:r
I
6
000 tariff taxes and most of our state and local
taxes, save in a few states. Then where is the
Injustice of requiring the receivers of incomes
over $4,000 to equalize In some measure these
tax burdens by contributing less than $100,
000,000 to tho federal treasury?
The objection is also offered, in a tone of in
jured innocence, that the proposed tax would
t sectional in its effects. This measure cer
tainly is not sectional in its terms, and should
it bo sectional in effect it would bo due to tho
fact that wealth has first made itself sectional.
It would bo monstrous to say that tho receivers
of great incomes which are drawn from every
section of the country may segregate thera
Bolves and upon the plea of segregation or sec
tionalism successfully exempt their entire wealth
from taxation. They should invoke the plea of
segregation and not sectionalism.
Tho very nature and purpose of the income
tax is fairly to reach and successfully cope with
such conditions, for long experience every
where has demonstrated that tho only means
of getting at the financial resources of the
country in fair measure, and taxing classes of
porsons who would otherwise escape taxation or
nearly so, is to levy a tax on incomes. To illus
trate the importance of this tax, during tho
parliamentary debato of 1909, Mr. Lloyd George
said:
"Tho income tax is in reality tho center and
sheet anchor of our financial system."
Mr. Gladstone characterizes it as an engine
of gigantic power for great national purposes.
This tax in England now produces about two
hundred millions of revenuo annually, and ac
cording to universal testimony gives the tax
payer as little trouble as any form of taxation.
The complaint of inquisltorialness has now al
most completely disappeared. '
I shall not consume tho time of the com
mittee upon the results of the operation of this
tax in the various foreign countries, except to
say that the masses everywhere have a deep
seated conviction that it is fair alike to every
citizen and is the only effective method of
equalizing tax burdens.
This tax, in addition to being fair, is pro
ductive and responsive to changes in rates, and
is cheap of collection.
Mr. Moore. Will tho gentleman yield?
Mr. Hull. Yes.
Mr. Moore. In paragraph B and paragraph
C of section 2, tho income-tax section, it would
appear that a holder of municipal bonds or
stato bonds would bo exempt from payment of
tax.
Mr. Hull. If tho gentleman will pardon mo
now, I will come to an analysis of tho bill within
a few moments.
Mr. Moore. Very well. I do not wish to in
terrupt tho gentleman, but tho point is very
much inquired about, and I would like to have
tho gentleman explain it.
Mr. Hull. No honest taxpayer has anything
to foar. Tho fact that difficulty in administer
ing tho proposed law is sometimes experienced
is duo to tho persistent efforts of dishonest or
evasive taxpayers to shirk and evade their
proper share. No law that would effectually
reach this class of taxpayers can be devised and
successfully enforced without moro or less diffi
culty in somo instances. Tho administration of
tho present national and state tax laws is moro
Inquisitorial and difficult if enforced.
Every good citizen should not only bo willing
to contribute according to ability to the needs
of tho government, but to this end should bo
Willing to devote a brief time during somo one
day in tho year, when necessary, to the making
np of a list of his income for taxes. The gov
ernment nsks this of him in return for tho many
blessings and bonofits ho receives. It is gratify
ing to find during recent years tho largo num
ber of our wealthiest citizens who heartily
favor tho proposed tax and cheerfully agreo
honestly to abide by its provisions; those who
do not subscribe to this patriotic view may
realize their shortsightedness. The intelligence
of tho American people has rapidly increased,
until today tho overwhelming majority of the
masses in every section of tho country, whether
in tho valleys or in tho mountains, are keenly
alive to existing financial, industrial, and social
conditions, and realizo fully the great dispropor
tion of governmental burdens which rest unon
them.
Tho masses leave their homes and families
and imperil life and body to fight tho battles of
tho country in time of war, and none realize
hotter than they that by reason of discriminat
ing laws and governmental policies they are re
quired to support tho government in chief
measure in time of peace, and in addition con-
The Commoner
stantly to mako unjust contributions to tho
favored class of their fellow citizens.
It is sometimes sought to prejudice persons
against this tax by asserting that it ifl a tax
upon thrift and industry. It may bo replied
that the tariff is a tax upon consumption, want,
and even poverty and misery. (Applause on the
democratic side. ) In any event, tho proposed
tax is measured by net profits or gains, and is
not imposed upon gross income nor capital nor
other property. If a citizen has not been suc
cessful in his efforts to accumulate profits he is
not required to pay the tax, but if he has pros
pered ho is required to contribute to his gov
ernment, not the scriptural tithe, but a small
percentage of his net profits.
The proposed tax is the outgrowth of cen
turies of tax legislation "throughout tho world.
Those who havo been tho victims of our intan
giblo and invisible tariff taxes, with all their
features of spoliation and plunder, without be
ing able to know the extent thereof, should and
will welcome tho proposed tax; the receivers
of largo Incomes and tho owners of great
wealth should preparo to accept it as a per
manent tax, for, in my judgment, it has come
to stay. (Applause on the democratic side.)
Responding to tho manifest interests and de
sires of tho American people and to the fiscal
needs of the American government, the demo
crats of this house propose to incorporate,
along with honest tariff revision, an income
tax provision permanently in our tax system,
the effect of which will bo to displace about
$70,000,000 derived from the most vicious por
tion of custom-house taxation, to the end that
this country may in tho future have justice in
taxation, flexibility and stability of revenue, and
economy in expenditures. This provision goes
hand in hand with genuine tariff reform.
I desire now to give a brief outline of tho
pending measure. Instead of comprising 100 or
more pages, containing in detail all the methods
of administration, such as European and other
laws present, this measure briefly but succinctly
prescribes each essential rule and method with
respect to the levy, assessment, and collection
of tho tax, and leaves to be embraced in the
regulations to be prepared by the secretary of
tho treasury tho manner and details of carry
ing out tho provisions of tho law. These regu
lations will make clear to the taxpayer the scope
and application of each featuro of tho law with
respect to every class of taxpayers and busi
ness. It should bo borno in mind that paragraphs
A to G relate exclusively to tho imposition and
collection of the tax of individuals or persons,
whereas paragraph G embraces corporations.
Paragraph A imposes a tax of 1 per cent per
annum upon tho annual net Income of every
individual over $4,000, and a like tax upon
every corporation or joint-stock company or
association in tho United States, no matter how
created or organized, without exemption. In
addition to this normal or basic tax of 1 per
cent, which applies aliko to all individuals and
corporations, as aforesaid, a graduated addi
tional tax is imposed upon the total annual net
income of every individual derived from all
?0urS ?!?hiumg corporate dividends, exceed
ing $20,000. Instead of making this additional
tax a flat rate, tho same is graduated in its
application to incomes from $20,000 to $100-
?L,thu? leaYlnS a flat rate of 3 per cent
additional upon that portion of any income ex
ceeding $100,000. Paragraph B and tho?o
following down to G, relate to the assessment
and collection of the normal tax of 1 per cent
imposed upon persons.
Mr. Mann. Mr. Chairman, would it interrupt
the gentleman at all to ask him a questfon ?n
reference to the proposition that he is now dis
cussing, for information?
Mr. Hull. I Will suggest to the gentleman
whether it would not bo best for mo to con"
SSSf Ty att,empt i analyzo Ml, then I
shall be glad, as best I can, to answer any
question that may bo asked. y
tlon.1' Mann' ThiS WiU b0 a Very simple aues-
Mr. Hull. Very well.
Mr. Mann. Suppose during tho year a man
holding a piece of real estate sells it, is there
any attention paid to tho amount of the process
of tho sale, so far as his income is concerned
under the provisions of tho bill? My recolee
tion is it refers to profits. lecoiiec-
Mr. Hull. Just a little later I will make a
statement on that point. a
Mr. Mann. I thank you.
Mr. Hull Each individual to whom the ad
ditional and graduated tax will apply makes
personal return in every instance of his total
VOLUME 13, NUMBER U
net income from all sources. Ho -will r. .
it. by taking his net income as computed X
purpose of the normal tax and substitute 5
exemption of $20,000 for the normal tax -21
tion of $4,000, and then adding nrstT
amount of his net income upon which tho
mal tax was withheld and paid at the source
another for him; and, second, the amount of
dividends or other net earnings received or
ceivable by him from corporate sources 3h
part of the additional tax imposed is collect
at the source of the income. This method
enables tho government to reach all larse in
comes exceeding $20,000 by assembling thl
same in the individual to whom it ultimately
goes and taxing it as a whole.
The proposed law should be construed as simi
lar laws have been construed by the courts with
respect to the application of the tax, and that i3
that the income in question shall be tho measure
of the tax and not the specific fund out of which
the tax is necessarily payable; the bill takes as
the measure of the tax -the net income of tho
preceding year. Paragraph B defines the net
income of a taxable individual or person. In
come as thus defined does not embrace capital or
principal, but only such gains or profits as may
bo realized from rent, interest, salaries, trade,
commerce, or sales of any kind of property, and
bo forth, or profits or gains derived from any
other source.
It would be impossible here to undertake to
explain the application of this provision of tho
bill to the innumerable transactions arising in
this country. The rulings of the treasury de
partment and the decisions of the courts of this
country with respect to similar provisions of the
old income-tax laws, and also the English rules
of construction, all essential portions of which
will be embraced in the treasury regulations,
will make clear the distinction between taxable
profits or income on the one hand and capital
or principal on the other. The proceeds of lifo
insurance policies paid on tho death of the per
son Insured are expressly exempted; likewise
the return of any part of principal invested in
insurance during life, as distinguished from the
earnings upon same, would not be taxable.
Bequests, devises, and so forth, are not con
sidered as taxable income; an inheritance tax
applicable to them would naturally contain
rather highly graduated rates, so that this tax
would properly be contained in a separate enact
ment. The second division of paragraph B
prescribes the deductions allowed in computing
net income for the purpose of the normal tax.
Most of these deduction clauses have heretofore
been construed both by the treasury depart
ment and the courts. As to losses, these pro
visions primarily contemplate allowance for
losses growing out of the trade or business from
which the taxable income is derived, and gen
erally termed trade losses, as distinguished from
losses of capital or principal or losses incurred
entirely apart from business transactions from
which income is derived. A similar rule gov
erns deductions for expenses. In thus comput
ing net income the taxpayer does not embrace
any portion upon which the tax is stopped at
the source; but in all cases where taxable income
arises from an annual business relationship, but
does not exceed $4,000, and" so the tax is not
withholdable at the source, the same must bo
embraced in a personal return, and also if such
income is uncertain or irregular in the amounts
or time of its accrual, and so is notderived from
a business relationship extending through the
year, it likewise shall be embraced in a personal
return, and no tax would be withheld at tho
source. This latter would embrace all taxable
profits or income derived from trades, profes
sions, and other businesses embracing promis
cuous transactions and tho accrual of profits in
uncertain amounts and at irregular times, as
distinguished from business relationships run
ning through the year and the fixed income
therefrom. The amount received by the indi
vidual taxpayer from the net earnings of a cor
poration subject to like tax will not be embraced
in his personal return of income for the purpose
of the normal tax. The normal tax of 1 Per
cent that would otherwise accrue against the
owners or stockholders of tho corporation is
paid for them by the corporation upon its net
earnings.
Mr. Madden. Will the gentleman let me ask
him a question?
Mr. Hull. Yes.
Mr. Madden. Suppose the gentleman himself
had $5,000 he wanted to invest, and did invest
tho $5,000 in tho bonds of some corporation, and
that tho tax was taken by the corporation from
the interest coupons on these $5,000 of bonds--suppose
the gentleman had no other money in
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