The administration of a direct personal income tax—­using that term to describe a tax levied directly on individual incomes—­is a comparatively simple matter, however ineffective it may prove to be in reaching the income subject to it.  Under this method of taxation it is easy to exempt a minimum, to apply progression in the rates, or to make any other adjustments that may be deemed equitable with reference either to the size or character of the income or to the circumstances of the taxpayer.  But as soon as we depart from this simple method and resort to taxation at the source, we encounter difficulties in varying the rates, allowing exemptions, or making any similar adjustments.  In the English income tax, these difficulties are squarely met and surmounted.  As previously explained, that tax is in the first instance levied indiscriminately on all accessible sources of income and the adjustments are effected by refunding the tax collected at the source so far as may be necessary.  No provision is made for forestalling the deduction of the tax, and no returns are required of the names and addresses of persons to whom payments of incomes are made.  The exemption, however, is small ($800), and the abatements extend only to incomes below $3,500.  Above that point the entire income is taxable.

A tax which provides for the exemption of $3,000 or $4,000 from every individual income places a formidable barrier in the way of a thoroughgoing application of assessment at the source.  It is evident that with a universal exemption as high as this, a very large amount of tax withheld and collected at the source would ultimately have to be refunded.  The law as enacted indicates an intention to secure in part the advantage of assessment at the source and at the same time avoid in part the attendant disadvantage of having to refund the tax.  The measure might be characterized as one which as regards the “normal tax” applies the principle of assessment at the source to corporate income completely and to other income in spots.  The “additional tax” is simply the direct personal tax.  The normal tax will doubtless be successful in reaching the large amount of income earned or created by enterprises conducted under the corporate form of organization, much of which would probably escape assessment under a direct personal income tax.  But beyond this it is questionable whether the method of assessment at the source as here applied will be of sufficient advantage to justify the administrative complications which it involves.

It seems useless, however, as well as unwise, to venture any predictions as to how successful the tax will be in reaching the income subject to it or how well it will work in actual practise.  The law will doubtless require amendment in many particulars, even if it does not need to be radically revised.  That the income tax in some form will be perpetuated as a permanent part of our system of national finance may safely be predicted.  Properly adjusted and wisely administered, it should greatly strengthen the financial resources of the Government, make possible a closer adjustment of revenue to expenditure, and secure a more equitable distribution of the burden of taxation.