on the Income Tax for 1918 as levied by the Revenue Act of 1919 1918 The Sixteenth Amendment to the Federal Constitution became effective in February, 1913, and gave to Congress the power “to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States," etc. The first income tax law enacted thereafter became effective in October, 1913, and in January, 1916, the Supreme Court of the United States upheld its constitutionality in the case of Brushaber v. Union Pacific Railroad. There was a new income tax law in 1916 and in October, 1917, the so-called War Revenue Act of 1917 was passed. This Act, among other things, levied a "War Income Tax,” which was in addition to the taxes levied by the law of 1916. Thus, for 1917 the total rate of taxation was the combined rates of the 1916 and 1917 laws. In February, 1919, Congress passed the Revenue Act of 1918 which levies rates of tax upon income which are much heavier than those imposed by the laws applying in 1917, or by the law of 1916. The new Act is not supplementary to the preceding laws, but takes their place, and they are repealed in so far as they affect income accruing after December 31, 1917. For Porto Rico and the Philippines the rates of the law of 1916 as amended still apply. Taxable Citizens or Non-Resident Aliens Rates of Tax in Previous Years Rates of Tax for Year 1918 Individual Income Tax 1. Individuals are taxed and the provisions of the law relating to them are applied accordingly as such individuals come within either of the two named classes: (a) Citizens of the United States wherever residing; and Residents of the United States, no matter of what countries they may be citizens or subjects; (b) Non-resident aliens. The taxable income of the first class, citizens or residents of the United States, includes that which arises from every source, within or without the United States. Taxable income of non-resident aliens includes only that which arises within the United States. As to what income "arises within the United States" reference is made subsequently. 2. The 1913 Statute levied a basic or normal tax of one per cent. and surtaxes or so called additional taxes of from one to six per cent. on successively higher ranges of income. This made the tax under the 1913 Act, then considered heavy, range from one to seven per cent. These rates applied to income for the years, 1913, 1914 and 1915. The 1916 Act, which applied to income for that year, levied a normal tax of two per cent. and a graduated surtax of from one to thirteen per cent., making a total range of from two to fifteen per cent. During 1917 the Law of 1916, as mentioned above, was combined with the War Income Tax Law. The Tax rate for 1917 therefore, was the sum of the rates of 1916 and 1917, the total tax range being from two to sixtyseven per cent. 3. The Revenue Act of 1918, just enacted, levies a new normal tax of six or twelve per cent. and a surtax of from one to sixty-five per cent., thus making great additions to any preceding tax rate. The surtax starts at one per cent. on income in excess of $5,000 and not more than $6,000; increases one per cent for each $2,000 until the surtax is forty-eight per cent. for $100,000; and then by varying degrees goes to sixty-five per cent. for $1,000,000 and over. These rates apply to the calendar year, 1918, and are payable in 1919. A graphic presentation of the greatly increased rates of tax under the present Law, as compared with the rate applying under each of the previous three Laws, appears on the Charts, pages 22 and 23. 4. One of the distinctive features of the new Act is the plan to define the taxes to be paid in 1920 (on the basis of income for the year, 1919). This section calls Rates for for a lower normal rate,-eight or four per cent., rather than the twelve or six for the year 1918. Surtax rates are scheduled to remain unchanged. Of course as a practical matter it is difficult or even impossible to make a well considered forecast of the financial requirements of the Government for 1920 and Congress therefore, at the next session, may entirely revamp the Revenue Law including the rate schedule. This statement of the contemplated change in tax rates is necessary for an analysis of the new so-called "dual plan" law, just enacted. Hereafter in this book, however, all discussion will concern the Act of 1918 as it relates to the taxes payable for the calendar year of 1918. Year 1919 5. Under the law of 1917, the non-resident alien was Non-Resident not subject to the normal tax of two per cent. levied by Aliens that law, but was subject to the normal tax of the Law Increasing Tax Rates Income "Normal" or Basic Tax of 1916. Under the Revenue Act of 1918 he is liable t both normal tax and surtaxes, the range of tax which h must pay on his American income being the same as fo a citizen or resident, except that the rate of his normal ta is always twelve per cent. He does not have the advan tage of the lower normal rate of six (after 1919 four) pe cent. upon the first $4,000 in excess of credits. He pay the same surtaxes as a citizen or resident. A genera discussion of the rights and liabilities of the non-residen alien, for his greater convenience, will be found in special section later in this analysis. 6. In connection with the gradually increasing rate of tax, it should be recalled that each successively highe rate applies, not to all of an individual's income, but onl to that particular part of his income which falls withi a certain range fixed by the Statute. For example, th tax rate of sixty-eight per cent. applies to the amour of income which exceeds $150,000 but does not excee $200,000, i. e., on the top $50,000 of income. The ne higher rate then applies to income falling within the ne: higher range fixed by the statute, and so on up. 7. Table No. 1, appearing on pages 19 and 20, shov the rates and amounts of taxes to be paid by citizen or residents on amounts of taxable income from $2,0( to $10,000,000. An example showing the method of con puting the tax, appears on page 21. 8. In originally designating any income tax rate : the "normal" tax, the theory was presumably that th rate was the basic tax applied to all forms of taxable i come. Exemptions were allowed in certain cases; b disregarding allowances, the rate of the "normal" tax wi the basic rate levied against all taxable income, wheth in one form or another, and whether it accrued to a |