ADMINISTRATION OF THE TAX SYSTEM BY NATIONAL AND BY LOCAL AUTHORITIES.
The dependence of the different kinds of taxes on the conditions of their administration, on the circumstances which condition the ascertainment of the object on which the tax is levied and the collection of the taxes, has come into view in the course of the foregoing review of the historical development, as well as in the theoretical discussion of the taxes. The purpose of the present chapter is to make a survey of the points bearing on this subject.
As a preliminary point of a general character there is some thing to be said on the relation of national administration of the taxes to administration by the organs of local self-government.
Something has already been said (secs. 135-148) of self government and of its general relation to the state. The discus sion was there concerned with the position of local self-govern ment as an intermediary between the centralized national administration and that class of services which are voluntarily rendered to the commonwealth, the question being as to the scope and significance of local self-government in this its most general character, for the finances of state and commune. We have now to do with that special phase of local self-government which is concerned with the administration of taxes,—with the special problems which arise out of the mutual interference between the national administration of taxes and administration by local self-government. The problems which are to be worked out by the central authority and its organs or by the organs of local self-government have received some consideration in the course of the more general discussion. The means at the dis posal of both of these two kinds of organs for carrying the tax legislation into effect, as well as the limitations of each and their relation to one another, are properly to be taken up at this point.
The general principle of self-government of course reappears in this phase of self-government. In one case as in the other its chief purpose is an intermediation between the coercion embod ied in the decrees of the central government and the spontaneous inclination of the citizens to perform their public duty. In the one case as in the other some attention is to be given to the difficulties in the way of such an intermediation and the conse quent necessity of supporting the local administration by the more effective machinery of the central authority.
The great advocates of local self-government, such as Freiherr von Stein, do not appear to have stated the difficulties and dis crepancies inherent in the problem with sufficient clearness in all cases, at the same time that they have very forcibly described these same difficulties and discrepancies as occasion has arisen. The same Stein who is eager to tear down the Formenkram and Dienstmechanismus of the professional officials by "bringing in men from the turmoil of practical life" and to replace this method by " einen aus der Ffille der Natur genommenen Reichthum von Ansichten and Gefidden," who "is quite unable to comprehend why the bur gomaster may not be engaged in business,"' — this same great statesman, on occasion of the Prussian reform of 1810, when he very strongly advocated the income tax as the fairest, most equal and most productive of all taxes, condemns in the harshest terms the public opinion then prevalent in Prussia, and characterizes it as an ingrained egoism and as " northern license and barbarity, which ought to be corrected by the application of the severest penalties, and not led still further astray by indulgence."' It is quite evident that he is speaking of the same people from two very different points of view, or in two very different frames of mind. It is the office of the science, of disinterested thought, to seek out the unity which underlies the contradictions due to the shifting tendencies of life and the shifting moods of our statesmen.
§ 374. So long as we have not reached a clear comprehension of the questions of principle involved, a discussion of the questions of practical administration, which by preference centers about the system of direct taxes (income, property and produce taxes), will lead to an infinity of delusion and self-deception regarding the importance of the form of these institutions as contrasted with their substantial content ; whereas the latter alone is of any decisive importance.
If there is any law which suffers from the eternal contradic tion that affects so many of our laws,—of attempting, under sanc tion of public compulsion, to command something which will not be performed voluntarily, while still obliged to recognize that compulsion alone is no adequate substitute for voluntary inclina tion,—if this is the case with any law it is eminently the case with the tax laws. The tax law owes its origin to the necessity of formally demanding from the members of the community the pecuniary sacrifices required to carry on the public business when the indispensability of these sacrifices is for the most part not appreciated by the taxpayers, who are therefore habitually unwill ing to render such sacrifices except on formal requisition and under public coercion. Since, in point of fact, the taxpayers have no other spontaneous feeling in the matter than a disinclination to comply, the tax law is very speedily brought face to face with the impossibility of making the letter of its provisions a living fact. This sheer contradiction between the injunctions of the law and the disinclination to comply with them of course does not occur in the public life of any modern civilized people. The old question, "quid leg-es sine moribus P" is to be taken everywhere, at least in some degree, in the conciliatory sense which it funda mentally implies—that no law can become an actuality which, not being based on the morals, habits and free inclination of the people, attempts, by means of public coercion, to advance but a single step further than the majority is inclined to go,— which seeks to exert a pressure that shall carry the movement beyond the point of everyday habit and in the direction of some ulterior moral aim.
But in view of the force with which the modern state, with its ever-increasing demands and its social-political and fiscal ideals, pushes its legislation forward on this line of tax policy, there is always danger that the aim of the law may be in advance of the inclination of the citizens on a point of extreme sensitive ness—the point of their pecuniary interests.
The idea that at this point, as at so many others, what is, may, by the aid of the organs of self-government alone be brought into accord with what should be, carries an attractive and, abstractly considered, a valuable suggestion. The reasons which in other connections are urged in favor of a recourse to this means are in this particular case reinforced by the practical advantage of an intimate acquaintance with the affairs of the neighborhood, which is available to this method as contrasted with the employment of professional officials of the central government. In the case of other functions undertaken by local self-government (jury service, justices of the peace) the contrary is nearer being true with respect to the practical advantages of taking the functionaries from the immediate neighborhood.
Still, as has already appeared in the course of the historical comparison between the Prussian administration of the income tax by local self-government and the English methods of local self-government, a very great deal depends on the form which this idea takes.
Just as it is a mistake to believe that the unhampered activ ity of industrial society, or of self-interest, means the same thing as a true self-government, so it is also true that that must be a very undeveloped self-government in which the everyday views and ideas of the neighborhood are called into activity in the service of the public without the requirement of any training or habituation whatever to the duties of office.' If sufficient time is allowed them, the better fitted members of the community will, by habituation to office, presently acquire the moral and intellec tual qualifications necessary for its administration. If the jury panel were a perpetual or relatively permanent office to be administered by the citizen, it would gradually raise the juryman above the narrow range of ideas belonging to his business, and bring his concepts up to the level of the national administration of justice,—the peasant would be less lenient towards perjury and the burgher would be less lenient towards dishonesty. But where the self-interest which dominates the everyday life of the business man stands in sheer contradiction to the duties of office, as happens in the case of the administration of taxes by local self-government, even permanency of office and habituation to its duties will not avail to raise the individual to a full sense of his public duty. What is needed in such a case is a complex artificial mechanism whose efficiency depends on the fact that it comprises a great number of psychological elements which are bound 'up together and mutually supplement one another ; whereas a one-sided load imposed upon any one of these various elements would bring but an inconsiderable result.
§ 375 We have now to examine the sequence and gradation of these elements in the light of the institutions which the history of taxation offers, proceeding in order from the individual to the central authority.
At the lower end of the scale, but one remove from the spontaneous contributions by the individuals to public expendi tures, we have the method of secret [sti llschwei Kende] self-assess ment handed down to us from the Middle Ages,— a bit of voluntarism incorporated into the public law, and hence invariably a rudimentary contrivance which is set aside in favor of more effective contrivances that face the necessity of public coercion more frankly. According to this method everything is left to the inclination and the conscience of the individual ; he is in no fear of coercion ; the letter of the law and his own sense of duty are the sole deciding factors. Accordingly, the largest demands on this sense of duty as well as its most satisfactory practical application are to be found under the circumstances offered by a diminutive commonwealth, where the relations between the indi vidual and the whole are close, the sense of community highly developed, the habituation to a close attachment of the part to the whole thoroughly ingrained and fortified by tradition, and where, in addition to all this, the amount demanded by the tax is inconsiderable, or where any demand of considerable magnitude is made only on occasion of events that profoundly stir the sentiment of patriotism.
Under the circumstances existing in the large states of today, where these conditions are absent, wholly or in part, this rudimentary method of assessment is condemned at the start.
One step further brings us to that method of self-assessment (declaration) which consists in a public statement, written or oral, before the tax officials. The interval between this stage and ' the first is not so great as is often assumed, especially it is not so great as is claimed where this method is not in use, and where it is accordingly overrated in the manner in which untried institutions commonly are. The advantage of this stage over the previous one is bound up with the question, what effect the superadded publicity will have. It is quite possible, and experience goes to prove the fact, that —where the outcome of this publicity is a mutual neighborly connivance—self-assess ment before the officials remains about as much an affair. of private conscience, or consciencelessness, as the method of secret self-assessment.
The efficacy of publicity is a matter depending on a great number of conditions which must be fulfilled by the adoption of the proper contrivances and institutions. This is the point of contact between individualism and self-government in taxa tion. If the assessing authority is endowed with the full meas ure of civic unripeness that many countries know so well through their experience with local self-government, then this authority will be practically useless as a means of publicity in self-assessment. It is not until this authority is clothed with the power attaching to a national office, and only in the degree in which it is so endowed, that it can have any effect in fortify ing the conscience of the self-assessing taxpayer. It is only in the presence of such an authority that the sanctions coupled with self-assessment become effective. All this holds true of the penalties attaching to false returns (which in the absence of such authority remain a dead letter) and of the submission of the tax lists to inspection by the taxpayers (which in an atmosphere of prevalent evasion of the tax will in any case not receive any attention from the public). Public sentiment is inclined to
seek improvement in the adoption of certain mechanical con trivances which unaided can never lead to improvement, and which can achieve an improvement only when helped out by an organic growth of institutions.
It therefore appears that the hopes entertained regarding the individualist factor in tax administration presently point to the need of something lying beyond that factor—tax officials clothed with the powers of the national authority.
How can local self-government create an authority clothed with these powers ? § 376. The great point is the same in this instance as in the case of all the machinery of self-government, viz., the citizen's administration of office must, as far as possible, be removed from the influence of his selfish instincts. But there is a second point of considerable difficulty, by which the administration of the taxes is distinguished from other phases of self-government, viz., that it is indispensable that the administrative official should combine an intimate knowledge of the affairs of the neighborhood with all these general qualifications.
K. G. Kries,' after a few years' experience with the Prussian income-tax legislation, was able to point out the way by which this purpose may be accomplished. In this work he took his suggestions partly from the English model, partly from the practice of the local administration of taxes in Berlin, as con trasted with that of the Prussian provinces. The members of the Berlin board of assessment are taken from all classes and all parts of the city, so that they are not bound together by any personal or class interest ; the great number of taxpayers prevents more than a relatively small number of them from standing in any close relation to the members of the board ; at the same time, the members of the commission are so numer ous and are brought together out of so widely different spheres of life as to bring to naught the influence of all personal inter ests which might otherwise affect the result.
The result is that as contrasted with the degenerate self government of shopkeepers assembling in the market place, or with the rural idyl, we have such a complexity and inclusiveness in the organs of self-government as to raise them above the business interests of the individual citizen to the level of public duty and neutralize the influence of private interest through the great number and diversity of such interests which it comprises.
There is a variety of this scheme, and indeed a somewhat dubious variety, in which the class contrasts subsisting between the taxpayers are marshalled not so much in the spirit of self government as in that of class administration [Klassenverwal lung], a parallel to class legislation. Under the circumstances which would supervene with the realization of the social-demo cratic ideal the tax legislation and tax administration in the hands of the proletariat would be an effective handle for the taxation of the bourgeoisie. In such a case we should have not the spirit of self-administration—the sense of public duty as opposed to the promptings of individual interest—but the struggle of interest against interest. There are other class con trasts than the social-democratic one which may be made to serve this purpose ; the legislation of Bremen, of 1873, is a case in point, where the merchants taxed the farmers ; and especially worthy of mention is the American method of tax administration, such as exists, for instance, in the state of New York, where there is a combined assessment of the property tax for the town, county and state, but subject to reapportionment or equalization within the county by county officials and for the state at large by state officials, in such a manner that it is pos sible, for instance, for the officials representing the rest of the state to increase the taxes for New York City out of all propor tion to those paid by the state at large.
A further modification consists in supplementing the still surviving human infirmity by the rigid framework afforded by a professional official class,' and a succession of stages of appeal leading up to the central power of the state.
The Prussian legislation of 1851 recognized this necessity fully, but the practical application of the principle was and is defective in a high degree ; and under the influence of the latest reforms in the direction of local self-government the principle has even been weakened. Where, as is the case at present in Prussia, the court of first instance, and, for the great body of assessments, practically the court of last instance, is made up of an elec tive committee of members of the commune, under the presi dency of the mayor in the towns and of the county chairmen in the country districts, it is to be said that this leaves the admin istratiort of the public business entirely to the organs of local self-government. The office of mayor or of county chairman • must be filled by persons of very unusual qualifications if they are to rise above the level of the views held by their constitu ency and (in accordance with the intention of the law) raise it to the dignity of an office of the state. Ordinarily, accord ing to the bent of their everyday habits of mind, these men feel themselves to be in some sort attorneys for their commune; they prefer to exercise their courage against what lies outside rather than inside, counting it a patriotic duty to shield their fellow townsmen from a more honest payment of taxes than other towns and provinces.
If any serious reform is to be effected, then this indispen sable element of the national authority must be provided for under one form or another. In place of the mayor with his social connections and incumbrances, or of the county chairman, must be substituted an officer of the state, with a permanent tenure, appointed for this special duty, answerable to the cen tral government alone, independent of the organs of self-gov ernment, not bound to the narrow interests of a town or a district, and therefore also not hampered by the social consider ations of the neighborhood ; but at the same time duties must be confined within a district small enough to admit of his acquiring and making use of an intimate knowledge of the affairs of the individual inhabitants. In virtue of his direct connec tion with the central tax-administration and by means of the proper official relations with like commissioners of other tax districts, the duties of such a tax commissioner will also include a care of the uniformity and equality of assessments ; in addi tion to his watchfulness over the equity of taxation as between individual taxpayers within his own district, he must also keep watch of the equity of taxation as between different districts. Without some such organ there is no assurance of uniformity of taxes, especially in a country of great extent. It may be remarked that one of the chief obstacles to an imperial income tax in Germany, as in any other federal state, lies in this, that the very nature of a federal state is opposed to the establish ment of the requisite centrali?ed control, partly because of the particularist attitude of the individual states, partly out of consid eration for the hardships involved in any thoroughgoing cen tralization. The many causes of friction already existing and difficult enough to be overcome are reinforced by an additional one, and one of a very sensitive nature.
Arrangement must also be made for an appeal from this lowest organ of the state tax administration to higher authori ties of the same character. The bodies which hear complaints must likewise contain representatives of the national tax adminis tration as well as of the higher organs of local self-government. All historical development, and especially that of the difficult questions whose solution goes to make up progress in tax policy, is of slow growth ; we may therefore look upon the imperfection of the Prussian tax administration as a result of the difficulties with which all innovations have to contend.
377. There is one means offered by the technique of taxa tion for an approach to that goal which the foregoing discussion has shown to be very difficult of attainment in the administration of taxes ; this means will contribute materially to bring the per formance of the taxpayer up to the standard of the law.
If, instead of leaving the amount to be derived from the tax dependent upon the greater or less discrepancy between the letter of the law and its fulfillment, we start out with fixing the aggregate revenue to be required, levying this aggregate upon the aggregate of taxpayers and then leaving them to distribute the burden among themselves, we have not only defined the letter of the law, but have at the same time secured the cer tainty of its realizing a given aggregate result. This leaves no discretion, in substance, to the intermediaries between the state and the individual.
The greater rigidity of this method as contrasted with tile one already spoken of is brought out by the most striking case of its application, that is to say, the war indemnities which have traditionally been levied in this form by the victors upon the conquered country or upon its provinces, communes and other constituent bodies, leaving these bodies to make any distribu tion of the burden among individuals. But there are noteworthy examples of this method being adopted by preference even in taxation that is intended for times of peace ; the French direct taxes are an especially well-known example (sec. 299). It has also become customary to use the French name for this method of apportioning taxes, taxes levied in this manner being called "taxes of repartition," while the converse method, by which the law fixes a quota or percentage to be levied as a tax-rate on the individual taxpayer or tax-object, is called a "proportional tax" [Quotitiitssteuer].
These two methods are, in point of form, diametrically opposed to each other, but considered as fiscal expedients the contrast between them is only relative. For, even in adopting the method of the repartition tax, the legislator contemplates an approximately ascertained and fixed rate of taxation, and simi larly in case of the proportional tax the law contemplates a more or less definitely fixed aggregate revenue. But it is the relative contrast between the two methods alone with which we are here concerned. For the point immediately in hand relates to those props and coercive measures by which assistance is afforded the taxpayer's vacillating sense of duty. If certain fixed annual sums are required of the provincial and communal self-governing organization, with the expectation that these local authorities will distribute the burden among individuals, this affords the administration of taxes by the local authorities a fixed support and standard from which they cannot depart.
In Prussia, according to the law of May 21, 1861, the land tax is a repartition tax, but with certain peculiar conditions attached which have been mentioned above (sec. 306). Sig nificantly enough, the house tax is not of this character, and this fact serves to bring out the extreme rigidity of the repartition tax on land. Of the variable taxes in the Prussian system the trade-license tax (sec. 307) has something of the character of a repartition tax, in that certain average rates are prescribed, which rates multiplied by the number of taxpayers liable to the tax give the sum which is to be jointly paid by them. In the case of the class tax and the income tax the limit set by the yearly income has also something of the character of repartition, but in a negative rather than a positive sense ; for example, the law of May 25, 1873, introduced an element of propor tionality [Kentingeniirung] into the class tax by means of the provision that any amount by which the aggregate revenue from the tax exceeded a certain fixed sum was to be applied in abate ment of the tax.
The flexibility of consumption taxes (and taxes on transfers) is coupled with the drawback that, while they are amenable to treatment by this negative method, the positive method by which the aggregate amount of the tax is fixed at a given figure cannot be applied in their case.