The Federal Income Tax. by Roy G. Blakey; Gladys C. BlakeyReview by: George O. MayJournal of the American Statistical Association, Vol. 35, No. 211 (Sep., 1940), pp. 578-579Published by: American Statistical AssociationStable URL: http://www.jstor.org/stable/2279295 .

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578 AMERICAN STATISTICAL AsSOCIATION'

The Federal Income Tax, by Roy G. and Gladys C. Blakey. London, New York, Toronto: Longmans, Green and Co. 1940. xvii, 640 pp. $7.50. Accounts of the passage through the Congress of the federal acts imposing

taxes on income, similar to those which the authors have furnished to the American Economic Review, make up roughly two-thirds of this book. These accounts contain much that was of only ephemeral interest, and omit some things that were, and still are, significant. Particularly striking is the failure to indicate the part played by regulation in the development of the law. The impracticability of the provisions of the 1909 law calling for taxation of corporate income on a cash basis; the incongruity of combining with these provisions an allowance for depreciation; the Gilbertian solution of the administrative problem through regulations providing that obligations were "paid" when their existence was recognized by book entries, and the con- fusion over the meaning of the terms "paid" and "accrued" that resulted, are passed over without notice.

Again, the Act of 1917, levying taxes on a very different scale, was equally unworkable, so that regulations which were practically legislation had to be framed to deal with major problems. This was done, with the approval of the chairmen of the Congressional committees, largely by a group of un- official advisors of the Commissioner of Internal Revenue. The legislative regulations included exemption from taxation of profits on involuntary sales upon the condition that the proceeds were applied to replacement, and a provision that notwithstanding the explicit statement in the law that debt should not be treated as invested capital, debts should be so treated where interest thereon was not an allowable deduction for excess profits tax purposes.

Most notable of all was the provision (retroactively approved in the 1921 Act), which first brought consolidated returns into the tax system. These regulations, and the influence of their sponsors, greatly affected the terms of the Act of 1918 and, indeed, were among the most potent influences in tax law and regulation for many years. No hint of these facts is to be found in the volume under review.

A chapter on "The Definition of Taxable Income" has obvious merits, but it is too brief to be adequate and it is not always accurate. The passage in which the authors suggest the classification of concepts of income so that anyone who wished might indicate that he was using the word in sense "A4.671," for instance, brings out admirably the extent of the existing con- fusion (page 507). The claim that an income tax embodies the principle of ability to pay is recognized as an exaggeration and in any event dependent for validity largely on the definition of income that is adopted (page 568). The authors incline to the Haig concept of income, though they are aware of its imperfections (page 506). This being so, it seems strange that they should so far succumb to the lure of the word "gross" as to treat sales, before deducting even cost of production, as gross income. They point out, of course that the Supreme Court has rejected this view in its interpretation of the 16th amendment.

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* BOOK REVIEWS 579

The authors' discussion of depreciation, depletion, and timber stumpage, is particularly disappointing. The Supreme Court decisions that timber stumpage is, and depletion is not, a cost which must be deducted before there can even be gross income, might well have been discussed more fully.

Depreciation is dismissed in a paragraph in which the authors speak (without apparent justification) of the "enormity" of these deductions, and a single sentence gives a wholly misleading impression of the English practice (page 485). The facts are that in England a fixed percentage of annual rental value of buildings is allowed to cover maintenance of all kinds, and that de- preciation is allowed on other assets in much the same way as it is allowed here, the English allowances, having regard to conditions in the two coun- tries, being apprently the more liberal.

The authors lost an opportunity when they failed to point out the striking contrast between the English law of 1932 ,which accompanied an increase in the rates of tax by an increase in depreciation allowances, and the attitude in 1934 of our Congress, which sought to increase revenue partly by increas- ing rates and partly by reducing depreciation deductions, or in other words, taxing as income what is really capital.

The statistical tables are not important. They are largely taken from parti- san presentations in support of measures proposed. An undesirable type of statistical table is illustrated by Exhibits 12 and 13 (pages 594-5), in which estimates are given of the increase in tax yield that would have resulted from the discontinuance of consolidated returns, on the assumption that no changes in corporate procedure to meet the situation would have been made. This, notwithstanding that the Treasury's main argument for allowing the continuance of consolidated returns was that changes in inter-corporate transactions would quickly destroy any apparent gain from abolition of the practice.

The volume contains many shrewd comments and useful suggestions, but it cannot be said to be the definitive history of income tax laws or to add greatly to existing knowledge of the subject.

GEORGE 0. MAY New York City

Capital Expansion, Employment, and Economic Stability, by Harold G. Moulton, George W. Edwards, James D. Magee, and Cleona Lewis. Washington, D. C.: The Brookings Institution. 1940. xv, 413 pp. $3.50.

The authors of this volume consider the absence of a large measure of capital expansion to be the feature which most strikingly distinguishes 1933-39 from former periods of economic recovery. "This fact," they state, "is conceded to go far toward explaining the low level of economic activity, the unprecedented volume of unemployment, and the reservoirs of idle funds" in existence today. The authors find that the restricted flow of funds into investment cannot be explained by abnormal conditions in the private

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