THE ASCERTAINMENT OF THE TAXABLE OBJECTS.
378. In the administration of the tax law, in applying the provisions of the statute to the phenomena of actual life, the great problem is to ascertain what these phenomena are. Viewed in the light of the foregoing considerations on state administra tion and administration by the local self-government, the feature which first obtrudes itself is the great difference between the two chief classes into which taxes are divided. It has of late been thought a pertinent characterization of this difference, as regards the Prussian territory, to say that the officers of the indirect taxes wear uniforms, and those of the direct taxes civilian's dress.' This external distinction in some degree coincides with an intrinsic difference between the organs of administration which are required for these two great classes of' taxes. The uniform of the officials of the indirect tax points to the fact of a professional class of permanent officials which it would be impossible to replace by- the organs of local self-government, a point in which the administration of the direct differs from that of the indirect taxes. And this difference results from a sub stantial difference in the work to be performed. If the facts with which the tax administration has to deal are of a stationary nature, then a relatively impermanent class of officials may suffice for the work,—such an official class as is afforded by local self-government, especially if it is to some extent supple mented by the professional administrative officials of the national authority. If, on the other hand, the facts which the tax law is to cover are in a state of constant flux, if they are of the nature of instantaneous phenomena which must be seized at the instant of their appearance, if at all, then it is necessary to have a per manent administrative organization at hand, which can be on the watch at every hour of the night or day.
, It is further to be remarked that in the practical work of ascertainment of the taxable objects the neighborhood element afforded by the method of self-government is of great use in the former of these two classes (assessment for the purpose of the income tax, the land tax, house tax, trade-license tax), as by this method use can be made of information which is not avail able to any professional official class—personal acquaintance with thc circumstances of the neighbors in respect of property and business, knowledge of customary prices, values, rents, income, etc. With respect to the second group of taxes above mentioned this kind of information is of small consequence ; the facts to be dealt with here are, as it were, of a mechanical nature, palpable and definite, not involving the uncertainty of an appraisement ; they admit of being set down according to kind and quantity. This is especially true of the great number of consumption taxes, whether they are collected as an internal tax or as a tariff duty,— whether it is the tax official's business to keep watch of the receipts of beets at a beet-sugar factory in order to record their weight before they are reduced, or the customs official inspects dutiable goods in vessels, railway cars, cases, etc., coming from foreign countries.
The fact is not to be overlooked, however, that the legisla tion dealing with this second group of taxes achieves a formal simplicity of the tax at the cost of a substantial sacrifice. This requires some further consideration.
§ 379. Among the great shortcomings of the taxes on con sumption (to confine ourselves to this category) is to be counted the circumstance—which viewed from another side is a merit—that the collection of the tax takes place without ref erence to, or contact with, the person on whom it is intended that the burden should rest. We proceed on nothing more definite than the estimated average of the proportion between the consumption of the taxable article and the tax-paying capac ity of the individuals. This average on which we proceed is necessarily of the most superficial character, since it comprises the greatest possible variety of individual cases. The consump tion of objects of luxury pure and simple, such as champagne for example, bears such a very uncertain proportion to the tax paying capacity of the household by which these articles are con sumed, that the wish, however impracticable, obtrudes itself upon us, on grounds of equity, that every bottle which passes the custom-house might show on its face who is going to consume it. And how mych more true is all this of the great staples of consumption—beer, wine, tobacco, tea, coffee and the like— and how constantly we have occasion to regret the fact. that under this tax it happens in a large proportion of cases that a tax-paying capacity ten times as great as another pays not a single penny more than the latter.
Now while this wish of ours has no chance of being realized, we must and do, at least, make such effort to correct this short coming as the technique of consumption taxes will permit. The attainable in this direction seems to be to take due account of the different grades and qualities of all articles of consump tion, or—what amounts to the same thing—to take account of the value of the article in fixing the rate of the tax. In fixing a much higher rate of taxation for the better grades of wine, cigars, etc., than for the poorer articles we are justified in believing that we have done something appreciable towards correcting the superficiality of the average of which we have spoken above. But even in this effort we meet with great difficulties. The ascertainment of this difference in value by the tax official involves so much labor, and is, in part, so far impracticable, that even this modest requirement of equity in con sumption taxes fails of accomplishment ; the tax official is only required to perform the easier task of taking note of such grada tions in quality, and consequently in rates of taxation, as do not require an excessively minute inspection of the contents but are evident from obvious superficial characteristics. We confine ourselves, for example, to taxing imported manufactured tobacco higher than the unmanufactured, cigars higher than tobacco cut for the pipe, foreign wines in bottles higher than foreign wines in the wood, ready-made clothing higher than materials for clothing. To use the commonly accepted terms, " ad valorem " duties have, after a good deal of discouraging experience with them, been given up, and "specific" duties substituted in their place.
The outcome would surely have been different if the declara tion made by the payers, which is ordinarily taken as the basis of the tax, had been found by experience to be reliable. Experience has shown that such declaration is pretty generally very much in need of supervision by the tax officials.
The chief advantage of the tax monopoly consists in this, that it enables the tax to follow up differences in the quality and value of the goods which necessarily escape the other customary forms of taxation. The monopoly places this distinction between grades and qualities entirely within the discretion of the author ities, in permitting them to fix the price at which the goods are sold to consumers.
§ 380. With to the measures taken by the tax admin istration for the ascertainment and assessment of the taxable objects, it will be found that these measures admit of a graded classification according to the degree of. publicity of these objects or facts. It will be found that there is a graded succession, beginning with subjective taxes and running through objective taxes to taxes on exchanges or transfers and, finally, taxes on consumption.
The more intimately the facts to be ascertained are woven into the texture of household affairs, the greater are the difficul ties which the tax administration will encounter in trying to ascertain them ; the more the facts lie on the surface the less the difficulty. The knowledge of the income and property of a person, particularly under the complex circumstances of modern industrial life and property relations, is ordinarily, both as to Aggregate amount and as to constituents, shielded from the public eye by the same boundary wall behind which the house hold jealously shelters its private affairs from the eyes of out siders. Just as is true of every other private rnatter of domestic life, so also, and in an especial degree, is it true that prevalent sentiment looks upon the knowledge of private pecuniary cir cumstances as a soli me langere which may properly claim a sort of sanctity even as against the obligations towards state and commune. It is true that in this case as in so many others, really venerable sentiments are appealed to simply to cover sentiments that are in no wise venerable ; and there are large classes of persons (state and communal officials and the like) who will serve as an instructive example of the fact that an appreciable number and a select class of households do not stickle for this domesticity and sanctity. Still, the fact of a prevalent immaturity in moral and political sentiments exists and manifests itself in this way. This sentiment is unmistakably the outcome of long-continued habits of life adopted under the constrained and narrow conditions of the earlier political system and the old-time seclusion of individual life from the public, or it is an outgrowth of an innate self-seeking which will have to be overcome by a long and arduous process of moral and civic growth and education.
Only in proportion as these sentiments give place to a more liberal habit of mind is there any fair prospect of penetrating the obscure ground of individual pecuniary circumstances, and the hope of the various legal measures employed by the administra tion for this purpose lies in the fact that there exists a certain, perhaps very modest, degree of readiness to comply, and that this incipient readiness will be strengthened by the pressure exerted by the law.
If after the manner of the Prussian law of 1851, in its modi fication of the earlier legislation of I820, assessment by men taken from the neighborhood is made use of in an attempt to pursue a middle course between the method of co-operation on part of the taxpayers themselves and that of an energetic inter ference by the central government, nothing is accomplished beyond showing a lack of confidence in the readiness of individ uals to publish their pecuniary affairs, without doing anything to correct this shortcoming.
If the declaration of the taxpayer is made the basis of the assessment, this indicates, at any rate, a greater degree of confi dence in the taxpayer ; but the precise extent of this confidence, as well as the extent to which it is justified, will appear only on taking account of the other measures bearing on the same point, and of the results achieved.
§381. Self-assessment in its most primitive and least rigid form may be entirely optional ; so that failure to make a decla ration carries no penalty nor any disadvantage to the individual ; it may therefore be left entirely to his own discretion what his conscience or his sense of his own advantage may prompt him to return.
Obligatory self-assessment must be backed by the sanction of some penalty or other, at least some disadvantage (such as loss of the right to make complaint of too high an assessment), if it is to deserve the name at all. But the simple requirement of some return of income or property is entirely nugatory if no penalty attaches to an excessively low return. Herewith we have reached the domain at whose boundary the representatives of the taxpayers in our legislative assemblies (and to some extent even the national government itself), in the degree in which they are possessed of sympathy for human infirmity, timorously draw back.
The obvious method of requiring an oath as to the accuracy of the return, coupled with the severe penalties attached to all perjury, have been found by experience to be of very doubtful expediency. The history of taxation in the United States has long since established the fact, on documentary evidence, that in that country this requirement has made perjury habitual in tax assessments. And the experience of our own courts, which gives evidence of a veritable epidemic of perjury,' does not encourage a further extension of the employment of this means. The danger of using the oath in connection with self-assessment of taxes lies in this fact, that, besides its evil effects on morals, it still further increases the inequality of assessments ; one part of the taxpayers will have their conscience aroused by the oath, while others do not, so that the inequality to be expected under any system of self-assessment will simply be augmented.
Other means of compulsion—fines for failure to make returns, 'As an example may be cited the list of cases at present (1888) being decided before the Court of Jury in Gottingen. On June 24, C. K., miner, from Andreasberg,
sentenced for perjury ; June 25, II. S., lath-cutter and woodman from Sievershausen, sentenced for perjury and libelous accusation, etc., etc.
penalties for too low returns, whether in the more usual form of a money penalty or the less usual form of personal detention— are effective only in proportion as the threat is expected to be put into execution. In case of a lax administration of the tax system by local authorities these penalties are just as ineffectual as the assessment oaths in the United States. If they are to be made effective they will therefore require an adequate organiza tion of the officials in charge of the tax administration,. such as has already been spoken of above.
Indirect measures of compulsion which are intended to accom plish their object through publication of the tax lists, whether by exhibition of the returns posted in the office of the board of assessment, or by publishing them in the newspapers; may, though not necessarily, be of some use in getting at the truth. It will appear, in this matter as in all others, that the point of substantial importance is the question of morals, of sentiments, and of the prevalent habits of mind. This remedy, of a publica tion of the tax lists (often spoken of as extremely strict and rigorous), may remain without effect wherever there is a preva lent remissness and toleration, especially if it is coupled with a lack of conscientious insistence on the rights of the community.
Where there is jealousy and between neighbors, where there are strong class contrasts, or where there is a jealous watchfulness of the public interest, such a measure may be of some service, although it will always achieve a more satisfactory result if it acts preventively (by quickening the conscience) than where it acts only repressively (through informers and the like).
It appears, therefore, the prospect for a progressive improvement in the ascertainment of the facts in this most recondite field of taxation, lies not so much in particular prac tical measures that have been tried and found effective, but rather in the gradual evolution of a sense of civic duty, to be fostered by sagaciously chosen measures for promoting the observance of the law, and even more particularly, by a proper development of the organs of tax administration.
§ 382. Very appreciably easier is the ascertainment of the facts in the case of those taxes which are levied not upon per sonal relations and circumstances, not on the "subject," but which attach simply to the "object," that is to say, objective taxes.
The facts to be ascertained in this case are much more obvious and external. We no longer have to do with personal relations, possessions, gain, credit, debt, business activity, profit and loss, but with things, external objects which serve simply as a basis, as a readily ascertainable constituent factor in these personal relations. In order to their ascertainment the person of the taxpayer and his knowledge of the facts are not only dispen sable, but are of no use whatever ; we have nothing to do with the individual or personal element, but only with general facts and averages.
The task seems especially to be lightened by the fact that —quite different from what is the case with subjective taxes— when the facts are once ascertained the results commonly hold good for a number of years ; so that the laborious investigation has to be repeated only at rare intervals, perhaps once in a generation, while it is of the nature of subjective taxation that it requires this operation to be repeated frequently, commonly every year, in order to keep abreast of the continual change that goes on in each person's pecuniary circumstances.
However, experience teaches that ordinarily, even in this field, the ascertainment of the facts is practically not so simple and easy. It is true there are objects with regard to which the facts can be ascertained with little effort, and for which a single valuation will serve tolerably for a long period. A good instance of this is the Prussian house tax (sec. 306). In this case the objective taxation in question is confined to a particu lar and generally simple form of land tax ; where the practice of renting prevails, as in the large and medium-sized towns and cities, the ascertainment of the facts required for this tax is especially easy ; if the repetition of the assessment takes place only after an interval of fifteen years this method of assessment becomes one of the most convenient and satisfactory that is to be found.
But in most cases the advantages are not so pronounced. The account given of the French land tax, and the accompany ing discussion of the manner of constructing a land-tax cadas ter, and the observations made on the Prussian land-tax reform (secs. 299, 305) will serve to indicate the practical difficulties with which this phase of objective taxation and assessment have in experience had to contend. While the work of cadastratcon promised great things and was intended to dispose of the ques tion for a long time to come, employing a great and expensive apparatus and organization for a number of years, or even (in France) for a number of decades, it is after all a work which bears on its face the stamp of error, transiency and inequality, from the very start. The reason for this is simply that the com putation of the net produce of agricultural land, even when no regard is had to the pecuniary circumstances and relations of the individual owners, is so difficult a problem that it is impos sible to ascertain the truth of the matter by this method, except in a very imperfect way.
It is only under circumstances where the customary meth ods of business favor the ascertainment of the facts in the way they do for the house tax, that the task of ascertaining the produce of land can be accomplished easily and in a tolerably satisfactory manner. If the practice of leasing prevails exten sively in agriculture or if sales of land are very frequent, this will afford reliable and accessible facts as to the produce, or at least afford ground for an inference as to the produce and value of land much preferable to the laborious and, in the last analy sis, fictitious computations of the cadaster.
§ 383. It is characteristic of these classes of taxes, and of the method of assessment required by them, that these, as well as the subjective taxes, necessarily involve an element of self administration.
In the assessment of the Prussian house tax, as well as in the construction of the cadaster for the Prussian land tax, the assistance of experts is always counted on. The alternative method of assessment, modeled after the English pattern and advocated by Kries (sec. 305), also rests, substantially, on the services of men intimately acquainted with the affairs of the neighborhood.
This fact itself suggests the relative difficulty of assess ing this class of taxes as compared with the others presently to'be taken up, which can and do dispense with the services of " experts." It is not for the detection of the intricate facts of private life and circumstances, but only of the facts of the tax payer's business activity that we do and must employ business men, men who have gained experience in the business world and especially in local business affairs.
This is particularly evident in the case of the trade-license tax, where, as is the case in Prussia (sec. 302), the taxing authorities shrink from the difficulties of the French method (sec. 302) and reluctantly adopt the methods of subjective taxation. In this case we have an assessment after the manner of the class tax, being partly effected by professional officials and partly by the members of the commune ; the tax being at the same time restricted to a certain rate, somewhat after the fashion of the repartition tax, by the requirement of an average rate to be paid by the members of the class on whom the tax is levied. It is to be added that this method of administering the trade-license tax has been less productive of results than the French license tax precisely because it occupies a vacillating position between the subjective and the objective tax. The French tax does not employ personal assessment of any kind, but has recourse exclu sively to definite external indications—the number of inhabitants of the place, the character of the industry, the rental of the buildings and grounds occupied by the establishment. The diffi culties which arise out of this purely "objective" treatment of the license tax, and which have to be overcome by extremely minute and detailed provisions, remind us of the difficulties of the land-tax cadaster ; any advantage that may belong to the license tax depends on the fact that a single assessment is not required to serve for a long term of years, but is renewed from year to year.
In the one case as in the other, the inadequacy of the assess ment is shown by the fact that we .content ourselves with a simple class tax because an adequate ascertainment of The net produce of any industry is practically unattainable.
§ 384. The problem of assessment is greatly simplified if the facts to which the tax attaches are obvious and tangible. This is habitually the case as regards taxes on consumption and on transactions. It is especially true in case the law applies to the most obvious facts only. The substitution of specific for ad valorem duties, for example, is such a case of simplification in the tax administration ; neglect of differences in quality, other than the most tangible ones, is a grave fault in point of equity, but is often highly expedient as a practical measure.
In the same spirit a selection is sometimes made of the simplest and most obvious factors in the process of production in order to the laying of a tax on articles of consumption pro duced within the country ; the taxation of the raw material of beet-sugar, or of spirits, or of beer (secs. 272, 274) seizes upon the most accessible of the stages into which the process of pro ducing these goods resolves itself,—of course not without raising a question as to the expediency of this method on other grounds. Viewed from the standpoint of industrial progress, the incitement to a fuller utilization of the raw material, afforded by a tax on raw material, may of course recommend itself ; but as seen from the standpoint which is immediately concerned in the question of taxation, it must be set down as a defect of the method that this incitement not only involves an advantage to the stronger producer over the weaker, but also a failure to collect the full tax income aimed at by the legislator. Experience of this kind accordingly urges to the supplementing of this simple method of taxation by extending the tax to other portions of thq process of production or circulation.
Taxes of this class will, of course, continue to enjoy the advantage that in their employment the tax administration has only to take thought for the ascertainment of the presence of the special facts in question, and the necessary supervision is facilitated by this fact that the tax need attach only to facts that are easily ascertainable. Goods may be taxed at their entrance into the country in case the conformation of the national bound ary favors or admits of the proper supervision of imports. The articles of consumption produced at home are taxed by this method if of such a nature that their production (or circulation) may be readily controlled. This class of taxation, therefore, selects those articles and those steps in their production or cir culation that can be assessed with ease and accuracy.
A tax on transactions derives an advantage from the use it can make of the courts, notaries and other officials, very analo gous to the advantage which taxes on consumption enjoy in the accessibility of the process of production or circulation. The stamp used for purposes of public registration, or simply as an evidence of the payment of the tax (as happens n the case of many consumption taxes), aids in the ascertainm nt of taxable objects by the requirement of publicity.