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Concerning the Principle of Apportionment


The question of apportionment of taxes leads to a con sideration of the relative duty of citizens to pay for the sup port of the State. The student is not left entirely to speculation respecting this subject. As has been already pointed out, it ties in the nature of a tax, and of the political conditions in which taxation presents itself as an important public problem, that payments for support of the State should be equitable as between citizens. The principle of apportion ment, therefore, according to which this duty is assigned, must recognise all those complex relationships which modern philosophy finds in the phrase political equity.

53. Special Reasons for Equitable Apportionment No argument is needed to enforce the conviction that taxes. should be apportioned on the basis of equity, but a few words may be added to render yet clearer the nature of this. necessity. The power to tax is a sovereign power, and its exercise should be equitable for the same reason that every act of government should conform to what is fair and just. Now that the personal sovereign is no longer a menace to the rights of the people, the importance of relative justice as between citizens is the strongest apology for popular government. This demand for equity, therefore, finds its ultimate sanction in the structure of the State itself, and when used in connection with taxation it is merely an application to a specific case of a fundamental conception respecting popular government.

It is possible, however, to discover a more commonplace reason for an equitable distribution of payments. Taxes are frequently spoken of as burdens, and there is no objection to such a use of language, provided the phrase is employed in the same sense as when speaking of any of the necessary items of expenditure in the domestic budget. If the payment of a coal bill or the quarter's rent be a burden, then is the pay ment of a tax a burden. Using the phrase in this sense it is clear that the payment of any definite amount, the various expectations from life due to a customary standatd of living being for the moment dropped from view, is felt to be a burden in proportion to the size of the fund from which it is made. The burden of a payment is measured by what is left after the payment, rather than by the amount paid. It is the surplus over the necessary expenditures of life which minister to the developing, and therefore the most keenly sensitive, wants. This is the explanation of the universal opinion that where fortunes vary equal payments would not he equitable as between citizens; and the commonplace argu ment for equity in matters of taxation, to which reference 'gas made, rests upon the assumption that the relief to him who fails to pay his just share is not as great as the burden which this relief imposes on some other member of the community who on this account pays more. Equity in the apportionment of taxes, therefore, reduces the burden for the support of the State to its minimum, just as a scientific adjustment of straps and buckles by which a knapsack is slung to a soldier's back makes the load carried as though it were light. It thus appears that a just system of taxation is equivalent to economy of social energy, from which it fol lows that the principle according to which taxes are appor tioned may have a very direct bearing upon the rate of social development.

The above thought may be pressed yet a step further by showing more specifically how equity in the levy of taxes bears upon the development of a nation's industries. A payment of any sort works its way into industrial conduct through the incentives to industry resulting from the satisfaction which follows the payment in question. The labour which will be undertaken in the future depends in large measure upon the degree of satisfaction resulting from the labour of the past. This, tempered, perhaps, by the instinctive hopefulness of mankind, is the fundamental law of industrial conduct. Is it not, then, clear that an inequitable apportionment of taxes, which deprives him who pays too much of more satisfaction in the expenditure of his income than it adds to that of him who pays too little, results in weakening the aggregate of the motives to industrial activity? Thus the universal ex perience of nations, that one of the surest ways to encourage industry is to adjust the fiscal system to the demands of equity as between citizens, finds upon analysis a psycho logical basis.

There are, then, three reasons why equity should control apportionment. It is demanded by the accepted govern mental principles of free states; it is essential to the economy of social energy; and it is important as a means of present ing motives to industry in the most effective manner.

54. Analysis of the Rules of Apportionment. It is one thing to conclude that equity should give character to apportionment; it is quite another to discover an intelligent and at the same a makable rule for the attainment of this end. Some progress in this direction was made when con sidering the theorist's definition of a tax, since it was shown that a tax could be considered neither as the price charged for public service nor as an equivalent paid for value received. On the other hand, it was concluded that a tax is a contribution to a common fund designed for a common end. Manifestly, the principle of apportionment adopted will ally itself to the accepted conception of a tax; and we might, therefore, in strict logic, proceed at once to inquire what theory of apportionment is bound up in the statement that a tax is a contribution. This, however, would exclude cer tain considerations capable of throwing considerable light upon a difficult problem. It would also result in an opinion arrived at from theory alone, ignoring those practical con siderations which so largely control in matters of finance, and which do not present themselves until one begins to trace the consequences that follow the application of the prin ciples adopted.

(I) Apportionment and the Cost Theory of Taxation. A moment's consideration is adequate to show that the duty to pay for the support of the State cannot be assigned to citizens according to the cost to government of the service rendered. The fact that this cost cannot be specialized is of itself final against such a rule. Protection, for example, consists in creating and maintaining a condition of security in society, and its cost cannot be divided up and parcelled out. The law undertakes to arrest and punish every criminal, no matter what the cost may be, neither as an act of retribution nor to enable him who suffered the wrong to enjoy revenge, but because every miscarriage of the law tends to destroy the conditions under which life is secure. " The value of government to any man is proportioned to the completeness of the protection it extends to all men. If it undertook to protect only those who contribute to its cost, it would thereby breed lawlessness and invite anarchy." The error underlying the rule that taxes should be appor tioned to cost is further shown by applying it to the protec tion of property. All property is not of the same sort in that its protection does not occasion the same expenditure. More litigation, for example, arises respecting property that exists in the form of a patent privilege, a franchise, or any sort of a grant whatever, than is the case respecting property open for investment to all who possess free capital. The State could not, however, on this account impose heavier burdens upon it than upon ordinary property. A better illus tration may be given : Security of property depends in large measure upon the enlightened self-interest and moral sense of the community in which it exists. Where the grade of intelli gence is low the cost of protection is high; where the grade of intelligence is high the cost of protection is low; but, provided two such communities have intercourse with each other, it is of as much importance to the community where property is secure that property be protected in the community where it is exposed to danger, as that its own property should be guarded. Here, again, as in the case of protection to life and limb, the end of government is to maintain a condition of security, and it is easy to see that the protection of property on the borderland of attack is essential to the security of that which on account of its situation is relatively less exposed. The rule of apportioning taxes according to cost is not capable of realization.

Moreover, the theory on which it rests fails to har monize with one's ideas of equity and justice as between different classes of property or property differently located. It is not fair that property which already carries a burden on account of the fact that from its nature or condition it is insecure should be imposed with unusual taxes, when its protection is essential to the security of all property in the community. To apply the principle of cost in the levy of taxes would be to call for heavy payments from the weak in order to render small the payments from the strong; and since the payment is a coerced and not a voluntary payment, such an assignment of the duty to support the State cannot be regarded as equitable employment of public authority.

No government, so far as the writer is aware, undertakes to apply strictly the rule of apportionment now under con sideration. But there are many instances in which the prin ciple of cost is permitted to shape in a very marked degree financial policy. Indeed, a survey of the taxing system of modern states offer some warrant for the generalization that according as a people has emerged from feudalism at a re mote or recent date, so will be the extent to which taxes are apportioned on the basis of cost. In England at least, where feudalism was abandoned in the sixteenth century, very little is known of the specialization of public services; while German peoples, from whose administrative regime the influence of feudalism has not yet passed away, consciously recognise the rule that payment for the support of the State should be adjusted to cost. The classifications of service which permits the theory of specialization to be realized are both interesting and instructive. The one here given is taken from the Austrian writer, von Hock. According to von Hock the services of the State are regarded as embraced under three classes, as follows : First. Every one who acknowledges himself as a loyal sub ject of the government enjoys from the State protection of person, the care of the State for safety, and for the preserva tion of general order, for cleanliness, and freedom from disease; he enjoys also the dignity and sense of importance which comes with the strength and reputation of a nation, and avails himself also of the privilege of carrying on an industry, trade, or profession within the State which would not be possible except the State exist. These and other like services are personal and direct. They are rendered to rich and poor alike, and should on this account be made the basis of the personal tax.

Second. Whoever has possessions in a State and invests his property in an industrial calling enjoys the protection of the State for his property and his industry; the courts enforce legitimate contracts and guard him against all fraudulent procedures; he enjoys the advance in the value of property that accrues on account of the growth of society; or, without further specification, reducing all these services to a common basis, each citizen enjoys a given income under the protec tion of the State and in part because the State exists. This class of services is made the basis of the income or property tax.

Third. In addition to the above there are a large number of special and peculiar services which the State renders to individuals. Public education, the building of highways, the transmission of news, the conferring of honours, the recording of mortgages, and the like, are illustrations of the services in question. Being special in their character, they should, ac cording to the purchase theory of taxation, be made the basis of a special payment.

Should one insist on proceeding from the quid pro quo theory of taxation he probably could not find a better classi fication of public services for that purpose; a good classifi cation, however, does not set aside the errors in theory or the difficulties in administration incident to this conception of taxation.

(2) Apportionment and the Benefit Theory of Taxation. It has also been the claim of many writers that taxes should be apportioned on the basis of the value of services to citizens. This is the principle of apportionment corresponding to the benefit theory of a tax. Among the practical results of an attempt to apply the value theory of apportionment would be the imposition of excessive taxes upon those who are least able to support them. It is undoubtedly true that the guar dianship of a just government is appreciated most intensely by those who are least capable of protecting themselves. As stated by President Walker, " those who derive the greatest benefit from the protection of the State are the poor and the weak—women and children, and the aged; the infirm, the ignorant, the indigent." Not only is this true of the original and fundamental functions of govern ment, that is to say, the protection of life and property, but it is equally true, indeed in a more marked degree true, of the higher activities of later appearance, such as education, recreation, guardianship against the deteriorating influence of unregulated competition, and the like. It thus becomes clear that to apply the principle that taxes should be paid in pro portion to the value of service would destroy the conditions which alone justified the State in undertaking the service in the first place. If 'taxes for the support of schools, for example, should be levied to citizens in proportion to the value to them respectively of the public-school system, as estimated by citizens of varying incomes, no sound reason could be urged why the State should undertake to provide public schools at all. It is because the education which the rich will naturally provide for their children may, with a very slight addition to the cost, be made the common possession of all classes that the State assumes the support of schools. It may be urged that the poor should pay for the increment of cost arising from the extension of facilities for instruction; but to call upon them for payment in proportion to their estimate of the value to them of a system of free schools is a reductio ad absurdum. It wouki cause the schools to dis appear, yet this is what the benefit theory of taxation logi cally applied would lead to.

The theory of apportionment now claiming attention will be recognised as unsound if, in addition to noting its prac tical results, one observes that it calls for an estimate of !what is beyond estimate or for which there is no comparative basis of estimate. Government is essential to civilized exist ence and there is, therefore, no basis for calculating the value of the services which it renders. " If government," says Judge Cooley, " were something to be taken up or dispensed with at the option of individuals, that method of estimation would take on a different appearance; but when the existence of a government in some form is confessedly something al ways to be assumed, it is clear that there can be no basis for an estimate of its value as compared with that condition of things in which there should be no government at all. It is true that if a theory valuable for practical application can be deduced from any imaginary state of things, there is no reason in the baselessness of the assumed facts to preclude our availing ourselves of it. The theory that government is founded in contract may answer a good purpose, though historically it is baseless. But so long as it is impossible to estimate the relative value of government to person and !property, and impossible to collect taxes according to it if Ithe estimate were practicable, it is manifest that any theory taxation drawn from an impossible comparison of a state society under settled government with an imaginary state 'of things when no government exists must be absolutely without practical value." (3) Apportionment and the Contributory Theory of Taxa tion. It is hoped that the foregoing considerations have served to impress upon the reader the conception of soli darity in modern society, and of common interests which do not admit of segregation either as a cost to the government or a value to the citizen; for it is under the influence of this conception that the true theory of apportionment must be developed. A tax is a contribution from private funds to the public purse, and the principle according to which the government should determine for each the amount of his contribution is found in the expression that each citizen should pay for the support of the State in proportion to his ability as compared with the ability of others.

Should one ask why ability is accepted as the basis of apportionment, perhaps the most satisfactory reply would be that it approves itself to the moral sense of men in all cases where common expenditures are met by means of contribu tions. A church, for example, in which the sense of duty in the matter of payments is more highly developed than in any other voluntary association holds it as a common law of religious sentiment that the rich member should pay more for common ends than the poor member; and the measure of his greater payment is his ability, all things considered, to bear the payment. This is the New Testament doctrine of ser vice, and its acceptance as a canon of taxation shows that the modern science of finance recognises one of the fundamental principles of Christian ethics. Not alone in the church is this rule of service recognised, but in all voluntary associa tions, whether temporary or permanent, it is admitted as a principle of action, provided only the association acknow ledges a solidarity in the interests of its members. It may, then, be asserted without further comment that the rule of apportionment which calls for the levy of taxes according to the ability of citizens to pay finds its sanction in the moral sense of the community, and this in all matters of social rights and social duties must be accepted as final.

The inquiry may perhaps be raised, in view of the fact that the contributory theory of a tax was not granted ap proval until comparatively recent times, whether modern peoples are influenced by finer conceptions of justice and equity than was the case in the past. This may possibly be true, but the acceptance of the principle that taxes should be levied according to ability, in place of the " cost " or the " benefit " theory of apportionment, does not prove it to be true; inasmuch as a consideration of the social and indus trial conditions under which these abandoned theories were held will show that they were capable at the time of securing substantial justice as between citizens.

Consider, for example, the rule upon which the colonial taxation of Massachusetts rested. " Every man's life," it was asserted, " is equally dear to him, and every man should pay equally for its protection; every man's property is equally dear to him, and every man should pay for its protection in proportion to its amount." The society which this rule held in view was early New England society, and the time the last part of the last century. There was at this time a rough equality in respect to property as well as social status, and on this account the principle of apportionment to which Massachusetts statesmen gave their approval would lead to payment for the support of the State in proportion to ability. The same rule applied at the present time would not result in adjusting the burden of taxation in proportion to the relative ability of citizens. It is the new social and indus trial conditions which make it necessary to abandon the " cost " and the " value " theories of apportionment, and not the development of a finer sense of justice among men. It is true that a higher phase of social ethics is in process of evolution, and that the necessity of giving expression to the contributory theory of taxation is one of the results of that evolution, but to claim that payment for the support of the State in proportion to ability is a newly developed moral concept would be to cast suspicion upon the rule of appor tionment for which we are now contending. It is much more convincing to say—what, indeed, is true—that the equity of the rule that taxes should be paid in proportion to 11 ability has been universally approved by the moral sense of mankind, but that never until recently has there been any j need for the formal expression of the rule as the basis of apportionment. It is the complex character of modern in dustry, its stratification along the line of property rights, and the great disparity of riches, which brings into prominence the principle that taxes should be paid according to ability. Not only, therefore, does this theory of apportionment rest upon the moral sense of the community as it now exists, but it appeals for support to the conscience of the past. The first struggle which arose respecting taxation was to establish the rule that all men should pay something; the question of the present is to devise a system by which men may be made to pay according to their abilities.

One further thought may be expressed with regard to the principle of apportionment now under consideration. It finds an added sanction in the fact that it is the complement of the theory of distribution which both individualistic and socialistic economic philosophy recognises as just and equi table. Communists assert that product should be distributed according to need; all other schools of writers claim that product should be distributed according to efficiency. If, now, the product of the industrial organization is to be distributed according to efficiency, what more natural than that the pay ment for the support of the State, which alone renders in dustrial association possible, should be made according to ability? The financial principle of apportionment accord ing to ability is thus observed to be the counterpart of the economic principle of distribution according to efficiency. Whether or not the financial principle would fall were the economic principle to be abandoned need not here be dis cussed; it is sufficient to notice the close connection which exists between the principle of public and of private economy, and to recognise that each receives a presumption in its favour from the acceptance of the other.

It is believed that the above considerations warrant the conclusion that equity in taxation means the assignment to citizens of their duty to support the State in proportion to their respective abilities. This is by no means a simple con ception, as will be shown by the analysis which follows, which has for its purpose to discover in what manner the ability of the citizens to pay for the support of the State may be deter mined. The point at issue in this analysis is the following : Is ability measured by the amount of property a man possesses or the income he enjoys, or does it increase at a rate more rapid than the increase in his property or his income? Does payment according to ability demand the acceptance of the proportional or of the progressive prin ciple in the apportionment of taxes? The modern tendency, as shown by tax reforms during the past twenty years, is toward greater reliance on the progressive principle; that, however, does not prove the principle to be a sound one, although it may raise a presumption in its favour. The question as thus presented calls for careful analysis.

55. Respecting the Fund from which Taxes are Paid. Before considering directly the relative merits of these two principles of apportionment it may be well to speak of the fund from which taxes flow, of the relations between income and property as the basis of a tax, and of the various forms in which the progressive principle of taxation may present itself.

(i) Characterisation of Income. Speaking analytically, all taxes must be paid out of income, and, if properly under stood, out of net income. The word income needs no further definition than that implied in the definition of a tax already given, which asserts that a tax is a derivative revenue. The rent, the royalty, the interest, the dividends, the profit, the salary, the wages—these are all funds which, according to the phraseology of contracts, stand for income. It thus ap pears that an income is a sum of money which comes in to an individual or corporation during a definite period of in dustrial activity. We may assume this period to be the year. It is then the amount which during the year will come to be at the disposal of the citizen, and which may be used in current expenditures or in an extension of investments. From the individual point of view, therefore, it is the net income and not the gross income to which the State must appeal. It is the income that limits domestic expenditure, and not the income that measures the volume of business, that must be made the source of payment to the State. The phrase " gross income " cannot properly be employed except for a business which has " operating expenses." To accept gross income as the measure of the possible expenditures for consumption in any direction whatever has been the first step to the ruin of many a business man. A tax, therefore, whether in the form of an income tax, a property tax, or any kind of a tax whatever, must, so far as the individual is concerned, come from the net income, for the same reason that rent or payment of the grocer must come from that fund. This is in harmony with the idea entertained through out this treatise, that a tax is, or at least should be, a neces sary item in every domestic budget. It is true that a tax may be paid out of the saved income of past years; but such a practice could not be followed very long without ruin, and on this account the contingency is not recognised in the discussion which assumes an annual payment in per petuity. The revenue of a State must flow from the product of current industry, and in so far as the State permits this product to be distributed among producers before it demands its share (that is to say, in the case of derivative as dis tinguished from direct revenue) the fund from which this revenue is derived must be a net revenue of citizens.

Care has been taken to explain this phrase " net revenue " so that its use in this treatise will not be confounded with other uses of the same phrase. We have already noticed in connection with the theory of tax exemptions the claim that a " minimum of existence " should be allowed to the citizen free of tax, and discovered that this argument in favour of such exemptions rests entirely upon considerations of fiscal expediency. The " minimum of existence," assuming for the moment such a thing to exist as an economic category, must include a contribution to the cost of collective living. If then it he true that taxes flow from net income, it is evi dent that the necessities of physical existence should not be deducted from the year's earnings before the net income sub ject to taxation is determined. This, however, is in effect done by a large class of writers. " It is confiscation," says Professor Rogers, " to levy a tax on what a man cannot save." His reasoning is the same in kind, though not so clearly put, as that of Justi, who in 1755 wrote as follows : " In the adjustment of taxes great regard must be had to the poor and the less well-to-do subjects, for it cannot be said that these classes earn anything since, even if they obtain their most pressing necessities and their subsistence, it cannot be asserted that they earn anything so long as they have nothing left over." Whatever may be said in favour of an exemption of the necessities of life from the point of view of an eighteenth-century monarchy, or however im portant as a means of agitation for the redress of abuses in the taxing system of the time, it is certainly illogical, now that the State is conceived to be the people organized as a government, to define taxable income in such a manner that the cost of government lies outside the normal expendi ture of citizens: Net income, therefore, as used in this discussion means the personal income of citizens from what ever source or in whatever amount.

Nor, in the second place, is the phrase " net income " to be confused with the " net product " of the physiocrats, or the " surplus revenue " of the socialists, or the " unearned incre ment " of the single-taxers. The physiocratic theory of the net product was, as a matter of fact, the forerunner of the minimum-of-subsistence theory in taxation entertained by English economists, although it was developed, nominally at least, in the interest of a State that had impoverished it self by the levy of excessive and inequitable taxes. For the same reason that a manufacturer considers it bad policy to cut down operating expenses so far as to impair the efficiency of his plant, it was regarded by the physiocrats as against the interests of the State to encroach upon the necessities of existence for the industrial classes. Such a policy, it was urged, tended to decrease the net product from which all sterile members of society must live, the State among the rest. It frequently occurs that an erroneous analysis does valiant service in the correction of practical abuses. Such was the case with the pre-Revolutionary theory of taxation, for it showed that the general prosperity of a people is neces sary to a full treasury, and in the course of its reasoning it was made clear that an arbitrary taxing system is a burden to trade. No truths could have been more pertinent to the times, and the fact that the analysis by which these conclu sions were reached appears strained to the modern student shows more clearly than any other single fact how radical is the change in the ideas of men respecting the nature of the State. There is no need, under modern conditions and in view of the prominence given to equity as a prime requisite in taxation, to make use of the assumption that the source of public revenue is a net product to the industries of the whole people in order to impress upon government the im portance of granting to citizens an opportunity to attain economic success.

The theories of taxation which rest on the assumption that interest and profit are built out of a " surplus value " over the earnings of labour, or that rent is an " unearned increment " to the owner of real estate, likewise fail to com mend themselves to the broad view with which equity in taxation is now being considered. The source of revenue to the State through taxes is income to the citizen, and to lose sight of this fact is to invite the patent-medicine financier to exhibit his wares. If social conditions are unsatisfactory, if industrial relations are wrongly adjusted, if the law of private property serves to oppress the propertyless, reform should be addressed to the conditions, the relations, or the laws in the case. It is in the highest degree illogical to suffer the causes of an inequitable distribution of wealth, or of a tyrannous use of private property, to continue, and then to indulge the illusion that the evil consequences may be averted by some peculiar use of the taxing machinery. This is the practical result of a clear appreciation of the source from which the State secures revenue through taxes.

Professor Cohn, who agrees in the main with what has been said, makes use of the word income rather than the phrase net income as indicating the source from which revenue by taxation springs. The difference is in the choice of expression and not in the content of thought. It has seemed to me important, in making selection of language, to hold in mind the science of accounts, and to adopt the phrase ology of the " income account " as drawn up by the book keeper of a corporation. This will, in the first place, avoid the necessity of explanation when the corporation tax is under discussion; it also expresses clearly the point that operating expenses incident to any industry must be taken out before the income available for any personal expenditure can be arrived at. Inasmuch, also, as the income of one man may be operating expenses in the receipts of another (as, for example, the wages paid by the manufacturer), the use of the phrase net income provides against one source of double taxation.

(2) Relation of Property to Income. Another question which must be discussed before considering directly the rela tive merits of proportional and progressive taxation pertains to the relation of income and property. In general it may be said that the value of the property is the capitalization of the income that arises from it at some accepted rate of interest, the rate of interest in its turn being affected by the probable permanency of the property, the certainty of the income, and the general speculative conditions which exist. If this be sound, it follows that an income tax and a property tax amount to one and the same thing, except that the rate on incomes must be higher than the rate on property in order that the State may realize a definite amount. It would, how ever, require that the word property should be expanded beyond its ordinary meaning to thus identify these two ob jects of taxation. A lawyer or a physician, for example, may have no property in the common use of that word and yet be in receipt of a very considerable income. It would be theo retically possible to capitalize this income and convert it into a property for securing a basis of taxation, but it is simpler, at least for the purpose of discussing proportional and progressive taxation, to reverse the process and to accept income as the basis of comparison. The only danger in pro ceeding in this manner is that it may lead to the impression that the argument is in favour of an income tax as the best sort of a tax, but the mere mention of this danger will enable the student to avoid it.

At this point another query emerges. Is all property giving rise to incomes of the same sort, or must property itself be classified before the rule of apportionment may be applied? This is important because, if incomes equal in amount are recognised as possessing different economic qualities, it may be that equity will demand a different rate according to the economic character of the income in question. To put this query in a definite form : Is a terminable annuity the same for the purpose of taxation as a perpetual annuity? A promise of $10,000 a year for ten years is certainly worth less than a promise of $10,00o a year for ever. The present value of the one on the basis of 5 per cent interest is $71,078, while that of the other is $200,000. Why, it may be asked, should not that which is worth more pay more? The answer is that it does pay more. The permanent annuity pays annu ally for ever; the terminal annuity, on the other hand, ceases to pay at the end of ten years.

In the above case it will be observed that both classes of income are equally certain, but the reply does not seem quite as satisfactory when urged in favour of rating a personal in come as high as an income from property; for a personal in come, like salary, profit, wages, is not only terminable, but uncertain as well. The continuance of a personal income de pends upon the health and vigour of him who receives it, and on this account would not capitalize for its full arithmetic value; and, more than that, it comes only through continued exer tion, while the property income is independent of the exigen cies of health or the burden of labour. It seems necessary, therefore, to concede that a strict application of the rule that taxes should be levied according to the respective abilities of citizens will result in a lower assessment of the personal income than of the property income before assigning the rate of taxation. In the application of this rule profit to the undertaker is of course classed as a personal income.

58. Characterization of Proportional and Progressive Taxation. Excepting, then, net income to the citizens as the source from which taxes are paid, and making allowance in the assessment of incomes rendered necessary by the dif ferent economic character, and, further, putting out of mind for the present the question as to how incomes are to be approached by the tax laws, we are at last prepared to con sider whether the principle that citizens should pay for the support of the State in proportion to their respective abilities demands proportional or progressive taxation.

The difference between a proportional and a progressive tax is doubtless appreciated in a general way, but in order to preclude the possibility of misunderstanding the two forms of taxation will be defined and illustrated. A proportional tax is a tax levied at a constant rate irrespective of the amount of income from which it is paid. If, for example, an income of $moo be called upon to pay a tax of $50, an income of $io,000 will pay a tax of $5oo, an income of $15,000 a tax of $750, and so on, the payments being always a definite per cent (5 per cent in the illustration) of the assessed income. Should property be the object taxed, a similar relation exists between the value of the property and the payment. The payment might, for example, be calculated at 5 mills on the dollar irrespective of the amount of property held. If inheritance be accepted as a basis of taxation, the payment would be in proportion to the value of the estate inherited, the same rate being demanded on a small as on a large legacy. The idea of the proportional tax seems to be that the ability of him who makes payment to the State is measured by the amount of income, property, or capital which he possesses.

The rule of proportional taxation may also be applied in the case of taxes imposed on the manufacture or purchase of commodities designed for consumption, although in order to conceive this to be true it is necessary to look away from the tax object to the tax source, and to consider all the articles of consumption that are included in the list of taxed commodi ties. A uniform tax of 5 cents per pound on the importation of coffee, for example, while realizing in form the idea of the proportional tax, might, as a matter of fact, necessitate a higher proportional payment from a small than from a large income. That is to say, such a tax would be degressive. One is not, however, at liberty to judge of the principle which underlies a taxing system on the basis of an isolated tax. Each commodity taxed must be considered in connection with the system of which it is a part. Other commodities besides coffee might be taxed, and it is quite possible that when to the tax on coffee paid by all, since this is an article of universal consumption, there be added the taxes on comforts and luxuries from which a man of small income is exempt, the consumption taxes as such would call for a proportional payment from the various classes of incomes.

The same line of reasoning would lead one to conclude that a true conception of the nature of a system of taxation cannot be arrived at except the aggregate of what a man pays for the support of the State (due allowance being made for payments in the form of fees in so far as they are an offset for services rendered) be compared with the clear income which he enjoys. This thought is of considerable importance, as will be seen when the argument that a pro gressive tax on certain selected commodities is defensible because necessary to make the system as a whole conform to the principle of proportional assessment is subjected to analysis.

It is sometimes assumed that the substitution of the con tributory theory of taxation for the benefit theory carries with it the acceptance of the progressive in place of the pro portional principle of apportionment. " If the benefit the ory," says Cohn, " is found untenable, . . . then it follows with the same necessity that the proportional basis of taxation must be abandoned." Looking at the matter historically, there seems to be some ground for such a conclusion, no matter whether one trace the development of opinion in the expressions of theorists or in the rules of practice. Professor Seligman in his monograph on Progressive Taxation clas sifies writers of the last two centuries according to the theory of the tax from which the proportional, the degressive, or the progressive principle of apportionment is advocated; and with the exception of five writers (the most important of whom is Gamier, who advocate progressive taxation as the logical outcome of the benefit theory), and of four writers (the most important of whom is Parieu, who develop pro portional taxation from the contributory theory of a tax), they all conclude their analyses in harmony with the generali zation quoted above from Professor Cohn. The great body of writers range themselves with the one or the other of the two following classes : first, those who hold that the benefit theory leads to proportional taxation; or, second, those who hold that the ability theory leads to progressive taxa tion.

It may be of advantage to say a word respecting the character of the exceptions to the above generalization. Garnier's idea seems to be that the benefits of the State, es pecially those of protection of property, increase more rapidly than property, from which premise it is of course a logical conclusion—assuming a tax to be a payment for benefits received—that the rate for computing the sums due should be higher in the case of a large than of a small fortune. This is pro gressive taxation. It, however, is manifest from the analysis of governmental functions, or from a consideration of solidarity in the service rendered by the State, that the assumption upon which Garnier's conclusion rests is not true. A man's de pendence on the State holds no fixed relation whatever to the amount of property of which he may be possessed, much less does it increase at a rate more rapid than the increase of property.

Parieu, on the other hand, maintains proportional appor tionment at the expense of logic, being forced to this by his repugnance to socialism, which he conceives to lie concealed in progressive taxation. Notwithstanding his deservedly high reputation as a writer on finance, one is inclined to imply to Parieu what Cohn says of Rau : " The proportional basis of taxation [with Rau and his followers] is nothing more than an inconsequential conclusion based on their own inclinations, to which they cling in order to avoid the oft portrayed dangers of progressive taxation." It thus seems that the exceptions to the generalization that the benefit theory leads to proportional taxation strengthen the impres sion that the duty of a citizen to support the State increases at a rate more rapid than the increase of his property or of income.

57. Arguments for and against Progressive Taxation. Current analysis respecting the principle of apportionment centres in the question of progressive taxation. No con structive work either in fiscal theories or fiscal legislation is possible without arriving at some definite conclusion respect ing it. If proportional apportionment be sound, the fiscal system will take upon itself the colouring of those social re lations with which it is in harmony; if progressive appor tionment be accepted, the revenue system will be adjusted to a different ideal of social and industrial relations. Nor does the question lie entirely between the acceptance or the rejection of the theory 'of progression, for there are publicists who aim to realize the proportional principle in taxation by means of the machinery of progression. The literature of taxation shows that this subject is approached from many sides and supported or disapproved for many reasons. It is, therefore, incumbent upon us to classify the arguments for and against progressive taxation and to venture a critical opinion respecting each. We cannot avoid the responsibility of a conclusion upon this question, which at the present time seems to be the turning point for so many schemes of fiscal reform and lines of fiscal analysis.

(t) The So-called Socialistic Argument. There are those who regard progressive taxation as a means of bringing about the equalization of property, or of establishing and maintaining those conditions out of which equity in posses sions will emerge. The argument which these employ is commonly called the socialistic argument. The end is so clear and the means to the end so direct that we need spend no time in explanation.

Besides this brutal method of approach there are many writers impressed with the idea that an equitable distribution of property is essential to a well-organized society, and who, for that reason, contemplate with favour a progressive tax "payment according to ability" and payment which involves "equity of sacrifice." as one element in a general programme of social reform, or as a temporary expedient during the time that some com prehensive programme of reform is in process of crystalliza tion. These, too, are sometimes called socialists. Professor Wagner, for example, is classed by Professor Seligman as the " foremost scientific advocate of the socialistic theory of progression," and he cites in support of this opinion the dis tinction which Wagner draws between the purely fiscal prin ciple and the socio-political principle underlying public finance. Professor Wagner, unfortunately, presents this distinction as marking two historic epochs in the develop ment of revenue systems. As an historic generalization this is incorrect, but as a concise method of placing two fiscal principles in comparison with each other it serves a good purpose. The idea of Professor Wagner seems to be that the State should no longer content itself with the raising of an adequate amount of revenue, but in raising revenue should consider broad social and industrial conditions, and em ploy revenue machinery in such a way as to check any un healthy influence that may be observed in society, or to bring about those social and industrial conditions under which alone the ideal of the nation may be realized. If now it be conceded that a fair degree of equity in the possession of wealth is essential to the realization of what is best in demo cracy, and if the application of the principle of progression to the scheme of taxation is adequate to establish such equity, this concession is conceived by Professor Wagner to be an adequate justification of the application of the progressive principle; and, admitting the premises, it is difficult to see how one can evade the conclusion. This reasoning brings to the support of the progressive principle of taxation all those fiscal and social considerations which lie within the concept of organic society; and in so far as the contributory theory of a tax is allied to this conception of social relations it may be regarded as in harmony with the progressive prin ciple.

Another argument in favour of progressive taxation, closely related to the above, rests upon the assumption that the inequalities of social and industrial conditions are due in large measure to the failure of government to maintain equity of conditions as between citizens. Thus President Walker concedes a theoretic argument in favour of progres sive taxation on this ground. He asserts it as an " undoubted fact that differences of property and income are due in no small degree to the failure of the State in its duty of protect ing men against violence and fraud." And further, " that differences in wealth are in a measure due to the acts of the State itself having a political purpose, as treaties of com merce, tariffs, currency legislation, embargoes, non-inter course acts, etc." His conclusion from these premises is that in the absence of administrative objections it would be proper for the State to undertake to redress the evils which have resulted from its own acts of omission or commission by a system of progressive taxation. President Walker, however, as all American students know, was very careful to distinguish between a theoretic and a practical conclusion.

This argument in favour of progressive taxation is pre sented more exhaustively by Mlle. Royer, who takes the ground that it is the duty of the State to compensate indi-i" viduals for the accumulated results of legal inequalities. " The id& of distributive justice consists in repairing the inequalities and the wrongs of nature. So far from attaining this end, on the other hand, in the past, legislation was fre quently contrary to justice and always aggravated these inequalities and these wrongs. It is necessary at the present time to compensate in a conservative manner and with pru dence the pernicious consequences of past legislation." The conclusion from such a premise is that the State ought to impose progressive taxes : and perhaps the only criticism upon it is that if the premise be true the conclusion suggests too weak a remedy.

Many other writers there are whose line of reasoning is similar to that of those referred to. So far as the arguments Socialism is capable of scientific interpretation and it scarcely seems right to impute to one who has always presented his analyses in a scholarly manner, and whose work is highly scientific, reasoning which, to say the least, is unscholarly and unscientific.

of extreme socialists are concerned it is certainly illogical for them to advocate progressive taxation. Their ideal is of a society in which government is the one great industrial corporation. Their purpose is the establishment of a society that does not recognise private property, or, indeed, a private income except in the form of public salary or public wages. The extreme socialist approves the centralization of industrial power, since this brings the industrial organization more nearly to his ideal. For him, therefore, to advocate such a use of the taxing power as to obstruct this tendency toward centralization is illogical in the extreme. Progressive taxa tion efficiently carried out would, other things remaining the same, tend toward the equalization of private incomes and result in a more equitable distribution of industrial power. It would be logical for one who defends the institution of private property, and who believes in the theory of voluntary initiative in industry, to advocate progressive taxation as an essential condition to the maintenance of those industrial re lations in which his ideal of society may be realized; but for the socialist, whose theory of social organization is opposed to that of voluntary association, such an advocacy is illogical and absurd.

Professor Wagner's argument is not like that of the extreme socialist, inconsistent with itself. His system of thought is discriminating in its application of the theory of governmental industries. His ideal is that the State should be placed at the centre of industrial life, not that the State should absorb all industrial initiative. The essential difference be tween him and English economists is the point of view from which industrial activity is considered and in the broader motives to industrial activity which he recognises. He may or may not be mistaken in his judgment respecting the extent to which the State should undertake industrial functions, but there is nothing in his system which precludes his use of the argument that the State may employ progressive taxation as a means of establishing and maintaining conditions which are propitious for a normal development of the individual citizen. Moreover, from the point of view of strict logic Professor Wagner is justified in urging the theory of pro gressive taxation because he does not stop in his advocacy of social reorganization with this peculiar use of the taxing machinery. It is not relied upon by him as the sole means of social reform, but as a check upon the industrial tendencies during the period in which a general scheme of social reform is coming into operation. This fact that progressive taxation in the hands of extreme socialists is illogical, while progressive taxation as advocated by the " socialists of the chair " is con sistent and, so far as form is concerned, reasonable, is of itself proof that the two schools of thought hold before them selves essentially different ideals. The argument in favour of progressive taxation which rests upon the assumption that the taxing machinery should be brought under the influence of ethical and social considerations approves itself to one who appreciates the solidarity of social interests. How far it may be wise to depart from the fiscal principle in adjusting a taxing system is a practical and not an ethical question, and on this account its consideration is for the present post poned.

Practically the same conclusion may be arrived at with regard to the argument which favours progressive taxation as a means of redressing the evils of bad government in the past. Assuming that the plan is capable of realization, no reason exists in the nature of the case against it. It must, however, be recognised that this basis of the progressive prin ciple is a somewhat contracted one. It is not true that all fortunes are traceable to acts of omission or commission on the part of the State, and if the theory of progressive appor tionment has no other basis than the one submitted by Mlle. Royer and President Walker it is clear that progressive taxation must be limited to those fortunes which the State is directly responsible for having created. This is the weak point in the argume4t. Not only can this theory suggest no rule according to which assessments could be made, but it fails to appreciate that if undue concentration of industrial power is a menace to the established order, the source or occasion of the accumulation is of little importance. As a specification under the general heading of politico-social con siderations these ideas may have some force; but as an independent argument in support of progressive taxation they are too limited in their application to be convincing.

(2) Progressive Taxation and Equality of Sacrifice. While it is true that the chief interest in progressive taxation springs from a desire to equalize industrial conditions, other argu ments there are that may be urged in its support. Progres sive apportionment is advocated by many writers as a means of attaining equality in taxation. An illustration will make this clear. An import duty or an excise tax in order to be fairly productive must attach itself to the importation or the manufacture of commodities consumed by the great body of the people. This means that these taxes are paid out of modest incomes, and that the proportion which they de mand from a small income may be higher than the proportion which they demand from a large income. Such taxes are in reality, therefore, ,f egressive and not proportional, and it is conceived to be necessary to levy unusual or special taxes upon men of large incomes in order to make their payment equitable as compared with the payments of men of small incomes. The progressive income tax, then, or what means the same thing, the special taxes designed to attack large properties adjusted to the progressive principle, are con ceived as compensatory duties, and are justified as the only available means of realizing the principle of proportional taxa tion in the system considered as a whole. The argument pertains to administration and not to theory. It furnishes a justification for progressive apportionment but not for pro gressive payments.

This argument is sometimes applied in another manner. In the adjustment of customs duties it is quite common to impose a higher rate upon the importation of luxuries than of the necessaries of life, and the practice is justified by appeal to the progressive principle. It is impossible to tell with accuracy whether such an adjustment works progres sively or not. The probability is, however, that the high import duties imposed upon luxuries, even though they are paid by men of large incomes in addition to their payments upon the necessaries of life, will not amount in the aggregate to more than a proportional payment as compared with the payment from smaller incomes. Such an adjustment is pro gressive in form only. The high taxation on luxuries is justified as a means of realizing proportional taxation. The practical question as to the ability of government to collect an excessive impost on luxuries does not here come into con sideration.

Another argument in support of progressive taxation ac cepts " equality of sacrifice " as synonymous with " equity in payment," and concludes that progressive apportionment is necessary to attain equality of sacrifice. This is an old idea, and one that has been presented under many forms. The most simple expression for it is that the burden of the tax is measured " by what is left after payment " rather than by the payment itself. Assume, for the purpose of illustration, a five-per-cent income tax. This would call for the payment of twenty-five dollars from an income of five hundred dollars, of fifty dollars from an income of one thousand dollars, and of five hundred dollars from an income of ten thousand dol lars. If, now, this payment, which is calculated by the rule of proportional and not of progressive taxation, be subtracted from the income, it appears that in the first case there remains four hundred and seventy-five dollars out of an income of five hundred, in the second there remains nine hundred and fifty dollars out of an income of one thousand, and in the third case nine thousand five hundred dollars out of an income of ten thousand. Now, it is asserted that the sacrifice in the three cases is not equal, but that the payment rests most heavily upon him who makes the smallest payment. The idea seems to be that the intensity of desire is greater for the necessaries than for the comforts and the luxuries of life, and that a payment which takes from the individual a means of satisfying the pressing needs of rational living is more keenly felt than a payment proportionally as great made from an in come sufficiently ample to permit one to enjoy all the neces saries of life without thought, and to indulge besides in many of the luxuries. This is the crude way in which the argument is presented, and one cannot doubt, so far as the psychology of sacrifice is concerned, that it rests upon an established law of the human mind.

Scientific support seems to have been given to this argu ment for progressive taxation by the recent analysis of Aus trian economists. This school of writers start from the idea that value is a function of utility, and that the intensity of utility decreases as the commodity in question increases. If this be true, it follows that one's estimate of the importance of any given commodity is always in inverse ratio to the amount of it which he possesses. Progressive taxation on incomes, therefore, is necessary in order to maintain equality of sacrifice in the payment from incomes. The error in this reasoning, if there be an error, lies in the assumption that men's estimate of money is subject to the same psychological rules as their estimate of consumable commodities. The reason why the value of a commodity to an individual is in inverse ratio to the quantity of it which he possesses is found in the fact that the want to which the commodity ministers is capable of complete satisfaction, and that the intensity of desire decreases as the appetite approaches satiety. This is undoubtedly true for goods that are consumed; is it equally true when money, the representative of commercial power and industrial force, is the object of consideration? Most cer tainly not. The more money a man has the more he wants, and not unfrequently the last dollar gained is the object of keener passionate regard than the first. It is not possible to apply to money, which is the measure of industrial importance, the same laws of value that one applies to a commodity designed to satisfy needs through consumption. Our conclusion, then, respecting the argument in favour of progressive taxation which proceeds from the theory that taxes should represent " equality of sacrifice," no matter in which form it is presented, is that it is Inconclusive. It is not possible to accept a pyschological experience as the basis of the rule of apportionment. It is necessary to distinguish between the phrases " ability to pay " and " equality of sacrifice," and to rest whatever rule of ap portionment is adopted upon the concept involved in the former rather than in the latter phrase.

(3) Progressive Taxation and Industrial Develop?nens. The final argument in support of the progressive principle of taxa tion is suggested by the most common of the criticisms urged against it. It is very properly assumed that a revenue system should not act as an obstruction to industrial or social de velopment; on the contrary, it is accepted as one of the marks of a sound revenue system that it provides the conditions under which the industrial forces are granted the freest pos sible play. Proceeding from this assumption, most English economists have concluded that progressive taxation would work to the detriment of society by acting as a discourage ment to the accumulation of capital and to the exercise of industrial talent. This thought is tersely expressed by Mill when he says: " To tax the larger incomes at a higher percentage than the smaller is to lay a tax on industry and economy." If this be true, the progressive tax cannot be approved, for it would tend to obstruct the development of national wealth, which is at once the measure of both national and individual expenditures.

The application of this idea in the hands of English econo mists is simple and direct. One of the doctrines of English economy is that industry is limited by capital; another doc trine is that wages are in proportion to capital; yet a third which bears upon this question is that capital is the result of saving, and that the amount that can be saved is in propor tion to the opportunities offered for acquiring wealth. It is not our purpose to criticise these doctrines, but merely to suggest their bearing upon the question of progressive taxa tion. It is undoubtedly true that the strict application of the progressive principle would increase the rate of payment for any particular individual until no motive remained for the individual thus taxed to increase his property; and the con tention of the school of writers to which reference is made is that this will result in arresting the expansion of industry for the country at large.

Conceding such consequences to be involved in progres sive taxation, the opposition of English economists is reason able and just, but the advocate of the progressive principle denies that such results will follow its application. The causal force for undertaking an industry, he asserts, is the de mand on the part of the public for goods or services, and, provided the application of the progressive principle does not tend to weaken this desire, one cannot say that it will obstruct the expansion of industry. It may, indeed, shift the source of supply, for, in so far as it discourages the expansion of an industry already large by imposing an unusually high tax upon an income from such an industry, it will encourage industrial activity on the part of those whose production is relatively less and who on that account are assessed at a relatively lower rate. It may tend to equalize industries; it will not tend to arrest industrial development. This reply to the criticisms of English economists upon the industrial results of a progressive tax is sound for all non-monopolistic industries, and these, it may be remarked, were the industries which the English economists held in mind when formulating their criticism.

This general line of reasoning is capable of further appli ration. Not only is there no danger that national industry will be discouraged by the application of the progressive prin ciple, but there are those who claim that it will receive a decided stimulus. In the first place, as bearing upon this point, it is suggested that the productive years of a man's life, that is to say, the years which from a social point of view are truly productive, are commonly the years before his efforts are crowned with success. A great thought seldom comes to a man after fifty years of age. This being the case, it is not entirely a fanciful argument that a tax which dis criminates against established success and in favour of current effort will result in the encouragement of experiment and in the socialization of the achievements of successful experi mentation. So long as saving was regarded as the chief if not the only means for attaining industrial evolution it may have been logical to assert that progressive taxation would embarrass the growth of national wealth; but when it is recognised that intelligence, expressing itself in the form of invention and better industrial organization, is the essential productive principle, the line of reasoning relied upon by English economists to controvert the principle of progressive taxation comes to be an argument in its support.

A second argument also in support of the progressive principle is suggested by this same line of analysis. The most serious evil incident to modern industrial life, and an evil which impedes more than any other the rapid development of individual well-being and national improvement, is found in the constantly recurring periods of commercial depression. The conviction seems to be growing that the fundamental cause of this phenomenon lies in the fact that the maldistribu tion of property in productive machinery brings with it such a distribution of the product of productive machinery that current product cannot be currently consumed. If, now, it be true that progressive taxation imposes a higher payment upon achieved success than upon effort, thus tending to check the further concentration of industrial property and to weaken the motive to industrial expansion on the part of the most successful, it will result in a more equitable division of indus trial incomes. This in its turn will cause a diffusion of pur chasing power in the community and act as a relief to the stocking of the market.

The third application of this line of reasoning reverts again to social considerations. It is the design of progressive taxa tion to impose special payment upon those who are indus trially successful and in this manner to provide the opportunity of success to the larger number. What influ ence, it may be asked, will this exert upon society? To trace this influence in detail is the work of the sociologist and not of the financier. It may, however, be remarked that, provided the inducements to industrial activity are taken from men at a period of life when they still have energy to respond to other interests and ambitions, the result would not be wholly pernicious. It would not, for example, be a misfortune if municipal administration should fall into the hands of men who had retired from active participation in a business life. A leisure class is from many points of view of great importance to a highly organized society. The diffi culty in the past has been that the leisure class becomes sooner or later an aristocratic class, and for this reason has been looked upon with suspicion by democracy. The result would be very different if this class should be based on years and attainments rather than on birth or inherited property. These suggestions will doubtless be regarded as products of the imagination; and indeed they are. They seem, however, necessary in order to present completely the concepts which lie embodied in the theory of progressive taxation. This view of the case also suggests the error of criticisms like that of Leroy-Beaulieu, who says that progressive taxation must be erroneous in principle since its extreme application leads to an absurd result; a criticism which seems to find favour with most systems of progressive taxation, as is shown by the fact that progression stops with a limited application. If progressive taxation may be used as an instrument to bring about such social results as are above referred to, there is no reason why the rate of progression should cease at the time when the tax is likely to render its most efficient service. There is no middle ground. One must believe in the principle of progressive taxation or he must disbelieve in it; and, so far as the arguments urged in its favour rest upon social considerations, it is clear that they do not allow an exception to be made in the application of the principle when the highest incomes and the largest properties are under consideration.

(4) Conclusion. It is somewhat difficult to express defi nitely the conclusion which should be drawn from the fore going analysis of progressive taxation. This is not due to the difficulty of appreciating the strong and weak points of each argument as it was presented, but rather to the fact that the final adjustment of taxes must be determined from the administrative point of view. It cannot. be questioned that ability to pay is the only just and practicable basis for the apportionment of taxes, or that this ability increases with increasing income at a rate more rapid than the increase of the income itself. Nor can it be doubted that, although a social reform cannot be effected through any conceivable use of taxing machinery, yet the conditions under which a more healthful social evolution can take place than is observed at the present time may result from the manner in which the taxing machinery is employed. This, as well as the idea of equity, induces the mind to consent to the principle of progression. It may further be conceded that the fear entertained by Eng lish economists lest the accumulation of capital and the de velopment of industry should be arrested by progressive taxation is not warranted by the facts in the case; but, on the other hand, that the principle of progression judiciously applied will tend to invite experimentation and give an oppor tunity to energy under conditions likely to be the most con ducive to industrial and social development. Each of these arguments considered by itself seems to warrant confidence in the theory of progressive taxation. The difficulty arises when the question is presented in the form of a practical problem. In what manner can progressive taxation be worked out? What is the form of the revenue system which provides for its easy application? Is it possible, in view of the practical conditions to which taxing laws must apply, to make use of this principle of apportionment in the levy and assessment of taxes? It is not the design of the present chapter, which concerns itself exclusively with the theory of apportionment, to answer these questions. They pertain to the practical part of the revenue problem. It is possible that subsequent analysis will present such trenchant criticisms upon the taxing system as it now exists that the student will be led to demand a complete renovation of the revenue policy. At any rate it will be wise to proceed to the analysis of taxes rather than at the present time to inquire whether or not the principle of progression is applicable to a taxing system. The principle seems capable of defence; to what ex tent it may be applied can only be determined after making clear the character of the revenue system by means of which it is to be realized.

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