Popular Science Monthly/Volume 50/January 1897/Principles of Taxation: Limitations of Purpose XIII
|PRINCIPLES OF TAXATION.|
By DAVID A. WELLS, LL.D., D.C.L.,
CORRESPONDANT DE L'INSTITUT DE FRANCE, ETC.
V.—LIMITATION AS RESPECTS INSTRUMENTALITIES BY WHICH TAXATION IN A CIVILIZED STATE EFFECTS ITS PURPOSE.
ATTENTION is next asked to the instrumentality by which taxation subserves the necessities of the state and enables it to effect the purposes for which it was instituted. The designation of this instrumentality is "revenue," as is indicated in the phrase "tariff (or taxation) for revenue." But the term "revenue" is abstract and most indefinite, and as popularly used conveys little meaning other than a receipt of something of value. In rude or incipient forms of government, where tribute or taxes were payable in cattle, skins, cocoanuts, salt, grain, and the like, the term might be fairly interpreted as an income of property in general. But in a highly civilized state such a meaning is inadmissible. The government of such a state obviously could not defray its varied expenses by payments with various articles of property, even though their value may be unquestioned—as, for example, its executive with fish, fresh or salt; its legislators with distilled or fermented liquors; its judges with boots and shoes; its soldiers and sailors with cotton or corn; and its clerks with agricultural implements—even though the producers of all these forms of wealth or property may be most willing to give them in discharge of their tax obligations. In such a state revenue has and can have, therefore, but one meaning namely, money j because money is the indispensable and practically the only means of defraying the expenses of the state and efficiently administering its government; and taxation is the process by which the state obtains money from its citizens, who in turn obtain (as before pointed out see Chapter III) it in exchange for some product of their labor or for some direct personal service. In short, money is an expedient that finds its sole justification in its adaptation to a special purpose.
At the same time it is important to bear in mind that the raising or procurement of money with the view or purpose of accumulating wealth is not a legitimate function or object of civil government.
This point, which, stated and regarded as an abstract proposition, may seem to the reader as a matter of interest but of little practical importance, finds a very interesting and most instructive exemplification in the recent attempt to govern South Africa by means of a chartered company "The South African Company." The attempt failed by the confusing on the part of the company of two things which are absolutely irreconcilable and ought never to be associated namely, the prerogative of governing men on the one hand and the desire of making money on the other. This the company in question attempted to do by taxing the inhabitants of the territory embraced in its charter for the purpose of making dividends for shareholders, who as a rule did not live in the country, but mainly in England. The result has been a thoroughly vicious and intolerable form of government, one which "has operated to deaden the sense of responsibility among the rulers, who are here to-day but are gone to-morrow, and answerable to nobody but the company."
Now, if these premises are correct and it is difficult to see how they can be disproved it would seem to follow that to seek to make taxation, which is a fit contrivance only for raising revenue, an instrument for effecting some ulterior purpose, be it never so just and legitimate, to seek to use it for the attainment of any other advantage than the obvious one of raising money, is to lose sight of a fundamental principle of every free government and to forbid all expectation of recognizing any other basis for the exercise of this great sovereign power of the state than expediency, which in turn will depend upon the actions, passions, and
prejudices of legislators, who may not be the same in any two successive legislative assemblies.
Such a perversion of principle, furthermore, reaches its climax of absurdity in practice when its immediate beneficiaries claim to be the only proper persons by whom the incidence and amount of taxation can be intelligently determined—a claim that is practically equivalent to the assumption that privilege should take precedence of rights in the theory of government. And yet there have been but very few of the revenue enactments in recent years of the Federal Government of the United States that have not only indorsed the rightfulness and desirability of such claims, but have made them the basis of most important legislation.
As this subject has hitherto received but little attention from legislators and the legal profession in the United States, the following citations from recognized American authorities are most pertinent in this connection:
"A burden laid not for the purpose of producing revenue, but in order to accomplish some ulterior object which the General Government lacks the power otherwise to accomplish, comes under no definition of the word "tax" which is recognized in public law. It demands no contributions for the service of the state; it adds and is expected to add nothing to the public revenue. It annihilates that upon which it is levied, and it differs from confiscation only in this: that confiscation seizes something of value and appropriates it to the needs of the Government, thus making it useful, while this seizes it for the purpose of destruction."—Cooley, Law of Taxation, p. 75.
"One grievous invasion of property—and of course ultimately of labor, from whose accumulations all property grows—is by Government itself, in the shape of taxation for objects not necessary for the common defense and general welfare. Men have a right not only to be well governed, but to be cheaply governed—as cheaply as is consistent with the due maintenance of that security for which society was formed and government instituted. This, the sole legitimate end and object of law, is never to be lost sight of—security to men in the free enjoyment and development of their capacities for happiness—security: nothing less, but nothing more."—Sharswood, Legal Ethics.
"To the extent that the mass of our citizens are inordinately burdened beyond any useful public purpose and for the benefit of a favored few, the Government, under pretext of an exercise of its taxing power, enters gratuitously into partnership with these favorites, to their advantage and to the misery of a vast majority of our people."—Message of Grover Cleveland, President of the United States, December, 1888.
Taxation for Revenue only. What does it mean?—It is essential to the completeness of this discussion to call attention at this point to the circumstance that a full recognition and rigid adherence in practice by a Government to the principles of taxation above shown to be fundamental, will not interfere with or impair the efficiency of its administration. The raising of revenue (money) by taxation is one thing; the determination of how the revenue collected shall be used or expended is quite another thing; and the danger line to the liberties of the people is crossed when these two functions are confounded. The exercise of the first, as already pointed out, is subject to limitations growing out of the conditions essential to the existence of a free Government. The determination of the second rests primarily in the legislative department of such Government, and is subject to no legal limitations in the United States other than what flows from the oft-repeated dicta and decisions of its highest judicial authorities, that money taken out of the pockets of the people by taxation can not be used (expended) for any other than a public purpose; but what constitutes a public purpose is so indefinite that one eminent jurist, especially versed in the subject, has declared that "there is no such thing as drawing a clear line of distinction between purposes of a public and those of a private nature."
If a state, therefore, in the plenitude of the wisdom of its legislators, desires to interfere with the operation of the laws of trade, domestic or foreign, control the preferences of its citizens in respect to production or consumption, repress one form of industry and stimulate another, and discourage even to prohibition the indulgence of such tastes and passions as it may judge to be detrimental to itself or the individual, it may legitimately exercise functions entirely different from that exercised in raising revenue and governed by entirely different principles. The right to regulate trade and commerce and the power of police are entirely independent of the right to raise revenue.
If the state, in providing itself with what it regards as necessary revenue, levies its taxes in such a manner that no citizen is required to pay more or allowed to pay less than his just proportion, then there is no tyranny in taxation, even if the methods employed, without any such intent, may incidentally promote private interests and sumptuary purposes. But if, on the other hand, a just and equitable method of taxation will not promote these purposes, and, as usually the case, the state resorts to methods that are not just, not equitable, and imposes upon some citizens an undue share of the general public burden, then to that extent taxation becomes tyrannical, and can not be justified except upon the assumption that there is no limitation on the right of a state to interfere with individual rights to property; which is the same thing as asserting that the state in question is not "free," but is a "despotism." In short, the proposition would seem to be clear that the state can not, without violating that simple principle of justice which prescribes equality in taxation, use its taxing power for effecting any other purpose whatever except to raise money.
The principle here involved may be further illustrated by reference to a curious chapter of railroad experience. Some years ago the managers of one of the great railroads of the United States appropriated a part of its receipts from the carriage of freight and passengers to the support of an opera house and a corps of ballet dancers. Extraordinary as was this procedure, there was no question that the directors, who were trustees for the stockholders, had the right to determine how the earnings of the road should be applied, so long as the stockholders failed to restrain them or prevent their continuance in office; and as they did not, no legal action or restraint of their singular use of the receipts of the property was attempted. But if these same directors had decided not to take money directly from the aggregate earnings of the railroad for the furtherance of their peculiar views, but that in addition to certain rates for transportation all passengers and freight should pay a special sum (tax) for the support of the opera house, the state would have undoubtedly and properly intervened and forbidden its collection, on the ground that the railroad was not chartered (called into existence) for any such purpose, and that the attempt to use any power other than what was granted or contemplated in its charter was illegal and unwarranted.
Again, if the legislative department of the state decides that it would be expedient to establish or stimulate the manufacture of certain commodities, no one under a free government would venture openly to justify such, action, except on the ground that public welfare would be thereby promoted, although practically such justification in the United States has long since ceased to be other than a pretense and a cover for the promotion of private interests. Suppose, for example, that the manufacture of the commodity which it is proposed to stimulate is tin plate, and it is decided that the desired result can be best attained by giving the domestic manufacturer the difference between what his product will sell for in a free market and what he can make it for say—fifteen million dollars per annum—it would seem to be only simple justice that the state should fairly and honestly pay the sum representing this difference, and raise the money, not by a tax on the consumers of the product artificially maintained, who are no more interested in the matter than all other citizens, but by a levy upon the community at large, in the same equitable manner as it raises money to defray its other expenses. In short, if any industry can not live without state aid, and it is for the public welfare that it should live, let the state directly subsidize it, and not maintain it by allowing private interest arbitrarily to exercise the great sovereign power of taxation
This was the idea of Alexander Hamilton, who in the early days of the republic favored state interference with the pursuits of the people to a large extent, as the best method by which domestic manufacturing should be stimulated by the state. This idea, however, found no more favor with the parties specially interested at that time than it would at present; inasmuch as a brief practical experience would so soon demonstrate the smallness of the revenue necessary to be raised by honest taxation for the direct maintenance of an industry by the state, in comparison with the amount raised, for the most part by inequitable and unjust taxation for the support of that form of interference by the state with production which goes under the name of "protection," as to make any long toleration of the latter policy by a free people exceedingly unlikely.
Generic Difference between the "Taxing" and "Police" Powers of the State.—Attention is next asked to the generic difference between the "taxing" and "police" powers of the state (to which a brief reference has been made already), and to the incongruities and governmental abuses that inevitably result from a lack of full recognition of this fact. The object of the taxing power is to raise money to defray the expenditures of the state, and proof and argument seem conclusive that it can not be legitimately used for anything else. By the power of police is understood the internal' regulation of the affairs of the state in the interest of good order. The idea, therefore, of resorting to taxation for the purpose of protecting individuals against their own foolishness, enforcing morality, preventing social evils, or as an instrumentality for the punishment of crime, is to pervert an agency from the one sole purpose for which it can rightfully exist to another less fit and not warranted by necessity, and presupposes an entire misconception of the principles of a free government; and all perversions of this power are certain to entail evils greater than the abuses which it is devised to remedy. If the prosecution of any trade or occupation, or the manufacture and use of any product constitutes an evil of sufficient magnitude to call for adverse legislation, let the state proceed against it directly, courageously, and with determination. To impose taxes upon an evil in any degree short of its prohibition is in effect to recognize and license this evil. To demand a portion of the gains of a person practicing fraud, may be an effectual method for putting an end to his knavery by making his practices unprofitable; but it would be, all the same, a very poor way for a state to adopt as a means
for suppressing fraud. If absolute prohibition is the object, then such result should be attained through the police force of the state, and through its legislative enactments making the act, powers, or products which it is desired to suppress, misdemeanors or felonies. The manufacture and sale of spirituous liquors, in common with all other branches of business, is a legitimate subject for taxation, but there is a broad distinction—indeed, nothing in common—between taxing this business for revenue and in levying taxes with a view of preventing the business from being transacted at all, and so preventing revenue.
Again, if the above analysis of the origin, justification, and limitations of the power of taxation is correct, it would seem evident that to seek to make the occasion for the exercise of the power other than necessity, and the object anything else than the raising of money for meeting the expenditures of a government economically administered, is to strike a blow at not only good government, but also at free government. It is also a flat denial of the authoritative statement of the United States Supreme Court that "there are rights in every free government beyond the control of the state," and that the theory of our Government, State and national, admits of no place for the deposit of unlimited power. For the deliberate recognition and indorsement of the right on the part of the state to disregard these limitations in a single instance, is equivalent to a denial that there are any such, and certainly in this one department makes the Government despotic rather than free. Once recognize the principle of inequitable taxation, and no one can foresee how far it may be carried.
If it is contended, as it is, that the use of the power of taxation for purposes other than the collection of revenue finds justification in the fact that "the law-maker must look far enough beyond the general purpose to satisfy himself how any proposed levy is likely to affect the general good," a sufficient answer to such contention would seem to be that the general good is always best subserved by doing what is exactly right, and not what is expedient.
There is no question that the Federal Government of the United States, under its peculiar organization, is excluded from all responsibility for the internal order or morality of the States that make up the Union, and under such circumstances it follows that where Congress assumes that the consumption or use of certain commodities is prejudicial to the interests of the people (as it has done, as will hereafter be shown), and attempts, when providing means for the support of the Federal administration, to embody such assumptions, with a view of prohibitions or restraints, in measures of revenue, it is also enacting sumptuary laws and imposing taxes, not in accordance with any rule of equity, but by reason of some arbitrary and sentimental notions of how a citizen ought to live, dress, eat, and drink. In the case of the several States of the Union, whose power of taxation is practically unlimited, such action is in the nature of oppression; but in the case of the Federal Government, whose powers of taxation are carefully limited by its Constitution, it is clearly an act of usurpation. In further elucidation of this matter, it is interesting to note, that probably no example can be found in history in which an attempt has been made to continue the raising of revenue with the regulation of popular consumption, that has not resulted in failure as respects the attainment of both objects.
One of the most notable perversions of the correct principles of taxation for the purpose of affecting the popular consumption of a commodity, has been the comparatively recent attempt of the Federal Congress (act of August, 1886) to prevent the use of one of the great discoveries of the age—namely, the manufacture of artificial butter, which, when properly prepared, is a most valuable and perfectly healthful addition to the food resources of the people. The practical results of this attempt are exceedingly curious and ought to be in the highest degree instructive. The burden of the tax—two cents per pound and special taxes on manufacturers, wholesale and retail dealers—which was intended to be prohibitory, has not been sufficient to accomplish the object of its levy; for the annual production, sale, and consumption of oleomargarine in the United States have continually increased (from 34,-325,000 pounds in 1888, to 48,304,000 in 1892, and 69,622,000 in 1894). The Federal courts having decided that it is merchantable, the States may to a certain extent also regulate its sale, but can not prevent its importation. The Federal Government furthermore derives a considerable revenue from its domestic manufacture and sale ($1,409,211 in 1895); and also exports an annual large and increasing quantity for the consumption and use of foreign countries (127,193,000 pounds in 1894); and clearly, if such production and sale are fraudulent and wrong, the Government has become a partner in such fraud and wrong and in effect licenses them.
It is also an interesting fact that this idea of resorting to taxation for the primary purpose of enforcing morality and preventing social wrong is a comparatively modern idea, and finds its chief exemplification in the United States.
The lesson of all history is to the effect that, save in the case of war or invasion, nations have rarely or never lost a freedom once possessed, except through the tolerance (born of indifference) of a succession of gradual and insidious perversions and weakening of those fundamental principles which must be maintained unimpaired to make popular liberty possible. And it is alike startling and discouraging to note how rapidly, in recent years, the United States, as a political entity, has been traveling in this direction.
Theory of the Power of Taxation originally entertained by the American People.—The idea of using the power of taxation for other purposes than that of obtaining revenue for defraying the necessary expenditure of the Government, was one hostile at the outset to all the beliefs and habits of thought of the American people; was totally incongruous with the social and political system which they instituted and expected, and was reluctantly admitted under the idea that the industries of a new country might need some temporary stimulus and assistance at the outset. The party (old Whig) that in subsequent years specially advocated the policy protection to domestic industries, always also admitted that the Federal Government had no original right to exercise the power of taxation except for revenue, but it claimed that taxes on imports might and should be so adjusted as to afford protection for our infant industries. And in this they were joined by some members of the other great national party—the Democratic—who argued in favor of what was called "incidental" protection, or the protection which inevitably results in a greater or less degree from the imposition of duties without any such premeditated purpose.
Theory and Practice of Later Days.—But it was not until after the termination of the war in 1865 that anybody in the United States ventured to openly maintain or defend the proposition that protection was other than the incidental, and not the main object of the exercise of the taxing power, although this perversion of principle was tacitly recognized by the imposition and continuance of taxes which had for their intent, or resulted in a prevention of the raising of revenue.
Illustrative Examples of the Practical Perversion of the Theory and Principles of Taxation.—One of the most instructive examples of this kind was afforded by the imposition of a tax in 1869 of five cents a pound on the importation of crude or unmanufactured copper; which proved so prohibitive that in one year (1878) revenue to the extent of only five cents, accruing from the importation of only one pound of copper, was collected. The legislators who enacted the law productive of such a result might have pleaded in justification that revenue was their intent; but when a brief experience had proved that the taxing power had been used to prevent the raising of revenue by the state, and for a different purpose, it was evident that a continuance of the policy (and the tax was long retained) was in effect a justification and an indorsement of it. To complete the illustration, it should be further pointed out that the result of this perversion of the taxing power was to enable the owners of copper mines in the United States, especially certain ones of unprecedented richness—formerly the property of the United States, but sold for a mere song—to extort for a period of years from the people of the whole country the sum of five cents for every pound of copper they consumed, but from which exaction (aggregating millions) the people of other countries, who consumed the large surplus product of American copper exported, were exempt, as the tax laws of all countries have no extra-territorial jurisdiction. During the discussion and defense of this tariff enacted in 1890, however, all pretense and evasion were discarded, and the position openly taken that the Government could rightfully levy taxes, not for the purpose of raising revenue, and not to subserve any necessity of the state, and under the name of protection delegate to private or corporate interests the right to collect and appropriate them.
It has been contended by authorities worthy of all respect (the late George Ticknor Curtis, for example) that there is no perversion of the taxing power in the levy of duties on imports by the Federal Government for purposes other than revenue, for the reason that "duties are not taxes, but assessments, in the nature of tribute imposed on merchandise imported from other countries," and that "when the Government levies duties on foreign products," under the provision of the Constitution that "Congress shall have power to lay and collect taxes, duties, imposts, and excises," "it dues not exercise or pretend to exercise its taxing power."
In answer to this it is to be said, first, that the application of different names to one and the same act does not alter the nature of the act; second, that usage and authorities among all nations and at all times are in unison in regarding such terms as imposts, duties, excises, customs, tolls, gabbele, talliage, tribute, and the like, when used in respect to the fiscal functions of a government, as expressive simply of different methods of effecting one and the same object—namely, the compelling of contributions from persons, property, or business for the use or support of the state. The contention, then, thus far is simply a quibble as to the meaning of words. Third, the authority given to Congress by the Constitution "to lay and collect ‘imposts,’ in connection with taxes, duties, and excises," does not warrant the assumption that any of these acts of levying and collection are to be by methods that are not primarily for the purpose of raising revenue (money) for the service of the state, or are antagonistic to the structure of a free government. Following the precedents before noted, a measure known as the Anti-option Bill has been introduced and found favor in Congress, which is nothing more nor less than an attempt to make people dealing in certain staple agricultural commodities honest by the exercise of the taxing power; a measure devised for effecting indirectly that which it would be unconstitutional to do directly—namely, to prevent trading in cotton, grain, hops, meats, etc., for future delivery, by first assuming that all such sales are "immoral, unnatural, unjust, and injurious," and then attempting to put an end to them, not by the exercise of the police power of the several States, but by licensing and taxing them by the Federal Government under pretense of collecting revenue, when by the very terms of the bill no taxes productive of revenue are likely to accrue from its provisions. It is difficult to see why, if this extraordinary measure is made law and obligatory on all citizens, the policy of restraint involved should not be made also applicable to the buying and selling of all articles other than cotton and cereals—as cloth, stoves, boots and shoes, securities—and even personal service; and why, if it is right to extinguish one trade or calling by taxing it, every other may not be uprooted and extinguished in the same way.
Another proposition which has received the indorsement of high judicial authority in the United States is to employ Federal taxation for the crushing out of State lotteries, with the absurd accompaniment of no revenue (taxes); for if the desired object is attained, the payment of taxes and the, procurement of revenue will be prevented. It seems clear, also, that if such a measure was once adopted it would constitute a precedent and authority for the destruction by the Federal Government, through the exercise of the taxing power, of nearly every faculty or power now belonging to and exercised by the several States; and that houses of prostitution, gambling and liquor saloons, opium "joints," and other haunts of vice now under the control and supervision of the police powers of the States might be regulated or suppressed by Federal taxation, as well as lotteries,
It should also be remembered that lotteries, if they exist at all in the United States, must do so under the authority of State laws; that Congress can not take from a lottery company the charter which a State Legislature has granted; or make the issue of its tickets illegal, or punish as a crime the action of the managers by whom the business of a lottery is carried on; and further, that any legislation to make lotteries illegal should inferentially pertain to the State; first, because no jurisdiction has been given under the Constitution to Congress, except by remote inference to interfere with this matter; and, second, because there is no doubt that there was a complete unanimity of opinion among its framers that lotteries were legitimate and unobjectionable instrumentalities of society, inasmuch as at the time the Constitution was framed they were authorized by the States and extensively employed throughout the country for the founding of schools and colleges, the erection of hospitals, and the construction of roads, bridges, and ferries. On the other hand, it does not admit of contention that under the exclusive power vested by the Constitution in the Federal Government to "establish post offices and post roads," the use of the mails for the transmission of lottery tickets and correspondence may be legitimately inhibited, or that the general business of lotteries may not be rightfully made subject to Federal taxation for the sole purpose of revenue. When the Provincial Legislature of Canada recently decided to suppress lotteries in the Dominion, the measures which it instituted for so doing were not made contingent in any way upon the power of taxation, but by the imposition of heavy fines and penalties, not only on those engaged in the business, but also upon those having lottery tickets in their possession.
During the early years of the late war, taxes were imposed on the circulation of the State banks, "manifestly with a view to raise revenue and inform the authorities of the amount of paper money in circulation, and for no other purpose." But in 1865 these taxes were greatly increased, not for revenue, but with the admitted intent of destroying all banking institutions chartered by the States, leaving only similar institutions chartered by the Federal Government in existence. The result sought was fully attained, and the constitutionality of the legislation by which it was achieved was subsequently affirmed by the United States Supreme Court, which in the case of Veazie vs. Fenno (8 Wall., p. 552) nevertheless held that "the States possessed the power to grant charters to State banks," that "the power was incident to sovereignty, and that there was no limitation in the Federal Constitution" of such power. But in delivering the opinion of the court, the Chief Justice (Chase) declined to enter upon an inquiry whether the tax imposed on the State banks was so excessive as to divulge the legislative intention to prohibit banking on their part, but lie argued elaborately that for another and stronger reason the tax could be constitutionally imposed because it was a tax levied for a lawful purpose, which lawful purpose was to restrain a State from interfering with the Federal control of the currency and the right of the national Government to emit bills of credit, and it was upon that point that the decision of the Supreme Court was in fact rendered.
The point of interest in this decision, however, is not the right of the Federal Government to regulate, especially under the original admitted necessity for the exercise of war powers, the currency of the country, but whether, having regard to the limitations on the exercise of the taxing power growing out of the nature of a constitutional government, the Federal authorities were justified in employing it as an instrumentality not to collect revenue but to prevent revenue, and when the desired end could be effectually achieved by other and unobjectionable methods; and on this point the court, following a well-established precedent of avoiding as far as possible all conflict between the judicial and legislative powers of the Federal Government, avoided any direct expression of opinion. As the case now stands, and as Congress has refused to discontinue the tax, it must be regarded as equivalent to an assertion that the Federal Government has the constitutional right to exercise the taxing power not for revenue and not by reason of any necessity that can justify it.
During the recent discussion of the silver problem, an eminent American writer on economic questions recommend that a Federal tax should be imposed on silver, varying from month to month according to the changes in its market price as bullion, with a view of establishing and maintaining a parity of value between gold and silver, with, of course, a total disregard of the sole object and justification of taxation—namely, revenue.
But the most curious illustration of the extent to which an entire misconception of the nature and functions of taxation has obtained favor in the United States is to be found in a pamphlet entitled Rational Principles of Taxation, recently published by a Professor of Political Economy in the University of Pennsylvania, and included among the authorized publications of the university. In this the author advocates the levying of taxes by the national Government for the purpose of effecting "stability in prices"; and on the assumption that a large and increasing percentage of the national wealth is consumed in the expenses of the retail distribution of commodities, proposes to remedy the evil by imposing a discriminating tax on retail dealers so heavy as to crush out all such whose business and profits in a given time do not exceed a certain amount to be prescribed by statute. Among the anticipated advantages enumerated by the author of the adoption of such a scheme would be the saving of rent "on one half the stores" of cities and a great reduction of rent on the other half. "There would be little need of advertising; . . . the stocks of goods carried by the whole trade would be greatly reduced, from which there would be great saving of capital." But "perhaps the greatest saving of all would arise from the reduction of the force of salesmen and in the cost of delivering goods." And finally, carried away apparently by a beatific vision of the glories of such a tax millennium, the professor exclaims, "Think of all the elements of economy in conjunction, and an idea can be formed of the amount of taxes that could be levied on retail dealers without putting the public to any inconvenience!" and "would not the unnecessary capital now absorbed in business be fully sufficient to furnish us with pure water, lovely parks, fine-art galleries," etc.?
Prospective Evils of the Perversion of the Taxing Power.—In view of such experiences and propositions, the questions are most pertinent: How much further is such a perversion of the taxing power to be carried? And is not the entire recent experience of the nation in this respect in the direction of supplanting a "free" by a "paternal" government, which last in turn finds its highest expression in the enactment of sumptuary laws for the control by government of the private life of its citizens? All despotic power is alike in its nature; and, once indulged in, the results are always the same. Once let it be fully accepted as a legitimate feature of public policy that the great public power of taxation may be intrusted to individual hands for private purposes and the power of life and death will be promptly seized to make the former effective. Once confer upon government the power of dealing out wealth, and the day is not far distant when its recipients will control the Government, and by the use of money elect their magistrates and legislators to perpetuate this policy.
Had the framers of the Federal Constitution even so much as dreamed that the Government to be established under it would ever practically refuse to acknowledge any limitations on its right to interfere with the property of its citizens, would use the taxing power with undisguised intent for promoting private rather than public purposes, and would levy taxes to prevent the payment of taxes, the Constitution itself would never have been called into existence, and the great American Republic would never have had a history.
- In ancient times cattle were regarded among nations of a considerable degree of civilization as standards of value, and obligations to government in the nature of taxes were payable therein. As recent, moreover, as 1758 taxes in Virginia and Maryland were
- In popular discussions of tariff revisions in the United States such a claim has actually been advanced by the representatives of interests in whose behalf certain imposts had been specially enacted, and which were not for purposes of collecting but rather for the prevention of revenue.
"It is not claimed that this statute [McKinley Tariff Act], any more than any other human ordinance, was perfect in its details, nor that all its rates of assessment of duties should have been maintained, but the modifications suggested by time and experience should have been left to the friends of the measure."—Letter of the Hon. L. P. Morton, accepting nomination for the office of Governor of New York, October 9, 1894.
- Cooley, Law of Taxation, p. 70.
- A legal writer of eminence (Justice Cooley) has recently contended that this is not a correct view, for the reason that it is one which finds no "countenance in the practice of our Government, or indeed that of any other." But if this contention is valid, then it may be pleaded with equal effect for the justification and continuance of every practice which old-time views and long usage have tolerated, but which a higher civilization or a broader culture demands shall be abrogated.
- A written public statement made by a Senator of the United States (George F. Hoar), in 1892, that an assertion by the National Democratic party of the United States in its presidential platform of that year that "the Federal Government has no constitutional power to enforce and collect tariff duties except for the purpose of revenue only," was equivalent to an unveiling of an opinion that "the American people alone, of all civilized nations, have no power to do anything for the encouragement of their own industries," displayed an amount of ignorance and misconception of the powers and objects of the Government he served which, to say the least, was discreditable to its author.
- "Granting that it is expedient for the Government to spend money in the maintenance or the promotion of the iron manufacture, for example, it must be expedient also that the public should know the exact amount which it costs annually, just as it is expedient that the public should know exactly how much the army and navy costs, or how much the annual improvement of rivers and harbors costs. No view, however broad, of the province of government can furnish an excuse for concealing the expense of any great national undertaking. . . . But there is no trace of this expenditure in the national accounts. . . . Next, it must be said that any fund of large amount, raised and distributed in this way, must of necessity prove a corruption fund. By this I do not mean a fund distributed in bribes to individuals or organizations, but a fund the existence of which must be constantly present to the mind of the lazy, the improvident, or incompetent, as something to fall back on if the worst come to the worst. Suppose the national appropriations for the purpose of protecting manufacturing industry were made in the ordinary way by a distinct vote of Congress; were made, for instance, as the appropriations for the promotion of the carrying trade—the steamship subsidies, as they are called—are made in the shape of an annual maximum sum. Suppose this sum were paid over to the corporations or individuals engaged in each manufacture on their giving proof that they were carrying on a bona-fide business. Suppose that to each were given as much as would meet the loss, as shown by his books, incurred by him in competing with foreigners in the home markets. . . . The
- "Sumptuary: Relating to expense. Laws or regulations which restrain or limit the expenses of citizens in apparel, food, furniture, etc. Sumptuary laws are abridgments of liberty and of very difficult execution. They can be justified only on the ground of extreme necessity."—Webster's Dictionary.
- The doctrine of Hamilton was that while the payment of bounties for the encouragement of new industrial undertakings was justifiable, their "continuance on manufactures long established was most questionable."—Report on Manufacturers, 1791.
- The United States Supreme Court has held that the judicial power can not inquire into the intentions of Congress in imposing a tax; and that, if injustice is done, the only remedy is an appeal to the legislative power that has inflicted it.
- As pertinent and most instructive on this subject attention is asked to the following extract from a speech of Hon. Edward D. White (then a Senator of the United States from Louisiana, and now a judge of the United States Supreme Court), in the course of a debate in the Senate in July, 1892, on the so-called Anti-option Bill: "No power as to imposts was reserved in the States by the Federal Constitution. All the lawful powers of government which could be exercised in that particular passed into the life and being of the Federal Government by the lodgment in that Government of the power to levy imposts. In my judgment, if complaint is made of impost taxes by the Federal Government, levied not for the purpose of revenue, but for protection or prohibition, the complaint is not that the Federal Government violates the Constitution or the limitations of the Constitution, because as to that all authority is granted by the Constitution. When I say this I mean no limitation by the Constitution by express provision of the Constitution. The complaint of undue or prohibitory external imposts is not that the Constitution has been violated.
"No, but that there has been a violation of the great fundamental and elementary principle of all government, which underlies all constitutions, which affect this Government and
- Judge Cooley, Atlantic Monthly, April, 1892.
- "Congress is not empowered to tax for those purposes which are in the exclusive province of the States."—United States Supreme Court, Gibbons vs. Oyden, 9 Wheaton, i, 199.
- Concerning the legitimacy and constitutionality of this procedure, a minority of the Finance Committee of the United States Senate, in a report in May, 1892, on a proposition to repeal this tax, expressed themselves as follows: Prior acts imposing taxes of one or two per cent on the notes of State banks, imposed for revenue purposes, the committee regard as entirely justifiable; but in respect to the ten-per-cent tax, which neither produced nor was intended to produce revenue, the committee say:
"This is flagrantly obnoxious in its manifest perversion of the taxing power conferred upon Congress by the Constitution. . . . We think also that a reasonable construction of the taxing power clause in the Constitution, to wit, ‘the Congress shall have the power to lay and collect taxes, duties, imposts, and excises to pay the debts and provide for the common defense and general welfare of the United States,’ would mean that Congress shall pay the public debt, provide for the common defense, and promote the general welfare with the money arising from such taxation, and not that Congress shall have the power to discharge these public duties by the mere framing of a statute without any revenue resulting therefrom. Surely it would be an absurdity for the Constitution to say that Congress shall have the power to discharge the debt of the United States by the mere framing of a statute or the wording of a law. The payment of money or the transfer of things of value is the only way by which a debt can be paid. Therefore the enacting of a law in the name and under the pretense of revenue which is intended to raise no revenue in fact, but which has another and entirely different object, is a gross and fraudulent perversion of the taxing power conferred by the Constitution."
- Rational Principles of Taxation. By Simon N. Patten, Professor of Political Economy, University of Pennsylvania, 1890.
- Obviously the author of this scheme supposed that the retail dealers of this country are such simple-minded people that they will cheerfully pay their proposed heavy taxes out of their capital, and not transfer them, through increased prices of their goods, to their consuming purchasers.
- The economic student and writer (and indeed almost the only one) who has discussed this subject in the English language with originality and cogency that is most potent for conviction, is Mr. Theodore Bacon, of Rochester, N. Y., in an article contributed to the New-Englander in 1867, and to which the author acknowledges his indebtedness both in respect to ideas and language.
every other government, and which would affect the most unlimited government in the world. These principles are that government is created with limitations flowing from the nature of its being, which teach that no government shall use its power for the benefit of the few to the detriment of the many. Therefore, all the arguments which have been made on the subject of the abuse of the impost power in the Federal Government are arguments addressing themselves not to the limit of delegation under the Constitution as to imposts, but to the want of power arising from the very nature of government itself. The usurpation of power by Congress, not vested by the Constitution in Congress, is unconstitutional."
The point here at issue was also clearly recognized by President Cleveland, in his message in 1886, announcing his signature to a bill (above noticed) for taxing oleomargarine, where the real intent of taxation was popularly assumed to be prohibitive of production and sale and not revenue. "It has been urged," he said, "as an objection to this measure that while purporting to be legislation for revenue, its real purpose is to destroy, by the use of the taxing power, one industry of our people for the protection and benefit of another. If entitled to indulge in such a suspicion as a basis of official action in this case, and if entirely satisfied that the consequences indicated would ensue, I should doubtless feel constrained to interpose executive dissent." In other words, the President took the bill as it came to him as ostensibly a revenue measure, and in the exercise of his executive prerogative passed upon it as such, but at the same time he was careful to say in this message that if that bill had not presented that aspect to him, he would have been constrained to exercise the executive veto.
In the course of the debate to which reference has been made, Mr. White, in response to a question as to what he would as a Senator consider his duty in respect to a bill proposed to Congress for enactment which, while undoubtedly productive of revenue, was intended for some other purpose, made answer as follows: "I would have two questions to ask myself: Is this a bill raising revenue? That is the first question. If I determine that question in the affirmative, the lamp of my duty might lead my mind toward supporting that bill, but it could not carry me to that point unless another question were also answered: Is it an honest exercise of the taxing power, or is it a dishonest scheme to raise revenue and accomplish another purpose? If my mind, in the exercise of my duty here, found that either of these things existed, then, although it was a bill raising revenue, I would not vote for a dishonest bill raising revenue."
political objections to the protective system can not be made so clear as by inquiring how the plan of distributing the money directly by the public Treasury would work."—E.L. GODIN, Problems of Modern Democracy.
payable in tobacco; and in Massachusetts, Indian corn, musket balls, dried peas, cattle, and beaver skins were made legal tender for the payment of taxes until the early years of the eighteenth century. Ultimately, and in all cases as civilization advanced, such media for the payment of taxes, or the discharge of other forms of indebtedness, have been found to result in terrible currency confusion and to be wholly impracticable.