§ 223. In the observations we have just been making, we have touched upon things for the understanding of which a pre vious acquaintance with the chapter discussing the Objects of Taxation would be desirable. At the same time, we have now reached a certain phase of the question of equity in taxation which is touched upon in another of the succeeding chapters, viz., the one on the Practical Administration of the various ramifications of the tax system. It follows from the nature of any subject of an historical kind that the logical sequence of the discussion must always leave this sort of lacunae, and we will therefore have to content ourselves with a relatively satisfactory arrangement of the material only. Accordingly I believe it will be found desirable to take a survey of the various questions of equity in taxation in this place, and then deal with the objects and the system of taxation in separate chapters.
The discrimination between the various grounds on which rests the obligation to pay taxes has only lately come forward into the foreground of discussion. The practical occasion of this has been, especially, that it has happened that several public organizations have simultaneously made demands on a single person for the payment of taxes to meet their fiscal 'necessities, and in so doing, principles of equity have been cited which raised a presumption of relative justice in favor of each requisi tion.
For example, two different communes may have required payment of a taxpayer, because the taxpayer had his domicile in one of them and carried on his business in the other ; or two different states may have made their demands on the taxpayer because he held a landed estate in one of them, while he lived and exercised the rights of citizenship in the other. Hence the necessity of clearing up the question as to what are the ultimate constituent elements of the aggregate liability of the individual to pay taxes. Only in this way is it possible to satisfy the just claims of each of the two states or of the two communes to a portion of the taxes to be paid, and so bring the apparently conflicting rights of the two into harmony.
The number of cases in which doubts of this kind occur has grown with the increasing mobility of modern life, and the volu minous casuistry resulting is a stimulant to the theory of taxation in the same degree as the question is still unsettled in practical legislation—it is in some directions only beginning to be dealt with. It is very difficult to make these salient and re-entrant angles fit together properly, even within the same tax system and under a uniform system of laws, for the unifying idea of an orderly system does not readily penetrate the heterogeneous mass that has resulted from the historical development. But the difficulties become insuperable when we pass beyond the limits of a single state, or of the empire, and attempt to bring entirely different systems of taxation into conformity, systems which are not under the control of the same legislative authority, but have to be brought into adjustment by the slow and difficult means of international convention.
§ 224. It is a favorite idea with the social-political radicalism, as well as with that other radicalism whose distant attitude towards the whole subject greatly inclines it to a very simple formula, that an ideal system of taxation should consist of a single tax for both the state and the other public organizations. This idea derives its origin from the earliest school of financial science—that of the Physiocrats, who wished to put the " single direct tax" in the place of all existing taxation. This idea has lived on through a diversity of phases, down to the programmes of the social-democratic party, which insist on a single progres sive income tax for national and communal revenue, to replace all other taxes.
It is the office of the exposition of the "system of taxation" to show that and why practical requirements, as well as the principles of equity, require a complex system of different kinds of taxes. The question immediately in hand suggests that an equitable adjustment as between the competing public economies holding claims upon the individual is impossible, except by the help of an analysis of the various relations in which this individual stands to the public bodies in question.
Two kinds of relations, especially, are indicated by the terms "subjective taxes" and "objective taxes," which have lately been made much of, and which direct attention to the contrast that exists in this respect in the case of every industrial individ ual. If we consider, for example, a landed estate, it appears that the substratum of the estate, the soil, enjoys certain benefits from the state (national, provincial, or communal organization), which benefits come to the land entirely independently of the personal relations and circumstances of the individual who culti vates the land, whether he is owner or tenant, whether he is a good or bad farmer, whether he is in debt or in comfortable pecuniary circumstances, whether his industry is profitable or not. Quite independently of all these personal relations of the manager [Subjekt] of the estate, benefit accrues to it from the general prosperity of the nation as a whole, and from the expend itures undergone by the state (the empire) for the furtherance of this prosperity ; the estate grows in value, or it is preserved from a decline in its value. Through the expenditures of the communal organizations an estate is protected against the ravages of floods without any regard whatever to the personal circum stances of its occupant ; by the construction of new roads it is brought nearer to the markets ; in case it is sufficiently near an urban center it may even be taken up in the development of the city, thanks to the growing prosperity of the nation and of the neighboring city, and may advance to a high price as building ground. And all this by virtue of changes of an entirely "objec tive" character, changes which have a relation to the impersonal factor [Objekt] of the rural economy, not to the personal factor [Subjekt].
On the other hand it is conceivable that on this same soil, and apart from all changes in the value of the soil of the kind we have been speaking of, we may find widely varying economic developments due to differences in the personal factor [Subjekt], differences in personal efficiency, in pecuniary circumstances, etc. And these differences have to be taken into account if we are to reach an equitable settlement of accounts as between these various persons and the services rendered them by the state. Great exertions on part of the public administration to which these persons belong, and to which their obligation is due, are necessary in order that they may work and enjoy, that they may be able to live as civilized human beings and to rear another generation of such human beings, that they may live in happi ness within the circle of their family, as well as in the wider circle of the community as a whole.
§ 225. The contrast spoken of in the preceding paragraph marks only the first and most tangible distinction. Within each of these two groups of relations there are a number of special relations of the individual to the public organization, each of which corresponds to some peculiar phase of equity.
The landed estate spoken of above in justice owes some requital to the state and the empire to which its security is due ; it owes further compensation to the national or provincial organ ization which constructs and keeps in repair artificial roads, and thereby increases the marketability and so the value of agri cultural produce ; it is still further indebted in case it comes to be taken up into the suburban region through the growth of the neighboring city, and so is benefited by the municipal expendi tures of the city.
Which of these relations comes in question in any given case, and whether one or more, will have to be decided on a review of the facts of the case.
On the other side, under the head of subjective relations there are likewise a number of different relations to be distin guished from one another. The relations in which the individual stands to the community to which he owes a return may differ in kind, duration and intimacy. The ideal conception of a citi zen living and working in a fixed place within a country resolves itself in actuality into the ultimate constituent facts of the totality of existence (and with the increasing mobility of modern life this holds true in an ever increasing degree). Indeed, this ideal is not to be conceived in any other sense than as a pure abstraction. For various reasons it is not the ideal to be desired.
In point of fact, the life of a great many people (for reasons of business, official position, education or health) shifts from place to place and from land to land. The duration of residence in a given place is short or long according to the nature of the object sought. Changes of place are to some extent not confined within the boundaries of a given state or realm. They may include long continued residence in foreign countries, while the relation of citizenship to the individual's original country remains unbroken.
§ 226. This dissolution of the individual personality, on whom the duty of tax-paying rests, as well as of the industrial founda tion of this personality's existence, into a number of constituent elements and relations, will help us to understand the possibility of equitable claims by different co-ordinate bodies upon the same taxpayer. For since the unit itself is resolved into constituent elements, carrying on its business here, having its domicile there, here a citizen, there a consumer of goods, here owning land, there holding office, the aggregate of the returns due from such an individual taxpayer to the various public economies, will also resolve itself into a similar series of constituent parts.
The manner in which these claims have hitherto been adjusted has corresponded to the development of equity in matters of taxation generally. Might was at the outset the decisive fact. This stage of development is represented by certain forms of taxation which do not reach the plane where the question of right or wrong with respect to a particular tax occurs at all. This is the case especially with taxes on consumption, which are imposed on articles of general use. Consider, for example, a large city, which raises the whole or the greater part of its reve nue by means of this form of taxation.' In such a case the
question as to the tax-paying relation of the individual persons to the city does not come up at all, or only in a very subordinate degree. These persons may be living in the city for a shorter or longer time, for business or for amusement, as residents or as transient visitors. Every day, every hour becomes liable to taxation, independent of all such questions, and for all tax payers. alike. Whether it is a city or a state which by preference employs this form of taxation, the consequence is the same, so far as concerns the differentiation of tax liability. The differ entiation is absent in both cases.
But while the sentiment of equity as expressed in law is usually very readily aroused against might in times like our own, this particular manifestation of might is allowed to pass without protest ; this happens partly because no form of taxation is so flexible and unobtrusive as this, partly because it would be impracticable to avoid the inequitable taxation in the manner suggested, without drawing an impossible distinction ; partly also because the range of taxation of the kind in question does not vary so greatly from country to country and from city to city as to urge the necessity of its abolition. Consumption, however, and with it the tax on consumption, is not incurred in a place where one is not living at the time.
It is otherwise with those forms of taxation which obtrude themselves on the consciousness of the taxpayer by hard and fast demands. The public body which makes such a demand within its own domain, finds itself in controversy as to its rights in the matter with conflicting demands put forth by other similar bodies. The demands of the different communal bodies are reconciled, according to some formulation of the equities of the case, by the sovereign power of the state, the conflict between the individual states by the superior power of the empire ; but as between independent states and nations a decision has to be reached by means of international agreements and under the international fiscal law resulting from them.
Such competing demands and such collisions give rise to a good deal of irritation when the rough edges of the tax requisi tions of two public bodies come in contact. (It is different with the taxes on consumption, where the form in which the tax is levied itself provides for this difficulty.) As for example, when a citizen of Prussia who is living in England and there becomes liable to pay the English income tax, is at the same time required to pay the Prussian income tax ; or where a landed estate is liable to the land tax in the state in which it is situated, and is at the same time subjected to a property tax in another state in which its owner lives ; or when something simi lar takes place in the case of interest on foreign national bonds at the hands of the debtor state and of the home government of the holder of the bonds, etc.
In such a case the remedy is to be found only in the bold application of principles which belong in the domain of law, and not in that of theory, i. e., if an effort is to be made to satisfy the requirements of equity.
§ 227. Reference may be made to the great number of cases in point and the attempts at their solution by positive law, which have been made by the German and the Swiss federal legisla tion in endeavoring to avoid double taxation (see the above mentioned works). Neither this subject nor the subject of inter-communal fiscal law, which each state has to settle for itself, nor the conflicting claims of independent sovereign states can be entered on here.
We shall have to content ourselves with a brief survey of a series of cases of practical importance, as enumerated by Adolph Wagner in his Allgemeine Steuerlehre, and then add the solution which recommends itself as the most satisfactory one.
1. Subjects of the country living at home may draw an income from abroad. They should pay taxes on this income to their own government in so far as a similar tax of a like degree has not already been paid on it abroad. While the determina tion of the rate of taxation in such a case is easy, the decision as to the class of the tax in question is very difficult, especially as between two very different systems of taxation. We may look for an approach to a solution of the problem in proportion as advancing science promotes a uniformity of tax legislation.
2. Subjects may live abroad and draw their income from for eign sources. It is a high-wrought conception of the relation of tax liability to citizenship which asserts (as happens, e.g., in the Prussian law of May 1, 1851) that in such a case the full liabil ity to taxation holds. Even in case no tax of a similar charac ter is levied in the foreign country in which the subject lives, while other taxes are required of him in like manner as of all other inhabitants of that country, it is still laying great stress on the bond of citizenship to require the subject to pay the full tax simply on account of this fact of his citizenship. At the same time it is assuredly an open question whether the payment of a certain part of the tax or some peculiar kind of tax is not just and fair. But even this matter would have to be regulated by international agreement. In point of fact, it may be remarked, the practical working of the tax administration mitigates the harshness of a law like that of Prussia.
3. Subjects may live abroad while they draw their income from home. In point of principle the decision in this case would be essentially the same as in the preceding case, so far as it is a question of subjective taxes. It is quite otherwise as regards objective taxation, which belongs where the income affording object is. In the degree to which considerations of this kind may enter into subjective taxation (claims on a pen sioner in behalf of the state paying his pension, and the like), the inclination would be to allow full weight to the claims of the home government also as concerns this class of taxation. But it is to be added that where a widespread usage on part of rich subjects to consume abroad their incomes drawn from home is to be combated, the motive of equity will reinforce or trav erse the social-political motive, which in such a case is apt to find expression in a very harsh disregard of the hardships of double taxation.
4. Aliens may live within the country, whether for purposes of business or for any other reason. This is tile reverse of the last case. Whether employed in business or not, whether a for eigner or a native, anyone that lives within the country should pay his taxes like any other denizen, and with just the same reservations as may be conceded to the latter. If it is found best to levy a special tax for the fact of citizenship, then the amount of this special tax might fix the difference in the burden of taxation as between citizens of the country and aliens. The distinction between foreigners engaged in business in the coun try and foreigners living on an income (such as is made by certain Swiss communes, certain cantons) is very hard to explain from the standpoint of an equitable taxation. It may most easily be explained on the principle of the Widening of the Market (vol. i. sec. 399). The object may be to attract cus tomers for the state and communal establishments intended to serve these foreign guests. This distinction may perhaps also be explained as due to the interested motives of the business people of the country who wish to increase the number of con sumers, and these consumers are to be allured by a partial exemption from taxation, in order to be all the more thoroughly exploited by the citizens. It is precisely within this field that the system of consumption taxes holds its own, for that system does not stir up controversies of this kind and is therefore, as we might say, practically created to supply the absence of con scious civic duty within this field.
5. Foreigners living abroad may draw an income from sources within the country. In this case the well -known arguments for the objective tax come into play. For sources of income within the country the foreigner should pay taxes the same as a citizen. This position becomes somewhat dubious when the question concerns income from foreign capital loaned to the state levying the tax, i. e., in so-called coupon taxation. In the first place it is doubtful if this kind of a tax is to be considered an objective tax ; in the second place, so far as there is not a palpa ble defect that is to be remedied in the tax system, the tax on interest that is imposed or increased after the loan has been con tracted is little else than a reduction of the rate of interest (with out the consent of the creditors). While the equity of such a measure is questionable, the expediency of it, especially in the case of a state with a large foreign debt, is very doubtful, and may avenge itself in an impaired national credit.
§ 228. The object of this enumeration of practical cases, such as frequently occur and demand a solution in one country and another at the present stage of social life and international rela tions, has been to point out a few of the concrete problems of equity that arise between competing public bodies and are to be solved on the basis of a consideration of the nature of taxes.
And herewith we shall have to leave the matter without con sidering the analogous cases that occur in intercommunal taxa tion.' Cases of this latter class are also more easily remedied —and the remedy has been applied—by uniform general provi sions made possible by the subordinate position of the com munes relatively to the central authority.
So, also, cases of conflict within the same realm are but examples of the same general principle, except so far as they are modified by the different relations subsisting between the indi vidual states of a federal state, as contrasted with independent sovereign states. As is well known, the legislation of the Ger man Empire and of Switzerland has been quite active in this field and has resulted in a correspondingly large number of legal decisions.