Part 7

"A permanently high price for wheat is, I fear, a calamity that ere long must be faced," says Sir W. Crookes; but, with due deference to so great an authority, I believe that the day of a permanent high price for wheat is yet far distant. There will be appreciations undoubtedly, but the sources of supply as yet undrawn upon are so great that it will be long before those appreciations are of any prolonged duration; but in the meantime they mean periods of great prosperity to the farmer and therefore to the world. Is a higher price for wheat such an unmixed calamity, after all? Has the average consumer of wheat benefited by the low price of wheat of late years in proportion to the hardships endured by the producer? I think not. Let those who are qualified by literary and scientific knowledge point out if they will the possibility, or even perhaps the probability, of at some period in the future the time coming when there may be, if present conditions continue to exist, a scarcity in the wheat supply, and urge as strongly as they like the advisability of taking steps in good time to prevent such a calamity; but nothing is to be gained by frightening the world with predictions of evil based only on a series of unfounded assertions, mathematical calculations, and "purely speculative computations." When, if ever, the day of scarcity will come is unknown. That it is yet far off appears to be tolerably certain; but it is sufficient for the purposes of this article that it should be understood that Sir W. Crookes's statements concerning the wheat area of Canada are absolutely unreliable and incorrect, and that there are millions of acres of good wheat land waiting for occupation by the surplus population of the world, which, when under cultivation, will assist in deferring for many years the threatened day of famine.

* * * * *

Dr. Sven Hedin, in his account of travel through Asia, mentions as the most remarkable feature in the central region of internal drainage (in which the rivers drain into inland lakes) "the process of leveling which goes on unceasingly. The detritus which results from the disintegrating action of the weather, and the more or less mechanical agency of the wind and water and gravity, is constantly being carried down from the mountains all round its borders toward the lower parts of its depressions, and being deposited there. In this way the natural inequalities in the configuration of the ground are being gradually smoothed away." Mr. Curzon refers to the same phenomenon in the central districts of the Pamirs--the process being the exact reverse to that where the streams hew out deep ravines in their course to the sea-going river.

BEST METHODS OF TAXATION.

BY THE LATE HON. DAVID A. WELLS.

PART III (_concluded_).

The universal and admitted failure of the general property tax to attain good results and the great difficulty, indeed the impossibility, of reducing it to a form in which it can operate with efficiency and an approach to justice, must lead to its abolition and the gradual substitution of other and more simple taxes. However well adapted to a community in which the taxable property was in evidence and easily assessed for purposes of taxation, it becomes antiquated, unequal, and inquisitorial in a people where credit and credit investments have been highly developed, and where the greater social activities, whether in commerce or industry, transportation or production, are conducted by corporations issuing various kinds of securities, none of which can easily be reached by a taxing authority away from the center of incorporation. To undertake to include these securities, evidences of debt, or obligations in a general property tax is to invite evasion, put a heavy inducement on concealment, and, whenever effective, to give rise to shocking inequalities of burden. The widow and orphan, whose property is in the hands of a trustee, pay the full tax; in any other direction the holder of stocks or bonds, money or notes, escapes according to the elasticity of his conscience. The very exemptions recognized by law give an opportunity for new evasions, based upon analogy or upon some technicality under which the business is conducted. Bonds of the United States, the legal-tender notes, or money are beyond the reach of State authorities for the purpose of taxation. In the same category come also all imported goods in original packages, in the possession of the importers, and all property in transit. These exemptions alone amount to thousands of millions of dollars, and the tendency has been to increase the number of items exempted. But every such exception under the law adds to the burdens of the honest taxpayer, and every evasion of taxation also renders his charge the greater. Here is not distributive justice, but concentrated injustice.

Another large proportion of the personal property owned by the citizens of the State is of the most intangible character, and in great part invisible and incorporeal, such, for instance, as negotiable instruments in the form of bills of exchange, State, municipal, and corporate bonds, and, if actually situated in other States, exempt from taxation where they are held; acknowledgments of individual indebtedness, and a number of similar matters. All property of this character is, through a great variety of circumstances, constantly fluctuating in value; is offset by indebtedness which may never be the same one hour with another; is easy to transfer, and by simple delivery is, in fact, transferred continually from one locality to another, and from the protection and laws of one State to the sovereignty and jurisdiction of some other. It is not to be wondered, therefore, that all attempts to value and assess this description of property have proved exceedingly unsatisfactory, and that nearly every civilized community, with the exception of the States of the Federal Union, have long ago abandoned the project as something wholly inexpedient and impracticable.

The differences among the States in the interpretation of residence, of the _situs_ of the property taxed, are also an objection to this system and an obstacle to its application. The want of uniformity can not be abolished by enactments of law, because absolute uniformity of laws would not insure as uniform interpretation of their provisions. The rules for assessment are uniform for the officers of a State, but the returns made involve such differences in the application of the rules that one is forced to the conclusion that a misunderstanding of the spirit of the law exists, coloring differently the view of each returning officer. Discrimination against the county or municipality and discrimination against the individual are to be met at every turn. No wording of the law can eliminate this personal judgment of each assessing authority, and the supervision of the returns by State boards of equalization has introduced an even greater departure from justice, as a majority, based upon selfish interests, may be had, and its decision may readily be defended as based upon good and sufficient reasons. An appeal to the last resort, the higher courts, may produce redress against unjust assessments, but each case must be decided upon its merits, and only under very exceptional circumstances--as in the recent case at Tarrytown, New York, where striking and general, even personal, spite had been shown in the tax levy--can a number of taxpayers find it their interest to combine and carry the question into the courts for adjudication.

Imperfect in theory, the machinery of the general property tax is imperfect. With at present fully two thirds of the personal property of the State exempted from taxation by law or by circumstances growing out of its condition, or the natural depravity and selfishness of the average taxpayer, and with a large part of the other third exempted by competing nations or neighboring States, what becomes of the theory so generally accepted in the United States that in order to tax equitably it is necessary to tax everything? A very slight examination leads to the conclusion that it is the most imperfect system of taxation that ever existed; that, with the exception of moneyed corporations, it is a mere voluntary assessment, which may be diminished at any time by an offset of indebtedness which the law invites the taxpayers to increase _ad infinitum_, borrowing on pledge of corporate stocks, United States bonds, legal-tender notes, etc., all exempt from taxation; that its administration in respect to justice and equity is a farce and more uncertain and hazardous than the chances of the gaming table; and that its continuance is more provocative of immorality and more obstructive of material development than any one agency that can possibly be mentioned. A stringent enforcement only leads to greater perversions and a wider evasion. A lax enforcement does not reduce its inequalities and general want of application to actual conditions.[10]

[Footnote 10: The commissioners "have no confidence in any system of inquisition or system which requires assessors to be clairvoyants; to ascertain things impossible to be ascertained by the agencies provided in the law; to ascertain the indebtedness of the taxpayer; to ascertain or know who is the owner of property at a given time that can be and is transferred hourly from owner to owner by telegraph or lightning, and that may be transported into or out of the jurisdiction of the assessor with the rapidity of steam, or that requires assessors or taxpayers to make assessments on evidence not admissible in any court, civil or criminal, in any civilized country where witches are not tried and condemned by caprice or malice on village or neighborhood gossip."]

The problem, then, is what taxes to introduce in place of this confessed failure of the general property tax.

There can be little doubt that the desire for greater simplicity in taxation is generally felt, and in part put into practice. The mass of various kinds of imposts, added without any system or real connection or relation one to another, has often resulted in so large a number of charges on Government account as to defeat itself. The French taxes at the end of the last century, with their added fault of inequality and injustice in distribution, led naturally to the theory of a single tax--the _impôt unique_ of the physiocrats--which did not become a fact, yet registered the protest against the multiplicity and crying oppressiveness of the remains of feudal dues and fiscal experiments undertaken under the stress of an empty treasury. So it has been noted at the present time that where an opportunity has offered there is a tendency in European countries to simplify their taxes, and, as in the case of Switzerland, prepare the way for income and property taxes. It is a greater dependence on such direct taxes in place of indirect taxes that has distinguished the great fiscal changes in recent years. Germany may have wished to establish a brandy monopoly, and Russia may resort to a monopoly of the manufacture and sale of distilled spirits. But England increases her death duties, France and the United States seek to frame acceptable taxes on income, and Switzerland succeeds in modifying her system in the line of direct taxes.

There is an earnest movement in favor of a single tax on the value of land, exclusive of other real property connected with it. As involving a question of abstract justice the proposition has much in its favor, but it can not be denied that practical obstacles oppose its adoption. The recent commission on taxation in Massachusetts thus treats of it: "It proposes virtually a radical change in the ownership of land, and therefore a revolution in the entire social body. In this form of taxation all revenue from land alone is to be appropriated--that is, the beneficial ownership of land is to cease. Whether or not this system, if it had been adopted at the outset and had since been maintained, would have been to the public advantage may be an open question, but it would certainly seem to be too late now to turn to it in the manner proposed. In any event, it involves properly not questions of taxation, but questions as to the advantage or disadvantage of private property in land."[11]

[Footnote 11: Report of the Massachusetts Commission, 1897, p. 74.]

If securities are to be taxed, the methods adopted should avoid a double taxation, and an attempt to reach capital outside of the State. It is evident that a State, like Massachusetts, which taxes the foreign holder of shares in its corporations as well as the shares of foreign corporations held by its own citizens, is inviting a dangerous reprisal from other States. "Wherever the owner may be, if the corporation is chartered within the State the Commonwealth collects the tax on the shares. Wherever the corporation may be, if the owner is within the State the Commonwealth also collects the tax (in theory of law at least)." If this be the best possible system, and it is supposed Massachusetts assumes it to be, general double taxation would follow its adoption by the other States. The effort to carry this rule into practice proves its injustice as well as futility. The most searching and inquisitorial methods of seeking such property will not avail to reach a good part of it, and this results in adding inequality of burden to its other difficulties. Evasion is too simple a process to be unused, and the heavier the rate of tax the greater will be the resort to evasion and even to perjury, express or implied. The fundamental cause of the failure lies in this, "the endeavor to tax securities, which are no more than evidences of ownership or interest in property, and which offer the easiest means of concealment and evasion, by the same methods and at the same rate as tangible property situated on the spot."

This inherent difficulty can be cured only by abandoning the attempt to tax directly securities or evidences of debt, representing ownership or interest in property beyond the limits of the taxing authority. In the case of the securities of home companies they may be readily taxed at the source, but in the case of foreign corporations it is only by methods almost revolting in their injustice and treatment of the taxpayer that even a partial success can be secured. The dependence upon the sworn statement or declaration of the taxpayer is known to be extremely faulty and to offer a premium on untruthfulness. So long as this dependence is retained in whole or in part in a system for taxing personal property, the results must be unsatisfactory. The most judicious, even if it seems the most radical, remedy is to abandon the taxation of securities. Certainly it would be well to put an end to the Massachusetts plan of taxing securities representing property outside of the State, for that involves double taxation wherever it has been possible to impose the tax. What can be reached only by methods at all times trying and difficult, and sometimes very demoralizing, should not be permitted to remain a permanent feature of the revenue system of a State.

The New York commission of 1870 proposed to limit the State taxes to a very few number of objects. That they be "levied on a comparatively broad basis--like real estate--with certainty, proportionality, and uniformity on a few items of property, like the franchises of all moneyed corporations enjoying the same privileges within the State, and on fixed and unvarying signs of property, like rental values of buildings"--such was the scheme proposed. The leading object to be attained was equality of burdens, and a second object of quite as great importance, was simplicity in assessment and collection. Granting that real estate, lands, and buildings were taxed on a full and fair market valuation, and that corporations contributed their share toward the expenses of the State, it remained to devise a tax that should reach all other forms of property that could be properly and easily assessed. This tax was to be known as the "building-occupancy" tax, and was to be levied on an additional assessment of a sum equal to three times the annual rent or rental value of all the buildings on the land.[12] Nearly thirty years later the Massachusetts commission proposed a modified form of this tax. An annual rental value of four hundred dollars was to be exempt from taxation, but ten per cent was to be levied on all rental values in excess of that amount.

[Footnote 12: The New York commission of 1870 submitted two propositions on this point:

1. Tax the house or building as real estate separately, at the same rate of valuation as the land--that is, fifty per cent--and then assuming that the value of the house or building, irrespective of its contents, be such contents furniture, machinery, or any other chattels whatsoever, is the sign or index which the owner or occupier puts out of his personal property, tax the house or building on a valuation of fifty per cent additional to its real estate valuation, as the representative value of such personal property; or, in other words, tax the land separately on fifty per cent of its fair marketable valuation, and tax the building apart from the land, as representing the owner's personal property, on a _full_ valuation, as indicated by the rent actually paid for it or its estimated rental value. Or--

2. Tax buildings conjointly with land as real estate at a uniform valuation; and then as the equivalent for all taxation on personal property, tax the occupier, be he owner or tenant of any building or portion of any building used as a dwelling, or for any other purpose, on a valuation of three times the rental or rental value of the premises occupied. Tenement houses occupied by more than one family, or tenement houses having a rental value not in excess of a fixed sum, to be taxed to the owner as occupier.--_Report_, p. 107.]

"The advantages of a tax on house rentals," said the commission, "can be easily stated. It is clear, almost impossible of evasion, easy of administration, well fitted to yield a revenue for local uses, and certain to yield such a revenue. It is clear, because the rental value of a house is comparatively easy to ascertain. The tax is based on a part of a man's affairs which he publishes to all the world. It requires no inquisition and no inquiry into private matters; it uses simply the evidence of a man's means which he already offers."[13] If this tax were to be given it would be possible to wipe out all the tax on incomes from "profession, trade, or employment," to abolish the existing assessments on personal property. The effects would be far-reaching. If loans of money are free from taxation, the purchasing power of money in the same degree must diminish, which simply means that the purchasing power of farms and products of farms for money must to the same extent increase; hence, the borrower on bond and mortgage will not be subject to double taxation--first, in the form of increased rate of interest, and then in taxation of his real estate--and hence the farmer or landowner who is not in the habit of either lending or borrowing money will find his ability to meet additional taxation on his land increased in additional value of land and products of land in proportion as the tax is removed from money at interest. Also, the exemption of the products of farms and things consumed on farms from taxation will give a corresponding increased value to compensate for the "building-occupancy" tax. Tenants controlled by all-pervading natural laws can and will give increased rents, if their personal property is exempt primarily from taxation. The average profits of money at interest or of dealings in visible personal property free from taxation can not exceed, for any considerable length of time, the average profits of real estate, risk of investment and skill in management taken into consideration; and therefore the real pressure of taxation under the proposed system will finally be, like atmospheric pressure or pressure of water, on all sides, and by a natural uniform law executed upon all property in every form used and consumed in the State. Persons must occupy buildings and business must be done in buildings, and through these visible instrumentalities capital can be reached by a rule of fractional uniformity, and by a simple, plain, and economical method of assessment and collection.

[Footnote 13: Massachusetts Report, p. 106.]

This building-occupancy tax, or tax on rental value, does not preclude a supplementary tax on corporations.

Much has been said of the onerous burdens of taxation endured by individuals compared with those of corporations, and especially corporations enjoying certain rights or franchises in public streets and highways or corporations of a more or less public character. The phenomenal growth of municipalities has been one of the notable social movements of the last twenty-five years. The drift of population from the country districts to cities has increased with each year, and finds an explanation in many causes. The opportunities offered in a city for advancement are greater and more numerous; the monotony of the farm life does not keep the young at home, but drives them for excitement and profit to the great centers of population. The economic changes of a half century also have their influence. The competition of new regions, better adapted for certain cultures on a commercial scale, has reduced the profitableness of older and more settled localities, where comparatively costly methods must be resorted to if the fertility of the land is to be maintained. The wheat fields of the West narrowed the margin of profit in New England farming, while the sheep and cattle ranges of the West made it impossible for the same quality of live stock to be raised for profit in the East. Farms were abandoned, and the younger blood went West to grow up with the country, or into the cities to struggle for a living. Further, the advances in agriculture, the application of more productive methods, and the introduction of machinery have reduced the demand for labor in the rural districts, and this has led to a migration to the cities.

The result of this has been an immense development of city life, and with it an ever-increasing field for investment in corporate activities. The supply of water is usually in the city's control, but the manufacture and sale of gas, the production and distribution of electricity, the street railways, telegraph, and telephone interests are private corporations formed for profit and using more or less the public highways in the conduct of their various enterprises. A grant of a street or highway for a railway or electric-wire subway generally involves a monopoly of that use, and the privilege or franchise may become more valuable with the mere growth in the population of the cities. Assured against an immediate competition, there is a steady increment in the value of the franchise, and in the case of a true monopoly there seems to be no limits to its possible growth.