. R. A., 48.) 
 
 Also an income tax is defined as " a tax which relates to the product 
 or income from property or from business pursuits." (60 Ga., 93; 
 30 S. W., 973.) 
 
 It is a tax upon a person in respect of his income imposed in con- 
 sideration of the amount of his net profits. 
 
 A tax on the yearly profits arising from property, professions, trades, and offices. 
 (Black's Law Dictionary.) 
 
 One which relates to the product or income from property or business pursuits. 
 (97 Ky., WM; 30 S. W., 973.) 
 
 Under the general property laws of the States the taxable status 
 of property, real and personal, relates to the date fixed by law for 
 its assessment. The assessment, when later made, must fix its value 
 as of this date. This may be any day during a taxable year. (141 
 Ind., 159; 109 Fed., 726.) 
 
 An income tax is assessed and collected during the year subsequent 
 to the accrual of the income returned and by vmich the tax is meas- 
 
THE INCOME TAX. 7 
 
 ured. Under a tax imposed with respect to net incomes the citizen 
 may be required to return for the purpose oi the measurement of the 
 tax either his income for the preceding year, or his average income 
 for a designated number of preceding years, or his estimated income 
 for the current year. This view is sustained by previous citations 
 herein. 
 
 It therefore follows that Congress at least during any period of 
 the present year may impose and collect a tax on all incomes accruing 
 subsequent to the promulgation of the recent constitutional amend- 
 ment, and it is strongly probable that the constitutional amendment 
 had the effect to empower Congress to measure the tax by aU income 
 accruing from the 1st day of January last. The power to impose 
 the tax has existed during the entire year, and there has been no 
 impediment to its imposition under the rule of uniformity during 
 most of the year, and under the weight of authority in the States, 
 together with the construction placed upon the National Constitution 
 by the Supreme Court in the Legal Tender and other cases, no reason 
 appears why the tax now proposed could and should not be measured 
 by the income accruing from the first of the year. 
 
 Such latter provision would provide for the doing of no act prior 
 to December 31 next which would otherwise have been done by the 
 citizen; it would undo nothing, it would neither talce away nor impair 
 any vested right. (4 Nevada, 313.) 
 
 The language o£ a constit "tional amendment sho; Id be read in connection with the 
 known condition of affairs o' t of which the occasion for its adoption may have arisen, 
 and then constr ed if there be therein any do btf 1 expressions, in a way,. so far as 
 is reasonably possible, to forward the known p rpose or object for which the amend- 
 ment was adopted. (Maxwell v. Dow, 176 U. S., 581.) 
 
 Department of Justice, 
 Office of the Attorney General, 
 
 Washington, D. C, August 6, 1913. 
 Hon. F. M. Simmons, 
 
 United States Senate. 
 My Dear Senator: Replying to your letter of July 30, in which 
 you inclose an amendment offered by Senator Root to the income 
 section of House bill 3321, together with his remarks at the time 
 of its introduction, and asking for my views with reference to the 
 Senator's contention, permit me to say : 
 
 I am sending you two separate memorandums, one which Con- 
 gressman Hull very kindly prepared upon my request, and the other 
 prepared by one of the assistants in the department. I hope they 
 will answer your demands. 
 
 It seems to me that the Senator's proposition is not well founded. 
 The practice in the past, the necessity for moving along practical 
 lines with respect to tax matters, together with the other suggestions 
 contained in the inclosed memorandums, are adequate to overthrow 
 his contention. 
 
 With best wishes, faithfully, yours, 
 
 J. C. McReynolds, 
 
 Attorney General. 
 
5 the income tax. 
 
 Re Mr. Root's Proposal to Amend Income-Tax Law. 
 
 [Memorandum for the Attorney General by T. M. Gordon, July 31, 1913.] 
 
 Mr. Root suggests that the income-tax law must be amended to 
 operate only from the date of passage. His theory is that income, 
 once accrued, becomes principal. Hence there can be no such thing 
 as an "income tax" on past income. Such a tax is a tax on principal, 
 a direct tax, still requiring apportionment, despite the fifteenth 
 amendment. I do not agree with Mr. Root. 
 
 The whole question turns upon what the words "taxes upon in- 
 comes from whatever source derived" mean as used in the six- 
 teenth amendment. 
 
 An income tax is sui generis. It is a legal fiction, a purely meta- 
 physical conception, very difficult to define or classify. It seems to 
 me, however, that it must be treated in a practical sort of way, and 
 that the definition which Mr. Root's argument assumes builds up 
 an unduly elaborate legal fiction, unwarranted by authority and very 
 unfortunate in its results. 
 
 Of course Mr, Root can not have in mind that a tax to be an 
 income tax must actually be collected, or even assessed, before 
 income ceases to be income. Such a requirement would be wholly 
 impossible to comply with. For example, such a requirement would 
 render it improper to assess the tax upon income for the preceding 
 year, as is done by this law, and as is the universal custom of income- 
 tax laws both in this country and in England 
 
 Apparently Mr, Root does assume, however, that a tax can not be 
 a "tax upon income" unless the law levying the tax is in active oper- 
 ation at the precise instant that the income accrues, so that it may 
 then seize upon the income constructively; i e , in legal fiction. The 
 law is conceived as a sort of invisible net interposed between the indi- 
 vidual and his source of income The Federal 1 per cent is caught, 
 branded, and turned loose again, as it were, to be counted and collected 
 at a later day by the assessor. Of couree physical analogies can not 
 express precisely how the legal fiction solves such difficulties as the 
 fact that any individual's yearly income can not be known till the end 
 of the year, or the situation of the merchant who may gain in one 
 transaction and lose in the next; nevertheless it must be admitted 
 that such a conception of a tax on income, though very refined and 
 metaphysical, is intellectually possible 
 
 I do not think, however, that usage, as evidenced by prior laws 
 upon the subject and by judicial decisions, has ever restricted the 
 meaning of the words to tax laws which might be conceived to oper- 
 ate in such a fashion. 
 
 I. First, as to the word "income," I do not think that word neces- 
 sarily implies a specific fund from which the tax must be taken. A 
 man who possessed no vested right to anything might properly say, 
 "My present income is |5,000 a year." If that is his "present in^ 
 come," why may he not be taxed upon it? 
 
 II. Thai leads to the significance of the word "upon." This word is 
 used in such a wide variety of ways that it is very difficult to define 
 exactly what we do mean when we say a tax "upon" anything. 
 Taxes, generally speaking, are really contributions from person^, who 
 are classified for tax purposes with reference to various character- 
 
THE INCOME TAX. V 
 
 istics, as ownership of land, carrying on a certain kind of business, etc. 
 The factor or factors with reference to which individuals are classified 
 is usually said to be the thing "upon" which the tax is levied, m 
 Harvard Law Review, pp. 41-42.) Thus Mr. Kennan, in his recent 
 book on Income Taxation, defines an income tax as "a tax the amount of 
 which is determined with reference to the income of the taxpayer" 
 (p. 9). . In other words, "upon" usually means "with reference to," 
 or "based upon," or "measured hy." And an income tax is a tax 
 based upon income or measured by income, not carved out of a 
 specific fund of income. 
 
 In this sense a tax can be "upon" a thing which a person no 
 longer owns or a state of things which has now ceased to exist. As 
 Mr. Cooley says (Cooley, Taxation (3d Ed.), pp. 492, 493, 494): 
 
 Unless the Constitution prohibits retrospective legislation the basis of an assess- 
 ment of taxes may as lawfully be retrospective as the reverse; that is to say, it may 
 as well have regard to benefits theretofore received as to those which may be assessed 
 thereafter. (Locke v. New Orleans, 4 Wall., 172, p. 492.) 
 
 * * * Nor in apportioning the tax between individuals is there any valid objec- 
 tion to making it on consideration of a state of things that may now have come to 
 an end; as where a tax is imposed on the extent of one's business for the preceding year 
 instead of upon an estimate of the business for the year to come. Drexell v. Common- 
 wealth, 46 Pa. St., 31. (People v. Gold Co., 92 N. Y., 383.) * * * One may 
 be taxed upon property which he has long ceased to own when the tax is levied (pp. 
 493-494). 
 
 Locke V. New Orleans (4 Wall., 172), cited supra, held a State 
 statute imposing an additional tax on property according to the 
 assessment for the previous year, and also according to the assess- 
 ment for the year before that, but not exceeding the tax already 
 imposed according to those assessments, was constitutional. 
 
 Drexell v. Commonwealth (46 Pa. St., 31), also relied on by Mr. 
 Cooley, related to an income tax. The court said (p. 40): 
 
 This act clearly intended to levy a tax of 3 per cent on the profits or income of the 
 business, and was not meant to tax capital. Profits must necessarily be the net profits 
 of the business, and the Commonwealth was to receive of them 3 per cent. It was 
 in fact a tax upon the income of the business in which the defendants were engaged. 
 The English income tax and the United States income tax are based upon the in- 
 comes received in preceding years. The present United States income tax is laid 
 upon the income of 1862, and the act of Congress of the 5th of August, 1861 (12 Stat. 
 L., 309), expressly declares that "the tax herein provided shall be assessed upon 
 the annual income of the persons hereinafter named, for the year next preceding the 
 1st of January, 1862, and the said taxes, when so assessed and made public, shall 
 become a lien upon the property or other sources of said income for the amount of 
 the same, with the interest and other expenses of collection until paid. 
 
 It is clearly therefore perfectly constitutional as well as expedient, in levying a 
 tax upon profits or income, to take as the measure of taxation the profits or income of 
 a preceding year. To tax is legal, and to assume as a standard the transactions imme- 
 diately prior is certainly not unreasonable, particularly when we find it always 
 adopted in exactly^ similar cases. The tax is graduated upon each individual upon 
 his individual receipts. 
 
 In People v. Gold Co. (92 N. Y., 383) a tax upon the franchises of 
 corporations, based upon dividends for the year preceding the passage 
 of the law, was upheld. 
 
 The fact that the amount of the tax may in some cases be fixed by reference to the 
 business of the company during the year does not make the act retrospective. The 
 burden it imposes is future and for future expenditures. It is competent for the legis- 
 lature to adopt such method of valuing the franchises or property of corporations for the 
 purpose of taxation as it deems proper (pp. 390-391). 
 
10 THE INCOME TAX. 
 
 In Glasgow v. Eouse (43 Mo., 479) an additional tax on incomes, 
 levied according to the assessment of the preceding year, was upheld. 
 The court declared this to be — 
 
 in entire harmony with the then existing revenue law, which provided that the taxes 
 collected for any year should be based on an assessment made for the previous year 
 (p. 488). 
 
 III. As appears from the cases supra, the courts do not go through 
 an elaborate fiction to prove that the income is still income at the 
 time the tax attaches. An income tax is still an income tax, whether 
 it is levied on this year's income or last year's income or (as has actu- 
 ally been done in the case of professional incomes by the English 
 income-tax statutes since earliest times) on the average income for a 
 period of years. 
 
 Furthermore, every one of the earlier Federal income-tax statutes 
 and every one of the English statutes that I have examined not only 
 based each year's tax upon the income for the preceding year, but 
 also based the tax for the first year upon income which had already 
 accrued before the passage of the act. It is only fair to assume that the 
 kind of income tax to which the 16th amendment refers is the kind 
 of income tax which had been called an income tax in Federal stat- 
 utes, and levied and collected many times theretofore. 
 
 The Federal income tax laws are as follows: 
 
 Act of August 5, 1861 (12 Stat., 292): 
 
 The tax herein provided shall be assessed upon the annual income of the persons 
 hereinaffer named for the year next preceding the time for assessing said tax, to wit, 
 the year next preceding the first of January, eighteen hundred and sixty-two. (12 Stat., 
 ,309, § 49.) 
 
 Act of July 1, 1862 (12 Stat., 473, 474) : 
 
 * * * The d ity herein provided for shall be assessed and collected upon the 
 income for the year ending the -3 1st day of December next preceding the time for levying 
 and collecting s ch d.ty; that is to say, on the first day of May, 1863, and in each year 
 thereafter. 
 
 Act of June 30, 1864 (13 Stat., 223, 281, 283) : 
 
 And the duty herein provided for shall be assessed, collected, and paid upon the 
 gains, profits, or income for the year ending the Slst day of December next preceding 
 the time for levying, collecting, and paying s ch duty (p. 281, § 116). * * * 
 shall be levied on the first day of May (p. 283, § 116). 
 
 Act of July 4, 1864 (13 Stat., 417): 
 
 * * * There shall be levied, assessed, and collected on lYie first day of October, 
 1864, a special income duty upon the gains, profits, or income /or the year ending the 
 31st day of December next preceding the time herein named. 
 
 Act of March 2, 1867 (14 Stat., 471, 478, 480): 
 
 And the tax herein provided for phall be assessed, collected, and paid upon the 
 gains, profits, and income for the year ending the Slst day of December next pre- 
 ceding the time for levying, collecting, and paying the tax (p. 478). 
 
 Provided, That the tax on incomes for the year 1866 shall be levied on the day this takes 
 effect (Tp. 480). 
 
 Act of July 14, 1870 (16 Stat., 256): 
 
 * * * the tax hereinbefore provided phall be assessed upon the gains, profits, 
 and income for the year ending on the Slst day of December next preceding the time 
 for levying and collecting said tax, and shall be levied on the 1st day of March, 1871. 
 
 Act of August 27, 1894 (28 Stat., 553, s. 27): 
 
 Tax to be levied January 1st, 1895, on income for the year ending December 31st 
 next preceding time of levy (s. 1 and s. 30). 
 
THE INCOME TAX. 11 
 
 English income-tax laws are as follows: 
 
 Act June 22, 1842 (5 and 6 Vict., c. 35): Taxed income from April 
 5, 1842. 
 
 Act June 28, 1853 (16 and 17 Vict., c. 34) : Taxed income from April 
 5, 1853. 
 
 Since 1860 the English tax has been reenacted annually (16 Hals^ 
 bury's Laws of England, 609). The act of April 29, 1910 (10 Ed- 
 ward VII and 1 Geo. V, c. 8, s. 65), is an example, which provides: 
 
 (1) Income tax for the year beginning on the 6th day of April, 1909, shall be charged 
 at the rate of Is. 2d. 
 
 (2) All s:ch enactments as were in force on the 5th day ot April, 1909, shall, sub- 
 ject to the provisions of this act, have fi 11 force and effect with respect to any duties 
 of income tax hereby granted. 
 
 IV. The economic conception of an income tax is against Mr. Root's 
 interpretation. 
 
 From the economist's point of view the income tax is a contribu- 
 tion by each individual, based upon Ms aiility to pay, measured hy 
 Ms income. A man's income for the preceding year is the most 
 natural measure of his abUity. And, as we have seen above, all 
 previous income-tax measures have been levied on that basis. 
 
 Nor would it make the tax a "capitation" tax to consider it in 
 this way. "Capitation" taxes, in the constitutional sense, are poU 
 taxes, levied upon all men equally, without regard to wealth or ex- 
 trinsic circumstances. (Cooley, Taxation (3d Ed.), p. 28; Hylton v. 
 U. S., 3 DalL, 171; Springer v. U. S., 102 U. S., 586; Head Money 
 cases, 18 Fed., 135, 139; Glasgow v. Rouse, 43 Mo., 480.) 
 
 It is true that in Pollock i;. Farmers' Loan & Trust Co. (158 U. S., 
 601) the court stated the economic theory and expressly refused to 
 foUow it to its logical conclusion in the case of income from property, 
 insisting upon the necessity of considering also the source whence the 
 income was derived. (See p. 629.) But that holding does not help 
 Mr. Root's contention. The holding was that a tax upon the in- 
 come of property is a tax upon the property itself, not because the 
 income is property, but because the tax reaches back through the in- 
 come to the source from which it springs. (Knowlton v. Moore, 178 
 U. S., 41, 82.) Therefore the sixteenth amendment, which was passed 
 with the express purpose of escaping that decision, must be held to 
 give power to levy a direct tax on property, at least that Mnd of a 
 direct tax on property which is measured by its income. As was sug- 
 gested above, if the sixteenth amendment is really designed to per- 
 mit a tax on property measured by income, there is no reason whyin- 
 come already accrued may not be taken as the standard. 
 
 V. The usefulness of the tax as a war measure. 
 
 This was one of the reasons most persistently urged for the adoption 
 of the sixteenth amendment. Mr. Root's interpretation would seri- 
 ously impair its effectiveness, however. How could large amounts of 
 money be raised with any degree of quickness if Congress must wait 
 a year for income to accrue? And of course Mr. Root's objection 
 would apply to an increase in the rate of taxation as well as to the 
 original imposition of a tax. That this is a consideration of real 
 substance is shown by the fact that the income tax of 1861, for 
 instance, was aimed at income for the entire year of 1861, though 
 passed on August 5 of that year. (12 Stat., 292.) And as the war 
 proceeded it was found necessary to levy (act July 4, 1864) a special 
 
12 THE INCOME TAX. 
 
 income tax on income for the whole year 1863. (13 Stat., 417.) It 
 would be very unfortunate if the sixteenth amendment would not 
 permit such a war measure, and for Congress to assent to such a 
 construction by amending the law at this time would be a con- 
 temporaneous legislative interpretation of some weight if the question 
 ever arose hereafter. 
 
 Faithfully, Thurlow M. Gordon, 
 
 Special Assistant to the Attorney General. 
 
 Opinion of Hon. John K. Shields, Senator from Tennessee, 
 Furnished Finance Committee at Request of the Chairman 
 of that Committee. 
 
 amendment offered by mr. root to h. r. 3321, july 18, 1913. 
 
 The section of the biU imposing an income tax is in these words : 
 
 A. Subdivision 1. That there shall be levied, assessed, collected, and paid annually 
 upon the entire net income arising or accruing from all sources in tne preceding 
 calendar year to every citizen of the United States, whether residing at home or 
 abroad, and to every person residing in the United States, tliough not a citizen thereof, 
 a tax of 1 per centum per annum upon such income except as hereinafter provided ; and 
 a like tax shall be assessed, levied, collected, and paid annually upon the entire met 
 income from all property owned and of every business, trade, or profession carried on 
 in the United States by persons residing elsewhere. 
 
 Subdivision 2 merely provides for an additional tax upon larger 
 incomes in all things as provided in subdivision 1 . (Sec. 2, subdivs. 
 
 1 and 2, p. 165.) 
 
 Thus it plainly appears that the tax is imposed regardless of 
 whether the income or property represented by it had its source in 
 profits or gains from real and personal property or business, and 
 mcludes them all. 
 
 The method provided for computing or assessing the tax makes no 
 distinction on account of the source of the income, and is the same 
 whether it arises from property or business. That portion of the bill 
 providing for this, after allowmg certain deductions^ contains a pro- 
 vision in these words : 
 
 The said tax shall be computed upon the remainder of said net income of each 
 
 Eerson subject thereto, accruing during each preceding calendar year ending Decem- 
 er thirty-first; Provided, however, That for the year ending December thirty-first, 
 nineteen hundred and thirteen, said tax shall be computed on the net income accru- 
 ing from March first to December thirty-first, nineteen hundred and thirteen, both 
 dates inclusive, after deducting five-sixths only of the specific exemptions and deduc- 
 tions herein provided for. (Sec. 2, div. D, pp. 172-173.) 
 
 The amendment proposed by Mr. Root, July 18, 1913, is as follows: 
 
 On page 172 strike out the word "March," and on page 173 all of line 1, and in line 
 
 2 the words "both dates inclusive," and insert in lieu thereof the words "the passage 
 of this act." 
 
 The object of this proposed amendment, or, at least, its effect would 
 be to reduce the measure of the tax imposed for the current year to 
 incomes accruing after the passage of the bill. 
 
 The reasons advanced by Mr. Root in support of the amendment, 
 as stated by him at the time it was proposed, are as follows : 
 
 I have introduced a brief amendment to the tariff bill, which I shall ask to have 
 referred to the Committee on Finance; but I wanted to call the Senators' attention 
 
THE INCOME TAX. 13 
 
 to the precise point of the amendment. It is an amendment to the provision that the 
 income tax shall be computed on incomes accruing from March 1, to December 31, 
 1913. . . 
 
 I think the provision will encounter very serious question. The change I propose 
 is to have the income for the first year computed from the passage of the Act, rather 
 than from a fixed date — March 1, 1913. 
 
 The reason why I think it would be wise to make the change is that all direct taxes 
 must be apportioned unless they come within the amendment relating to the income 
 tax. We can impose a tax upon incomes without apportioning it hecause of the 
 amendment, but we can not impose any other direct tax without apportionment. 
 When income is received it immediately becomes principal. The income that was 
 received the 1st day of July of the present year, having been received, became princi- 
 pal, and no law hereafter can tax it without apportionment, any more than we can tax 
 now the income that was received 10 years ago without apportionment. 
 
 So if the bill becomes a law with the provision in it that has been reported from the 
 committee you will find yourselves endeavoring in one sentence to tax income that 
 comes under the amendment, and to tax past income, income received, reduced to 
 possession, and turned into principal before the passage of the act, and that you can 
 not do without apportionment. 
 
 It is to avoid that difficulty, which I am sure is very serious, that I propose the 
 amendment which I now ask to have referred to the Committee on Finance. (Cong. 
 Record, p. 2788.) 
 
 The argument advanced to support the contention of the Senator 
 is predicated solely upon the assumption that profits, dividends, and 
 other moneys, constituting an income, when received, immediately 
 become "principal," or, in other words, is incorporated into the corpus 
 of the estate of the taxpayer, and therefore not subject to direct 
 taxation without apportionment. This involves the further assump- 
 tion that the tax imposed can only be collected out of the income of 
 the taxpayer, or, in other words, that his general estate can not be 
 subjected to its payment. 
 
 The question, whether or not an income accrued immediately and 
 automatically becomes principal, or a part of the general estate of the 
 owner, whether sound or unsound in economics or financial evolution, 
 is not in my opinion material to the question involved. 
 
 But it is unsound. An income is defined to be : 
 
 That gain which proceeds from labor, b", siness, property, or capital of any kind, as 
 the prod ce of a farm, the rent of ho; ses, the proceeds of professional b' siness, or 
 money or stock in f ';nds, etc. ; silary, especially the receipts of a private person, or a 
 corporation, from property. 
 
 This is the natural and obvious sense of the term, and it is so used 
 in the constitutiojial amejidmejit and in this bUl. The gain, profit, 
 or acquisition constituting the income when it accrues and is ascer- 
 tained becomes an entity and property as much as a farm, bonds, 
 corporate stocks, or other property from which it may have had its 
 source. That it may automatically immediately become incorpo- 
 rated into the estate of the owner, or invested, thereafter to yield an 
 income, or is spent, given away, or consumed, does not destroy the 
 property entity of the value it had when it accrued. The fact that 
 the property existed and was owned by the taxpayer at one time is 
 indestructible. 
 
 I suppose the objection of the Senator goes only to computations 
 on incomes arising from property, real and personal, and not to those 
 on incomes from business. 
 
 The question really presented for consideration is, whether the 
 provision of the bill for the tax for the current year is retroactive in its 
 operation, and imposes a liability for taxes before the enactment of 
 the law, and is for this reason unconstitutional. 
 
14 THE INCOME TAX. 
 
 The cojQstitutiojaal amendmeiit under which this tax, in part, is 
 imposed without apportionment ordains: 
 
 The Congress shall have power to lay and collect taxes on incomes from whatever 
 som-ce derived, without apportionment among the several States and without regard 
 to any census or enumeration. 
 
 It is well settled that — 
 
 The language of a constitutional amendment should be read in connection with the 
 known condition of affairs out of which the occasion of its adoption may have arisen, 
 and then construed, it there be therein any doubtful expressions, in a way, so far as 
 is reasonably possible, to forward the known purpose or object for which the amend- 
 ment was adopted. (Maxwell v. Dow, 176 U. S., L. Ed., Book 18, p. 597.) 
 
 It is a part of the history of this country that much of the personal 
 property owned by every one, and the great accumulations of wealth 
 m the hands of the few, had for years escaped taxation. They could 
 not be taxed direct without apportionment, which was not deemed 
 advisable. The income tax law of 1894 was enacted to remedy this 
 injustice and to make this property bear its just proportion of the 
 expenses of the Government. 
 
 The Supreme Court of the United States held that tax, in so far 
 as it was imposed upon incomes received from real estate and per- 
 sonal property, to be a direct property tax and, being levied without 
 apportionment, unconstitutional. The tax upon incomes which 
 _ arose from other sources, and upon which an excise tax could be 
 imposed, was not held void for that reason, but the contrary con- 
 ceded. (Pollock i;. Farmers' Loan & Trust Co., 158 U. S., 618, 630; 
 L. Ed., Book 39, 1119, 1123.) 
 
 The sixteenth amendment to the Constitution was proposed and 
 adopted to authorize Congress to impose a tax like that of 1894, after 
 which this is modeled, and which is proposed to be enacted under that 
 power, in so far as it taxes incomes arising from real and personal 
 property. Congress already had the power to impose a tax without 
 apportionment on incomes arising from gains, profits, or other acqui- 
 sitions in business, ordinarily called an excise tax. (Flint v. Stone 
 Tracy Co., 220 U. S., 106; 55 L. Ed., 398.) 
 
 There are two grounds upon which, in my opinion, the tax for the 
 current year can be sustained. 
 
 First. The Congress has general power to lay and collect taxes, 
 duties, imposts, and excises, to pay the debts and provide for the com- 
 mon defeiise and general welfare of the United States, unhmited save 
 that duties, imposts, and excises shall be uniform throughout the 
 United States, and no capitation or other direct tax shall be laid unless 
 in proportion to the census or enumeration, directed to be taken 
 decennially, nor on articles exported from other States. (Constitution, 
 Art. I, sees. 8 and 9.) 
 
 The Constitution contains no provision prohibiting the Congress 
 from imposing a tax upon property owned or business done by the 
 taxpayer previous to the enactment of the law levying the tax. The 
 
 feneral rule is that the Congress, within constitutional Umitations, 
 as absolute power to determine the objects of taxation and the 
 method of the assessment of the tax. (Cooley's Con. Lim., 737; 
 Fluit V. Stone Tracy Co., 220 U. S., 167; Weston v. City of Charles- 
 ton, 2 Pet., 466.) 
 
 Therefore if the bill be construed to impose the tax for the current 
 year on account of the ownership of incomes received — property 
 
THE INCOME TAX. 15 
 
 owned and business done previous to the enactment of the law — it is 
 within the power of Congress, without constitutional objection, and 
 vahd. 
 
 There is no constitutional prohibition of retroactive legislation 
 which will affect this tax. (Black's Con. Law, 753; Cooley's Con. 
 Lim., 529; Satterlee v. Mattheson, 2 Pet., 380; Drehman v. Stifle, 
 8 WaU., 595.) 
 
 If the constitutional amendment changes or authorizes Congress to 
 change the classification of a tax on incomes derived from property, 
 from that of a direct tax to that of an excise tax, and the tax tere 
 imposed is one of the latter class, then the provision for computing 
 incomes before the enactment of the bill is clearly a mere method of 
 assessment and not only allowable, but usually done in assessing 
 excise taxes. The authorities authorizing this manner of assessment 
 of excise taxes wUl be hereafter stated. 
 
 Second. The provision of the bill requiring incomes received by 
 the taxpayer from all sources, from March 1, 1913, to be computed 
 in ascertaining the tax to be paid for the current year is not the 
 imposition of a retroactive tax, but the method of assessment of the 
 tax imposed for that part of the current year after the enactment of 
 the law, consisting in part of a property tax and in part of an excise 
 tax, and is valid and constitutional. 
 
 It is immaterial what the tax is called. The courts wUl treat it 
 according to its correct classification as ascertained by the legislative 
 intent disclosed m the bill when construed in the light of its legisla- 
 tive and judicial history. I am inclined to think the tax imposed 
 is a property tax ia part and an excise tax in part. It is a property 
 tax so far as imposed upon incomes accruing to the taxpayer from 
 real and personal property, and an excise tax so far as laid upon 
 incomes arising from all other sources. I do not think the consti- 
 tutional amendment was intended to change the classification of the 
 tax, but merely to allow it to be imposed without apportionment. 
 
 In so far as it is a property tax, it is imposed upon the taxpayer 
 a,s the owner of so much property — that certain portion in value of 
 his property which he acquired as an income from real and personal 
 property — during certain periods of the current year, from March 
 1 to December 31, and thereafter annually. The extent of the 
 property — the portion of the estate of the taxpayer upon which he is 
 taxed- — ^is thus measured by the income received during said periods, 
 to be ascertained and fixed as in the bUl prescribed. This, under the 
 Pollock cases, is a direct tax, but it is now authorized, without appor- 
 tionment, by the constitutional amendment under which it is proposed 
 to be enacted. 
 
 It is an excise tax so far as it is unposed on incomes from aU other 
 sources, as has been decided by the Supreme Court in many cases. 
 
 There seems to be no valid objection to imposing the two classes of 
 taxes in the same law. This was done in the act of 1894 and not con- 
 sidered objectionable. The court referring to it in the Pollock cases, 
 expressly stated that this point did not affect its decision. (158 
 U. S., 636; L. ed., 1125.) 
 
 The Congress, within constitutional limitations, has plenary power 
 to select the objects of taxation and the methods by which the tax 
 imposed shall be levied, assessed, and collected. It may, with 
 proper uniformity, tax all the property of the taxpayer or only a 
 
16 THE INCOME TAX. 
 
 portion or a certain kind of it. It may impose an excise tax on all 
 business, avocations, or on part of them. It also has almost unlim- 
 ited power in providing for the selection of the property to be taxed, 
 and all necessary machinery for the assessment of the same for tax- 
 ation and for the collection of the tax. These principles are ele- 
 mentary. (Cooley's Con. Lim., 737, 739; Cooley's Taxation, vol. 1, 
 602-604.) 
 
 In the case of Flint v. Stone Tracy Co. (230 U. S., 167, 55 L. Ed., 
 420) it is said: 
 
 We must not forget that the right to select the measure and objects of taxation 
 devolves upon the Congress and not upon the courts, and such selections are valid 
 unless constitutional limitations are overstepped. 
 
 All the authorities agree that the basis of an assessment for tax- 
 ation may be retrospective. (Cooley on Taxation, vol. 1, p. 492.) 
 
 The same method, it is true, is here provided for assessing the 
 property tax and the excise tax imposed, but I can see no objection 
 to the bill on this account. It is equally applicable to both taxes 
 and makes the machinery less complicated and easier of operation. 
 Direct taxation by reason of the ownership of property and an 
 excise tax upon business are merely different methods by which the 
 same end is reached; that is, by which the taxpayer is made to 
 contribute out of his property to the support of the Government. 
 
 As before stated, the provision of the bill requiring the computation 
 of incomes received by taxpayers during the periods mentioned in the 
 bill is merely the basis for the assessmeni} of the tax, and it is well 
 settled that incomes received before the law is passed may be con- 
 sidered in ascertaining the tax to be paid for the first year. 
 
 The excise cases decided by the Supreme Court of the United 
 States sustain these conclusions. They are directly in point in so far 
 as the property taxed arises from incomes from business subject to an 
 excise tax and clearly analagous where the income arises from real 
 and personal property, both of which are to be found in this bill. 
 
 The court has held in all these cases that the tax to be collected 
 may be measured by the business done, the profits made, the divi- 
 dends accrued, and the gains made for periods previous to the enact- 
 ment of the law imposing the tax, in some other cases a part of the 
 year, like the present law, and in others the year previous to that in 
 which the law was enacted. 
 
 It is also held that where the basis fixed for the assessment is a per- 
 centage on the capital stock or business done by a corporation, and 
 that in this way assets which are exempt from taxation and business 
 not taxable are included in making the assessment, the validity of 
 the tax imposed is not affected. 
 
 In Home Ins. Co. v. N. Y. (134 U. S., 594; 33 L. Ed., 1025) the tax 
 in question was imposed upon the privilege of the complainant to 
 do business as a corporation within the State and was measured by 
 the extent of the dividends of the corporation of the current year 
 upon the capital stock, some two million dollars of which were invested 
 in bonds of the United States exempt from taxation. The tax was 
 attacked because this mode of assessing the same included the value 
 of exempt property. The court, in sustaining the tax, said: 
 
 It is not a tax in terms upon the capital stock of the company, nor upon any bonds 
 of the United States composing a partot the stock. The statute designates it a tax 
 upon the "corporate franchises or business" of the company, and reference is only 
 
THE INCOME TAX. 17 
 
 made to its capital stock and dividends for the purpose of determining the amount of 
 the tax to be enacted each year. The validity of the tax can in no way be dependent 
 upon the mode which the State may deem fit to adopt in fixing the amount for any 
 year which it will exact for the franchise. No constitutional objection lies in the 
 way of a legislative body prescribing any mode of measurement to determine the 
 amount it will charge for the privilege it bestows. 
 
 The case of the State of Maine v. Grand Trunk Ry. Co. involves an 
 excise tax levied by the State upon railroad corporations for the 
 privilege of exercising their franchise within the State, the tax being 
 fixed by a certain percentage of the transportation receipts of the 
 company, including interstate and foreign commerce, for the previous 
 year. The tax was assailed upon the ground that it was a burden 
 upon interstate commerce and the business done in a former year. 
 The court sustained the tax. In the opinion, among other things, it 
 is said: 
 
 The character of the tax or its validity is not to be determined by the mode adopted 
 in fixing its amount for any specific period or the time of its payment. The whole 
 field of inquiry into the extent of revenue from soui-ces at the command of the corpora- 
 tion is open to the consideration of the State in determining what may be justly 
 exacted for the privilege. * * * 
 
 And if the inquiry of the State as to the value of the privilege were limited to the 
 receipts of certain past years instead of the year in which the tax is collected, it is 
 conceded that the validity of the tax would not be affected; and if not, we do not see 
 how a reference to the results of any other year could affect its character. There is no 
 levy by the statute on the receipts themselves, either in form or fact; they constitute, 
 as stated above, simply the means of ascertaining the value of the privilege conferred. 
 
 In Stockdale v. Atlantic Ins. Co. (87 U. S., 341, 22 L. Ed., 350), an 
 excise tax assessed upon dividends declared by the company pre- 
 viously, was held to be valid. Mr. Justice MiUer in his opinion said: 
 
 The right of Congress to have imposed this tax by a new statute, although the measure 
 of it was governed by the income of the past year, can not be doubted; much less can 
 it be doubted that it could impose such a tax on the income of the current year, though 
 part of that year had elapsed when the statute was passed. The joint resolution of 
 July 4, 1864, imposed a tax of 5 per cent upon all incomes of the previous year, although 
 one tax on it had already been paid, and no one doubted the validity of the tax or 
 attempted to resist it. 
 
 Flint V. Stone Tracy Co. (220 U. S., 55 L. Ed., 410)— the Corpora- 
 tion Tax case — is the latest excise tax case. All the cases where 
 excise taxes have been attacked, because in the measurement or 
 assessment of the tax property nontaxable, and profits, incomes, and 
 business accruing previous to the passage of the law, were included 
 and valued, are reviewed, and it is there held that the Government 
 may use these methods in measuring or assessing the tax imposed 
 witnout affecting the validity of the tax. 
 
 I think the principle controlling all these cases is the same here 
 involved, and sustains the tax proposed to be imposed. 
 
 There is nothing in the amendment requiring the tax to be paid 
 or collected out of the specific moneys constituting the income 
 accruing during said periods, and what the taxpayer does with the 
 moneys constituting his income is immaterial. It can not have' the 
 efl^ect to relieve him of the tax imposed upon him as the owner of 
 property of its value. This tax, like all other taxes, is a debt due 
 to the Government, and collectible out of any of the taxpayer's 
 property that may be found. If the law was otherwise, the payment 
 and collection of the tax would be dependent upon the ability of the 
 
 S. Doc. 171, 63-1 2 
 
18 THE INCOME TAX. 
 
 taxpayer to dispose of his income before the authorities could seize 
 it for the payment of his just contribution to the expenses of the 
 Government. 
 
 The statutes of a majority, if not all, of the States provide that 
 property shall be assessed against the owners upon some certain day 
 of the year and that transfers after that shall not affect the assess- 
 ment. The owner of the property upon the day of the assessment 
 is liable for the tax thereon according to the assessment made, not- 
 withstanding the general assembly, municipal council, or other 
 taxing power may levy the tax on a subsequent day of the year. 
 The property of the citizens taxed for that year is here measured 
 by that which they own on the day fixed for the assessment, and which 
 is made as of that day. These laws have never been questioned so 
 far as I can find. 
 
 The provisions of this bill upon this question are not different 
 from the income tax laws of England and those heretofore enacted 
 in this country. 
 
 The English income tax enacted June 28, 1853, provided that the 
 same should be operative and effective from and after April 5, 1852, 
 and of course included incomes accruing previous to its enactment. 
 
 The income tax imposed by Congress August 5, 1861, expressly 
 provided that — 
 
 the tax herein provided shall be assessed upon the annual incomes of the persons 
 hereinafter named for the year next pi'eceding the 1st of January, 1862, and the said 
 taxes when bo assessed and made public shall become a 'lien upon the propei^ty or 
 other sources of said income for llie amount of the same, with the interest and other 
 expenses of collection until paid. (12 Stat. L., 309.) 
 
 Here the tax was imposed upon the incomes accruing between 
 January 1, 1861, and August 5 of that j^ear, the day of the enactment 
 of the law. 
 
 The act of July 14, 1862, superseding the one above stated, pro- 
 vided for the assessment upon incomes received from and after 
 January 1 of that year, or for a period of six months before the act 
 was passed. 
 
 The income tax of 1894, enacted in August of that year, provided 
 for the taxation of incomes from the beginning ot the current year 
 ■and was attacked upon this ground. The question was not decided 
 in the cases which reached the Supreme Court of the United States, 
 but it was held by the Supreme Court of the District of Columbia in 
 the case of Moore v. Miller, decided January 23, 1895, that there was 
 nothing in the objection. In that case Hagner, J., said: 
 
 This provision is of the same character as those appearing in the former income acts 
 of the United States. 
 
 The first act, passed on the 5th of August, 1861, declared that from and after the 
 1st of January, 1862, there should be levied an income tax, which should be assessed 
 in the first instance ' ' ..pon the ann' al income for the year preceding the 1st of January, 
 1862," thus including m ret irn the income that had accrued during the seven months 
 next preceding the passage of the law. 
 
 The act of the 14th of July, 1862, which s':perseded the first law, declared that the 
 tax should be levied on the 1st of May, 1863, i pon the income of 'the preceding year 
 ending the 31st of December, 1862, including thereby the six months and a half of the 
 year that had expired at the time the act was passed. 
 
 The English act of 1853, passed on the 28th of June, 1853, declared that the income 
 tax thereby established should be operative from and after the 5th day of the preced- 
 ing April. 
 
THE INCOME TAX. 19 
 
 No authority was quoted in support of this contention, and I have been unable to 
 discover any if it exists. 
 
 Bvt the very point appears to have been decided the other way in 20 Wallace, 331 
 (Stockdale v. Ins. Co.), where Mr. Justice Miller said: "The rightof Congress to have 
 imposed this tax by .a new statute, although the measure of it was governed by the 
 income of the past years, can not be doubted;, much less can it be doubted that it 
 could impose such a tax on the income of the current year, though part of that year 
 had elapsed when the statute was passed. The joint resolution of July 4, 1864, 
 imposed a tax of 5 per cent on all incomes of the previous year, although one tax on it 
 had already been paid; and no one doubted the validity of the act or attempted to 
 resist it." 
 
 In a Pennsylvania case, in which a tax in substance was imposed 
 upon incomes, a similar question was presented and held not to 
 affect the validity of the law: 
 
 This act clearly intended to levy a tax of 3 per cent on the profits or income 
 of the business, and was not meant to tax capital. Profits must necessarily be the 
 net profits of the business, and the Commonwealth was to receive of them 3 per cent. 
 It was in fact a tax upon the income of the business in which the defendants were 
 engaged. The English income tax and the United States income tax are based 
 upon the incomes received in preceding years. The present United States income 
 tax is laid upon the income of 1862, and the act of Congress of the 5th of August, 
 1861 (12 Stat, at Large, 309), expressly declares that "the tax herein provided shall 
 be assessed upon the annual income of the persons hereinafter named, for the year 
 next preceding the lat of January, 1862, and the said taxes, when so assessed and 
 made public, shall become a lien upon the property or other resources of said income 
 for the amount of the same, with the interest and other expenses of collection until 
 paid." 
 
 It is clearly, therefore, perfectly constitutional, as well as expedient, in levying a 
 tax upon profits or income, to take as the measure of taxation the profits or income 
 of a preceding year. To tax is legal, and to assume as a standard the transactions 
 immediately prior is certainly not unreasonable, particularly when we find it always 
 adopted in exactly similar cases. The tax is graduated upon each individual upon 
 his individual receipts. 
 
 The Wisconsin income tax law went into effect July 5, 1911, but 
 provided for taxing aU incomes received during that year. The act 
 was attacked, among other grounds, upon the contention that it was 
 retroactive and void under the constitution of that State. The court 
 in disposing of this question said: 
 
 One further objection we overrule here without comment, for the reason that it 
 seems very unsubstantial, namely, the objection that the law is retroactive and void, 
 because assessed on incomes received during the entire year 1911, while it did not 
 go into effect until July 15 of that year, and also because it includes profits derived 
 from the sale of property purchased at any time within three years previously. (In- 
 come Tax cases, 148 Wis., 456, 514.) 
 
 In Wisconsin & M. K. Co. v. Powers (191 U. S., 379, 48 L. Ed., 229) 
 a statute was sustained which made the income of the railway com- 
 pany within the State including interstate earnings the prima facie 
 measure of the value of the property within the State for the purpose 
 of taxation. In the course of the opinion the court said: 
 
 In form the tax is a tax on "the property and business of such railroad corporation 
 operated within the State," computed upon certain percentages of gross income. The 
 prima facie measure of the plamtiff's gross income is substantially that which was 
 approved in Maine v. Grand Trunk R. Co. (142 U. S., 217, 228). 
 
 The statute of Minnesota, passed for revenue purposes in 1905, 
 levied a property tax to be computed upon the gross receipts of cor- 
 porations doing both domestic and interstate business, the last of 
 which, of course, could not be taxed by the State, as such a tax would 
 
20 THE INCOME TAX. 
 
 be a burden upon interstate commerce, and in violation of the com- 
 merce clause of the Federal Constitution. The Supreme Court of 
 the United States sustained this statute and upheld the tax. In the 
 opinion delivered for the court by Mr. Justice Day, it is said : 
 
 UpOD the whole, we think the statute falls within that class where there has been an 
 exercise in good faith of a legitimate taxing power, the measure of which taxation is 
 in part the proceeds of interstate commerce, which could not, in itself, be taxed, and 
 does not fall within that class of statutes uniformly condemned in this court, which 
 show a manifest attempt to burden the conduct of interstate commerce, such poiyer, 
 of course, being beyond the authority of the State. (Express Co. v. Minn., 223 TJ. S., 
 335.) 
 
 These two last cases seem to be directly in point. They involved 
 statutes imposing property taxes, measured or assessed by methods 
 which involved, in part, the computation of property and incomes not 
 within the taxing power of the State. This was but an application 
 of the general prmciple that the legislature has tJie power to prescribe 
 any method of assessment of property for taxation that may be deemed 
 wise and efficient, and illustrates the important distinction between the 
 subject of taxation and the method of assessment of taxation. 
 
 I think the amendment without merit, and the provision of the bill 
 called in question constitutional. 
 
 o