North Carolina, South Carolina, Mississippi, Oklahoma, Massachusetts, and Wisconsin.  Of these states Wisconsin has the most recent law, and one the widest in its application and the most important fiscally.  The law applies a progressive rate to all incomes (with exemption of $700 from wages and salaries) and contains elaborate provisions for corporate taxation.  The proceeds are distributed 10 per cent to the state, 20 per cent to the county, and 70 per cent to the municipality in which the tax is collected.  In the six other states the tax is on incomes only exceeding a certain amount (North Carolina, $1000, the other states from $2000 to $3500 exemption); some apply to incomes from any source but others do not apply to incomes from property otherwise taxed.  The total receipts from these state income taxes in 1913 were but $314,000.

Sec. 5. #History of federal income taxation.# The income tax seems destined to play a more important part in the fiscal system of the federal government.  Until 1913, however, its part had been small.  It began to be used under the law of 1867 (when the law passed in 1861 was replaced before it went into effect).  This was repeatedly amended and finally repealed in 1870, to continue in force until the year 1872.  The rate was 3 per cent on the excess of incomes over $600, and 5 per cent on the excess over $10,000.  This law was repeatedly upheld by the United States Supreme Court as not in conflict with the Constitution.  Its fiscal results were not large, as it was never effectively administered.

The next income tax law was that of 1894, enacted in connection with the tariff revision of that year.  It was declared unconstitutional before it had gone into effect.  The main ground for the decision was that a tax on incomes from rent of land as well as on incomes from personal property is direct, and must therefore be apportioned among the states according to population.

In the active discussion of social legislation in the years following this decision public sentiment developed favoring a renewed attempt to get such legislation by amending the Constitution.  This was shown by the remarkable fact that a bill for the sixteenth amendment to the Constitution was passed unanimously by the Senate, and almost unanimously by the House.  It was ratified by three-fourths of the states and became a law in 1913.[8]

Sec. 6. #Events leading up to the law of 1913.# Meantime, in 1909 and excise tax law had been passed, applying to corporations in a manner not open to the objections found by the Supreme Court to the law of 1894.  The Democratic party, which had passed the law of 1894, was pledged to the passage of an income tax law when it came into power again in 1913.  The reduction of the tariff, as well as growing expenditures, moreover, made necessary the development of new sources of revenue for the national government.  In other countries the income tax had been found to be a part of a system of taxation especially valuable as “a balance wheel” to equalize the revenues and expenditures.  It was deemed by some to be an additional advantage of an income tax that it would make the richer citizens better realize the nature and burden of public expenditure.  Most other federal revenues, being derived from the tariff and from taxes on merchandise, are borne mainly by the purchasers and consumers.