of the success of state income taxes under any form of administration yet devised. The justice of the taxation of incomes was rarely questioned, but the practical difficulties of framing and administering a tax law which would apply equitably to income from various sources appeared insurmountable.

3. Recent income tax legislation

At the beginning of 1911 income tax laws were in force in only five states,-Massachusetts, North Carolina, South Carolina, Virginia, and Oklahoma. The Massachusetts tax was irregularly and unevenly enforced and was of no importance in the fiscal system of the state. In South Carolina and even in North Carolina the officials and the taxpayers resented the difficulties of collecting the taxes under the existing system and pointed to the small revenue as proof of the inadequacy of the tax. The Oklahoma measure was regarded as a failure by the state officials. In Virginia alone the income tax, which had risen to a yield of $130,000 by 1911, was regarded as a productive and valuable part of the state revenue system. The complete abandonment of this form of taxation by the states appeared to be only a matter of time.

Meanwhile an opposing tendency, for a long time unrecognized, was making itself felt in the continued efforts to reform the general property tax which were being made throughout the United States. The personal property tax in particular, because of its inadequacy and its increasingly unjust and pernicious results, was receiving more and more criticism. The states found themselves ready to experiment with classified property taxes, with inheritance, and even with income taxes, as possible avenues of relief from the unsatisfactory state of affairs in which the fiscal system of nearly every state was found.

As a result of the general and persistent attempts to improve state revenue systems the movement for the taxation of incomes spread until at the close of 1920 II states had laws taxing personal incomes. The first indication of the changing point of view regarding state income taxes was given by the passage of an income tax law in Wisconsin in 1911. According to the terms of this law a heavy graduated tax was imposed upon the incomes of individuals and corporations from sources within the state. In 1912 Mississippi followed with a law modelled after the older type of state income-tax legislation. In 1915 Oklahoma made a fundamental revision of the law taxing incomes, following out some of the ideas which had proved workable in Wisconsin. Massachusetts passed an entirely new income tax law, of wide scope, in 1916, thereby abolishing the old income tax system which had survived from the period of colonial " faculty" taxes. Two experiments on a smaller scale were made in 1917 when Missouri and Delaware enacted personal income tax laws. Virginia revised the state income tax law in 1918, but without making important changes. The same year saw the only repeal of an income tax law of any permanence which occurred during the decade: South Carolina abolished the state income tax system and attempted to find no substitute for it. The year 1919 was one of unusual activity in the field of income taxes. New York, North Dakota, New Mexico, and Alabama passed laws taxing personal incomes, and North Carolina made important revisions in the existing law. The New York income tax, on account of the size of the incomes reached, appeared likely to prove the most significant in the history of income tax legislation. The New Mexico law was saved from repeal in 1920 only by the governor's veto. The Alabama law was declared unconstitutional early in 1920. At the close of 1920 the list

of states taxing personal incomes1 stood as follows: Delaware, Massachusetts, Mississippi, Missouri, New Mexico, New York, North Carolina, North Dakota, Oklahoma. Virginia, and Wisconsin.

4. The changed attitude towards the tax

In the ten years which have passed since the income tax was adopted in Wisconsin the attitude of the best-known authorities has changed from scepticism to a tentative approval. Before 1911 the question of interest to students of taxation was not so much one of the possible success of state income taxes, for their elimination seemed only a question of time, but the underlying reasons for the consistency of the failures. In the light of our present knowledge it appears that the methods of administration of the tax, while seized upon by the more critical observers, were not sufficiently analyzed. In the first detailed study of state income taxes, made by Mr. Kinsman and published in 1903, the failure was laid at the door of administration, on four counts:

2

The experience of the states with the income tax warrants the conclusion that the tax, as employed by them, has been unques

1 The plan of taxing the net income of corporations without correspondingly taxing the incomes of individuals had meanwhile been adopted by Connecticut (Laws of 1915, ch. 292), Montana (Laws of 1917, ch. 79), and West Virginia (Laws of 1915, ch. 3). In Connecticut the original tax was two per cent, in Montana one per cent, and in West Virginia one-half of one per cent. Before 1919 New York, with a three per cent tax on the net incomes of manufacturing and mercantile corporations, was included in this group. These states took advantage of the use of federal forms and the dates and machinery of the collection of the federal taxes, and found that the extremely low cost of collection was a distinct advantage of corporation taxes collected in this way. A number of other states taxed the incomes of certain specified classes of corporations.

Kinsman, op. cit., pp. 116, 117, 120, 121.

tionably a failure. It has satisfied neither the demands for justice nor the need of revenue. The question arises: Is this failure due to qualities inherent in the nature of the tax, or is it the result of conditions which may be removed? One of the fundamental principles of taxation is that the subjects of a state ought to contribute to the support of the government in proportion to their respective abilities, and it is generally agreed that these abilities are best measured by income. Therefore, theoretically at least, an income tax is unquestionably the fairest system yet proposed. . . .

While much of the legislation in the states relative to the income tax has been very unsatisfactory, often not appealing to the taxpayers' sense of justice and furnishing excuses for the concealment of property, nevertheless laws have been passed repeatedly which, if properly administered, would have distributed the burden with unusual justice. But these laws have failed quite as completely as those with provisions less satisfactory. The failure of the tax, therefore, can not have been due to the ill success of the laws in embodying the principle.

As the result of our study we conclude that the state income tax has been a failure, due to the failure of administration, which, in turn, may be attributed to four causes-the method of self-assessment, the indifference of state officials, the persistent effort of the taxpayers to evade the tax, and the nature of the income. The tax can not be successful so long as taxpayers desirous of evading taxation are given the right of self-assessment. Since all attempts to change the method of self-assessment have failed and the nature of industry in the states is at present such as to make impossible the assessment of a general income tax at the source, we are forced to the conclusion that, even though no constitutional questions should arise, failure will continue to accompany the tax until our industrial system takes on such form as to make possible the use of some method other than self-assessment.

Writing six years later Mr. Kinsman noted a positive movement in the direction of the state taxation of personal incomes which escaped several of the students of that period. The movement was to have far-reaching effects in the next decade, but up to 1909 it had not shown itself in the passage of income tax legislation. The several reports

of state tax commissions and other interested agencies and individuals against the tax were signs of interest in the device which were not to be disregarded. Moreover, the amendment to the Wisconsin constitution permitting the passage of an income tax law had already been adopted. Mr. Kinsman restated his position as follows:1

A study of the present period of income tax activity . . . affords the author no occasion to modify conclusions previously expressed. The current movement is not due to the success of the tax in any state, but rather to the spirit of reform now sweeping the country. This movement would hardly leave untouched the subject of taxation, where injustice is so common. The people have turned to an income tax because they believe in the theory that individuals should contribute to the support of the government according to ability, and that income is the most just measure of that ability. They expect success because they are possessed of the characteristic American optimism, and know little of the difficulties of administering such a law.

2

Mr. K. K. Kennan, writing in Wisconsin in 1910, quoted with evident approbation passages from Mr. Kinsman's description of the difficulties of administering state income taxes, and added the following comment :

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It is a common remark that income tax laws are all right, but that they do not work in practice. Certainly the experiences of those states which have passed such laws are not encouraging, but is it not possible that the fault lies with the crude and imperfect administrative methods which have thus far been employed?

In the comprehensive volume on the income tax first

1 D. O. Kinsman, "The Present Period of Income Tax Activity in the American States," Quarterly Journal of Economics, vol. xxiii (Feb., 1909), pp. 296-306.

'Mr. Kennan was later given the task of organizing and supervising the work of the income tax districts in Wisconsin.

'K. K. Kennan, Income Taxation (Milwaukee, 1910), pp. 235, 236, 323.