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Mr. HILL. He cannot do that in any community-property State.

Mr. MONARCH. I have not very complete information about the community-property laws. I understood that was generally the situation. Miss Carloss, who is to follow me, has made a study of the community-property laws of the several States, and is prepared to discuss the variations in them and the powers of the husband.

Mr. HILL. Let me suggest to you that the management and control of the husband in the community property is the management and control of the community estate. It is part his and part the wife's. He has management and control of that, although it is controlled under the law for both himself and his wife, as marital community property.

Mr. MONARCH. As I understand, the justification for this bill is that the power of control and management in the husband is so definite and so substantial that there is a legal basis for attributing the income to him. I take it that the legislation will stand or fall on the correctness of that premise. If the husband has no rights in the income which are sufficiently valuable, I suppose the legislation will be bad. The premise is that the husband has such an interest in this income that it is proper for Congress to attribute it to him.

Mr. Freer. In that connection, any effort to take a $50,000 salary and divide it between the husband and wife, by the State law which contravenes the general law, would be a confiscation to that extent. The Federal Government would lose that proportion of the surtaxes which would ordinarily be paid.


Mr. Hill. The States in exercising the power to determine and fix the status of property rights between husband and wife have greatly modified, in most of the common-law States, the status of the property rights between the husband and wife. In other words, the old common-law rule under which the property which the wife brought into the marital union became the property of the husband has been abolished in most of the States, has it not?

Mr. MONARCH. I think so.

Mr. HILL. In abolishing that rule, the wife is enabled to acquire and hold and own and dispose of her estate separate and apart from the husband. In many cases, at least, that is true. She has a separate income and he has a separate income on which he makes a separate return of the income and thereby keeps out of the higher brackets; he keeps out of the higher brackets that would be reached if the income of both were included in one return. But under the old common-law rule, all of the income from all the property of both spouses, and all of their earnings, the wife's earnings as well as the husband's earnings would all go into one return and be chargeable to the husband. Is not that true?

Mr. MONARCH. Do you mean under the present statute ?
Mr. HILL. Under the old common law.

Mr. MONARCH. It would depend on what the taxing statute made the basis of the tax.

Mr. HILL. I am assuming this: That the tax would be levied upon the income of the person having the legal title to it.

Mr. MONARCH. If that were the basis, then it would all be taxed

to one.

Mr. HILL. Is not that the basis of the income tax?

Mr. MONARCH. That is the basis of the present statute; that is not necessarily the only basis for it. In other words, as I have already suggested, there is no constitutional objection so far as we can see, to Congress requiring the one who earns the money to report it as his own income. In other words if the wife is employed on somebody's pay roll and gets a salary, Congress would be justified in requiring her to return it as her income, notwithstanding it went through her into the community and that the husband acquired an interest in it.

Mr. Hill. Regardless of whose property it is?
Mr. MONARCH. Regardless of whose property it is.

Mr. HILL. That is your conception of the constitutional powers of the Federal Government in the matter of taxation?

Mr. HILL. Did you refer to the Earl case?

Mr. Hill. Let me read you a paragraph from the decision in that case, as quoted in Poe against Seaborn:

In the Earl case a husband and wife contracted that any property they had or might thereafter acquire in any way, either by earnings (including salaries, fees, etc.) or any rights by contract or otherwise, shall be treated and considered and hereby is declared to be received, held, taken, and owned by us as joint tenants. We hold that assuming the validity of the contract under the local law, it still remained true that the husbands' professional fees, earned in years subsequent to the date of the contract, were his individual income derived from salaries, wages, or compensation for personal services under sections 210, 211, 212 (a) and 213 of the Revenue Act of 1918.

Then the court further says: The very assignment in that case was bottomed on the fact that the earnings would be the husband's property, else there would have been nothing on which it could operate. That case presents quite a different question from this, because here by law the earnings are never the property of the husband but that of the community.

The Supreme Court has given voice to that principle.

Mr. MONARCH. As we understand that it is a distinction of Lucas v. Earl which does not affect its validity. In other words, the Supreme Court says that the test which this statute adopts is ownership; it says the income which is to be taxed is the income of somebody; that denotes ownership. There is no definition of ownership in the Federal law. Therefore, you look to the State law to find the one under those circumstances who has the ownership, which determines and controls who pays the tax. That case does not overrule or weaken the Earl case, as we understand. It depends entirely upon the theory of the taxing statute which required recourse to the State law to find out who the owner was.

Mr. HILL. The sixteenth amendment of the Constitution of the United States provides :

The Congress shall have power to levy and collect taxes on incomes from whatever source derived, without apportionment among the several States and without regard to any census or enumeration.

You would not go so far as to say that ownership does not enter into the question of on whom this tax should be levied ?

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Mr. MONARCH. The courts have said that the sixteenth amendment provides no test of whose income is to be taxed. It provides for a tax on income. So far as the sixteenth amendment is concerned, it has been held that Congress is free to tax income

Mr. HILL (interposing). To what case are you referring ?

Mr. MONARCH. The United States Circuit Court of Appeals for the Second Circuit, said that in Taft against Bowers.

Mr. HILL. Give the citation.

Mr. MONARCH. 20 Fed. (20) 561. It was afterwards affirmed by the Supreme Court. I am speaking of the decision of the circuit court.

Mr. Hill. Do you know the citation of the Supreme Court case?
Mr. MONARCH. I can supply that to you.
Mr. HILL. Please put it in the record.

Mr. MONARCH. I can get it for you; it is Two hundred and seventy-eighth United States Reports, page 470.

Mr. SHALLENBERGER. We were going to take up the next witness, but Congress is ready to convene, and we will adjourn to meet again tomorrow morning at 10 o'clock, in this room, and continue the hearing. The next witness will bé Miss Carloss.

(Thereupon, at 11:50 a. m., the committee adjourned until tomorrow, May 3, 1934, at 10 o'clock a.m.)

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Washington, D.C. The subcommittee met at 10 o'clock a.m., Hon. A. C. Shallenberger (chairman) presiding.

Mr. SHALLENBERGER. The committee will be in order.

Mr. FREAR. May I say, addressing my remarks to the chairman and to Mr. Hill, that we are trying to arrange things to accommodate Members of Congress interested in these hearings either for or against the proposed bill.

It is agreed that the experts who are here will first be heard and we will then notify Members so that they may be heard following them.

Speaking for myself, I have been working here practically continuously since the 1st of October, nearly every day. We have just finished hearings with the unemployment insurance subcommittee. Some of us have to be away some of the time and we should like that witnesses should understand that while we are very glad to hear them, there are times when we must be somewhere else. I should especially like to be here when the proponents of this legislation, who are Members of Congress, make their statements.

Mr. SHALLENBERGER. Mr. Frear, I will say that it will be the policy of the committee to hear from the experts first and then we will hear Members of Congress who want to make statements on this proposed legislation. The clerk will notify the Members sufficiently in advance so that they may be prepared when we are ready to hear them.

The first witness this morning is Miss Helen Carloss, from the Department of Justice. STATEMENT OF MISS HELEN CARLOSS, DEPARTMENT OF JUSTICE

Mr. SHALLENBERGER. Will you please state for whom you appear, Miss Carloss?

Miss Carloss. I am here for the Department of Justice and my remarks will be limited to a discussion of some of the features of the particular community property laws that have been under discussion here.

Mr. Monarch spoke on the constitutionality of the provisions. I have nothing to say about that. My remarks are entirely directed to the laws themselves and some of the incidence of the laws that may have a bearing on this proposed legislation.


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