Paul L. Caron

Tuesday, November 28, 2023

Thorndike: Moores Lean On 1916 Tax Expert To Argue No Realization Means No Income

Joseph J. Thorndike (Tax Analysts), Tax History: Moores Lean on 1916 Tax Expert to Argue No Realization Means No Income, 181 Tax Notes Fed. 1356 (Nov. 20, 2023):

Tax Notes Federal (2022)Apparently, Charles G. Moore and Kathleen F. Moore are in thrall to a certain Columbia University economist from the early 20th century. Edwin R.A. Seligman is a big player in Moore v. United States, No. 22-800 — no small feat for a scholar who’s been moldering in a Brooklyn cemetery these past 84 years.

Still, Seligman’s prominence in the Moore case is worthy of note, even if Keynes would have found it predictable. The petitioners have cited Seligman repeatedly, using him to support their claim that unrealized income is not really income at all — at least not as far as the 16th Amendment is concerned.

As well they should: The Moores could hardly have asked for a better historical champion. If you’re trying to argue that the original meaning of the 16th Amendment hinges on the concept of realization, then Seligman is your man.

“If it is not realized, there is no income,” Seligman declared in a seminal article on the taxation of stock dividends.

That statement seems pretty definitive, especially coming from America’s leading tax expert of the early 20th century. Indeed, it’s hard to imagine a better statement to buttress the Moores’ principal historical assertion: “Then, as now, income was understood to refer to gains realized by a taxpayer through payment, exchange, or the like, not mere increase in the value of property.”

But here’s the thing: Seligman was not the only tax expert of the early 20th century. He wasn’t even the only tax expert at Columbia. Or the only one trying to sort out the meaning of income in the mid-1910s. There were countless others, including Seligman’s star pupil, Robert Murray Haig.

Haig — who would eventually succeed Seligman as the Columbia University McVickar Professor of Political Economy — was a rising star in the economics profession. And while Seligman was insisting on the centrality of realization to the concept of income, Haig was developing a different, less restrictive definition.

Broadly speaking, the meaning of income was up for grabs at the time the 16th Amendment was drafted and ratified, at least among tax experts. Seligman played an important role in the expert debate over income and its essential qualities. But so did others, including Haig. Over the course of two articles, I will explore the ideas of both these economists on this crucial point.

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