Since the formation of the Union, income taxes have been in force for varying periods in at least 20 States. This form of taxation has been tried in almost every known form. Wher ever tried the State income tax has always been an almost unqualified failure. There has been just one exception to this general experience and that is in Wisconsin, where conditions are in many respects entirely abnormal. A study of the history of the income tax in our States leads to the conclusion that the failure of the tax has been due to the administration of the laws. This in turn may be attributed to four causes: (1) The method of self-assessment; (2) the indifference of State officials; (3) the persistent effort of taxpayers to evade the tax; and (4) the nature of the income. State lines mean little in this country and usually income, both personal and corporate bears very little relation to State boundaries. Experience seems to teach, therefore, that the income tax cannot effectually be applied in this country on a State hood basis.
(1) The Civil War Income Tax.—The first and practically the only experience of the Fed eral government with income taxation was pri marily as a war tax during the period of 1861 72. The law as first passed provided for a tax of 3 per cent on incomes from $600 to $10,000; of 5 per cent on those from $10,000 to $50,000 and of per cent on those over $50,000. By later amendment these rates were changed, and the exemption was raised in 1867 to $1,000. The provision for the income tax, which was merely a part of the general revenue act, was not re enacted in 1872 and ceased to exist as a revenue measure. Although little administrative ma chinery was provided and despite the fact that the law was clumsily and unskillfully drawn, it may be said to have been fairly successful. Dur ing the years 1863 to 1873 a total of $376,150, 204 was raised, amounting to about 20 per cent of all internal revenue. In 1865, 28.3 per cent of the revenue was raised in this way. Even so, the tax probably brought out only a small proportion of the total taxable income.
(2) The Federal Income Tax of 1894.—The second income-tax provision in this country be came a law on 28 1894. It provided a tax of 2 per cent upon all incomes exceeding $4,000. There were many defects and incongruities in the act. For example (1) income of less than $4,000 from corporate dividends was taxed, in come from other sources not taxed; (2) per sonal property by gift or inheritance was taxed, inheritance of real estate was not taxed; (3) inheritance of personal property was taxed 2 per. cent; (4) farmers were not taxed upon
produce retained and consumed by them; (5) no provision was made for collection at the source; (6) no allowance was made for size of families.
Immediately the constitutionality of the tax was called into question in the case of Pollock vs. Farmers' Loan and Trust Company (157 U. S. 429; rehearing 158 U. S. 601). The con stitutional provision involved was the follow ing: *Representative and direct taxes shall be ap portioned among the several States, which may be included with this Union according to their respective numbers, which shall be determined by adding to the whole number of those bound to service for a term of years and excluding In dians not taxed, three-fifths of all other per Sons.** "No capitation or other direct tax shall be laid unless in proportion to the census herein before directed to be taken.' The court decided after a rehearing, by a majority of one, that the income tax as a whole was unconstitutional. The essential reasons as stated by the court were as follows: *First. We adhere to the opinion already announced that taxes on real estate being un disputably direct taxes, taxes on rents or in come of real estate are equally direct taxes. Second. We are of opinion that taxes on per sonal property, or on the income of personal property, are likewise direct taxes. Third. The tax imposed by sections twenty-seven to thirty seven, inclusive, of the act of 1894, so far as it falls on the income of real estate and of per sonal property, being a direct tax within the meaning of the Constitution, and, therefore, unconstitutional and void because not appor tioned according to representation, all those sections, constituting one entire scheme of tax ation, are necessarily invalid.' (3) The Sixteenth Amendment.— In a spe cial message to Congress on 16 June 1909, Presi dent Taft recommended that Congress propose can amendment to the Constitution. conferring the power to levy an income tax upon) the na tional government without an apportionment among the States.* The amendment as finally agreed upon by Congress for submission to the several States was as follows: *Congress shall have the power to lay and collect taxes on income from whatever source derived, without apportionment among the sev eral States, and without regard to any census or enumeration.' This amendment was ratified by 42 States and the seemingly impossible, an amendment to the constitution, had been accomplished. The amendment became a part of the constitution on 25 Feb. 1913.