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form on the same class of subjects;" while the Supreme Court of that State has decided that this requirement is merely declaratory. Kitty Roup's Case, 82 Penn. St. 211.

The question, therefore, arises, how far the legislative power of classification extends. Most decisions in State courts are inapplicable, as they construe provisions not found in the Federal Constitution. Under the Pennsylvania requirement above quoted, the power of classification is very extensive. Commonwealth v. Germania Brewing Co., 145 Penn. St. 83, 86, 89; Commonwealth v. National Oil Co., 157 Penn. St. 516. In the absence of special Constitutional restrictions, similar latitude has been allowed by this and other courts. Bell's Gap Railroad Co. v. Pennsylvania, 134 U. S. 232, 237; Home Ins. Co. v. New York, 134 U. S. 594, 606, 607; Pacific Express Co. v. Seibert, 142 U. S. 339, 351; Giozza v. Tiernan, 148 U. S. 657, 662; Matter of McPherson, 104 N. Y. 306, 316, 317, 318; Gibbons v. District of Columbia, 116 U. S. 404, 408; Cooley on Taxation, 2nd ed., p 164.

Congress in this act has simply exercised its right of classification. The provisions now objected to are nearly all to be found in the income tax laws of the war and reconstruction period, and many are general in all similar fiscal systems. It is impossible to construe this law and discuss its constitutionality or application without understanding its underlying principle. This principle is one of compensation. Certain principles of taxation are well settled, and almost universally recognized: first, that taxes on consumption bear unduly hard

upon the poor and upon what is called by the economists the

lower middle class, financially speaking, because the comparatively poor consume all or nearly all of their income; second, that the fairest method of equalizing taxation is by an income tax with an exemption of all incomes below a certain amount. John Stuart Mill's Political Economy, Vol. 2, p. 476; Sir Robert Peel, quoted by Senator Sherman, Cong. Globe, May 23, 1870, p. 381; Senator Fessenden, Id. July 25, 1861, p. 255; Senators Sumner and Trumbull, Id. May 28, 1864, pp. 2512-15; Senator Sherman, Id. May 23, 1870, Appendix, pp. 377–380; and March 15, 1872, p. 1708. This exemption approximately

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represents the incomes which, prior to the establishment of the income tax, bore more than their fair share of taxation. Economists and statesmen differ as to the advisability of adopting this method of compensation. Many urge that the familiar objections to it as inquisitorial, productive of dishonesty, discriminating against the honest, etc., are sufficient to counterbalance its advantages. Such practical considerations are exclusively for the economists and statesmen and not for the court to decide. Pennington v. Coxe, 2 Cranch, 33, 59.

The various objections upon the score of uniformity will now be considered in their order.

The minimum of $4000. This has already been explained. It is the limit fixed by Congress as dividing the incomes previously unduly taxed from those previously unduly favored. The whole attack on the justice of this minimum feature is based upon a fundamental fallacy; upon the notion that the income tax stands alone instead of forming part of a general fiscal system, the different parts of which are set to balance each other in approximation to that equality which in its perfection is "a baseless dream." Head Money Cases, 112 U. S. 580, 595. All our previous income tax laws contained a similar minimum provision, and some of them levied graduated taxes. The last previous one, that of July 14, 1870, c. 255, 16 Stat. 256, taxed only incomes over $2000. The same is true of all or nearly all similar laws, past and present, domestic and foreign.. Personal property and succession taxes and many others carry a like exemption. The uniformity clause of the Constitution applies to import duties as well as to internal taxes. From 1846 to 1861 import duties were ad valorem entirely. At all other periods they have been partly specific, although specific duties are notoriously unequal, bearing harder on the poor than on the rich. Instances have also been common of compound duties classifying the same article according to value with a series of minimum rates (Arthur v. Vietor, 127 U. S. 572, 575; Hedden v. Robertson, 151 U. S. 520, 521), and exempting all imports below a certain value. Arthur v. Morgan, 112 U. S. 495, 498. Our first excise act taxed city distilleries at one rate and country distilleries at another. Act of

Mr. Whitney's Argument for the United States.

March 3, 1791, c. 15, 1 Stat. 199. The next provided for drawbacks on distilled spirits, but not on any quantity less than 100 gallons. Act of May 8, 1792, c. 32, 1 Stat. 267. The early excise acts also contain minimum provisions. Act of June 9, 1794, c. 65, 1 Stat. 397; acts of January 18, 1815, c. 22, 3 Stat. 180; c. 23, 3 Stat. 186. This legislation is a Congressional assumption of the very widest possible powers of classification. Having stood so long unquestioned, it constitutes a practical construction of the Constitution which should be conclusive. Field v. Clark, 143 U. S. 649, 691; McPherson v. Blacker, 146 U. S. 1. Similar minimum provisions are familiar in the succession taxes levied by the States. Minot v. Winthrop, 162 Mass. 113; Matter of McPherson, 104 N. Y. 306. In Home Insurance Co. v. New York, 119 U. S. 129; 122 U. S. 636; 134 U. S. 594, 607, this court sustained under the Fourteenth Amendment a law taxing corporations dividing over 6 per cent per annum by one system, and those dividing less at one wholly different, Mr. Justice Field saying: "All corporations, joint-stock companies, and associations of the same kind are subjected to the same tax. There is the same rule applicable to all under the same conditions in determining the rate of taxation. There is no discrimination in favor of one against another of the same class." Minimum provisions are familiar in exemptions from levy on execution and bankruptcy laws, laws relating to criminal as well as civil procedure, right of appeal, qualification of jurors and sometimes of voters.

Objection is further made that but one exemption is allowed to each family, whether its income belong to one member or is contributed by more than one - that is, when the family consists of husband and wife, or parents and minor children, so that the income is combined by the common law. This is a corollary to the reasoning upon which the law is based. Two families of equal size and pecuniary ability may be presumed to suffer to the same extent from taxes upon consumption, whether the income all belongs to one member of the family, or not.

It is further said that a corporation is not allowed to deduct $4000 from its income before paying the tax, as is the case

Mr. Whitney's Argument for the United States.

with an individual. The reason is plain. This is not a tax upon gross income, but a tax upon net income. The net income of a corporation is radically different in character from that of an individual. Among the elements which go to make up the so-called net profits or income of an individual is that known to economists as "wages of superintendence" or the value of the labor of the individual himself. See Muser v. Magone, 155 U. S. 240. The individual business man does not pay himself wages or keep any account representing his estimate of the value of his own services. Everything that he makes over and above what he pays out to somebody else must be returned as net income. The net income of a corporation, on the other hand, contains no such element. The wages of superintendence" consist of the salaries of its managers and is counted as an expense. When the individual owner of a business incorporates it, he at once begins to pay himself a salary from the funds of the corporation. If, therefore, the corporation were allowed the same minimum as an individual, there would be a lack of uniformity prejudicial, to the individual.

66

Next as to exemptions. The law exempts certain classes of corporations from taxation. Some of these exemptions are contained also in the prior income tax laws. The power to exempt is well settled. Bank of Commerce v. New York City, 2 Black, 620, 631; Home of the Friendless v. Rouse, 8 Wall. 430, 438; Welch v. Cook, 97 U. S. 541; Bell's Gap Railroad v. Pennsylvania, 134 U. S. 232, 237. Congress thought that by making these exemptions it was encouraging thrift and providence on the part of the poor. (Cong. Rec., April 29, 1894, p. 5190; June 2, 1894, pp. 6565, 6568; June 22, 1894, p. 7828; see Stat. 16 and 17 Vict. c. 34, §§ 49, 54; 5 and 6 Vict. c. 35, § 88; Barry on Bldg. Soc., §§ 1, 2, and pp. 48, 111, 112; Endlich Law of Bldg. Asso., § 1; Loan Association v. Morgan, 57 Alabama, 53; Acts of June 30, 1864, c. 173, § 120; July 14, 1870, c. 255, § 15.) The incomes exempted are comparatively small in total amount, although large in actual figures. Their inclusion cannot, therefore, be regarded as a vital part of the whole scheme of taxation; hence, if the

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exemption is improper, it does not invalidate the law in toto. Supervisors v. Stanley, 105 U. S. 305, 312; Huntington v. Worthen, 120 U. S. 97, 102; Field v. Clark, 143 U. S. 649, 695-6.

The other objections to the law as a whole do not seem to be seriously pressed. It is no objection to a tax that it is measured in part by income received prior to the passage of the act. Stockdale v. Insurance Companies, 20 Wall. 323; Railroad Company v. Rose, 95 U. S. 78; Locke v. New Orleans, 4 Wall. 172; Gray v. Darlington, 15 Wall. 63, 66; Wright. v. Blakeslee, 101 U. S. 174. If there be anything invalid in the administrative provisions of the law (a subject which we do not discuss), the whole law is not thereby invalidated.

The claimed exemption of rentals. Such a claim is made in briefs filed. It is submitted that this tax on income, so far as the income is from rentals, is not a tax on the land rented and is therefore not a direct tax. "The tax is payable by the person because of his income, according to its amount and without any reference to the way in which it was obtained." Memphis & Charleston Railroad v. United States, 108 U. S. 228, 234. See State Tax on Railway Gross Receipts, 15 Wall. 284; Osborne v. Mobile, 16 Wall. 479, 481; Murray v. Charleston, 96 U. S. 432, 446; Philadelphia Steamship Co. v. Pennsylvania, 122 U. S. 326, 344, 345.

This law does not contain any tax measured by land values. Land may have a good selling value, but little or no rental value; a high present rental value, but a low stipulated rental; a high stipulated rental, but little or no collections. Moreover, the value of land is quite independent of mere temporary taxes or assessments laid by States and municipalities; and is never affected by the question whether the losses by fire, incurred during the past year, were compensated to the owner by insurance. Nevertheless, in estimating for the income tax, he is allowed for all such taxes, and is allowed for all losses not compensated by insurance, while disallowed the rest. Finally, these net rentals thus estimated are then lumped with all other sources of income and subjected to a deduction to offset the estimated average excess of expenditure in duties