Part 4

Last year I made not less than eighty such short excursions, each time with classes of about thirty-five. They were children of from seven to fourteen years of age. Without their hats, taking with them note-books, pencils, and knives, they passed with me to the street. The passers-by stopped to gaze at us, some with expressions of amusement, others of astonishment; approval sometimes, quite frequently the reverse. But I never once saw on the part of the children a consciousness of the mild sensation that they were creating. They went for a definite purpose, which was always accomplished.

The children of the first and second years study nearly the same objects. Those of the third and fourth years review this general work, studying more thoroughly some one type. When they enter the fifth year, they have considerable causal knowledge of the familiar plants and animals, of the stones, and of the weather. But, what is more precious to them, they are sufficiently trained to be able to look at new objects with a truly "seeing eye."

The course of study now requires general ideas of physiology, and, in consequences, the greater portion of their time for science is devoted to this subject. I am glad to be able to say, however, that it is not "School Physiology" which they study, but the guinea-pig and The Wandering Jew!

In other words, I let them find out for themselves how and what the guinea-pig eats; how and what he expires and inspires; how and why he moves. Along with this they study also plant respiration, transpiration, assimilation, and reproduction, comparing these processes with those of animals, including themselves.

The children's interest is aroused and their observation stimulated by the constant presence in the room with them of a mother guinea-pig and her child. Nevertheless, I have not hesitated to call in outside materials to help them to understand the work. A series of lessons on the lime carbonates, therefore, preceded the lessons on respiration; an elephant's tooth, which I happened to have, helped to explain the guinea-pig's molars; and a microscope and a frog's leg made real to them the circulation of the blood.

In spite of the time required for the physiology, the fifth-year children have about thirty lessons on minerals; the sixth-year, the same number on plants; and the seventh-year, on animals; and it would be difficult to decide which of these subjects rouses their greatest enthusiasm.

PRINCIPLES OF TAXATION.[6]

BY THE LATE HON. DAVID A. WELLS.

XX.--THE LAW OF THE DIFFUSION OF TAXES.

PART I.

No attempt ought to be made to construct or formulate an economically correct, equitable, and efficient system of taxation which does not give full consideration to the method or extent to which taxes diffuse themselves after their first incidence. On this subject there is a great difference of opinion, which has occasioned, for more than a century, a vast and never-ending discussion on the part of economic writers. All of this, however, has resulted in no generally accepted practical conclusions; has been truthfully characterized by a leading French economist (M. Parieu) as marked in no small part by the "simplicity of ignorance," and from a somewhat complete review (recently published[7]) of the conflicting theories advanced by participants one rises with a feeling of weariness and disgust.

The majority of economists, legislators, and the public generally incline to the opinion that taxes mainly rest where they are laid, and are not shifted or diffused to an extent that requires any recognition in the enactment of statutes for their assessment. Thus, a tax commission of Massachusetts, as the result of their investigations, arrived at the conclusion that "the tendency of taxes is that they must be paid by the actual persons on whom they are levied." But a little thought must, however, make clear that unless the advancement of taxes and their final and actual payment are one and the same thing, the Massachusetts statement is simply an evasion of the main question at issue, and that its authors had no intelligent conception of it. A better proposition, and one that may even be regarded as an economic axiom, is that, regarding taxation as a synonym for a force, as it really is, it follows the natural and invariable law of all forces, and distributes itself in the line of least resistance. It is also valuable as indicating the line of inquiry most likely to lead to exact and practical conclusions. But beyond this it lacks value, inasmuch as it fails to embody any suggestions as to the best method of making the involved principle a basis for any general system for correct taxation; inasmuch as "the line of least resistance" is not a positive factor, and may be and often is so arranged as to make levies on the part of the State under the name of taxation subservient to private rather than public interests. Under such circumstances the question naturally arises, What is the best method for determining, at least, the approximative truth in respect to this vexed subject? A manifestly correct answer would be: _first_, to avoid at the outset all theoretic assumptions as a basis for reasoning; _second_, to obtain and marshal all the facts and conditions incident to the inquiry or deducible from experience; _third_, recognize the interdependence of all such facts and conclusions; _fourth_, be practical in the highest degree in accepting things as they are, and dealing with them as they are found; and on such a basis attention is next asked to the following line of investigations.

It is essential at the outset to correct reasoning that the distinction between _taxation_ and _spoliation_ be kept clearly in view. That only is entitled to be called a tax law which levies uniformly upon all the subjects of taxation; which does not of itself exempt any part of the property of _the same_ class which is selected to bear the primary burden of taxation, or by its imperfections to any extent permits such exemptions. All levies or assessments made by the State on the persons, property, or business of its citizens that do not conform to such conditions are spoliations, concerning which nothing but irregularity can be predicated; nothing positive concerning their diffusion can be asserted; and the most complete collection of experiences in respect to them can not be properly dignified as "a science." And it may be properly claimed that from a nonrecognition or lack of appreciation of the broad distinction between taxation and spoliation, the disagreement among economists respecting the diffusion of taxes has mainly originated.

With this premise, let us next consider what facts and experiences are pertinent to this subject, and available to assist in reaching sound conclusions; proceeding very carefully and cautiously in so doing, inasmuch as territory is to be entered upon that has not been generally or thoroughly explored.

The facts and experiences of first importance in such inquiry are that the examination of the tax rolls in any State, city, or municipality of the United States will show that surprisingly small numbers of persons primarily pay or advance any kind of taxes. 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 two per cent of the total population of the United States advance the entire customs and internal revenue of the Federal Government.

In the investigations made in 1871, by a commission created by the Legislature of the State of New York to revise its laws relative to the assessment and collection of taxes, it was found that in the city of New York, out of a population of over one million in the above year, only 8,920 names, or less than one per cent of this great multitude of people, had "any household furniture, money, goods, chattels, debts due from solvent debtors, whether on account of contract, note, bond, or mortgage, or any public stocks, or stocks in moneyed corporations, or in general any personal property of which the assessors could take cognizance for taxation"; and further, that not over _four_ per cent, or, say, forty thousand persons out of the million, were subject to any primary tax in respect to the ownership of any property whatever, real or personal; while only a few years subsequent, or in 1875, the regular tax commissioners of New York estimated that of the property defined and described by the laws of the State as personal property, an amount approximating two thousand million dollars in value was held in New York city alone. Later investigations show that this state of things has continued. Thus, in 1895, out of a population of about two million, it was estimated that only seventy-nine thousand, or not over four per cent of the inhabitants of the city, were subject to primary taxation, and that one half the whole amount collected in that year was paid by less than a thousand persons. In the city of Boston, where the tax laws are executed in the most arbitrary manner, the ratio of population directly assessed is somewhat greater, but aside from the poll tax, which is a per capita and not a property tax, only 7.27 per cent of residents paid a property tax in 1895 out of a population of 494,205. In one of the smaller cities of Massachusetts, where persons and property are capable of more thorough supervision than larger numbers and areas--namely, the city of Springfield, with a population of about fifty thousand--the report of its tax officials shows that for the year 1894-'95 the number of persons and corporations assessed on property (mainly real estate) was 7,745, or one for every 6.4 of its citizens, while 10,560 other citizens were assessed for a poll tax of two dollars only. Of the total amount of taxes assessed--namely, $735,948--the above number, 10,560, paid only $21,120; and this is the experience generally throughout the United States, as it will be in every country under a free popular government, where arbitrary inquisitions and arrests of persons and seizures of property are not allowed, and where a soldier does not practically stand behind every tax assessor and collector.

The time (1871) when the personal investigations above referred to were made was when the masses of the city of New York were moved with indignation at the misuse and private appropriation by a few officials (Tweed and his associates) of the municipal revenues raised by taxation, under cover of instituting public improvements, and which finally led to their prosecution, imprisonment, or self-imposed exile; and the questions which naturally suggested themselves were: If only some forty thousand of the million in New York city paid the taxes, what interest had the other nine hundred and sixty thousand who never saw the face of a tax assessor or collector in opposing corruption? What, in an honest administration of the city government and in a reduction of taxes? Must it not be for the interest of the many that the expenditures of the State shall always be as large as possible? Must they not be benefited by exorbitant taxes on the owners of property, and a distribution of the money collected, even if stolen by corruptionists, but spent by them lavishly on enterprises that will furnish new opportunities for employment or amusement for the masses? Clearly, so far as any personal experience growing out of any _direct_ assessment and levy was concerned, ninety-six per cent of the population of the city had no more cause of personal grievance by reason of the unlawful taking of money from the city treasury than they would have had at the taking of an equivalent amount from the municipal treasuries of London, Paris, or any other city.

The answer to these questions is to be found in the fact, as John Adams once remarked, that "if the Creator had given man a reason that is fallible, he has also impressed upon him an instinct that is sure." And this instinct teaches the masses everywhere, though they have never read a book on political economy, or heard any one discourse learnedly on the principles of taxation, that if taxes are increased, either by a lawful or unlawful expenditure of public money, they can not in any possible way avoid paying some portion of its increase; or, in other words, that increased taxes meant increased cost of living, through increased rents, increased price of fuel, clothing, and provisions, and possibly diminished opportunity to labor through such increased cost of the products of labor as would limit and restrict markets or consumption. In short, that taxes inevitably fall upon them through the increased price of all they consume, even if they pay nothing to the tax collector directly. A large proportion of the masses of the city of New York in 1871-'72, who paid no taxes directly, accordingly and spontaneously joined hands with the comparatively few of their fellow-citizens who did pay in resisting extravagance and corruption.[8]

We are thus led up and forced to the recognition of two propositions, or rather principles, in respect to taxation that can not be invalidated. The _first_ is, that it is not necessary that a tax assessor or collector should personally assess and levy upon every citizen of a State or community in order that all should be compelled to contribute of his property for the support of such State or community; _second_, that there is an inexorable law by which every man must bear a portion of the burden of public expenditures, even though the official assessors take no direct cognizance of him whatever.

The following incident may here be cited as instructive: In one of the recent official hearings before a legislative committee of one of the States, a strenuous advocate of the popular doctrine that there was and could be no such thing as equality in taxation except by rigidly taxing everybody directly for all his property, of every description, both real and personal, and that to not tax immediately and directly was, in at least a great degree, to exempt from taxation, expressed himself as entirely opposed to any system of restricting assessments to a comparatively few things, on the ground that it would be a recognition in the United States of a system which in Great Britain had ground down the masses into poverty. He, however, obtained some new light on the subject of nondiffusion by being reminded that if the masses of England had been grievously oppressed by taxation, it had been under a system of many years' standing, which never in any way brings the tax collector in direct contact with nineteen twentieths of the entire population; the customs taxes of Great Britain being practically levied on only four articles--spirits, tea, coffee, and tobacco; and the inland revenue also on practically four--spirits, beer, legacies and successions, and stamps (on deeds, insurance policies, bills of exchange, receipts, drafts, etc.). Generalizing, then, on the basis of so broad a fact, how illogical and unscientific was the assumption that whatever persons, property, or business are not taxed directly are exempt from taxation!--and yet the practical exemplification of such a system, in the case of England, was a most efficient instrumentality for grinding the masses of her people down to poverty.

On the other hand, to generalize from the experience of an individual or a class in place of that of a nation or community, let us take the case of a person who passes all the year _in transitu_--moving backward and forward, for example, in a boat on the line of the Erie Canal, or between the head waters of the Mississippi and its mouth; a citizen of no one State, a resident in no one town, and buying all that he eats, drinks, and wears wherever he can buy cheapest. Does this man escape taxation because he has no permanent _situs_ (residence as a citizen), and is unknown by any assessor? If he does, then his occupation is more profitable to the extent of the taxes he avoids than is that of the individual who, following analogous occupations, resides permanently in one location, and pays taxes regularly; or else some notable, easily discernible cause, as undue competition to obtain situations, will account for his exemption.

Let us next consider how practical experience definitely indicates the line of least resistance, in conformity with which those contributions of property or service which the State requires its citizens to make for its support, and are worthy of designation as taxes, diffuse themselves. Let us take first that form of indirect taxation which is known as customs, or taxes on imports, one from which the Federal Government of the United States has derived in recent years more than half of its revenue, and Great Britain more than one fourth of its total receipts from all forms of imperial taxes. That all such taxes as a rule diffuse themselves, and ultimately fall upon and are paid by final consumers, is capable of demonstration by a great variety of evidence. Every remission of customs duties on the imports into any country of its staple articles of consumption is followed by a reduction of cost approximately equal to such reduction, and a consequent increase in consumption. On the other hand, nothing is better settled than that an increase in customs taxes on imported articles as a rule increases prices and tends to reduce consumption. When Great Britain, in 1863, reduced her taxes (duties) on her imports of tea from 1_s._ 5_d._ to 1_s._ per pound, her importation of tea increased from 114,000,000 pounds in 1862 to 139,000,000 in 1866, and her per capita consumption during the same period from 2.70 pounds to 3.42 pounds; and again, when the duty was further reduced in 1865 from 1_s._ to 6_d._ per pound, the annual importations increased from 139,000,000 in 1866 to 209,000,000 in 1881, and the per capita consumption from 3.42 pounds to 4.58.

When by the act of October, 1890, the tax was removed from the imports of crude sugars into the United States, the price of the same went down almost immediately to an equal extent in all American markets; while the consumption of sugar in the country increased from an average of about fifty-four pounds per capita in 1890 to more than sixty-seven pounds in 1892. A like result has attended a similar experience in respect to this in other countries, and especially in Great Britain. Thus, the aggregate consumption of sugar by the British people in 1844 was returned at 237,143 tons. A reduction of taxes on its importation in 1864 increased its domestic use to 528,919 tons; a reduction of fifty per cent on existing rates in 1870 made it 695,029 tons; another reduction of fifty per cent in 1873 carried up consumption to 779,000 tons; and when, in 1874, all taxes on the imports of sugar were abolished, the annual domestic consumption increased in little more than a year's period to 930,000 tons. On the other hand, when by the tariff act of 1890 an additional tax of half a cent per pound was imposed on the import of tin plate into the United States, tin plate went up to an equal extent in price all over the country; and so also on pearl buttons, linen goods, and other articles of foreign production on the importations of which the tariff taxes were largely increased. By the tariff act of 1890, also, eggs, which could formerly be imported into the United States free of duty, were made subject to a tax of five cents per dozen. Since then the price of eggs imported from Canada into districts of the United States within the same sphere of territorial competition has been increased to the American consumers to almost exactly the extent of the import tax to which they are subjected. Thus, when the price of eggs was ten and a half cents per dozen in Toronto, they were sixteen cents in Buffalo and sixteen and a half to seventeen cents in New York. Such a result would be unaccountable if the Canadian farmers paid the duty on eggs sent by them to the United States.

It is interesting to here ask attention to the opinions entertained and expressed by those whose situation and experience have qualified them to speak with authority: "The duty constitutes the price of the whole mass of the article in the market. It is substantially paid on the article of domestic manufacture, as well as that of foreign production" (John Quincy Adams). "I said it, and I stand by it, that as a general rule the duties paid on imports operate as a tax upon the consumer" (John Sherman). Mr. Blaine, in his Twenty Years in Congress, says, speaking of the increase of duties on imports by the tariff act of July 14, 1862, that it "shut out still more conclusively all competition from foreign fabrics. The increased cost was charged to the consumer." Mr. McKinley, in 1890, in a report introducing a bill for revision of the tariff of the United States, in the direction of increased rates of duties on imports, said it was not the intent of the bill "to further cut down prices," that the people were "already suffering from low prices," and would not be satisfied "with legislation which will result in lower prices." In an elaborate opinion given by the New York Court of Appeals in 1851 (see vol. iv, New York Reports), in which there was no suspicion of any issue of free trade or protection, the courts, in carefully considering the relative powers of the legislature and the judiciary in respect to taxation, assumed the proposition that "_all duties on imported goods are taxes on the class of consumers_" to be in the nature of a self-evident truth or economic axiom.

Henry Clay, in a celebrated speech in the United States House of Representatives in 1833, in advocacy of a protective tariff policy, candidly admitted that "in general it may be taken as a rule that the duty upon an article forms a portion of its price." But he subsequently qualified such admission by claiming that it does not follow that any consequent enhancement of its price is a tax on consumers, inasmuch as "directly or indirectly, in one form or another, all consumers of protected articles, enhanced in price," will get an equivalent. But this may be equally affirmed of all necessary and equitable taxation, and does not in any way antagonize the theory that the final incidence of the class of taxes under consideration falls on consumption.