Why does the Code take such a broad approach to the income inclusion
but very narrowly defines exclusion, deductions and losses?  How are
the underlying policies of the federal government reflected in the
treatment of income, deductions and losses?

Hello taxcrazed and thanks for your question.

According to the United States Supreme Court, Congress defined income
broadly and exclusions, deductions and losses narrowly, because that
was how Congress could best exercise the full measure of its taxing
power.

Here it is in the Court's own words:
"Sec. 22[a] of the Revenue Act of 1934, 48 Stat. 680, 686, 26 U.S.C.A.
Int.Rev.Acts, page 669, includes among 'gross income' all 'gains,
profits, and income derived ... from professions, vocations, trades,
businesses, commerce, or sales, or dealings in property, whether real
or personal, growing out of the ownership or use of or interest in
such property; also from interest, rent, dividends, securities, or the
transaction of any business carried on for gain or profit, or gains or
profits and income derived from any source whatever.' The broad sweep
of this language indicates the purpose of Congress to use the full
measure of its taxing power within those definable categories."
 Helvering v. Clifford, 309 U.S. 331
http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=309&invol=331

You can follow the relevant cases, including briefs, oral argument
transcripts, etc., at a comprehensive site:
  Tax Stories
http://www.law.uc.edu/taxstories/

On the other hand, exclusions from income are construed "with
restraint."
Why? Really for the same reason:
"The provision of the Internal Revenue Code for [an exclusion]from
gross income is to be construed with restraint in the light of the
purpose of Congress to tax income comprehensively."
 Commissioner v. Jacobson 336 U.S. 28 (1949)
http://www.usscplus.com/online/index.asp?case=3360028

For more authority on this issue, the usscplus.com cite given above
makes it easy to find and read later cases that elucidate these
points.

I hope you find this answer useful!  Let me know (before you rate this
answer!) if you need anything more...

Regards,
richard-ga

---

Clarification of Answer by richard-ga on 26 Jun 2002 06:30 PDT

I also should address how this policy is reflected in the government's
treatment of these items:
"The Internal Revenue Service and the Treasury Department are
aware/have learned that certain persons are promoting the view that
U.S. citizens and residents are not subject to tax on their wages
or/and other income earned or derived from within the United States
.... The Service and Treasury are issuing this notice to inform
taxpayers that this reporting position has no basis in law."
 IRS Notice 2001-40
http://www.ustreas.gov/irs/ci/tax_fraud/notice2001_40.htm

According to one view, its the IRS "Fear Campaign" that implements
this policy:
 Fear Campaign
http://www.taxgate.com/articles/irs_fear_campaign.htm

I also should give you the search terms that got me to these answers:
 jacobson "income tax"
 "income tax" "section 61" "supreme court"

Thanks again!
richard-ga

Thank you richard-ga, sorry it took me so long to return my rating. 
The information was very useful for my taxation research paper! 
Thanks again, taxcrazed