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The Historical Growth of Equitable Taxation


203. The discussion has, so far, dealt with the course of development out of which the principles of equitable taxation have emerged as an historical product. It will now be necessary to give some attention to the way in which these principles have been applied in the course of history to the relations subsisting between the different social classes.

The significant point here, apart from the central fact of a growth of deafness in the conceptions of equity, is that of the prevailing views as to what are the equitable claims of a more or less considerable portion of society to a certain fullness of life. In the degree in which the apex of the social pyramid looks upon the underlying layers as a means to the attainment of its own ends, in such degree will we have an unscrupulous exploitation of these lower strata in the distribution of the public burdens. The slow, uncertain growth of the recognition of the inherent rights of each and all members of the community necessarily carries with it a gradual progress in the views of what is an equit able taxation of the different social strata.

Down to the present period, which begins with the French Revolution, the system of-taxation, through preceding centuries, was determined by the relation of domination on the one side and subjection on the other. The " dishonor " attaching to a personal tax is a consequence of a system of taxation whose aim was to exempt the ruling classes, cities, peoples from personal taxation, for the reason that they had the power to unload the burden from their own shoulders and shift it to the shoulders of the lower classes, provinces, peoples. The position of the subject countries (provinces) in the Roman Empire, with their enforced submission to a lower legal status,' has in view a fiscal exploitation just as distinctly as has the policy of the individual cities that used all means, of force and fraud, of blood or money, to bring the cir cumjacent country into a state of dependence in order to exploit it pecuniarily.

The same thing repeats itself within the different classes of any given commonwealth. Here, again, there is the same irresist ible desire for the sweet fruition of a domination over other men, whose subjection is turned to advantage in making them bear the public burdens. Here the ruling class wrings "surplus value" from the subject classes, just as in the other case it was wrung from the subject countries and peoples. Exemption from taxation was just as much a matter of course under such a system of domination as it now seems a monstrosity to us.

In point of fact, even the Aufklarung of the eighteenth cen tury made an energetic protest against the tax exemption of the upper classes. It is a fundamental principle, says that taxes and imposts are to be borne by all subjects equally; for in this matter the same obligation rests upon all subjects, and all share alike in the state's protection and the other benefits arising from the constitution of the commonwealth. Indeed, Justi, in like manner as his contemporary, the founder of the French school, replaces the traditional injustice of the earlier social organization with its opposite, in that he demands that in the distribution of taxes special regard is to be shown the poor and the people of moderate means, in the exemption of an "existence" minimum.

On the other hand, in the constitutional enactments of the French revolution, and in the declaration of the rights of man,' the universality of the obligation to pay taxes is constantly insisted on. No citizen, says the decree of June 24, 1793, is exempt from the honorable duty of contributing to the public burdens.

§ 204. In the case of Prussia, the edict of October 27, 1810, dealing with the finances and the new measures to be instituted with respect to the imposts, declares " that a complete reform must be had in the impost system, the point of departure for which is that all taxes are to be borne by everyone alike, according to uniform regulations throughout the realm; that all exemption is to be abolished, as being no longer consonant either with natural right or with the spirit of administration of neighboring states." The hope is expressed " that those whom this provision touches will comfort themselves with the fact that they are no longer open to the reproach of avoiding the public burdens at the cost of their fellow subjects." Still, the constitutional enactment of January 31, 185o (Article 101), is constrained to speak of a revision yet to be car ried out with respect to existing tax exemptions, which will put in force what Ronne calls the principle of " natural public law " [naiiirliches Staatsrecht]. This became necessary for the reason, in the first place; that the regulation of June 21, 1815, under Article 14 of the German Act of Confederation, provided "that media tized persons were to enjoy freedom from the ordinary personal and land taxes: as concerns their persons and their families, as well as their domains." In the second place, the lower nobility had also been able to preserve their ancient exemption from taxes on landed property down to the middle of the nineteenth century, although the Prussian crown had for centuries past been engaged in a struggle with them, and had even achieved a notable success' against them as early as the beginning of the eighteenth century,' in the revision of the general land-tax payable by the East Prus sian nobility. An ordinance for the latter purpose was for the first time promulgated in the legislation of May 21, provid ing for changes in the tax on landed property, and for a general building-tax of universal application. The point first spoken of above was sought to be dealt with by the legislation of May 1, 1851, concerning the classified income and class tax, amending the law of December 7, 1849, and which expressly abolished the exemption hitherto enjoyed by " immediate " princes (die Reichs unmittelbaren) from the class Nevertheless, a further (unpublished) order in council, of March 16, 1857, ordained that the exemption of the mediatized German princes and counts of the empire, not only from the ordinary taxes on landed property, but also the ordinary personal taxes, as concerned their persons, families and domains, was reestablished. This was, it is to be said, at an epoch in Prussian national life when mediaeval romanticism was struggling, for the last time and in the last ditch, to uphold or to reestablish institutions which have no place in the constitution of the modern state.

Under modern views of taxation an exemption of this kind is open to the further objection that it abolishes the obligation to pay taxes, at the precise point where, as we shall presently have to point out, the special duty of the upper classes of society in the payment of taxes rests. In this regulation the traditional position of indirect taxes, in relation to the different classes of society, is reversed in a remarkable way. This class of taxes, which is generally decried by the spokesmen of the majority as oppressive, becomes the sole recourse of a necessitous exchequer.' The crude conceptions of the Middle Ages which intimately connected the honor of the upper classes with tax exemption, equally with the more fully developed conceptions of the modern state which find an element of honor in a wide distribution of the payment of taxes, are willing to admit none but this inadequate form of the performance of a public obligation —without having any clear appreciation of the reason for formally excluding tax exemption beyond certain purely technical reasons or certain grounds of prejudice.

§ 205. Quite different is the case of an exemption of the pub lic servants in the civil and military service, as well as of all appointees of any public organization, so far as they are declared exempt from taxes levied by the body in whose employ they are.

While the questions which arise out of the legal relations existing between the employees of one civil organization and the taxation levied by another (e. g., the empire, individual states, communes) are difficult and involve a great number and variety of considerations, the relation of an employee of the state to the state's taxation, of the communal employee to the communal taxation, etc., is quite a simple matter. In this case the ment of taxes by the employee, so far as it touches the salary paid him in his official relation, is nothing but a concession to the sentiment in favor of the universal obligation to pay taxes, being in fact only a payment out of one hand into the other. What income the civil servant possesses beyond his official salary is of course properly subject to the same obligations in the way of pay ment of taxes as the income of any other citizen. As far as this is concerned, there is no reason for an exemption.

This formal tax liability of the civil servant has an indirect consequence, in that in taxing him the assessing mechanism is enabled, on account of the publicity of his income, to ascertain its exact amount, while in dealing with the general mass of private incomes, it is to some extent incapacitated by the lack of pub licity, and has to content itself with less than the truth. So that the assessment levied on the income of the civil servant suffers the same practical increment, compared with the burdens borne by the majority of other incomes, as does the burden of the honest minority of private tax payers, compared with that of the dishon est majority. The only difference being that in the case of the civil servant honesty is compelled by publicity, while with private persons it is a voluntary matter. In the case of the civil servant, moreover, in consequence of his intimate relation to the public service, there is a more urgent call of duty to a conscious loyalty toward the public law, and so an inducement is offered him to stand as a model for the rest of the citizens.

A more realistic view of the matter finds in this state of the case an argument for partially exempting the civil service from taxation, in order to do away with the practical inequality that has arisen under the law as it is.

§ 206. Although exemption from payment of taxes:such as had a place in the public law of the past, no longer has a place in the political life of today, still there is a tendency perceptible, common to the old state and the new —to the old social organiza tion and the new, in the direction of some relative exemption from participation in the bearing of the public burdens which every stratum of society is in duty bound to bear. Hence the contrast of social classes in respect of their ability to pay taxes and in respect of the degree to which they are taxed.

In this connection it is a very significant fact that that class of taxes which by their nature are the least available for purposes of legal exemption, and which also, in point of fact, through this peculiarity, first served to realize the idea of a nominally universal and uniform liability to taxation,—it is very significant that this class of indirect taxes has for centuries past borne the reputation of being a means of oppressing the lower classes. On this account indirect taxes were condemned by the earliest scientific system of taxation, that of the Physiocrats, and they have ever since been condemned by radical defenders of the rights of the people.

The fact is significant, as showing how great importance attaches to the substantial relative weight of taxation, even apart from any formal, absolute exemption from taxes. It serves to show how, accompanying or following the question between obli gation to pay taxes and exemption from them, this other question comes to the front: as to how great a burden of taxation each class of society is properly bound to bear, under the rule of a universal obligation to pay taxes.

Ever since scientific thinking first sought to fathom the pro founder questions of taxation, the attempt has continually been made (and without a satisfactory result) to find out a thoroughly reliable standard or measure by which to distribute taxation among individuals and classes possessed of different pecuniary ability. Practical egoism has sought in vain to turn the absence of any accepted standard for the computation of equitable distri bution to account as a pretext for avoiding its fair share of the burden. There is no universally applicable norm of equity in this matter. This is but another of those cases where the chase after economic truths that shall admit of being expressed with mathematical accuracy, and shall hold with the rigidity of natural law, turns out to be a chase after a will-o'-the-wisp, for the rea son that the realization of equity in the course of historical devel opment comes to pass after the manner of all things moral.

§ 207. This course of historical development presents a startling contradiction. The contradiction, or contrast, has been thrown into the historical-philosophical form of three succes sive phases of development : the feudal [standischt], the civic [staatsbargerlielte], and the social. In this triad the civic phase or epoch is made to bridge over the contradiction between the first and the last of the series by establishing a legal equality [Rechtsgleichlteit] in the universal obligation to pay taxes, while it leaves the existing inequality iaincome and property undis turbed. It is reserved for the third, the social epoch, to estab lish a new norm of equitable taxation, whose function it will be to achieve a systematic alteration of the distribution of and property.

Originating with socialistic writers, who claim to speak for the lower classes, this contrast of phases of development has come to express a change in the conception of equity, according to which the " equality " of taxation, as soon as it is attained, passes into its contrary. It is an application of the speculations of J. G. Fichte' to the question of taxation. He makes the objection to the principle of the so-called "legal" state [Rechts staid], according to which the state's function is simply to pro tect each one in the enjoyment of his personal rights and possessions, that "the purpose of the state is first to give to each his own, to invest him with what belows to him, and, then only, to protect him in his possession of it." The scope of this view becomes apparent when Fichte demands that "all must first have their fill and a settled habitation, before anyone adorns his dwelling ; all must first be warmly and comfortably clad before anyone adorns his dress."' This makes plain what is the aim of the new conception of justice, even if we must designate its historical-speculative formu lation as an untenable abstraction, and recognize that the contrast between " legal equality " [Rechtsgleidsheit] and "social equality " (see vol. i. secs. 312 et seq.) is a distorted one. The new postu late confronts us not in the form of a scientific truth, but as an historical fact in the social-political movement. The whole thing is an inversion. As soon as something has been gained for the pop ulace a much larger portion is demanded, for gaining which what has been achieved is made to serve simply as a vantage ground.

§ 208. Let us come to a clear conception of the matter in controversy.

The entire social movement, of which the agitation for exemption of the lower classes from taxation and subjection of the upper classes to taxation is but a part, rests on the demo cratic movement of the century. Democracy vests the national will in the aggregate people ; the whole people makes the laws, decides as to the functions and the needs of the state ; it is the people as a whole that decides on the financial means to be employed, and prescribes the requisite legislation, in kind and scope.

In so far as this ideal of popular sovereignty emerges from the letter of radical political philosophy and becomes clothed in the flesh and blood of actuality, the old relation of subject and ruling classes is reversed. The quondam ruling classes, the minority consisting of the nobility, the cultured and the wealthy, yield their place to the mastery of the majority, consisting of all those who are not noble,, not cultured, not well-to-do, who were for so long the subject classes.

The national will has shifted its seat to lower ground, to the broad strata of the lower classes. The concept of equita ble taxation now takes form and color from their wishes, their interests. The shifting of taxation from the shoulders of the upper to those of the lower classes now changes into a shift ing in the contrary direction, from the lower classes to the shoulders of the upper classes.

Must we accept this drift of interest which asserts itself in altering the conception of a just taxation as the source of what is to be accounted a desirable norm of equity, as something affording a basis for a just apportionment of taxation ? Certainly not. It is always contrary to the essential nature of political sovereignty to make it a means for the gratification of social instincts, equally so whether the state is ruled from above or from below. The sovereignty of the state should in every case serve the interest of the whole, a function which imposes on the sovereign power duties and restrictions at variance with its special social interests. In case the converse were accepted as true, the consequence would be that every ruling class (whether a majority or a minority) would exempt itself from taxation and so reinstate the iniquity of the "period of status." This immoral tendency of popular sovereignty is accordingly all the more to be combated, as contrasted with the iniquity of the olden time, because there is so much in it. that is of a specious character.

§ 209. The danger that lies in the democratic tendency just spoken of for the development of the concept of justice in mat ters of taxation, is, however, circumscribed by the tempo to which all historical development is subject. The ideals of democracy will no more than any other system be free to realize themselves unconditionally by a development in empty space. They are confronted by potent historical facts which will yield ground only slowly. They come forward boldly, as tendencies embodying new conceptions and backed by new strata of the people, but can attain their end only by gradually displacing and altering traditional features of the social structure.

Even under circumstances where apparently the whole of the historical-political and social institutions have been swept from the board, when for a limited time and space the boldest logical results of popular sovereignty seemed to have been realized, the results of past development have presently proved themselves the stronger in the struggle, and the branches of the ancient tree, bent back temporarily, have sprung into place again with all the more violence, and set at naught the efforts at innovation. So that even in our day, a full century after the great Revolution, we have in France only a gradually accelerating ascending move ment from below, and by no means a democracy with all its social and financial consequences. How else are we to understand all the measures taken, and all the abuses of legislation that indicate the continued influence of the upper strata rather than the sovereignty of the majority ? The influence of democracy should logically have first reached consummation where an earlier historical development had pre pared the ground for it ; where social conditions are sufficiently simple to permit its force to assert itself more readily ; where, especially, the size of the community is so moderate as to afford popular sovereignty a favorable field. In the cantons of Switzer land, accordingly, the danger above pointed out has actually approached near the horizon and has become a matter of serious apprehension, which is concerned not so much with what has taken place, however, as with the trend of what is taking place.' For the present, danger is not to be apprehended from this source in the German Empire and its constituent states. It is true, the German constitution, in its fundamental provisions, has accepted the primary demand of democracy—universal, equal, direct suffrage. But the historical forces embodied in the ancient state and the ancient order of society are more powerful here than in France (or in England). The results of democratic suffrage have so far been but as the waves that have broken about the base of the "rocker de bronze" without undermining it. The influence of the old order of society, backed by a traditional monarchy with its bureaucracy and its army, has so far main tained its supremacy and may look upon the rush of the breakers of democracy as but a reminder to use its privileges with reason and circumspection.

§ 210. It is only by keeping in mind the above considera tions that we can hope to solve the problems embodied in the expressions, a "proportional" and a "progressive" basis of taxation.

a just equality is to be observed in taxation, it is preeminently the proportion of means that must be taken as a basis, inasmuch as the protection afforded by the state is mainly concerned with property." We have here a close connection between the old " benefit theory" and the taxes, leading to a decision in favor of a propor tional basis of taxation, very much as if it were a payment of the nature of an insurance premium, which the owner of a house pays to the insurance company in proportion to the value of the house insured. A full century after Justi this theory has been unre servedly accepted by Thiers.' Each one, he says, is to con tribute proportionally to the public expenditure—in proportion to what he earns or possesses, for the natural reason that the contributions to purposes of social protection should be pro portioned to the sum of the goods protected. Assuming, he goes on to say, that the gross annual income of France amounts to 12 milliards of francs, and that 1,200 millions are required to meet the public expenditures, then it would follow that every one is bound to pay in to the state one-tenth of his receipts of all kinds whatsoever. Thiers explicitly insists that the com parison of the state with an insurance company is the most proper and most exact that can be employed.

K. H. Rau opposes the "benefit theory," and calls especial attention to the higher conception of the state's function, appeal ing to the authority of Plato, Aristotle, Cicero, Fichte and Hegel. He demands that the taxes are to be apportioned according to the pecuniary ability of the individual tax payers. He also remarks that any given sum of money has a higher value for its owner, the larger a proportion of his aggregate dis posable possessions it constitutes. But the only conclusion he draws from this is that " Each individual can about equally well or equally ill afford to contribute a certain maximum portion of the goods at his disposal." And that is precisely the ground of the proportional basis of taxation.

Adolph Wagner,' in the logical sequence of his scheme of historical stages, of a " civic " and a "social-political" period, has sought to justify the proportional basis of taxation on the ground of its being a consequence of the " competitive system " and of a "purely fiscal" system of taxation. This sequence serves him as an argument to prove that the civil period belongs in the past and that the social-political phase of taxation is at hand. Since, by as much as the necessary consequences of the former system are found wanting judged in the light of existing sentiments with respect to equity in taxation, by so much the more are we driven to the acceptance of the second phase.

The asserted sequence, however, rests largely on a confound ing together of theories about free competition, individualism, taxation according to benefit received, the conception of the state as an insurance concern, etc., on the one hand, with the actual course of historical development on the other.

In spite of all theorizing, the state as it exists in fact, at least the state of the last three centuries, is and has always been incompatible both with the " benefit " theory and the propor tional basis of taxation.

§ 21 I. The sequence holds only as regards the benefit theory and the proportional basis of taxation. If the benefit theory, the conception of the state as an insurance concern, etc., is found untenable (as is true for us today, and that in full accord with long established scientifiic convictions), then it follows with the same necessity that the proportional basis of taxation must be abandoned. For those who, with Rau, hold to the propor tional basis, after having disallowed the benefit theory its pre sumptuous claim to be the basis of all tax obligation, the proportional basis of taxation is nothing more than an incon sequential conclusion based on their own inclinations, to which they cling in order to avoid the oft-portrayed dangers of pro gressive taxation.' Rau's own words really surrender the whole position. And we may be permitted to cite this once eminent authority as the representative of a certain stage in the progress of the science. When Rau says : "A given sum of money possesses a higher value for its owner the greater a proportion of his aggre gate disposable goods it constitutes and the greater a portion it consequently represents of the aggregate enjoyments at his command, especially in case the one who is to be deprived of a given sum will have to stint himself in expenditures for the most necessary articles in order to afford it," in all this he furnishes no proof of the legitimacy of the "therefore" by which he connects this proposition with the succeeding one, that: " Each individual can therefore about equally well or equally ill afford to contribute a certain maximum portion (quota) of the goods at his disposal." Doubt is cast upon this doctrine by the facts of tax legisla tion,' as also by a closer consideration of the undoubtedly sound premise. Not to mention any of the ancient instances, as for example the Solonian tax legislation, the following laws may be cited : Under the Elector Frederick Augustus a general income tax was levied in Saxony, in 1742, which was assessed on all incomes between 100 and 1,000 thalers at the rate of one per cent., between 1,000 and 10,000 thalers at the rate of two per cent., between 10,000 and 12,000 thalers at the rate of three per cent., and so on up to eight per cent. on incomes of 25,000 thalers and over. The Austrian class-tax of 1799-1800 subjected all incomes to a tax graduated in twenty-three classes, the rate rising progressively from two and one-half to twenty per cent. The income [Erwerb] and property tax of 1808-13 in Baden exacted from all incomes exceeding 600 gulden a tax at a rate increasing from one-half to six per cent., according to the amount of the income. Similarly in Prussia, the Netherlands, etc.

But if these, as well as the many instances of income and property taxes in earlier times and in antiquity, are to be regarded simply as extraordinary and temporary taxes, it is to be noted that tax legislation since the establishment of peace has incorpo rated the principle of progression in its permanent measures. So, e.g., the Prussian tax legislation of 1820, which at every subse quent stage of its development (1851, 1873, and repeatedly since then) has applied the principle of progression with ever increas ing emphasis. So the later tax legislation of other German states, and more especially the English income and property tax, has from the outset rested on the principle of exempting small and medium incomes entirely, or has at most taxed them at a lower rate.

§ 212. But in this disregard of the proportional basis of tax ation, advocates like Parieu see not its refutation, but only an erratic departure from the correct principle. To them it is an indication of the influence of modern socialism and communism (though it would tax their ingenuity to trace such an influence in the extraordinary departure from the principle in the case of the German progressive taxes levied about the close of the eight eenth and the beginning of the nineteenth century).

In any case, the fact and its repetition, however frequent in tax legislation, affords ground but for an inference and a more or less probable generalization ; it does not prove the truth of the position.

The proof of our position lies in the fact that if we take Rau's principle seriously it will lead us not to the proportional but to the progressive basis of taxation. Rau is quite in the right when he says, in making his distinction between " concrete " and "abstract" value, that a given sum of money has a higher value for its possessor the greater a portion of his aggregate disposable goods it constitutes. Undoubtedly, the smaller the income of a household is, the more will a given sum levied as tax abstract from the means required for pressing necessities, and the tax will fall so much the heavier on the particular household. On the other hand, the larger the income, the more will the tax tend to fall only on less pressing or even trivial needs, and will consequently exert but a slight pressure or none at all.

But how we can legitimately draw the conclusion from these premises that an equal percentage levied on the means of all tax payers, great and small, is the proper basis,—that is not compre hensible. The pressure of the, same five per cent. tax will be very different in the case of small and of large incomes. And when it is borne in mind that (due account being taken of other than direct taxes, levied in the form of a percentage) the actual amount demanded by taxation considerably exceeds five or ten per cent. of the incomes out of which the taxes are paid, it is clear without further argument that a tax of 200 marks must be a far greater burden to an income of 1,00o marks than 2,000 marks on an income of I0,000.

It is the consideration of this fact of equity that has continu ally more and more (from antiquity to the present day, with the growth of the sentiments of fairness and justness) commended not the proportional but the progressive basis of taxation.

That this latter principle does not possess the "precise logic" which the French genius ascribes to the proportional basis of tax ation cannot alter the fact of its equitableness. This precise logic is nothing but a delusion based on false premises. In the theoretical field its basis is a wrong-headedness which expends itself in a search for mathematical truths in the ethical and his torical domains, where they can never be found ; in practical affairs it is an egoism seeking to fortify the "sacredness " of its property against the dangers of so-called communism by reduc ing this sacredness to figures.

§ 213. If an attempt is made to determine the extent to which a progression has been realized in the existing tax legis lation of different states,, in order to a verification by facts of the equity of the principle in general and the extent of its applica- . tion in practice, we shall scarcely be satisfied with discovering it at the point where it has reached the developed form of the income tax, or even (after the fashion of the earlier Science of Taxation) to discuss the principle only in connection with this special form of its application. The principle is one which either does and should underlie every tax system, or does not and should not do so. It will be more to the point to find out what is the actual amount of taxation, calculated as a percentage of the tax-paying capacity of each individual, when account is taken of all forms of taxation. Noted men of the science, who rejected the principle of a progressive tax and were anxious to avoid the argument from existing progressive-tax laws, have tried to explain the fact of a progressive class and income tax legislation by pointing out that the resultant lightening of the burden for the people of smaller tax-paying capacity is but a fair compensation for the existing inverse progression, i. e., for the too heavy burden which this class of incomes is compelled to bear in the shape of other (consumption) taxes ; that it is there of fore the function of the progressive tax to readjust the propor tional taxes to a true level for all pecuniary capacities.

But a computation of the kind suggested is a difficult matter. It presumes a very exact ascertainment of the distribution of the tax burden by means of the various kinds of indirect taxes ; an ascertainment which must be based on an examination of a great number of types of individual establishments, such as will ade quately cover the multiform gradations of society.

While such a calculation would be particularly tedious as regards the actually existing situation within the German states, on account of the heaping up of imperial, state and communal taxes one on top of another; on account of the particular char acter of our tax systems; on account of the varied gradations and classes of German society ; still , an approximately correct estimate will fairly support the assertion that in the German states including Prussia (as well as in Great Britain and Ireland), the visible relative lightening of the burden of the poorer and middle classes by the progression of the income tax, is at least fully offset by the less manifest relative overburdening of those classes through other forms of taxation. For it will not

take much in the way of a comprehensive imposition of taxes on the general consumption of bread, salt, spirits, beer, tobacco, etc., in order to bear so heavily on the lower classes as to affect the abatement afforded them ay the progression of the class and income taxes, which impose not more than a nominal three per cent. even on the largest incomes.

If, according to the provisions of the Prussian Class and Income Tax legislation, an income of I,000 marks has now to pay some one per cent. in taxes, and an income of 5,000 marks three per cent., then we note that by requiring of the former income not more than 40 marks under the head of the various taxes on con sumption, 0 sumption, we require to pay five per cent. per annum, while in order to raise the aggregate paid by the latter income to five per cent. on 5,000 marks the corresponding taxes on consump tion must amount to loo marks. To this latter sum the con sumption of bread, salt (and probably beer) would contribute a no greater absolute amount, the consumption of spirits absolutely less, that of tobacco rarely more, often less, than the like consump tion of the establishment with an income of 1,000 marks. The lacuna which occur in this estimate (which is intended to serve as an illustration only, and does not insist on the accuracy of the figures cited) are easily covered by the practical remission which occurs in the assessment of the 5,000 marks income (falling far short of the legal amount of three per cent.). So that the estimate made above would have to be amended, if at all, in a direction to correct this inadequate assessment, and so would still further emphasize the original proposition.

§ 214. Plainer to be seen, and also more sharply defined, is the tax progression in the cantons of Switzerland, especially in the canton of Zurich.' On every inhabitant of the canton of Zurich rests an average tax burden of 40.15 francs. Of this, 30.45 francs goes to the canton and the commune, in the form of income and property taxes, etc.; only 9.70 francs goes to the canton and the confed eration, in the form of indirect consumption taxes, 7.70 francs of this amount going to the confederation (mainly from import duties, with something also from postal revenues) and the slight residue to the canton.' The new federal taxation of spirits affects this canton, together with many other cantons similarly situated, but little, because the consumption of spirits is slight.

But if in this way indirect taxes on consumption, falling on the feebler tax-paying capacities, dwindle to an inconsiderable amount, there is an energetic development in the direction of relieving the smaller the moderate tax-paying abilities from taxation and laying the stronger abilities under contribution.

This differentiation proceeds as follows : there is, in the first place, a great difference in the weight of taxation falling on income from property and personal income (communal taxes being levied almost exclusively on income from property, cantonal taxes to a very great extent); in the second place, there is a strongly developed system of lightening the burden of small and moder ate incomes, as far as concerns the tax on personal income, while as regards income from property also a very appreciable gradation is to be observed (in the national tax).

A property income of 4,000 francs (from property worth 100,000 francs) pays at present to canton and commune 17-20 per cent. An income of the same amount, if it is personal income, pays to canton and commune together scarcely 3 per cent.

A personal income of 20,000 francs pays 6.16 per cent. to the canton ; whereas, a personal income. of 1,000 francs pays only o.8 per cent. And this progressive character comes out even more strongly in the case of larger incomes.' A personal income of 50,000 francs is taxed 7.26 per cent., the very largest income close to 8 per cent.

It is to be added that none of these rates is fixed by law. All that is necessary in order to raise the rates of taxation is a resolution of the Federal and Cantonal Councils in deciding on the annual budget (the same holds true of the corresponding com munal authorities as regards the communal budget). The scale of the progression alone remains unchanged ; the height of the scale can easily be increased.

This is therefore a case of a strongly accentuated progressive taxation. The form of taxation in which progression is a promi nent feature makes up by far the larger proportion of a very considerable aggregate of taxes; while the alternative form of taxation, with its regressive tendency, is made little or no use of ( salt tax, etc.).

§ 215. This noteworthy example of progressive taxation, as it has hitherto been realized in tax legislation, differs strikingly from the progression to be found in Prussian or in English tax legislation (where its range is regularly confined to a variation of a few per cent. and where it is met by full compensations in other taxes). We come therefore to the question as to the causal connection—as to the circumstances which go to deter mine that one thing will be found equitable in one place, and another in another place.

The explanation suggests itself as obvious that the ground of difference lies in the difference of political constitutions. From this reasoning it would follow that the unhindered dominance of the democratic idea in Switzerland has resulted in a distribution of the burdens of taxation and a demand on tax payers in pro portion to their tax-paying capacity, such as has not been attained in any other country in spite of the influence of a widespread democratic tendency—neither in England, nor in Germany, nor in France. It is a fact of great significance that the tax system of France should present so sharp a contrast to that of the Swiss cantons. It teaches us the lesson that there is a compact struc ture of institutions interposed between democracy with all its equipment of suffrages, electorates and constitutions on the one side, and the ultimate consequences of democracy in the way of practically decisive political institutions on the other,— a structure whose form and substance is determined by the influence of the past in state and society, and which yields only very slowly to the disintegrating forces of radicalism.

The simpler and more diminutive relations and proportions of the Swiss cantons have set these interposing structures aside more easily, or rather, they will more easily set the remnants of them aside. So we see what results democracy has led to in this case, and we believe that we have herewith discovered the cause of this highly developed progressive taxation. But what about its justice ? What of its significance for other countries ? We have at this point occasion to envy the "historian." He assures us that the whole problem is to show what has come to pass and in what manner things have developed ; what should be, is something about which the " historian " has nothing to say. This has been considered equitable here, and something else there ; we are to declare ourselves content with knowing that very widely varying views are held as to what is equitable. But while this renunciation may be convenient for the "histo rian," the science would have to renounce a good share of the ground of its significance if it were to leave it entirely to the course of events to decide the direction in which the sense of equity should develop.

What each is to contribute toward the commonweal will either be determined by brute force working out its results through class sovereignty, majority rule, and the like, or by a reasoning intel ligence which keeps ever in view the end of historical develop ment, and projects the lines of evolution into the future, to serve reality as norms of growth.

§ 216. The substructure requisite for the discussion in hand is to be found in the expositions contained in the general part of this work, which are occupied with the Social Gradation of Demand ( vol. i. secs. 204-212) and the Differentiation of Society (vol. i. secs. 312-322).

In seeking for the proper form and method of progressive taxation, we shall find that the matter is to be discussed from two distinct points of view, each of which is of so great impor tance as to be indispensable to the development of civilization, at the same time that the two are so far mutually contradictory that we shall have to take thought to bring them into consonance with one another. The boundary line between these two points of view shifts from one side to the other during the course of history according as the one or the other of the two forces is the stronger. It will be found that at a given epoch, and to a certain degree even repeatedly during a period of some centuries, in the case of any given people, the one of these two forces is dominant, while the other falls into the background ; but it is always- a matter of more or less—the progress of history cannot dispense with either.

In the introductory portion of this work the one of these forces has been designated the aristocratic, and the other the democratic tendency of historical development.

The distribution of pecuniary strength and of income in society, the consequent gradation of ranks, occupations and classes, the accompanying cultural differentiation in matters physical and spiritual, the diverse development of all human faculties in the direction of progressive maturity and completeness of life through out the aggregate of the people,—in short, the social gradation in respect of the progressive amelioration of human life ; all this is due primarily to the factor of individual initiative and activity. Without this no progress is conceivable. The individual powers of the superior organism, individual superiority in point of ability of any kind whatever, this is the pioneer which, setting out from the crude primitive capacities, pushes forward into the broad field of culture. The advantage which nature has given to the individual takes on the derivative form of advantages which he has himself achieved. Physical strength and virtues, courage and shrewdness, these raise him above his peers, and this vantage ground is transmitted as a heritage of blood, so that for his descendants it acts as a cumulative cause of further advantages. These favored individuals and the groups which they presently found, the upper strata, the higher occupations, the superior classes of every civilized society, these are the source of quali tative, intensive progress. Without this kind of leadership there not only can be no such progress, but there is not even that extensive development which J. G. Fichte and the extreme socialism demand, viz., that all must first be supplied with neces saries and a fixed habitation before anyone adorns his dwell ing, and that all must be warmly and comfortably clad before anyone dresses elegantly. If this demand of rigid equality be granted, there is not only danger that our civilization may exhaust itself in the feeding of a great number of human beings, and achieve nothing beyond that ; but it is at the same time to this civilization itself, with its technical, scientific, moral, economic progress, that we owe the possibility of feeding an increasing number of human beings. The spiritual elevation of an individual man is not only, in itself considered, the con summation of human culture ; it is also the seed of the suste nance of thousands of human beings whose life is spent in poverty.

§ 217. It is to be remarked that this course of development of individual advantages points to a dependence of the individ ual development on a greater whole, it being essentially of a relative nature.

How many are these favored individuals ? What differences exist between them ? How far are they removed from the aggre gate ? What are the intermediate gradations ? What is the abso lute cultural altitude of the aggregate ? What is that of the highest elevations ? and, What of the lowest depressions ? These and other like questions will teach .us that there is in history no conceivable genuine progress of any stability unless there exists a harmonious co-operation of individual forces with the social substructure,—a full compatibility of intensive culture with its general diffusion. And this indicates what is the duty of the favored individuals and classes towards the whole. Their advantages are a talent entrusted to them to bt devoted to the service of the rest. This is the historical justificatiori of their existence; and this is likewise their defense in their own gener ation whenever the democratic masses have come to a conscious ness of the inconsistency of such privileges.

If it is true that history shows us an alternate rise and fall of the two factors spoken of above, it will certainly hold true for the present that the democratic tendency is the stronger, and that the trend of development is in the direction of an extensive culture.

Whether we look to the constitution of different states and the changes they have undergone during the last hundred years, or to the legislation of the different civilized nations; whether we consider the routine of public life or the growth of works of public utility; the dominant principle is ever the same: a recog nition of the demands of the lower classes of the populace for a participation in the amenities of civilization.

§ 218. The above considerations afford the norm of develop ment for an equitable distribution of the burdens of taxation according to the tax-paying capacity, such as expresses itself in the form of a progressive taxation.

The great industrial productivity of this century undoubtedly serves the purpose (and especially in Germany) of affording a basis of affluence for the upper and middle classes, which are sorely in need of such recuperation. At the same time, this productivity has an undeniable tendency to leave its golden fruits by preference clinging to certain elevated summits of wealth, and this fact enforces with increased cogency the neces sity of satisfying an excited public sentiment which demands a larger degree of participation in these fruits by the community at large.

This demand is not to be met by a distribution of the bur den of taxation alone, but an essential part of the problem may be solved in this way. It may be solved by a shrewd and energetic further development of the progressive taxation, which has lately been, or is about to be, introduced to a moderate extent in our great civilized states.

And .there is but a single alternative. The force of the democratic current is already so great as to rather be overrated than underrated in judging of the political situation. This force, as we are well aware, has so far by no means worked out its ulti mate consequences, but like a torrent it sweeps before it the debris of the old political life and is continually overflowing new regions of society with its swollen waters. George Canning's .old maxim, that those who discountenance every improvement because it is an innovation, may presently find themselves obliged to accept innovations which are not improvements, embodies a warning and a threat for all those who are responsi ble for the continued existence of our civilization and for the preservation of the conditions which make it possible.

If that organization of society and of political life which we call aristocratic in the best sense of the term, is to survive (and it is indispensable for the progress of civilization that it should survive), the corresponding aristocratic attitude of the upper classes must come up to the demand made upon it. They will, among many other things, have to fulfil this requirement also in the way of accepting an adequately developed system of taxation. Their degree of readiness will make up in quality for what the democratic masses would otherwise demand, some day, in quantity. The voluntary acceptance of an increasing burden will serve to strengthen their traditional influence at a slight expense, and the strengthening of this influence is indispensable to the best civilization as well as to the existence of the higher classes themselves. On the other hand, the more an increasing progression comes as the result of the importunate demands of a discontented populace, the more reckless will it be, both in the new demands which it embodies and in its changes of the old order of things.

§ 219. The half-consciously accepted principle of progres sive taxation has so far found but a very timid expression in our legislation. And there has been an avoidance of too great offense even in cases where (as in the canton of Zurich) this timidity has been outgrown. The result we have is the so-called degression in the rates of taxation.

As a classical example of this there is the Athenian tax legislation which is ascribed to Solon. This legislation, says August Bockh, I embodied the principle, worthy of any philan thropic legislator, that the smaller the income, the less a pro portion shquld the state abstract from the income of the citizen; and in this manner, that the Pentakosiomedimnos was assessed for his entire estate, while the knight was assessed for five-sixths, and the zeugites for five-ninths of his land.

The progression was hereby fixed in such a way as to pro duce a descent from the full rate assessed on the highest class to five-ninths assessed on the lowest class. The rate was accord ingly fixed for the highest class, and the progression appeared in the form of an exemption of the lower classes.

The degression which occurs in the tax legislation of Zurich and other Swiss cantons is of an analogous form. Here, too, the law' established a fixed gradation from the full rate down -ward, increasing the degree of exemption the lower it descends. Just as in the case of the Solonian legislation, this law deter mines only the scale of exemption, not the absolute rate of taxation, which is fixed from year to year by the budget [Etatsbirathung].

It is otherwise in Great Britain, where the budget of each fiscal year fixes not only the rate of taxation, but also the degression. So that, for example, during the years in the first place the rate of taxation fluctuated between eight and two pence to the pound sterling (24o pence), in the second place the degression varied, the full rate during the years 1871— , 876 being charged upon incomes down to 4300 ; while all incomes under £300 enjoyed an exem ption for an amount equal to £80, and every income under ,Cioo was entirely exempt ; whereas during the years 1877-1886 the full rate was charged only on incomes of £400 and upward, all smaller incomes enjoy ing an exemption equal to £120, and all incomes under £15o being entirely exempt.

In Prussia also both the scale of degression and the rate of taxation is fixed by act of the legislature. The law of May 1, 1851, imposes the full rate of three per cent. on incomes of 1000 thalers and upward ; for incomes of less than 1000 thalers the scale of the class tax applies, the tax being graded from 24 to .50 thalers, that is to say from about 2.50 to about .25 per cent. The law of May 25, 1873, adheres to this scale in its essential pro visions, defining the rate of taxation for the different classes in percentages, and further increasing the nominal rate of three per cent. in the case of the larger incomes. But the legislation of March 26, 1883, adopts the more flexible principle of a varying degree of exemption, such as we find in the English legislation. Hence we have not only an abolition of the class tax so far as concerns the two lower grades (420-900 marks), together with an accentuation of the degression at its lower limit, but also a partial lightening of the burden for the other grades by a remis sion of monthly installments (three monthly installments in the case of classes 3 to 12 of the class tax, two installments for the first grade of the income tax, one installment for the second grade of the income tax).—The project which the government submitted to the Chamber of Deputies in November, 1883, went considerably further in the same direction. It retained the rate of three per cent. as a normal rate, but this rate applied only to incomes of 10,000 marks and over ; from 1200 to marks there is a progression in the rates from one to three per cent.; while all incomes under 1200 marks are exempt. In addition to this there is also a tax on income from capital, of a degressive character, with a normal rate of two per cent., which likewise applies only to incomes of mom marks and over, while from to 600 marks there, is a degression from two to one-half per cent.; there being no tax on income from capital under 600 marks.

These are a few typical examples of tax legislation, or of pro jected legislation. In every case the idea of progressive taxation is realized by fixing on a certain point in the size of incomes (property), at which the full rate applies, and upwards from which the rate is maintained unchanged, while downwards from this point exemptions are conceded, which are greater the smaller the income.

Such is the character of degressive taxation.

§ 220. A discussion of progressive taxation would not be complete without taking up the question of what is known latterly in the science and in political practice, by the name of the exempted subsistence minimum.

This term has attracted a degree of attention, not only in social-political (particularly social-democratic) discussion, but even in the science, which lends it an authority analogous to that of the "iron law of wages." And this resemblance is not an external one only. In both cases alike, the older economic theory has not only been undeservedly erected into a canon of truth, but it has been made use of to serve the very practical purposes of the modern social struggle. In point of fact, the two theories are very intimately connected.' The doctrine of the exemption of the existence minimum has its scientific origin in the doctrine of a net product, which is the basis of the first strictly scientific theory of taxation, viz., that of the Physiocrats. The doctrine of the net product, whether it be taken in its earliest form or as further developed by later schools of economists, particularly by Ricardo and his followers, includes as its logical consequence the exemption of the exist ence minimum from taxation.

In its advocacy of a rational basis of taxation, and especially in its attempt to guard against the overburdening of the lower classes of the people, this doctrine of the net product finds that the tax-paying capacity consists of the excess of product above cost of production, and it includes under cost of production everything that belongs to the necessary means of subsistence of the laboring population. In this way a line of demarkation is drawn between the necessities of subsistence, which must be satisfied by every individual in the community, and the demands of the state, which are secondary to these, and which presume a tax-paying capacity that can dispose of further means after the necessities of subsistence are satisfied ; that is to say, which can afford an outlay for superfluities.

The sympathetic attitude of this theory of taxation towards the people involves an unsympathetic attitude towards the state, such as well suited the political science of the eighteenth cen tury, and which would at least be congenial to the state-abhor rent views of the next succeeding generation. But this attitude is not easily to be reconciled with an insistence on the demo cratic forces which rule the modern state, and which have no sooner succeeded in identifying themselves with the state than they declare, with an injured air, that they are unable to support the burdens of the state.

The inconsistency of this theory of the state and of taxation is not explained away by citing other kinds of burdens borne by the mass of the people, in particular the universal liability to bear arms. For these same modern advocates of democracy and of the existence minimum are very far from accepting the doc trine of a universal military service in any serious sense, as a means of filling up the void in their theory of taxation. It is true they cite the fact of this burden existing in the modern state, but in theory (and in their party programmes) they oppose universal Military service, and set up in place of it the idea of a militia, that is to say, the doing away of all military service of a serious character.

§ 221. The men of the epoch of the Aufklerung certainly did not look for this development. They had before their eyes the subject masses of the people, and saw them grievously oppressed by the burdens which the ruling classes had shifted to their shoulders. The sombre iniquities of the capitation taxes, the salt taxes, and the like, form the historical background of their theories of taxation. Even Justi' is of the opinion that : " In the adjustment of taxes great regard must be had to the poor and the less well-to-do subjects, for it cannot be said that these classes earn anything, since even if they obtain their most press ing necessities and their subsistence, it cannot be asserted that they earn anything as long as they have nothing left over." The man who comes in as a mediator between the eighteenth century theory of the state and of taxation and nineteenth cen tury radicalism, and for the first time formulates the doctrine of the exemption from taxation of the existence minimum, is Jeremy Bentham. This doctrine was then taken up and carried forward by Bentham's disciple, John Stuart Mill. But Mill, at the same time, condemned the progressive basis of taxation and defended the proportional basis.' English legislation has incorporated Bentham's theory in the scheme of its income tax ; that is to say, it has incorporated it but to a slight extent, as is evident from what has been said above. Under other forms of taxation than that of the income tax British legislation has imposed very heavy taxes on the necessities of life, down to a very late date, and it retains many survivals of the kind to this day. As con cerns the income tax, however, incomes under 46o were exempted as early as Pitt's time (1798).' And the like was the case at the re-introduction of the income tax in Great Britain, only to a greater degree, as we have seen above.

As happens in Mill and in the English legislation, the exist ence minimum has frequently been taken up quite after the manner of the old school, at the same time that the principle of a progressive taxation has been rejected. This has by preference taken the practical form of an apparent exemption of the lower classes, together with a less apparent imposition of burdens on the same classes by means of other forms of taxation.

The radicalism of today is not generally satisfied either with the one or with the other. The programmes of social-democracy are in the habit of speaking in a general way of a " heavy pro gressive tax" (e. g., the Communist Manifesto of Karl Marx and Frederick Engels), or of the adoption " of a single progressive income tax for the purposes of State and Commune, to replace all other taxes, particularly the indirect taxes that now burden the people" (the Gotha Programme, 1875). For they have all the time been fully aware how this progressive tax would look in case the " elevation of the Proletariat into the ruling class" were to become a fact.

Of national constitutions of a radical character, during the last generation, it is to be noted that the constitution of the French Republic of February 24, 1848, contented itself with abolishing the newspaper stamp, the salt tax, and the octroi, and promising a reform of the other indirect taxes.

The constitution of the canton Zurich, of April 18, 1869, speaks more plainly when it says, among other things, in its " Economic and Fiscal Principles" (Article 19): Small properties belonging to persons incapable of work, as well as " such a portion of every income as is necessary to subsistence, are exempt from taxation." This principle was embodied in the law of March 2, 1870, to the effect (sec. 5) that 500 francs of every income was declared exempt from taxation. At the same time, it is to be added, this law also imposes a so-called " active citizen-tax " (of a very low rate) on all citizens entitled to vote. In the meantime the radical element is making efforts on the one hand to abolish this latter tax, and on the other hand to increase the exempted existence minimum from 500 francs to twice that sum.

§ 222 It follows, from the profound revolution which has taken place in our views of the nature of the state and of the relation of national taxation to the economic powers of the individual citizens, that the view prevalent today favors a policy precisely the opposite of what was once in favor. This, the latest view, condemns the exemption of the existence minimum at the same time that it rejects as untenable the arguments for proportional taxation. It advocates progressive taxation and holds that to be the only tenable position. Plainly, as viewed from the standpoint of the latest theory of the state, there is no room for a doctrine which admits the state and its demands only as second to the necessaries of life. The state, above all things, is part of these necessaries, and its demands are therefore part and parcel of the demands of subsistence.

The reasons will presently be discussed under the heading of the Objects of Taxation, with reference also to the general dis cussions contained in Volume I., going to show that from the standpoint of modern political economy, the old doctrine of a net product cannot be maintained. And therewith the doctrine of the subsistence minimum is deprived of its theoretical foundation.

This defect in tlieory shows itself in every practical applica tion of the erroneous principle. How large, for example, should this subsistence minimum properly be ? As we are well aware, 'it is not a physically necessary minimum. Its limit is a moral one, and is subject to change during the course of historical development. And on the other hand, the position of the necessities of the state in the scale of the aggregate necessities of a nation is also determined only by moral factors, which vary with time, race, and political constitution.

We are especially bound to enter a protest against that immoral claim which (in strict contradiction of all principles of political ethics) demands for the populace an increasing share of political power together with a progressive exemption from taxation. At this point lies the danger there is in the latest development of the doctrine of an exempted existence minimum. At the same time sufficient provision is made for an adequate exemption of the feebler tax-paying capacities by the policy of progressive taxation.

tax, income, taxes, classes and exemption