Popular Science Monthly/Volume 52/December 1897/Principles of Taxation: The Existing Methods of Taxation XXII

Popular Science Monthly Volume 52 December 1897  (1897) 
Principles of Taxation: The Existing Methods of Taxation XXII by David Ames Wells


By DAVID A. WELLS, LL. D., D. C. L.,



(Continued from page 17.)

DISTINCTION between "Real" and "Personal" Property Artificial and not Natural.—As a further help to the understanding of the subject, it is important to here call attention to the circumstance that the distinction between real and personal property is, to a very great extent, an artificial and not a natural one, and that there is not only no common or accepted rule for their definition and distinction, but, on the contrary, a great diversity of statute enactment by the different States of the Federal Union and by foreign governments on the subject. (For abundant illustrations in proof of this statement, see Popular Science Monthly, vol. li, No. 5, pages 607, 609.) "The statute laws on the subject of taxation in the United States," says Mr. Hillard, in his Law of Taxation, "is as voluminous as the constitutional provisions are few and concise." With a general similarity, the laws of the different States are very diverse; and so numerous and frequent are the changes that the author disclaims any responsibility in his book for the implied statement that "the law of any particular State, however recent, is now in force."

The attempt, therefore, to recognize in a system of laws a distinction in respect to the so-called personal property that is perfectly arbitrary, and which forty-eight sovereign States of the Federal Union may alter at pleasure, is very likely to give a general result somewhat akin to that obtained by an artist who, in painting a landscape, selected a cow as his fixed point of perspective. If the cow had remained quiet, the picture might have been satisfactory; but as the cow walked off, the details of the picture were not harmonious.

Value Relations of Land and Productive Capital.—One curious phenomenon attending the remarkable changes that have taken place within the last half century in the conditions of production and distribution of wealth, has been the more rapid increase in all countries of high civilization of that portion of their national wealth represented by the so-called personal property than in that portion represented by the value of land. Thus, in Great Britain, at the commencement of the present century, the value of land was believed to represent about forty per cent of the aggregate wealth or property of the kingdom. At the present time it probably does not represent more than twenty-five per cent of such aggregate. In the United States the increase in recent years of personal property has been so remarkable as to entitle it to be regarded as phenomenal; and it can not be doubted that in highly civilized and densely populated States, like New York, Massachusetts, Rhode Island, etc., the aggregate of property classed as "personal" is greater in actual value than the aggregate of "real" property. In the great American cities the value of personal property probably closely approximates the English proportion. A recent report of the Boston Business Association expresses an opinion that the value of the personal property of that city is three or four fold that of its realty! And yet the amount of personal property made available for tax assessments shows everywhere a remarkable decrease; and this, notwithstanding a great concurrent increase in population and in the assessed value of real estate. It may also be regarded almost an economic axiom, that universally the market value of the aggregate of land and that of the aggregate of other productive capital are equal; and for the reason that the market value of land is merely the reflection of the value of the productive capital placed upon it and its immediate vicinity. It would therefore seem to be certain that the decline in the valuations of personal property, above noted, is not real, but simply represents the failure and utter inefficiency of the existing laws which have been enacted with a view of assessing and collecting taxes upon such property.

The following are some of the most striking illustrations of the decline of tax valuations of personal property in recent years in the United States: Thus, in 1866, the valuation of the city of Cincinnati, Ohio, for purposes of taxation was, realty $66,454,602, personalty $67,218,101. In 1892—twenty-six years after—the tax valuation of the real estate of the city was $144,708,810, while its personal property had decreased to $44,735,670; or, in other words, while the personal property of Cincinnati returned for taxation in 1866 was greater than the returned amount of real estate, the amount returned in 1892 was only about a quarter as much as the real estate; and yet during this quarter of a century the city of Cincinnati nearly doubled its population, and undoubtedly increased its wealth in a far greater proportion. In the city of Boston the value of the realty returned for taxation in 1868 was $287,635,800, and of personalty $205,937,300. In 1890 the corresponding figures were, realty $619,990,275, personalty $202,051,525, a disproportionate gain of realty of $417,938,750.

In the State of Massachusetts in 1862 personalty was assessed at $309,000,000 to $552,000,000 of real estate, or in the ratio of fifty-six per cent of the latter. In 1891 the personalty was $556,000,000 to $1,679,000,000 of real estate, or in the ratio of thirty-three and a third per cent. That is, the personalty of the State in twenty-nine years increased only $247,000,000, while the real estate increased $1,127,000,000, or nearly five times as much in the same time. "This simply means that more and more personal property, under the rigid tax system of Massachusetts, escapes taxation. The real estate can not have increased in value without an increase in personal wealth with which to increase the demand for it. Real estate does not make a demand for itself." In 1870 the personal property of the entire State of Massachusetts returned for taxation represented an average of $345 per capita.

It will be noted that the above exhibits represent the lengthened experience of the two States which adhere most closely to the infinitesimal theory of taxation; have a system of most comprehensive and explicit laws, framed by officials and enacted by legislators who believe in their theory, and a system of arbitrary administration that finds no parallel, except in thoroughly despotic countries, and is wholly antagonistic to the principles of a free government.

The experience of other States, where, under substantially the same provision for the taxation of personal property, the administration is less rigorous, is also most instructive.

In Jersey City, N. J., the tax valuation in 1892 of realty was $78,176,000, and of personalty $6,539,750. In 1870 the valuation of realty in the city of Brooklyn, N. Y., was $183,689,000, and of personalty $17,559,980. In 1893 the corresponding valuations were $486,497,000 realty, $17,559,000 personalty; and of the latter only $7,078,000 was assessed against individuals, the remainder being property of banks and corporations. Of the entire property of Brooklyn taken cognizance of by its tax officials in 1893, only 1.35 per cent of the whole was personalty proper.

In 1870 the entire value of the personalty of the city of New York, including bonds, jewels, pictures, furniture, bric-a-brac, etc., was put down by its assessors for taxation at $281,142,696; in 1893 the corresponding valuation was $370,936,000, of which less than half was personal estate proper, the remainder being various forms of corporate property, although it is reasonably certain that less than twenty men, residents of the city, held personal property in excess of this amount.

In 1870 the personal property of the entire State of New York returned for taxation represented an average of $99.13 per capita. In 1893 this average had fallen to $68.75 per capita. In Connecticut, in 1855, as before shown, State stocks, railroad, city, and other bonds, and money at interest constituted about ten per cent of the aggregate assessed valuation of property of the State. In 1885 the corresponding proportion for taxation was three and three fourths per cent.

Similar illustrations drawn from the recent tax experiences of nearly every State in the Union might be indefinitely multiplied, and in the most western States of the Union, where the communities are mainly agricultural, the opinion of officials is also to the effect that personal property, as a rule, exceeds realty, and to a great extent escapes assessment and taxation.

Another curious and interesting feature of the situation is that in all those States where the most minute and thorough system of questioning with respect to the ownership of personal property prevails, investigation shows that, notwithstanding the acknowledged great increase in wealth in the form of personal property in recent years, the skill of its owners in concealing it has grown more rapidly; or, in other words, in every State in which a vigorous attempt has been made to reach and assess all the personal property of its citizens, a smaller percentage of such property is taxed to-day than was effected under operation of laws a quarter of a century ago.

Results of Recent Administrative Experiences.—A notice of some comparatively recent administrative experiences in attempting to successfully enforce taxation of personal property is especially pertinent at this point.

In 1879 California proposed a new Constitution. It was drafted in accordance with what was supposed to be the interest of the agricultural voters of the State, and was by them ratified, the merchants, commercial and financial interests being almost unanimously arrayed in opposition and voting against it. Under this Constitution and the laws made in pursuance of it, the results have been thus summarized: "Not only were bonds, money, and credits taxable, without any deduction on account of debts, except from credits, and then only such debts as were due to residents of the State of California, but holders of stock in corporations were avowedly and intentionally subjected to double taxation; first, upon the corporate property, and again upon the capital stock, which is merely their evidence of title to that property. It was supposed, alike by the friends and enemies of the new Constitution, that under its operation personal property of every description would be thoroughly reached, and at any rate that whatever was by any chance overlooked would be more than made up by double taxation upon that which was found. The actual result has been to falsify all the predictions of both the friends and enemies of the Constitution—for it has done no good, and very little harm, except, in promoting fraud—for the reason that the capacity of the patriotic taxpayer to commit perjury and the susceptibility of assessors to bribery have been altogether underestimated." Some of the results have been positively ludicrous.

"If the assessment returns are to be believed, in nine tenths of California there is not a pound of butter; in four fifths of the State the sheep do not produce any wool; fifty counties have quantities of beehives, but only four have any honey; personal property is vanishing from San Francisco; loans of money are becoming unknown in the rest of the State; bonds of cities and municipalities of all kinds are not held within the State to an amount equal to one sixth of the county bonds outstanding alone; and, finally, money has been smitten by a pestilence, two thirds of all that there was before the adoption of the Constitution having already taken to itself wings, and the remainder being evidently on the way. One of the great objects of the new Constitution was to tax railroad, telegraph, and telephone companies to the last cent of their value. The actual result has been that telegraph and telephone companies are now assessed for the cost of less than their bare poles, or about sixty-five dollars per mile. The railroad companies resisted taxation for one or two years, at the end of which, by a singularly simultaneous impulse of virtue, some thirty boards of supervisors directed their district attorneys rigorously to prosecute the railroad companies to the uttermost of the law. Thirty district attorneys forthwith hauled the railroad companies before the magistrates of justice. With equal promptness the thirty boards of supervisors met, and, without any consultation with each other, passed resolutions directing the district attorneys to compromise all suits at sixty per cent of the amount claimed; and the thirty district attorneys obeyed before the State officers could put in a protest."

It was anticipated that the new order of things would increase the burden of taxation on the city of San Francisco, and especially on personal property and money at interest. What actually happened is shown by the following figures: In 1880, before the new laws became operative, the city of San Francisco paid taxes on a valuation of $68,586,000 of personal property not money, and on $19,747,000 of money at interest or otherwise. In 1886, after the law had been operative for five years, it paid on a valuation of $48,705,000 of personal property, a decline of one third, and $6,188,000 of money, a decline of two thirds. In 1894, after the law had been in operation for fourteen years, it paid on a valuation of $56,130,000 of personal property, a decline of $12,454,000, and $7,100,000 of money at interest, a decline of $12,647,000.

It was naturally supposed that the new Constitution would have great influence in increasing the assessment of personal property in the form of tangible, visible merchandise, and of bonds and credits. But the assessors of San Francisco found less of merchandise to tax in 1886 in that city than they did in 1880; and less in 1894 than they did in 1880, while the value of bonds returned by its citizens declined from $2,311,000 in 1880 to $449,000 in 1886. The total increase in the valuation of merchandise for bonds and credits for taxation in the fourteen years from 1875 to 1889 was less than one per cent.

The most recent, important, and incontrovertible record, however, of administrative experiences on this subject is to be found in the report of a tax commission authorized by the Legislature of Ohio, composed of four eminently qualified citizens—two Republicans and two Democrats—and presented to the Governor of that State in December, 1893. It is no exaggeration to say that, since the days of the French monarchy under Louis XVI, no report has been or could be made more discreditable to the people of any country claiming to be civilized, honest, and law-abiding.

The report first shows that Ohio has "the most efficient and minute scheme" of listing in duplicate "all classes of property"—dogs specially included—"which has been devised in any State." "Every citizen is bound under oath to make a complete return of his property," embracing all forms of personalty. "If he declines to make the oath required by law, a penalty of fifty per cent is added." This listing system in Ohio is characterized by the commission as like "the assessment list used in Germany in mediæval times (1531)," which it further asserts "has been abandoned everywhere in Europe." The statute provides that a designated official "may through the probate court call before him the citizen and examine him if he suspects that the return is not a complete one"; and in addition to all this the law empowers each county to contract with such persons—"tax inquisitors"—who may give information as to any personal property that has been "improperly withheld from the returns"; and who shall be "rewarded" to the extent of twenty per cent of the amount of tax "recovered through their efforts."

From a large amount of evidence collected by the commissioners and officially published by the State, the following selections illustrate the efficacy and workings of this system and its statutes:

For the year 1891 the gross amount of revenue collected in the whole State of Ohio through the operation of the tax inquisitorial law was about $750,000, or about two per cent of the entire taxes of the State. For the nine years from 1885 to 1893 inclusive, during which time this act was operative in Hamilton County, which is mainly the great and rich city of Cincinnati, the whole amount of taxes paid by its citizens was about $50,000,000, of which less than $400,000 accrued through the operation of this agency. It is probable, however, that through its moral influence the taxpayers were induced to make larger returns of personal property than they would otherwise do. On the other hand, the commission report as a general effect of the "tax inquisitor law" in city counties that when a man of large wealth is made to pay through its agency he leaves the State; but in the country counties, as the man of means is not able to sell his property and remove from the State, he is forced to remain and pay the tax.

Again, the laws of Ohio require that all moneys owned by its citizens shall be annually returned for taxation. For the whole State the tax commission reports that there was on deposit in the year 1892 to the credit of individuals in national, State, and private banks, and exclusive of moneys redeposited by one bank with others, at least $190,000,000, "and probably a much larger amount." Of this $190,000,000, there was returned in 1893 for taxation a little over $38,000,000. In connection with this experience the commission calls attention to the following other extremely significant facts: "Of this estimate of $190,000,000, about $128,000,000 was deposited in the banks of the five counties containing the cities of Cincinnati, Toledo, Cleveland, Dayton, and Columbus. These same counties, however, returned for taxation only $6,088,096, while the remainder of the State, having about $70,000,000 in bank deposits, returned over $32,000,000." In the spring of 1892 there were on deposit in the various banks (national, State, and savings) of the city of Cleveland about $63,000,000. Of this money there was returned for taxation in that same year only $1,800,593; and about half of this sum was derived from the townships outside of the city."

The final conclusions of the commission were that "while in the country counties" (of Ohio), "where the assessor is personally acquainted with the circumstances of the taxpayer, and knows his wealth, the taxation of intangible property is perhaps feasible, it is in the city counties an utter failure. The general property tax has become in the city counties" (of the State), "to a very considerable extent, a tax upon tangible property only; and that no appreciable part of the intangible property existing in the city counties is reached by our method of taxation."

The net result of all the comparisons made by the Ohio commissioners between city and farming districts finally goes to prove that the tax upon personal property makes farmers pay from four dollars to seven dollars where it makes the residents of large cities pay one dollar.

Speaking generally of the effect of this Ohio scheme of taxation the commission further says:

"The system as it is actually administered results in debauching the moral sense. It is a school of perjury. It sends large amounts of property into hiding. It drives capital in large quantities from the State. Worst of all, it imposes unjust burdens upon various classes in the community: upon the farmer in the country, all of whose property is taxed because it is tangible; upon the man who is scrupulously honest; and upon the guardian, executor, and trustee, whose accounts are matters of public record. These burdens are unjust because by the system as administered these people pay the taxes which should be paid by their neighbors." And the commissioners finally add that "these conclusions are in accord with all current authorities on the subject."

That this claim of accordance on the part of the Ohio commissioners is fully warranted, attention is next asked to the conclusions of other State commissions which within a comparatively recent period have also officially investigated and reported upon this subject. Thus, a tax commission of New Hampshire in 1876, after recognizing the inefficiency of the existing laws for the taxation of personal property and "their corrupting and demoralizing influences," "frankly admit that they are unable to frame any law to which a free people would submit, or should be asked to submit, that will bring this class of property under actual assessment more effectually than it now is." An Illinois commission in 1886 asserted that the existing system "is debauching to the conscience and subversive of the public morals—a school for perjury, promoted by law." A Connecticut commission in 1887 reported that "the results of an investigation of nearly three years into the workings of our tax system have brought us to the conclusion that all items of intangible property ought to be struck out of the list. As the law stands it may be a burden upon the conscience of many, but it is a burden on the property of the few, not because there are few who ought to pay, but because there are few who can be made to pay." A West Virginia commission in 1884 asserted that "the payment of the tax on personalty" (in the State) "is almost as voluntary, and is considered pretty much in the same light, as donations to the neighboring church or a Sunday school."

In Massachusetts, where the law admits no offset of debts against visible and tangible property, and is regarded as complete, and where its execution is acknowledged to be most arbitrary and inquisitorial—some towns publishing each year every known item of each man's personal property, even down to the family pig and a string of sleigh bells—the most intelligent officials admit that their system is a comparative failure; and almost a complete failure as to reaching evidences of indebtedness, which, as before shown, constitute in modern times so large a part of the personal property of every civilized community.

In the State of New York, where the letter of the tax laws in respect to the subjects of taxation is nearly the same as in Massachusetts and Ohio, but the administration less stringent, and where the aggregate of personal property nearly or fully equals in value the aggregate of real property, the proportion of the former returned for taxation is not in excess of one fifth of the total assessed valuation; while in the great city of New York, with a population of over a million, not one per cent of her citizens stand upon the books of the assessors as possessing any personal property subject to taxation other than shares in banking institutions.

In Wisconsin the State appears to have drifted into the same condition of things as in New York, and the attempt to tax personal property has been practically abandoned, except in the small villages and rural districts. In Georgia, which is reported to be well served by its taxing officials, its comptroller asserts that in respect to the mere article of merchandise which can be seen and handled, not fifty per cent is returned for taxation, and that in the city of Savannah in 1886 not ten watches were subjected to taxation.

To complete this record of experience it is desirable to add that there is not a single economist or financier of note, either in the United States or Europe, who upholds the "infinitesimal" or "general property" tax as a desirable or essential feature of any fiscal system, its characterization by M. Leroy-Beaulieu, the celebrated French economist, being that "a cruder instrumentality of taxation has rarely been devised."

Again, in every country on the globe where a direct tax on personal property in the hands of individuals has been laid, the system has exhibited the same features of badness. No experience in any country has suggested any practical improvements of it. It has never been improved; it has never grown better; it has always, under all circumstances, exhibited a tendency to grow worse. It is a fact creditable to the superior intelligence of other lands that it no longer is found in any civilized country on the globe, the United States alone excepted; and in this country it is no longer found in Pennsylvania, New Jersey, and perhaps some other States.

Prof. E. A. R. Seligman, of Columbia University, who has written much on this subject, sums up the result of his investigations in the following language: "It will be no exaggeration to say that the general property tax in the United States is a dismal failure. Every country also, with the exception of Holland and the States of the Federal Union, has abandoned this system of tax as something wholly impractical. In recent years in both England and France the necessity of raising increased revenues has drawn especial attention to the subject of local taxation; but in neither of these two countries has any prominent speaker or writer advocated the direct taxation of personal property, or even alluded to the subject, except to scout the very idea of such a proposition."[1]

And yet, notwithstanding this record of disastrous and discreditable experience, and the opposition to the almost unanimous judgment of all whose investigations warrant the expression of opinion, the strength of popular prejudice in the United States in favor of the infinitesimal system of taxation is so great as to make the substitution of any better system a matter of very great difficulty, and perhaps a present impossibility. "Although all Europe, as already pointed out, has tried and discarded taxation of personal property, our own people have grown up under the opposite system. Every State tries to tax it. No American has any personal experience of a system which does not pretend to tax it. The proposition to dispense with such taxation, therefore, strikes every American as an experiment. Few Americans know or care anything about the experience of other nations."

There is, however, at the present time, some gratifying evidence of a change in popular sentiment in favor of radical tax reforms. Thus, in October, 1897, the grand jury of the county of New York made a presentment on the subject of taxation under the following circumstances: A complaint was made against the tax officials, charging undervaluations of property, and therefore perjury, but the grand jury finds in effect that the State laws are of such a character that assessors are almost inevitably led into blunders, and it recommends a general revision of the tax laws imposing upon the State the duty of assessing personal property, so that local expenditure may be paid by real-estate taxes alone, and the "question of continuing or abolishing personal taxes" be "fought out on State lines."

A special tax commission, appointed by the Governor of Massachusetts, and composed of men of wide financial experience and business ability, after careful study of this subject, reported in October, 1897, in favor of the entire exemption of personal property and the substitution of other agencies (to be hereafter noticed) for the collection of revenue.

A fact of historical interest which ought not to be overlooked in this connection is that whenever a system of infinitesimal taxation (or a general property tax) has been projected, its authors have been led, as it were, by instinct to the conclusion that its execution, with any degree of effectiveness, must depend upon the employment of extraordinary and arbitrary measures. Thus, the old Romans, who first notably established the taxation of personal property at the period of the decadence of the empire, and who were not troubled with any restrictions of a constitutional character, or any very nice notions about personal liberty or general morality, clearly perceived this, and accordingly invested their tax officials with the power of administering torture as a means of compelling information (answering questions) and enforcing payment; and that the tax officials were not backward in using the power with which they were invested is proved by a variety of evidence.

Thus, Zosimus, who wrote in the fifth century a. d., states that the period of the tax collection upon general industry "was announced by the tears and terrors of the citizens, who were often compelled by the impending scourge" to meet their obligations; and Gibbon, in treating of this feature of Roman history, in a measure justifies the proceeding in the following language: "The secret wealth of commerce and the precarious profits of art and labor are susceptible only of a discretionary valuation; and as the person of the trader supplies the want of a visible and permanent security, the payment of the imposition, which, in the case of a land tax, may be obtained by the seizure of property, can rarely be extorted by any other means than those of corporal punishment."

And it is also especially worthy to note that in every instance in which attempts have been made of late in the United States to remedy the recognized imperfections and inequalities of existing systems of local taxation, the persons intrusted with the duty, possibly without knowing, and probably without caring, what were the experience and custom of the old Romans, have been led by their instincts and intuitions to go as far in the torture direction for the obtaining of taxes on personal property as the conditions of our modern civilization and the state of public opinion would allow.

The most curious and confirmatory evidence of this is to be found in a method of procedure adopted in the city of Boston, Massachusetts—a method which has no parallel except in the records of the middle ages and of the Inquisition, and constitutes in itself a satire upon any claim to the enjoyment of a wholly free and enlightened government. For failing to obtain satisfactory information about the private affairs of any individual the chief assessors and their subordinates in that city, to the number of some fifty, meet in secret session in a large upper chamber set aside for the purpose, and appropriately termed the "dooming chamber," when the citizen in question, without being present either by counsel or in person, is arbitrarily doomed to the payment of any sum which a majority of those present may think proper, and from which "dooming" there can be no appeal.

The following record of the actual working of this system may be thus illustrated: During the year 1889 the whole amount of taxable personal property which the assessors of Boston were able to discover, exclusive of bank stock, was $39,000,000, of which amount $14,570,000, or thirty-seven and a half per cent, was returned as visible, and $27,650,000 as invisible. Being dissatisfied with this result, which was all that was justified by any facts which the assessors could state, they proceeded to multiply it four and a half times by a mere guess. In their "dooming" chamber they guessed that personal property, other than bank stock, ought to be valued at $186,000,000; and the citizens of Boston were compelled to pay taxes upon that amount. Could anything be more monstrous or absurd than a system of taxation which, even when administered by phenomenally honest and competent men, produces such results?

The Use and Value of Oaths as an Adjunct of Taxation.—Consideration is properly asked in this connection to the use and value of oaths, an increase in the number and stringency of which is often regarded as essential to effective and equal taxation. It is the all but unanimous opinion of officials who of late have had extensive experience in the administration of both the national and State revenue laws that oaths as a matter of restraint, or as a guarantee of truth in respect to official statements, have in a great measure ceased to be effectual; or, in other words, that perjury, direct or constructive, has become so common as to almost cease to occasion notice. In fact, there has come to be a feeling in the community that an oath in respect to matters in which the Government is a party is a mere matter of form, of mechanical procedure, and that its violation, especially with a mental reservation, and when the interest of other individuals is not specifically affected, does not in itself constitute a crime. The fact that the assessors of almost every State every year make oath that they have valued all property at its actual value, when they know they have not, constitutes one proof of the truth of this assertion. The everyday entry of goods at the customhouse at undervaluation constitutes another; the enormous frauds committed in recent years under the internal revenue laws of the United States, which in the case of distilled spirits entailed a loss in a single year of over $130,000,000, and in which the taking of false oaths was at every step an essential feature, constitutes a third; while of individual examples, which every assessor of experience can detail, the record would be almost interminable.

During the past few years the low tone of commercial morality in the United States has been a fact generally recognized and much commented upon; but it has not, that we are aware, been made a subject of inquiry by those to whom the guardianship of public morals is particularly intrusted. How far the existing system of laws relating to taxation—national and State—are justly chargeable with the results to which reference has been made, or how much in the division of responsibility is to be set down to the account of those who violate the law, and how much to those who, forewarned of the weakness of human nature, deliberately make laws which especially lead men into temptation, are yet unsettled questions.

A point of great interest and importance in this connection, though often overlooked, is that even if all the States of the Federal Union should entirely exempt personal property within their territory and jurisdiction from taxation, it would nevertheless, owing to the dual nature of the Government of the United States, be subject to a large measure of heavy and disproportionate taxation. Thus, the expenditure of the Federal Government, which represents taxation, was in 1896, including the cost of revenue collection, in excess of $445,000,000, not one cent of which was derived from taxes on real estate.[2] The aggregate of annual taxation by States, counties, cities, municipalities, and the District of Columbia for the same year is estimated by reputable authorities to have been about $400,000,000, of which at least one fifth was assessed or was collected from personal property. If real estate paid all the State taxes, personal property therefore would still be paying all the United States Government taxes, or a large excess of its equitable share of any or all national taxation. A claim that any personal property owner is justified in protecting himself against such extortion in any and every legal way has much, therefore, to be said in its favor. When such protection can not be effected legally, he has only to leave the State for others that are not extortionate oppressors of capital. But who can not perceive on reflection that personal property (capital) must be largely used by its owners and at fair rates at their residence; and that the home of such capital will show the benefit in increased local business, increased population, and increased value of real estate by its use? Why, then, so much overrighteous talk of personal property owners dodging taxation?

Logical and ingenious as have been the arguments in opposition to the legal exemption of personal property from taxation; the citation and consideration of the undisputed experience of all countries, people, and ages are all that is necessary to refute and disprove them. There was a time when nearly all men believed and taught that the world was flat, and when the few who lisped to the contrary exposed themselves to a charge of religious heresy and punishment. But a comparatively short navigation experience effectually put an end to all controversy on this subject; and it is doubtless only a question of time when personal property will be exempt from governmental taxation, because no system has ever been devised, or is likely to be, which will enable a state to tax it with any approach to uniformity and equity.

Origin and History of the General Property Tax.—The idea that in order to tax equitably it is necessary to assess everything capable of resulting in the obtaining of revenue is not original with the American people. Its inception dates back to the dawn of civilization, and its development may be regarded as in the nature of an economic evolution. In the incipient stages of society, as already pointed out, property consisted exclusively of things tangible and visible—lands, buildings, cattle, slaves, agricultural products, household effects, and implements—and what was exacted by rulers or chiefs of their subjects was arbitrary proportions of such kinds of property or of personal service, and was not in any proper sense taxation, but tribute. For thousands of years there were no credits or material evidences of indebtedness, as there are none at the present time among barbarians or half-civilized people; for a knowledge of letters, of the art of writing, and a somewhat durable and portable material to write upon were essential prerequisites for their existence, the earliest evidence of the recognition of anything like a mortgage being the inscriptions on certain clay tablets excavated from the ruins of the ancient cities of Babylon and Assyria, which were evidently the highest results of long and slowly developing civilization. In fact, in the early stages of society there was no important form of capital other than landed property and the instrumentalities, including slaves, for its cultivation, and so far as the system for obtaining revenue for the rulers or state merited the name of taxation, it was practically a "land" tax.

As civilization advanced, slavery gradually broke down; trade or traffic between individuals or adjacent communities extended and became commerce; free labor appeared; capital developed and multiplied the forms of visible, tangible property. Then the system of obtaining revenue began to have the characteristics of a general property tax; and as the coincidence of great value with small bulk in some forms of tangible, visible property favored concealment, some methods of obtaining revenue from property other than mere inspection became necessary, and were obtained by the Romans in the latter days of their empire by endowing their assessors and taxgatherers (as before shown) with the power to administer torture to unwilling taxpayers, a method that was followed and perpetuated until within a very recent period by the rulers of most Asiatic countries; and in later days, when credits came into existence and extensive use, and titles to property and evidences of indebtedness were regarded as property, although intangible and invisible, a method for discovering and assessing the same, as approximate to actual torture as a higher civilization would sanction, was everywhere adopted.

And how such methods continue to exist and their practice be regarded with favor in states and communities claiming to be in the highest degree civilized and enlightened, finds proof and illustration in the following circumstance. In 1874 the Legislature of Massachusetts created a commission of three persons to inquire into the expediency of amending the laws of that State in respect to taxation, and placed at its head the chairman of the Board of Assessors of the city of Boston, a gentleman long identified with, if not the originator of, the idea of making an arbitrary, irresponsible "dooming chamber" an essential feature of tax administration. At the outset this commission was evidently impressed with the necessity of vindicating the "infinitesimal" or "general property" tax system, then and at the present time especially favored and fully exemplified in their State. And they set about it in the following manner: with the Declaration of Independence before them, maintaining it to be in the nature of a self-evident truth that "all men are endowed by their Creator with certain inalienable rights," and "that among these are life, liberty, and the pursuit of happiness," the commission gravely announced that "the individual person" (in Massachusetts) "has no individual rights except that to his own righteousness," thus laying a sure foundation in justification for a recurrence in Massachusetts to the torture tax system of the ancient Romans if its tax administrators should consider it expedient.

After the dissolution of the Roman Empire and the subsequent reconstruction, as it were, of government and society in Europe during the early feudal period, and when land was practically the only form of wealth, the payments exacted for the support of the governing powers—kings, barons, knights, etc.—were essentially and almost exclusively in the nature of land taxes; and the terms "danegeld," a charge on lands at so much per hide, or an area of about one hundred acres; "scutage," a charge on tenants in lieu of military service; "caracage" a charge on "plow lands"; "talliage" (from the French tailler, to cut off), a charge on the tenants of royal manors, and the like were designations of the different forms of such assessments at different periods. As civilization advanced and was accompanied, as at a more primitive period, with an increase in the forms of personal property, a combination of taxes on land and movables, or a general property tax system, developed and was adopted by all the nations of western Europe with all the despotic adjuncts which seemed necessary to make its enforcement successful. The ultimate result of such a system was what might have been anticipated. From a very early period it occasioned great popular dissatisfaction. In Milan, Italy, as early as 1208, it was enforced with such severity "that the assessment book was known as the libra del dolore." In Florence it became so honeycombed with abuses and the load of taxation fell with such crushing force on the small owners of property that imminent popular revolution and disorder compelled its essential modification. As wealth increased, evasions of the tax increased in a greater proportion in every community, leaving the burden of the system, as now in the United States, on that class of the population—mainly the agricultural—that are least able to bear it. Sir Robert Cecil stated in 1592 that there were not five men in London assessed on their goods at two hundred pounds (one thousand dollars); and Sir Walter Raleigh stated in 1601 that "the poor man" (in England) "pays as much as the rich." In Florence in 1495 only fifty-two persons paid the tax on trade capital, although the amount of such capital must have been immense. Marshal Vauban, of France, who wrote on taxation about 1700, stated that the taille personalle was assessed only on the poorest classes. The result has been that as the difficulty of assessing visible personal property and the impossibility of reaching invisible and intangible personalty became apparent, the tax was gradually modified, and finally abolished in all European countries, except possibly Switzerland and Holland, where its nature has very little of its original and typical character. One of the first acts of the French National Assembly in 1789 was to abolish it entirely. A provision for taxing personal property under a nominal land tax continued to exist on the statute book until 1833, when, through constant exemptions and systematic evasions, the annual revenue accruing from the same had run down to the sum of eight hundred and twenty-three pounds (four thousand one hundred and fifteen dollars). It is also interesting to note that the people of Europe have been so long exempted from a general property tax that their leading writers on economic or fiscal subjects rarely discuss it or even seem to have any knowledge of its characteristics or historical experience.[3]

The United States is the only civilized country that gives no heed to the world's uniform record of experience, and thinks it desirable to tax both property itself and its shadow.

  1. Holland, by reason of her immense national debt, the largest, comparatively, of any country, has been obliged to maintain a most rigorous and extensive system of taxation in order to raise revenue sufficient to the wants and requirements of the state. But it has been prominently brought out, in recent years, that the decadence of Holland dates almost from the hour when taxes were imposed on manufactories, commerce, fishing industry, and moneyed capital. Business went elsewhere, and with the decline of business the ability to pay taxes diminished, and the burden of taxation augmented. (See Journal des Economistes, November, 1871; also Principles of Political Economy, J. R. McCulloch, pp. 470, 471.)
  2. Real estate pays no Federal Government tax.
  3. To those desirous of a fuller record of the historical experience of the general property tax than has been here given, reference is made to an exceedingly interesting and valuable essay on the subject by Prof. E. R. A. Seligman, of Columbia University.