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There is no discrimination, therefore, against the Eastern States and there is no manipulation against the income-tax laws of the United States. It is only a question, gentlemen, of whose income you are taxing
The question of the value to be placed upon the dictum in the Robbins case has been raised here, and I feel that I shall have to say a few words about that. In the respect of judicial interpretation of the Constitution of California and the laws enacted under it, most of such judicial interpretation was made by jurists who were familiar with the common law and not with the civil law. The California courts used language such as indicated that the wife did not have an actual vested interest. And under the influence of those decisions the Supreme Court decided in the Robbins case that the income from community property could not be divided between husband and wife.
Now, whatever the imperfections of the California law were at the time the Robbins case was decided, they have been very definitely cured by act of the legislature in 1927, acting under a constitutional provision, when the community property system was restored to its original status by the amendment of section 161 (a) of the Civil Code.
Mr. Evans read you that section and explained it the other day and I do not believe it is necessary to repeat it, but the section has been judicially construed, and Mr. Evans did not call that to your attention, so that I do desire to do so.
The Supreme Court in the case of Siberell v. Siberell (214 Cal. 767), at page 772, said:
This follows because the wife has always had at least a limited interest in the community property.
Citing Stewart v. Stewart (199 Cal. 318): In 1891 her rights were enlarged to require her written consent to gifts and voluntary transfers of it. In 1917 again her rights were enlarged to allow a division of the common property under certain conditions without a dissolution of the marriage ties, also requiring her signature to convey or encumber it. Again in 1923 sections 1401 and 1402 of the Civil Code were amended to give her testamentary power with the husband over it and in the absence of a will by the husband she, to the exclusion of the children, takes the whole of it. Lastly, in 1927, section 161 (a) was added to the Civil Code investing her with full title to one half thereof ceding alone to the husband the management and control thereof.
I am very sorry that the gentleman from Wisconsin had to leave. During the course of the hearings he has several times brought up the illustration and asked if it were not unfair that a man residing in Wisconsin or Pennsylvania could not divide the income between husband and wife, and therefore had to pay a higher rate of income tax, and he has used the illustration of salary alone.
I am going to cite you the California case which is authority on the question of salary alone. There is nothing in this particular case which I am going to cite except the question of division of salary. I think it is conclusive and states the law, and I do not see how the Ways and Means Committee, the Supreme Court, or anybody else can go behind it.
That case is United States v. Malcolm (282 U.S. 792). All there was in the income-tax return was salary. During the year 1928 Robert Malcolm and his wife were domiciled in the State of California and Robert Malcolm received a salary of $3,600 for personal services rendered as an officer of the Liberty Farms Co., a California corporation. Under the laws of the State of California, this being after the adoption of the 1927 amendment, this income was community property. On March 1, 1929, the husband and wife filed separate returns of their income for Federal income-tax purposes. Each reported one half of the salary of $3,600 received in 1928 by the husband, and each fully paid the amount shown to be due on the return.
According to the certificate sent up to the Supreme Court, after the husband had filed his income-tax return for the calendar year 1928, as set out above, the Commissioner determined his return was incorrect in that the salary of $3,600 should have been reported by the husband alone, and accordingly the Commissioner determined against the husband a deficiency in income tax amounting to $18.39. An assessment in this amount was then made and collected from the husband, the plaintiff herein, together with interest amounting to $1.12. A claim for refund was thereafter filed and rejected by the Commissioner.
The questions certified were as follows:
1. Under the applicable provisions of the Revenue Act of 1928 must the entire community income of a husband and wife domiciled in California be returned and the income charge thereon be paid by the husband ?
The second question, was:
Has the wife under article 161 (a) of the Civil Code of California such am interest in the community income that she should separately report and pay tax on one half of such income?
The Court said:
The first question as certified is answered: "No." The second question is answered: Yes."
There is a very simple, explicit, and complete case dealing with nothing but salary, and I believe that it completely answers any objection that the gentleman from Wisconsin has raised here from time to time.
Mr. COCHRAN. Would you object to a question?
Mr. COCHRAN. We will use that figure for illustration. Under the 1934 Revenue Act, assuming that I have no income whatever other than my salary as a Member of Congress from Pennsylvania, I will be compelled to pay $380 income tax, while you, receiving exactly the same salary, and assuming that you have no other revenue, being a resident of California, will pay $140. In other words, my income tax is 271 percent of what yours is. Now, basing your answer upon considerations of equity, should there be that difference between citizens of the United States similarly situated ?
Mr. Buck. I am sorry, but I think the gentleman from Pennsylvania was coming down the rostrum and did not hear what I read from the case of Poe against Seaborn on the question of equity.
Mr. COCHRAN. I heard it, and I want to say, without any criticism of the gentleman from California, but as a generalization, that I be
lieve all this very interesting discussion of the community-property law and decisions of courts of last resort on community-property law situations are entirely beside the question here. Nobody is disputing what the law is. To me the citation of these numerous authorities does not deal with the inequity and inequality which exists.
Mr. Buck. There is an inequity which exists, as the gentleman no doubt knows, in the administration of the bankruptcy laws throughout the United States. There are certain exemptions allowed in certain States that are not allowed in others. There are other phases of the bankruptcy law, and in that connection also the Supreme Court has held that the uniformity is not intrinsic, that it is geographical, and that any matters that the State law differs in cannot be read into the Federal statute.
I see no difference between that and between this case of the income from community property.
Now, as a matter of fact, Mr. Cochran, I do not think that you have taken into consideration in your figures the fact that my wife will also pay an income tax on the other half of the community property, so that there is not a difference of 271 percent. There is a difference, and I will admit that, but it is nowhere as near as great as the amount which you have figured.
Mr. Hill. Go ahead and finish your statement, but I would like to have you yield when you get through.
Mr. BUCK. I would like to finish the matter of the Robbins case. Mr. HILL. My question is on that point. Mr. BUCK. Then go ahead. Mr. HILL. Of course, this bill before the committee now deals not alone with the salaries of the parties in the community-property State but it deals with all the community-property income, and would place the burden of tax solely upon the husband or the spouse having the control and management of all the community-property income, including salaries of both spouses, including the community income from whatever source, and in that particular, when you take it by and large and take a comprehensive view of it, this bill would work an inequity against the community-property States as in the noncommunity property States the spouses can by a voluntary arrangement between themselves divide the property and each one return separately his or her income from his or her property, and it is so divided. You cannot do that in the community-property States, if this bill should become law.
Mr. BUCK. That understanding is correct, sir.
Mr. HILL. Certainly there would be an inequity there against the community-property States.
Mr. Buck. I am not going to cite many examples, but I am going to try to point out a few of them briefly to you in a moment or two.
But, to continue my answer to Mr. Cochran, I want to say the theory and the fact upon which the community-property law is built is that the wife is an actual contributor to the family as a whole. And it is so. In many cases there are situations where the wife is putting in her time, engaged in work with her husband, such as on the farm—and I happen to be a farmer myself and I know the conditions that exist there. The wife is drawing no salary and the husband is drawing no salary. When the crops are sold and the
profit figured, how are you going to establish the proportion of the profits earned by both of them except by the partnership created by law?
Mr. COCHRAN. Do not wives in other States assist their husbands to some extent?
Mr. BUCK. Yes, sir; but if the other States do not want to give the wife her vested interest in the income, which the communityproperty State gives, then that is their affair. In my opinion there is no reason why inhabitants of the community-property States should be penalized because the other States do not adopt as liberal and as enlightened a plan toward their womenfolk.
Mr. Cochran. You are making a very persuasive argument, but I cannot say that I am convinced.
Mr. Buck. I will continue a little further and perhaps I can perThe German Visigoths had that as a foundation in saying that the wife was entitled to a half interest. That is the theory and that is the fact.
Mr. COCHRAN. I want to ask you another question in view of that statement. I followed your argument and you traced the community-property law from Spain by way of Mexico, as I got it.
Mr. BUCK. Yes, sir.
Mr. COCHRAN. Did the law of Spain or Mexico give the wife a vested interest or merely an expectancy?
Mr. BUCK. The earliest law on the subject in Spain was the Fuero Real of Alphonso the Learned, in 1255. It dealt not with the question of the use of the income, for the reason that there was no income tax, but it gave the wife a vested interest in that property, so that the husband could not deprive her of her inheritance in the property. Do you
follow me? Mr. COCHRAN. Yes, sir.
Mr. Buck. In other words, he had the management and control then, as he has now, and there was no question involved in those early days of the disposition of the income in the meantime.
Now, as a matter of fact, there has to be some kind of an agent for the disposition of the income of the community, whatever it may be. Sometimes it is only earnings, until they reach such a point that they can be banked and invested in something, and then the income from such investments becomes also community property.
The community-property law says that the title to the wife vests at the minute that that income is earned. It does not come through the husband, and there is no transfer of it. I will cite you two or three cases in California which will prove that that is the law. There is no question of transfer.
In the meantime, I will dispose of the Robbins case. What the gentlemen from the Government are hanging their argument on is the dictum of Justice Holmes in the Robbins case indicating that he thought perhaps the Congress could go further than it did and enact a law to tax the marital income.
I think one dictum is as good as another. Those of you who have practiced law know that none of them are worth much when the actual facts are presented.
Mr. SHALLENBERGER. Did the Robbins case arise in California?
Mr. BUCK. Yes, sir. It has been cited several times, Mr. Chairman, and that is why I am referring to it. That was before the 1927 amendment. Now, at this point in that connection I want to cite the case of Holden v. Hardy (169 U.S. 389), and give you the following language, which indicates in my opinion what the Supreme Court justices at that time felt about the matter in connection with any form of substantive law that might be sui generis in our own country or in any of our possessions (reading]:
In the future growth of the Nation, as heretofore, it is not impossible that Congress may see fit to annex territories whose jurisprudence is that of the civil law. One of the considerations moving to such annexations might be the very fact that the territory so annexed should enter the Union with its traditions, laws, and systems of administration unchanged. It would be a narrow construction of the Constitution to require them to abandon these, or to substitute for a system which represented the growth of generations of inhabitants a jurisprudence with which they had had no previous acquaintance or sympathy.
As far as California is concerned, I have shown you in our community-property law that it came to us through the treaty with Mexico and the adoption of the original Constitution of Californa.
Now, I stated that the wife does not take anything through transfer from the husband. I want to show you very briefly what the state of the law is in California. The wife is entitled to obtain a division of the community property upon divorce. She is entitled to dispose by will of half of the property if she pre-deceases the husband and to take possession of half the community property if the husband predeceases her, and even if he had made testamentary disposition to the contrary. This answers a question raised the other day.
I wish to cite the Estate of Prager (166 Calif. 450)
Mr. COCHRAN. Let me ask you a question for information, Mr. Buck.
Mr. Buck. Yes, sir.
Mr. COCHRAN. The husband dies and his wife acquires possession of one half the community property, we will say, in her own right. What interest has she in the other half?
Mr. Buck. If he dies intestate, she would take either one half of it or one third according to whether he left children or not. He can will it away.
Mr. COCHRAN. He can will it away?
Mr. BUCK. Yes, sir. And she can will her portion away. She is entitled to treat as null and void as to her half of the community property any sale made by the husband's executors under a general power of sale contained in his will beyond what is necessary to pay the debts or expenses of the administration Estate of Wickersham (139 Calif. 652). She is entitled to void transfers by the husband which do not have her signature to the conveyance. With these powers, particularly this veto power that exists, it is obvious also that she gets nothing by transfer from the husband. The fact that at the death of a husband the community property is administered with the separate property of the deceased spouse does not show that the wife is an heir.
The administration is solely for the purpose of estimating the proportion of the community debts which are chargeable against her half, so that the court may enter an order to the husband's admin