Cyclopædia of Political Science, Political Economy, and the Political History of the United States

Edited by: Lalor, John J.
(?-1899)
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First Pub. Date
1881
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New York: Maynard, Merrill, and Co.
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1899
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Includes articles by Frédéric Bastiat, Gustave de Molinari, Henry George, J. B. Say, Francis A. Walker, and more.
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TAXATION

III.245.1

TAXATION, Principles of. It would seem to be in the nature of an economic or commonsense axiom, that a large and varied experience in respect to the management of any one of the great departments of the world's business would result in the gradual evolution and final definite establishment of certain rules or principles which would be almost universally recognized and accepted as a basis for practical application and procedure. But in respect to the matter of taxation—which is a fundamental necessity for the maintenance of civilization and of all government, and is constantly, outside of sheer barbarism, everywhere maintained—no such result has been attained. In no department of economic science is there so much of obscurity and conflicting opinion. "Most economists agree, that there is no science of taxation as there is a science of exchanges"; and "that there are no great natural laws running through and controlling taxation and its effects." And while the student will find examples in the history of states or governments of the practical application of almost every form of taxation which human ingenuity, prompted by necessity, selfishness or greed, could devise; and a sufficient record of effects, to warrant the drawing of general and correct inferences, it is nevertheless probably true, that there is not, at the present time, a single existing tax decreed by despotism, or authorized by the representatives of the tax payers, which has been primarily adopted or enacted solely with reference to any involved economic principles, or which has primarily sought to establish the largest practical conformity under the existing circumstances to what are acknowledged to be the fundamental principles of equity, justice and rational liberty. But, on the contrary, the influence of temporary circumstances, as viewed in most instances from the standpoint of a governmental administration—despotism or republican alike—desirous of retaining power, has ever been the controlling motive in determining the character of taxation; or, as Colbert, the celebrated finance minister of Louis XIV., is reported to have expressed it, in saying, "that the act of taxation consists in so plucking the goose [i.e., the people] as to procure the largest quantity of feathers with the least possible amount of squealing." Hence, apart from its methods of distributing power and patronage, the popular idea of evil, as connected with government, may almost always be referred back to unequal or excessive taxation as a source; and to the reality of which, as evils, more than to any other one agency, may be referred the French revolution, and the ferocity with which it was conducted. Hence, also, the preference almost always shown, on the part alike of those who enact and those who pay taxes, for indirect taxation, which very successfully blinds the tax payer as to the amount which he pays and as to the time and place of its collection. And hence, finally, the idea, which has come to be all but universally entertained, that taxation per se is in itself an evil; something to be avoided if possible, and an escape from which is always "good fortune"; when the real truth undoubtedly is, that there is no one act which can be performed by a community, which brings in so large return to the credit of civilization and general happiness, as the judicious expenditure, for public purposes, of a fair percentage of the general wealth raised by an equitable system of taxation. The fruits of such expenditure are general education and general health; improved roads, diminished expenses of transportation, and security for life and property. And it will be found to be a general rule, that no high degree of civilization can be maintained in a community, and indeed that no highly civilized community can exist, without comparatively large taxation; the converse of this proposition, however, at the same time not being admitted, that the existence of high taxes are necessarily a sign of high civilization. In short, taxation in itself is no more of an evil than any other necessary and desirable form of expenditure; but it is an evil when taxation is rendered excessive through injudicious or wasteful expenditures; or when, by reason of ill adjustment, the levy of the tax is made an occasion for the collection from the people, through the enhancement of profits and prices, of a far greater sum than is requisite to meet the public requirements.

III.245.2

—Adam Smith, in his "Wealth of Nations," laid down four canons, or maxims, (to be hereafter stated), in respect to the levying and collection of taxes in general, which, as they are constantly quoted and referred to with favor, have a better claim to be regarded as in the nature of fundamental truths than any other propositions which have thus far been formulated on this subject. But as these propositions are, as their author characterized them, "general," and not particular, in their nature; and as at least one of them is, in the light of a larger experience, not considered as correct, there is, it must be conceded, much warrant for the assumption, that in the sense of propositions, or rules, universally, or in any large degree, recognized and made the basis of practical application, there are no principles of taxation. To admit the correctness of such an assumption, is, however, at the same time to confess, that human knowledge, in at least one department, has reached its largest limit; and that a class of transactions, which, more than almost any other, are determinative of the distribution of wealth, and the forms in which industry shall be exerted, are best directed by accident or caprice. It is accordingly proposed, in the present article, to make the true state of the case the main objective of inquiry; and, in place of framing any theory at the outset, to rather aim to place before the reader such a review of our knowledge of this subject, and more especially such a summary of the most recent experiences and investigations, as will qualify him for the forming of an opinion, whether any deductions which may be made are to be regarded as merely curious or valuable contributions to the department of economic science under consideration, or whether they rise to the dignity and importance of fundamental and incontrovertible truths or propositions. And as the first step in such a discussion, it is important to start with a definition, and define, at the outset, what is meant by taxation.

III.245.3

—Taxation (from the Latin taxo, or taxare, "to rate," "to value"), in the ordinary sense, means the act or process of apportioning or assessing, and of collecting or gathering from a people, a portion of their property, for the use or support of their government, and for all public needs. The command of a constant and adequate revenue being absolutely essential to the existence of organized government, the power to compel or enforce contributions from the people governed, or, as it is termed, "to tax," is inherent in and an incident of every sovereignty, and rests upon necessity. The question of the obtaining of such revenue, obviously, therefore, is the question of first importance in the economy of a state; the one in comparison with which all others are subordinate. For without revenue (and a government never has any resources except what it has obtained from the people), regularly and uniformly obtainable and coming in, no governmental machinery for the protection of life and property, through the dispensing of justice, and the providing for the common defense, could long be maintained; and in default thereof, production would stop or be reduced to a minimum, accumulations would cease or become speedily exhausted, and civilization would inevitably give place to barbarism and the wilderness.

III.245.4

—Again, the power of taxation being an incident of sovereignty, the right to exercise that power must be coextensive with that of which it is the incident; or, in other words, as the power of every complete sovereignty over the persons and property of its subjects is unlimited, the power, therefore, in every such sovereignty to compel contributions for the service of the state, or, as we term it, "to tax," must be unrestricted. Thus, "the power to tax," says Chief Justice Marshall, in giving the opinion of the supreme court denying the right of Maryland to tax the bank of the United States, "involves the power to destroy"; and in the case of Weston vs. The City of Charleston, the same court, by the same eminent authority, held further, "that if the right to impose a tax exists, it is a right which in its nature acknowledges no limits. It may be carried to any extent within the jurisdiction of the state or corporation which imposes it, which the will of such state or corporation may prescribe." In the United States, however, it may be here noted, that the sovereignty of the national government, and of the separate states, is materially limited in respect to both taxation and other matters; on the one hand, in virtue of an agreement of union accepted by all the states, and known as the federal constitution; and on the other, in virtue of certain original powers retained by the states, and not delegated by them, in entering the federal Union, to any other or higher sovereignty. Thus, no state of the federal Union can impose any tax upon any agency of the federal government, its mails, its custom houses, its lands, its judicial processes, its money, or through its evidences of indebtedness, upon its credit or borrowing power. On the other hand, the federal government can not tax the agencies or instrumentalities by which any state performs its functions. That such reciprocal limitations are natural and necessary, and exist by implication, not only in the constitution of the United States, but also in the very structure of the federal Union, must be evident, when one reflects that otherwise the federal government on the one hand, and the governments of the states on the other, might impose taxation to an extent that would cripple, if not wholly defeat, the operations of the two authorities, each within its respective and proper sphere of action.

III.245.5

Natural Limitations on the Meaning and Exercise of Taxation. The term taxation, however, involves something more than the mere act of taking on the part of a government, or its unrestrained power of compelling contributions for the use of the state. The essence of all taxation consists in making the burden of taxation equal upon all subjects of immediate competition; and when this principle is violated, the act of taking, or the enforced contribution, is no longer entitled to be considered taxation, but becomes at once an arbitrary spoliation or confiscation. Thus, to illustrate: suppose it were proposed to tax the stock in trade of red-haired men 5 per cent., and those of red-nosed men 10 per cent.; or (as was proposed by a bill introduced into the congress of the United States in 1874) to exempt incomes below $5,000 from taxation, and tax those equal to $5,000 5 per cent., and all above, 10 per cent.; or to do as actually once was done in England under an income tax law enacted in 1691—tax Catholics at rates double those imposed on Protestants, it seems clear that such transactions could not involve any principle, or be regarded in any other light than the mere arbitrary and despotic exercise of power; or the making of the possession of a red nose, or red hair, or the result of enterprise, skill, economy, or the fortuitous circumstance of birth or belief, the occasion for inflicting a penalty. Yet, this was what substantially was done in the middle ages, when nobles were exempt from taxation because they were nobles, and the common people were taxed because they were villains or bondsmen; when Jews were assessed because they were not Christians, and Catholics because they were not Protestants. And if it be said, as it doubtless will be, in rejoinder to a part of the above illustration, that the rich, by reason of their riches, are abundantly able to pay, and, therefore, should be made to, the answer is, that under a universal and uniform income tax (if there could be such a thing), which would establish a comparative equality of burden, they would pay more by an inevitable law and yet pay equally; while under an unequal law, which takes from them because they are rich, the act of taking has no claim to be considered a tax, but is simply confiscation. For if the state may take five per cent. from the man with $5,000 income, and ten per cent. from the man with more than $5,000, why stop at this amount? We have not approximated the limit or capability of the persons assessed to make contributions. Why not take all that such individuals receive in excess of the average income of the masses? Why not divide up and put every one on an equality? The advocacy of any such forms of contribution under the name of taxation (although the advocates may not be, and generally are not, aware of it), is simply, therefore, the advocacy of the most radical principles of communism. There is, accordingly, a broad and philosophical distinction, which may be claimed to rise to the dignity of an economic principle, between "taxation" and "arbitrary taking." In the soundings which have been made at great depths in the ocean for telegraphic or other purposes, the sounding line has not unfrequently brought up from the bottom small-chambered shells or other minute animals of exquisite organization and structure; and the question naturally arises, In what manner can these minute organisms live and flourish under the enormous pressure that in some instances must be exerted, of at least three tons to the square inch? The explanation is to be found in the circumstance that the pressure is everywhere equalized, being as much from within outward as from without inward, and thus an equilibrium is maintained under which development goes on and existence is made possible; and it is in preserving this equilibrium, this equalization of pressure (says Mr. Lowe, from whose speech as chancellor of the English exchequer the above illustration is derived), that the whole secret of taxation consists. All experience shows that a people who are moderately prosperous will bear the heaviest burdens of taxation without complaint when they feel that the distribution is just and equal; but when the distribution is unequal, somebody inevitably is being either plundered or crushed.

III.245.6

Limitations of Territorial Sovereignty and Limitations of the Taxing Power Coextensive. It would seem to be in the nature of a self evident proposition, although in fact it is by no means so regarded, that the power of every state or government to tax, must be exclusively limited to subjects within its territory and legal jurisdiction. "All subjects," says Chief Justice Marshall, in giving the opinion of the supreme court, in the case of McCullough vs. Maryland (4 Wheaton, 431), "over which the sovereign power of the state extends, are objects of taxation; but those over which it does not extend, are, on the soundest principles, exempt from taxation. * * The sovereign power of the state extends to everything which exists by its own authority or is introduced by its permission." "Every nation," says Wheaton, "possesses and exercises exclusive sovereignty and jurisdiction throughout the full extent of its territory. It follows, from this principle, that the laws of every state control, of right, all the real and personal property within its territory. The second general principle is, that no state can, by its laws, directly affect, bind or regulate property beyond its own territory. This is a consequence of the first general principle; a different system, which would recognize in each state the power of regulating persons or things beyond its territory, would exclude the equality of rights among different states, and the exclusive sovereignty which belongs to each of them." (Wheaton's International Law, chap. ii., § 2; Fœlix International Prisé, §§ 9 and 10.) And in a decision of more recent date (State Tax on Foreign-held Bonds, 15 Wallace, 306, 328), the United States supreme court said: "The power of taxation, however vast in its character and searching in its extent, is necessarily limited to subjects within the jurisdiction of the state. Property lying beyond the jurisdiction of the state is not a subject upon which her taxing power can be legitimately exercised. Indeed, it would seem that no adjudication should be necessary to establish so obvious a proposition."

III.245.7

Protection the Correlative of Taxation. The correlative of taxation, furthermore, is protection; or, in other words, according to the political theory of our governments, national and state, and in fact of every government claiming the title to be free, taxes are the compensation which property pays the state for protection. "Taxes are a portion which each individual gives of his property, in order to secure and have the perfect enjoyment of the remainder. Governments are established for the protection of persons and property within the limits of the state, and taxes are levied to enable the government to afford and give such protection. They are the price and consideration of the protection afforded." (Ingersol, J., Circuit Court of the United States, Duer vs. Small.) "There is nothing poetic about tax laws When they find property, they claim a contribution for its protection." (Lowrie, Chief Justice, Tinley vs. The City, etc., 32 Penn., 381) Montesquieu, writing with the monarchical institutions of France mainly or solely in view, discusses this subject in his "Spirit of Laws" (book xxxi., ch. i.) as follows: "The public revenues are a portion that each subject gives of his property, in order to secure or enjoy the remainder."

III.245.8

—These fundamental principles, defining sovereignty in respect to taxation are, however, violated, either in theory or practice, by most of the states in the federal Union (but not in other countries) in their exercise of the taxing power; as, for example, in Massachusetts, where the law defines personal estate for purposes of taxation so as to include "goods, chattels, money and effects, wherever they are; ships, public stocks and securities, stocks in turnpikes, bridges and moneyed corporations within or without the state"; and where the administrators of the law tax residents for personal property, even of a visible, tangible character, having a situs in another state or country; and, by another and irreconcilable rule, tax non-residents for all of their personal property having a situs within the state. The claim or argument, however, which the advocates of such a system set up in its defense is, that personal property (more especially what is termed in law choses in action, or credits, titles, notes, bonds, mortgages, which are in their nature incorporeal, and therefore invisible and intangible) has no situs, and, therefore, follows and adopts that of its owner. But this rule or fiction of law—mobilia personam sequuntur—was never invented with a view of its being used as a rule to govern and define the application and scope of taxation, but was originally a device of international comity, intended to subserve the convenience of the owner of property; "by which a state holding jurisdiction of the property permits an act, done by the non-resident owner at his domicile, to have the same effect, touching it, as if done at the locus situs. It means, simply, that for the purpose of sale, distribution, or other disposition of the property, any act, agreement or authority, which is sufficient in law where the owner resides, shall pass the property where it is; and the true and right use of it is to facilitate affairs of commerce and the distribution of decedents' estates, by enabling parties to dispose of their property without embarrassment from their ignorance of the laws of the country where it is situated." (Catlin vs. Hall, 21 Vermont, 152.) It would be a more accurate rendering of the rule to say, "Personal property follows the law of the owner's domicile," and not, as in effect claimed, that the law of the owner's domicile follows the property. But "no fiction," says Blackstone, "shall extend to work an injury; its proper operation being to prevent a mischief or remedy an inconvenience, which might result from the general rule of law." At any attempt to misapply a fiction, it falls within and is terminated by that other authoritative maxim of logic and the common law, cessante ratione legis, cessat ipsa lex. Another great authority in law, Lord Mansfield, says: "Fictions of law hold only in respect of the ends and purposes for which they were invented; when they are urged to an intent and purpose not within the reason and policy of the fiction, the other party may show the truth." It is also worthy of note, that in Rome, where this fiction originated, its applicability to property was never held, according to Savigny, to extend beyond Roman territory. *125

III.245.9

—It is a curious fact, also, that those states which adopt, in their systems of taxation, the rule of taxing property beyond their sovereignty or territorial jurisdiction, by reason of the possession of its owner, do not carry the principle involved to its logical conclusion, and tax real estate similarly situated. But for this distinction no good reasons can be given, although pretexts, claiming to be reasons, may. One claim, however, is obviously as good as the other. A robber who should draw romantic distinctions between watches and purses, would fail in business. If we are to be robbers in practice, let us, at least, secure some grace by honesty in our professions, and admit that what we thus take is not a tax received as the just recompense of a benefit conferred, but a compulsory levy, having its cause in our greed, and its justification in our power; and as these reasons are as good for a large levy as a small one, and the whole of a man's estate is greater than its part, why not take the whole? "Still further," says Mr. Lowrey, "if we tax a man (in New York or Massachusetts) who has come from Connecticut or England to stay a year, for the property he has left behind, why not the man who has come for a week?" If we are to do business upon the principle that "might makes right," would it not be a brilliant stroke to station ourselves at all the avenues of ingress to a state, and cry "Stand and deliver" to the passengers? From the above citations and arguments, the conclusion would seem to be inevitable, that when a state assesses property situated beyond its territory and jurisdiction, and which its laws and processes are not competent or able to either reach or protect, or assesses one of its own citizens in respect to such property, the act has no claim to be regarded as taxation, but is simply arbitrary taking, in no respect different in principle from confiscation.

III.245.10

—It will be also here interesting to recall some of the antecedents of this fiction of law, that personal property, irrespective of its situs, follows the owner for the purpose of taxation. Its prototype was the ancient taille, or tax of servitude, imposed on persons originally bondmen, or on all persons who held in farm or lease, or resided on lands of the suzerain; and from which proprietors or suzerains of the land were exempt. And as no vassal could at will divest himself of servitude or allegiance to his lord or suzerain, so the obligation to pay taxes always remained upon him as a personal servitude, whatever might be the location of his property. In other words, the condition of the masses all over Europe during the middle ages was not unlike the condition of the slaves in the United States previous to emancipation. They (the slaves) had property in their possession, and spoke of themselves as owners of property, but in reality their property followed the condition of the servitude of their persons, and both persons and property belonged equally to the masters. The taille, furthermore, as a badge of servitude, was supposed to dishonor whoever was subject to it, and degrade him, not only below the rank of a gentleman, but of that of a burgher, or inhabitant of a borough or town; and "no gentleman, or even any burgher," says Adam Smith, "who has stock will submit to this degradation." Now, the idea embodied in the word servitude is, an obligation to render service, irrespective of, or without, compensation; and the idea upon which the taxation of personal property in this country has been based is, that the property owes a servitude to the state where the owner resides, irrespective of its actual location, in virtue of the obligation which its owner, as a citizen, may owe to the state by reason of the protection which the state gives him in respect to his person.

III.245.11

—Again, in old times, the division of property into real and personal was wholly unknown; and under the common law, all property was classed as lands, tenements, hereditaments, and goods and chattels. "In the course of time, however, leases of land for a term of years were classed as chattels, and were distinguished as chattels real; while other chattels, which did not savor of lands, were called chattels personal, 'because,' says Lord Coke, 'for the most part they belong to the person of a man, or else for that, they are to be recovered by personal actions.' And Blackstone tells us, that 'chattels personal are property, and strictly speaking, things movable, which may be annexed to or attendant on the person of the owner, and carried about with him from one part of the world to another'; and as instances, he mentions money, jewelry, garments. Personal property, in fact, consisted almost entirely of such things as could be, and actually were, carried about with the person of the owner, or could be easily secreted. And Blackstone also tells us, that the amount of the personal estate of our ancestors, was so trifling that they entertained a very low and contemptuous opinion of it; and that 'our ancient law books do not, therefore, often condescend to regulate this species of property.' Nothing of an incorporeal nature was anciently comprehended within the class of personal chattels. It was otherwise as to lands or real property, as to which 'incorporeal hereditaments' occupied a conspicuous place from the earliest times. Such was personal property in the early history of our laws. It was of comparatively small importance, and its laws were few and simple; while real property, being of a fixed and permanent nature, was regarded as immeasurably more valuable, and was governed by laws of its own, of the most intricate and abstruse character. Both species of property, when compared with that of our own time, were of small pecuniary value; but between the importance attached to personal and movable property, and the value of real property, there was a difference vastly greater than that which now exists, both because of the comparative insignificant value of personality, and because of the feudal tenure by which lands were held, out of which grew some of the most important consequences to both the land and the person. From these circumstances arose the notion, which became a fiction of the law, that property merely personal always attended the person of its owner; while lands, tenements and hereditaments, being fixed and immovable, and of infinitely more consideration, were held, from their very nature, as well as from motives of political policy, to have a situs of their own, from which they derived their laws and incidents wholly regardless of the domicile of the owner. Growing out of the same reasons, it was also the prevailing opinion, that while immovables were exclusively governed by the law of locality, movables were controlled, according to the same maxim, by the law of the domicile of the owner, and not by that of its situs." In the changed condition of wealth and property, such a fiction, however suitable and useful in primitive times, would now, in many cases, work the greatest injustice, and impair the supremacy which every government should maintain over everything within its territory, both on the ground of public expediency and the private interests of its citizens. And according to Wharton (Treatise on the Conflict of Laws, 1872), this fiction of law has been universally abandoned upon the continent of Europe, except in cases as to rights in respect to personalty, which spring from marriage and succession. (Hutchinson, "Southern Law Review.")

III.245.12

—Finally, the attention of the reader or student should be asked to another interesting point in connection with this subject; and that is, that if this article were to have been written by a European, for incorporation into any foreign publication, this discussion of the taxation of extra-territorial property by a state would have no place, except possibly in review of curious tax experiences; for the reason, that nowhere, except in the United States, is there any such system of taxation, or any tolerance given to the ideas upon which it is founded.

III.245.13

Legitimate Taxation Limited to Public Purposes. Although this proposition has rarely received any notice or consideration by writers on the subject of taxation, and under despotic governments (where there is no restraint on the adoption of any economic policy on the part of the state) would obviously be regarded as of no consequence, or, if conceded, would be nullified by regarding the wishes or whims of the ruler and public purposes as matters synonymous, the experience of the United States, and the decisions of its highest courts, have nevertheless combined to establish it as an economic and legal principle under a free government of the very first importance. The record of this experience may be told as follows: In 1872 the legislature of the state of Kansas passed a law authorizing counties and towns of that state "to encourage the establishment of manufactories and such other enterprises as may tend to develop" such counties or towns by the direct appropriation of money, or by the issue of bonds to any amount that the local authorities might consider expedient; and under this act the city of Topeka created and issued its bonds, to the extent of $100,000, and gave the same "as a donation," a majority of voters approving, to an iron-bridge company, as a consideration for establishing and operating their shops within the limits of the city. The interest coupons first due on these bonds were promptly paid by the city out of a fund raised by taxation for that purpose, but subsequently, when the second coupons became due, and the bonds had passed out of the possession of the bridge company by bona fide sale to a loan association, the city repudiated its obligations, on the ground that the legislature of Kansas had no authority, under the constitution of the state, to authorize the issue of bonds, the interest and principal of which were to be paid from the proceeds of taxes, for any such purpose as the encouragement of manufacturing enterprises. Legal proceedings to enforce payment were thereupon commenced by the bondholders in the United States circuit court, and judgment having been there given for the city, the case was appealed to the United States supreme court, where, with only one dissenting voice, the judgment of the lower court was affirmed, and the following opinions or statement of principles involved given: "It must be conceded," said the court, through Mr. Justice Miller, "that there are rights in every free government beyond the control of the state. A government which recognized no such rights, which held the lives, the liberty and the property of its citizens subject at all times to the absolute disposition and unbounded control of even the most democratic depository of power, is after all but a despotism. It is true it is a despotism of the many, of the majority, if you choose to call it so, but it is none the less a despotism." * * "The theory of our governments, state and national, is opposed to the deposit of unlimited power anywhere. The executive, the legislative and the judicial branches of these governments are all of limited and defined powers. There are limitations of such powers which grow out of the essential nature of all free governments—implied reservations of individual rights, without which the social compact could not exist, which are respected by all governments entitled to the name." * * "Of all the powers conferred upon the government, that of taxation is most liable to abuse. Given a purpose or object for which taxation may be lawfully used, and the extent of its exercise is in its very nature unlimited. This power can as readily be employed against one class of individuals and in favor of another, so as to ruin the one class and give unlimited wealth and prosperity to the other, if there are no implied limitations of the uses for which the power may be exercised. To lay with one hand the power of the government on the property of the citizen, and with the other bestow it upon favored individuals to aid private enterprises and build up private fortunes, is none the less robbery because it is done under the forms of the law and is called taxation. This is not legislation. It is a decree under legislative forms. Nor is it taxation. Beyond a cavil there can be no lawful tax which is not laid for a public purpose. * * It may not be easy to draw the line in all cases so as to decide what is a public purpose in this sense, and what is not. But in the case before us, in which towns are authorized to contribute aid by way of taxation to any class of manufacturers, there is no difficulty in holding that this is not such a public purpose as we have been considering. If it be said that a benefit results to the local public of a town by establishing manufactures, the same may be said of any other business or pursuit which employs capital or labor. The merchant, the mechanic, the inn-keeper, the banker, the builder, the steamboat owner, are equally promoters of the public good, and equally deserving the aid of the citizens by forced contributions. No line can be drawn in favor of the manufacturer, which would not open the public treasury to the importunities of two-thirds of the business men of the city or town."

III.245.14

—Other judicial authorities in the United States to whom weight is accorded, have also concurred in this opinion. Thus, Thos. M. Cooley, one of the justices of the supreme court of Michigan, and professor of law in the university of that state, in his work, "Principles of Constitutional Law," thus defines the limits of taxation under the constitution of the United States: "Constitutionally a tax can have no other basis than the raising of revenue for public purposes, and whatever governmental exaction has not this basis, is tyrannical and unlawful. A tax on imports, therefore, the purpose of which is not to raise a revenue, but to discourage and indirectly prohibit some particular import for the benefit of some home manufacture, may well be questioned, as being merely colorable, and therefore not warranted by constitutional principles." The question at issue has also formed the subject of review by the supreme court of the state of Maine, and the following are extracts from the opinions given by the members of this tribunal respecting the limitations on the powers of a free government to impose taxes: "No public exigency can require private spoliation for the private benefit of favored individuals. If the citizen is protected in his property by the constitution against the public, much more is he against private rapacity." "If it were proposed to pass an act enabling the inhabitants of the several towns to vote to transfer the farms, or the horses, or oxen, or a part thereof, from the rightful owner or owners to some manufacturer, whom the majority might select, the monstrousness of such proposed legislation would be transparent. But the mode by which property would be taken from one or many, and given to another, or others, can make no difference in the underlying principle. It is the taking that constitutes the wrong, no matter how taken." "Taxation," said the chief justice (in giving an opinion adverse to the right of a town to grant aid, under a permissible statute of the state legislature, to a manufacturing enterprise), "by the very meaning of the term, implies the raising of money for public uses, and excludes the raising of it for private objects and purposes." "No authority or even dictum can be found," observes Dillon, C. J., in Hanson vs. Vernon, 27 Iowa, 28, "which asserts that there can be any legitimate taxation, when the money to be raised does not go into the public treasury, or is not destined for the use of the government, or some of the governmental divisions of the state." "If there is any proposition about which there is an entire and uniform weight of judicial authority, it is that taxes are to be imposed for the use of the people of the state in the varied and manifold purposes of government, and not for private objects or the special benefit of individuals. While the state is bound to protect all, it ceases to give that just protection, when it affords undue advantages, or gives special and exclusive privileges to particular individuals and particular and special industries at the cost and charge of the rest of the community." In short, the right of a government to levy discriminating taxes for purposes other than for defraying public expenditures, even though any injustice thereby done to the individual is more than compensated by some indirect benefit to the entire community, is one of those forms of procedure on the part of the state which is antagonistic to the principles of a free government, and which, if fully recognized and broadly carried out, will of necessity be utterly destructive of it; and in respect to which, as in the case of a tax to support an established church, or of a law compelling every man to help catch a fugitive slave, the dissent and resistance of even one citizen makes unjust any enactment authorizing such procedure.

III.245.15

Subjects of Taxation. The subjects of taxation, to use a happy generalization of the United States supreme court (Foreign-held Bond Case, 15 Wallace), "are persons, property and business. Whatever form taxation may assume, whether as duties, imposts, excises or licenses, it must relate to one of these subjects. It is not possible to conceive of any other though as applied to them the taxation may be exercised in a great variety of ways."

III.245.16

—A tax upon a person is a "poll" or head tax. The essential requisite of a poll tax is, that it be laid on all polls, and be unvarying in amount. A varying poll tax would be an arbitrary exaction, and would not be sustained for a moment as a proper exercise of the right of taxation, if laid without reference to a man's ownership of property. So soon, however, as the amount of the tax exacted is made dependent upon the amount of the property owned, the tax ceases to be a varying poll tax and becomes a tax on the property itself.

III.245.17

Apportionment of Taxation. This department of the subject of taxation, while the most practical, and, therefore, the most interesting, is at the same time the one most obscure, and the one about which there is the most striking difference of opinion among writers on economic and fiscal subjects. The following four maxims, or canons, laid down by Adam Smith in his "Wealth of Nations," have attained a world-wide celebrity, and are almost always referred to in all discussions of the subject. 1. "The subjects of every state ought to contribute to the support of the government as nearly as possible in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state." 2. "The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor and to every other person. The certainty of what each individual ought to pay is, in taxation, of so great importance, that a very considerable degree of inequality, I believe, from the experience of all nations, is not near so great an evil as a very small degree of uncertainty." 3. "Every tax ought to be levied at the time and in the manner in which it is most likely to be convenient for the contributor to pay it." 4. "Every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state."

III.245.18

—Almost universally accepted, as the embodiment of the highest wisdom, these four canons or maxims have been, and are, nevertheless, open to some criticism. In the first place, they are so general in their nature, and so lacking in any precise rule or test for application, that they stand in the light of aphorisms, somewhat as the maxims "Honesty is the best policy," "Never put off till to-morrow what can be done to-day," etc., to which all respect is always given, except the desirable one, of practical use in actual cases. In fact, the originators of the very worst forms of taxation now existing, might and probably would plead, that their methods or practices were based on the ideas of Adam Smith, or were as near in conformity to them as was possible under the existing circumstances. Again, the first maxim or canon embodies two propositions antagonistic to each other, and one of which can hardly be considered correct, namely, that every citizen should pay taxes for the support of the government in proportion to his ability; for if, as almost all authorities are now agreed, taxes are the compensation which persons or property pay to the state for protection, then it of necessity follows, that where there is no protection, ability is no just guide for assessment. "Where there is no protection," said Judge Story (in the case of United States vs. Rice, 4 Wheaton, 276) "there can be no claim to allegiance or obedience" And that Adam Smith did not intend to have his first proposition fully accepted would seem evident from the circumstance that he added to it, and qualified it with these other words, "that is, in proportion to the revenue which they (the citizens) respectively enjoy under the protection of the state." Montesquieu, who wrote at an earlier date, also enunciated even more clearly this common-sense and equitable principle, when he said (see "Spirit of the Laws"), "that the public revenues ought not to be measured by the people's abilities to give, but by what they ought to give." "And what they ought to give," as has been remarked by another writer, "can of course be only measured by the benefit they are to derive."

III.245.19

The True Measure of the Burden of Taxation on Production. In addition to the maxims or canons proposed by Adam Smith, another, first pointed out by Mr. Edward Atkinson, of Massachusetts, is worthy of being added, and may even be regarded in the light of a fundamental principle; and that is, that the burden or injurious effect of a tax on production or exchange, is not to be measured by the ratio which the tax may bear to the gross value of the subject of taxation, but rather by the proportion which the tax bears to the profit which might normally or naturally result from undertaking a certain line of industry or product. To practically illustrate this, let us take an example. Let us suppose two men, A and B, to start shops for the manufacture of machinery, each with a capital of $20,000, and that each in his operations expends $20,000 for coal and iron, $40,000 in wages, and $4,000 for transportation to the shops of the raw materials for manufacture. The total cost of the annual product of each shop will then be $64,000, or a little more than three times the capital; and a sale of their respective products, at the net price of $66,000, would yield the owners $2,000, or 10 per cent. profit. Now, suppose further, that under such conditions, A has a tax imposed upon him of 3 1/8 per cent. upon the value of his product; it may be a customs or excise tax, or an increased rate of railroad freight. This amounts to $2,000 on $64,000 of product; no excessive burden, it may be said, and only requiring A to sell his $66,000 for $2,000 additional. But suppose A can not get this $2,000 additional; and he certainly can not, if the other man, B, is exempt from this 3 1/8 per cent. tax, or contrives to evade it, and competes with A in the open market. Then, in such a case, this 3 1/8 per cent. tax upon product manifests itself as 10 per cent. upon the entire investment, and absorbs the entire profits, which otherwise might have been realized; so that the business of A first drags, then stagnates, and is finally abandoned; while his workmen are discharged, the village where the shop is located runs down, the artisans, shopkeepers and professional men connected with it complain of hard times, and emigrate from the locality or the country, while the railroad fails to confer all the benefit to the community or profit to its stockholders that might be possible. B, on the other hand, exempt from the tax, keeps on working, and, when hard times come, continues his sales and the occupations of his workmen by taking five per cent. profits instead of ten, and selling his goods, as he can afford to, at reduced prices, to meet temporary conditions. Actual practical illustrations of the injustice and disaster consequent on such discrimination in respect to tax burdens and exemptions are afforded on a small scale in the history of much railroad management, and to a larger extent where two nations, with different systems of taxation, undertake to compete with each other in the sale of the products of their labor in the common markets of the world. We find here an explanation, also, of the immediate beneficial effects which attended the first tentative measures of reform in the British tariff instituted by Sir Robert Peel in 1842 and 1845, which, although consisting mainly in the removal of numerous small but obstructive duties, nevertheless started British industry forward by leaps and bounds, even before the larger burdens of tariff restrictions were removed in later years.

III.245.20

Popular Theory of Taxation in the United States Stated and Examined. The general idea which constitutes the basis of the system of local taxation mainly recognized in the United States (though not in other countries) is founded on the assumption, that in order to tax equitably, it is necessary to tax everything; the term everything being at the same time used in a sense so indefinite as to embrace not merely things in the nature of physical actualities other than persons, but also persons, income, rights, representatives of property, titles, trusts, conclusions of law, debts, and, in short, any act of assessing capable of resulting in the obtaining of revenue. As a logical consequence of this idea, the exemption of anything from taxation is furthermore held to be not only impolitic but unjust, and if made necessary by circumstances, as something to be regretted.

III.245.21

—Equally popular and plausible is the argument by which this assumption, and the administrative system based upon it, is upheld and defended. "Is not all property," it is asked, "either directly, or through its owner, protected by the state, or sovereignty?" "Do not all persons owe allegiance to the state?" And if so, "why should not all persons and property contribute to the requirements of the state for revenue, in proportion to their ability?"

III.245.22

—But, popular and plausible as are the arguments and assumptions for such a system of local taxation, which in the case of the United States has been made operative over the persons, property and business of nearly sixty millions of people, and fortified by a vast amount of adjudication, it will require but little investigation and analysis to satisfy any one who can divest himself from the influence of old prejudices, of the truth of the following propositions; first, that the assumption that it is necessary to assess everything in order to tax equitably involves an impossibility, and therefore unavoidable inefficiency, injustice and inequality in administration; second, that, as popularly used in respect to matters pertaining to taxation, the term property is made to apply equally to entities and to symbols or non-entities, which is in itself an absurdity; and finally, that the outcome of all this is a system which powerfully contributes to arrest and hinder natural development, to corrupt society, and is without a parallel in any country claiming to be civilized.

III.245.23

—In the incipient stages of society, where property consisted almost or quite exclusively of things tangible and visible—lands, buildings, slaves, cattle, ships, household effects and implements—and the rate of taxation was small, the theory under consideration was not impracticable in its application, and under most circumstances afforded but little opportunity for the working of injustice in respect to arbitrary discriminations in assessing. But its full execution must, nevertheless, even in the most simple condition of society, have been always attended with great difficulties; for there is nothing which men more abhor in government than personal inquisitions; and, in the language of a committee of the French national assembly of 1789 (of which Talleyrand and Larochefoucald were members), the recognition and practice of such inquisitions by any government is something inconsistent with and antagonistic to the maintenance of a free people.

III.245.24

—It is not generally known, furthermore, that Alexander Hamilton, as a member of the conventions which framed the constitution of the United States, and the first constitution of New York, gave all his influence in favor of the restriction of all internal or local taxation to visible, tangible objects, and to the assessment of these specifically and by some uniform and simple rule. The language used by him in one of his papers (the Constitutionalist) on this subject, is as follows: "The genius of liberty reprobates everything arbitrary or discretionary in taxation. It exacts that every man, by a definite and general rule, should know what proportion of his property the state demands. Whatever liberty we may boast in theory, it can not exist in fact while (arbitrary) assessments continue."

III.245.25

—Again, had nothing come down to us in English history from the time of Edward III., other than one of the assessment rolls of that period (when there was little or no property capable of taxation but what was visible and tangible), the evidence would be complete that the mass of the English people were but little better than slaves; for the mere inspection of such rolls shows that their preparation involved such an inquisitorial scrutiny into domestic life, such a seeing, handling and valuation of everything in the household, from the utensils of the kitchen to the furniture of the bed-chamber, as to make personal freedom, or a sense of self-respect, on the part of the tax payer who submitted to such a scrutiny, almost an impossibility.*126 And in connection with this subject, it is interesting to note, that the famous insurrection of English yeomen and peasants under "Wat" the Tyler, in the reign of Richard II., the successor of Edward III., originated directly in the attempt of a tax gatherer or assessor to ascertain, by brutal personal examination, whether a daughter of "Wat" had attained the age of puberty, and in consequence had so become liable to enrollment for capitation assessment.

III.245.26

—But to whatever extent simplicity in the elements of property simplified the original methods and ideas in respect to local taxation, the problem involved rapidly changed, and became more and more intricate as increasing population and increasing commerce and intercommunication required that property should, to a great extent, be put into a condition to admit of being readily mobilized, in order to allow of its most profitable use and application. Thus a large part, in fact, the larger part, of what is to-day termed "personal property" in every highly civilized state, is of the most intangible character, and in great part invisible and incorporeal; such, for example, as negotiable instruments in the form of bills of exchange, state, municipal and corporate bonds, and the multiplied forms of evidence of indebtedness, certificates of stock, copyrights, patents, legal-tender notes, etc., all of which, if entitled to the name of property, is, through a great variety of circumstances constantly fluctuating in value; is offset or measured by indebtedness which may never be the same one hour with another; is easy of transfer, and, as essential to using, is in fact continually transferred from one locality to another, and from the jurisdiction of one state to the jurisdiction and laws of another and a different state. In the absence of some superhuman power which will permit that to be seen, which to ordinary vision is invisible, and to know what through the exercise of ordinary reason can not be known, any attempt, therefore, on the part of an assessor to obtain independent cognizance of such commercial and financial instrumentalities for the purpose of valuation and assessment is, on its face, an impossibility; and if the co-operation of the person to be assessed is to be invited or relied on, two of the most powerful influences that can control human action—love of gain, or the unwillingness to part with property, and the desire to avoid publicity in respect to one's private affairs—immediately unite to oppose and prevent such co-operation.

III.245.27

—A resort to personal inquisition, with the accompanying machinery of oaths, "dooming" and penalties, is next in order; under which the state, ignoring all rules enacted for the protection of debtors in the ordinary collection of debts, pursues the citizen for the collection of what it claims to be a debt, with no better result, in nine cases out of ten, than the impairment of the public sense of both justice and morality.*127

III.245.28

—But this statement by no means presents all the difficulties that are encountered in the attempt to carry out the popular theory, that it is necessary to tax everything in order to tax equitably. A further large proportion of the so-called personal property of every highly civilized country which is not intangible and invisible, and which requires only ordinary perception for recognition and valuation, is in the nature of instruments or subjects of commerce between states and nations; such as railroad machinery, ships, steamboats, immense stocks of raw and manufactured products accumulated in store for the sole purpose of movement, or actually in transitu. What shall be the situs of all such things for assessment? If actual location is to be determinative, then a product of grain, or merchandise, which, in movement for a market or conversion into other forms, may happen to be in Illinois in April, in Ohio or Massachusetts in May, in New York in July, in New Jersey in August, and in Connecticut in October, will be liable to five separate taxes in one and the same year; for the laws of each of these states require their assessors to return for taxation all such property as at the periods mentioned may be actually within the sovereignty and jurisdiction of the taxing authority. On the other hand, if the fiction of law that personal property follows the owner is to govern, then all such property may be taxed where it is not, and be exempt from taxation in the place where it actually is, and where it shares in the benefits that flow from the protective expenditures—police, fire department, etc.—which are incident and necessary to the locality. Furthermore, to tax the instrumentalities or objects of commerce in one locality, and to exempt the same from all direct taxation in another, will clearly not permit the former to enter a common market on an equal basis for competition with the latter. And yet this unjust discrimination is exactly what does result from the attempt of a majority of the states of the federal Union to tax all such instrumentalities or objects under the general head of personal property, and the exemption of the same classes of property from any corresponding assessment in the British provinces of North America, and in all foreign countries with which the United States enter into extensive commercial intercourse and competition. Boards of trade and commercial conventions may pass "deploring" resolutions concerning the decay of American commerce, and committees of congress may continue to investigate the same subject, but so long as ships engaged in the carrying trade on the free ocean, and owned in Canada, England, France, Germany and Holland, are not directly taxed, and ships engaged in competition in the same business, and owned in Portland, Baltimore, New Orleans and San Francisco, are taxed, and taxed heavily, commerce will incline to move in the paths which are made easy and profitable to it. The difference in cost of a single penny in laying down grain at Liverpool, may alone be determinative of the question whether millions of bushels shall be supplied by the wheat fields of the United States, or those of Russia, India or Hungary.

III.245.29

—It is also to be noted, that a very large part of what is termed "personal property" is, through the necessities, policy or organization of governments, made exempt from taxation, as, for example, all instrumentalities and property of a government—its bonds, legal tenders and money—and very generally, also, the deposits and surplus of savings banks. At the present time about one-fifth of all of the personal property of the United States is believed to be embraced within such a category of exemption. And finally, as regards so much of other "personal property" as is tangible and visible and clearly within the jurisdiction and territory of the taxing power, such as articles of personal adornment, clothing, furniture, works of art, musical instruments, books, etc., shall we assume that we have here a class of articles on which it is desirable to levy taxes? Of course the popular answer will be in the affirmative; for are not all these objects, it may be asked, the very ones best fitted to sustain taxation? and are they not in great part luxuries rather than necessities? But how, it may be asked, are you going to tax them? for it is reasonable to suppose that if they are to be taxed, it is to be by a system that works equitably, and not by a system which, by taxing A, and letting B, C and D escape, brings the law into contempt; and, by making the sense of the commission of a wrong on the part of the state the excuse for the commission of another wrong on the part of the individual, gradually undermines the morality of a community that does not wish to be dishonest.

III.245.30

Distinction between "Real" and "Personal" Property Artificial, and not Natural. As a further help to the understanding of the subject, it is important to here call attention to the circumstance, that the distinction between real and personal property is, to a very great extent, an artificial and not a natural one. Thus, for example, shares in the national debt of France (as well as stock in the bank of France), instrumentalities which in the United States would be regarded as personal property in its most typical form, may by French law be regarded as real estate, and, as such, administered upon. Again, before emancipation in the United States, slaves (which by the federal constitution were recognized as persons) were in some of the states regarded as real estate, and subject to all the laws pertaining to the mortgaging, sale and descent of real property; and at present in Wisconsin, the one species of property which is especially typical of mobility, and is of little value apart from its capability of motion, namely, the rolling stock of railroads, is also made by law real estate. Equally nice is the distinction in the case of machinery. Unattached, or movable, it is personal property; screwed or fastened permanently to the floor or wall, it becomes real estate. An apple upon the tree is real estate; but when fallen, and resting upon the ground, it is not real estate. The attempt to recognize in a system of laws distinctions of property which are purely arbitrary, and which sovereign states may alter at pleasure, are not likely, therefore, to result in anything generally harmonious and satisfactory.

III.245.31

—But the advocates of the infinitesimal system will probably answer, that the fault here is not with the system, but with its administration. Therefore, let a law be made, they say, which will compel every person possessed of such description of property to make and hand in to the assessors a schedule, and certify to its correctness in respect to items and value by oath. But such substantially is already the law in most of the states of the federal Union, and its observance and execution amounts to nothing. Thus, in Ohio, the law subjects to taxation all visible personal property above fifty dollars in value, without any offset of debts; and yet the official reports indicate that not more than one in ten of the adult population of this great and rich state has any property in excess of this amount, which the eye of the law can discover: although investigation will show that it is impossible for a person to dress respectably, or live decently, outside of an alms-house, who has not always at least double this amount of property in his possession. Every intelligent assessor in Ohio, when questioned in respect to the law, will answer, that it can not be executed with even an approximation to exactness, and that a serious attempt to execute it would cause a political revolution; and yet such is the strength of popular prejudice, that any attempt to repeal this law would at present be wholly unsuccessful. In Massachusetts, also, where the law admits no offset of debts against visible and tangible property, and is regarded as complete, and where its execution is acknowledged to be most arbitrary and inquisitorial—some towns publishing each year every known item of each man's personal property, even down to the family pig and a string of sleigh-bells—the most intelligent officials admit that their system is a comparative failure; and almost a complete failure as to reaching evidences of indebtedness, which, as before shown, constitute in modern times so large a part of the personal property of every civilized community. In the state of New York, where the letter of the tax laws in respect to the subjects of taxation is nearly the same as in Massachusetts and Ohio, but the administration less stringent, and where the aggregate of personal property nearly or fully equals in value the aggregate of real property, the proportion of the former returned for taxation is not in excess of one-fifth of the total assessed valuation; while in the great city of New York, with a population of over a million, not 1 per cent. of her citizens stand upon the books of the assessors as possessing any personal property subject to taxation other than shares in banking institutions. In the state of New York the assessed valuation of real estate for the year 1882 was $2,557,218,240, an increase over the preceding year (1881) of $124,556,861; while, on the other hand, the assessed valuation of personal property, in the same state, and under laws that allow but small exemptions, for 1882, was $315,039,085; a decrease from 1881 of $35,982,104. Again, according to the census reports for the United States, the gain in valuation of the real estate of the country between the years 1860 and 1880, was $6,063,760,876; while during the same period the valuation of the personal property of the country declined to the extent of $1,245,287,338. Now, as it is in the nature of an economic axiom, that the market value of the aggregate of land and that of the aggregate of productive capital are equal; and further, that the market value of land is merely the reflection of the value of the productive capital placed upon it, and its immediate vicinity, it follows that the decline in these valuations of personal property above noted, is not real; and simply represents the failure and utter inefficiency of the existing laws which attempt to assess and collect taxes upon such property.

III.245.32

—Such, then, are some of the almost insuperable difficulties, having their origin in the nature of things, and growing out of the correlations of modern civilization, which must be always attendant upon the attempt of any sovereignty to tax everything over which it has dominion or jurisdiction. And hence it is, that, whenever a system of infinitesimal taxation has been projected, its authors have been led, as it were by instinct, to the conclusion, that its execution with any degree of effectiveness must depend upon the employment of extraordinary and arbitrary measures. Thus, the old Romans, who first established the taxation of personal property at the period of the decadence of the empire, and who were not troubled with any restrictions of a constitutional character, or any very nice notions about personal liberty or general morality, clearly perceived this, and accordingly invested their tax officials with the power of administering torture as a means of compelling information and enforcing payment. And thus also have all the officials in every modern state, adopting the infinitesimal system, tried to act, so far as public opinion would uphold them.*128

III.245.33

—To complete the record of experience it is only necessary to add, that every effort which has been made in modern times to carry out the infinitesimal system of taxation has proved so uncertain and unsatisfactory, that every country, with the exception of Holland and the states of the federal Union of North America, have abandoned the project as something wholly impractical.*129Considerations respecting an Income Tax. Recognizing the difficulties attendant upon the attempt to collect taxes from a multitude of objects and by a large variety in methods of assessment, many economists and writers on the subject of taxation are inclined to fall back upon and recommend an income tax, as the one system of taxation most free from objection. What can be fairer, it is said, than that each person should pay in proportion to his annual net gain or income? But practically an equitable assessment, based on the known income of each man, is an idea that never has been and never can be realized. When we come to enacting laws for the collection of revenue, we must take human nature as we find it, and laws which are directly antagonistic to the two most powerful influences that can control human action—love of gain and a desire to avoid publicity in regard to one's private affairs—can never be efficiently administered. Under this head take one illustration. In 1868, with a federal law assessing all incomes over $1,000, and with a trained corps of officials, only 259,385 persons, out of a population of nearly 40,000,000, acknowledged the receipt of any taxable income; and when the exemption was increased to $2,000, the number of persons who paid an income tax was reduced to 116,000; and subsequently ran down to 71,000. Experience, therefore, would seem to demonstrate that an exemption in the United States of $2,000 of income accredited to each individual (for, with a view of keeping up an appearance of equity, the amount of exemption was allowed to be deducted from all incomes), would exempt more than nine-tenths of the property and more than ninety-nine hundredths of the property owners of the United States from this tax. Under such circumstances it is a misnomer to call such an exaction taxation.

III.245.34

—Again, unless an income tax is an exclusive tax, or if it forms (as in most instances it would) an element of a general system of taxation, it must necessarily involve double taxation; first, on the property yielding the income, and second, on the income itself. If the property yielding the income were under the jurisdiction and control of one state, and the person receiving the income was a resident of some other state, the duplication could hardly be avoided. All modern systems of income taxation have recognized the principle of discriminating in favor of persons in the receipt of comparatively small incomes; and have provided as a fundamental feature of their policy, that all incomes below a certain sum (usually a small amount) should be exempted from assessment. Thus, for example, the existing income tax of Great Britain commences with an assessment on incomes of £150 ($750) and upward, and exempts all incomes of a smaller amount. In the United States the income tax, as first enacted in 1863, exempted $600 annual income for each person, together with whatever was paid annually for rent and repairs of residence. But under this form of an income tax there can be no equality between taxed producers and untaxed producers; and more especially, as with any considerable amount of exemption, the untaxed producers will be the most numerous and the greatest producers in quantity as a body. *130 No man is a free man the fruits of whose industry and capital are subject to surcharged (overburdened) exactions to an unlimited degree, and from which his immediate competitors are entirely exempt. Equality of taxation of all persons and property brought into open competition under like circumstances, is necessary to produce equality of condition for all, in all production, and in all the enjoyments of life, liberty and property. And any government, whatever name it may assume, is a despotism, and commits acts of flagrant spoliation, if it grants exemptions or exacts a greater or less rate of tax from one man than from another man, on account of the one owning or having in his possession more or less of the same class of property which is subject to the tax. If it were proposed to levy a tax of 5 per cent. on annual incomes below $750 or $2,000 in amount, and exempt all incomes above these sums, the unequal and discriminating character of the exemption would be at once apparent; and yet an income tax exempting all incomes below these is equally unjust and discriminating. In either case the exemption can not be founded or defended on any sound principles of free constitutional government; and is simply a manifestation of tyrannical power, under whatever form of government it may be enforced. The experience of Great Britain is often adduced as evidence in favor of the practicability and expediency of an income tax. But be this as it may, it would not seem to require argument to prove that any attempt to assess and collect an income tax which should be equal and have none of the features of spoliation or confiscation, from the sparse population of the United States extending from Florida to Alaska, would be entirely unpractical; and that unless the rate was excessive, the taxes received would not pay the cost of assessment and collection; while the rights of property, the great republican principle of equality before the law, and constitutional law itself, would alike preclude any exemption of any income derived from like property.

III.245.35

—Regarding the record of experience as thus detailed, it is not surprising, that many, perhaps a majority, of economists, are ready to believe (as was stated at the outset, in this article), that there is no such thing as a science of taxation, and no definite rules for practical guidance adapted to all circumstances; and, despairing of coming to any more satisfactory conclusion, are willing to accept the maxim of M. Say, the celebrated French economist, that the best system of government finance is to spend little, and the best taxation that which is least in amount. Keeping steadily in view, however, the nature, object and scope of taxation as before defined, together with the acknowledged results of experience, and pursuing the investigation further, it is nevertheless the opinion of the writer, that certain conclusions can be reached which will commend themselves for acceptation as in the nature of principles and as infallible guides for administrative purposes.

III.245.36

Nothing can not be Something for the purposes of Legitimate Taxation. And as one of the first and most important steps that can be taken in such investigation, it is most desirable that all who wish to understand this subject should clearly comprehend, (and which, absurd as the averment may seem, comparatively few do now comprehend), that nothing can not be something; or, in other words, that property is always a physical actuality, which has become valuable or property, by some form of labor, and can not be created by mere paper documents, except to the extent of the value of the paper and the writing or printing upon it. In other words, a title to property, a representative of property, can no more be property, than a shadow can be a substance: and if this conclusion be true, then it would seem to follow, of necessity, that the act of making debts, bonds, verbal or written contracts, notes, book accounts, mortgages, warehouse receipts, titles, certificates of stock, or any form of salable or transferable rights, is not a creation or production of any new property, but simply an exchange, by contract or operation of law, of the rights and titles of parties in preexisting property; and that any tax on any of these rights or titles is only another form of burdening the property which is the subject of the rights or titles. Enact such laws, also, in respect to taxing titles as we may, experience will prove that taxes can not be practically levied on imaginary things, or legal fictions, because it is some physical actuality, in the sense of embodied labor, that must, after all, and in the end, pay all taxes. If legislatures have the power of creating fiat property, that is, imaginary or fictitious property, it is beyond their power to make it pay taxes, for nothing less than omnipotence can make something out of nothing.*131 On the other hand, let us consider, for a moment, the converse of this proposition, namely, that titles are property, and, as such, ought not to be exempted from taxation. If this is so, then it would seem to follow, that, by making titles, we can make property; and that when a man mortgages his farm for $10,000, the community have ten thousand dollars' worth of real estate and ten thousand dollars' worth of personal property, where, before the execution of the mortgage, there was only the specified value of the real estate. Again, if the title is the property, then either the actuality is not property where it exists, or else we have two things occupying the same place at the same time. Credits and titles, of themselves, have no value, and, separated from the things they represent, they can not honestly be sold at all. Who will buy them? But we know the character of the men who will sell them; and that their representatives can always be found in a state's penal institutions.—"A contract," says Ex-President Woolsey (Political Science, vol. i., p. 75), "does not create a right, but only transfers rights. A contract implies in each party a right to do that which the contract relates, and to pass over to another what is my own. If I have no right to use my labor according to my will, or have no property in a thing, I can not transfer the product of my labor, or what I have in my hands, to another. It is thus the exercise in a special case, for the benefit of another, of a right already existing. I can not make that the property of another, by contract, which is not mine already. Were it otherwise—were contracts a source of new power—it would be stronger than God." This is a brief statement of the true nature of a contract or obligation, and a complete refutation of the popular theory that the creation of debts is a creation of property. Again, when attempts have been made to claim salvage for the recovery of bills of exchange, or other titles to property, from wrecks, the courts have decided that salvage in such cases is not allowable; and, therefore, have practically held that credits and titles are not property, but mere rights to property, and in the case of negotiable instruments, when destroyed by fire or otherwise, the right under the destroyed instrument still remains, and can be enforced in courts when identified. A clear comprehension, then, of the facts, that property is embodied labor; that property can alone suffice to pay taxes; that rights, titles and franchises are but the representatives of property; and that, having subjected the property to taxation, there is no sense or equity in again assessing its representative, will at once divest the problem of taxation from many embarrassments which now seem to invest it, greatly simplify it, and go far toward the determination of sound and fixed tax principles.

III.245.37

What Constitutes an Exemption in Taxation. A word here in reference to the popular idea that the exemption of any form of property is to grant a favor to those who possess such property. An exemption is freedom from a burden or service to which others are liable; but in case of the exclusion of an entire class of property from primary taxation, no person is liable, and therefore there is no exemption. An exclusion of all milk from taxation, while whisky is taxed, is not an exemption; for the two are not competing articles, or articles of the same class. It is true, that highly excessive taxation of a given article may cause another and similar article, in some instances, to become a substitute or competing article; and hence the necessity of care and moderation in establishing the rate of taxation. We do not consider that putting a given article into the free list, under the tariff, is an exemption to any particular individual; but if we make the rate higher on one tax payer or on one importer of the same article than on another tax payer or importer, we grant an exemption. We use the word "exemption," therefore, imperfectly, when we speak of "the exemption of an entire class of property," as, for example, upon all personal property; for if the removal of the burden operates uniformly on all of such, then there can be no primary exemption.

III.245.38

The Theory and Necessity of Infinitesimal Taxation not supported by either Reason or Experience. If the above reasoning in respect to exemptions in respect to taxation be correct, it follows that it is not necessary, in order to burden equitably and uniformly all persons and property, to tax primarily all persons and property within the taxing district. But as this proposition is in direct opposition to popular theory (at least in the United States), appeal will first be made to the evidence of its truth, derived from the results of actual experience. It is a matter beyond dispute, that the universal, infinitesimal system of taxation is unsatisfactory and unjust, and that the more extensively and rigorously it is administered and applied, the more unequal and impracticable it becomes. On this point the proof already submitted is indisputable. On the other hand, the testimony is equally complete, that the more of simplicity we can introduce into a tax system, and the more the assessment can be restricted to a few articles, the more satisfactory the system becomes. There are places and countries where personal property is entirely, or in a great degree, excluded from taxation, as, for example, the cities of Philadelphia and Montreal,*132 and the countries of England and France, and where the burden of the expenses of the state is made to fall primarily and almost exclusively upon realty; and the result is an absolute demonstration, "that a complicated and inquisitorial system of separate taxation of goods and chattels is wholly unnecessary, an obstruction to trade, an injury to production, an unnecessary invasion of private affairs, and a self-torment inflicted on land itself."

III.245.39

—Great Britain, commencing several hundred years ago with a system which contemplated taxing everything, has gradually reduced her tax list to some six or eight articles or sources under the customs, and to an equally limited number under her excise and local systems; and, with every degree of concentration, the relief experienced by the whole population, and the impetus given to material development, has been all but universally acknowledged. In France, also, where the number of owners of real estate, in proportion to population, is greater than in any other country, the essential features of a concentrated system also prevail for local, and, to a limited extent, for general, taxation. And in the case of the United States, it is to be further noted, that the national government, except under the exigencies of a great war, has always recognized in her tax laws the desirability of simplicity and concentration; and that now, although the present system does not tax directly the one-fiftieth part of the property of the country, all parties are agreed that a further limitation of the sources of national revenue is most desirable. But it is curious to note, that while no sensible person entertains the idea that the taxes levied by the national government on spirits, fermented liquors, or tobacco, or upon any imported articles, are paid by the producer or importer, except so far as he is a consumer of the same, the exactly opposite doctrine appears to prevail in the United States in respect to the incidence of local taxation; and the principle which has constituted the basis of most of the state legislation on this subject seems to have been, "that whatever is not taxed directly is necessarily exempt."

III.245.40

—Let us appeal next from the logic of practical experience to the logic of common sense. The theory of infinitesimal taxation, if fully and completely executed, must logically lead, not only to the taxation of every cent in value of every kind of property within the borders of every state, county, township or municipality, but it would require a regular system of custom house espionage, and an army of officers to levy and collect taxes, by a multiplicity of rates upon all goods or property introduced into each township or municipality. If, however, this is not done, what becomes of the vaunted idea, that equality of taxation requires that every particle of property should be subject to a direct burden? But, fortunately for the prosperity of communities, this idea of what is necessary to produce equality of taxation is fallacious, and it is likewise fortunate, that it can be demonstrated that this false system, when partially or fully developed, produces unmitigated evil and inequality.

III.245.41

All Taxation ultimately and necessarily falls on Consumption. Property is solely produced to supply human wants and desires; and taxes, like all other expenses which enter into the cost of production, must finally be sustained by those who gratify these wants or desires by consumption. Production is only a means, and consumption is the end, and the consumer must pay in the end all the expenses of production. The state is an active and important partner in all production. Without its assistance and protection, production would be impeded or wholly arrested. The soldier or policeman guards, while the citizen performs his labor in safety. As a partner in all the forms of production and business, the state must pay its expenses, i.e., its agents, for their services; and its only means of paying are through its receipts from taxation. Taxes legitimately levied, then, are a part of the cost of all production, and there can be no more tendency for taxes to remain upon the persons who immediately pay them, than there is for rents, the cost of insurance, water supply and fuel to follow the same law. The person who wishes to use or destroy the utility of property by consumption to gratify his desires, or satisfy his wants, can not obtain it from the owners or producers with their consent, except by gift, without giving pay or services for it; and the average price of all property is coincident with the cost of production, including the taxes advanced upon it, which are a part of its cost in the hands of the seller. Again, no person who produces any form of property or utility, for the purpose of sale or rent, sustains any burden of legitimate taxation, although he may be a tax advancer; for, as a tax advancer, he is the agent of the state, and a tax collector from the consumer. But he who produces or buys, and does not sell or rent, but consumes, is the tax payer, and sustains a tax in his aggregate consumption, where all taxation must ultimately rest. In short, no person bears the burden of taxation, under an equitable, legitimate system, except upon the property which he applies to his own exclusive use in ultimate consumption. The great consumer is the only great tax payer.*133Proportional Taxes on all things of any given Class will be diffused and equalized on all other Property. The examination of the tax rolls in any state, city or municipality, will show that surprisingly small numbers of persons primarily pay or advance any kind of taxes. Thus, it is not probable that more than one-tenth of the adult population, or about one-twentieth of the entire population of the United States, ever come in contact officially with a tax assessor or tax collector. It is also estimated that less than 250,000, or less than ½ of 1 per cent. of the total population of the United States, advance the entire customs and internal revenue of the federal government. It is therefore apparent, that there must be some natural law governing the diffusion of taxes; and if the great mass of the community did not instinctively recognize the existence of such a law, or, to speak more practically, if they did not feel and certainly know, as it were by instinct, and not by education, that the higher the taxes in any state, community or country, the higher their food, fuel, clothing and rents, and the higher the cost of all production, then why should the ninety and nine of the mass of the people take any interest in the fiscal affairs of the state? And why, if only the few who see the tax collector are the ones who pay all, or the major part, of the taxes, is it not for the interest of the many that expenditures on the part of the state should always be as large as possible? Why not have largesses out of the public treasury as in the days of old Rome? Why not public amusements for the many at the public expense? Why not tax the very rich exclusively? Adam Smith undoubtedly first gave the clue to the real and true law when he says "that no tax can ever reduce for any considerable time the rate of profit in any particular trade, which must always keep its level with other trades in the neighborhood." In other words, "taxes and profits, by the operation of the laws of human nature, constantly tend to equate themselves. Man is always prompted to engage in the most profitable occupation and to make the most profitable investment. And since the emancipation from feudalism, with its sumptuary laws, legal regulations of the price of labor and merchandise, and other arbitrary governmental invasions of private rights, individual judgment and self-interest have been recognized as the best tests or arbiters of the profitableness of a given investment or occupation. The average profits, therefore, of one form of investment, or of one occupation (as originally shown by Adam Smith), must for any long period equal the average profits of other investments and occupations, whether taxed or untaxed, skill, risk and agreeableness of occupation being taken into consideration.*134 Natural laws will, accordingly, always produce an equilibrium of burden between taxed and untaxed things and persons. We produce to consume, and consume to produce, and the cost of consumption, including taxes, enters into the cost of production, and the cost of production, including taxes, enters into the cost of consumption, and thus taxes levied uniformly on things of the same class, by the laws of competition, supply and demand, and the all-pervading mediums of labor, will be distributed, percussed and repercussed to a remote degree, until they finally fall upon every person, not in proportion to his consumption of a given article, but in proportion to his aggregate consumption. The capitalist bears no greater burden of taxation (and can not be made to bear more by any laws that can be properly termed tax laws) than the proportion which his aggregate individual consumption bears to the aggregate individual consumption of all others in his circuit of immediate competition; and as to his other taxes, he is a mere tax collector, or conduit, conducting taxes from his tenants or borrowers to the state or city treasury. A whisky distiller is a tax conduit, or tax collector, and sells more taxes than the original cost of whisky. A dealer in imported goods keeps on hand a stock of accumulated taxes—imposts, excises, state, city and local taxes; the farmer charges taxes in the price of his products; the laborer, in his wages; the clergyman, in his salary; the lender, in the interest he receives; the lawyer, in his fees; and the manufacturer, in his goods. A Bible printed by the Bible society is always in part loaded with a whisky and tobacco tax, paid by the printers, paper-makers and book-binders, or paid by the producers of articles consumed by these mechanics, and reflected and embodied in their wages and the products of their labor, according to the degree of absence of competition from fellow-mechanics who abstain from the use of these and other taxed articles. The traveler who stops at one of the great city hotels can not avoid reimbursing the owner for the tax he primarily pays on the property; and the owner, in respect to the taxation of his hotel property, is but a great and effective real estate and diffused tax collector. And so all proportional contributions to the state from direct competitors are diffused upon things and persons in the taxing jurisdiction, by a uniformity as manifest as is the pressure upon water, which is known to be uniform in all directions." (Isaac Sherman.)*135

III.245.42

—Any primary tax payer, who does not ultimately consume the thing taxed, and who does not include the tax in the price of the taxed property, or its products, must literally throw away his money and must soon become bankrupt, and disappear as a competitor; and accordingly the tax advancer will add the tax in his prices, if he understands simple addition. When Dr. Franklin was asked by a committee of the English house of commons, prior to the American revolution, if the province of Pennsylvania did not practically relieve farmers and other land owners from taxation, and at the same time impose a heavy tax on merchants, to the injury of British trade, he answered, that "if such special tax was imposed, the merchants were experts with their pens, and added the tax to the price of their goods, and thus made the farmers and all land owners pay their part of the tax as consumers."

III.245.43

—These and other like investigations and experiences would, therefore, seem to warrant the annunciation and establishment of the following as great fundamental principles in taxation. Equality of taxation consists in a uniform assessment of the same articles or class of property that is subject to taxation. Taxes under such a system equate and diffuse themselves; and if levied with certainty and uniformity upon tangible property and fixed signs of property, they will, by a diffusion and repercussion, reach and burden all visible property, and also all of the so-called "invisible and intangible" property, with unerring certainty and equality. All taxation ultimately and necessarily falls on consumption; and the burden of every man, under any equitable system of taxation, and which no effort will enable him to avoid, will be in the exact proportion, or ratio, which his aggregate consumption maintains to the aggregate consumption of the taxing district, state or community of which he is a member.

III.245.44

—It is not, however, contended, that unequal taxation on competitors of the same class, persons or things, diffuses itself; whether such inequality be the result of intention or of defective laws, and their more defective administration. And doubtless one prime reason why economists and others interested have not accepted the law of diffusion of taxes as here given, is, that they see, as the practical workings of the tax systems they live under, or have become practically familiar with, that taxes in many instances do seem to remain on the person who immediately pays them; and fail to see that such result is due—as in the case of the taxation of large classes of the so-called personal property—to the adoption of a system which does not permit of equality in assessment, and therefore can not be followed by anything of equality in diffusion. Such persons may not unfairly be compared to physicists, who, constantly working with imperfect instruments, and constantly obtaining, in consequence, defective results, come at last to regard their errors as in the nature of established truths.

III.245.45

Benefits of limiting Taxation to a few Classes of Things. "By limiting the sources or number of primary taxes we limit the sphere of government and the number and sphere of officials. We limit the sources of official corruption, and we give strength to free institutions by leaving the distribution of taxes, in infinitesimal form, to individual judgment and individual enterprise and competition, the great motor forces in all free government, rather than to the acts of officials, which must all be more or less arbitrary, inquisitorial and offensive; and if in any degree effective, must be executed by espionage, oaths and domiciliary visits, which are not in harmony with the spirit of the age and of free government."

III.245.46

Conclusion. The subject admits of elaboration and illustration to a much greater extent; but the general conclusions to which all investigation seems to lead, and which in all or part may be worthy of being regarded as principles, may be collectively stated or recapitulated as follows: 1. The right to tax is inherent in every sovereignty, and rests upon necessity. 2. The right to impose a tax, if it exists at all, "is a right which in its nature acknowledges no limits." 3. The subjects of taxation are persons, property and business. 4. Equality of taxation consists in imposing an equal burden upon all subjects—persons or things—of immediate competition. When this principle is violated, the act of taking, or the enforced contribution, is no longer entitled to be considered taxation, but becomes at once arbitrary spoliation or confiscation. 5. "All subjects over which the sovereign power of the state extends are objects of taxation, but those over whom it does not extend are, on the soundest principles, exempt from taxation." (Chief Justice Marshall, opinion United States supreme court.) The limitations of territorial sovereignty and the limitations of the taxing power are therefore coextensive. 6. Protection is the correlative of taxation; or taxes, under any government claiming to be free, are the compensation which property pays the state for its protection. "Taxation" without protection, is, therefore, a misnomer. Its proper designation is spoliation. 7. Legitimate taxation must be on account of and limited to public purposes; "and whatever governmental exaction has not this basis, is tyrannical and unlawful." (Cooley, "Principles of Constitutional Law.") 8. Every citizen should pay taxes, not in proportion to his ability to give, but according to what he ought to give; and what he ought to give can only be measured by the benefit he is to derive; or, as Adam Smith expressed it, "in proportion to the revenue which they (the citizens) enjoy under the protection of the state." 9. The burden or injurious effect of a tax on production or exchange is not to be measured by the ratio which the tax may bear to the gross value of the subject of taxation, but rather by the proportion which the tax bears to the profit that might result from undertaking a certain line of industry. 10. Property, in its true sense, as a subject for taxation, is always a physical actuality; and all experience proves that taxes can not be practically levied on imaginary things, or legal fictions, because it is some physical actuality, in the sense of embodied labor, that must in the end pay all taxes. 11. The exemption of any part of the property of the same class which is made the subject of taxation, is spoliation of that part which is discriminatingly burdened. On the other hand, the exclusion of an entire class of property is not an exemption. 12. Proportional taxes on all things of any given class will be diffused and equalized on all other property. 13. All taxation ultimately and necessarily falls on consumption, and the burden of every man, under any equitable system of taxation, which no effort will enable him directly to avoid, will be in the exact proportion, or ratio, which his aggregate consumption sustains to the aggregate consumption of the taxing district, state or community of which he is a member.

III.245.47

—For practical guidance in devising or administering a system of taxation, intended to meet the wants of states or communities exposed to the competition of similar and competing organizations, the following rule or motto, proposed by Mr. Enoch Ensley, of Memphis, Tennessee, may be also regarded as in the nature almost of a tax axiom: "Never tax anything that would be of valus to your state, that could or would run away, or that could and would come to you."

III.245.48

—Taxation Bibliography. Economic literature in all languages is very deficient in simple, and at the same time clear and comprehensive, works on the subject of the principles of taxation. No department of political economy, as stated at the commencement of this review, is more obscure or so little understood. Foremost in sources of information, to which the reader who desires to independently investigate is referred, is the chapter on Taxation in Adam Smith's Wealth of Nations. Apart from this, there is probably no one treatise, which any considerable number of economists are willing to accept as standard or authoritative, certainly in all departments. The best modern book, in the opinion of the writer, is J. R. M'Culloch's work, Taxation and Funding, 8vo, London, 1845. This work, however, is out of print, and difficult to obtain, but it can be found in most large libraries. The following other works may be recommended or mentioned. The People's Blue Book: Taxation as it is and as it ought to be, by Chas. Tennant, 16mo, London, 1872. This book is very complete in respect to the tax laws of Great Britain and their administration; and also discusses, in a very readable and generally correct manner, the theory and history of taxation. The Science of Taxation, Leroy-Beaulieu, 2 vols., 8vo, Paris, 1877. This is the best work in any foreign language on taxation. Taxation of Fixed Capital, M. Menier, 16mo, Paris, 1877; English translation, London, 1880. Sur la Proprieté, Thiers, Paris. The chapter on taxation in this work is a luminous exposition of the principle of diffusion of equal taxation. Garnier, Elements des Finances, Paris, 1862-5, and De Parieu, Traité des impots, Paris, 1858, may also be mentioned. Local Government and Taxation, Cobden Club Essays, 8vo, London; a series of essays, presenting the best exposition of the existing systems of taxation in countries other than England and the United States—as Scotland, Ireland, Australia, Holland, Belgium, France, Russia and Spain. The Taxation of the United Kingdom, Baxter, 8vo, London. This work is out of print. It gives an analysis of British taxation, and discusses with great ability some of the most important questions connected with this subject. See also Noble's The Queen's Taxes, 8vo, London, 1870, and Dowell's Sketch of the History of Taxes in England, from the earliest times to the present day, vol. i., to the civil war of 1542, 8vo, London, 1876.

III.245.49

Essays: First and Second Reports of the Commissioners appointed to revise the laws for the Assessment and Collection of Taxes in the State of New York, David A. Wells, Chairman. As public documents these reports are now out of print. The first of these reports was republished by Harper & Bros., New York; and editions of both reports were republished in England and France. The Taxation of Railroad Securities, considered theoretically, and also with reference to actual experiences in the United States and Europe, by a Committee of State Railroad Commissioners, Charles Francis Adams, Jr., Chairman. Rational Principles of Taxation, by David A. Wells, Proceedings of the American Social Science Association for 1874. Theory and Practices of Local Taxation in the United States, do., Atlantic Monthly, 1876; The Reform of Local Taxation, do., North American Review, April, 1876; Are Titles and Debts Property? do., Atlantic Monthly, September, 1877. Twelve Letters on the Future of New York, by Geo. H. Andrews, Commissioner of Taxes, 8vo, New York, 1877. Taxation in Massachusetts, by W. J. Minot, 8vo, Boston, 1877. Exclusive Taxation of Real Estate, by Isaac Sherman, New York, October, 1874. The Tax Question: What should be taxed, and how it should be taxed, by Enoch Ensley, Memphis, Tenn., 1873. Taxation: A Plain Talk for Plain People, by Jas. II. Canfield, 8vo, 1883, New York, published by the Society for Political Education. All of the above papers contain valuable information respecting the inequalities and character of the systems of local taxation in the United States. They can not all be easily purchased, but can usually be obtained for reference. For works expressing views antagonistic to those advanced in this article respecting the nature of property, and of credits and titles, the reader is referred to the works of H. D. Macleod, especially Principles of Political Philosophy, 2 vols., London, 1872; and to Political Economy, by Prof. A. L. Perry, New York, 18th ed., 1883.

DAVID A. WELLS.


Notes for this chapter


"But it may be said, that the state in taxing personal property situate beyond its territory, does not in fact tax the property, but the owner, over whom the state has jurisdiction in respect to such property. In answer to this claim, attention is here asked to the following extract from an argument made some years ago by Mr. G. P. Lowrey, of New York, before a committee of the legislature of New York, when this subject was up before them for consideration. 'This claim,' he said, 'involves a dangerous inaccuracy, and arises from a confusion of the idea of the assessment with the idea of the tax. These two stand upon altogether different bases. The assessment is to the person in respect to the property; but the tax is to the property in respect to itself alone. In the order of consequence a tax goes before an assessment. A tax stands upon an existing relation between the property and the state, as protector and protected, and is that portion of the public burden which the property ought to bear because of that existing relation. An assessment stands upon the existing relation between the property and its owner or possessor; it follows the tax, and is merely the method of securing it. The danger, in saying that the tax is to the person in respect of his property, is, that, by the form of the expression we justify an assessment upon a person for all property indiscriminately. We transpose the subjects, and make the law seek out the person, and then tax him according to his property, instead of first seeking property which it has a right to tax, and then as a secondary matter, a person to whom it may be assessed. Even if a knowledge of the property is obtained by inquiry addressed to the owner in the shape of a general assessment, still the rationale of the matter presupposes the right to tax on account of the property and our relation to it directly. If we disregard this rationale, we may, perhaps, register an assessment where we are not entitled to levy a tax.'

—The person to whom the assessment is made need not be the owner. He may be the agent, trustee, guardian, executor or administrator. This is because the property, which owes the tax by reason of being protected, has not hands wherewith to take from itself a portion of itself, to pay for protection to be accorded to the remainder. Therefore the law, following the property to get the tax, makes its demand upon whoever it finds in possession, without inquiring upon what interest the property is based. This it does, ignoring all persons beneficially interested in the title, even the owner himself. 'Every person,' says the statutes of New York, 'shall be assessed, etc., for all personal property owned by him, including all property in his possession, or under his control, as agent, trustee, guardian, etc.'

—Thus it will be seen, that, for the purpose of assessment, possession is a title superior to ownership. And I now reiterate, that, according to the theory of our government, a tax stands upon the just obligation of all property to contribute to the support of the power which protects it; but that the assessment stands upon the possession or power of the person assessed, over the property taxed. This may be further illustrated. Movables can never be out of the actual or constructive presence of some one, and, therefore, there is always a person in esse to whom the assessment may be made. But the case is very different with unmovables, and therefore, lands are often taxed and assessed by their own name and designation, and specifically sold to satisfy the specific assessment, no person's name anywhere appearing in the proceedings.

—Keeping this vital distinction between an assessment and a tax clearly in view the mind will come by easy steps to an understanding of how it is that a tax, to a man who has no property in the state, is a tax upon his person. Process is the eye of the law. Its vision is limited by territorial boundaries. Whatever does not exist within that limit, does not, for any purpose of law, exist at all. The rich man, whose property is in Europe and the pauper, whose property is nowhere, are then equal, as persons, before the law. A tax upon a pauper would be a personal tax. A tax upon the rich man is, by unimpeachable parity of reason, the same. Such a tax would be a gross solecism on our system. The philosophy of our plan of voluntary political association, is that all individuals, and all the values within a community, shall aggregate into one mass all the power which they separately contain, which sum total shall constitute a sovereignty of the whole. This sovereignty—the soul of the state, which can not be impaired, and the state survive—reflects back upon its constituents, in detail, all that it has received from them. What it receives, and what it returns, is of two kinds, as to both source and object, viz., individual service to the government, and protection to the individual from it. Thus, in his individual capacity, a man is bound to perform military service, and the state, by the military arm, is bound to protect him from invasion. He is bound to do jury duty, and the authorities are bound, upon his demand, to provide him a jury. He is bound to aid the sheriff, and the sheriff is bound to execute process in his favor by posse comitatus if necessary. These personal services correspond to those which in feudal times the mesne lord holding a frank tenement owed the lord paramount. They can not be compounded for, for their value consists in their being rendered in kind. Their performance is the only price which the citizen pays for his citizenship. The terms are not only consistent and harmonious with our general scheme of government, but are highly politic. They are a liberal invitation to all men to come and add to ours their lives, their hopes, their strength, labor and courage, that we may build up a nation. To all political privileges we admit each one by virtue of his being a man, free born and of lawful age, we ask him nothing concerning his property, unless his property asks something from us."

A copy of an assessment roll of the time of Edward III. (1329-67) given by Lingard in his history of England, contains a list of articles, down to a towel and a bench; and the historian notes that in the returns are carefully mentioned the very rooms in which the articles were found, and that there were no exemptions except one suit of clothes for each person, which were supposed to be included in the tax levied on the poll or person.
"It is claimed that each individual owes the state annually a certain sum of money in the way of taxes, proportioned to his entire property. If he voluntarily pays, he escapes arbitrary measures. If he declines to pay, or tries to avoid payment, he has no just cause to complain if he is regarded in the light of a criminal, or if the same arbitrary measures are used to collect his tax, as if it were a debt owing by one citizen to another. But let us examine this averment. If the defaulting tax payer is to be regarded as a criminal, and as such placed in the worst possible light, be certainly ought not to be deprived of the privileges of a criminal; which are, a right to a public investigation according to the rules of evidence adopted by free and enlightened communities, a right to be heard before condemnation, and the right to be presumed innocent of having property subject to taxation until the fact is ascertained otherwise by legal proof. But under the existing tax laws of most of the United States there are not accorded to the tax payer the privileges of a criminal; for no tax can be assessed on a large proportion of the personal property of the state according to any rules of legal evidence that any common law court would adopt. No assessor, under the laws of New York, for example, in assessing personal property, can act judicially. The law gives him no power to obtain legal testimony of a character that is admissible in a court; he must act the part of an arbitrary despot against an inculpated tax payer, or not act at all, and his conclusions for acting must be reached at best by the testimony of those who have no means of knowing anything, in a legal sense, about the subject matter under investigation. It seems clear, therefore, that any attempt to tax without legal evidence is an act of usurpation or despotism, wholly antagonistic to the principles of a free government, and that it is a mockery to characterize such acts as, in any sense, judicial proceedings Nor does the right to reduce or regulate the assessment by the oath of the tax payer relieve the law in any degree of its unequal and despotic character; for every individual holding public office knows that oaths, as a guarantee of truth in respect to official statements, have ceased to be of any value. The assessments made according to the oaths of parties, furthermore, are not made according to legal evidence, upon examination and proofs; but according to the will and secret caprice of each tax payer, instigated by his selfishness, and the natural depravity of human nature. Each tax payer, under the present rule, becomes, therefore, the interpreter, not only of the law, but of the fact, and makes a secret interpretation of both, and we have as many interpreters of the law as there are numbers of tax payers; and also an indefinite multiplicity of assessors; for each person who unfairly reduces his own assessment, arbitrarily assesses thereby some other of the community for the difference. Could or would any people apply the same rules for the collection of debts? Is there any one who has so much confidence in human nature that he will propose a law, that a person who issued shall be discharged from all claims of indebtedness if he will make oath, interpreting both the law and the fact himself, that he owes the claimant nothing? Is it believed, that under tariff laws, the government could get sufficient revenue to pay for its collection, if the importer was permitted to offset debts against the value of his goods; or if the law was peremptory that his oath alone should be given, and that there should be no legal examination, inspection or proof of the value or character of the importations?" (Second Report of Commissioners of New York, 1873.)
The most curious and confirmatory evidence of this is to be found in a method of procedure adopted in the city of Boston, Massachusetts—a method which has no parallel except in the records of the middle ages and of the inquisition, and constitutes, in itself, a satire upon any claim to the enjoyment of a wholly free and enlightened government. For failing to obtain satisfactory information about the private affairs of any individual, the chief assessors and their subordinates in this city, to the number of some fifty, meet in secret session, in a large upper chamber set aside for the purpose, and appropriately termed the "dooming chamber," when the citizen in question, without being present either by counsel or in person, is arbitrarily doomed to the payment of any sum which a majority of those present may think proper; and from which "dooming" there can be no appeal.
Holland, by reason of her immense national debt, the largest comparatively of any country, has been obliged to maintain a most rigorous and extensive system of taxation in order to raise revenue sufficient to the wants and requirements of the state. But it has been prominently brought out in recent years, that the decadence of Holland dates almost from the hour when taxes were imposed on manufactories, commerce, fishing industry, and moneyed capital. Business went elsewhere, and with the decline of business the ability to pay taxes diminished, and the burden of taxation augmented. (See Journal des Economistes, November, 1871; also, "Principles of Political Economy," J. R. M'Culloch, pp. 470-71.)

—Within recent years the local taxation of Great Britain has been made the subject of special inquiry and investigation by a committee of parliament; and, in addition to several official reports, two prize essays on the same subject have been published by the statistical society of London (i.e., "On the Local Taxation of Great Britain and Ireland"; First and second Tayler Prize Essays, by R. H. Inglis Palgrave, and John Scott, of the Inner Temple); while the necessity of raising increased revenue in France has also drawn especial attention to the subject of local taxation in that country; but it is particularly noticeable, that in neither England nor France has any prominent speaker or writer advocated the direct taxation of personal property; or even alluded to the subject, except to scout the very idea of such a proposition.

If we assume 5 per cent. as about the average profit of money, land or other property in the United States, over and above all charges and taxes, then an exemption of $600 would represent an accumulation yielding an income of $12,000. If the exemption is raised to $2,000, as it was at one time in the United States, then it would represent $40,000.
These views, it should be understood, are, however, heresies to some of the best thinkers and writers on political economy. Some confuse themselves on the subject, by first defining property as anything that can be bought or sold, and then, since a title—as, for example, a deed - can be bought and sold, accept the inference that a title is necessarily property. But let us analyze this definition and assumption. We can, without doubt, sell and deliver a deed to a farm, but what is sold in such instances is the farm, including a right, a right to have dominion over it. But it may be rejoined, that a right of dominion is property. Let us, therefore, carry the analysis a little farther. If the farm in California is property in the state where it is, and where it is taxed, any right or title to the same farm, held in New York or England, be it in the nature of a deed, a mortgage, a partnership interest, or any other form of title, can not be the property; for the same thing certainly can not be property in two separate states and jurisdictions, and in two distinct forms and manifestations, at the same time. On the other hand, if it be assumed that the title to the farm is the property, and, as such, can be rightfully taxed where it (the title) is, then it stands to reason that the subject of the title, the farm in California, ought not to be also regarded as property, and taxed in New York or England. In other words, if the title to the farm is property, then the farm is not really in California at all (unless the owner of the title resides there), but goes out of that state in the pocket of the individual who walks off with the title to it. We have all heard of such concentration of meat that all that is valuable in an ox for food can be put into a quart can; but such a concentration of property as is here supposed is something much more remarkable; and admits of a man having a drove of oxen in his hand, ten acres of woodland in his hat, a church with a steeple in one coat pocket, and a four-story brick block and a mill privilege in the other.
In 1874 the real estate of Philadelphia was assessed at $539,003,602, on an asserted full valuation. The personal property of the city subject to taxation at the same time, was returned at a valuation of $9,464,873; and included horses, carriages, furniture, gold and silver watches. The system of taxation in Montreal, dominion of Canada the same year, was as follows: one-fifth of 1 per cent. on the value of real estate; one-fifth of 1 per cent. for school tax; one-twentieth of 1 per cent. on railway property; 7½ per cent. on rentals. In addition, there were water rates, and special taxes on insurance, telegraph, ferry and street railway companies, and on innkeepers, billiard tables, theatres, breweries, banks, brokers, etc., and licenses on grocers, butchers, exhibitions, dogs, etc.
On this subject the eminent French economist, Joseph Garmer, in his Traité des Finances, ch. v., says: "From the point of view of distributive justice and economic truth, and to attain an equitable apportionment of the public burdens, we must put the question: A tax being given, on whom does it fall in the last analysis? No absolutely satisfactory answer to this question, insoluble in its generality, has been given or could have been given. However, Ricardo, who made a profound study of taxation, thought that taxes, no matter of what kind, are always paid by the consumer, on his capital or on his income, the producer always making them enter into the cost of production; and employing his capital and his industry in other branches when he can not include the taxes he pays in such cost. James Mill likewise adopted the same opinion. This was Franklin's view also; he thought that the merchant always added the tax to his bill or invoice. It was likewise Adam Smith's idea, who, in passing, says: 'The tax is finally paid by the last purchaser or consumer.' ['Wealth of Nations,' edited by J. E. Thorold Rogers, vol. ii., p. 132.]—The physiocrates had been led to think that taxes finally fell, directly or indirectly, on the landed proprietor, to whom they thought the entire net product of production, which in the end is the only thing taxed, and which alone should be taxed by the legislator, comes back.

—J. B. Say says that Ricardo may be right in the abstract, but that, in fact, the producer does not always succeed in making the consumer pay the tax, a part of which he (the producer) must bear himself. The French economist adds: 'This subject does not admit of an absolute opinion. There is probably no kind of contribution which does not fall on several classes of citizens.' According to him, therefore, the subjects taxed (bases de l'impot) should be increased sufficiently to attain this end: that those producers who are not reached by one tax may be reached by another.

—The views held by the physiocrates on production being incomplete and erroneous, their financial conclusion is no longer worthy of consideration. J. B. Say's conclusion is in harmony with those of Ricardo and Smith; but it is lacking in precision. That of Ricardo, if it be exact, should be amended thus: 'Taxes in general and in the long run, fall on the consumer.' And, indeed, in the face of the facts, it is difficult to admit, that this diffusion or transmission of burdens is made directly, immediately and without effort. If we may so express ourselves, Ricardo considers the phenomenon as if it were happening in vacuo, whereas, in reality, the tax, to find its natural or definitive incidence and to traverse the successive strata of society, needs a pretty long lapse of time, a thing which is effected only after many and complex repercussions. The burden weighs at first on certain classes of citizens; then, by degrees, it apportions itself among a greater number of tax payers, or among all tax payers, and by successive repercussions it becomes an integral part of the price of things, in such a way that the person who buys most things pays most taxes. At first view the tax seems paid, whereas it has only been advanced.

—However, the solution of this question is not, we repeat, possible, as to taxation considered in general; it is possible, if possible at all, only if we consider the different kinds of taxes apart from one another, and according to their special assessment. It is necessary to consider apart their accidental and their permanent effects, their temporary and definitive effects. We must remark, also, that both for taxation and for the cost of production, the law of supply and demand is predominant. That law it is which permits, according to very variable cases and circumstances, the landowner, capitalist or workman to have the tax reimbursed to him by the leaseholder, the manufacturer, or the merchant, and which permits these latter to have themselves reimbursed, in turn, by the consumers; or which compels each of them to pay a part of the tax. It is, therefore, erroneous to affirm that the producer has himself always and equally reimbursed by the consumer. At the end of a period of time, the tax imposed on one or many categories of individuals is repercussed on other classes, and in the end fiscal charges weigh on all the classes of the population, even the taxes on the wealthy, which fall indirectly and in a certain proportion on the poor themselves, since for the labor of the poor there is less demand by the wealthy, whose saving or consumption the tax has curtailed.

—It is an error to say of a tax that its weight divided ad infinitum becomes almost insensible to those who bear it. This would be true of one sole tax, but it is not true when there is question of several taxes; taxes may apportion themselves and repercuss as much as you will, but they must be paid, and they produce their natural effects none the less. Division, diffusion and repercussion are unfortunately not synonymous with evaporation. We can, therefore, formulate no general law as to the incidence, the repercussion or diffusion of taxes. On this point there is among economists a great diversity of opinions and much hesitation."

—Lorenz von Stein, in his Finanzwissenschaft, maintains that all taxes, and even the fines paid by criminals, finally become component parts of the prices of things, just as do the costs of production, and in the last analysis fall on the consumer. Etienne Laspeyres, in the article Staatswirthschaft, in Bluntschli's Staatswörterbuch, defends the same view. As far back as 1790 the Marquis de Cassux published a work, "The Absurdity of the Land Tax," demonstrated by showing that all taxes, no matter of what kind, ultimately become part of the prices of commodities.

—In addition to the opinions of recognized economic authorities above noted by M. Garnier, J. R. M'Culloch, whose article on "Taxation," contributed to the Encyclopædia Britannica, James Mill pronounced "masterly," thus expresses himself: "The truth is, that every burden laid, directly or indirectly, on any article for which there is any considerable demand, falls ultimately on its consumers." ("Taxation and the Funding System," p 17.) M. Thiers, as shown by an extract from his work, "Rights to Property," quoted in connection with this article by the author, was an unqualified believer in the diffusion theory of taxation. Adam Smith would also appear to have completely indorsed it, when he says, "No tax can even reduce, for any considerable time, the rate of profit in any particular trade"—i.e., all business—which must always keep its level with other trades in the neighborhood." And again, in discussing the taxes upon luxuries, he says, "such taxes, though they fall indifferently upon every species of revenue, and are paid finally by whoever consumes the commodities upon which they are imposed," etc. The reader will, therefore, notice that Mr. Wells' views on this department of taxation are substantially in harmony with those of Adam Smith, Ricardo, James Mill, M. Thiers, J. R. M'Culloch, J. B. Say; they also found an earnest advocate in one of the soundest thinkers and shrewd practical observers America has ever produced—the late Isaac Sherman, of New York.—ED.

As applied to the wages of labor, the truth of this principle is equally incontestable. "The sewing girl performing her toilsome work by the needle at one dollar a day, the street sweeper working the mud with his broom at a dollar and a half, the skilled laborer at two and three dollars, the professor at five, the editor at five or ten, the artist and the songstress at ten or five hundred dollars a day, are all members of the working classes, though working at different rates. And it is only the difference in their effectiveness that causes the difference in their earnings. Bring them all to the same point of efficiency, and their earnings also will be the same." (W. Jungst.)
The method in which taxation diffuses itself has been thus illustrated by M. Thiers, in his work "Rights to Property." "In the same manner," he says, "as our senses, deceived by appearances, tell us that it is the sun which moves and not the earth; so a particular tax appears to fall upon one class, and another tax upon another class when in reality it is not so. The tax really best suited to the poorest member of society is that which is best suited to the general fortune of the state; a fortune which is much more for the possession and enjoyment of the poor man than it is for the rich; a fact of which we are never sufficiently convinced. But of the manner, nevertheless, in which taxes are divided among the different classes of the state, the most certain thing we can say is: That they are divided in proportion to what each man consumes, and for a reason not generally recognized or understood, namely, that taxes are reflected, as it were, to infinity, and from reflection to reflection become eventually an integral part of the prices of things. Hence the greatest purchasers and consumers are everywhere the greatest tax payers. This is what I call 'diffusion of taxation,' to borrow a term from physical science, which applies the expression 'diffusion of light' to those numberless reflections, in consequence of which the light which has penetrated the slightest aperture spreads itself around in every direction, and in such a manner as to reach all the objects which it renders visible. So a tax which at first sight appears to be paid directly, in reality is only advanced by the individual who is first called upon to pay it."

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