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12
The Commoner.
VOLUME 13, NUMBER 20
A Remarkable Income Tax Speech
In Inst weok's Commoner tho first
Installment of Representative Hull's
(Tonn.) spoech on tho Incomo tax
was printed. This speech was de
livered In tho house of representa
tives April 20, 1913. Tho second
installment follows:
Mr. Hull: Mr. Chairman, I feel
that I would Imposo on tho com
mlttoo by consuming tho time that
It would bo necessary to dispose
Mr. Bartlett. Will tho gentleman
yield?
Mr. Hull. I will.
'Mr. Bnrtlott. Tho gentleman was
discussing the matter of Income at
tho source. Tho gentleman will re
member in tho case of a bond issue
of a corporation doing a commercial
business, or a railroad, tho bonds
Issuod aro not payable to any par
ticular party, but payable to bearer,
and the Interest generally paid at the
statQd periods, say every six months,
represented by coupons which are
cut off at tho intorest-paying period.
Now, you can not compel the rail
road company or corporation to pay
the incomo at tho source of .ill t.hn
people who own these bonds. Now,
tho railroad company which issues
tho bonds, or tho manufacturing
company which issues them and puts
them on tho market, does not keep
any list of those who own them.
Thoy pass from hand to hand like a
aoiiar Dili or a hundred dollar bill.
In other words, they pass current.
Now, how is tho railroad or other
obligators of the bond to know what
person they are to take the income
from? The coupon is cut off and
carriod by the owner of it to the
bank and deposited, and these
coupons aro gonerally payable in
New York, Chicago, or other places.
HOW In Mln nhllirntAr J n. l i ..
tln7 government to determine
whether that particular man has paid
the tax or is due to pay the tax under
this bill?
Mr. Hull. As I stated awhile ago,
unless the actual owner of tho bond
presented tho coupons for payment
nimsolf, or it should be done for him
tho company would withhold tho tax
tho reason that so long as these
negotiable instruments are in gen
eral circulation It is utterly impos
sible, as I think the gentleman from
Georgia (Mr. Bartlett) will agree, to
reach them for taxation in any other
manner. These coupons aro not tax
able incomo, but capital, when they
pass to now owners and from the
bondholder.
Mr. Bartlett. Unless a man
swears to a falsehood, you can reach
aim.
Mr. Hull. Well, I have pointed
to the fact that if you doponded on
tho Individual taxpayers, as we do
in the states, to get returns of our
concealed personalty, it would
mount to only about $1 In $10. as
rule.
Mr. Bartlett. Then thero may bo
case arising whero tho tax duo
upon one particular security will be
two or three times paid. A man may
pay It and present it to tho bank
And It may pass from hand to hand,
And each one of the persons to whom
it passes may have paid it except tho
last ono. The obligator of the bond
will hold it at tho sourco for tho man
who last presents it, whereas the
government will get tho honest
man's return of it who makes tho re
turn and pays tho tax on it; and if
this last man is a dishonest man and
tries to evade the tax, tho govern
ment will get it from tho source once
nd iT tho honest people every
Hme., that u looks to me as if
it will depreciate the value of these
ecurltles very much on tho market
tho manner the gentleman has
suggested of collecting the tax at
tho source.
Mr. Hull. In my judgment, Mr.
Chairman, this method Is not only
feasible, but it Is tho only feasible
method of dealing with this situa
tion as it relates to corporato in
debtedness, and it is far more simple
and far more expeditious than any
other method, in use In other coun
tries. The corporation owning the
bonds would only retain tho tax
once. Tho coupons are taxable in
como In the hands of tho bondholder,
but no subsequent purchaser could
claim any exemption or deductions
with respect to them, because they
then become principal.
Mr. Cooper. Mr. Chairman, will
tho gentleman yield?
Tho Chairman. Does the gentle
man from Tennesseo yield to the
gentleman from Wisconsin?
Mr. Hull. Yes.
Mr. Cooper. Perhaps tho gentle
man explained it when I was out. but
1 1 do not know. Why were not the
Tlawaflan Islands included citizens
or the Hawaiian Islands? The citi
zens of Porto Rico and tho Philip
pine Islands aro included, huh not
the citizens of the Hawaiian Islands.
Mr. Hull. In the first place they
have an incomo tax of thnlr nwn
and this bill simply extends the tax
to the Philippine Islands and Porto
Rico for their exclusive benefit and
taxation. Of course, they become
mo ueneucianes or the revenue
derived. This was done, as I
understood, at the request of offi
cials connected with the islands.
Th0 Hawaiian Islands, already hav
ing an income-tax law of their own,
would naturally not want another
ono embraced in the bill.
Mr. Cooper. But there are a num
ber of states of the union that have
income-tax laws.
Mr. Hull. I know; but I under
stood the question applied to these
insular possessions that do not
occupy the category of states.
Mr. Madden. Would there be any
difference in fact between a state
and tho insular possessions? If the
citizens of a state pay an income tax
as citizens of the state, and are then
required to pay an income tax as
citizens of tho United States in ad
dition, is that any different from the
case of citizens of the Hawaiian
Islands being obliged to pay an in
come tax in Hawaii and then to pay
also an income tax as citizens of tho
United States?
Mr. Hull. I do not thSnir n,4.
question arises in the bill.
Mr. Madden. It discriminates
against the people of the states in
favor of the people of Hawaii.
Mr. Hamilton of Michigan. Mr
Chairman, will the gentleman yield
to mo?
The Chairman. Does the gentle
man yield? b
Mr. Hull. I do.
Mr. Hamilton of Michigan. I
simply wanted to state to the gentle
man, in reply to the statement of
the gentleman from Wisconsin (Mr
Cooper), who spoko of Hawaii as an
insular possession, that Hawaii is a
territory of the United States, and
I suppose it would be treated on the
same basis as the states of tho union
Mr. Sherley. Mr. Chairman, if
the gentleman from Tennesseo will
permit .
The Chairman. Does tho gentle
man from Tennessee yield?
Mr. Hull. Certainly.
Mr. Sherley. I would like to ask
the gentleman about another matter
which might have been discussed
during my absence. If that i so, I
ft nnta?h tU sentlomaa to repeat
t. But there is a provision requir
ing a lessee to make returns of tax
i
I In all instances whero the amount
paid oy cne lessee wouia oe in ex
cess of $4,000, as I recall it, and
the lessor is entitled to an exemption
only in case he has filed with the
lessee a statement showing his en
tire income from all sources, and
that shall be made a part of the re
turn to be made by the lessee to the
government. Now, if I am correct in
my statement of what the law pro
vides, I want to ask the gentleman
what he has to say as to the dis
advantage to the citizen of being
thus compelled to make public, not
to the government, but through the
lessee, his entire private affairs
touching his income, and so forth?
Mr. Hull. I tried to explain that
at a former stage. But to use figures,
so that thero can be no misunder-
A. .
HrnrmiTip- nnn nr it- aunrtnon r. -v
payer receives an income of $10,
000 from a certain corporation. The
tax is withheld by the corporation
and paid to the government, or to be
paid to the government after tax re
turn and assessment. This taxpayer
has $3V000 of income derived from
other scattering sources. He has
$2,500 of deductions, expenses of
his business, interest on his in
debtedness, and taxes paid to the
state. He wants the benefit of those
deductions. Now, he can do one of
three things under those circum
stances. He can file a return of his
own with the district collector in the
district where he resides, containing
mo o,vvv income ana the $2,500
deduction, and that will be disposed
of in the usual way. But if his de
ductions were $3,000 and his income
on which the tax was not withheld
at the source was only $2,500, then
he would not have enough income
from that source from which to sub
tract his deductions. So that he is
obliged to consolidate them at some
point between him and the internal
revenue collector's office where the
tax is assessed consolidate it with
his aggregate income. In that event
he would send to tho rHntHnt nr,n
tor, where the return was made for
5nm by the corPoration on the $10,
000. He need not go to the cor
poration. It is optional with him to
send to the district collector the re
turn of the $3,000 deduction claimed
and the $2,500 income. Then the
$10,000 income would- be returned
for him to this same collector by the
corporation, and they would merge
in the office of the collector and go
up together to the internal revenue
commissioner's office, as I have said,
with all the attendant facts and be
assessed upon the whole facts.
Mr. Sherley. Let me see if I
understand the gentleman. Suppose
a man has an innnma v j.i
pieces of property, and in each in-
T T , , uuu mcome. It is
the duty of the lessee to hold out
the tax, is it not, and send it in to
the collector?
Mr. Hull. Yes.
Mr. Sherley. The lessor gets his
exemption- of $4,000 only in the
event that he gives to the lessee ln-
cone n t0UChing his -
paJdTh-t1! bGV th0 gentleman's
P Sf ou ?at is not at a11 correct
totdtf That i3 What wt
h,PV ulI- The taxpayer is given
the fullest discretion in maS
claims for deductions to file h
same either with the district Iw
or or with the person who re?urnH"
bis tax, as he sees fit. The 1 4 nnn
rTurT0116 WUld be &y ?at
sort' St p- t 7U
each instance to7 hod out t8hGOtiU
uI' Hul! Aer it roaches su n
ue woulu noid out the entire taV I
Mr. Sherley. I understand. Now
I have stated a simple case, whS
a man owns three pieces of property
Ho leases, each of those three and
his- income from each is $5 000
Now, he does not give notice to tho
lessee. , Is it not the duty of thl
-- wvl WU.U mW tax. oi i per
cent in each instance and pay it tn
the government?
Mr. Hull. Yes.
Mr. Sherley. That being so, how
does the lessee get his exemption'
Is thero a provision whereby tho
government returns .to him the ex
cess tax that has been paid him by
each lessee?
Mr. Hull. I will try to come to
the gentleman's point.
Mr. Sherley. Can not the gentle
man answer me directly?
Mr. Hull. I want to see whether
I understand the gentleman's posi
tion. If the taxpayer receives an in-
nnma tvnwi- i-1-, .. i
wxuc uum imctj ur iuur sources
Mr. Sherley. Let us take the case
I havo stated?
Mr. Hull. He receives $5,000
from each source. Each of the other
gentlemen is required to withhold
the tax for the taxpayer. Now, un
less he notifies .one of them of his
claim for exemption, neither one of
the three would know which one
should make the request for his ex
exemption in withholding the tax. So
that the taxpayer is required, if he
desires the benefit of an exemption
under those circumstances, to make
his claim with some one of the three.
Mr. Sherley. Otherwise he would
not get back the excess. Is that
true?
Mr. Hull. That is true so far as
the tax collected entirely at the
source is concerned.
Mr. Sherley. All right. I want to
present to the. gentleman the situa
tion. Suppose, instead of taking the
man who has simply three pieces of
property, take the great Astor estate,
which is largely an estate invested
in real estate. As I understand, in
order to get the exemption, it would
De necessary to give to one of tho
lessees from whom you are to get the
claim of exemption the entire privato
history of your income.
Mr. Hull. I beg the gentleman's
pardon; you do not give a history of
anything. The exemption is $4,000,
and you merely file your claim for
exemption, and that is all that there
is involved.
. Mr. Sherley. I think the gentle
man will find that the section goes
very much beyond that.
Mr. Hull. The person who is re
quired to withhold tho tax at tho
source
Mr. Sherley. I will read the pro
vision on page 142 of the bill.
It requires the person to
"file wifeh the person who is required
to withhold and pay tax for him a
true and correct return of his an
nual gains, profits, and income from
all other sources, and also the deduc
tions asked for, and the showing
thus made shall then become a part
of the return to be made in his be
half by the person required to with
hold and pay the tax "
Mr. Hull. Go on and read the
balance of the sentence
Mr. Sherley (continuing the read
ing) :
"or such person may likewise make
application for deductions to the col
lector of the district in which return
is made or to be made for him."
But I ask the gentleman where
there is a case in which the payments
are all made at the source, the man
in that instance must expose to some
one of the source-paying persons or
corporations his entire income.
Mr. Hull. I assure the gentleman
that if I knpw anything at all about
this language he is in error. . He con
fuses deductions with exemptions.
There is one statutory $4,000 exemp
tion that must be claimed of the per
son who withholds the tax at the
YJ
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