ORGANIZATION FOR ADMINISTERING STATE AND TAXES. Federal Government might, by the exercise of such powers as it clearly possesses, proceed to the taxation of interstate commerce independently of any agreement or -understanding with the States; and were the taxation of in land commerce in a consistent and uniform manner the only point involved in the programme under consideration, our discussion might now be brought to a logical close. But there are other interests involved which demand considera tion.
(a) Interstate Organisation. We have on several occasions encountered the complaint that the fiscal laws of the State and local governments recognise double taxation by the form in 'which they are drawn, while in reality they encourage the citizen so to distribute his business interests as to evade all payments. This is due to the fact that business con nections may extend beyond the jurisdiction of any single taxing unit. An insurance company, for example, sells policies in many States. The Federal Constitution very wisely denies a State the right of excluding the citizens of other States from transacting business within its bor ders. But it certainly seems just, and is entirely lawful, that the business done within a State, no matter where the location of its principal offices may be, should pay a tax upon such business. There is a very considerable class of undertakings respecting which the taxing laws are imperfect and work in an unjust manner, because there is no organi zation 'between the States for the localization of the transac tions in question.
The task thus suggested of extending the fiscal organi zation by an interstate agreement, which shall coincide with the commercial jurisdiction of industries that traffic in two or more States, is not so difficult as it may at first blush appear. The principal evils of the present system, that is to say duplication and evasion of taxation, have already been set one side by the programme under consideration— first, by the remission of taxes on mortgages and analogous property, and second, by imposing upon the Federal Govern ment the duty of bringing substantial uniformity into the domain of railway taxation. There remains, therefore, no very large number of troublesome industries, for it must also be held in mind that, according to the proposed fiscal system, all industries subject to the jurisdiction of commercial corn are released from taxation except as taxed through the excise laws of the Federal Government. To carry out this task, which must of course rest upon a conscious desire on the part of the States for a uniform system of taxation of all businesses of interstate transactions, the first step would undoubtedly be the establishment of a joint bureau of statis tics and accounts, resting for its authority upon State law. It is not necessary to proceed further in the direction of posi tive suggestions. Provided accurate information can be gathered respecting the industries under consideration, and provided such rules of bookkeeping are prescribed that earnings can be measured and localized, the unification of the tax laws, so far as the details of their levy and collection are concerned, may confidently be expected.
(b) Organization within the State. Reference may be made to yet another form in which this need of organization for authoritative information shows itself, although in this in stance it pertains to interests that lie within the jurisdiction of a single State. In the separation of the sources of revenue between the State and the local governments it will be re membered that natural monopolies, so conditioned as to en able them to sell their products beyond the jurisdiction of the local government within which they lie, were assigned to the States as a fit object of taxation. In some cases, how ever, as, for example, in a county possessing a peculiarly rich mine, this might deprive the local government of so much of its taxable property as to occasion serious embar rassment. This illustrates how at best the finances of the States will be mixed up with those of the localities; but no serious difficulty can arise on this account provided the State adopts some uniform rule for the adjustment of all similar cases. Under the circumstances described it i only necessary for the State to assign such property to tl1 localities for taxa tion at a value reduced to the level of non-monopolistic property. This it can easily do, because, since it accepts the royalty accruing upon the mine as the basis of its own levy of taxes, it must maintain a statistical service adequate to determine that royalty, and the non-monopolistic value of property is what is left after deducting the capitalization of the royalty which it pays.
It seems scarcely necessary to follow out the application of this idea to all the phases of State and municipal taxation. So far as rural taxation is concerned the system of local as sessments in its present form is adequate. The significant fact in the suggestions here entertained is that the industrial evo lution of the last fifty years has imposed on government a new series of duties, which, for want of a better phrase, may be termed the control of monopolistic industries. The conservative opinion of the nation is coming to recognise that these industries cannot be regarded as private within the historic meaning of English jurisprudence, and that they must be brought under peculiar rules of administration. On the other hand, industrial analysis has made clear the fact that the earnings of these industries are in a peculiar sense socially created, and on this account should con tribute generously for the support of government. This is the significance of the corporation tax. Putting these facts side by side, it follows that the control of corporations and the taxation of corporations may be reasonably expected to work together, and that the argument which asserts that the Federal financier may make use of the statistical service which the Interstate Commerce Commission must maintain may be generalized to express the relations between the finan cial and administrative branches of government, so far as municipal and State monopolistic industries are concerned.
But whether this industrial service be undertaken or not, inasmuch as taxes on corporations are assigned as the chief source of revenue to the States, and a very important source of revenue to the municipalities, it is clear that the essential step to the realization of this idea is the establishment of a statistical service which shall 'begin its work with the or ganization of the bookkeeping of the corporations themselves.
There is another vay of arriving at this conclusion. The general property tax broke down because the investment of property in large industries under the corporate form en abled men who were so inclined to evade the payment of taxes, and it is a natural development of opinion which as serts that the corporation should be substituted for the in dividual as the personality to be taxed. The reason for this is that the corporation must have a legal domicile, it must have visible property or agencies, and it must keep a set of books. It was at first thought that the desired result would be attained by substituting the property of the corporation for that of the investors in the corporation, but, for reasons given in the discussion on the proper basis of corporate taxes, this thought was quickly abandoned. It is the commercial re sults rather than the visible agencies which furnish the true measure of the ability of corporations to pay taxes; and, should the State fail to provide the means of discovering these results, its experience with the taxation of corporations will be no more satisfactory than was the case with the taxa tion of personal property. The difference in the two cases is that no amount of organization on the part of the administra tion could lead to the discovery of personal property, while a comparatively inexpensive organization will lay bare every fact necessary to the just assessment of corporations. Let it, however, be understood that without information no tax ing system whatever can work satisfactorily.
(c) Organization within the Municipalities. A detailed con sideration of the administrative necessities of municipalities, regarded from the point of view of the financier, would result only in a repetition of this cry for information. According to the programme here outlined the city must rely for its income on the taxation of the rental values of real estate, on the taxation of personal incomes, and on some means of ap proach to the social product of municipal monopolies. The first of these is what is left of the general property tax, and the machinery of assessment and collection familiar to the law is adequate for its successful administration. The second would necessitate organization among the members of the respective professions, but once set on foot would necessi tate no especial care on the part of the State. The third, however, assuming for the statement private concessions rather than public ownership, is neither more nor less than a corporation tax, but a corporation tax im posed under conditions which warrant the assertion of the public interest in its most extreme form. This being the case, all that has been said when considering the administrative needs of the Federal and State govern ments relative to the importance of a competent bureau of statistics and accounts, whether in the interest of public control over corporations or of just taxation, pertains with especial emphasis to the relation existing between municipalities and municipal monopolies. Here, then, as elsewhere, the first step towards administrative efficiency is to provide for an authoritative system of accounts for all corporations, and to demand reports from corporations on the basis of these accounts.
One word only remains on which this treatise may appro priately speak. If public corporate accounting is to be estab lished, it must, in order to be effective, be established on a uniform basis. So far as the municipalities within a given State are concerned this uniformity may be made to rest on State law. Whether or not the administration of the super visory jurisdiction over corporate management should be with the State or the municipality lies beyond the limits of our present discussion. There is no reason in the nature of the case why every corporation created within a State should not keep its books after a uniform plan. With regard to interstate operations, also, which lie within the juris diction of the Federal Government, uniformity of method may be easily attained. The difficulty arises in connec tion with those interstate relations over which Congress has no control, and in the fact that there exists no recog nised legal means of securing uniformity in the treat ment of the same class of accounts in the several States. There is but one way of overcoming this difficulty, and that is through interstate agreement. Lest, however, the interest which we may assume has thus far been granted this pro gramme of financial reform should be withdrawn by thus calling attention to what is logically involved in its perfect realization, we hasten to add that it is possible for it to be worked out by means of the independent action of the States and the Federal Government. A Congress of the States for the consideration of those industrial and fiscal ques tions resulting from the fact that modern trade extends be yond the territorial jurisdiction of local and State governments is highly desirable from every point of view; but it is not essential to the realization of the most important features of the scheme that has been outlined. Indeed it is claimed as a point in favour of the plan 'here presented that it can be carried to practical success under the exercise of such rights as existing governments now possess. And as giving an added interest to this scheme, it may be remarked that the revenue system to which we have given approval is the natural evolution of the corporation tax, which in a peculiar sense pertains to industrial conditions as they are found in the United States.