CHAPTER X THE INCOME TAX MOVEMENT IN OTHER STATES THE present period of interest in the taxation of personal incomes as a means of remedying the inequities of the personal property tax and of bringing about contributions to the expenses of the state from those best able to pay has not beeen confined to the states whose income tax measures have been described in the preceding chapters. In a number of other states, particularly in Ohio, Georgia, and California, the movement has attained considerable prominence and at times the adoption of the income tax has seemed imminent. In other states preliminary steps have been taken. In the following pages the most significant of these movements are described. 1. Proposals for an income tax in Ohio The constitution of the state of Ohio contains provision for the adoption of an income tax,' but no active steps were taken in that direction until the state revenue system was submitted to scrutiny by a special committee in 1919. The General Assembly of 1919, which convened early in January, recognized at once the pressing nature of the financial problems before it. Both state and municipal treasuries were facing serious shortages at that time. Emergency measures were promptly enacted, a committee was appointed to recommend legislative measures for increasing the revenue, and a recess was taken in order to allow the 1 Constitution of Ohio, art. ii, sec. 8. 156 [156 committee time in which to do its work. The committee, known as the Special Joint Taxation Committee of the 83rd Ohio General Assembly, rendered its report in December, 1919. The new revenue measures recommended by the committee were an income tax, an inheritance tax, and a tax on motor vehicles. During the course of the preparation of its income tax bill the committee made a study of the experience of those states which had had the best results with income taxes, particularly Wisconsin, Massachusetts, and New York. Use was also made of the plan for a model system of state and local taxation prepared by a committee of the National Tax Association (See Appendix I). The bill provided that the tax should be imposed only upon the incomes of persons resident in the state, but that all income received by residents of the state, from whatever source derived, should be included in the return of income. Professor Harley L. Lutz, economic adviser to the committee, comments as follows on the taxation of non-residents:1 The attempt to tax nonresidents upon the income from property owned and from business, trades, professions or occupations carried on in New York was inspired by a local situation which has no parallel in Ohio. A large number of persons do business or earn incomes in New York and reside in New Jersey, and the tax on nonresidents was confessedly aimed at this group. The taxation of nonresidents is not approved by the committee on a model tax system, and its argument against the practice is familiar to this committee. The definition of gross income in the committee's bill followed closely that contained in the federal law. Stock dividends were excluded from taxable income. The deductions for the purpose of determining taxable net income 1 H. L. Lutz, “The Operation of State Income Taxes," Report of the (Ohio) Special Joint Taxation Committee, p. 107 of the report. followed those of the federal law. The exemptions were set at $500 for unmarried persons and $1,000 for married persons, with $200 additional for each dependent. The committee recognized the fact that these limits were unusually low:1 We recognize that these figures mean an encroachment upon that subsistence minimum which all authorities agree should be exempted, but we have ventured thus far because of our desire to secure as wide a diffusion of the burden of the income tax as possible, and also because of the need of additional revenue from the tax. The committee considered the possibility of requiring taxpayers to file a copy of their federal returns upon which the state income tax might be applied, but decided against it on several grounds. First, the conflict of tax jurisdictions would involve complications; second, there were other differences in the determination of gross and net income; and third, it seemed desirable from the administrative standpoint of the state to have a separate return made, so that the state authorities might have complete control over a set of returns. The bill placed the state tax commission in general charge of the income tax, and enlarged the commission for that purpose. The county auditor was made local collector of incomes, ex-officio, and was to appoint deputies and other assistants. Returns were to be made to the county auditors. The county auditor was to make the assessment, and the tax was to be collected by the county treasurer "at the same time and in the same manner as other taxes." The tax commission was empowered to require information at the source. 'Report, p. 75. The rates of taxation to be applied were as follows: Taxable income Above $4,000 Rate (per cent) I 2 The committee took advantage of the material on the status of incomes in the various states through the publication of Statistics of Income for 1917 by the United States income tax authorities, and prepared a careful statement of the yield of the tax on incomes above $2,000. Taken together with the estimates of the probable yield of the tax on incomes below that amount, the probable yield of the total tax was estimated at from $7,000,000 to $8,000,000. The proposed distribution of the proceeds was in the ratio of three-fourths to the municipal corporations and townships in which the funds originated, and one-fourth to the state to become part of the general revenue. This provision gave recognition not only to the constitutional requirement in Ohio that 50 per cent of the collection of such taxes must be returned to the source, but also to the great needs of the cities. The well-known fact that the income tax has always proved to be an urban tax was noted, and it was anticipated that from the apportionment to the localities of about $6,000,000 of the estimated yield in the first year of the collection of the tax the cities would obtain some relief from the serious financial difficulties under which they were laboring at the time when the commission was doing its work, although the relief for the year 1920 would still be inadequate. The income tax bill was promptly defeated by both branches of the legislature when it was introduced in December, 1919. The basis of opposition was the argument 1 Bulletin of the National Tax Association, vol. v, no. 5 (Feb., 1920), P. 133. that such a law must necessarily contain inquisitorial provisions which would disclose intangible property to the taxing officials, with the result that it would thenceforward be subject to taxation, and the arguments of banks and other financial institutions that serious injuries to their business would follow the passage of such an act. Repeated attempts were made to pass the bill with amendments covering some of the points under objection, but all hope of its ultimate passage was finally abandoned late in December, 1919. 2. The income tax movement in Georgia In Georgia a recent attempt to introduce a personal income tax has failed, although the evidence indicates that the movement had and probably still has the force of a considerable body of public opinion behind it. Georgia had had one rather unusual experience with the personal income tax at the time of the Civil War.1 In 1863 a tax on profits was levied, with a progressive rate based on the ratio of income to capital, and so planned that-theo retically at least—if profits were ten time capital the entire income went as taxes. Evasion and fraud very naturally resulted, and the tax was dropped soon after the war. The late attempt to introduce an income tax drew its support from a knowledge of the increasing use of the personal income tax in other states. In Georgia, as in other states, Civil War experiments are recognized to have little value in dealing with twentieth-century fiscal problems. In 1918 the legislature found the state's sources of revenue inadequate to provide funds for the ever-increasing government expenses and at the same time it realized the seriousness of the restrictions upon the taxing power found in the 1 Seligman op. cit., pp. 411, 412. |