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the part of the public authorities. All this render

of such a law more probable there than in Americ, indeed, the attempts already made in certain states to sec. correct returns of personal property by means of declarations have proved wholly ineffectual.

In grading the incomes, the new law has made the divisions much finer than before. There are now 75 grades or classes for incomes from 3000 up to 120,000 marks, while under the law of 1873 there were only 27, and before that 19. Beyond this point the increment of increase in the new classification is 5000 marks, while in the old it was for a few grades 24,000 marks, and finally mounted to 60,000. As a result of this change, it is now necessary to ascertain the taxpayer's income with an approach to accuracy which was not required before, and would at any rate be impossible without the declarations. Under the former classification the assessors, even though they were required to avoid jedes lästige Eindringen, might perhaps decide with some confidence that a man's income was, for instance, somewhere between 60,000 and 72,000 marks. Any variation within these limits could be neglected, since it did not affect the rate. Under the new law, however, there are now seven classes within the same limits; and it is necessary to decide whether, in the given case, the income is between 60,000 and 62,000 marks, or between 62,000 and 64,000, and so on, thus implying a pretty exact knowledge of the financial situation of the taxpayer, such as could hardly be obtained without his coöperation. Moreover, when once the income is ascertained, the new classification will have the effect of increasing the tax in most cases, for the reason that, under a classified income tax, the amount by which any income exceeds the minimum limit of the class in which it is rated is practically untaxed. The narrower the classes, therefore, the smaller these portions. of untaxed income must be.

Of especial importance are the changes which the law has made in the rates. Beginning with the lowest class, which includes incomes from 900 to 1050 marks, the tax is 6 marks, being equivalent to about .62 of 1 per cent of the mean income. This rate increases until it reaches 3 per cent on an income of 10,000 marks, which, it will be remembered, was the uniform

rate per cent of the former income tax. In the ministerial bill the progression ceased at this point; and thereafter the rate was uniformly 3 per cent of the mean income in each class. But the Lower House of the Landtag was not content with this. Unlike its predecessor of 1847-51, it was more radical than the government, and in the bill as finally passed the 3 per cent rate is retained only on incomes between 10,000 and 30,000 marks. Then the progression begins again, and continues until the rate reaches 4 per cent on an income of 100,000 marks. Thereafter this remains the uniform rate per cent estimated on the minimum income of each class; or, in other words, the tax increases 200 marks for every 5000 marks' increase of income.1 Speaking generally, then, the effect of the new law is to lower the tax on incomes under 10,000 marks and increase it on higher incomes. And even for incomes between 10,000 and 30,000 marks, where the rate is nominally, as before, 3 per cent, there is really an increase of taxation resulting first, from the increase in the number of classes; and, secondly, from the fact that the tax is now 3 per cent of the mean instead of the minimum income in each class. To illustrate under the old law an income between 14,400 and 16,800 marks was rated in class 12 and assessed 432 marks; under the new law this income would be taxed as follows:

There is here, then, a slight reduction in the tax on incomes between 14,400 and 14,500 marks, but above that point the tax is more than it was under the old classification.

In the assessment of small incomes, the Prussian law has

1 It must not be forgotten that these rates by no means give the full amount of the income tax. The communal sur-taxes must be added to the state tax, and often have the effect of more than doubling the rates given above.

I always favored the taxpayer by granting a partial or complete abatement of his tax, if he had to support a large family, or contend with any special misfortunes or disadvantages such as serious cases of sickness, accident, fire, floods, or debt. This was a feature of the class tax of 1851. The law of 1873 retained this feature, and introduced it for the two lowest grades of the income tax as well, so that all taxpayers whose incomes did not exceed 4200 marks were entitled to this special consideration, although under the income tax the reduction could not be carried farther than to the next lower rate. The law of 1891 gives a still wider application of this principle, by permitting a reduction of the tax to an extent not exceeding three grades on account of "any special economic conditions which seriously impair the efficiency (Leistungsfähigkeit)" of the taxpayer whose taxable income does not exceed 9500 marks. The exact nature of the special economic conditions is not more definitely described, but presumably the intention is to include such cases as were expressly mentioned in previous laws. The case of children in the family, however, is especially provided for; and, while the reduction is confined to the incomes under 3000 marks, a return in this case to the limit of 1851, — it is not as before simply permitted, but is required and definitely regulated by law, since for every dependent member of the family under fourteen years of age 50 marks must be deducted from the taxable income of the head of the family. This of itself would not in every case produce a reduction of the tax; but the law further provides that, if there are three or more such members in the family, the tax itself must, at all events, be reduced by at least one grade.

One other new feature in this law is the taxation of corporations and stock companies, which must now pay the income tax on all dividends and net earnings above 3 per cent of the capital paid in. The dividends are of course also included in the income of the stockholder, and, if he is a Prussian, are taxed as such. This results in the double taxation of the excess above 3 per cent; but in this way and to this extent the foreign. stockholder is taxed once, which seems to have been regarded as a strong argument in support of this provision. The double taxation of the Prussian stockholder may, perhaps, be defended

on the principle of the higher taxation of funded incomes, which, as we have seen, was a feature of the unsuccessful tax bill of 1847; but the provision appears to be simply a compromise between the desire to tax the foreign stockholder and the opposition. which might be made against taxing the Prussian stockholder twice on the full amount of his dividends.

Thus the development of personal taxation in Prussia has resulted in the adoption of a partially progressive income tax. The general tendency of each reform may be more clearly seen, perhaps, if we indicate briefly the steps by which this result has been reached.

1. A uniform poll tax, 1811.

2. A class tax, collecting somewhat more from the prosperous and not less from the poor, 1820–21. —

3. To supplement the class tax, an income tax with comparatively few classes, a uniform rate, and a maximum limit, 1851.

4. Classification made finer, the maximum limit removed, and the class tax made practically an income tax, with a progressive rate, and the exemption of incomes up to 420 marks, 1873.

5. Exemption of incomes up to 900 marks, reduction of the remaining rates of the class tax and of the two lowest rates of the income tax, 1881-83.

6. The principle of progression extended to all incomes under 100,000 marks, incomes under 10,000 marks taxed less than before, and higher incomes more; a declaration of income by the taxpayer required, and a finer classification adopted, 1891.

In connection with this résumé it may be well to note that such progression as existed in the rates on small incomes previous to this latest reform was probably not a true recognition of the progressive principle of taxation, but simply a reduction of the regular rate made in view of the fact that the indirect taxes collect proportionally more from the smaller incomes than from the larger, so that, when we consider the tax system as a whole, the aim was not progressive, but simply proportional taxation. Such a reduction from the normal or uniform rate German writers designate as degressive taxation. In the new law, however, the progressive principle finds a distinct although partial application, since in collecting 4 per cent from incomes of

100,000 marks or more and only 3 per cent or less from incomes under 30,000 marks, it is manifestly the intention that the rich shall contribute, not simply more proportionally than the poor, but also more than men of moderate means. Strictly considered, then, this is not an extension of the progressive principle, but its introduction.1

44. The British Income Tax. Dr. Hill describes the working of this tax as follows: 2

I. GENERAL DESCRIPTION

The tax has had, in fact, a somewhat remarkable history. Originally adopted as a temporary resource, it has now been assessed for over fifty years without any interruption; and although still, in form, a temporary tax, requiring for its continuance an annual renewal by act of Parliament, it is, in all probability, as firmly established and as permanent as any part of the revenue system. The tax is, however, more than fifty years old if we date its age from its first appearance in the fiscal system of England. A tax on incomes was resorted to by William Pitt as far back as 1798, and the income tax in its present form was introduced in 1803. These were war taxes. At that period a direct tax on income could hardly have been levied by any government in a time of peace. But under the pressure of the heavy strain which the struggle with Napoleon was imposing upon the financial resources of England, it was accepted as a burdensome but justifiable demand upon the patriotism of the nation. When the Napoleonic wars terminated with the Battle of Waterloo and a permanent peace had been established under the Treaty of Vienna, the tax was at once discontinued. It was not resorted to again until 1842. In that year Sir Robert Peel revived it, partly to provide for a deficit in the budget and partly to enable him to make certain

1 It may be noted that in the communal sur-taxes the progression has often been carried much farther and made much sharper than in the state tax. See Neumann, Einkommensteuer, pp. 112 et seq.

2 Reprinted from The English Income Tax, by Dr. J. A. Hill, in Economic Studies of the American Economic Association, 1899. Reprinted with the consent of the author and the Association.