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Again, there are eight community-property States, and there are as many community-property systems as there are States. All that they have in common is that there is a partnership of husband and wife, compelled by law, created by law, and which takes effect when the marriage contract is made and continues until death or divorce. But the statutory "articles of copartnership" so to speak, differ in every one of the eight States.

These eight States adopted those laws in the infancy of the States. It is impracticable and really unthinkable that any State which has grown large and populous and rich under its own system of another kind should ever adopt the community-property system and try to assimilate its property conditions to that system. It cannot be done, and I think the committee will see that it never will be attempted.

Every one of these States has such a law adopted in its infancy. Property has been acquired in those States, the States have grown in population and in other respects, and property rights have developed along the lines of that law. That system cannot be eradicated in those States, and it cannot be transplanted, in my judgment, to any other State.

Mr. SHALLENBERGER. I am very much interested in that statement. Would you mind an interruption?

Mr. DONWORTH. I should like to have you ask any question that comes to mind, sir.

Mr. SHALLENBERGER. What you are saying is that when these eight community-property States came into the Union they had this principle of law as a part of their fundamental law?

Mr. DONWORTH. They did. I am sorry the gentleman from Wisconsin (Mr. Frear) is not here this morning. May I ask if he is expected?

Mr. SHALLENBERGER. I just had the secretary telephone to find. out. Mr. Cochran is unavoidably out of the city, and Mr. Frear said he could not get here perhaps throughout the whole sitting today. He is detained elsewhere, I am sorry. We concluded, therefore, to proceed.

Mr. DONWORTH. The statement was made by the gentleman from Wisconsin-"statement" is too strong a word-the thought was thrown out by him that the present system is unjust for the reasons that the committee have heard stated here; that if a different system of community-income taxation were applied in the eight States, there would be relief to the taxpayers of the other States.

Before I answer that proposition on the basis of fairness, which I shall do later, let it be answered on the basis of law and constitutionality.

What is the basis of this whole Federal income tax and the law applicable to it as a national proposition? The basis, of course, is first, the Constitution of the United States and, second, the interpretation of the Constitution made by the Supreme Court in the case of Pollock v. The Farmers Loan & Trust Co. in 1895.

In the administration of President Cleveland, Congress passed an income-tax law in a general way along the lines of the present law, varying, of course, much in detail. The Supreme Court of the United States held that law unconstitutional, because the Court said-and this touches closely the controverted point-an income tax is a direct tax and under the Constitution of the United States

direct taxes can only be levied by apportionment among States in proportion to the census enumeration.

Well, what was the result? That particular law, of course, fell. But it was open to Congress to enact another income-tax law by adhering to the Constitution as it then read, which would mean this: If Congress wanted to raise, we will say, 500 million dollars by income taxation, it could do so without any amendment to the Constitution. But it would have to take the census of the United States and ascertain that New York, we will say-I do not know what the fraction is, but I imagine it is about one-twelfth-New York has onetwelfth of the population of the country.

Then exactly one-twelfth of $500,000,000, no more and no less, would be paid by the taxpayers residing in New York. The incomes of New York, therefore, would be charged only with Federal income taxes sufficient to raise one twelfth of $500,000,000. The same relative proposition would apply in Massachusetts. It was out of the question to have any income-tax law enacted by Congress under the Constitution with that interpretation. Why? For a number of reasons, but for one particularly. A goodly number of fairly populous States were relatively low in wealth. Mississippi perhaps said, with justice, "We should not pay income taxes on a population basis." s." For obvious reasons it was impossible to get through Congress a bill that would impose income taxes on a population basis.

What was the alternative? The alternative was to relieve Congress from that provision of the Constitution which required the apportionment between the States. Now, coming more down to date, the Supreme Court has said, since the adoption of the sixteenth amendment, that an income tax is still a direct tax, the same as it always was. The Court still adheres to the authoritative construction of the Constitution that an income tax is a direct tax. That authoritative construction was not overruled by the sixteenth amendment. It was accepted by that amendment.

So, in construing anything relating to an income tax, we must bear in mind what the Supreme Court bears in mind all the time, namely, that the income tax is a direct tax, imposed by reason of ownership and computed in proportion to incomes rather than in proportion to population.

The honorable Mr. Treadway thinks that, under existing_provisions of law, some injustice is being done to Massachusetts. From his opening statement here a few days ago—and of course he spoke in the utmost good faith-I think it appears that acting in the very best of faith he has so far failed to grasp the principles of the community-property system. We are reminded of the French proverb that to know all is to pardon all. We are very far from asking for the community-property States anything in the nature of a pardon, but we do ask to be understood. It would be both unwarranted and unfair to say that we adopted this system for any selfish reason. We do ask to be understood, and we feel that when we are understood we will get justice from this committee and from the Congress of the United States, including the gentlemen of the committee who have indicated a feeling in favor of this bill.

Mr. Treadway expressed the view that Congress should enact this bill so that the legislatures of eight States will not be able to "manipulate "I think that was the word he used-" manipulate "

their local laws so as to give themselves an advantage over the taxpayers in other States.

Let me say to the committee that the community-property law of Washington was in full force and vigor 40 years before the adoption of the sixteenth amendment. It was passed in 1869. During the first 10 years of its existence it underwent certain modifications, one of which came before the Supreme Court of the United States in the case of Warburton against White, on which Mr. Sumners has so clearly commented. But from 1879 down to date there has been no substantial change in the law of Washington and no change that would affect any question pending before this committee. While I cannot speak for the other seven States, I think it may be said that it is true also of them that there has been no substantial change in their community laws that would affect Federal income taxes since a date long prior to the adoption of the sixteenth amendment or the passage of any income-tax law by Congress.

There is one exception, which was called to the attention of the committee yesterday by the Representative from California, Mr. Evans. The change in California may be called the filling of a hiatus, because the change was in conformity, in pursuance of, the community-property idea. But it was important enough to change, as to California, the application of the rule fixed by the Supreme Court of the United States as the basis of taxation of community income. Seven States have maintained their marital laws without change in any material point for many, many years, way back of 1913, with no thought of Federal income tax.

Is it fair to say to the taxpayers of these States, " You manipulate your local laws to get an advantage in the matter of Federal taxation "?

When the Federal Constitution was adopted by the Convention in 1787, there was a compromise between those who favored a centralized, unified Nation and those who favored a mere confederation of independent States.

We are all satisfied with that compromise, but in a compromise one party gives up and another party gets, under the give-and-take idea. Now, what did we give up, speaking as States, to the Federal Government? We granted the right to levy taxes of various kinds. Excises can be levied throughout the United States, and so forth. We granted to the United States the right to levy an income tax, the nature of which I have already discussed, and the change later made in the Constitution as to that kind of tax. But the States did not give up in one iota the right to say what shall constitute a marriage; what shall be the results of that marriage; what shall be the property rights of married persons. And they did not give up or impair their individual right to determine the origin of titles to property among married or unmarried persons.

The whole question of how property originates, who owns it when it does originate, how it is to be transferred, and who is entitled to the usufruct and beneficial enjoyment-that whole question is just as much (and I say it as emphatically as I know how)—that is just as much within the unimpeachable powers of the several States as if the Federal Union had not been formed. There is but one exception. That one exception is that since the fourteenth amendment, adopted in 1867 or 1868, a State cannot deprive a person of prop

erty without due process of law, when that person has once acquired it.

Now, with the exception of the fourteenth amendment, gentlemen, each State has a perfect right, as much right as a foreign country has, to enact its laws on these subjects without any control on the part of the United States.

It is for this reason that every one of the 40 non-community-property States has exercised that right. The idea is sometimes thrown out that the community-property system is something exotic; that it does not belong in America; that a State adopting it is a sort of Cinderella among the more favored sisters of the Union. I believe I do not state that as a matter of fact, because I have not the statistics, but it is my belief that you will find that in the last 60 years there have been far more modifications of the property rights of husband and wife in the non-community-property States. than in the community-property States.

Now, does anyone claim that any State is acting today under the common-law system of marital property rights? The rules of the common law relating to property rights of husband and wife were barbarous. Every State has got away from them.

Further, let us remember that there is no such thing as a national law, a national system, a national idea of property rights of husband and wife. There is no uniformity. Even in these eight communityproperty States there is not uniformity. The eight community systems are alike in this, that they all make the husband and wife partners as to all property acquired during marriage as long as the marriage continues, until dissolved by death or divorce. They differ much in important details.

When you come to management and control it differs in every oneof these eight States. Yet "management and control" is made the basis of taxation in the pending bill as if it were a definite thing.. The fact is that when you once depart from the trail well blazed by the Supreme Court, the trail of ownership, you get into a hopeless morass of doubtful substitutes.

Gentlemen, I am aware that I am not following any logical order, but I am taking these thoughts up as they occur to me. Take the matter of management and control in the State of Washington. It does not mean what it means in Texas or Louisiana or any other State. So, if you should take those words as a talisman, the magic thing that is going to form the decisive test of the application of the direct tax under the sixteenth amendment, you would be adopting a very variable term.

Let me speak of the rights of husband and wife as to management and control in Washington. First as to real estate.

A husband can buy real estate on his own judgment. Take a man who has got $10,000, earned or acquired in speculation, or obtained in any other lawful way, during marriage. He says, "I believe Seattle real estate is going to rise in value." He goes out and buys a lot for $10,000. So far he acts on his own judgment as the manager of the community.

Then he says, "Now I think I will put up a building on that lot, and I want to borrow money by putting a mortgage on it." He cannot borrow a dollar without his wife's signing the mortgage.. Has he unfettered management and control?

When, with his wife's consent, he has borrowed the money and given the mortgage, he has the building put up. We will say the whole property is worth $20,000. Then he says, "Now, to get an income, of course, I must lease that building." He cannot make a lease without his wife's signing. The most he can do is to put in a tenant at will, oustable in 30 days. He is powerless to make the property productive without his wife's voluntary joining in the lease. That is the extent of his "management and control as to real estate acquired as community property which the husband wishes to retain and get an income from.

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Now, suppose later he says, "I believe it would be good policy to sell that property and cash in the profits that can now be realized. We can do better with the money." And he says to his wife, “Let us sell out that corner lot and building." The wife may say, "No. I believe that is a safer investment than the things that you want to buy with the money." And he cannot convert that real estate in money or anything else unless his wife signs the deed.

In the case of Itkin v. Jeffery (126 Wash. 47), Itkin bought a piece of land by a deed signed by Jeffery and wife. His negotiations were with the husband, Jeffery. Later Itkins brought a suit in equity to reform the deed because he claimed important stipulations in regard to the property intended to be conveyed were left out. He made out a good case against Jeffery. The attorneys for the defendant called Mrs. Jeffery.

"Did you ever hear anything about this mistake?"

"No," said she.

"What did you do in connection with this transaction?"

"Why, my husband told me he was selling the property for so much money, and he showed me the deed, and I looked it over and I thought it was all right and so, I signed it." .

Itkin's suit for reformation of the deed was thrown out. This is another actual illustration of the "unfettered command and unfettered control" which this bill would make the basis of the tax, taking the income to the husband in place of taxing it to the two persons who are declared by State law to be the owners of it.

Suppose a little later the wife dies.

The husband then finds that he owns only one half of that property in common and undivided. Who owns the other half? If his wife did not leave a will, the other half is owned by her children. They may be his, too, or they may not. Her half goes to her children unless she makes a will. And if she makes a will, it goes to her devisee, even though he be her unlawful lover. The United States gets an estate tax on the half that passes by her death to her children or her devisee.

In the case of personal property, the words of the Washington statute are couched in broader terms. It says, as Miss Carloss read yesterday:

The husband has the same control over community personal property as he has over his separate estate.

But the construction of the statute by the State supreme court has very much narrowed the effect of the statutory language. The wife is amply protected by the courts whenever the husband undertakes to use any community property, whether real or personal, otherwise than as the bona-fide agent of the community.

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