experience of other states anad other countries, the first law was drafted in such a way that the principal pitfalls of American state income taxes of the past were avoided: the rates were made sufficiently high, the tax was made a general income tax, and a new type of centralized administration, safeguarded from political exploitation as far as possible, was devised. In view of the care with which the system was planned, it is not strange that Wisconsin was the first state to make the income tax a smoothly working fiscal measure and at the same time a source of great rev enue. The excellence of many of the provisions of the original Wisconsin law is now widely recognized. In the preparation of a draft of a model personal income tax law (Appendix II) the National Tax Association's committee on a model system of state and local taxation utilized many portions of the Wisconsin law, and followed fairly closely the outline of administration which has been perfected in Wisconsin, for it is this field that Wisconsin's contribution has been the greatest. The best modern opinion has now turned against rates as high as those used in Wisconsin, is opposed to limiting the incomes taxed to those derived within the state, and is unconditionally against the use of such devices as the personal property tax offset; but the superiority of Wisconsin's administrative machinery has never been questioned. It would hardly be an exaggeration to say that the success of state income taxes in the last few years of their history has been due largely to the adaptation and use of the plan of centralized and specialized administration of the state income tax which was first used by Wisconsin in 1911. CHAPTER III THE TAXATION OF INCOMES IN MISSISSIPPI AND OKLAHOMA THE adoption of the income tax by Wisconsin in 1911 had far-reaching consequences for other states as well as for Wisconsin itself, but these influences required time in which to make themselves felt. The law which was the immediate successor of the Wisconsin income tax law, that of Mississippi, showed no traces of the experiment which was going on in the north. Mississippi, unlike many of the southern states, had had no experience with the early faculty taxes or with Civil War income taxes. Property taxes and privilege taxes made up the greater part of the revenue. The latter proved unsatisfactory and unequal, as they have so generally become where they are extensively used, and in 1912 it was decided that the income tax should be tried out. Unfortunately the tax was modelled after that of the nearest neighbor with an income tax, Oklahoma, which had been trying to collect a tax of the older type, and the Wisconsin devices were ignored. Apparently the law was handicapped from the beginning. In addition to the defects of the Oklahoma type of law to which Mississippi fell heir, the Mississippi law of 1912 contained an error in phrasing which could not be remedied until 1914,1 so that its operation was delayed. 1 Laws of Mississippi, 1912, ch. 101; 1914, ch. 116. 1. The present Mississippi tax By the terms of the act of 1912, which is still in force, a tax of one-half of one per cent is levied upon all individual incomes in excess of $2,500. Expenses of doing business and ad valorem taxes paid may be deducted from income. The proceeds go to the general state fund. The enforcement of the law and the other duties of administration are left to the state auditor and the regular county assessors. The Mississippi income tax has never yielded a large Before 1918 the tax could never be counted upon to yield more than $25,000. In later years, with the growth of money incomes in the country, the receipts have more than doubled, but they still form only a very small revenue. 2 percentage of the total tax receipts of the state. The small return from the income tax in Mississippi is brought out even more clearly by a comparison with the amounts collected in Mississippi by the federal government in a corresponding period. The federal income tax receipts from the state for 1918 were $3,542,849,* or more than 100 times as great as the state collections. The cost of administering the income tax in Mississippi is not separately calculated, for the matter is handled by officials who are elected for other duties. That part of the 1 Joint Report of the (Mississippi) Senate and House Committee to Consider the State's Revenue System and Fiscal Affairs, Submitted to the Regular Session of 1918, p. 42. "One per cent in 1918. 3 Statement of the Auditor of Public Accounts, January 18, 1921. United States Internal Revenue, Statistics of Income for 1918, p. 24. tax which is collected by the revenue agent costs 20 per cent of the amount collected (the revenue agent's commission) and the remaining 80 per cent is turned over to the state. 2. Efforts to reform the Mississippi law The Mississippi income tax law was regarded as a failure almost from the first and repeated efforts have been made to substitute a more effective measure. The Senate and House Committee on Revenue which reported in 1918 recognized the fact that changes in income tax practice had come about since 1912, and recommended sweeping changes: 1 The present income tax law of Mississippi should be repealed outright. We recommend the passage of a law with progressive rates, taxing incomes of both individuals and corporations. The law we submit is an adaptation of the Wisconsin and Federal income tax statutes to Mississippi conditions. . . . It is necessary that the State Tax Commission be given administration of the law, and that they should be provided with funds to administer it properly. Its success or failure is solely a matter of administration. Meanwhile the state tax commission was exposing the defects of the existing tax system and advocating a net income tax to reach business incomes, with the necessary administrative provisions, as a substitute for privilege taxes.a A bill embodying the recommendations of the Joint Committee was introduced in the legislature of 1918, and was passed in the house but defeated in the senate. The state tax commission at once resumed its persevering appeals for the abolition of the existing law, urging that the repeal was desirable even if a better law could not be substituted." 1 Joint Report, pp. 41, 42. 2 Mississippi Tax Commission, Report for 1917, pp. 11, 20. 3 Mississippi Tax Commission, Report for 1919, pp. 31, 32. A The Legislature would do well to substitute an income tax for the privilege tax. It might be well for this to be done by degrees in order that the State will not be denied any needed revenue. tax on business should be measured by the net amount of the income of the business. The imposition of an income tax along with the ad valorem tax will reach practically all who should contribute funds for the support of the State Government. With the offset of one against the other, there will not be double taxation. At the same time the commission expressed its criticism of the state privilege taxes and of the methods of taxing personal property. The privilege taxes were described as imposed on business unequally and therefore unjustly. For example, "a lawyer who has a practice of one thousand dollars per annum pays as much as one who has a practice of twenty thousand dollars per annum." The personal property taxes in their turn are in a confused state. method of taxing money penalizes the honest man; that of taxing deposits has driven large sums into other states, and the burden is borne by land and tangible property. 66 The There are professional men, making enormous incomes, who pay nothing, practically, because they own no tangible property. Their deposits, cash on hand and customer's accounts cannot be found by the Assessor." 1 In spite of the urgent recommendations of the state tax commission, repeated from year to year, the legislature of 1920 not only failed to change the income tax law of the state, but even increased the taxes on some privileges more than 100 per cent, with an average increase of 40 per cent. The inadequate personal income tax law of 1912 still stands, therefore, along with the unsatisfactory system of privilege and property taxes. 1 Ibid., p. 32. 'Bulletin of the National Tax Association, vol. v, no. 9 (June, 1920), P. 271. |