SOURCES OF STATE REVENUE. The States, it will be remembered, assume no responsibility for international affairs, and in interstate complications their liberty extends no farther than to be recognised as a party in a case. The Federal Government could not permit serious diplomatic correspon dence to be carried on 'between the States, for this would be equivalent to the recognition of the right of a State to sever friendly relations with a sister State, which would be equivalent to the destruction of the Union itself. This being the case, the States are never exposed to an emergency and do not need that quick response from revenue so essential to the efficiency of the Federal Government. They are, therefore, excused from the consideration of one of the most difficult problems in framing a revenue system.
Approaching the question upon its positive side the du ties of the States are primarily legislative in character. They give to the minor civil divisions and the municipalities their forms of government and clothe them with their administra tive powers; they provide laws of industrial association and grant charters to industrial corporations; they are the guar dians of all wealth that in any way accrues to citizens in their collective capacity; and, finally, they are called upon to administer such public institutions as do not naturally pertain to the local governments. If, now, one place by the side of this cursory characterization of governmental duties imposed upon the States the analysis which led to the selec tion of industries for special taxation (municipal monopolies alone being excepted) he will be impressed with the fact that the special or corporation taxes referred to naturally pertain to the State as a peculiar, if not an exclusive, source of revenue. The vast majority of industrial corporations are the creatures of the States, and it is to the State governments that the people look for their regulation and control. With few exceptions, natural monopolies, also, such as mines, forests, water-supply for irrigation, and the like, do not exert a commercial influence beyond the boundaries of the State in which they are situated, and should a royalty be imposed upon their earnings it should accrue to the government which represents the people to whom they rightfully belong If, now, the State governments can secure adequate revenue from special taxes on corporations and on natural monopolies the fact that they are charged with peculiar duties in connection with corporations, and stand for the proprietary interest of the people in the original values of the soil and the social increment of labour, provides ample reason why this source of revenue should be placed at their disposal.
In view of the ever-changing opinions of legislatures re specting the taxation of the localized property or agencies of corporations, it may be well to express the view enter tained by this treatise in an explicit manner. The assign ment of the corporation tax to the State means that the buildings and right of way of a railway, for example, should be exempt from local taxation; and if it be admitted, as has been argued, that net revenue to railways should be the basis of their taxation, and that the business from which this net revenue accrues holds no necessary relation to the value of the property distributed along the line of road, the justice of this plan becomes apparent. The earnings of the railways accrue (interstate commerce being dropped from view) on the general business furnished by the State; their payment for the support of the government, therefore, should be to the State, and not to the localities. The same argument applies to an insurance company located in a city, or to an unusually pro fitable mine located in a county. The industries are localized, while the business that gives them value is diffused, nor can there, in the cases named, be any offset on account of similar businesses situated in other cities or counties. Does it not, then, appear just that what they pay for the support of government should be paid to the government of the people whose patronage gives rise to the value in question? In some cases this patronage may be interstate, but since interstate commerce is by the scheme under consideration assigned to the Federal Government, this fact suggests no criticism upon the plan. We conclude, then, in view of the peculiar duties imposed upon a State, and because of the nature of corporations and natural monopolies, that all special and corporation taxes should be assigned to the State as an exclusive source of revenue. Of inheritance and income taxes we shall speak later.