INDIRECT ENCROACHMENT ON FEDERAL AUTHORITY 923 To exclude interest on United States bonds from a general state in- come tax is to confer upon the federal borrowing power a bounty to the extent of the exemption. To include such income would regu- late the activities of the federal government no more than the per- mitted inclusion of income from interstate commerce regulates that commerce "in a constitutional sense." It seems, therefore, that the reason for the exemption of income from United States bonds from state-wide income taxes must be political rather than economic. It must be a conception that the federal government is entitled to claim from the states a subsidy for its borrowing power. It is interesting that no case has specifically held that the states cannot include income from federal bonds in a general state income tax. It is clear, however, that until recently, at any rate, the Su- preme Court has regarded a tax on income as indistinguishable from a tax on the source of the income. In Pollock v. Farmers' Loan & Trust Co.,^^ which, held that the federal government cannot tax the in- come from state and municipal bonds. Chief Justice Fuller declared : "It is contended that although the property or revenues of the States or their instrumentalities cannot be taxed, nevertheless the income de- rived from state, county, and municipal securities can be taxed. But we think the same want of power to tax the property or revenues of the States or their instrumentalities exists in relation to a tax on the income from their securities, and for the same reason, and that reason is given by Chief Justice Marshall in Weston v. Charleston, 2 Pet. 449, 468, where he said: 'The right to tax the contract to any extent, when made, must operate upon the power to borrow before it is exercised, and have a sensible influence on the contract. The extent of this influence depends on the will of a distinct government. To any extent, however incon- siderable, it is a burthen on the operations of government. It may be carried to an extent which shall arrest them entirely. . . . The tax on government stock is thought by this court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently to be repugnant to the Constitution.' Applying this language to these municipal securities, it is obvious that taxation on the interest therefrom would operate on the power to borrow before it is exercised, and would have a sensible influence on the contract, and that the tax in question is a tax on the power of the States and their instrumentalities to borrow money, and consequently repugnant to the Constitution." 59 ■» 157 U. S. 429, 15 Sup. Ct. Rep. 673 (189s). 69 ii^d., 585-86.
