We have been speaking so far of taxation, for the purposes of state and local governments.  But Congress also has power by “to lay and collect taxes ... to pay the debts and provide for the common defense and general welfare of the United States” (Constitution, Art.  I, sec. 8, clause i).  State and local governments raise most of their revenues by direct taxation upon the property of citizens.  The national government, on the other hand, has always relied chiefly upon indirect taxation.  Congress levies duties on imports.  These duties are paid in the first instance by the importer.  The latter, however, adds the tax to the price of the goods, so that it is paid finally by the consumers and not by the importer.  In a similar manner Congress levies excise taxes, which are taxes upon products manufactured in this country.  The principal excise taxes have been those levied on alcoholic liquors and tobacco.  But here again the tax is paid by the consumer in the price which he pays for the liquor or tobacco.

ADVANTAGES OF INDIRECT TAXATION

The chief advantage of indirect taxes is the ease and certainty with which they may be collected by the government. the citizen pays them whenever he buys the articles on which the tax is levied.  The retail dealer passes them on to the wholesaler, and so finally the importer is reimbursed.  The government collects the taxes at customs houses at ports of entry, or at the tobacco factories and, formerly, at distilleries.  Prohibition has deprived the government of one of its chief sources of revenue.  Indirect taxes are also less objectionable to the people, for they are seldom conscious of paying them when they buy goods upon which they are levied.

FEDERAL INCOME TAX

Congress has the power to levy direct as well as indirect taxes, but it has usually avoided direct taxation, partly for the reasons stated above, and partly because the Constitution provides that “no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken”; that is, in proportion to population.  It has been found difficult in practice to make such apportionment.  Various attempts by Congress to levy a direct tax on incomes have been declared unconstitutional by the Supreme Court because it was not so apportioned.  The Constitution has now been amended, however, to give Congress the power “to lay and collect taxes on incomes from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration” (Amendment xvi).

A large revenue is now derived from the national income tax.  The law at first exempted from it single persons whose income was less than $3000, and married persons whose income was less than $4000.  As a result of the war, only those are now exempt whose incomes are less than $1000, if single, and $2000 if married, with an additional exemption for each dependent child.  The tax is progressive:  that is, the larger one’s income, the higher rate one pays.