Academy of Political and Social Science, Journal of Political Economy, Yale

Review.

FORMS OF TAXATION: E. R. A. Seligman, Essays in Taxation (1895), chs. i-viii, xi; E. R. A. Seligman, Shifting and Incidence of Taxation (2d ed., 1899); E. R. A. Seligman, Progressive Taxation in Theory and Practice (Amer. Econ. Assoc., Publications, IX, Nos. 1, 2, 1894) ; E. R. A. Seligman, Franchise Tax Law in New York (Quarterly Journal of Economics, XIII, 445-452, 1898); J. F. Dillon, Municipal Corporations (4th ed., 1890), II, ch. xix; T. M. Cooley, Law of Taxation (2d ed., 1886); T. M. Cooley, Constitutional Limitations (6th ed., 1890), ch. xiv; M. West, Theory of Inheritance Tax, City and Country Taxes (Political Science Quarterly, VIII, 426-444, XIV, 305-324, 470-499, 1893, 1899); J. C. Schwab, History of the New York Property Tax (Amer. Econ. Assoc., Publications, V, No. 5, 1890); B. A. Hinsdale, American Government (rev. ed., 1895), §§ 342-346; J. Bryce, American Commonwealth (rev. ed., 1895), I, 513521, 614, 529; C. W. Eliot, American Contributions to Civilization (1897), Nos. xiii, xiv; H. George, Progress and Poverty (1879), book viii, chs. iii, iv; R. T. Ely, Taxation in American States and Cities (1888); L. Purdy, Taxation of Personalty (Municipal Affairs, III, 299–327, 1899); Single Tax Discussion (Journal of Social Science, XXVII, 1–124, 1890); C. C. Plehn, General Property Tax in California (Amer. Econ. Assoc., Economic Studies, II, No. 3, 1897); F. C. Howe, Taxation under the Internal Revenue System (1896); C. F. Dunbar, Direct Tax, Income Tax (Quarterly Journal of Economics, III, 436-461, IX, 26-46, 1889, 1894); J. A. Hill, Civil War Income Tax (Quarterly Journal of Economics, VIII, 416-452, 491-498, 1894); B. W. Holt, Single Tax (Municipal Affairs, III, 328-349, 1899); C. J. Bullock, Direct Taxes under the Constitution (Political Science Quarterly, XV, 217-239, 452-481, 1900); F. L. Olmstead, Tobacco Tax (Quarterly Journal of Economics, V, 193-219, 262, 1891); H. C. Bannard, Oleomargarine Law (Political Science Quarterly, II, 545– 557, 1887); R. L. Ashley, American Federal State (1902), ch. xxv.

ASSESSMENT AND COLLECTION OF TAXES: V. Rosewater, Special Assessments (Columbia University, Studies, II, No. 3, 1893); F. Walker, Double Taxation (Columbia University, Studies, V, No. 1, 1895); F. J. Goodnow, Collection of Duties (Political Science Quarterly, I, 36–44, 1886); E. J. Shriver, How Customs Duties Work (Political Science Quarterly, II, 265-273, 1887); F. R. Clow, Comparative Study of the Administration of City Finances (Amer. Econ. Assoc., Publications, 3d ser. II, No. 4, 1901); N. Matthews, Double Taxation (Quarterly Journal of Economics, IV, 339– 345, 1890); J. W. Chapman, State Tax Commissions (Johns Hopkins University, Studies, XV., Nos. 10-11, 1897); T. M. Cooley, Constitutional Limitations (6th ed., 1890), ch. xiv; T. M. Cooley, Law of Taxation (2d ed., 1886), ch. xii; E. A. Angell, Tax Inquisitor System in Ohio (Yale Review, V, 350-373, 1897); T. N. Carver, Ohio Inquisitor Tax Law (Amer. Econ. Assoc., Economic Studies, III, No. 3, 1898); R. H. Whitten, Assessment in Chicago (Journal of Political Economy, V, 173–200, 1897). CUSTOMS DUTIES AND PROTECTION : W. Hill, Colonial Tariffs

(Quarterly Journal of Economics, VII, 78-100, 1892); M. E. Kelley, Tariff Acts under the Confederation (Quarterly Journal of Economics, II, 473–481, 1888); O. L. Elliott, Tariff Controversy (Stanford University, Monographs, No. 1, 1892); D. R. Dewey, Financial History (American Citizen Series, 1902), chs. viii, xi, xix, xx; E. L. Godkin, Problems of Modern Democracy (1897), No. iii; J. D. Goss, Tariff Administration (Columbia University, Studies, I, No. 2, 1881); F. W. Taussig, Tariff History (4th ed., 1898); F. J. Goodnow, Collection of Duties (Political Science Quarterly, 1, 36–44, 1886); E. J. Shriver, How Customs Duties Work (Political Science Quarterly, II, 265-273, 1887); S. B. Harding, Minimum Principle (Amer. Acad. Pol. Sci., Annals, VI, 100-116, 1895); O. H. Perry, Proposed Tariff Legislation since 1883 (Quarterly Journal of Economics, II. 69–75, 1887); T. B. Reed, Tariff and Business (North American Review, CLVIII, 110-118, 1894); W. Hill, First Stages of the Tariff Policy (Amer. Econ. Assoc., Publications, VIII, No. 6, 1893); E. Atkinson, Taxation and Work (1892), chs. i-xxv, xxx, xxxi; W. G. Sumner, Lectures on the History of Protection (1877). - Sources: F. W. Taussig, State Papers and Speeches on the Tariff (1893); E. Young, Special Report on the Customs Tariff Legislation (1872) (House Executive Documents, 42 Cong., 2 sess., No. 109); A. B. Hart, Contemporaries (1897-1901), III, §§ 78, 130, IV, §§ 164, 166; Tariff Hearings before the Committee on Ways and Means, 1893 (House Miscellaneous Documents, 53 Cong., I sess., No. 43); D. Manning, Reports of the Secretary of the Treasury (1885, 1886); Secretary of the Treasury, Annual Report; Commissioner of Customs, Annual Report.

172. Land Taxes.

Next in importance to territorial functions are the financial : without the expenditure of money no power requiring private lands, buildings, materials, stores, or land and naval forces, can be carried out. For all these outgoes, governments rely on three sources, - taxes, loans, and income from public property. The federal, state, and local governments have very little productive property, and the American theory of public debt is that it is something to be paid and extinguished; hence the usual reliance for the support of government is taxation.

Taxation rests in the inherent principle that governments have a legal right, in return for the protection and good order which they afford, to take such part of the annual product of the country, by imposing taxes payable in money, as may be necessary for governmental purposes. So long as people all

have about the same kind of property,

are all farmers, all

artisans, or all sailors- it is not difficult to find a basis of taxation which will bear about equally on all the members in the community. In a complicated society like that of the United States, with many kinds of people and property, taxes are numerous and often inequitably distributed.

The most obvious subject of taxation is land, or rather real estate, which is land and the permanent structures resting upon it; in cities the buildings may be worth as much as the site, while the farm land far exceeds farm buildings in value. Throughout the United States, this is the main source of state and municipal revenue; but there are many kinds of land, from barren mountains to corner lots in Wall Street, and the land tax is full of inequalities and variations. Fortunately, the problem is simplified by the fact that the federal government has rarely exercised its constitutional authority to tax land. Direct taxes were assessed upon land in 1798, 1814, and 1861, but under the constitution they had to be distributed in proportion to population. Hence, for forty years there has been no federal land tax: it has been left to the states and municipalities, to which the land tax furnishes from three fourths to nine tenths of all their income.

Land is visible property, and hence cannot escape the assessors; land is valuable property, almost always finding a purchaser at some figure; the value of land can be estimated from the occasional sales of neighboring property; land is the absolute condition of all human existence, since every family must have ground under its feet: the weight of a land tax is therefore more widely distributed than any other form of taxation; and it is almost sure of collection, because unpaid taxes are a first lien on the land. One of the changes most ardently demanded by some tax reformers is to throw the whole taxation upon land, partly because of the ease of assessment and collection, partly because it is hoped in this way to gain for the public some of the advantages of the rapid increase of real-estate values in crowded communities.

173. Taxes on Personal Property.

In addition to land taxes, every state and city levies a variety of other taxes, the most common of which is the poll-tax, ranging from 30 cents in some states up to $3 in others. This is assessed on men over twenty-one years of age; but, unless they are holders of other property, it is difficult to collect, even when payment is made a prerequisite to voting.

Personal-property taxes are assessed on visible personal effects, such as furniture, clothing, watches and jewelry, on machinery, animals, stocks of goods, ships, and other property not attached to land; and also upon money in hand and upon paper evidences of property. Since thousands of millions of dollars in the United States are held in the form of paper obligations public securities, mortgages, corporation stocks. and bonds, most of the states attempt to tax such possessions as part of the wealth of the holders. Unfortunately, in most cases they are only evidences of visible property, which is taxed where it lies: a land mortgage is practically a temporary part-ownership in a piece of real estate; and railroad bonds simply represent the roadbed, stations, and rolling stock of the railroad, all of which are already subject to taxation. Such property is easy to conceal, and therefore hard to assess equitably, especially when the holders of securities feel that they are taxed double.

Another personal tax is on incomes; but few states make much use of their power to lay income taxes, although these exist in Massachusetts, Pennsylvania, Virginia, and North Carolina. The federal government has twice laid an income tax over the whole country: by acts of July 2, 1862, and June 30, 1863, 3 per cent was payable on all incomes exceeding $600 a year and less than $10,000, 5 per cent on incomes of $10,000 and over, and 10 per cent on incomes above $10,000. It was always an unpopular tax: first, because it could be fairly assessed only by detailed and unwelcome inquiries into the business affairs of wealthy men; secondly, because various

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deductions were allowed, for instance, all state and local taxes; in the third place, because evasion was easy and hence the tax very unequal. In 1866 this tax produced $61,000,000; in 1867, $57,000,000. The total proceeds were in ten years about $347,000,000, but this sum was paid chiefly by people in a few wealthy states. In 1872 the tax was repealed.

In 1894 the so-called "Wilson-Gorman Tariff Bill" somewhat reduced the tariff. To offset the loss of revenue, a second income tax was enacted, levying 2 per cent on the surplus of incomes above $4,000; receipts from interest on United States bonds and the salaries of United States officials were exempted. The act specifically included the net profits or incomes of most corporations, other than charitable and religious societies, savings banks, and insurance companies.

Before this tax was fairly under way its constitutionality was attacked, although the similar income tax of 1862 had been held valid by the Supreme Court. That court, in a decision of April 8, 1895 (Pollock v. Farmers' Loan and Trust Company), held unconstitutional that part of the act which taxed incomes from state, county, and municipal bonds, and incomes derived from real estate. The decision was based on the ground that a tax on the income from state bonds was equivalent to a tax on the state; it was influenced by the fact that state taxes on incomes from United States bonds had repeatedly been held unconstitutional. A tax on rent was held to be equivalent to a tax on land, and hence to be a direct

tax.

The decision practically destroyed the unity and fairness of the act; and on May 20, 1895, on a rehearing, the court went still farther, and declared that a tax on income of any kind was a direct tax, which under the constitution must be assessed in proportion to the population of the state. Four judges dissented, but the act was invalidated; hence, in case of future need, the United States will be unable to make use of a form of taxation very common in other countries, very