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Historical Perspectives on the Federal Income Tax

Public Salary Tax Act of 1939

This was a very controversial piece of legislation, pushing the boundary of Constitutionality in an effort to increase tax revenues made necessary by the social welfare programs instituted during the 1930’s. It started out to eliminate the discrimination between the high salaries paid to elected and appointed public officers (employees of the government agency) and ended up swallowing every employed person in the country. Prior to this point Federal public employees were not subject to State income taxes based upon their salary, nor were the State employees subject to the Federal Income tax based upon their salary. However, both, at times, exceeded the salary paid to comparable positions in the private sector. The purpose of this legislation was to remove the legal restrictions by allowing the levy of an "non-discriminatory" income tax upon the salary of public elected and appointed officers and employees. In other words, if the State taxed the compensation of a Federal employee it must also tax the compensation of its public officers and employees, likewise for the Federal Government. This was also the point in time in which the terminology changed, and the word "income" used to mean "all that come in", as far as the Federal "Income Tax" was concerned.

“The bill subjects to Federal income tax for taxable years beginning after December 31, 1938, the compensation of all State and local officers and employees; grants consent to the States to tax the compensation received after December 31, 1938, by Federal officers and employees; (76th Congress 1st Session, House of Representatives Report No. 26 (H.R. 3790) February 7, 1939)

 “This bill therefore provides in a clear and unequivocal manner for such taxation.  If there are any possible doubts as to the validity of the taxation, the bill thus enables the issue to be squarely presented to the Supreme Court." (Report No. 26, page 2)

 “The number of public officers and employees has grown rapidly during the past few years.  Combined Federal, State, and local employees for the year 1937 amounted to 3,800,000 and received compensation in the total amount of $5,500,000,000.  This combined number represents 12 percent of the number of persons receiving wages and salaries, 13 percent of the total wages and salaries received, and approximately 9 percent of the national income.
 There were approximately 2,600,000 State and local employees in 1937, representing a total annual pay roll for that year of $3,600,000,000.  Many of these employees have salaries below the personal exemptions allowed for income tax purposes.  It is estimated that for 1937, 1,000,000,or 40 percent received $1,000 or less and approximately 2,300,000 or 90 percent received $2,500 or less.  Thus, 90 percent of State and local employees, if married, would not be subject to the Federal income tax.  (76th Congress 1st Session, Senate Report 112 (H.R.3790), February 24, 1939, page 3)

Congressional Record-House, February 9, 1939, page 1301, Congressman Boehne of Indiana:
 “It is my understanding that by the passage of this bill only about 6 percent of all State and local employees will fall into the category of Federal income-tax payers….
 …”Because a person has been appointed or elected to a public office is no reason why he should be placed in a preferred class…
 …If we can bring every public officeholder to realize this by taxing his own salary to the limit of the law, such employees will insist that a proper balance between income and expenditure be maintained at all costs.”

Congressional Record-House, February 9, 1939, page 1311, Congressman Robsion of Kentucky:
“It is urged that many of these officials and employees of the State, district, county, and city governments would not be required to pay an income tax after allowing exemptions.  If this policy should be once adopted, then the policy that has been urged for some time would be brought into action; that is, to greatly reduce the exemptions, so that all of our State, district, county and city employees, including teachers, nurses, and others, might be required to pay an income tax to the Federal Government.”

Congressional Record-House, February 9. 1939, page 1313, Congressman Disney of Oklahoma:
 “Let me answer the question.  The bill provides for a direct tax upon the State employee and gives consent to the State to tax Federal employees; but it must be said in all fairness in this connection that any Congress, which comes along, may, of course, repeal that consent.  It does not approach the dignity of a compact with the States.”

Congressional Record-House, February 9, 1939, page 1315, Congressman Jenkins of Ohio:
 “It prevents the Treasury Department from going back 2 or 3 years and levying a tax on school teachers and policemen and thousands of others in your State.  If they have a right to collect that tax 2 or 3 years back without any law why have they not the right to levy it forward now without this law? [Applause]  Who can explain that to me. I repeat, if they have a right to go back and tax school teachers and the policemen and the firemen of your community, they must do it by some virtue of some law, by some semblance of a law.  If they can collect 1937 tax legally then they can collect 1940 tax legally.  Of course, sometimes they do not pay much attention to the law down there, but they must act on some semblance of law.”

Congressional Record-House, February 9, 1939, page 1321, Congressman Reed of New York:
 “I repeat that the purpose of this bill is not to raise revenue, for it is conceded that it will not produce more that $16,000,000, a sum insufficient under the present spending program to run the Federal Government two-thirds of 1 day.
 The purpose is to bring congressional pressure upon the Supreme Court to destroy the fundamental principle that one sovereign power shall not destroy the functions of another sovereign power through the power of taxation, which is the power to destroy.
 …We know the evil at which the sixteenth amendment was directed.  The Court had held that you could not impose a tax upon the income from real estate or from personal property without apportionment.  The people wanted an amendment that would have the effect—and all the debates here has brought out that this was the understanding of the States when they ratified that amendment—of making it possible for the Federal Government to tax the incomes from these two sources without apportionment.  That is all in the world the sixteenth amendment did.”

Congressional Record-Senate, April 4, 1939, page 3765, Senator Brown of Michigan:
 “The Senator from Vermont for himself may certainly make that reservation; but there is no question, under the accepted practice here and in the courts, that the fact that we pass the bill will lend to it a presumption of constitutionality.”


Congressional Record Volume 84:

Part 15, INDEX—House Bills, 3754-3794, H.R. 3790

Part 2, pgs. 1299-1332

Part 3, pgs. 3701-05, 3764-73

Part 14, Appendix, pgs. 3950-56, Important Shifts in Constitutional Doctrines

House Report Number 26, Feb. 7, 1939, Serial Set No. 10296

Senate Report Number 112, Feb. 24, 1939, Serial Set No. 10292

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