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The Taxation of Property or Possessions


§ 352. The taxation of earnings [Erwerbsbesteuerung] as it exists today leaves but scant room for taxes on possession [Besitzbesteuerung].

In point of the extent to which it is employed the property tax is the chief item under this head. As viewed from the stand point of the modern science the property tax is to be regarded as comprising several heterogeneous elements.

First, the property tax is the ancient form of the tax on earnings, making its demand upon the taxable earnings on the basis of the most obvious and accessible evidence. To this day it commends itself to the Swiss peasant as a much more con venient and expedient method of assessment to return the aggregate value of his property than to compute the annual income which it yields. The further provision by law for a return of the " income" is evidence of the difficulties in the way of properly collecting the tax under the incredible circumstances that prevail in the assessment of rural property.

Second (not without some regard to the above-mentioned difficulties), modern financial science, so far as concerns certain of its representatives, is also inclined to recognize the practical technical advantages of the " property tax " as contrasted with the " income tax."' By its means we not only avoid the vagueness and indistinctness of the idea of "income," we not only avoid the difficulties involved in a return of the produce of property, but we also accomplish certain positive results which cannot be as readily attained by any other method.

These positive results to be attained are (t) the compensa tory taxation of property which does not, for the time, yield an income, (2) the taxation of consumable goods [Gebrauchsver magen] as well as of property productively employed, (3) the heavier taxation of income from property as compared with income from personal effort, and, finally, (4) the ability to demand a portion of the principal [ Vernagensstamm] for certain (extraordinary) purposes of the commonwealth (real property tax) in cast of need.

We shall now have to discuss these several purposes of the property tax proper.

353. In the first place, as regards the compensatory taxa tion of property, a consideration of this point confronts us with the technical difficulties in the way of a taxation of income: These are difficulties which have to some extent been augmented by the later development of industry.

There are certain classes of income which—apart from any difficulty in getting at the truth—stand out in perfect distinct ness and regularity and so are well adapted for the application of the income tax. This class of incomes is made up of the per manent interest payments derived from loan capital invested in good securities for a long period. Of a similar nature are the salaries drawn by higher and lower officials holding permanent positions in public and in private life. In cases of this kind, of course, we can no more speak of an unlimited permanency of the income than we can speak of an unchangeable uniformity in it. But with regard to both of these points the actual limits are so narrow as to effectively serve the purpose of the tax assessment, which is that of reaching the regularly recurring incomes.

There are large regions in the field of industrial life within which the circumstances are not so favorable to the appraisement of income as here. Strong and frequent fluctuations in the earnings of capital and of labor give rise to the necessity of a frequently recurring, annually (biennially, triennially) repeated appraisement, which encounters special difficulties even on account of this frequency of recurrence. The more frequently it recurs the more difficult will it be to so allow for the annual fluctuation as to reach any kind of a stable average of the income in question. If we have regard to the relatively great space of time within which the periodicity of rise and decline in modern industry and modern business completes itself, it will appear that an appraisement covering a period of one, or even of three years is quite inadequate. Any extension whatever of the period covered by the assessment, of which there could be serious talk would—even apart from its doubtful applicability to other classes of incomes—be ineffective for the desired end. The uniformity of income sought to be attained by means of an aver 'age of a great number of varying annual amounts could in any case not be reached.

By replacing the income tax by the property tax this difficulty is avoided. But the difficulty is not removed. How much is to be demanded annually of the property in question in the form of a property tax remains an open question, just as it was when the same demand was made in the form of an income tax. In both cases the problem is to pitch upon the proper average figure for a tax on a certain regularly recurring, average tax paying capacity.

It is only when we come to apply it to property which yields no profits that the property tax is anything more than an income tax under a different form.

In such a case the income tax ceases to be operative because the income on which the tax is based has ceased fOr the time. It therefore becomes the office of the property tax to assert the right of taxation which (even in the absence of income) pertains to the state and to the public organization generally simply in virtue of the fundamental importance of these public institutions for the life of every civilized man. This fundamental importance of the state for the life of all its members gives it a claim to a tax on property of the same validity as the claims of the other fundamental necessities of life—of food and drink, of shelter and clothing.

Here we have accordingly come upon an actual gap left by the income tax, which it is the office of the property tax to fill out ; a gap which the income tax as such can scarcely remove, and which plays so unobtrusive a part in the assessment of incomes only because the assessment of income in practice departs even more widely from the strict principle than the tax legislation does.

§ 354. The taxation of property employed in consumption [Gebrauchsvermiigen] (as distinguished from productive property) is also a matter that comes up for consideration in connection with any thoroughgoing income-tax system ; but so long as the prevailing indefiniteness of ideas as to the nature of income con tinues, and especially so long as the prevailing instinct of the majority continues to assert itself against the payment of taxes, this problem, too, has a better chance of solution by the method of the property tax.

Crude notions as to the nature of income, as well as apprehen sion of the insuperable difficulties of assessment, have inclined the income-tax legislation to recognize an income only in cases where a money value emerges—where there is a receipt in money or where there are proceeds in kind which bear an obvious money value. The tax administration follows this inclination still further, so as to close its eyes to the presence of any proceeds in kind even if they possess an obvious money value.

The income tax should fall on the house occupied by its owner, or rather on his use of it, as well as on the rent which he receives for the house occupied by a tenant. The more preva lent the business of renting dwelling houses is, the more surely will the usance of a house occupied by its owner be brought under the income tax. But where, as in the country, it is the rule (at least for the well-to-do, who mainly contribute to the income tax) to own one's own house, while the renting of houses is not a usual source of money income, tax legislation, and especially the tax administration, will be inclined to disregard this element of income.

Something analogous occurs quite generally, so far as concerns items of property which afford their owner a usance that does not take the form of a money income, whether in town or country, that is, things which in the nature of the case are neither hired nor leased. A typical example of this is the possession of a picture gallery. If the occupancy of one's own house is to be counted at the rental value of a house of the same value, and therefore as representing so much of an increment to the owner's income, then it is plain that the same will hold of any house, however expensive, by whatever accessories the expensiveness of the house is increased, whether by a greater number of rooms, by gardens, parks, works of art, picture galleries, or anything whatever. The enjoyment of a house that has been rendered beautiful by art is a consumption of greater money value, just as much as it is more expensive to occupy ten rooms than to occupy five.

This simple course of argument will lead to a practical result much more readily by the method of the property tax than by that of the income tax. If we start out from the fact of the ownership of property as our point of departure, the misconcep tions of everyday life will not blind us to the obvious principle that every item of property carries with it the same obligation to pay taxes, independently of what may be the particular steps by which it serves its purpose of utility to its owner. Indeed, how true it is that certain kinds of property devoted to con sumption give rise to the impression of a greater tax-paying capacity on the part of their owner than the possession of pro ductive property, is evident from the need which is felt of reach ing this wealth by some other means—in the absence of a prop erty tax, more especially by means of the so-called " direct taxes on luxuries." But this method has the disadvantage of attach ing to special items of the wealth devoted to consumption, and so only circuitously approaches to the true goal, very generally without reaching it.

§ 355. On the other hand it is quite usual even where a general property tax is enforced to afford some relief in favor of such consumable wealth as serves the necessities of life. There is, therefore, observed in practice a sort of subsistence minimum in the application of the property tax, which differs from the principle of progression and exemption of a certain class of small properties in this, that the precise amount of the necessities of life is not here sought to be expressed in figures and therefore varies with a certain elasticity according to the stand ard of living and the pecuniary strength of the taxpayer.

The property-tax legislation of the Swiss cantons has applied this measure of relief more than once. The practice seems to have been less extended in earlier times than at present. The

mediaeval property tax [Gutsteuer] in Zurich,' which was fre quently levied after 1343, was to be borne by all property, fixed and movable, to be levied on Hus, Plunder, Kleider und Gewand. The harness alone, da mit er gemeiner Stadt wartet oder der zu seinem Leib gehoret, is exempted. The property-tax law of 1417 con tains a provision to the same effect.

In the next succeeding centuries this seems to have changed ; not only weapons and armor,' but also plate, ornaments, house hold utensils, clothing and tools are exempt from the property tax in Zurich.' In Glarus' the Common Council [gemeine Land gemeinde] ordained in 1725 that everyone was to return, bei Ehr and Gewissen, all his property, with the sole exception of house hold furniture and clothing, etc. The later property-tax legis lation in force at present pretty generally provides for a similar exemption. The Zurich law of March 2, 1870, provides that from the property tax is to be exempted "the clothing, books, field and handicraft implements used by the taxpayers, and the necessary household furniture." (Similarly the Zurich law of February 14, 1861.) The law in Glarus (May, 1850) exempts household furniture and implements used in handicraft or field work. A similar provision is in force in Zug by a law of December 5, 1861 (March 10, 1862); also in St. Gall by a law of May 3o, 1863 ; in Vaud by a law of August 21, 1862, ("the bed and the clothing required for the family, kitchen uten sils, agricultural tools and implements, the tools and implements of handicraftsmen and laborers").

There are a number of cantonal tax provisions which go fur ther, in that they apply under the term "capital-tax" only to realty and wealth productively employed. for example, Schwyz (law of September 1o, 1854), Soleure (March 9, 1832), Unterwalden nid dem Wald (June 5, 1848), Basle province (August I I, 1856), Schaffhausen (December 15, 1862), Thurgau (March 6, 1849), Valais (May 31, 1856, and November 26, 1862). Here, then, the use of the property tax for the purpose of reach ing wealth devoted to consumption is definitely abandoned, quite in contrast with the earliest property-tax legislation of Switzer land, which was manifestly intended to reach wealth employed for consumption.

The Swiss federal law of June 28, 1878, dealing with the military-compensation tax [Militiirpflichtersatz], provides, as does the Zurich law of 187o, that in the assessment of property "the value of chattels required for the needs of the household, as well as of tools for handicraft and agricultural work, is not to be included." These provisions of the Swiss legislation embody a certain tendency to limit the taxation of wealth employed in consump tion ; the precise determination of its scope is yet to be decided by the future evolution of the property tax, together with the further improvement that may take place in the method of assess ment. It is not only true that the inadequacy of such a defining concept as " necessary " when introduced into a tax provision, points to the necessity of a closer definition of what is to be exempt from the tax, but it is very doubtful if an exemption of this kind can be justified at all in case it covers much more than the strict physical necessities, so as to include also the luxuries required by a socially necessary standard of living.

§ 356. The third office of the property tax, as enumerated above, is the imposition of a heavier tax on income from property than on personal income.

In point of fact, this object is compassed by the property tax as employed in the Swiss cantons and the Confederation (under the above-mentioned law dealing with the military-compensation tax). This has already been shown in detail in the earlier por tions of the present volume (secs. 214, 321). In the canton of Zurich an income of 4000 francs (from property worth 100,000 francs) pays at present 17 to 20 per cent. to canton and commune together ; a personal income of the same amount pays scarcely 3 per cent. to canton and commune together. In other can tons this contrast is rarely as striking as in Zurich. 13iit as it is a very prevalent custom to employ the property tax exclusively (or as good as exclusively) for the purpose of communal reve nue, the result is that throughout Switzerland, even outside the canton of Zurich, there is a very general heavy taxation of property coupled with a relatively slight taxation of personal income. The federal law above referred to, on the military-corn pensation tax of June 28, 1878, taxes every 1000 francs of property at the same rate (1.50 francs) as mo francs of personal income ; the result being that by so much as the average pro ceeds from property fall short of ten per cent., by so much does the burden on income from property exceed that on per sonal income.

The repeatedly projected legislation of the Prussian govern ment (1847, 1883) goes to show that the same purpose may be sought without employing the form of a property tax ; the method adopted may be that of a higher rate of taxation on funded than on personal income under the provisions of the same general income tax. But these projects have not been carried through. The Swiss system of property taxation on the contrary has now been in force uninterruptedly for a long period of years and has become so much of a fixture that its characteristic features are no longer subject to change.

This result may possibly be due to the intrinsic justice of the demand that income from property should pay a higher tax. This rests on the claim, which is scarcely to be seriously ques tioned, that the tax-paying capacity of income from property is much greater than that of personal income because of its greater security and permanence. It is also not to be overlooked that objective taxes (taxes on proceeds) ordinarily are not to be found in Switzerland, and that the property tax consequently is also called on to supply their place.

Progressive evolution of taxes on income in the great states of the present and the future will also be required to solve cer tain problems of this kind which have hitherto remained unsolved chiefly because of the dominance of the propertied classes and their disinclination to pay their share of the taxes.

In the usual objections to a higher taxation of funded income than of personal income I am, in fact, unable to detect any argu ment which has as much force as this practical fact above cited, which enables us to comprehend the delay there has been in recognizing the simple justice of the demand. That the income from property, too, is " uncertain " is an assertion of that undeni able sort that proves nothing. All human arrangements of wealth or of well-being are " uncertain," but that fact does not affect the relativity with which the question is concerned ; the fact remains that the certainty of the one class of income, as well as its dura tion, or even perpetuity, is much greater than that of the other. And what we are concerned with is entirely a matter of a differ ence of degree ; we require a larger percentage of the one class of income because it is held to possess a greater tax-paying capacity than the other. The objection that the taxation of income from property at a higher rate would discourage saving and accumu lation of capital is the same well-known objection which on other occasions is raised against every kind of income tax. Any proof founded on experience in support of this objection has not yet been brought forward. And when put forward on general grounds only this objection has no more cogency than the contrary position which is urged on an equally general ground, viz., that the payment of taxes acts as an incentive to the industry and thrift of the citizens.

It is a substantial gain to have hunted the aversion to this form of taxation into a corner and established the fact that it has its origin in an unripe public sentiment and not in a convic tion which will bear scientific investigation.

§ 257. Finally, in the fourth place, the purpose of a tax on property as a " real property tax" cannot logically be compassed under the form of an income tax, and can be accomplished under the form of an inheritance tax (cf. sec. 239 above) only under special circumstances.

In this connection it is to be remarked that a real taxation of wealth (secs. 237-240), apart from the inheritance tax and other taxes of that class, is, for the existing stage of develop ment of taxation, nothing but a remote possibility.

In the first place, the high development of public credit in our modern states has made available a very convenient method of raising the means necessary to cover any extraordinary expenditures. The imposition of a property tax, such as was repeatedly attempted in Prussia at the beginning of the century, for war purposes, and which failed so signally that its failure was used as an effective argument against the introduction even of a moderate income tax,—a measure of this kind in Prussia, as in any other state with a similarly developed system of finance and public credit, would be crowded to the wall by the greatly superior expediency of a public loan.

In the second place, the moral factors, the maturity of civic sentiment requisite for the successful adoption of such a property tax, are a feature of the future rather than of the present. In discussing the relative advantages of war taxes and of public loans we came to the conviction (sec. 167) that the sensitive ness to the pressure of a tax is greatly conditioned by the stage of development of the political sense, which is closely related to the growth of insight into the indispensability of the state and the consequent necessity of taxes. We have in the fore going chapters repeatedly had occasion to remark how great are the difficulties which beset the states of today in this respect, how far in the future lies the last step in the progress if the con summation is to be a system of taxation which shall be based on a full recognition of the greatness of the burden together with a ready acceptance of it.

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