circuity of action is not, moreover, an injury but a gain to those who pay the tax. It can not, however, be seriously claimed that a man having $100,000 dollars of productive capital, and receiving from it $4,000 of annual income, is entitled to receive support from the Government as a public pauper.
An income tax which permits of any exemption whatever is a graduated income tax, not by the rate of the tax but by the amount of the exemption, because all incomes below an arbitrary line are entirely exempt from the tax. Again, in treating of an income tax it should be always borne in mind that, when a Government taxes the income of property, it in reality taxes the property from which the income is derived. In England and on the Continent of Europe land is taxed on its yearly revenue, or income value, and these taxes are always considered as land taxes. Alexander Hamilton, in discussing the taxation of incomes derived directly from property, used this language: "What, in fact, is property but a fiction, without the beneficial use of it? In many instances, indeed, the income is the property itself." (Hamilton's Works, vol. iii, p. 523.)
As in theory all citizens ought to contribute in proportion to their revenue to the support of the Government under which they have chosen to live and to which they look for protection in respect to their persons and property, the exemption of any from an income tax can only be justified on the assumption of the non-receipt by the citizen of an income beyond what is necessary to defray the expenses of a moderate living. In truth, any exemption under a general income tax is in principle an act of charity on the part of the Government. It is interesting, therefore, to note where the authors or special advocates of the income tax of 1884 proposed to draw the line in respect to charity and as to the amount of property the possession or enjoyment of which, in their opinion, constituted riches.
If the law exempts from taxation income from property to the extent of $2,000, it in effect exempts property to the capital value of $50,000 from taxation, for at present four per cent is about the average profit of money, land, or other property, over and above all charges and taxes, and at that rate of profit $2,000 will be the annual income value of $50,000. If, however, we asssumefive per cent as about the present annual average profit on money, land, or other property in the United States, over and above all charges and taxes, then an exemption of $4,000, the rate fixed upon in the income-tax act of 1884, would represent an accumulation, or business, or profession, of the value of $80,000. If we take the rate at which the United States can borrow money—namely, three per cent—then an exemption of $4,000 would represent an accumulation of a citizen, invested in United States securities, of
