STATE REVENUE FROM TAXATION.
1. Chaotic condition of state tax systems.
2. The subjects of taxation.
3. Difficulties in taxing real estate.
4. Consequences of the unequal assessments.
5. Difficulties in taxing personal property.
6. Difficulties in imposing taxes on occupations.
7. Inequality in the South Carolina license system.
8. Inequality everywhere.
9. Liquor licenses.
10. The taxation of collateral inheritances.
11. The tax falls chiefly on personal property.
12. Which otherwise evades taxation.
13. Justice of the tax.
14. Shall the tax be graduated? 15. Taxation of corporations.
16. Taxation of railroads.
17. Taxation of their real estate outside of road-bed.
18. Taxation of the evidences of corporate property.
19. The taxation of other corporation banks.
20. Effect of lower taxes on capital than on other kinds of property.
21. Double taxation.
22. Taxation of mortgages.
23. Desirability of taxing tangible property.
24. The fundamental basis of taxation reconsidered—ability.
1. Every one knows of the chaos that exists in all the States concerning taxation.' Even those that boast of leading in the race for better government have not ad vanced much in improving their modes of exacting con tributions for the public support. One of the conditions of improvement is uniformity of action by all the States. They are so clearly related in many ways that no State can adopt and enforce a good system unless similar action is taken by others.'" 2. The oldest and most common subject of taxation is real estate. For many years it was the principal kind of property in this country. So long as it was, taxes could be assessed with some degree of equality and fair ness. As wealth increased it assumed new forms, which the State endeavored to tax. Money, merchandise and other kinds of wealth were included. Afterward, cor porations were organized and taxed. Not content with taxing property in their own jurisdiction, the States stretched their authority beyond, and endeavored to get more through the owner who was within their grasp. Licenses and fees from an early day were also imposed. And thus has developed the most extraordinary jumble, which has grown worse with the increase of wealth and of pressure on the taxing power to include everything within the net of the tax-gatherer. Wherein the State has chiefly failed to measure correctly the ability of the taxpayer to pay will now be briefly described. A brief summary of its failures will suffice, for they are familiar knowledge.
3. First, there is no uniformity in assessing the value of real estate. In one town or city it may be assessed at so per cent. of its value ; in another, 6o per cent. ; in an other, at its full value. Still worse, in the same town or city lack of uniformity is still more glaring. Those who own most, and keenly watch their tax bills, may find ways for keeping their assessments at low figures ; those pos sessing no influence, or who are opposed to the taxing authority, are assessed at much higher valuations. Poli tics, relationship, friendship, enmity, indifference, vigi lance are a few of the many potencies that determine the action of assessors.
4. We need not stop to describe the consequences of disregarding proper rules in determining valuations. The farmer who is more heavily taxed than his competitor, if both are on the same plane in other respects, has an obvious disadvantage, the more exasperating because it is wrought by State action.
5. Second, is the failure to reach all kinds of personal property marked by law for taxation. It is easy to hide much from the tax-gatherer, especially money and other kinds of wealth that occupy a small space. In truth, only a very small amount of personal property that is liable to taxation is assessed. As Professor Seligman remarks, this defect "is so patent that it has become a mere byword throughout the land. The taxation of personal property is in inverse ratio to its quantity, the more it increases the less it pays. The reason is plain. So far as it is in tangible, personal property escapes the scrutiny of the most vigilant assessor ; so far as it is tangible, it is pur posely exempted in its chief form, as stock in trade, in our commercial centres."' 6. Third, may be mentioned a series of difficulties in imposing taxes on occupations in the form of licenses or fees. Professor Seligman has clearly shown how they differ from other kinds of taxes. "A tax is levied as a part of a common burden ; a fee is assessed as a payment for a special privilege. The basis of taxation is the abil ity or the faculty of the taxpayer ; the basis of a fee is the special benefit accruing to the individual." Another distinction is, "a fee does not normally exceed the cost of the particular service to the individual ;" a third dis tinction is in the service performed by the government in return. For a tax no special service is rendered ; for a fee the government displays "some positive energy, as in furnishing a water supply," or permits the licensee to do something.
7. One of the radical objections to license taxes is the utter lack of any system in imposing them. In no case have all occupations been taxed, but only a few. Such a system is manifestly unequal and unjust. The new con stitution of South Carolina provides for a graduated li cense on occupations and business by the Legislature. Disregarding the constitutional instruction, the Assem bly has attempted to tax "artists, ambryotypists, photo graphists, etc.," at the rate of twenty-five cents for every thousand inhabitants of the place where they "do busi ness ;" and merchants who sell more than ten thousand dollars' worth of goods a year, twenty-five cents for every additional thousand sold. But lawyers and physicians must pay five dollars a year, regardless of their income, and every laundry woman fifty cents annually for contin uing her business, be it small or smaller. Rarely has a license system attempted so much ; and never, perhaps, has one disregarded so openly the plain requirements of the organic law.
8. At no time has any State ever adopted anything approaching a fair license system. A few occupations have been selected ; the larger number have escaped. Is the State just in imposing licenses on doctors or lawyers and omitting barbers, or laborers, or any other class? 9. Liquor selling has been singled out by many na tions for taxation for peculiar reasons. The business leads to consequences that are notoriously bad, and there fore it seems only just that liquor sellers should be obliged to contribute toward the expense of undoing the evils they entail on persons and society. Another reason for taxing them is to promote temperance, by increasing the price of liquors and thereby curtailing their use, and also by restricting the places for selling them. This legislation so often springs from the double purpose that it is not easy to determine when such taxes are wholly revenue.
Io. The collateral inheritance tax is the latest addi tion to the American system of taxation, and is rapidly growing in popular favor.' The Treasurer of Massachu setts remarks in a recent report that the tax is a fair and just means of raising revenue, easily borne, and if prop erly assessed and collected would supply a large amount of the annual revenue required for the support of the Commonwealth.' II. The tax falls principally on personal property, which, during the lifetime of the owner, largely escapes taxation. Controller Roberts, of New York, remarks in his annual report for 1896, that the equalized taxable value of real estate in that State in 1870 was $1,532,720, 907 ; in 1895 it had reached the sum of $3,908,853,377, an increase of more than 155 per cent. The equalized value of taxable personal property in 1870 was and in 1895 $459,859,526, a gain of less than 6 per cent. The increase in value of personal property of late years in New York has been more rapid than that of real estate, while the amount of personal property owned by persons living there exceeds the amount of real estate. Yet as the Controller remarks, the above figures indicate an amazing growth in the amount of taxable real estate, while the increase in the amount of personal property re ported for taxation hardly deserves mention.
12. The Controller then asks, "Where is all this per sonal property ?" and answers, "It evades taxation." Neither the assessor nor the tax-gatherer gets a chance to tax it until the death of its owner. Then an administrator appears, appraisers are appointed, the strong boxes in the bank and safe deposit vaults are opened, and vast amounts of securities are brought to light.
13. The Controller again asks, "Why should not the State avail itself of this opportunity to impose a tax on such property, which, by law, is subject to taxation, though none has ever been collected ?" Some writers as sert that the course of the State would be wiser to forego all attempts to tax personal property during the life of the owner, and on his death levy an assessment large enough to make up for the previous years of exemption. To no one would the tax be a hardship. If this policy
was adopted decedents would enjoy their fortunes during life, and their beneficiaries would simply pay a fee for the privilege of receiving estates created by no effort of their own.
14. Shall such a tax be graduated ? Many favor this plan. Controller Roberts has submitted the following plan of a graduated tax: Five per cent. on estates of $I,000,000 and less than $2,000,000; Io per cent. on es tates of $2,000,000 and less than $3,000,000; 15 per cent. on estates of $3,000,000 and over. • is. We shall now turn to corporations, which are the principal sources of State taxation in many States. These may be classified into transportation corporations, rail ways, canals and express companies ; manufacturing cor porations, mining corporations, banking corporations, and others that may be termed miscellaneous. They have been taxed in various ways ; all of them have proved de fective.
16. In dealing with railroad corporations one of the first questions is, Ought the tax on a line competing with another outside the State to be levied with reference to the tax imposed on its competitors, or not? If a higher tax is laid than is paid by its competitor, either this must be thrown on shippers and added to their tolls, or be de ducted from the profits of shareholders. Another ques tion relates to the mode of assessing them, Shall this be on their gross or on their net receipts? Without discuss ing these plans, we may add that the third and more gen eral one is to require them to pay on their shares or capi tal. In ascertaining the value of the shares or capital of a corporation, perhaps the fairest method would be to assess its interest-bearing bonds at their par value, or less if not worth par, and to assess its stock at its average market value during the year, for the bonds and stock would form a correct valuation of the property. It may be asked, If the bonds are worth more than par, ought not this additional sum be added? We think not, for the reason that an excess does not denote that the property on which they are issued is worth more. If the bond of a railway company advances To per cent., the property is worth no more than before, nor is the profit any greater to the bondholder, consequently there is no reason why he should be taxed more heavily on a bond worth zio, and paying 5 per cent, interest, than on a bond worth only ioo and bearing the same interest.
17. Perhaps the real estate, stations, repair shops, etc., should be appraised like other real estate in the place of their location, and deducted from the total amount. Then the property thus deducted should be taxed locally like other property.
18. A still worse evil is the taxing of the evidences or titles of corporate and other property after taxing the property itself. Double taxation is indefensible. Bonds and certificates of stock are only the titles to property, and there is no better reason for taxing these than the deed of a farm or any other certificate.
19. The taxing of other kinds of corporations does not present as grave difficulties. In taxing a bank, its shares or capital, we think, should be subject to taxation like that of a railway company, which is determined by its actual value, while its surplus and undivided profits are clearly reflected in the worth of its stock.
20. Another cause of constant complaining is the varying rates of taxation on different kinds of capital, and the lower rates in general on this than on other kinds of property. The farmers, especially, throughout the coun try, complain that they bear an undue share of the burden, and that corporations, which are better able to pay, es cape with paying much less. The capitalist class com pared with the agricultural class does not pay its fair share. This is one of the most widespread causes of dis affection toward government.
21. Another cause of complaining is the taxation of the same property, often a second, third, or even fourth time, by different methods. The familiar illustration is the taxing of the owner of a mortgage on the money he has loaned, while the mortgagor nevertheless is taxed for the full value of his land. This is double and wrongful taxation, for the mortgagor is really not the owner of the entire land, but only of that part beyond the value of the mortgage. The lender is the real owner to the extent of the money loaned.* 22. It may be asked, Will not the lenders of money elude or escape taxation if this principle be allowed or admitted ? The analysis of the case of the mortgage shows clearly enough that all owners of property some where must pay, and ought to pay, taxes on whatever they have. In this case, for example, the seller of the land gets his money for it, and so long as it remains in his possession he should be taxed thereon like the owner of any other property. Therefore it may be said that the money lent to the buyer by the subsequent mortgagor is in the possession of the person to whom the land was sold. Suppose he has disposed of the money, what then? Sup pose he has invested it in another mortgage ? Then the person to whom the money was paid has possession of it, and should be taxed. In short, the money is somewhere, in the form of a deposit in a bank or in the keeping of some person. Of course, the larger portion of the money of the country is in the banks in the form of deposits.
23. There is no danger, then, in theory, that any one will escape his due share of taxation so long as actual tangible property is taxed, for every bond and every share of stock is only the certificate or deed to property exist ing somewhere. If actual property is taxed, including money, then every kind of actual property is swept within the domain of taxation. When this is clone the taxing power should go no further in trying to tax merely the certificates or evidences or rights to property. Wherever this is attempted, double taxation is the result, which works inequalities and the gravest injustice.
24. In closing this chapter, let us revert to the ques tions, What is the proper ground of taxation? Ought every one to pay, and how much? We have sought to show that taxes are demanded for public services, that as all are benefited by them, all ought to pay them; that in consequence of the inability of all to pay, they must be paid by those who can. Systems of taxation, therefore, are the methods of measuring the ability of persons to pay, and of collecting the amounts after this process has been completed. As measures of ability to pay, can anything be imagined more indicative of a low order of government? Here and there is a dim approach to a more equitable method of determining the ability of per sons, but in general practice what we see is an attempt by the State to get a revenue in whatever way it can, and by the taxpayer to escape with paying as little as pos sible. The present systems furnish no adequate or proper measures whatever for determining the ability of taxpayers, and the very highest duty of government at the present time is to furnish a better system.' 'The General Property Tax in California by C. C. Plehn, 2 Economic Studies, No. 3, is a very instructive monograph. The History of New York Property Tax, by J. C. Schwab, 5 Am. Economic Assn., contains an extensive bibliography.
"Numerous reports have been made by State commissions for improving the State systems. One of the latest and by far the most elaborate and thorough is the Massachusetts Report of 1897. For a lengthy review of it, see article by A. C. Miller, 6 Jour. of Polit. Econ., 224. An instructive comparison of tax ation between Pennsylvania and Philadelphia and Illinois and Chicago is made by J. R. Commons in 3 Jour. of Pont. Econ., 434.
For a good article on Excessive Taxation, see one by Frank lin Smith, Popular Science Monthly, April, 1900, p. 645, and reports of J. H. Roberts, Controller of N. Y., 1894-1899.
'Essays in Taxation 27. See account of The Ohio Tax In quisitor Law by T. N. Carver, 3 Economic Studies, No. 3.
`See The Inheritance Tax by Max West, 8 Polit. Science, (2., 426. It contains references to many works. Annual Reports of Controller Roberts, of New York, for 1895 and 1896. For re cent Inheritance Tax Statutes and Decisions see 6 Jour. Polit. Econ., 437.
'Annual Report 1894. 14. Tennessee was the first state in the Union to levy an inheritance tax. Max West, The Inher itance Tax, 62 "'In New York the rate of inheritance tax ranges from 1 to 6 per cent. This is a much lower rate than is imposed in other countries, where this method of taxation has long been estab lished. The following are the rates in other countries: