The enduring dilemma of income taxation: Uniformity versus equality of sacrifice

“ If, as this court has repeatedly said, an income tax is an equitable method of distributing the necessary burdens of government, certainly no such discrimination as is evidenced by the challenged act can properly fall within the description. ”

“ We should contend for an income tax not simply for the purpose of raising revenue but for the purpose of framing a revenue system which will distribute the burdens of government between consumption and accumulated wealth, which will enable us to call upon property and wealth not in an unfair and burdensome way but in a just and equitable way to meet their proportionate expenses of the government, for certainly it will be conceded by all that the great expense of government is in the protection of property and of wealth. ”

“ Uniformity or proportionality in taxation is, therefore, one of the fundamental principles of every free and just government; and the safety of all tax-payers against the grossest abuses demands that in taxing any class or locality the principle of equality of rate should be kept sacred and inviolate. ”

“ We must have money for internal improvements, for our navy, and for our pensions. We cannot procure the money if we materially reduce the tariff, except in one way, and that is by an income tax, which necessarily must be a graded one. The people of America will not stand a general income tax, wherein one man with an income of a million dollars per annum can pay two per cent., and the man whose income is only two thousand dollars per annum shall pay also the same percentage upon his small income. That would be obviously unfair to the poor man, to whom two per cent. ”

“ The principle, therefore, of equality of taxation, interpreted in its only just sense, equality of sacrifice, requires that a person who has no means of providing for old age, or for those in whom he is interested, except by saving from income, should have the tax remitted on all that part of his income which is really and bonâ fide applied to that purpose. ”

“ Any exemption whatever, under an income tax, be it small or great, except to the absolutely indigent, is purely arbitrary; and the principle once allowed may be carried to any extent. Any exemption of any portion of the same class of property or incomes is an act of charity which every patriotic American citizen ought to reject upon principle and with scorn, except under circumstances of great want and destitution. Equality and manhood, therefore, demand and require uniformity of burden in whatever is the subject of taxation. ”

“ There is one peculiarity in the income tax as at present established, which is productive of the greatest injustice, and loudly calls for immediate remedy. This consists in the taxing all incomes at the same rate, whether derived from professional income, annuity, land, or realized funds. This is just another instance of the careless and reckless way in which our system of direct taxation has at different times been framed, without any regard to principle, and alternately unjustly favouring or grossly oppressing every class in society, except the great capitalists. ”

“ In reality this tax, levied as it is in England, is little less than the revival of the Inquisition.
And, first of all, let me point out a great injustice, which I trust no Government will ever inflict on the American people or any other, and which is this: The income derived from property inherited, or any other which the idlest man may enjoy without having to work for it, is taxed exactly the same as the income which is derived from work in business, profession, or any other calling. ”

“ You can follow the same general principle of distinguishing between earned and unearned increment through the Government's treatment of the income-tax. There is all the difference in the world between the income which a man makes from month to month or from year to year by his continued exertion, which may stop at any moment, and will certainly stop, if he is incapacitated, and the income which is derived from the profits of accumulated capital, which is a continuing income irrespective of the exertion of its owner. ”

“ The second condition is, that incomes above the limit should be taxed only in proportion to the surplus by which they exceed the limit. Thirdly, that all sums saved from income and invested, should be exempt from the tax: or if this be found impracticable, that life incomes, and incomes from business and professions, should be less heavily taxed than inheritable incomes, in a degree as nearly as possible equivalent to the increased need of economy arising from their terminable character: allowance being also made, in the case of variable incomes, for their precariousness. ”

“ But inasmuch as different kinds of property are by no means equally profitable, and therefore the ability of owners to pay is by no means equal, the simplicity of the Property Tax was not by many thought equity. The shopkeeper, taxed on unsaleable stock, the manufacturer paying on plant and buildings as much in good years as in bad, bethought them that under an Income Tax they would at any rate escape in bad seasons when their income might be less or nothing. ”

“ The payers of income tax, unfortunately, are not one class but many, and although the rate of duty is the same, the dentition of income seems imperfect, so that many pay on a much larger assessment of income than seems fair in comparison with other incomes of nominally the same amount, but really of much greater value when all deductions from the gross sum are fairly reckoned. If all who pay income tax are lumped together and contrasted with those who do not pay, then there is a false division to begin with, and there is so far no means of establishing equality or inequality. ”

“ As incomes below a certain amount ought to be exempt from income tax, so ought houses below a certain value, from house-tax, on the universal principle of sparing from all taxation the absolute necessaries of healthful existence. ”

“ No one may be compelled to pay taxes which have not been created as provided in the Constitution and whose settlement and collection are not effected in the forms laid down by law. Article 107 Taxes (1) The tax on personal income seeks to reduce inequality. It is a single progressive tax having regard to family needs and income and tries to limit incomes to a national maximum fixed by law each year. (2) Enterprises are taxed fundamentally on their real income. (3) The tax on inheritances and donations are to be progressive, so as to make for equality among citizens. ”

“ But the most important direct attack upon the unequal distribution of wealth was by taxation in accordance with the Liberal policy of a graduated and differential income-tax, and still more important by taxes upon inheritance; for it has long been recognised that though it may be desirable to allow men to accumulate great wealth during their lifetime, it by no means follows that they should be entitled to control the distribution of wealth in the next generation and launch their children on the world with a great advantage over their fellows of which they may be quite unworthy. ”

“ But unlike the 1980's, when the rich paid less and the middle class paid more, we're asking the wealthy to pay their fair share to give the middle class a fair shake. Seventy-five percent of the taxes are paid by those in the upper 6 percent of income brackets, those who exceed $100,000 in annual income. ”

“ There is a limit beyond which it is exceedingly difficult to find ways of spending money on one's own enjoyment—though I have never been able to fix it precisely. On this ground, such plans as a graduated income-tax are, it would seem, compatible with the plea of justice; and, within certain limits, we do, in fact, approve of various taxes, on the ground, real or supposed, that they tend to shift burdens from the poor to the rich, and, so far, to equalise wealth. In fact, this appeal to justice is a tacit concession of the principle. ”

“ Do you see in the Times of yesterday and the day before, 22nd and 23rd June, that the Minister of France dares not, even in this her utmost need, put on an income tax; and do you see why he dares not?
Observe, such a tax is the only honest and just one; because it tells on the rich in true proportion to the poor, and because it meets necessity in the shortest and bravest way, and without interfering with any commercial operation. [19]
All rich people object to income tax, of course;—they like to pay as much as a poor man pays on their tea, sugar, and tobacco,—nothing on their incomes. ”

“ Direct taxes are those which, like the classified income tax, are collected, and therefore are determined, according to the amount of income and capital. Indirect taxes, however, are those which are laid upon any necessity—for instance, salt, grain, beer, meat, fuel; or on the necessity for legal protection—law costs, stamp taxes, etc., and which the individual very frequently pays in the price of the commodity without knowing or perceiving that he is being taxed, that the tax increases the price. ”

“ Now you are aware, gentlemen, that one man who is twenty, fifty, or a hundred times as rich as another, by no means requires on that account, twenty, fifty, or a hundred times as much salt, bread or meat, nor drinks fifty or a hundred times as much beer or wine, nor requires fifty or a hundred times as much warmth, and therefore fuel, as a workman or poor citizen.
Hence it follows that all indirect taxes, instead of being adapted to individuals according to the proportion of their capital and income, are paid, in far the greater part, by the poorest and most destitute classes of the nation. ”

“ Unless, therefore, savings are exempted from income tax, the contributors are twice taxed on what they save, and only once on what they spend. A person who spends all he receives, pays 7d. in the pound, or say three per cent, to the tax, and no more; but if he saves part of the year's income and buys stock, then in addition to the three per cent which he has paid on the principal, and which diminishes the interest in the same ratio, he pays three per cent annually on the interest itself, which is equivalent to an immediate payment of a second three per cent on the principal. ”

“ In the case of an income-tax, we have already seen that, unless it be found practicable to exempt savings altogether from the tax, the burden can not be apportioned with any tolerable approach to fairness upon those whose incomes are derived from business or professions ”

“ Differentiation between earned and unearned incomes is practicable, especially if it be limited to earned incomes not exceeding £3000 a year, and effect be given to it by charging a lower rate of tax upon them.
5. A compulsory personal declaration from each individual of total net income in respect of which tax is payable is expedient, and would do much to prevent the evasion and avoidance of income tax which at present prevail. ”

“ They would all be lowered a-half to the persons at present burdened with them, and that simply by the adoption of the just principle, that all fortunes in the same situation should be taxed alike for the general service of the state, and that the commercial classes who create the poor, and are enriched by their labour, should contribute equally with the landed to their support.
III. In levying the income tax, a different rate should be imposed on income, according as it is derived or not derived from realised capital. ”

“ It is to be feared, therefore, that the fairness which belongs to the principle of an income tax, cannot be made to attach to it in practice: and that this tax, while apparently the roost just of all modes of raising a revenue, is in effect more unjust than many others which are primâ facie more objectionable. This consideration would lead us to concur in the opinion which, until of late, has usually prevailed that direct taxes on income should be reserved as an extraordinary resource for great national emergencies, in which the necessity of a large additional revenue overrules all objections. ”

“ Rents, salaries, annuities, and all fixed incomes, [pg 556] can be exactly ascertained. But the variable gains of professions, and still more the profits of business, which the person interested can not always himself exactly ascertain, can still less be estimated with any approach to fairness by a tax-collector. The main reliance must be placed, and always has been placed, on the returns made by the person himself. The tax, therefore, on whatever principles of equality it may be imposed, is in practice unequal in one of the worst ways, falling heaviest on the most conscientious. ”

“ I speak diffidently about the income tax because one scheme for an income tax was declared unconstitutional by the Supreme Court; while in addition it is a difficult tax to administer in its practical working, and great care would have to be exercised to see that it was not evaded by the very men whom it was most desirable to have taxed, for if so evaded it would, of course, be worse than no tax at all; as the least desirable of all taxes is the tax which bears heavily upon the honest as compared with the dishonest man. ”

“ Familiar to many people, among curious announcements, will be the following, which is one of many similar that have from time to time appeared in the leading journal:—
THE CHANCELLOR of the EXCHEQUER acknowledges the receipt of the first halves of two £10 notes, conscience-money, for unpaid Income-Tax.
The man who sends conscience-money for income-tax must have been virtuous indeed, if the evasion of that impost has been through life his worst sin. There are many otherwise estimable persons whose greatest pride it is that they have never paid income-tax unless compelled. ”

“ A manufacturer discovers a process by means of which, saving twenty per cent. of his cost of production, he secures an income of twenty-five thousand francs. The treasury calls on him for fifteen thousand. He is obliged, therefore, to raise his prices, since, by the fact of the tax, his process, instead of saving twenty per cent., saves only eight per cent. Is not this as if the treasury prevented cheapness? Thus, in trying to reach the rich, the progressive tax always reaches the consumer ”

“ A real property tax is the fairest of all taxes—but an income tax is the most unfair even when it affects all income; but when it affects the income of some who have a life interest, and not the income of others in the same situation, it is most unfair indeed.
It is quite erroneous to suppose that those who pay an income tax are the only persons who suffer from it. The reduction of establishments, the diminished consumption, the increased economy in every article of expenditure on the part of those affected by it have necessarily the effect of reducing the wages of labour. ”

“ There is to my mind little or no real difference between denying the existence of the power to tax incomes from real and personal estate, and attaching such conditions and requirements to its exercise as will render it impossible or incapable of any practical operation. You might just as well in this case strike at the power to reach incomes from the sources indicated as to attach these conditions of apportionment which no legislature can ever undertake to adopt, and which, if adopted, cannot be enforced with any degree of equality or fairness between the common citizens of a common country. ”