SELECTION OF INDUSTRIES TO BE TAXED. Had it been possible to direct the organization of industries during the last fifty years with a view to the taxation of corporations, the task of the financier would now be greatly relieved. For reasons that need not here be discussed many industries are organized upon the corporate basis which, so far as their economic character is concerned, or their relation to public or quasi-public interests, might just as well have been carried on upon the basis of partnerships or joint-stock associations. It would be a mistake to include all corporations within the scope of the corporation tax, and the legislator is obliged to rely for the purpose of selection upon an economic analysis of industries, and to set aside for special taxation those in dustries only which are monopolistic in their character or which for some other reason bear a public or quasi-public \ character. The reason for this is clear. All industries sub ' ject to the control of competition, whether organized as cor porations or not, possess the same industrial character. The value of an investment in them will bear some relation to the cost of creating the plant, the quotations upon stocks and liabilities will gravitate toward the earning capacity of the enterprise, the rate of profit will be the ordinary rate of profit, and the income to the proprietors will measure with some de gree of fairness the social value of their services. Moreover, the reaction of a general tax upon sales will be the same for the incorporated industry as for an industry of the same class organized as a partnership, and the special tax imposed upon them would work like any ordinary indirect tax. While, therefore, we speak of special corporation taxes, it must be understood that these are special taxes upon industries selected because of their peculiar industrial and social character. There are many taxes levied on corporations which are not, (in the technical meaning of the phrase) corporation taxes.
Most prominent among the industries selected for special taxation is the railway industry, Rhode Island being the only State in the United States which treats railway property the same as other property. The explanation of this is simple. The railway industry was the first to show the peculiar evils of corporate organization, and on this account arrested the at tention of tax reformers. From the administrative point of view the ease with which stocks are bought and sold renders it impossible for the assessor to discover who owns railway property. From the point of view of social justice the character of the competition invited by this industry brings about an abnormal and unhealthy commercial condition. Rebates, discriminations, secret contracts, and the like, seem to be imposed upon the railway manager by the commercial forces with which the peculiar character of this industry brings him in contact; and the result is that society is deprived of those industrial conditions under which commercial forces for ordinary industries are able to act in a normal manner. Two facts thus become evident : first, that the general pro perty tax cannot secure payment from the proprietors of railway property, and second, that the industry is of such a character as to demand control by the State. If to these facts be added the consideration that railway corporations enjoy a franchise from the State which possesses a peculiar industrial value, it is easy to understand why they have been selected for special taxation,. So true is this of the conditions of the United States that when one speaks of a corporation tax the mind turns at once to the question of railway taxes Other industries naturally classed with railways for the purpose of taxation are the telegraph and express industries, and, probably, the telephone industry. Indeed, all those in dustries engaged in transportation possess the same general character. It is true that the great express companies in the United States are organized as joint-stock associations; but the trend of judicial opinion seems to be that for the purpose of taxation they should be considered as incorporated. The telephone industry cannot be so easily disposed of, for it is not yet certain that this industry is subject to the law of in creasing returns. Beyond a certain point in density of ser vice it is claimed that operating expenses increase more rapidly than income. If this be true the industry itself sets a limit to its normal size, and separates itself from railways and telegraphs as non-monopolistic in character. Moreover, the telephone industry has in part a local character.
Other industries there are, allied to the great transport industries, that should be made the object of special con sideration, as for example bridge companies and companies owning terminals, rolling stock, and the like. The idea is that
the transportation industry can be handled the most easily when regarded as a unit, and the peculiar contracts between the various parts of the organized association should not be permitted to secure one form of taxation for one class of property and another form of taxation for another, all of which bears the same social and industrial character.
A second class of industries which possess a character peculiar to themselves, and which on that account call for special treatment on the part of the State, is composed of banks, insurance companies, building and loan associations, and the like. The character of these industries is given them by the fact that they perform in a greater or less degree the duties of trustees. Moreover, competition, while more active and efficient for legitimate control than in the case of railways and express companies, works with them in a peculiar manner. They are subject to the law of increasing rather than of con stant or decreasing returns, but the working of this law is so guarded as to free them from the abnormal or excessive competition to which the transportation industry is exposed. The public interest, therefore, does not pertain so much to fair, equitable, and uniform treatment as to the price charged for services rendered and to the security of funds placed at their disposal. From this it follows that the rule of taxation for businesses of this class may with propriety be very dif ferent from those rules that are pertinent in the case of trans portation industries, but that their character as trustees whose income increases with the volume of their business makes them a fit object of special taxation.
The third class of industries to be considered in the dis cussion of corporation taxes, although not always organized as corporations, is made up of such enterprises as mining properties, lumber interests, and other natural monopolies. These industries, in so far as they give a differential profit to their proprietors, should be made to share their royalty or rent with the State. The line of reasoning which underlies this conclusion has been already presented in connection with the question of governmental proprietorship of natural mono polies. Some of them, it was there learned, might with pro priety be owned by the State; others, on account of technical difficulties in administration, can with greater advantage be given over to individuals or corporations; but in either case the fund of value stored up by nature in the past may justly be called upon for special contributions for the support of the State.
The fourth class of industries that should receive special treatment at the hands of the revenue system is composed of municipal monopolies, such as street railways, gas com panies, lighting companies, and the like. They are mentioned in this connection to complete the series of industries that claim the special consideration of the financier.
.In closing this brief analysis it may be remarked that what we have here called the question of the corporation tax is in reality a question respecting the proper fiscal treat ment of those industries that are superior to the normal control of commercial forces. The corporation tax and the monopoly problem are closely allied, and no satisfactory ad justment of corporate taxation can be expected except it be made under the influence of some general theory respecting the solution of the monopoly problem. The idea which underlies the suggestions of this treatise is that uniform laws of incorporation should be established between the several States; that special rules of incorporation should be drawn for industries that are monopolistic in character; that a pre scribed system of bookkeeping and supervision of accounts should be established for all incorporated industries; and that uniformity of legislation should be established between the States for determining the conditions under which corpora tions may operate. This is admitted to be a comprehensive and an ambitious programme; it is, however, no less com prehensive than the extension of the commercial relations nineteenth-century corporations have established, and no less ambitious than seems to be the ideal of control which many of these corporations have set before themselves.