The years 1924 to 1926 present an interesting parallel to the years 1999 to 2001, in that they both deal with tax revenue surplus. However, the method used to return that "surplus" to the taxpayer is completely different, both in principle and effect. In 1926 the majority opinion of both Houses of Government was that the best way to reduce the tax surplus was to increase the "personal exemption", and lower the rates. Well, one out of two isn’t bad, they did lower the rates in 2001, but they did not fix the problem. It seems the only reason for not increasing the "personal exemption" is that it reduces the number of "taxpayers".

I will again return to the comments of Judge Hull, this time from the House Ways and Means Committee Report, Number 1, explaining the Revenue Bill of 1926. His views are contained in a separate attachment to the Committee Report, in part he says:

"The general feeling of all peoples in the past has been that persons should pay taxes according to ability. Long experience has demonstrated that this standard can not be met by a tax levied alone according to population or property or consumption or expenditure. The best modern economic thought and practice agree that net income is the best test of ability to pay taxes and that the income tax properly laid reaches a class of persons who do not pay at all in proportion to ability under any other tax method that has been devised."

Congressman Treadway of Massachusetts provides an insight into the question of what happens when the personal exemption is increased, his statement is titled "Mr. Average Man" and is recorded on page 693 of the Record:

"There are two sides to the question of increased exemptions. On the one hand comes the argument that all citizens, no matter how small their incomes, should contribute in some measure to the support of the Government. The other side is that the smaller one’s income, the less able he is to pay. The latter thought has prevailed in the committee in the increase of exemptions provided. We feel that $1,500 is not to large income for exemption of a single person, and that $3,500 is a corresponding amount for a married person. I am also a firm believer in the increase of the amount of exemption for earned income. There certainly is a very marked difference between the wage earner and the coupon cutter. I am for the former.

The effect of these exemptions can be readily perceived when we note that under the present law there are about 4,900,000 individual income tax payers. Under the provisions of the proposed law this number will be reduced by about 2,320,000, or almost one-half of the present individual taxpayers."

Congressman Hastings of Oklahoma made this statement, in his address before the House on December 11, 1925 (page 699), concerning the proposed tax reduction bill:

"No tax, direct or indirect, is popular, but conceding that the Government is economically run, that there are no extravagancies, and that a certain amount of money is absolutely necessary to pay the expenses of government, the income tax, with certain exemptions to exclude small incomes, and deductions for families and other purposes, is based upon the amount actually earned during any calendar year. It is a tax upon wealth, taking into consideration the ability of the taxpayer to pay. It is a fair and a just tax provided it is equitably distributed and provided, of course, that no more money is collected from the people of the country that is absolutely necessary to pay the expenses of the Government economically administered."

Congressman Hull provided a rather lengthy overview of the history of taxation, his statements are recorded on pages 562-67 of the December 9, 1925, Congressional Record. He begins his progression of the history with this opening statement:

"Mr. Chairman, the history of taxation is really the history of an unending struggle between various groups of taxpayers, each undertaking to throw off all or a portion of the load resting upon it. We have witnessed that condition today, as we have witnessed it in the past, and as we shall continue to witness it in the future."

How true that statement was, for less than 15 years later a dramatic shift occurred in the philosophy behind the federal income tax. The basis of "ability to pay" change to the basis of ability to earn and the term "income" broadened to include all that came in, instead of increased wealth.

Congressional Record, Volume 67:

Part 12, INDEX: House Bills, 1-8, H.R. 1

Part 1, pgs. 519-25, 539-67, 642-79, 692-725, 731-57, 771-99, 879-899, 937-69, 1005-37

Part 2, pgs. 1108-65, 1233, 1673-75, 2230-31

Part 3, pgs. 2406, 2554, 2866-90, 2943-66, 3011-26

Part 4, pgs. 3139-66, 3528-33, 3595-3627, 3666-3706, 3743-3800, 3831-96

Part 5, pgs. 4401-54, 4475-98

House Ways and Means Report Number 1, Serial Set 8531, H.R. 1

Senate Finance Committee Report 52 (1&2), Serial Set 8524