Chapter 33

There has come over the land that un-American set of conditions which enables a small number of men who control the Government to get favors from the Government; by those favors to exclude their fellows from equal business opportunity; by those favors to extend a network of control that will presently drive every industry in the country, and so make men forget the ancient time when America lay in every hamlet, when America was to be seen on every fair valley, when America displayed her great forces on the broad prairies, ran her fine fires of enterprise up over the mountain sides and down into the bowels of the earth, and eager men were everywhere captains of industry, not employees; not looking to a distant city to find out what they might do, but looking about among their neighbors, finding credit according to their character, not according to their connections, finding credit in proportion to what was known to be in them and behind them, not in proportion to the securities they held that were approved where they were not known. In order to start an enterprise now, you have to be authenticated, in a perfectly impersonal way, not according to yourself, but according to what you own that somebody else approves of your owning. You can not begin such an enterprise as those that have made America until you are so authenticated, until you have succeeded in obtaining the good-will of large allied capitalists. Is that freedom? That is dependence, not freedom.

We used to think, in the old-fashioned days when life was very simple, that all that government had to do was to put on a policeman's uniform and say, "Now don't anybody hurt anybody else." We used to say that the ideal of government was for every man to be left alone and not interfered with, except when he interfered with somebody else; and that the best government was the government that did as little governing as possible. That was the idea that obtained in Jefferson's time. But we are coming now to realize that life is so complicated that we are not dealing with the old conditions, and that the law has to step in and create the conditions under which we live, the conditions which will make it tolerable for us to live.

Let me illustrate what I mean: It used to be true in our cities that every family occupied a separate house of its own, that every family had its own little premises, that every family was separated in its life from every other family. That is no longer the case in our great cities. Families live in tenements, they live in flats, they live on floors; they are piled layer upon layer in the great tenement houses of our crowded districts, and not only are they piled layer upon layer, but they are associated room by room, so that there is in every room, sometimes, in our congested districts, a separate family. In some foreign countries they have made much more progress than we in handling these things. In the city of Glasgow, for example (Glasgow is one of the model cities of the world), they have made up their minds that the entries and the hallways of great tenements are public streets. Therefore, the policeman goes up the stairway and patrols the corridors; the lighting department of the city sees to it that the halls are abundantly lighted. The city does not deceive itself into supposing that that great building is a unit from which the police are to keep out and the civic authority to be excluded, but it says: "These are public highways, and light is needed in them, and control by the authority of the city."

I liken that to our great modern industrial enterprises. A corporation is very like a large tenement house; it isn't the premises of a single commercial family; it is just as much a public affair as a tenement house is a network of public highways.

When you offer the securities, of a great corporation to anybody who wishes to purchase them, you must open that corporation to the inspection of everybody who wants to purchase. There must, to follow out the figure of the tenement house, be lights along the corridors, there must be police patrolling the openings, there must be inspection wherever it is known that men may be deceived with regard to the contents of the premises. If we believe that fraud lies in wait for us, we must have the means of determining whether our suspicions are well founded or not. Similarly, the treatment of labor by the great corporations is not what it was in Jefferson's time. Whenever bodies of men employ bodies of men, it ceases to be a private relationship. So that when courts hold that working men can not peaceably dissuade other working men from taking employment, and base the decision upon the analogy of domestic servants, they simply show that their minds and understandings are lingering in an age which has passed away. This dealing of great bodies of men with other bodies of men is a matter of public scrutiny, and should be a matter of public regulation.

Similarly, it was no business of the law in the time of Jefferson to come into my house and see how I kept house. But when my house, when my so-called private property, became a great mine, and men went along dark corridors amidst every kind of danger in order to dig out of the bowels of the earth things necessary for the industries of a whole nation, and when it came about that no individual owned these mines, that they were owned by great stock companies, then all the old analogies absolutely collapsed, and it became the right of the government to go down into these mines to see whether human beings were properly treated in them or not; to see whether accidents were properly safeguarded against; to see whether modern economical methods of using these inestimable riches of the earth were followed or were not followed. If somebody puts a derrick improperly secured on top of a building or overtopping the street, then the government of the city has the right to see that that derrick is so secured that you and I can walk under it and not be afraid that the heavens are going to fall on us. Likewise in these great beehives where in every corridor swarm men of flesh and blood, it is the privilege of the government, whether of the State or of the United States, as the case may be, to see that human life is properly cared for, and that human lungs have something to breathe.

These, again, are merely illustrations of conditions. We are in a new world, struggling under old laws. As we go inspecting our lives to-day, surveying this new scene of centralized and complex society, we shall find many more things out of joint.

One of the most alarming phenomena of the time--or rather it would be alarming if the Nation had not awakened to it and shown its determination to control it--one of the most significant signs of the new social era is the degree to which government has become associated with business. I speak, for the moment, of the control over the Government exercised by Big Business. Behind the whole subject, of course, is the truth that, in the new order, government and business must be associated, closely. But that association is, at present, of a nature absolutely intolerable; the precedence is wrong, the association is upside down. Our Government has been for the past few years under the control of heads of great allied corporations with special interests. It has not controlled these interests and assigned them a proper place in the whole system of business; it has submitted itself to their control. As a result, there have grown up vicious systems and schemes of governmental favoritism (the most obvious being the extravagant tariff), far-reaching in effect upon the whole fabric of life, touching to his injury every inhabitant of the land, laying unfair and impossible handicaps upon competitors, imposing taxes in every direction, stifling everywhere the free spirit of American enterprise.

Now this has come about naturally; as we go on, we shall see how very naturally. It is no use denouncing anybody or anything, except human nature. Nevertheless, it is an intolerable thing that the government of the Republic should have got so far out of the hands of the people; should have been captured by interests which are special and not general. In the train of this capture follow the troops of scandals, wrongs, indecencies, with which our politics swarm.

There are cities in America of whose government we are ashamed. There are cities everywhere, in every part of the land, in which we feel that, not the interests of the public, but the interests of special privileges of selfish men, are served; where contracts take precedence over public interest. Not only in big cities is this the case. Have you not noticed the growth of socialistic sentiment in the smaller towns? Not many months ago I stopped at a little town in Nebraska while my train lingered, and I met on the platform, a very engaging young fellow, dressed in overalls, who introduced himself to me as the mayor of the town, and added that he was a Socialist. I said, "What does that mean? Does that mean that this town is socialistic?" "No, sir," he said; "I have not deceived myself; the vote by which I was elected was about 20 per cent. socialistic and 80 per cent, protest." It was protest against the treachery to the people and those who led both the other parties of that town.

All over the Union people are coming to feel that they have no control over the course of affairs. I live in one of the greatest States in the Union, which was at one time in slavery. Until two years ago we had witnessed with increasing concern the growth in New Jersey of a spirit of almost cynical despair. Men said, "We vote; we are offered the platform we want; we elect the men who stand on that platform, and we get absolutely nothing." So they began to ask, "What is the use of voting? We know that the machines of both parties are subsidized by the same persons, and therefore it is useless to turn in either direction."

It is not confined to some of the State governments and those of some of the towns and cities. We know that something intervenes between the people of the United States and the control of their own affairs at Washington. It is not the people who have been ruling there of late.

Why are we in the presence, why are we at the threshold, of a revolution? Because we are profoundly disturbed by the influences which we see reigning in the determination of our public life and our public policy. There was a time when America was blithe with self-confidence. She boasted that she, and she alone, knew the processes of popular government; but now she sees her sky overcast; she sees that there are at work forces which she did not dream of in her hopeful youth.

Don't you know that some man with eloquent tongue, without conscience, who did not care for the Nation, could put this whole country into a flame? Don't you know that this country from one end to another believes that something is wrong? What an opportunity it would be for some man without conscience to spring up and say: "This is the way. Follow me!"--and lead in paths of destruction.

The old order changeth--changeth under our very eyes, not quietly and equably, but swiftly and with the noise and heat and tumult of reconstruction.

I suppose that all struggle for law has been conscious, that very little of it has been blind or merely instinctive. It is the fashion to say, as if with superior knowledge of affairs and of human weakness, that every age has been an age of transition, and that no age is more full of change than another; yet in very few ages of the world can the struggle for change have been so widespread, so deliberate, or upon so great a scale as in this in which we are taking part.

The transition we are witnessing is no equable transition of growth and normal alteration; no silent, unconscious unfolding of one age into another, its natural heir and successor. Society is looking itself over, in our day, from top to bottom; is making fresh and critical analysis of its very elements; is questioning its oldest practises as freely as its newest, scrutinizing every arrangement and motive of its life; and it stands ready to attempt nothing less than a radical reconstruction, which only frank and honest counsels and the forces of generous cooperation can hold back from becoming a revolution. We are in a temper to reconstruct economic society, as we were once in a temper to reconstruct political society, and political society may itself undergo a radical modification in the process. I doubt if any age was ever more conscious of its task or more unanimously desirous of radical and extended changes in its economic and political practise.

We stand in the presence of a revolution--not a bloody revolution, America is not given to the spilling of blood--but a silent revolution whereby America will insist upon recovering in practise those ideals which she has always professed, upon securing a government devoted to the general interest and not to special interests.

We are upon the eve of a great reconstruction. It calls for creative statesmanship as no age has done since that great age in which we set up the government under which we live, that government which was the admiration of the world until it suffered wrongs to grow up under it which have made many of our own compatriots question the freedom of our institutions and preach revolution against them. I do not fear revolution. I have unshaken faith in the power of America to keep its self-possession. Revolution will come in peaceful guise, as it came when we put aside the crude government of the Confederation, and created the great Federal Union which governed individuals, not States, and which has been these one hundred and thirty years our vehicle of progress. Some radical changes we must make in our law and practise. Some reconstructions we must push forward, which a new age and new circumstances impose upon us. But we can do it all in calm and sober fashion, like statesmen and patriots.

I do not speak of these things in apprehension, because all is open and above-board. This is not a day in which great forces rally in secret. The whole stupendous program must be publicly planned and canvassed. Good temper, the wisdom that comes of sober counsel, the energy of thoughtful and unselfish men, the habit of cooperation and of compromise which has been bred in us by long years of free government in which reason rather than passion has been made to prevail by the sheer virtue of candid and universal debate, will enable us to win through to still another great age without violence.

THE INCOME TAX IN AMERICA

THE UNITED STATES CONSTITUTION AMENDED A.D. 1913

JOSEPH A. HILL

During the year 1913 a most amazing event happened. The United States amended its Constitution by peaceful means. Indeed the Constitution was twice amended; for, having passed the sixteenth amendment in February, permitting an income tax, the States, just to show what they could do when aroused to it, passed the seventeenth amendment in May, authorizing the direct election of United States senators by the people.

Amending the United States Constitution is so difficult and cumbrous a proceeding, that it had not previously been accomplished for over a century, except by the throes of the terrible Civil War. The original Constitution had twelve amendments added to it before it was fully established in running order in 1804. The thirteenth, fourteenth, and fifteenth amendments were added after 1865 to prohibit slavery. They were forced upon the unwilling Southern States. From 1804 to 1913 no amendment was put through by the regular process. Yet in that time efforts to amend were made on over one hundred and forty occasions. Men had grown discouraged at last; they said that amendment was impossible. The cumbrous system which has thus so long blocked all change was that Congress must by a two-thirds vote in each House agree to submit an amendment to the States. These must then pass upon the new law, each in its own legislature. If three-fourths of the legislatures approved, the amendment was to be accepted. Few of the proposed changes ever won a two-thirds vote in both Congressional Houses; and of those few not one had ever appealed to the necessary overwhelming majority of State legislatures. The Senatorial amendment passed Congress several years ago, and had long been knocking rather hopelessly at legislative doors. Then the Income Tax amendment appeared. Congress passed it almost hurriedly in a spasm of progressiveness in 1909. Then came the great sweep of progressive policies to victory in the elections of 1912; and legislatures everywhere awoke to the universal insistence on the Income Tax. All the States but six approved the amendment; and one of the last acts of President Taft during his administration was to proclaim its adoption. The popular amendment swept along in its train the Senatorial change; and the latter, though still opposed by most of the old South, was ratified by all the rest of the States except Rhode Island and Utah. So it also became law.

Nothing illustrates better the "tyranny of the dead hand" in the United States than the history of the income tax. The Constitution laid it down that no head tax or other direct tax should be imposed except by apportioning it among the several States on the basis of their population. No more effective barrier to any system of direct taxation could possibly have been devised. It would seem clear that the main intention of this Constitutional provision was not merely to protect the people of the smaller States, but to force the United States Government to depend for its revenue upon indirect taxes. Such, at any rate, has been its effect. Legal ingenuity, however, can get round anything. The Supreme Court decided as long ago as 1789 that an income tax was not a direct tax, and need not, therefore, be apportioned among the States. During the Civil War, though not, curiously enough, until every other source of taxable wealth had pretty well run dry, an income tax was actually imposed by three separate Acts of Congress, the Act of 1864 levying a tax of 5 per cent. on all incomes between $600 and $5,000, and of 10 per cent. on all incomes above $5,000. The tax continued to be collected up to 1872, when it was repealed.

The constitutional character of the tax, when levied without apportionment among the States of the Union, was once more fully argued out in the Supreme Court, which in 1880 reaffirmed its decision of 1789, that a tax on incomes was not a direct tax. Some fifteen years later, however, the question emerged again, and in a crucial form. The Democrats came into power in 1893, and proceeded to reduce the tariff, relying upon a tax of 2 per cent. on all incomes of over $4,000 to make good the expected loss of revenue. The Supreme Court in 1895 shattered all their fiscal plans and policies by pronouncing the income tax to be a direct tax, and therefore incapable of being levied, except in strict proportion to the population of the various States, and therefore, in effect, incapable of being levied at all.

That decision, in all its absurdity, has stood ever since. Its consequences were to deny to the United States Government the right to tax incomes, to restrict it still further to customs duties as virtually its sole source of revenue, to deprive it of a power that might one day be vital to the safety of the Union, and to exhibit it in a condition of feebleness that was altogether incompatible with any rational conception of a sovereign State. It is true that the Supreme Court has changed not only its _personnel_, but its spirit, and its whole attitude toward questions of public policy, since 1895. It has more and more allowed the influence of the age and the necessities of the times and the clear demands of social and economic justice to moderate its decisions; and had the question of an income tax been brought before it any time in the last five years, it would probably have reversed its judgment of 1895. But President Taft was undoubtedly right when he urged, in 1909, that the risk of another adverse decision was too great to be run, and that the safer course was to proceed by way of an amendment to the Constitution.

The mere passing of the Income Tax amendment did not, however, establish an income tax. It merely authorized the government to do this at will. President Wilson's administration was prompt to take the matter up. The Democrats, in conjunction with their reduction of the tariff, needed a new source of revenue. So in October of 1913 the Income Tax law was passed. In theory an Income Tax is obviously the most just of all taxes. It summons each citizen to pay for the government in proportion to his wealth; and his wealth marks roughly the amount of government protection that he needs. In practise, however, the working out of an income tax is so complex that every grumbler can find in its intricacies some cause of complaint. The present tax is therefore described here by an expert statistician, Mr. Joseph A. Hill, the United States Government official at the head of the Division of Revision and Results of the Census Bureau in Washington.

Among the notable events of the year 1913, one of the most important in its influence upon the national finances and constitutional development of the United States is the adoption of an amendment to the Federal Constitution giving Congress the power "to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States and without regard to any census or enumeration." The mere fact that an amendment of any kind has been adopted is notable, this being the first occasion on which the Constitution had undergone any change since the period of the Civil War, and the first amendment adopted in peaceful and normal times since the early days of the Republic.

It is a little remarkable, although perhaps not altogether accidental, that the adoption of this amendment should coincide with the return to power of the political party whose attempt to levy an income tax in 1894 was frustrated by the decision of the Supreme Court in that year. Then as now an income tax was a component part of the program of fiscal and commercial reform to which that party was committed. This program included the reduction of protective tariff duties and the direct taxation of incomes. What the Democratic party failed to accomplish in 1894, it has had a free hand to do in 1913. Indeed, the national taxation of incomes might almost be regarded as a mandate of the people of the United States. At any rate, it was a foregone conclusion that the adoption of the constitutional amendment would be immediately followed by the enactment of an income-tax law.

The law instituting the income tax was approved October 31[?], together with the law revising the tariff, both measures being included in one comprehensive statute entitled "An Act to reduce tariff duties and to provide revenue for Government, and for other purposes." It is the object of the present article to give a general description of the income tax. This seems to be especially well worth while because the tax can not be readily understood from a mere perusal of the involved and sometimes obscure phraseology of the law itself. For the same reason, however, the task of interpretation is not easy or entirely safe. The law has certain novel features; and some of the questions of detail to which they give rise can not be answered until we have the official construction placed upon the language of the act by the executive branch of the government and possibly by the courts. At the same time, the main features of the tax become fairly evident to any one who makes a careful study of the provisions of the act, even though its application to specific cases may remain doubtful.