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when certain losses are actually incurred. During the years of high income, it was quite common to try to anticipate losses, and we had a very complex situation. Our law was not changed to meet the complex situations arising from the war, and we have had some very interesting cases, where corporations or individuals entered into contracts for the purchase of raw material extending over a long period of years, or for goods to be delivered each year as required. In the meantime the market price of the particular product has perhaps dropped seventy-five per cent, and the question of whether the loss should be deducted in the year in which the contract was made, or when the material was used and actually went into the cost, was one of the questions that we have had to

meet.

We feel in Wisconsin that the success of our income tax law is largely due to the administration. As you know, the Wisconsin tax commission is composed of three members, who are appointed for long terms. They are supposed to be at least two of one party and the third of another party. Usually we have two republicans and a democrat on the commission. I can say that politics, however, has never entered seriously into the work of the commission, and the employees are civil service employees, who hold office during efficiency and good behavior. Our assessors of incomes are taken from the civil service list, and we have now a great many assessors who were appointed when the law went into effect. As they are not in danger of losing their jobs if they happen to offend some influential taxpayer, they go ahead fearlessly and perform their duties, and in that way we get a very efficient administration. The office force, also being under civil service, is not interfered with. We have employed several high-class accountants to assist us in checking the books of corporations, and these men, being under civil service, go out and fearlessly perform their duties. We of course have some difficulty in retaining our best accountants. for the reason that the corporations throughout the state soon come to realize the character and efficiency and ability of these men, and hire them away from us. That is something of course that will happen generally. The state very seldom pays the salary that is paid in private industry, and I presume in every state in the Union a great many of the efficient employees eventually step out into private business.

In recommending a model income tax law, I should think that an organization like this ought to go on record as being in favor of having the employees, other than the tax commission itself, placed under civil service rules, so that they may be entirely free from the influence of politics or influential taxpayers. I thank you. CAPTAIN W. P. WHITE: I should like to ask the speaker one

question: Are the farmers exempt from this tax; if not exempt either directly or indirectly, what portion of the tax do they pay?

MR. STRADER: The farmers are not exempt from the tax, but our statistics show that only about fifteen per cent of the farmers are ever assessed for any income tax at all, and that the average assessment against the farmers that are assessed is about $15. The farmers pay but very little income tax in cash, for the reason that we have the personal property offset provision in the law, and as the farm animals of the farmer are classed as personal property, his personal property tax receipt generally offsets his income tax, so that except in cases where farmers have sold their farms at a profit, and are assessed on a large income for some one year, it is pretty safe to say that the farmers are not paying the income tax.

CHAIRMAN BULLOCK: I now call upon Mr. Ivins, the deputy commissioner in charge of the administration of the New York state income tax-Mr. Ivins.

JAMES S. Y. IVINS of New York: A number of states are considering the advisability of passing income tax laws. I received a letter in May or June from the interim committee of the legislature of Minnesota asking for a copy of our statute, and any comments I might make on it. In the light of our three years' experience I was able to make a number of criticisms of our own statute. A lot of little things that could not have been foreseen when the statute was originally passed had cropped up and it had been necessary for us to amend the statute in a number of respects; and there are a number of other respects in which it should be amended. After having prepared this criticism, I was able to send it to a half-dozen other states, which sent in similar inquiries, and it occurred to me that it might be well to do somewhat the same thing for the model tax law, in the light of our experience. I do not mean to criticize the model tax law. I think the model tax law is probably a better statute than our New York law; but necessarily in drawing a statute of that kind it is impossible to foresee a lot of little difficulties that will arise in administration; and I have found that there are a number of minor points in which I think the model tax law might be amended.

A philosopher of whom I am fond once remarked that a bad reputation is better than none. I might say to a state that had to have additional revenue, a bad income tax law is better than none, but it is pretty hard to turn a bad reputation into a good reputation, and it is pretty hard to amend a tax law after you once get it on the books.

Now, we have a pretty good legislature in New York; I think it is as good as legislatures generally. I might quote what I heard at a minstrel show not long ago, where it was said that it is as good a legislature as money could buy.

When we found that we had to have an income tax law to meet the deficit in revenue due to the abolition of our liquor tax laws, the legislature employed a commission of experts to draw the law. The law was passed without a dissenting vote, but when these little defects developed, and we went back to the legislature to have them corrected, we found that there was usually somebody in the legislature who had a spoke to put in our wheel. Where the amendment was one which would relieve somebody, without increasing the burden on anybody else, it was easy enough to pass the amendment, but when it was a case where we discovered that somebody was enjoying a privilege or an exemption to the detriment of the balance, that group or class was generally able to muster enough votes in the legislature to prevent the passage of our amendment. I will cite just a single example. Our law provides for the deduction from gross income of bad debts, found to be worthless and written off during the taxable year. We found that after a couple of years a number of taxpayers who had been in the habit of supporting other members of their families-a man who had been giving his mother an allowance, situations of that kindfound that instead of giving the money to the mother it paid to lend it to her and write it off as a bad debt. So we proposed an amendment last winter, limiting the deduction of bad debts to debts incurred in the regular course of business or to transactions entered into for profit, but we could not get the amendment through the legislature.

I find that the people I meet here from all parts of the country are very much like the people in New York, and I am led to believe that the legislatures in the other parts of the country are very much like the legislature in New York, so my message is, as far as possible get your income tax law, if you are going to adopt one, into proper shape in the first place and take advantage of the mistakes in other states, and anticipate these little difficulties of administration.

I have prepared a number of little suggestions for modification of the model income tax law. I shall not have time to read them and it would be almost impossible to follow them orally, so I have decided to ask leave to print them in the minutes of the conference. It occurred to me also that there were a number of states in which the income tax question would come up before the minutes of the conference were printed, so I had printed myself a number of copies of my little criticisms. I am sorry I did not print enough to put all around. I have about one hundred copies and I think that will be enough for all those who are immediately interested, and I shall be glad to furnish copies to anybody who cares to come to me and ask for them.

(The statement referred to by Mr. Ivins is as follows.-Ed.);

COMMENT ON THE DRAFTS OF PERSONAL AND BUSI-
NESS INCOME TAX ACTS PREPARED BY THE
COMMITTEE TO PREPARE A PLAN FOR

A MODEL SYSTEM OF STATE AND
LOCAL TAXATION

JAMES S. Y. IVINS

Deputy Tax Commissioner, in charge of New York
Personal Income Tax Bureau

The model acts drafted by the committee of the National Tax Association were prepared in the latter part of 1920 and were largely based on the federal law in force at that time and the Massachusetts, Wisconsin and New York laws. The New York law was then very new-we had collected one year's taxes under it and had discovered several practical defects, to remedy which amendments had been prepared. Some of these amendments were embodied in the model acts. Since then both the federal and New York laws have been considerably amended, in the light of experience, and experience has shown how they might well be still further amended.

It seems to me that a number of changes in the model acts are suggested by our three years' experience under the New York law-changes which would make for more equitable application and for simplicity of administration, and which would obviate the necessity of litigation to settle questions of construction.

Our experience under the New York law emphasizes the advisability of eliminating defects in such laws before their original enactment, for it is not as easy as it might seem, to make corrections by amendment, after the original law has been written on the statute books.

As I have traveled around the country I have noticed that the people in the different parts are not unlike the people in New York -they behave, talk, and I believe think, in just about the same ways. So I am inclined to the belief that legislatures in the various states are not very different from the New York legislature. Our legislature in recent years has unquestionably been better than at periods in the past, but its methods at times can hardly be said to be scientific, and, like Congress, it does contain members who regard the wishes of certain groups of their constituents as more immediately important than the general welfare of the people of the state as a whole.

We could hardly expect it to be otherwise, in view of the way in which the personnel of the legislature is selected and the rate at which the members are compensated. And what is true in New York is very likely to be true in the other states. Lobbying, log

rolling, and "practical politics" frequently interfere with scientific legislation.

When it appears that a new source of revenue is necessary, legislatures are not unwilling to leave the drafting of statutes to commissions of experts and to enact their bills substantially as introduced. But when a minor change is suggested it frequently happens that special interests are able to muster sufficient votes to sidetrack the amendment, or to emasculate it.

Amendments lightening the burden of all taxpayers are easy of passage. But if, because of some defect in the original enactment, it develops that a group or a class is enjoying a privilege or an immunity, denied to the majority, and an amendment is introduced for the purpose of elimnating it, that group or class is usually able to organize sufficient opposition to the amendment to prevent its passage.

An example is section 353 of the New York law, which corresponds with section 303 of the model act. It provides for the ascertainment of gain or loss on the sale or other disposition of property. The question arose as to whether "other disposition" meant exchange only, or whether it included gift. A certain taxpayer, who had decided to set his sons up in business and wished to give them a million dollars, bought securities on the market for approximately half a million. When they had increased in market value to about a million he gave them to his sons, who promptly sold them. A profit was unquestionably realized. As counsel to the income tax bureau I regarded this profit as having been realized by the father at the time he disposed of the securities, by giving them to the boys-he had got credit for a gift of a million, had had the satisfaction of giving a million, but it had only cost him five hundred thousand. Income had accrued to somebody. Under our law it had not accrued to the boys, for they had taken the whole million as a gift-an item in capital, not income account. But our courts held that the father had realized nothing (Peo. ex rel. Wilson v. Wendell, 196 N. Y. App. Div. 596). And five hundred thousand dollars had escaped taxation for those who lost, while this gain was made (if there was any loss) undoubtedly deducted their losses in computing their net income. We have had to refund several hundred thousand dollars to taxpayers, as a result of this decision, and are losing potential revenue amounting to not less than half a million dollars a year.

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So we went to the legislature to have the statute amended to apply to profits or losses, realized on the "sale, gift or other disposition of property." In 1921 our amendment was defeated by a lobby representing charitable corporations who contended that the amendment would discourage gifts to charity. In 1922 we modified the amendment, so that it only applied to gifts of intangibles and

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