NATURAL TAXATION AN INQUIRY INTO THE PRACTICABILITY, JUSTICE AND EFFECTS OF A SCIENTIFIC AND NATURAL METHOD OF TAXATION BY THOMAS G. SHEARMAN NEW AND ENLARGED EDITION Garden City New York DOUBLEDAY, PAGE & COMPANY 1914 Copyright, i8qs 8V THOMAS G. SHEARMAN Entered at Stationers' Hall, London Copyright, 1898 BY THOMAS G. SHEARMAN CO CO en HJ CQ OQ CONTENTS. CHAPTKR I. II. III. IV. V. VI. VII. VIII. IX. X. XI. 4 XII. i^lll. ^ XV. ■> 4 Introductory .... Crooked Taxation . Direct Taxation Taxation of Personal Property Testimony of Experience Effect of the Personalty Tax on Farmers Taxation of Women and Children Taxation of Improvements . The Natural Tax .... One Tax Enough .... Justice of Natural Taxation Where the Burden Falls Social Effects of Natural Taxation Replies to Objections . Incidence of Taxation . Index 6 39 49 70 84 lOX 106 "5 136 165 174 199 224 244 253 iii 232054 NATURAL TAXATION. CHAPTER I. Introductory. § I. Is there any natural taxation? Is there any such thing as a natural or strictly scientific method of taxation ? Almost all self-styled practical men scornfully deny that there is ; and in this denial, for once, the professors of economic science, whom they contemn, seem to agree with them. It is more than doubtful whether any such writer upon the subject recognizes any natural form of taxation ; while Professor Perry distinctly asserts: "There can be no science of taxation"; and: " Nature has given no whisper, that we can hear, about any taxes.* " Professor Sumner also says : " There are no natural laws of taxation." Of course, all good protec- tionists cordially indorse these opinions. Nevertheless, is this consensus of opinion well founded ? Is it true that Nature has nothing to say on this subject? Is it true that there is and can be no science of taxation ? If it is, then Nature can have nothing to say about gov- ernment, and all talk of the science of government is folly. For government implies taxation, as truly as the ' Perry's Pol. Economy (20th ed.), 581. 2 NATURAL TAXATION. existence of animated nature implies food. Taxation is the indispensable condition of all government. Taxes are the food upon which it lives. Without taxes it must die. If all offices of government were filled gratuitously, it would none the less be maintained by taxation, although the only direct taxpayers would be the office-holders. Just as certainly as the existence of the body implies a science of food, the existence of human society implies a science of taxation. For society and civilization, the value of which is be- yond all computation, cannot exist without government, and government cannot exist without taxation. If there is any real social science, that science must include all things which are essential to the existence of society. If it is true that taxation is necessary, that it is, upon the whole, productive of good, even under its present chaotic conditions, and that it does return an equivalent to society, does it not follow that a thing so necessary and so naturally beneficial can be brought into harmony with natural laws and organized upon a basis of principle ? To say that it never can be, simply because no one has yet defined the principle upon which it should rest, is almost as absurd as to say that the law of gravitation did not exist until Newton invented it. Gravitation in the uni- verse is not more inevitable than taxation in civilized society. We may be sure that there is a science of taxa- tion, and that Nature has much to say about it, if we will only listen to her voice. How can we learn the teachings of Nature upon this subject ? How does Nature teach us anything ? Is it not by the stern pressure of necessity, driving us forward, while every path, except the right one, is hedged up with difficulties and penalties? Nature tells us nothing, in plain words, but while, on the one hand, she makes it im- INTRODUCTORY. 3 possible for us to stand still, she walls up, on the other hand, the door to every wrong path. It is an invisible wall, against which we blindly dash ourselves, again and again, until at last we learn the lesson and grope our way to the only open door. Even so. Nature shuts the door in our faces, as we try one method of taxation after another ; until at last we stumble upon a path, the door of which is wide open, and which is not obstructed by insuperable obstacles. Then, it may be, we shall find not only that the method of taxation thus indicated is the easiest and best one, but also that Nature has all along collected taxes by this method, while we have wasted our efforts in double taxation, to the vast injury of the whole human race. Let us then, before seeking to find a method affirma- tively pointed out by Nature, inquire into the working and effects of the methods commonly in use, and the tes- timony of experience as to their results. § 2. Bad effects of existing system. The condition of society, in the most highly civilized countries, is suf- ficient proof that Christianity and civilization have thus far failed to produce the beneficial effects which might reasonably be expected of them. A few absurd opti- mists strive to convince us that all is for the best, in this best of all possible worlds ; but the common-sense of mankind, and especially of the prosperous classes them- selves, is fully convinced that there is something radically wrong in our civilization. Analogies must not be pushed too far ; but they must be used, though not abused. When a sensible physician is called to advise upon a case of chronic indigestion, his first inquiry is concerning the food upon which the patient has lived. Bad food may not be the only cause ; but if the patient's food is clearly bad, the physician reforms that, before he attempts to re- 4 NATURAL TAXATION. form anything else. When we find society in an un- healthy state, wealth unequally and unjustly distributed, idle people rich, industrious people poor, gambling en- couraged, industry and commerce discouraged, desperate and degrading poverty side by side with excessive and wasted wealth, it is not a mere delusion, as some would have us believe, which leads us to say that these are the results of bad government. But when we seek for the causes of bad government, why should we not do as we would in the case of the human body, and ask upon what food this government has lived ? Bad taxation is as cer- tain to produce bad government and bad social condi- tions, as is bad food to produce indigestion and decay in the human body. And as no medicine, in the long run, can supply the place of good food, so no other social re- forms can ever bring social health, so long as unjust and unscientific forms of taxation are continued. § 3. Bad taxation destructive of society. Just as the human body can sustain life for a long time upon poor food, taken irregularly, at wrong times, and in wrong proportions, so government can be sustained for an indefinite period upon bad taxes, oppressive, unjust, badly collected, and in many respects injurious. But, as bad food breaks down the health and shortens the life of the body, so bad taxes destroy the health and sometimes even the life of the state. The Roman Empire owed its destruction as much to bad taxation as to slavery itself. What are bad taxes? Surely, all taxes are bad, which bear most heavily upon those who are least able to pay and who derive the least benefit from government. Any tax is bad, which takes from the poverty of the poor to add to the wealth of the rich. Any tax is bad, which can be easily evaded by fraud or falsehood, and is there- fore paid only by the honest and truthful. Any tax is INTRODUCTORY. 5 bad, which can only be collected by oppressive and de- grading methods. Any tax is bad, which unnecessarily hinders the increase of wealth and comfort among the people as a whole. Any tax is bad, which corrupts the morals of the people or which necessarily brings into existence a class which finds its profit in promoting wastefulness and extravagance in public affairs. Finally, any tax is bad, which makes the real taxpayer pay it twice over, while the government receives it but once. CHAPTER II. Crooked Taxation. § I. Faults of existing system. The system of taxa- tion most in use, in all civilized countries to-day, has all these faults. The taxes under this system are always paid to the government by persons who are authorized and expected to recover the amount from some one else, with interest and a profit, upon which the law places no limit. No one can ever tell the precise amount actually con- tributed by any one person, under this system, to the sup- port of government. No one can tell how much of the money paid by the final taxpayer goes to the support of the government, or how much goes into the private purses of individuals. A large portion of the final tax-burden is invariably per- verted to private use; while, in many cases, nine tenths and even nineteen twentieths are thus perverted. Private property is thus forcibly taken for private use ; an operation which every court in civilized countries declares in so many words to be " robbery, under the forms of law." ' The amount of the tax has only a remote connection with the actual needs or expenses of government. It may be and the fact has been, in several countries, for ten or twenty years together, either much more or much less ' U. S. Supreme Court, Loan Asso. v. Topeka, 20 Wallace, 655. 6 CROOKED TAXATION. / than the government needed. Where this is the sole method of taxation, taxpayers often pay a lighter tax, for years together, under an extravagant and even corrupt government, than they pay under one rigorously econom- ical and honest. This is no accident ; it is inherent in the system. The pressure of such taxation, therefore, has almost no effect in educating the people to demand or appreciate good government. The more wisely and honestly such a system is admin- istered, the more popular does it make public extravagance and the more unpopular public economy. § 2. Profits of crooked taxation. * Under such a sys- tem, a few persons make large profits ; and they easily concentrate their power to perpetuate and extend it, in such ways as more and more to diminish the proportion of revenue which goes to the public use and to increase the proportion in which it is diverted to private use. Under such a system, the persons who thus profit by what all courts of justice describe as " robbery, under the forms of law," acquire " vested interests " ; interference with which is regarded, by multitudes of honest and un- selfish men, as something positively wicked. Thus, as a necessary result of this system, the right to live by robbery grows to be not merely equal but even superior to the right to live by labor. For the right of labor is not recognized by law or public opinion ; while the right of robbery is. Under this system, honest men are often forced to abandon honest labor, and to live upon legalized robbery. At first, this application of force is merely accidental ; but eventually it is intentional and deliberate. It has been intentionally thus applied for a century, in America, and for at least two centuries in Europe. 8 NATURAL TAXATION. § 3. Taxation of poverty. The whole burden of such taxes rests upon consumption and not at all upon wealth. The system absolutely exempts property from the sup- port of government, and draws taxes only from those who have to spend, in proportion to their expenses. Inasmuch as the necessary expenses of the very poor are a hundred times as large, in proportion to their wealth, as the necessary expenses of the very rich, these taxes bear with a hundred-fold severity upon the very poor, as compared with the very rich. Averaging all classes of society under this system, the poor, as a class, invariably pay more than ten times their proper share of taxes ; while the rich pay much less than one tenth of their proper share. In addition to this, the system generally, though not invariably, adds to the cost of supporting the government a private profit, so large as to far exceed the whole amount of taxes paid by the rich as a class. The whole of this private profit goes to a portion of the richer class ; thus exempting them, as a class, from all tax- ation, and giving them a larger net profit from the very fact of taxation. This system, therefore, perpetually adds to the natural savings of the rich ; while it almost swallows up the natu- ral savings of the poor. The tendency of this method of taxation is, therefore : 1. To make the rich richer, and the poor poorer ; 2. To shift the burden of taxation from those best able to bear it to those least able ; 3. To remove all checks upon the extravagance of gov- ernment, by making the only persons who know that they pay taxes indifferent as to the amount of taxes, if not actually interested in maintaining needless taxes, for the Bake of a profit upon their collection • CROOKED TAXATION. 9 4. To force into existence a class of wealthy men, whose income depends upon legalized robbery ; 5. To complicate the business of the country with tax- ation, so that enormous burdens are kept upon the people, for fear that " vested interests " will suffer if these bur- dens are lightened ; 6. To promote bribery and corruption, by making business profits directly dependent upon political action. § 4. Crookedness of the system. A system of taxa- tion which invariably produces such results is fitly de- scribed by the name of Crooked Taxation. ( It is crooked in its operation, crooked in its form, crooked in its motives, crooked in its aims, crooked in its effects, and, as fits a system inherently crooked, it is especially crooked in its influence upon the well-being of society. It is not merely indirect. A curve is indirect. A right angle is indirect. Yet each is regular in its form and leads to results which can be clearly foreseen and which are frankly acknowledged. But so-called indirect taxation is never uniform in rates or operation. It never proceeds upon any fixed line, whether straight or curved. It never arrives at the point which is its professed aim, and it is never meant to arrive there by those who control it^ It never produces the chief results which are expected from it, even by its inventors, and never produces any of the results which they publicly profess to expect from it, ex- cept in rare cases, in which their secret calculations are entirely at fault. Its line of working is pulled up and down by selfish interests, at a thousand points, until it be- comes so hopelessly crooked that nothing short of omni- science can foresee its results. It gives rise to endless frauds, and every effort to repress these frauds involves some new oppression upon the honest and the poor. In- lO NATURAL TAXATION. vented originally to enable governors to defraud the peo- ple, it has no political support, except the desire of the governing class to deceive the taxpayer as to the cost of government, the desire of the governed to evade their just share of taxation, and the determination of a small section of the people to use it as a means of plundering all the rest. Undoubtedly, a few doctrinaires sincerely advocate this system, from honest motives ; but their support counts for absolutely nothing, except as a con- venient excuse in the mouths of those who have selfish reasons for quoting them. It is doubtless time to verify these broad assertions, for the benefit of those who have not studied the question. No one who has studied it, with care and ordinary intelli- gence, since the days of the man who cynically declared that the supreme art of taxation was to pluck the greatest amount of feathers with the least amount of squalling, can have failed to see most of these things for himself. The only justification which any honest, intelligent man has ever offered for crooked taxation is either: (i) that government must be maintained, and the people will not submit to straightforward taxation for its mainte- nance ; or (2) that every form of taxation is equally oppressive and demoralizing in its effects. Crooked taxation assumes a great variety of forms ; but it is most familiar under the names of tariffs and ex- cise taxes. It will simplify the discussion to confine illustration to these forms, although they are not the only ones. At the outset, let us take the duty on sugar, as it was maintained until 1890, and the tax on whisky, which is still supported by a majority of both our political par- ties. The one is a necessity, the other (except for manu- facturing use) a luxury ; and thus the two illustrate those two sides of the question. CROOKED TAXATION. II § 5. Taxes upon sugar and whisky. The tax upon foreign sugar is admittedly paid by our own people. For many years it averaged 70 per cent, of the cost, and amounted to nearly $60,000,000 per annum. In addi- tion to this, about 180,000 tons were annually produced at home, the price of which to the consumer was increased by at least two cents a pound by the tariff, or about $8,- 000,000 in all. Either the whole of this $8,000,000 went into the pockets of a few sugar-planters, or, which is more probable, they only gained half of it, while the other half was wasted in misapplied human effort. The effect of crooked taxation, in this instance, was probably to provide $60,000,000 annually for public use, and, by incidental " robbery under the forms of law," to seize $4,000,000 of private property for private use and $4,000,000 more for no use at all, absolutely destroying it by putting it into labor as grossly misapplied as would be carrying bricks to sea and dropping them in the ocean^^ rThe correctness of these figures and inferences will no doubt be vehemently disputed. But none of the disputants will be able to furnish figures any more correct ; and thus the truth of the next proposition will be proved, to wit, that no one can tell how much of these taxes goes to the state, how much to private pockets, and how much to pure wasteJ But this is a mere beginning. By one of those innu- merable breaks in the wriggling line of crooked taxation, which are made on purpose to deceive and defraud the people, the sugar tax was suddenly raised to a prohibitory point on all sugar fit to eat. Thus our refiners were given an absolute monopoly ; and the whole tax on eatable sugar, as distinguished from the crude article, was levied for the sole benefit of the Sugar Trust, — another instance of unqualified robbery under the forms of law, without a shred of pretence of government revenue, 12 NATURAL TAXATION. These exactions, amounting to over $75,000,000 per annum, did not end here. The jobbers and retailers must collect an increase from their customers, to pay for inter- est on their advances and usual profits ; all of which must be paid by the consumers of sugar. Who are these consumers ? And how is this vast burden apportioned among the people? Every family consumes sugar. In what proportion? According to their wealth or their income ? These considerations have only a slight influence. A family worth only $5,000 will generally con- sume as much sugar as one worth $100,000 ; and frequently such a family will consume more than a family worth $10,000,000. We all know instances in which this is true. To say that the poor pay ten times as much of the sugar tax as the rich, in proportion to their respective accumula- tions, is an absurdly low estimate of the truth. The very poor pay ten thousand times as much, in proportion, as the very rich. The last consideration applies equally to the tax on domestic whisky. The tax is collected, with a large profit, from consumers ; and whisky is consumed in far greater quantities by the poor than by the rich ; so that on this, also, the poor are taxed out of all proportion to the rich ; while dealers, who are rich, as compared with the vast majority of our people, make a large profit upon the taxes, which they first pay but immediately collect from their customers.' ' It is often said that a tax on whisky is purely voluntary, and that it should not be regarded as a burden upon the poor, since they can escape it by practising abstinence. But this is a palpable fallacy. So long as indirect taxation is maintained, the masses must pay the bulk of it ; because the rich never are numerous enough to pay, in taxes upon their consumption, one fourth of the needful revenue. In actual fact, they do not pay one tenth of U If then the American masses should renounce liquors and tobacco, as' they do largely in Italy, and absolutely in India, they would be taxed just as heavily upon their bread and salt, as the Italians and Indians are CROOKED TAXATION. 1 3 Will any one pretend that those who ultimately pay these enormous taxes upon sugar and whisky have any idea of the amount which they contribute to the support of the government ? Does the payment of such taxes have the smallest tendency to excite in the real taxpay- ers an interest in honest and economical government ? Are not such taxes devised for the precise and avowed purpose of preventing the mass of voters from feeling the burden and becoming restive under it ? Was there ever any motive for originally levying these taxes, other than the desire to blind the people to the cost of govern- ment, and to obtain money from them without their real consent ? Is there any other good reason for maintaining a tariff for revenue only or an internal excise tax? § 6. Impossibility of economical government under crooked taxation. — Can such taxes be so levied, under the most honest administration, as to be " limited to the needs of government, economically administered ? " The needs of government, thus defined, will often rise $40,- 000,000 in one year and fall $30,000,000 in the next. Suppose the entire revenue to be derived from sugar and whisky, which will serve just as well as to refer to a thou- sand similar taxes now existing. Suppose the govern- ment to require an increase of $40,000,000 in its revenue. Shall the taxes on these articles be instantly increased by $20,000,000 each ? Such things have been done ; but with what result ? Speculators learn that the increase is to be made ; they use corrupt means to secure such an increase as will insure profits to them ; and they make gigantic fortunes at the expense of the poor, who cannot buy more than their daily needs. With irony, all the more bitter because it was so unconscious, our simple- minded " second Franklin " used to ask why farmers, 14 NATURAL TAXATION. clerks, and day-laborers, who objected to a tax on pig- iron, did not forthwith build hundred-thousand-dollar furnaces, so as to participate in the profits of iron-making. And perhaps some other philosopher may ask why sewing- women do not buy sugar by the ton, at low prices, to feed their children. Not only would speculators profit by such advances in taxation, but no human wisdom would suffice to measure even approximately the advance which ought to be made in order to produce the needed revenue. No estimate would come within $5,000,000 of the actual result. Con- sumption might be reduced so much, by the increased cost, as to make a higher tax produce a smaller revenue. This has happened in cases without number. Or, in the effort to allow for this, the revenue might be increased to an excessive amount. § 7. Difificulty of reducing crooked taxes. Take the case of a needed reduction of revenue. Did we not struggle with this problem for twenty years ? Do we need any illustrations of the almost insuperable diffi- culties of reducing crooked taxes? Vested interests have sprung up. Large investments have been made, upon the expectation that the inequalities of crooked taxation would be maintained indefinitely. Reduction of taxes means ruin to a few wealthy men. In 1807, ^^^ New England raged against the embargo and non-intercourse acts. But, when they were forced on New England by the South, New England merchants turned into manu- facturers, and made the South pay heavy tribute. When the absurd embargo was repealed, the South supposed that it would do a favor to New England by repealing the non-intercourse acts also ; but, to the astonishment of short-sighted politicians, this repeal was defeated by New England votes, controlled by the new manufacturing CROOKED TAXATION. I 5 class. The South forced New England into an abnormal development of manufactures ; and it has paid heavily for its folly, for eighty years since. It is impossible thus to trifle with vast business inter- ests. After crooked taxation has forced capital to seek its profits out of legalized plunder, those who have been driven by legislation to seek profit in this way will fight to the death to maintain the taxes through which they live.) They are not to be blamed, any more than a Turk- ish pasha is to be blamed for extortion, when his master gives him only the choice between living by extortion or dying by the bowstring. Again, it is impossible to tell beforehand what will be the effect of a reduction of crooked taxation. A very heavy reduction of the tariff in 1846 produced a large in- crease of revenue. But a much smaller reduction in 1857 produced a permanent deficit in revenue. Judicial cor- rections of treasury rulings, reducing duties upon steel blooms at one time, and upon steel wire at another time, increased the revenue upon each of these articles, from a few hundred dollars to about two millions. Crooked taxes are like crooked rifles ; the only thing of which you can be sure is that they will not produce the effect which you expect of them. r/Phe result is that crooked taxes forever produce either a great deal too much or a great deal too little. And as no government can go on under a perpetual deficiency, every government, which depends entirely upon crooked taxation, keeps up excessive taxes and surplus revenues, with the inevitable^onsequences — extravagance, waste^ and corruption. TThe total abolition of protective duties would make no difference upon this point. Public waste and corruption are the necessary results of exclusive de- pendence upon crooked taxation. 1 6 NATURAL TAXATION. § 8. Political corruption. Crooked taxation offers such inducements to bribery and other forms of political corruption as to make them almost inevitable. What- ever may be the fact in other countries, experience proves that, in America, at all events, such corruption is an in- variable attendant of such taxation. In the United States, this fact is not merely admitted by all political parties : it is positively charged by each of them in all their leading organs of opinion, by all of their orators in election campaigns, and by most of their lead- ing statesmen. The Republican National Convention of 1888 distinctly charged that the proposed Democratic re- vision of the tariff was dictated by the Whisky Trust. Every Republican State convention, every Republican newspaper and every Republican orator declared that the Democratic tariff of 1894 was dictated by the Sugar Trust and carried through Congress by actual bribery. It is an article of faith, with almost every American pro- tectionist, that all efforts for reduction in protective duties are paid for with British gold. On the other hand, every Democratic convention, newspaper and orator asserted continuously, from 1888 onwards, that the Republican victories of 1880 and 1888 were secured by open and flagrant bribery of voters upon an enormous scale, and that the protectionist tariffs of 1883 and 1890 were car- ried through Congress by the expenditure, in each case, of over two million dollars, mostly in purchasing the elec- tion of Congressmen, but partly in influencing Congress itself. The third party has always believed that both parties were thus corrupted. § 9. Evidence of corruption. Some of the most im- portant of these accusations are unquestionably true ; for they have been admitted by the very parties ac- cused. In December, 1880, the Vice-President-elect, CROOKED TAXATION. 1 7 at a public dinner given in honor of one of the most notorious corruptionists in the country, declared, amid laughter and cheers, that the guest of the even- ing had carried the decisive State of Indiana by the liberal use of " soap " — a slang phrase well understood by all to mean bribes to voters. In 1888 the same State was again carried by such open and admitted bribery, under written instructions from a person who formerly held a high public office, that the very President, who owed the vote of his State to the management of this official, re- fused to have anything further to do with him. On the other hand, the charge of bribery with respect to the final form of the tariff of 1894, passed by a Democratic Con- gress, was made as vigorously by Democrats as by Re- publicans ; and the only plea of justificatiou ever made by the small section of the party accused was that the bribe had been paid before the election of Congress, in order to help its election, and that nothing had been paid to individual Congressmen since the election. Whatever moral difference there may be between the bribery of Congressmen and the bribery of their electors, it is clear that the injury to the community, in the result upon its business interests, is equally serious in either case, while the general effect of buying electors is worse than that of buying Congressmen. It is probable that the votes of Congressmen upon the final passage of a tariff bill are rarely purchased, but it is still more proba- ble that many votes upon details of a bill are purchased. Of course, legal evidence of such facts is almost impossi- ble to be had, but evidence entirely satisfactory to reason- able minds has been obtained as to Congressional votes, both for and against tariff changes. Nor is such corruption by any means confined to tariff legislation. There is far more evidence of Congressional 1 8 NATURAL TAXATION. corruption in connection with the whisky tax than in connection with any tariff. The frequent and sudden in- creases of the tax on whisky between 1862 and 1866 were notoriously accompanied by large speculations in whisky, carried for the account of Congressmen by the whisky ring, and amounting to direct and gross bribery. The last increase of twenty cents in this tax, made in 1894, has been followed by an official exposure of the Whisky Trust accounts, showing an expenditure of $600,000 for " statistics " and $500,000 for " extraordinary legal expenses," most of which, it is admitted, was made in corrupting Congress into the old trick of increasing the tax, while exempting whisky on hand. The fact that this enormous expenditure was not rewarded by full suc- cess suggests the amount which must have been spent on former occasions, when such success was obtained. §10. Iniquitous methods of collection. The methods by which nearly all crooked taxes are collected are always and everywhere iniquitous and disgraceful. Perhaps we ought to say that the methods by which the amount to be collected is ascertained are iniquitous, rather than the mere final act of collection. Any gentleman can, without a stain upon his character, use such force as the law may direct, to seize property, forfeited for non-payment of taxes. But no true gentleman can go through all the details of the work required by law and necessity, to ascertain the amount which ought to be collected under most forms of crooked taxation. And although a very large number of true gentlemen do administer the existing tax laws, without doing anything unworthy of their repu- tation, their administration is attended with greater injus- tice to the poor and the honest taxpayers than is that part of the administration which is entrusted to unscrupu. lous and brutal officials. CROOKED TAXATION, 1 9 § II. Collection of excise taxes. Take what are usually called internal-revenue taxes, but which are more correctly termed excise taxes, as an illustration. It is impossible to administer the laws imposing these taxes, without the constant aid of spies, sudden searches of private premises, seizures of property, upon the slightest pretext, continual arrests upon suspicion, and enormous penalties for slight offences and even for honest mis- takes. The punishment visited upon a land-owner, who suffers his land to be used for making one gallon of illicit whisky is literally a thousand times more severe than can be imposed upon him for suffering the land to be used as a haunt of highway robbers. The punishment prescribed by law and inflicted in fact for making the gallon of whisky is far more severe than the punishment ever imposed for atrocious acts of violence, not reaching the dignity of actual attempts to kill. In England, thousands of brutes have dashed their wives or mothers against walls or tables, breaking several ribs ; not one of whom was ever punished with one fourth of the severity shown to the maker of illicit candles. It is not surprising that, for more than a century after excise taxes became general in England, so that not only liquors, but also leather, glass, candles, bricks, and in- numerable other articles could only be manufactured under the rigid espionage of public officers, the very name of " exciseman " became an object of universal hatred and contempt. It is not surprising that, in the mountain regions of the South, where a little whisky would naturally be made on every farm, the exciseman is generally hated, although too powerful and courageous to be despised. § 12. Collection of tariff duties. Tariffs on imported goods are administered on similar principles. Every person arriving at our ports must submit to an ex- 20 NATURAL TAXATIOA'. amination of his baggage, such as he would think degrading and intolerable if made by a city assessor. Ladies' dresses and underclothing are dragged out and spread upon the wharf for the inspection of a coarse crowd of dock laborers. A " faithful ofificer " searches them carefully, to see if they are sufficiently dirty to warrant the belief that they are in " actual use." The late Mrs. William Waldorf Astor (honor to her memory !) was the first woman who rebelled against this abominable practice and refused to pay a tax upon cleanliness. She success- fully appealed to the Supreme Court against this disgust- ing standard of taxable character; but the outrage is still repeated, ten thousand times a year, by vigilant oflficers, who peer and pry into women's clothing and insist that it must be new, because it is not filthy. On the slightest suspicion that a passenger has con- cealed dutiable goods, the law gives absolute power to the customs officers to strip the suspected person naked ; and this power is habitually exercised. There is enough sense of decency in ourofficialsto assign women to the duty of strip- ping women ; but imagine the shame and torture which evensucha search must inflict upon a sensitive and innocent woman. Of course, the customs officers would, with one voice, declare that no innocent woman was ever subjected to such an outrage ; but such a statement is an insult to our common-sense. The mere fact that no woman has brought suit for damages on this account proves nothing. Few sensitive women would endure the added shame of relating their story in court ; and as none of them could prove malice on the part of the searcher, no sensible law- yer would advise them to sue. The malice is in the law, not in the officers. The oppressions which have been practised upon mil- lions of poor immigrants arriving in the United States CROOKED TAXATION. 21 have never been even faintly described. For many years it was the uniform practice to make them pay enormous taxes upon every article, however trifling, which they had not actually used and soiled. Cases are well known in which a poor woman, who had only one pair of stockings (which she kept clean for landing, going barefoot on the ship,) was taxed 8o per cent, on this pair ; and men, hav- ing only two suits of clothing, have been taxed upon one suit for more than it cost. Nine officers reported their names for honorable mention, on their joint seizure of two yards of flannel, which a poor Irish woman had kept clean until her arrival. These are but small instances of vast numbers of similar petty and contemptible extortions, which are carried on, not from corrupt motives, but in zeal for the enforcement of crooked taxation. Is it possi- ble that men of refinement and honor can administer such regulations without degradation ? ' ' While these pages were passing through the press the following item appeared in the New York Evening Post, of April i8, 1895. " Washington, April 18. — Accompanying the Treasury decision permitting ships to come up to New York harbor in the night and discharge passengers' baggage without taking out a special permit or hiring inspectors, a code of instructions for inspectors will be promulgated. This will set forth in plain terms that the intent of the law is to break up smuggling in the importation of merchandise, not to annoy and harass the honest travelling public. " Several cases have come to the notice of the department recently showing that inspectors often mistake their duty in this particular. Within one month, three women who had been travelling abroad and brought home mil- linery for their own use were pounced upon as professional dressmakers trying to smuggle in goods for sale to their customers. Two of the accused were able to prove their innocence without much difficulty ; but in the case of the third certain measurements were taken which convinced the inspectors that the gowns found in her trunks could not be hers, as they would not fit her figure. At her own suggestion, therefore, she dressed herself in the sev- eral garments, and submitted the results to expert Judges named by the collector, who promptly decided that the inspectors were in error and sent her home in triumph. "It is the desire of the present administration of the Treasury to break up this sort of thing." 22 NATURAL TAXATION. § 13. Ad valorem taxes. The only fair method of taxing any article is obviously by proportioning the tax to its value. Taxes, levied in strict proportion to weight or measure only, are so frightfully unjust to the poorer classes that no one attempts to justify them, except on the ground of necessity, to avoid the frauds which are common under 'Oao. ad valorem ^^Xzxx. So impracticable is it to make all duties specific, that under the McKinley tariff itself, which was framed in 1890 by fanatical de- votees of the specific system, more than half of the duties were advaloretn. But, in order to avoid fraud and evasion under ad va- lorem taxes, the government is compelled to employ a small army of spies, to resort to all kinds of low tricks to ascertain prices, to treat all merchants as thieves and rogues, to require detailed statements about matters concerning which the declarants cannot possibly know anything, to impose enormous fines and penalties for errors which may be fraudulent or may be perfectly inno- cent, to put valuations upon goods which the officials know and admit to be utterly false and excessive, and in general to adopt methods of dealing with honest tax- payers which no business man could use without being expelled from all decent society. Blackmail, fraud, swindling, and enforced lying are regular methods of collecting the tariff revenue of the United States, not through the fault of the administrative officers, but as the necessary result of deliberate provisions of statute law. These words do but express, in plain English, what both Republican and Democratic Secretaries of the Treasury have stated in the decent obscurity of many-syllabled words. § 14. Crooked taxation widens the social chasm. The greatest evil resulting from such taxes remains to CROOKED TAXATION. 23 be considered. This is their efTect upon the distribution of wealth, by making the rich richer and the poor poorer than they would be under direct taxation. It will not be here asserted that the poor are growing absolutely poorer. Whether true or false, that statement is not here in issue. The point made is that crooked taxation makes the poor poorer than they would be under direct taxation, and that it continually widens the dis- parity between the rich and the poor. Some of the inevitable incidents of such a system tend strongly in this direction. The intermingling of politics with business and the constant interference with produc- tion and consumption, which crooked taxes involve, would alons give continual opportunities for speculation, of which none but capitalists can ever avail themselves, and from which, therefore, none but capitalists can profit ; while such profits are made chiefly at the cost of the poor. The uncertainty of operation, which always attaches to these taxes, making that which was crooked in its con- struction doubly crooked in its working, opening still larger opportunities to speculators, swells yet more the profits of capitalists at the expense of others. Changes in the text of the laws providing for such taxes are very fre- quent ; and changes of interpretation are ten times as frequent. Every one of these offers to a few shrewd capitalists a fine harvest, out of the crops of the poor. When such opportunities for profit become gradually infrequent, the class accustomed to count upon them clamor for a revision of the law ; and, no matter whether the revision is upward or downward, the engrossing clerks always make some innocent mistake, which is worth a million dollars at least to some lawyer, who, by a marvel- lous instinct, discovers the mistake almost before the ink is dry ; while fifty new elements of crookedness are intro- 24 NATURAL TAXATION. duced by sly legislators, which escape public attention, until another set of capitalists have cleared as many million dollars out of the " accidental inequalities " of taxation. These characteristics of such legislation are usually brought up in controversies over the issue between tariffs for revenue and tariffs for protection ; but in reality they have little to do with that issue. They are inherent in all tariffs and in all taxes upon production and exchange. The principal reason why they have become associated with that particular controversy is that, under a protec- tive tariff, there is always a large number of wealthy and influential people who can be induced to join in a demand for revision ; while, under a tariff for revenue only, such a demand comes only from the few who profit by mere change, unless there is a substantial reason for it. More- over, a tariff for revenue only is, for reasons not necessary now to state, a practical impossibility in any country which depends for its revenue upon indirect taxation alone ; and therefore the United States have never had any ex- perience of it. But all these effects of crooked taxation, amounting, though they do, to many millions, annually drawn from the poor and divided among a few of the rich, are insig- nificant, compared with two other influences which remain to be considered. These are: (i) the levy of tribute upon the masses for the direct profit of a few wealthy classes ; and (2) the enormous taxation of the poor and almost entire exemption of the rich. § 15. Protective taxes. The first of these is not the most important ; and it is one concerning which there is so much controversy, that it will be only briefly mentioned here. This is the tribute which a few rich men are enabled by this system to levy upon the rest of the community CROOKED TAXATION. 2$ through so-called protective taxes upon competing prod- ucts. The most moderate estimate of this item places it at three times the amount of duties actually collected by the government upon such products. As those who dispute this estimate assert that a protective tariff imposes no burden at all upon the people of the protected country, but that Europe pays all the protective taxes of America on European products, while America pays all the protec- tive taxes of Europe on American products, there is no advantage in offering any compromise on this estimate. It may be taken as it is or rejected altogether. It is in- cluded in the computations hereafter given ; but if re- jected, it would not reduce the estimate of the effects of indirect taxation by so much as one half. But the justice of allowing, in these calculations, for an addition to the cost of domestic productions to the con- sumer of fully three times the amount of all duties col- lected, is demonstrated in an appendix to the recent work of David A. Wells on Economic Changes, page 472. There can be no impropriety in saying that this appendix was not written by Mr. Wells, but is the work of a gen- tleman of unusual ability and experience in statistical fields, who is also much more conservative in his views than Mr. Wells. This appendix shows that the people of the United States have actually paid an average price for iron and steel, during ten years, ending in 1887, of $56,000,000 per annum in excesss of the average English price ; while the official statistics show that the average revenue to the United States from duties on all iron and steel, during the same period, was less than $15,000,000 per annum. This shows an addition to the cost to the consumer of three and two thirds of the whole duty col- lected. But this is not all. Tin plates are included in the dutiable articles. No tin plates were produced here 26 NATURAL TAXATION. during those ten years ; and therefore the increased cost of American production relates solely to other forms of iron products. Excluding these, the revenue from iron and steel has averaged less than $12,000,000 per annum, during the period referred to. The consumer has, there- fore, paid over four and one half times as much as the duty in addition thereto. § 16. Excise taxes. The amount which should be al- lowed for the effect of internal taxes upon domestic pro- duction is much more diflficult to estimate. That such taxes do increase the cost to the consumer, far in excess of the mere tax paid to the state, is very clear. The his- tory of the match tax alone is sufificient to prove this. Levied solely for revenue, it soon ruined all small manu- facturers and created a monopoly, which increased the price, not only by the one cent per box paid to the gov- ernment, but by another cent ; as was proved by the fact that the cost to consumers fell two cents soon after the repeal of the one-cent tax. And, for nearly two years after the tax was laid, this whole increase went into private pockets ; the market being fully stocked, in anticipation of the tax. But it is not probable that all excise taxes operate quite so severely. Their influence in checking production, however, and the wholly unforeseen ways in which they hinder improvements and petrify industry, to the common loss, are well known. It would be a moderate estimate to put the indirect cost of such taxes at one fourth of the amount collected ; but, having no proper basis for an estimate, it is better to make none. § 17. Dealer's profits. The profits of dealers upon the indirect taxes, which they pay in the first instance, are plainly a charge upon consumers. Take earthenware, as an example. In consequence of the great cost of handling these goods and the constant losses by breakage, the nomi- CROOKED TAXATION. 27 nal profit of dealers is rarely as low as 50 per cent. This profit is charged, as a matter of course, upon the duty as well as upon the cost. The duty prior to 1894, was nomi- nally 60 per cent., but actually nearer 70 per cent. ; since packages are made dutiable, while they are useless, after being once used. To call the actual tax (id^ per cent, is moderate. But the tax to the consumer, plus the dealer's profit, was never less than 100 per cent, and often far more. Precisely the same addition would be made to the cost of a similar domestic article, if subject to a similar excise duty. Nominal profits upon unbreakable articles are by no means so large. Yet to call the general average of mer- cantile profits, before the consumer is reached, only 15 per cent., is ridiculously low. No estimate, of which the writer is aware, puts it lower than 25 per cent. Neverthe- less, the lowest conceivable figure shall be here accepted. The profits collected upon local taxes on buildings and chattels must be put still lower. Let them stand at only 5 per cent. § 18. Burden of taxes and profits. On the basis of the foregoing explanations, and upon the census and other ofificial statistics for 1880 (those for 1890 being not even yet quite complete), the following tables are constructed. American Tax Burden of iSSo. Import duties $186,500,000 Internal revenue, etc 147,000,000 Increased prices domestic pro- tected goods 559,500,000 Total $893,000,000 Dealers' profits, 15 per cent. . 134,000,000 $1,027,000,000 Local taxes $312,000,000 Landlords' and dealers' prof- its, 5 per cent 1 5,600,000 327,600,000 Grand total $1,354,600,000 28 NATURAL TAXATION. Out of what fund can these taxes and profits be paid? Not out of what the people spend, but out of what, but for these charges, they would save. In proportion to what are they paid ? Not in propor- tion to what is saved, but strictly in proportion to what is spent upon living. The larger the proportion which the necessary cost of mere subsistence for himself and his family bears to each man's income or property, the larger, in exact proportion, is his relative share of compulsory taxation. If he chooses, for his own pleasure, to increase his expenditure much beyond this limit, he bears a larger proportion of the actual burden of taxation ; but this is not compulsory upon him. As, however, nearly all men of more than average wealth do spend more than is absolutely necessary, the correct method of ascertaining the relative tax burden of each class is to estimate the average expenditure of that class, disregarding the extremes of extravagance or stint. The estimate in Mr. Gannett's census report of accu- mulation for the ten years between 1870 and 1880 was $1,300,000,000 per annum. This figure will be accepted for the last year of the series. The census of 1890 esti- mates the annual savings since 1880 at $2,000,000,000. § 19. Earnings of the people. Adopting the census of 1880 as the basis, as we must at present, there were then about 17,400,000 producers, supporting each a group of three persons, disregarding fractions. The earnings of 3,000,000 to 5,000,000 farm laborers in the census year 1879 "^vere shown by the agricultural report to be less than $194, on an average, including the cost of their living. The earnings of 4,000,000 farmers were less than $300 each. The earnings of 2,700,000 artisans averaged $346. It is often claimed that this repre- sents only a portion of their earnings, and that the cen- sus gives the total amount of wages paid in the year CROOKED TAXATION. 29 against the largest number of laborers ever employed at any time. This is not true. The census distinctly states that only the average number of laborers is given ; and therefore it is entirely proper that the whole amount of wages should be given. It is to be remembered that this average of $346 includes the earnings upon which a group of three only are supported. The average family num- bering five, this income represents an average family in- come of $577. So far from being too low, this is actually much too high. It is much more than the average earn- ings of mechanics' families in cities. It is $62 more than the average railroad employee earned, in 1888, when work- ing 313 full days in the year.' Four hundred and fifty dol- lars would be an ample estimate of the average income of four fifths of American families. Nevertheless, the exces- sive amount of $300 for each worker, equal to $500 for each family, will be here accepted as the lowest range of average income, with $400 for each worker, or $666 for each family, in the next grade. What were the total earnings of the whole people? The officials, who had themselves taken a large part of the census of 1880, and who remained in office after Gen^ eral Walker retired, became alarmed at its showing upon this point. By no manipulation consistent with the fig- ures could it be made to show a gross production of much more than $5,cxdo,ooo,ooo per annum. One census taker then guessed that farm products were underestimated $ 1 ,400,ooo,(XXD, while another guessed that manufactures were underestimated $3,4CX),ooo,C)00. The agriculturist was not so wise as the manufacturer, and gave reasons for his guess. Of course the reasons cut down the guess at least one third. The manufacturing guess shows too much evidence of manufacture upon its face. Still, the real census figures are undoubtedly too low. We have ^U. S. Labor Report, 1889, p. 160. 30 NATURAL TAXATIO.W to guess. Building up from the foundation of a mini- mum average earning of $300 for each worker, or $500 for each family (which is decidedly too much) ; allowing an average of $1,000 for each of 1,000,000 workers in the centre, which Mr. Atkinson has pretty clearly proved, and making the least reasonable allowance for the large incomes of the richer classes, we reach the conclusion that the actual production of the nation in 1880 was between $8,300,000,000 and $9,000,000,000. Prof. W. T. Harris, after analyzing the original and amended census figures, estimates the same income at only $7,300,000,000 {Forujn, July, 1887). If the average in- come of the basic 13,000,000 workers was only $225 instead of $300, Professor Harris's estimate is probably correct. Knowing, as we do, that several millions of them did not average even $200, it is quite possible that he is correct. But as, upon this basis, the disproportion between the burdens imposed upon the rich and the poor would become too startling for general acceptance, it is better to err upon the safe side, and to assume that the earnings of farmers and mechanics were far greater than any one has ever been able to prove them to be. All such figures must necessarily be largely guesswork ; but it will be found that no reasonable guesses can be made which will materially alter the final general result. We may proceed to rectify all these guesses, by comparison with actual returns of incomes, made during the existence of an income tax. § 20. Income tax returns, 1866. It is much to be re- gretted that no correct statistics of the incomes of the people of the United States, during the years when an income tax was levied, seem to be attainable. The fig- ures given in Lalor's Cyclopcedia do not agree in any re- spect with those of ofificial reports of the Commissioners of Internal Revenue ; and neither set of tables works CROOKED TAXATION. 3 1 out any result which agrees with the taxes collected. Only some suggestions towards a correct result can be gathered from any of these figures. It appears that in 1866, under a law exempting $600 and house rent, in- comes were returned, from business profits and salaries, by 460,000 persons, to the gross amount of about $885,- 333,000; which, after adding the $600 exempted and an estimated average house rent of $400, which is none too much, would make a total income of $1,345,000,000. This amount represents that upon which the tax was paid in 1867 ; and, although a large part of this payment was made on account of assessments made in 1865, an equally large part of the assessments of 1866 was not paid until 1868 ; so that the one balances the other. Of these 460,000 taxpayers, about 37,000 (or 8 per cent.) acknowledged incomes exceeding $5600 and house rent, which, in their cases, must be estimated at fully $900 ad- ditional. This would make their incomes exceed $6500. Their total incomes amounted to over $312,000,000, in- cluding house rent. This is somewhat less than 25 per cent, of the whole ; but, as the proportion was much larger in 1865, 25 per cent, will be a fair average. In the city of Brooklyn, in 1865, 1734 persons returned incomes exceeding $5600 and house rent ; of whom 801 returned incomes exceeding $10,600 and rent. It will be reasonable to classify them into incomes of $6500 and of $12,500 minimum respectively. In the poorer district of Brooklyn, the richer class constituted 40 per cent, of the whole class above $6500 ; in the wealthier district, the proportion was 48 per cent. It will be a very moderate estimate to put the incomes of the whole country, exceed- ing $10,000, at 37|- per cent, of all exceeding $5000. In Great Britain the proportion considerably exceeds 40 per cent. Even in those European countries where the income- 32 NATURAL TAXATION. tax is most rigorously and honestly enforced, it is univer- sally conceded that at least one third of the assessable income is never returned. In the United States there can be no doubt that less than half of the tax really due was ever collected. The administration of the law was every- where corrupt ; and in most of the western and southern States it was a mere farce. It is a moderate estimate to assume that there were really more than 800,000 persons in receipt of incomes exceeding $700, in 1866, and that their aggregate income exceeded $2,500,000,000, or about $3000 each on an average. These may be divided into three classes, viz. : I. 720,000 at $ 700 to $ 5,000. II. 50,000 " 5,000 " 10,000. III. 30,000 " over $10,000. When the exemption was increased to $1000 and house rent, the number of taxpayers fell off to about 260,000 ; and upon the exemption of $2000 the number fell to 75,- 000. There is nothing to be learned from the study of returns so palpably fraudulent. It is to be hoped that much better information will be gathered from returns under the new law in 1895. § 21. Estimated incomes, 1880. The increase of wealth in the United States, between 1866 and 1880, according to the valuation of real estate (which is the only safe test), was 65 per cent. The increase of popu- lation was 35 per cent. Taking the medium figure of 50 per cent., as the increase in the number of large incomes, the result would be as follows: American Incomes Over •$'joo. Incomes. Persons. 1866 1880 $ 700 to $ 5,000 720,000 1,100,000 5,000 to 10,000 50,000 75,000 10,000 upwards 30,000 45 ,000 800,000 1,220,000 CROOKED TAXATIOI^. 33 We must collect any further light on the classification of incomes from a study of the British income-tax re- returns. The following table shows the ofificial return of GREAT BRITAIN AND IRELAND. Business Incomes in 1884. Persons. Income. Average Income. 104. ^50,000 & over .1^91,783 1,192 10 to 50,000 17,644 1,871 5 " 10,000 6,553 1,117 4 " 5.000 4,270 1.947 3 " 4,000 3,266 4,202 2 " 3,000 2,282 13,268 I " 2,000 1,277 32,769 500 " 1,000 \ 19,996 400 " 500 j 541 48,572 300 " 400' 367 10^ 110,626 200 " 300 \ 163,736 150 " 200 ) 399.400 These returns represent only earnings from personal services and profits derived from business, other than farming. Rents, incomes from corporate investments, mining, farming, etc., are not included. As 6'j,ooo farm- ers and at least as many landlords also made returns, it is obvious that the list is a very incomplete statement of the income taxpayers. Not less than 200,000 British families live upon their investments alone; and the whole num- ber of incomes above ^^150 must have exceeded 600,000 in 1884. § 22. Savings of each class. Let us now estimate the probable savings of each class, in 1880, after all taxes were paid. Labor commissioners have repeatedly inquired into the savings of laborers, with the result of fixing these at not more than 5 per cent, of such incomes under $500, after all taxes have been paid. As taxes consume, directly and indirectly, at least 15 per cent, of a laborer's average income, the average laborer is not so thriftless as 34 NATURAL TAXATION. it might at first appear. He does not spend more than 80 per cent of his earnings. A paternal government takes care of that. The middle class find it difficult to save more than 10 per cent. But the savings of the rich pro- ceed upon a rapidly increasing ratio, until we reach some men who save, with ease, 95 per cent, of their in- come. This is not common ; but there are well-known instances of persons whose income exceeds $i,ocx),ooo. whose expenditures do not equal 2 per cent of their in come. Such persons are practically exempt from all taxa tion by the Federal Government. Constructing a table upon the foundations thus afforded, taking American statistics so far as they go, and using British statistics only for the purpose of supplementing and classifying American figures, the following is the result : American Incomes, Expenses, and Savings, 1880, Income. Average Average / > Class. Persons. Range. Average. Expenses. Savings. I. 50 Over $1,000,000 $1,500,000 $250,000 $1,250,000 II. 500 250,000 to 1,000,000 450,000 100,000 350,000 III. 5,000 50,000 to 250,000 88,000 40,000 48,000 IV. 12,500 20,000 to 50,000 27,500 15,000 12,500 V. 27,000 10,000 to 20,000 14,000 9,000 5,000 VI. 75,000 5,000 to 10,000 6,400 5,000 1,400 VII. 250,000 2,000 to 5,000 2,700 2,300 400 VIII. 850,000 700 to 2,000 1,000 850 150 IX. 2,500,000 350 to 700 400 380 20 X. 13,672,000 under 350 300 285 15 CROOKED TAXATION, 35 It is now necessary to tabulate the aggregate expenses and savings of each class, as an entire class. American Incomes, Expenses , and Savings, 1880. Total Total Total Class. Persons. Income. Expenses. Savings. I. 50 $75,000,000 $12,500,000 $62,500,000 II. 500 225,000,000 50,000,000 C75, 000,000 III. 5,000 440,000,000 200,000,000 200,000,000 IV. 12,500 J43, 750.000 187,500,000 156,250,000 V. 27,000 378,000,000 243,000,000 135,000,000 VI. 75,000 480,000,000 375,000,000 105,000,000 VII. 250,000 675,000,000 575,000,000 100,000,000 VIII. 850,000 850,000,000 722,500.000 127,500,000 IX. 2,500,000 1,000,000,000 950,000,000 50,000,000 X. 13,672,000 4,101,600,000 3,896,520,000 205,080,000 17,392,050 $8,568,350,000 $7,212,020,000 $1,356,330,000 § 23. Incidence of taxation. The incidence of taxa- tion is now to be considered. The gross expense of the people's living has been estimated, as above, at $7,212,000,000 for the year 1880. Taxation was dis- tributed nearly pro rata upon this. The whole burden of taxation, including its intended and unintended effects, has been shown to be $1,350,000,000. This was equal to i8-j^ per cent, on expenses. As the total savings, before taxes are deducted, would amount to $2,700,000,000, the ultimate burden imposed by taxation and its effects was 50 per cent, of all the national savings. But, while this is the average, that average is based on a vast disproportion of burdens. The tax of iS-j^^. per cent, upon expenses means a tax of less than 4 per cent, upon the easy savings of the richest class, but of 78 per cent, upon the hard savings of the poorer class. Indirect taxation, therefore, bears twenty times as heavily upon the average poor man as it does upon the average rich man. 36 NATURAL TAXATION. This will appear by the next table, in which is given : 1. The annual expenses of each class ; 2. The tax burden at i8-j^ per cent, on such expenses; »nd 3. The savings which each class could make, with no greater self-denial than at present, if it were relieved from all taxation. American Tax Burdens^ 1880, Z\a&%. Persons. Total Income. Expenses. Tax Burden, Taxable Savings. Savings left after Taxation. I. 50 $75,000,000 $12,500,000 $2,337,500 $64,837,500 $62,500,000 11. 500 225,000,000 50,000,000 9,350,000 184,350,000 175,000,000 111. 5,000 440,000,000 200,000,000 37,400,000 277,400,000 240,000,000 IV. 12,500 343,750,000 187,500,000 35,062,500 191,312,500 156,250,000 V. 27,000 378,000,000 243,000,000 45,441,000 180,441,000 135,000,000 VI. 75,000 480,000,000 375,000,000 70,125,000 175,125,000 105,000,000 Vll. 250,000 675,000,000 575,000,000 107,525,000 207,525,000 100,000,000 Vlll. 850,000 850,000,000 722,500,000 135,107,500 262,607,500 127,500,000 IX. 2,500,000 1,000,000,000 950,000,000 177,650,000 227,650,000 50,000,000 X. 13,672,000 4,101,600,000 3,896,520,000 728,649,240 933,729,240 205,080,000 17.392,050 18,568,350,000 $7,212,020,000 $1,348,647,740 $2,704,977,740 $1,356,330,000 § 24. Concentration of wealth through unequal taxa- tion. The general effect of this inequality of taxation will be better understood by dividing the community into three classes, as is done in other countries, calling them the rich, the middle, and the laboring classes. Under the system of taxation, existing in 1880, the stored-up wealth of the community was annually divided about as follows : Class. Rich. Middle Laboring American Annual Accumulations, 1880. Persons. Accumulations. 120,000 $873,750,000 1,100,000 227,500,000 16,172,000 255,080,000 Total, 17,392,000 $1,356,330,000 CROOKED TAXATION. 37 If these calculations are at all correct, they demon- jtrate that, in 1880, fully half of the annual accumulations of the country fell into the hands of less than 28,000 families.' But, it will be asked : Is this the result of indirect taxa- tion? Certainly it is. If taxation were direct and exactly equal, the annual savings of each class should bear the .same proportion to each other, after taxation, that they did before. Taxation, in short, should at least not make the poor relatively poorer than the richer classes. Let us see, then, how the case would stand if there were no taxes, no bounties, and no favoritism. Natural Savings^ in the Absence of Taxes, iSSo. Class. Persons. Untaxed Savings. Rich. i20,ono $1,073,466,000 Middle. 1,100,000 470,132,500 Laboring. 16,172,000 1,161,379,240 Total, 17,392,000 $2,704,977,740 On this basis, it will be seen, the laboring masses woulj gain 43 per cent, of all the wealth, instead of less than 19 per cent., as at present ; while the middle and laboring classes together would gain 60 per cent, instead of 36 per cent. But upon what principle of equity or economic science should any artificial taxes be laid upon the masses of men, whose incomes fall below $400 to a family ? Why should not taxation fall upon property instead of labor ? Why should it be taken out of the means necessary to a bare living? It is idle to say that taxation of labor promotes economical government. It never has done so ; and it ' Of the whole accumulation, $1,356,330,000, over $633,000,000 fell to 18,000 families, and $50,000,000 more to less than 10,000 families included in Class V. 38 NATURAL TAXATION. never will. It has already been pointed out that indirect taxes are maintained for the very purpose of convincing the vast majority that they are not taxed, and that they have no interest in economical and prudent government. It is beyond contradiction that this is the design and effect of such taxes. It is absurd to contend that they must be maintained, in order to secure the votes of the majority for good and cheap government, when their chief object is to prevent these voters from feeling any personal in- terest in that question. CHAPTER III. Direct Taxation. § I. Direct taxation practicable. Nature having made it perfectly clear that indirect taxation is not natural, by making the collection of such taxes impossible without gross inequality, fraud, hindrance to production, and gen- eral demoralization, it is absolutely necessary for those who care for justice, equality, and good morals, to select some form of direct taxation. The principal objection raised against direct taxation is the alleged unwillingness of the people to pay such taxes, and the consequent difificulty and expense of col- lecting them. So strongly is this objection felt, that many persons, who favor direct taxation for old-established communities, assume as an indisputable fact that, in new and thinly settled countries, it would be impossible to raise an adequate revenue by direct taxes. As invariably happens, in cases where economic laws are thrust aside by practical men, on the plea that they are sound in theory, but will not work in practice, all human experience contradicts this assumption. The newest and most thinly settled communities in- variably do raise their public revenue by direct taxation ; and indirect taxation is impossible, until they have ob- tained a considerable degree of growth and an advanced social organization. Can any society be more new or any 39 40 NATURAL TAXATION. country be more sparsely settled than were all the differ- ent territories of the United States, when first opened for settlement ? Yet was there a single village or school dis- trict in them all, which raised its first revenues by indirect taxes? It may be said that this was only because the United States Constitution prohibited them from sur- rounding themselves with a tarifT. But the history of mankind may be searched in vain for any absolutely new community, which raised its first taxes by means of a tariff on imports or on exports, by excise duties, or by any indirect taxes whatever. A moment's reflection will show that the very idea is absurd. Every new settlement is eager for imports ; and it would rather offer a bounty for them than place a tax upon them. It clamors for pro- duction, manufactures, and trade ; and it lays no taxes on production. With this idea also falls the other idea, that direct taxes are necessarily more difficult of collection than others. Some forms of direct taxes are difficult of collection, and increasingly so as the community advances in wealth and civilization. This is because those particular taxes are not founded upon justice; and their injustice becomes more and more apparent with the growth of the com- munity. But if it can be shown that there is a tax which men everywhere are willing to pay, partly because they feel that they receive full equivalent for the tax, and partly because the pressure for payment is practically irresistible, and if this tax can be collected with ease, equality, and justice, all these objections will fall to the ground. As the only forms of direct taxation, now in use, by means of which an adequate public revenue could be obtained, are an Income Tax, a Succession Tax, and a tax upon the value of some part or all of real and per- DIRECT TAXATION. 4 1 sonal property, usually called a General Property Tax, our attention may as well be confined to these taxes. § 2. The general income tax. The first impression of most students of taxation is probably in favor of a general income tax ; that is, a tax upon incomes from earnings, as well as from investments. But this impression is soon dissipated by a careful study of the subject. Assuming this to be the only tax, it is manifestly unfair that a man who derives his income from accumulated wealth should pay no more than another, who earns all his income by hard personal labor. If the rate of taxation is uniform, it bears severely upon the poor, as compared with the rich. If it is graduated, increasing with increasing income, it cannot be efficiently collected ; because the method of collection at the source of income, by authorizing corpo- rations to deduct the tax from dividends and interest, and tenants to deduct the tax from their rents, would be im- possible under a graduated tax ; and the assessor would have no means of securing returns, except by the personal oath of the taxpayer, which long experience shows to be a very poor security. Under any system, an income tax upon earnings and profits has to be assessed largely in reliance upon such oaths ; and the consequence is that, even under the rigid and honest administration of the law, which prevails in England and several European states, fully one third of this part of the tax is evaded by false returns. In the United States, during the ten years' existence of an income tax, the proportion of evasion was very much larger, averaging not less than half, for the entire period, and mounting up to more than two thirds at the close. In several States, there can be no doubt that nine tenths of the whole taxable income escaped from the tax. The general income tax is thus a fruitful source of perjury ; and it cannot be a scientific or natural tax, for 42 NATURAL TAXATION. that reason. Since perjurers would thus escape taxation, in whole or in part, it is manifest that the tax would be unequal in its operation and would bear twice as heavily upon the honest as upon the dishonest. Furthermore, a strict income tax would collect nothing from property which is held out of use. The landlord who improved his land would be taxed ; but the landlord who held it vacant would not be taxed at all. Thus a bounty would be put upon land speculation. It may be said that the annual rise in value might be assessed as income. But it would not really be income ; and a tax upon that would not be in fact or in law an income tax. If such fictitious incomes were assessed, every taxpayer must obviously be allowed to deduct from his income, for pur- poses of taxation, any fall in the value of his land, with- out testing the market by a sale. Such allowances, it is evident, would leave a wide door for fraud and evasion. § 3. Excuse for income taxes in America. Under the peculiar political conditions of the United States, there is much excuse for an income tax, as a transition- ary measure of national taxation. The Federal Consti- tution requires all "direct taxes" to be apportioned among the States, according to population, with entire disregard of their wealth or land. A direct tax upon the value of real estate, under this provision, would exact from North Carolina about five dollars, and from South Carolina about seven dollars, on the same real-estate value which, in Rhode Island, would pay one dollar. It would exact from Missouri a larger tax than from Massachusetts and Rhode Island together ; although the value of real estate in those two States is sixty per cent, greater than in Missouri. Each dollar's worth of land in Tennessee would be taxed more than twice as heavily as in Wiscon- sin. Taxes, even within New England, would be very DIRECT TAXATION. 43 unequally distributed. Land in Vermont would be taxed 150 percent, more than in Massachusetts or Rhode Island. If personal property were also taxed, the discrepancies would be still greater. Until April, 1895, it was supposed to be settled law that an income tax was not such a " direct tax," as the framers of the Constitution had in mind, and therefore that it could be levied without regard to population or State lines. ' Decisions to this effect made this tax in effect the only direct tax, in the scientific sense, which could be adopted in the United States, without great inequalities between the States, until the Constitution can be amended. The recent judgment of the Supreme Court, exempting rents from income tax and casting doubt upon the whole system, will probably stir up a movement for such an amendment, which can easily be obtained, whenever the people are resolved to abolish all indirect taxation. But without the support of a very strong public sentiment, amendments to the Federal Constitution are impossible, as two thirds of Congress and three fourths of the State legislatures must concur in their adoption. The taxation of incomes in general, while rents are entirely untaxed, is a monstrous anomaly, which will certainly be remedied at a comparatively early day. But as the purpose of the present inquiry is to ascer- tain what ought to be done, without regard to questions of present practicability or temporary expediency, this political difificulty need not be further discussed. It may be noted, nevertheless, that an income tax, levied exclu- sively at the sources of income, could be made to reach, with great approximation to equality, all rents, dividends, corporate payments of interest, and perhaps mortgage interest. As will be hereafter shown, the same results can ' Springer v. United States, 102 U. S., 586. 44 NATURAL TAXATION. be attained by much better methods, so far as they ought to be attainable. But until the better method can be introduced, a tax upon incomes, at their source only, is much better than any form of indirect taxation. Only incomes from invested wealth can thus be reached (cer- tain classes of salaries alone excepted) ; but no other incomes ought to be taxed. § 4. Income tax unfitted for local use. Even as a temporary expedient, however, the income tax, in any form, is entirely unfitted for use in American States and municipalities. New York, New Jersey, and Connec- ticut, for example, will never adopt an absolutely uni- form income tax or administer it on uniform principles. The possessors of large incomes, therefore, would change their residences from one State or county to another, so as to make their returns wherever the law or the assessor was most favorable to them. If some States undertook to tax incomes at their source, while other States persisted in the old-fashioned method of individual returns of income received, there would be a great amount of double taxation. Rents of New York property, due to a Bostonian, would be taxed in New York against the tenant, and again taxed in Boston against the landlord. Such injustice would soon give provocation and excuse for fraudulent returns. There is an income tax in Massa- chusetts ; but it is an utter failure, only aggravating the evils of the bad system of taxation there in use. § 5. Other objections to income tax. An income tax upon interest is clearly not a direct tax. The burden will be largely, if not entirely, shifted upon the borrower. A tax upon rents will fall principally upon what is not " rent " at all, in economic science, that is, upon the annual price paid for the use of buildings and improve- ments. All of this tax must, in the long run, be paid by DIRECT TAXATION. 45 the tenant. To this extent, therefore, it is an indirect tax ; although not so easily shifted as are some other taxes. Upon the whole, not more than one third of any tax on incomes (other than earnings and profits) is strictly a direct tax. The income tax can never be accepted as the only tax, for these and other reasons. It can be used only by national governments ; and even in their hands it must be confined to subjects of taxation which can be much better reached by a straightforward tax upon values, instead of upon incomes. The general income tax, upon earnings and profits as well as upon fixed property, stands condemned by universal experience, as an incentive to per- jury, a premium upon unproductive land, a special burden upon the honest, the simple, the widow, and the orphan. Nature shuts this door also in the face of honest men. § 6. The succession tax. The tax on successions, whether by legacy, devise, or inheritance, has lately be- come very popular. It is much more easily collected than the income tax, because it is paid by the administrators of dead men's estates, who have generally only a small interest in the estate, and whose conscience, if wounded by perjury, would not be soothed by the reflection that the profit was all their own. The ordinary human con- science becomes wonderfully tender, when asked to take a false oath for the benefit of some one else. As a supplement to other taxes, the succession tax has been a fair success ; because it has not become so heavy as to make living men willing to risk the loss of their property by schemes of evasion for the benefit of their heirs. But, if it became the sole method of taxation, it would be so heavy as to offer strong temptations to eva- sion. The highest estimate of the annual savings of the American people, added to the annual taxes, is not 46 NATURAL TAXATION. more than 22 per cent, of their annual earnings. The lowest estimate of their taxes is 7 per cent, of those earn- ings. As the value of property passing by succession in each year cannot, upon the average, exceed the annual savings, the succession tax, if it were the only tax, would absorb one third of all estates of deceased persons, even if every article of such estates passed through the probate courts and were fully taxed. This, however, we all know to be impossible. At the very least, one third of the property of descendants never did and never will go through the courts or be reached by any such tax. It is held in parcels so small as not to be worth the expense of court proceedings ; and it consists of furniture, clothing, tools, money in hand, and other articles, which are readily disposed of by the family, without dispute or publicity. Therefore the tax actually levied upon such estates as would be reached by the assessors, if it were the only tax, would exceed 50 per cent, of their whole value.' Execu- tors would be named from among legatees only ; and this enormous tax would breed evasion and perjury among them, just as certainly as does the smaller tax, now imposed upon personal property by the several States. As such evasions increased, the tax upon the unfortunate few, who could not or would not obtain relief in the same way, would constantly increase, until the government would need 75 per cent, of all property reported ; by which time the whole system would collapse. The suc- cession tax may have some merits, considered as a mere supplement to other forms of taxation ; but it never can be accepted as the one natural tax. § 7. Succession tax oppressive on widows, etc. There are other objections to this tax. If it is collected ' In New York, the local taxes alone exceed 40 per cent, of the value of property now reported for the succession tax. DIRECT TAXATION. 47 impartially from all, it is obviously very severe in its operation upon widows, young orphans, and aged par- ents, who are the principal beneficiaries of dying per- sons. Just at the time when they are deprived of the earning power of the head of the family and are left with nothing but the income from his savings for their support — an income averaging less than one third or one fourth of that to which they were accustomed, — the State steps in and cuts off a large portion of this. From her that hath not, shall be taken even the little which she hath. If collected only or mainly from collateral relatives or strangers, such benefactions, which are often among the most commendable portions of a will, are sure to become more and more rare. It would thus greatly increase the tendency to concentration of wealth. If the succession tax were to become the only form of taxation, it would be impossible to make this distinction ; because it would then absorb almost the whole of collateral inheritances, and no one, who had a wife or children, would leave a dollar to any one else. Even under a very moderate tax it was speedily found, in the State of New York, that legacies to benevolent and philanthropic institutions were discouraged ; and the legislature has exempted them from much of this taxation. § 8. Succession tax leads to public waste. Another objection to the succession tax, as a principal source of revenue, and one which ought to be conclusive against its adoption as the 07ily source, is that it must be con- stantly maintained at about one uniform rate. It can- not be frequently changed without gross injustice. If it fluctuates according to the needs of government, the estate of one man, who died on December 31st, might be taxed twice as much as the estate of another, who died on January ist. Wherever this tax exists, it is always 48 NATURAL TAXATION. maintained at the same rate for a long series of years. If it were the only tax, it is obvious that it must be kept at a rate which would ahvays produce a surplus revenue ; for if it were not, it would often fall below the needs of government. It would therefore always lead to public extravagance and corruption. But even where it is only one of several taxes, as in the State of New York, experi- ence already shows that it has the same effect, in a less degree. While at first it reduces the burden of other taxation, it soon tempts the government to increase ex- penditures to a point which will require as much other taxation as the people were accustomed to before. Ac- cordingly, there has been a notable increase in the ex- penses of government in States which have an efficient succession tax; while the taxpayers are hoodwinked by a pretended reduction of their burdens. CHAPTER IV. Taxation of Personal Property. § I. General property tax. The first natural impulse of most men, when called upon to devise a system of direct taxation, is to propose a general property tax, that is, to make a valuation of all property, of every kind, and to tax every man in precise proportion to his share of the general wealth. Our law divides property into two classes, real and personal, or, as the civil law de- scribes them, movable and immovable. The difference between the two species of property is so great, especially when considered with reference to taxability, that we must separately discuss the proposed taxation of per- sonal property. In every State of this Union the attempt is made to tax personal property, as well as real, by a direct tax upon its appraised value. In many States this attempt is sustained by stringent legislation ; in some by the use of arbitrary and despotic powers. In other States the laws are crude, loose, and easily evaded. In all, there is a clamorous popular demand for more stringent legislation, in support of which farmers, especially, are almost unani- mous. Before inquiring into the testimony of experience as to the practicability and effects of such taxation, let us con- sider what is to be said from the theoretic point of view. What is personal property.? Is it desirable, in the inter. 49 50 NATURAL TAXATION. est of the whole community, that all or any of it should be taxed ? Does reason indicate that it can be fairly and equally taxed ? § 2. Taxation of credits. Personal property may be divided into two classes : chattels and credits. Under the name of credits are to be included, not only book accounts, bills, notes, bonds, mortgages, bank deposits, and the like, but also shares of corporate stock, and prob- ably shares in any partnership. " Our" chattels, properly speaking, are only those things which we have in our im- mediate custody ; but chattels on special deposit may be included, since they are in the custody of our agents, who have no right to use them, even for a moment, foi their own purposes. Even including chattels held in partnership, in the class of strict chattels, it is universally admitted that, in all civilized countries, credits form by far the largef portion of personal property. It is easy to see why this is so. Credit may be given for more than two thirds of the value of both chattels and real estate, and it is continuously given to the extent of at least half the value of both. Prof. H. D. McLeod maintains, with tremen- dous energy and some ferocity, that the wealth of the community is actually increased by credits, to their full amount. This is a doctrine dear to the farmer's heart, as justifying all his favorite theories of taxation. It can be easily tested. It would be quite possible to form a syn- dicate in this country, owning property readily salable for two billion dollars. Let the syndicate mortgage this property for half its market value. That will add one billion to the national wealth. As loans might safely be made upon this mortgage to its full face value, let A, the first lender, hypothecate it as security for another loan of a billion, and B pledge it again to C, C to D, D to E, and TAXATION OF PERSONAL PROPERTY. 5 I SO on, until promissory notes are outstanding to the amount of sixty billions, all secured by the original mortgage for one biUion. All this, on the farmer's theory, is an actual increase of national wealth, for every note is perfectly good. The wealth of the United States is doubled in one day. The philosopher's stone and For- tunatus' purse are completely outdone. But why confine ourselves to paper promises? Is not our word as good as our bond ? There are more than ten million men in the United States accustomed to business of some kind. Let each of them agree to pay to his next neighbor one million dollars. No writing is necessary. The promise of No. i to pay No. 2 will be good, because founded upon the promise of No. 10,000,000 to pay the same amount to No. i. It will cost them nothing, be- cause all their promises can be literally fulfilled, without using a dollar. But (on the McLeod-farmer-credit tax theory) the United States will increase its wealth by the gigantic sum of ten million million dollars ($10,000,000,- 000,000), all in talk. How little knew the ancient sage, who said : " The talk of the lips tendeth only to penury." (Proverbs, xiv., 23.) § 3. Debt cannot increase wealth. But what says plain common-sense? Debt cannot increase the general stock of wealth. Every credit implies a debit. One gives exactly as much as the other gets. A loan, secured by the pledge of a chattel, divides the equitable title to that chattel between the borrower and the lender, giving to the lender the meat and leaving to the borrower whatever may cling to the bone. The mortgage of land, at common law, transferred the actual ownership of the land to the mortgagee ; and although equity has nominally altered this rule, the bottom fact is that the mortgagee still has the best half of the ownership. He is the real owner of 52 NATURAL TAXATION. the land, to the extent of his loan ; although he can only enforce his ownership through a sale of the land. Or, to put it in another form, the title is divided between the mortgagor and the mortgagee : the mortgagee having the cream and the mortgagor the skimmed milk. The same thing is true concerning every form of debt. Notes (unsecured by pledge or mortgage), book accounts, and debts of every kind are of no value whatever, except so far as they constitute a good and readily enforceable claim against equivalent visible, tangible things in the hands of the debtors. And to this extent the property in the hands of the debtor really belongs to the creditor ; although the latter has no right to select any particular article or to seize anything, until his debt is due. If the debt stands against no tangible property, it is worthless ; and, even under the McLeod theory, it would add noth- ing to the general wealth. If it does stand against such property, it diminishes the general stock just as much, by its lien on that property, as it adds by its own face value ; and therefore it still adds nothing to the general wealth. It may be asked : " Is not wealth in fact greatly in- creased by credit ? Does not wealth grow more rapidly in a country where credit is freely given, than in one where no man will lend anything ? " Certainly. But only because credit is the instrument by which capital is transferred, for a time, from the hands of the men who cannot use it most productively, into hands of men who can. The gain in general wealth consists only in the difference between what such capital will produce in the hands of the borrower and what it would have produced in the hands of the lender. § 4. Taxation of credit a useless labor. Considered from the tax collector's point of view, it may be conceded ^hat, as he has a definite sum to collect, the total burden TAXATION' OF PERSONAL PROPERTY. 53 of taxation will neither be increased nor diminished by any duplication or omission of wealth. It may, therefore, be further conceded that, if all forms of credits could be effectually reached and taxed, the tax would simply be divided among those who divide the ownership of things, and so no injustice would be done. Assuming, for the moment, that any form of personal property ought to be taxed, it may also be assumed that the double taxation involved in taxing credits would do no harm, if they could all be reached. On the other hand, what advantage is there in doing this, if it can be done ? Why take the trouble to collect taxes from two, three, or four persons on account of one piece of property? It increases the cost of collection without the slightest benefit to the State ; and it confers no benefit upon the taxpayers. *' The borrower is serv- ant to the lender." He must eventually repay whatever tax the lender may be compelled to pay upon the loan, if the tax is impartially laid and fully collected, as we are now assuming that it can and will be. § 5. Taxation of corporate credits. But it ?y now time to inquire (still upon theoretic grounds) whether it is possible to collect taxes upon credits impartially and fully, or even to approximate such a result. It would seem possible to ascertain the amount and value of the stock and bonds of domestic corporations, especially of railway companies ; because they can be compelled to make a full disclosure of their affairs ; they must keep regular and full books of accounts ; and their officers have not usually such an overwhelming interest in their finances as to make them willing to run great risks, merely for the sake of evading corporate taxation. This is far too liberal a concession ; because immense blocks of shares are now owned by individuals, who either personally man* 54 NATURAL TAXATION. age the corporations in which they are interested, or would make it a condition of the appointment of managers that they should commit whatever amount of perjury could prudently be used for the purpose of evading taxes. It is idle to say that managers of such easy consciences will not be trusted with the administration of great affairs. It is notorious that bribery, upon the most extended scale, is practised by the managers of some corporations, con- ducted otherwise with more than ordinary integrity ; and we are all familiar with the story, undoubtedly true in substance, of the railway president who told all the other members of a presidents' conference that he would take the word of any of them, as a gentleman, for a million dollars, but as a railway officer, not for a cent. Assuming, however, that the direct taxation of corpora- tions could be successfully enforced, this could only be done in those States in which their business is and must be carried on. The stock and bonds of a New Jersey corporation are often owned entirely in New York ; but in nearly all cases they can only be taxed in New Jersey. If the corporate property is situated in New Jersey, the same result would be secured by taxing the property itself. If that is done, the stock and bonds should be exempted ; or, if they are taxed, the visible chattels and real estate of the corporation should be exempted. Is not the natural and sensible method to tax things and exempt stock ? The Federal Constitution stands in the way of taxing corporate bonds, by confining local taxation to bonds held by citizens or residents of the taxing State.' If such taxa- tion became heavy, it would soon be found that all bonds were held outside of the State in which the corporate office was situated. * Foreign-held Bonds, 15 Wallace, 300. TAXATION OF PERSONAL PROPERTY. 55 The ingenuity of corporations in evading taxation, even now, is well known. Is it supposable that, under a much heavier rate of taxation, such as must follow the abolition of all indirect taxation, this ingenuity would fail to put corporations upon an equal footing with individuals? If 't did fail, the burden would become so heavy that the- number of corporations would rapidly diminish ; and the revenue from this source would fall off accordingly. § 6. Taxation of individual credits. Turning now to the case of individuals, it is certain that a very large majority keep no detailed account of their property or income, and that a majority of those who do would cease to do so, if by that means only they could avoid excessive taxation. Let us therefore inquire how heavy the gen- eral property tax would probably be, if there were no other taxes. Assuming that property to the nominal value of $250 and the real value of $500 would be exempt, as it certainly would, and that all citizens handed in true lists of their property, as they certainly would not, not more than 2,500,000 of the 12,500,000 families in the United States would have personal property of sufficient value to subject them to direct taxation. Reckoning the total wealth of the country at $60,000,000,000, including the value of land, but allowing for inevitable exemptions in favor of poverty, of public property, charities, etc., and for the low rates at which property must always be assessed (say, at the utmost, 80 per cent, of its full value), the most honest and rigid assessment would fail to reach more than $40,000,000,000 of property. As the federal and local taxes together exceed $850,000,000 per annum, the general property tax, if adopted as the only tax, would exceed 2 per cent, upon capital, even if there were no considerable evasion o' ^6 NATURAL TAXATION. taxes. This would be equivalent to a tax of more thar one third of the income of all capital. Call the tax only one third of the income from capital ; and would not such a rate offer ample inducement for evasion ? It has been found by experience that half this rate has suflficed to drive several hundred millions of wealth out of Boston and other cities ; while under a two per cent, rate in New York, personal property has become almost invisible. It is manifest that practically all owners of credits would use their utmost efforts to con- ceal them from the assessor. Those who would not take a false oath would simply make no returns, submitting to any arbitrary tax which might be imposed upon them. Others would, in the vast majority of cases, make a false return. Some, knowing that the assessor would not be- lieve them, if they denied the possession of any credits, would admit a part of their holdings ; others would deny them altogether. Thus the amount of taxable property discovered by the assessor would be further decreased ; and, as the same amount of taxes must still be collected, the rate would rise to 3 per cent. This would make it simply impossible for strictly honest persons to hold credits at all, unless by their gradual withdrawal from the loan market the rate of interest should be increased to an amount equal to the additional tax. The more probable result would be to throw all such securities into the hands of less scrupulous persons ; who, partly by a free use of perjury, and partly by an outward show of poverty, would blind the eyes of the most incorruptible assessors. Add to all this the possibility of corruptible assessors ; and the field for eva- sion is enormously extended. We may therefore safely conclude that by far the largef part of all credits would escape from taxation, that strictly TAXATION OF PERSONAL PROPERTY. 57 honest holders would pay an outrageously disproportion- ate share of the taxes, the timidly dishonest or highly ingenious a moderate tax, and the utterly unscrupulous practically none at all. § 7. Taxation of money. Money, which is the one thing above all others which farmers desire to tax, is the very thing which, above all others, ought not to be taxed. A really effective and uniform system of taxing money would ruin every farmer in the country. Money is as important to the prosperity of the commu- nity as blood is to the life of the individual. Taxation tends to drive money out of the State ; and, if any success- ful method of taxing all coin and other money could be put in operation, all money would be driven out of circula- tion ; and a frightful prostration of business would ensue* in which none would suffer more than the farmers. P'armers always want to get high prices for their products ; and no more effective scheme could be devised for cutting down the prices of those products to the lowest point, than a tax which should really reach every dollar of money in the State. Under the name of money, legislatures seek to tax : 1. Deposits in banks ; 2. Treasury notes and bank notes; 3. Gold and silver coins. § 8. Bank deposits. Bank deposits are not money, in any sense whatever. Nobody owns any money on de- posit, unless it is a special deposit, in a separate bag or box. No bank accepts such a deposit, unless it is well paid for the trouble and risk. That is the business of safe-deposit companies ; it is no part of a banking busi- ness. Bank deposits are mere credits, like any other loan, payable on demand. No bank ever keeps on hand an amount of coin or notes equal to its deposits ; which 58 NATURAL TAXATION. proves that the depositors cannot possibly have " money on deposit," since the money is never there to be had. Every reason for not taxing credits applies to bank de- posits. But in addition to those reasons, success in taxing deposits would destroy the whole banking system and paralyze commerce, by compelling all exchanges to be settled in coin or bank notes, which are entirely insuffi- cient for one tenth of commercial transactions. § 9. Paper money. So far as what is called money consists of paper, it is very clear that all this paper is mere evidence of debt. Treasury notes represent a debt of the United States ; and bank notes represent debts of the banks. If the property which is represented by these notes is taxed, it ought not to be taxed a second time by taxing the notes themselves. If that property is not taxed, this only proves that the legislature, with the strongest desire to do so, has never been able to invent any method by which it could tax visible property ; and if the legislature is not able to find and tax the houses, merchandise, food, and furniture, against which these notes were issued, these being things which cannot be put out of sight, how absurd it is to try to tax the notes them- selves, which can so easily be put out of sight. § 10. Coin. Coin, like all other money, is nothing but a representative of wealth, an order for wealth, which everybody honors ; but not wealth itself. Gold or silver coin is of no earthly use, except for the purpose of exchanging one kind of merchandise for an- other. Nobody can eat coins, or wear coins, or build a house with coins, or even make a piece of plate with coins, or, in short, put them to any use of any kind whatever, so long as he keeps them in coin. The only pur- pose for which money is good at all is the purpose of getting rid of it, as quickly as possible, for something TAXATION OF PERSONAL PROPERTY. 59 more practically useful. Accordingly, no man, who is not partially insane, habitually carries any large amount of money with him, or keeps it in his house. The very richest men have the least amount of money. A well-known citizen of New York, who is reputed to be worth $50,000,000, never possesses so much as $5 in actual money, if he can help it. He is supposed to have a large amount of money in banks, but he does not have a dollar of his own in any bank. All which he has is the promise of banks to pay a large sum to him, whenever he wants it ; but, as a matter of fact, he never does want it, for his own personal use, and never takes possession of it. He only orders it to be paid to other people. These views are supported by the Ohio Tax Commis- sion of 1893. They say: *' As to money, there is much reason for saying it is a mere tool, and that it should not be taxed at all. . . . Money is, after all, in almost all of its forms, a mere credit." ' It is a striking illustration of the total failure of reason- ing power, in a majority of intelligent human beings, that the popular demand for more rigid taxation of money proceeds exclusively from that class of the people (mostly farmers and their associates) who at the same time most clamorously demand the issue of more money. Millions of voters demand, in the same breath, that money shall be issued in such quantities as to reduce the rate of inter- est to 2 per cent, and that the same money shall be taxed 2\ per cent. More than this, they insist that the men to whom they give their promissory notes for money lent shall be taxed 2^ per cent, on the notes, while they them- selves shall be taxed 2\ per cent, on the money. In short, they want the price of money reduced to 2 per cent, and * Report Ohio Com,, p. 65. 6o NATURAL TAXATION. yet to bear a tax of 5 per cent. Thus the State would, if they could have their way, collect $5 out of every $2 ; an income tax of 250 percent. § II. Taxation of banks. The capital of incorporated banks is the one brilliant exception to the general failure of the personal-property tax. After many unsuccessful experiments, the State authorities finally devised a plan for taxing the shareholders of such capital, upon the value of their shares ; and this tax is fairly assessed and effectu- ally collected, with certain exceptions not necessary to be stated. The essential features of this plan are that the tax is laid upon the shareholders, not upon the banks, while it is paid by the banks and collected by them from the shareholders. Incorporated banks are always subject to rigid governmental inspection ; and therefore it is im- possible for them entirely to conceal the value of their assets from the government. Their entire business de- pends upon their credit ; and their credit cannot be sus- tained without regular public reports of their financial condition. Thus the value of their stock is a matter of general knowledge ; and, as a rule, it is estimated too high rather than too low. If, for the sake of evading taxation, the officers of a bank should contrive to de- preciate the nominal market value of its stock, they would certainly lose more business than the saving of taxes would be worth, and they might lose their clientage altogether. Banks are thus more effectively taxed than any other form of personal property. But is the result profitable to the people who lay the taxes ? A little reflection will show that it is singularly disastrous. The success of the tax on banks is the chief source of American currency troubles. § 12. The currency problem. The widespread demand for more currency, which is so often treated with contempt TAXATION OF PERSONAL PROPERTY. 6 1 by financiers, is at its foundation perfectly reasonable and natural ; although every form of relief, which has thus far been demanded, would be ineffectual ; while all that has thus far been done, in compliance with this de- mand, has brought ruin, instead of relief. The greenback craze, the demand for " free banking," meaning only the unlimited issue of bank notes, the silver mania, the 2 per cent, sub-treasury scheme, and all other proposals for an enormous expansion of the currency, arise from a com- mon and permanent cause. The uneducated masses are not to be condemned for seeking relief in wrong direc- tions, so long as the educated classes do not offer relief in any direction. It is perfectly true, as alleged by the advocates of in- flation, that there is not money enough to do the business of the country. But it is also true that there never can be money enough to do the busuiess of the country. It can no more be done with fifty dollars per capita than with five. It must be done by barter, by book accounts, or by banking. As a matter of fact, it is done by a species of banking. But the banks of the South and Southwest are mainly cross-road grocery stores. Here, nine tenths of the farm- ers' and planters' produce are settled for. No matter to whom the products are sold, the producers get their pay only in trade at the village grocery. The process is as truly one of banking as is any transaction in a national bank of New York or Chicago. But it is enormously ex- pensive, clumsy, risky, and unsatisfactory. Precisely the same transaction which, in a large city, would cost the farmer less than 2^ per cent., costs him, at his village store, 20 to 25 per cent. Yet the clumsiness of the village transaction is so great that the storekeeper does not, in the long run, make any remarkable profit from this enor- mous commission. 62 NATURAL TAXATION. Why is this ? Because there arc no regular banks, within the reach of the farmer. Rut why are there no such banks ? Simply because the farmer himself has taxed them out of existence. Or, more accurately, because his beloved system of taxation has made it impossible for good banks to come into existence in his neighborhood. The real business of a bank is to enable goods to be ex- changed, without the use of any money. Issuing notes is not at all essential to a banking business. But the strictly regular business of a bank cannot be carried on, in a purely farming district, under the burden of local taxa- tion. There is not enough profit in it to pay the tax. In Canada and Scotland, Avhere banks pay no local taxes, every little village has a branch bank, supported by the wealthy bank of some large city. In the United States, where all banks are heavily taxed, there are not one fifth of the number necessary to supply the demand ; and as no branches are allowed, most of the country banks are not thoroughly safe. In Canada and Scotland there is no currency question. Nobody wants greenbacks or sub- treasuries, or cares anything about bimetallism. In the United States we hardly think about anything else. The moral is plain. Abolish taxation on personal prop- erty, including all taxes on banks, allow branch banks to be set up everywhere, and the currency question will settle itself. § 13. Taxation of visible chattels. Some writers on the subject, who fully admit that invisible and intangible personal property ought not to be taxed, nevertheless in- sist that everything should be taxed, which can be seen and touched. They see clearly that mortgages represent real estate ; that promissory notes and book-debts repre- sent the cloth, groceries, metals, or the like, for which they are given ; that the stock of a railway company represents TAXATIOM OF PERSONAL PROPERTY. 63 the railway and its equipment, and that there is no sense or justice in taxing both the things which are represented and the pieces of paper which represent them. They see, too, that bonds, notes, and money can be hidden, and that any attempts to tax them must result in doubling the burden of simplicity and honesty and exempting shrewdness and roguery. But they insist that all such personal property as can be seen and handled, and cannot easily be concealed, ought to bear its share of taxation, and that it can be reached, effectually and equally. Let us first consider what articles of personal property can be seen and touched, so as to be reached by faithful assessors. The results of actual assessments, in States which adopt stringent methods of personal taxation, show that these " visible and tangible things " are principally animals, stock on hand of merchants and manufacturers, household furniture, farm implements and carriages, in the order named. As the only reason for taxing these things, while letting invisible property pass, is that the assessment of invisible property must depend upon the oath of the taxpayer, we must inquire how far these visible articles can be fairly reached and valued by assess- ors, without depending upon the statements of their owners. § 14. Farmers hold most visible chattels. Judged by this standard, it is manifest that the property of farm- ers would be more easily reached and more accurately valued by honest assessors, than would be the property of any other class. For farm animals and implements are always readily open to inspection. Their value is gener- ally nearly uniform. Most farmers, in the same county, pay about the same prices for their horses, cattle, plows, tools, and furniture. A few own highly expensive cattle ; and these -yill e;scape full assessment, just as other chat- 64 NATURAL TAXATION. tels of very rich people will, in any line of business. But the mass of farmers own things which their neighbors can value easily. Very different is the case of merchants. What assessor, however honest and competent, can per- sonally value all the stock of even one grocery store, not to say the stock of all the stores in his district? Fancy an assessor making a personal appraisal of the stock of fifty drug stores, a hundred dry-goods stores and as many grocery stores. In every large store, there are hundreds of different articles, at different prices, by the yard or the pound or the gallon. Bales of goods lie side by side ; some worth four cents a yard, some ten cents, some two dollars. The difference between goods worth one dollar a yard and those worth two dollars is often imperceptible to the eye of any one but an expert. But how can an assessor have time to open all these bales, to look at them, much less judge accurately of their value ? All the assessors of New York City could not approximately value Claf- lin's stock alone, without relying upon the word of Claflin's clerks. Therefore the stock of merchants and manufacturers would be assessed upon the valuation given by themselves ; as, in fact, it is now. Thus the assess- ment of " visible and tangible property," in these impor- tant cases, is made and must be made in exactly the same manner as the assessment of bonds, notes, and other invisible property, resulting in a double or treble burden upon the simple and truthful, as compared with their un- scrupulous neighbors. The same thing is true as to household furniture. Farmers have a certain average quality of furniture, the value of which can be ascertained far more nearly than the value of that of well-to-do city residents. In pro- portion to the wealth of the taxpayer, would be the failure of the most honest assessor to estimate the true TAXATION OF PERSONAL PROPERTY. 65 value of his property. Anybody can estimate the value of a two-dollar chair ; but few indeed can tell the dif- ference between a chair costing fifty dollars and another costing one hundred and fifty. To many assessors there would be no apparent difference in value ; to none would the fair difference seem to be more than twenty dollars or thereabouts. In many household articles, such as bed- ding, for example, a difference of 200 per cent, in cost is at- tended with no outside indications. Many honest assessors would reckon the value of a $15,000 set of furniture as no greater than that of a set costing less than half the price. § 15. Assessment of merchandise. Let us, however, imagine a sustained and general attempt to appraise visible chattels by public officers. How can that vast mass of visible chattels, known under the general name of merchandise, and which is obviously that which the advocates of chattel taxation are most anxious to reach, be fairly, equally, and effectually taxed? In the first place, they must be appraised, all over the United States, on the same day. Merchandise is constantly changing its ownership and constantly changing its situation. A bale of cloth, for example, manufactured in Lowell, is sent, unbroken, to New York, and there divided among buyers from Cleveland, Indianapolis, Chicago, Milwaukee, Minneapolis, Des Moines, Omaha, and Denver. Thus the title to this one parcel of goods passes through ten different owners, residing in ten different States, each of which has its own appointed day of assessment for pur- poses of taxation. Under a system of assessment, exe- cuted by public officials, without depending upon the false returns of interested taxpayers, it would certainly hap- pen, in many cases, that the cloth would be taxed once in Lowell, taxed again in New York, taxed again in each of the cities to which it was next sold, and taxed once more (^ NATURAL TAXATION, in the retail stores of the country districts where it would be finally sold for actual use. This would make four taxes upon one thing. Side by side with cloth thus taxed will be found other cloth, of precisely the same quality and make, which had luckily been started on its way from Lowell before Lowell's assessment day, slipped through New York and Chicago before their assessment days, and finally received by the country dealer just after his assessment day. At the present average rate of taxa- tion, the country dealer who was clever enough thus to escape the various local taxes would have an advantage of 8 or lo per cent, over his less ingenious neighbor. All dealers who paid the tax on their goods would thus be driven out of business by the competition of those who did not. § i6. Work for assessment day. Let us imagine, then, that the States all agree upon one day for assess- ment. The first of April, which is the day selected in some places, is decidedly the most appropriate day for this purpose. On that day, all over the country, a swarm of assessors must besiege the factories, mills, shops, and stores, taking an honest valuation of all merchandise on hand. The valuation must be completed in one day. Otherwise, Smith's valuation being completed on April 1st, Avhile Jones is left to April 2d, there would be a midnight exodus of easily portable goods from Jones to Smith, so that the assessor should find little value in charge of Jones on April 2d. No help must be asked in the work of valuation from the owners or their employees ; for if that is done, the assessor might just as well accept the sworn returns of the owners, as is done now, with most ludicrous and iniquitous results. As it is well known to be an impossibility for the owners themselves to make such a valuation in one day, even with the aid of all their TAXATION OF PERSONAL PROPERTY. 6y clerks, there must be a number of official assessors em- ployed, exceeding all the number of persons employed in holding and selling merchandise. The work might, how- ever, by extreme diligence, be done in a rough way by two million local assessors. As it would take them at least one day to receive instructions and two days to tabulate their returns, besides the one day occupied in valuing, each would serve at the very least for four days. If they were paid less than $5 per day, on an average, their services would be worthless. The lowest cost of such an assessment would therefore be $40,000,000. § 17. Vanishing merchandise. On "assessment day" there would be universal concealment of all articles of small bulk and great value. Watches, jewels, gold, money of all kinds, and all concealable things would vanish from sight. Men would walk about stuffed with valuables. Old stoves, pots, and pans would be filled with money and jewels. Valuable goods, which could not be hidden, would be covered with dust or otherwise made to look almost worthless. In every mill and factory manufactures would be kept in an unfinished state, as far as possible, until assessment day had passed. A thousand devices would be resorted to, in order to reduce the apparent value of the things which the assessor would inspect, or to prevent him from seeing them at all. In order to make this plan of official valuations success- ful, the assessors must enter every room in every house, and strip naked every man and woman whom they sus- pect of concealing taxable property. This is the method by which tariffs on imports are executed ; and it is the only way in which visible, tangible personal property ever was or ever can be fairly, equally, and effectually taxed. Americans, boasting loudly of their freedom and per- sonal dignity, do submit to all these outrages, under the 68 NATURAL TAXATION. tariff and excise system ; and only a few moonshiners in Southern States resent them. The whole system of in- direct taxation is enforced by the violation of all privacy, decency, and natural rights. Everybody is presumed, by our tariff and excise laws, to be a thief and a liar ; and everybody who comes under the operation of those laws is actually treated as such. But, meek and spiritless as the residents of American cities have shown themselves under corrupt and brutal police, and indifferent as all Americans have shown themselves to innumerable forms of plunder, carried on under the pretense of collecting indirect taxes, is it probable that they would submit to the universal application of these methods, under direct local taxation ? Would they long submit to have their beds searched for concealed money and their wives stripped to discover concealed jewelry, as is now done by custom- house officers ? And, when all this was done, the system would none the less fail. The official valuation of visible chattels could not be completed within ten days ; and it would therefore be successfully evaded. It could not be made even ap- proximately correct. Every article would be valued very much too high or very much too low. Nor would the average produce any fair result. The goods of Jones would be appraised at twice their real value ; while the goods of Smith would be appraised at nearly their value, and the goods of Brown at half their value. Jones would thus be cheated heavily, Smith moderately, for the sole benefit of Brown. The fact is that all systems of assessing personal prop- erty are about equally bad. Probably the nearest ap- proach to a fair assessment would be reached by requiring every citizen to make a return for his next neighbor. TAXATION OF PERSONAL PROPERTY. 6g Such a system would be as absurd as an old-fashioned donkey race, in which each man rides a competitor's don- key, and the last donkey wins. But, like such a race, it might work out rough justice — z'i-ry rough, it is true, but not so bad as the results of any system now in use.' ' \\Tiile these pages were going to press, the writer discovered that this very method had been tried in Rhode Island, a hundred years ago, with only the difference that each assessment was to be made by /en neighbors. And the Romans (a.d. 300-800) had an even more effective plan. 77iey com- pelled the assessor to pay all the taxes tvhich could not be collected frovt his neighbors ! And yet both Rome and Rhode Island failed to make their systems work. CHAPTER V. Testimony of Experience, § I. Personalty taxes in history. It is time to test these theories by actual experience. European govern- ments, for several centuries, persisted in the effort to ap- praise and tax all classes of property, real and personal, upon an equal footing. The ancient tax-rolls of England enumerate the precise number and value of the beds, tables, chairs, pots, and pans of each taxpayer.' The En- glish tax, now called the land tax, imposed in the seven- teenth century, was in fact originally a tax upon all real and personal property. As late as 1827, a trifling amount of personal property was assessed and taxed under this law. The only reason why such property dropped out of the assessment rolls was that it became increasingly im- possible to reach it. Practically, it dropped out at a very early day. A similar experience in all Europe led to similar results ; and the attempt to assess personal prop- erty, whether visible or invisible, otherwise than by means of an income tax, has been universally abandoned. But the citizens of our own favored land, confident in the power of the American eagle and of republican in- stitutions, despise the teachings of European experience and resolutely persist in the taxation of personal property. They have achieved a certain measure of success. The official assessors estimate that they have reached nearly ' Dowell's Hist. Taxatiott, 59-74 ; 232-235. 70 TESTIMONY OF EXPERIENCE, 7 1 60 per cent, of such property in New England, 50 per cent, in some Western States and 15 per cent, in New York. If by " personal property " only visible chattels were in- tended, this estimate may be correct. But as this is not intended, the estimate is excessive. In no large State does the assessed value of personal property materially exceed half the assessed value of real estate, or amount to one third of its actual value. In some States (Ala- bama, for example) the roll of personalty is swelled by including in it all railway values. But it is everywhere conceded that personalty, if defined as including all forms of liens and loans, fully equals realty in value. It would be strange if it did not ; because such a definition in- cludes all chattels, all debts incurred in the purchase of chattels, and all debts which are made a charge upon land. This is the value which our legislators strive to tax ; and it would be too liberal to allow that they reach one third of it anywhere. Long study of all accessible statistics has convinced the writer that the average market value of improved land, ir- respective of improvements, is almost exactly equal to the value of all improvements af^xed to it, that the value of actual visible chattels is about the same, and that the value of unimproved land is about half as much. In other words, dividing salable property into seven equal parts, land would represent three sevenths, improvements on land two sevenths and chattels two sevenths. This ap- pears to be the fact in every civilized country ; and the reason, in part, may be readily discerned. The " value of land " consists of nothing whatever, except a power of exacting tribute from labor by means of ground rents.' ' This has just been adjudged by the U. S. Supreme Court (Pollock v. Farmers' Loan Co., April, 1895). As a scientific question, it was never open to doubt. 72 NATURAL TAXATION. The fruits of labor, in which alone this tribute can be paid, consist solely of improvements and chattels. It is impossible that the value of land should exceed the other values combined ; because that would mean that land- lords got more than there is to get. In the struggle be- tween the landlord, the capitalist, and laborer, we might reasonably anticipate that the landlord would not get more than one third of the whole net produce ; and this appears to be the actual average. Vacant land brings no present rent ; but it has a market value equal to the present value of its expected future rent. And this is of course an additional value in the landlord's possession. But nowhere are actual chattels found by assessors to anything like this proportion of the value of land. Tak- ing only places in which there are rigid assessment laws, rigidly enforced, Boston discovers visible chattels to the amount of only 2^ per cent, of its real estate, Cincin- nati to only lO per cent., Ohio to only 15 per cent., Min- nesota to only 20 per cent. ; whereas, in each case, the proportion should be 40 per cent. Here, as in every other instance, it is noticeable that the proportion of chattels discovered by the assessor is greater and greater as the proportion of farmers to the entire population increases. § 2. Taxation of personal property always a fail- ure. If anything in human experience, as applied to methods of taxation, is settled, it certainly is the fact that taxation upon personal property never can be made a suc- cess. Taxes can be raised from personal property, no doubt ; for large sums are thus raised ; but that they can- not be levied with any reasonable approach to accuracy or equality is demonstrated, not only by conclusive reason- ing, but by the more conclusive fact that they never have been thus levied. It is not for want of earnest and long sustained effort that the failure of this system of taxation TESTIMONY OF EXPERIENCE. 73 has come to pass. For centuries the effort has been made ; and for at least six centuries it was backed by all the power of a government which commanded the whole civilized world and which armed its tax-gatherers, not with the pal- try' weapons of oaths and penalties, but with the more substantial powers of indiscriminate search, the lash, the rack, the thumbscrew, the gridiron, and the cross. The Roman empire fell to pieces under the pressure of this vain effort to reach personal property by taxation.' The same thing was attempted, at a later period, in dealing with the Jews. It failed with them. They could be robbed and murdered ; but they could not be regularly taxed. That which all the tremendous power of Rome, in its grandest days, failed to accomplish, that which the infer- nal tortures of Spain could not accomplish, when it be- headed hundreds, burned thousands, and massacred tens of thousands, letting loose a brutal soldiery in a vain struggle to tax the Netherlands, American farmers are still apparently convinced that they can accomplish, by distributing blank forms, administering long oaths, and threatening penalties of fifty per cent. How far they have succeeded, governors, assessors, and tax commissions in New York, Ohio, Maryland, West Virginia, and many other States, have set forth again and again, lamenting the utter ' Gibbon mentions, quite as a matter of course, that fathers murdered their children, on a large scale, principally as a result of fear of tax-gatiier- ers ; that racks and scourges were freely used ; that the approach of the tax-gatherer " was announced by the tears and terrors of the citizens " ; and that false returns were punished with horrid deaths, as being both " treason and sacrilege" {^History, ch. xiv. and xvii.). Savigny shows that the decu- rions, who governed the cities and were held responsible for the taxes, often sold themselves into slavery to escape the dreadful burden, but were dragged back to scourge their fellow-subjects (Smith's note, 2 Gibbon, 335, ed. 1862 ; I Savigny, Hist. Roman Law, 40 : 2d ed.). Even a Massachusetts farmer could ask no greater efficiency than this. f4 NATURAL TAXATION. failure of the system. Their complaints have become monotonous in their uniformity. Nothing, indeed, has been added to the sum of knowledge on this point, since the calm and detailed report of David A. Wells to the New York legislature, in 1871 ; in which the experience of that State and many other States was luminously set forth ; and it was made clear that taxes on personal prop- erty were nowhere equally assessed or efficiently collected. § 3. Taxation by oath. The result of the widespread maintenance of these taxes is to fill the land with liars and perjurers. In some States the business of perjury is mostly confined to the assessors ; who regularly make returns which they know to be false, but cannot make true.' In others, such as Ohio, Vermont, Connecticut, all the South- ern States and most of the Western States, perjury is the business of the taxpayers.' Their scrupulous consciences, in many cases, find a way of escape by omitting, in fact, to take the oath which they sign ; and they are innocent of everything except lying. The delicately conscientious get some one to sign for them ; and where an oath is ab- solutely required, a considerate notary certifies to the oath before it is taken ; after which, of course, it is not taken at all. On surveying the whole field, however, one's faith in American truthfulness is cheered, and we entertain larger hopes for the future of humanity. For it appears that, where blanks are diligently circulated and oaths in- sisted upon, the average man will return ten, if not fifteen per cent, of his personal property ; whereas, in the ab- sence of this appeal to piety, he will return nothing at all. This touching proof of American reverence for the sacred- ' Hon. Martin I. Townsend, Const. Conv., 1867 ; Auditor's Rep., Ne- braska, 1894. « Report Ohio Com., 1893 ; Ely on Taxation ; D. A. Wells's Reft, M Local Taxation, 187X. TESTIMONY OF EXPERIENCE, 75 ness of an oath reminds one of the famous Yankee who, hearing his father accused of having falsely warranted the quality of a trifle sold for " ninepence " (the New England eighth of a dollar) replied : " No ; the old man would never tell a lie for ninepence ; though he would tell eight of *em for a dollar." § 4. The Experience of New York. How is it in the State of New York ? One of the most experienced assess- ors in that State, Mr. George H. Andrews, addressing a legislative committee on October 6, 1874, said : " No man and no corporation, banks only excepted, needs pay a tax upon personal property. Widows and orphants must pay. Upon them in the ex- tremity of their distress, the law lays its heavy hand. It bereaves the be- reaved. Moribund itself, it has an affinity for the effects of the dead. The records of the surrogate furnish the schedule, and the machinery of the law used in adjusting an estate is not sufficiently flexible to regularly permit such a transfer of securities as would insure an exemption." As might well be expected, the State assessors, on Jan- uary 21, 1874, reported "that less than fifteen per cent. of the personal property of the State liable to taxation finds a place on the rolls of the assessor, and that of mortgages, not over five per cent, of the value is as- sessed." In one town the proceeds of a single auction sale of cattle, belonging to one resident, amounted to $360,000 ; while the whole assessment of personal prop- erty in that town was $28,850 ; " a sum very much less than that obtained for one cow." The assessors say : " A large percentage of all the personal property assessed is found entered on the rolls to women, minor heirs, luna- tics, who cannot watch with the eagle eye of business men, or to trustees or guardians." In some towns these classes held more than one half of all the personal pro- perty on the assessment roll. Two women, residing in ♦he village of Batavia, were assessed for more personal 76 NATURAL TAXATION. property than all the individuals in the neighboring city of Rochester, with a population of 70,000. In one town a girl, mentioned in the assessment as a lunatic, was assessed $5000 for personal property ; which the assessor stated was the full amount of her personal estate. All over the State " the amount of assessment depends more on the will, craft, conscience (or want of conscience) of the party assessed than upon the law or its enforcement." The state of affairs has grown worse with each succeed- ing year. In 1892 a ridiculous law was passed, much lauded by the governor, requiring applicants for reduction of assessment to make oath that they had not 'mcurred debts in the purchase of non-taxable property or for the purpose of avoiding taxation. It ought to have been entitled: "An act to punish truthfulness and to reward perjury." ' Experienced assessors in every state say that the most honest returns of property are always made by the poorer classes, and the most inadequate returns by millionaires ; while widows, who have no experience in business, and trustees, who represent widows and orphants, are taxed upon every dollar that they own. § 5. Experience of California. The experience of California furnishes perhaps the latest example of the utter failure of all schemes for taxing personal property to work out anything like an approximation to justice. In 1879 a new constitution was adopted. It was car- ried through solely by the farmers' votes ; merchants, bankers, and capitalists, whether large or small, voting almost unanimously against it. Under this constitu- ' Who can tell just what is meant by "non-taxable property"? Hardly any two lawyers would at once agree upon a definition. And who can tell precisely for what "purpose" he incurred a debt? The statute is only on« more premium upon either shrewdness or perjury. TESTIMONY OF EXPERIENCE. yy tion and these laws, not only were bonds, money, and credits made taxable, without any deduction on account of debts, except from credits, and then only such debts as are 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 almost none of the good or evil which was anticipated ; for the reason that the capac- ity of the patriotic taxpayer to commit perjury, and the susceptibility of assessors to bribery had been altogether underestimated. Some of the results are positively ludicrous. §6. Poor California! 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 prop- erty is vanishing from San Francisco ; loans of money are becoming unknown in the rest of the State ; municipal bonds of all kinds are not held within the State to an amount equal to one tenth of those outstanding ; and, finally, money has been smitten by a pestilence, two thirds of all that was there before the adoption of the constitu- tion having already taken to itself wings, and showing no sign of returning. One of the great objects of the new 78 NATURAL TAXATION. 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 were assessed in 1886 for less than the cost of their bare poles, or about $65 per mile. The railroad companies re- sisted 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 attor- neys rigorously to prosecute the railroad companies to the uttermost of the law. Thirty district attorneys forth- with dragged the railroad companies before the judicial tribunals. 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 60 per cent, of the amount claimed ; and the thirty district attorneys obeyed before the State ofificers could protest, even by telegraph. The general result has been that the proportion of per- sonal property to the whole assessed value of property has steadily fallen from 50 per cent, in 1861 to 34 per cent, in 1874, 26 per cent, in 1 880, and \l\ per cent, in 1894. § 7. Cities relieved ; farmers burdened. The fol- lowing table will show the working of a series of meas- ures which were expected, above all things, to increase the burdens of taxation upon San Francisco on personal property, and especially upon money. For convenience, thousands are omitted in this table, and the figures " 000 " must be added in every case : TESTIMONY OF EXPERIENCE. CALIFORNIA ASSESSMENTS IN THOUSANDS OF DOLLARS. 79 1880. Land. Improve- ments on Land. Money. Other Personal Property. Total. San Francisco Remainder of State . 122,030 227,127 42,969 68,568 19,747 4-931 68,584 81,072 253,330 381,698 1886. San Francisco Remainder of State. 349.157 120,375 340,274 111,537 55,034 100,775 24,678 6,188 2,887 9,075 7,100 3.187 149,656 48,705 94,022 635,028 230,302 537,953 1894. San Francisco Remainder of State . 460,649 178,000 537,000 155,809 83,879 160,935 142,727 56,130 89,430 768,255 325,109 791,043 715,000 244,814 10,287 145,560 1,116,152 In the foregoing table no account is taken of railroads which are separately assessed by State officers. There was an increase in the valuation of railroads from $31,- 174,000 in 1880 to $48,051,000 in 1886, which was reduced in 1894 to $42,730,640; of course nearly all outside of San Francisco. The valuation of San Francisco in 1894 was arbitrarily increased by the State officers 15 per cent, above the figures here given. In reviewing this table it will be seen that while im- provements upon land in San Francisco increased about one third in six years, money fell off more than two thirds, and other personal property nearly one third. In the rest of the State, which is mainly agricultural, the value of improvements increased nearly one half ; personal property, other than money, increased nearly one sixth; while the loss of money among the farmers, though 8o NATURAL TAXATION, severe, did not compare with the affliction which befell the capitalists of San Francisco. The general result was to reduce the share of San Francisco in the State tax from 40 per cent, to 30 per cent. In other words, the city paid 25 per cent, less, and the farmers i6| per cent. more. This result has continued ever since. The assessments for 1894 show that San Francisco still pays only 31 per cent, of the State taxes on property outside of railroads. And even this result is only obtained by an arbitrary in- crease of 15 per cent, in the city's share by State officers. § 8. Taxation of merchandise and bonds. Looking into the details of personal property, attention is naturally attracted toward the three items of merchandise, bonds, and credits ; all of which it was supposed that the new methods of assessment would reach to a degree never before known. The actual result was as follows : CALIFORNIA ASSESSMENTS IN THOUSANDS OF DOLLARS. Mdse. Bonds. Credits. Total. 1880. San Francisco 16,146 11.504 2,311 729 5.973 14.740 24.430 26.973 Remainder of State 1886. San Francisco 27,650 15.713 15.042 3.040 449 678 20,713 6.379 6,2n 51.403 22,541 21,931 Remainder of State 1894. San Francisco 30,755 16,123 17,462 1,127 3.696 128 12,590 8.474 5.858 44,472 28,293 23.448 Remainder of State * 33,585 3.824 14.332 51,741 TESTIMONY OF EXPERIENCE. 8 1 Here it appears that a very small increase (less than one per cent.) has been returned at the end of fourteen years; all of which dates only from 1892, up to which time the return bonds continued insignificant. § 9. Experience of Boston. According to unanimous testimony, the city of Boston is so fortunate as to possess a board of assessors, in whose honesty and ability every one has confidence, and who are fanatical believers in the taxation of personal property. These assessors are armed by law with almost despotic powers of search and with absolutely despotic powers of valuation. They can ran- sack every man's books ; they can disregard all the evi- dence, when they have finished. After exhausting all their powers of inquiry, they are allowed to meet in secret, to go through a process of arbitrary assessment, fitly known by the name of "dooming." Their return of details for the year 1889 showed that the whole amount of taxable property, which they were actually able to dis' cover, was $39,000,000, exclusive of bank stock. Being dissatisfied with this estimate, which was all that was justified by any facts which they could state, they pro- ceeded to multiply it four and a half times by a mere guess. In their dooming chamber they guessed that per- sonal property, other than bank stock, ought to be valued at $186,000,000; and the citizens of Boston were com- pelled to pay taxes upon that amount. Could anything be more monstrous or more absurd than a system of tax- ation which, even when administered by phenomenally honest and competent men, produces such results? The items of which the $39,000,000 actually discovered consist are in the following proportions, in round num- bers: Visible to assessors $i4,570,cx)0 or 37^^ Invisible to them 24,650,000 or t2\% 6 82 NATURAL TAXATION. Almost the whole of the things visible to Boston assess, ors consisted of merchandise and machinery. Taxes upon these, of course, if equally distributed, simply increased the cost of goods to consumers, just as excise duties on whisky increase the cost of whisky to drinkers. But it is manifest, from the arbitrary increase made by the assessors, that these taxes were 7iot equally distrib- uted and therefore one large section of taxpayers was robbed for the benefit of the other section. For unequal taxation upon producers makes it impossible for those who are taxed beyond their just share to recover such excess from their customers ; while those who are taxed below their share recover all which they would have paid under strictly equal taxation. It follows that those who are taxed most are simply plundered, under forms of law, for the profit of their competitors who are taxed least. If Havemeyer and Spreckels were the only refiners of sugar, and both were taxed equally upon their produc- tion, both would recover the tax from their customers. But if Havemeyer should be taxed, while Spreckels went free, Spreckels could undersell Havemeyer, who would be practically robbed for Spreckels' benefit. § 10. Double taxation. Passing to the invisible prop- erty assessed in Boston, we find that $4,000,000 consisted of cash, $7,700,000 of stock in foreign corporations, and $12,500,000 of debts, of which two thirds were secured by mortgage on real estate. Thus more than half of all the personal property returned for taxation consisted of mere paper titles to or liens against other things, which were taxed somewhere else. If this is not double taxa- tion, what is? See how the system works. Smith forms a little corpo- ration, to own a railroad in Vermont. The railroad is fully taxed there. But Smith lives in Boston ; and, as TESTIMONY OF EXPERIENCE. . 83 he owns all the stock, say $100,000, and stock in a foreign corporation is assessed there, he is taxed on the whole amount a second time. He mortgages the road for $100,- 000, and spends the proceeds on improvements. This additional value is taxed in Vermont. But he sells the mortgage bonds to Brown, of Boston ; who is thus taxed again upon the whole $100,000 there. Brown pledges the bonds to Jones, as security for a loan of $100,000; and forthwith Jones is taxed upon the whole amount. This makes three taxes upon only one piece of real property. This is the way in which the wise men of Massachusetts mean that their laws shall work ; but as the taxpayers revolt against such injustice, and protect themselves in the only way open to them, to wit, by hard swearing or by refusing to make returns, Massachusetts counteracts that evil, by imposing an arbitrary tax upon those who do not make returns, four times as large as is paid by those who do. In Illinois an even more drastic method prevails. A Board of Equalization, if of opinion that the valuation of any county is too low, increases everybody's taxes fourfold, on the assumption that all have made false returns alike. Thus the conscientious taxpayer is made to feel that virtue must indeed be its own reward. CHAPTER VI. Effect of the Personalty Tax on Farmers. § I. The question stated. Of course there are some forms of personal property which can be seen and ap- praised by the assessors, almost as readily as real estate, though not with so correct an estimate of value. The objection to taxation of chattels is not that none of them can be taxed ; it is that so many of them can be and are reached, while so many more are not, that the tax is nec- essarily unequal and unjust. The important question, therefore, is, upon what class does this tax bear most oppressively ? Is that class the more wealthy or the less wealthy? Is it the city population or the farmers? If taxes were levied only upon the value of real estate, would the farmers pay more or less of the whole taxes than they do now ? Farmers in general have been long convinced that the rigid taxation of personal property would relieve their burdens ; and it is entirely by their votes that the exist- ing system is maintained. This is all theory on their part. They have not studied the facts and know nothing about them. They assume that " it must be so." But let us study the facts, before discussing any theory. Any attempt to separate the community into two dis- tinct classes, one of which is taxable only on real estate and the other of which is taxable only on personal prop- erty, is obviously impossible and absurd. No man is ever reached by the tax-gatherer, who does not occupy some 84 EFFECT OF THE PERSONALTY TAX ON FARMERS. 85 piece of land. If he did not, the tax-collector would never find him. Tramps pay no direct taxes. Neither can any man live without occupying some improvements on real estate and possessing some personal property. Every taxpayer, without exception, is an occupant of land and improvements upon land, and an owner of per- sonal property. The only selfish interest which any tax- payer has, in deciding between rival systems of taxation, is to know which will produce a sufficient revenue to the state, with the smallest possible burden to him. In con- sidering, therefore, the interest of any class, such as farm- ers, the real question to be answered is not whether they in fact own more or less personal property than mer- chants, bankers, and money lenders. The questions to be answered are : 1. Do farmers own less personal property, in proportion to the value of their land, than do those other classes ? 2. Are the particular kinds of personal property which they own less easily reached by the tax-gatherer, than are the kinds of property owned by the other classes ? The state must raise a certain fixed amount for public purposes. This amount it will assess upon all taxpayers, in proportion to the value of their property, as reported by the assessors ; not in proportion to its real value ; which the assessors, of course, are never able exactly to ascertain. If, therefore, experience proves that assessors are able to find twenty times as much land value in the possession of merchants as they can among farmers, but only ten times as much personal property among mer- chants as they find among farmers, it is a plain result, as simple as the rule of three, that the taxation of personal property will end in making far 7ners pay a larger proportion of the taxes than they would pay if all taxes were con- centrated on the value of real estate. 86 NATURAL TAXATION. § 2. The farmer's idea. Now the average farmer, no doubt, says at once that this is impossible. He owns, we will say, lOO acres of land ; and he knows of no merchant in any of the great cities who owns as much as one acre. He owns neither stock nor bonds, and has only $500 in the bank. He knows of 1000 merchants or money lend- ers who each own $100,000 or $1,000,000 in stocks and bonds and keep balances of $50,000 in the bank. To him, therefore, it seems plain that the exemption of per- sonal property from taxation must make him pay much more, in proportion to his means, than the merchant and banker. § 3. The farmer's error. But the farmer, in reason- ing thus, entirely overlooks the most important facts of the problem, and abandons the common-sense of which he so much boasts. That common-sense would tell him that, just as his one hundred acres are worth far more than 100,000 acres in the midst of Africa, so one tenth of an acre in the heart of a large city is worth more than all his farm. It would also tell him that the assessor can easily count his cattle, horses, sheep, and hogs, and estimate pretty correctly the value of his house and barns ; whereas, the most expert assessor can never find out how many bonds the banker owns, unless he can persuade that banker to tell him ; while in estimating the value of the banker's house and furniture, he might guess at $10,000, $25,000, or $50,000, with a perfectly equal chance of being right or wrong in either case. The banker has chairs standing side by side, apparently of exactly equal value, but one of which cost $25 and the other $250. He has two paintings, one of which is five times as large as the other, and which the honest farmer would, therefore, think to be five times as valuable ; whereas in fact the large picture is barely worth $500, while the small one EFFECT OF THE PERSONALTY TAX ON FARMERS. 8/ would sell as quick as lightning for $20,000. There are many houses, in large cities, upon the interior decoration of which the owners have spent more than $100,000. The most experienced assessors would fail to discover that these decorations were really more costly than those in adjoin- ing houses, which in fact did not cost one tenth of that amount. ^ § 4. Taxation of franchises. Nor is the difiRculty of this problem confined to the difficulty which the assessor finds in doing his work. Vast amounts of what are com- monly called personal property, and, indeed, the bulk of those things which the average farmer seeks to tax as personal property, consist of really nothing but rights over real estate. Thus the value of bonds of a railroad corporation consists very largely in the land which the company covers by its tracks, engine house, stations, etc. ; and the stock of such corporations represents prac- tically nothing else. The franchises of such corporations, which, of course, constitute a larger part of the value of both stocks and bonds, really consist of nothing but the right to use certain tracts of land, to the exclusion of all other persons. Under any proper assessment of the value of land, those franchises would be assessed at their full value ; because the franchise of exclusive use is all that gives to any land its commercial value. A system of taxation upon the full value of land would, therefore, levy taxes upon every dollar which cor- porate franchises are worth. No system of taxation on personal property is needed in the smallest degree for this purpose. It is indeed only a hindrance to it and a convenient means of evading taxation ; for the assessor, not being allowed to compute this value, in estimating the value of the land, has to take his chances of finding it under the name of personal property. All mortgages 88 NATURAL TAXATION, on land are, of course, practically interests in the land it- self, and would be fully taxed under a system of taxation confined to the value of the land. The tax may be collected from either the mortgagor or the mortgagee, as the legislature should think fit. Either plan is perfectly consistent with the exemption of personal property from taxation. § 5. The experience of Ohio. In the light of these considerations, let us review some of the statistics fur- nished from year to year by the of^cial reports of assess- ors in Ohio, as compiled annually in the auditor's report. For the purpose of such comparison let us set on one side the four counties which include all the largest cities, and on the other side the five counties which contain the small- est proportion of city population among all the counties of Ohio. The former, which we will call the city counties, include Hamilton, Cuyahoga, Franklin, and Lucas, with the cities of Cincinnati, Cleveland, Columbus, and Toledo. The latter, which we will call the rural counties, are Geauga, Noble, Carroll, Medina, and Monroe. These counties respectively represent the extreme con- trasts between the cities and the farms of the State. Thus, in Hamilton and Cuyahoga, the assessed value of town lots is about seven times the assessed value of the farms ; whereas, in the five rural counties, the assessed value of farms is nowhere less than ten times that of town lots, while, in Geauga County, the farm lots are worth twenty- seven times as much as the town lots. Hamilton County, which includes Cincinnati, is the typical city county of Ohio ; while Geauga, which includes no large town, is the typical rural county. § 6. Farmers pay largest share of taxes on personal property. Now, the first thing which strikes the eye, on EFFECT OF THE PERSONALTY TAX ON FARMERS. 89 looking over the statistics of these counties, is the follow- ing comparison : Ohio Valuations, i88y. Assessed Val. Assessed Val. of Real Est. of Chattels. City counties $317,854,665 $113,340,087 Rural counties 29,733,450 14,307,668 Any one can see that, in the counties which include all the large cities, the assessed value of personal property is only about one fourth of the whole assessment ; while in the rural counties, personal property constitutes very nearly one third of their whole assessed value. In more exact figures, the value of assessed personal property in the city counties is 26\ per cent, of the whole, while in the rural counties it is 32^ per cent. If, therefore, all per- sonal property should be exempted from taxation, the farmers of these five exclusively rural counties would pay 8 per cent, less taxes than they do now. That this result is not a mere accident, owing to some peculiar condition of these particular counties, is easily proved by testing the same question in other ways. Thus, if we set apart the four great city counties and compare them with all the rest of the State, including farming dis- tricts and smaller towns indiscriminately, we find substan- tially the same result, as follows: Ohio Valuations, 1887. Personal Real Estate. Property. City counties $317,854,665 $113,340,087 Remainder of State 867,155,960 406,832,007 Here, in the counties which include all the great cities, personal property amounts to 26\ per cent, of the whole valuation; while in the remainder of the State it amounts to 32 per cent. 90 NATURAL TAXATION. But if we compare single counties, such as Hamilton, in which town lots compose about 85 per cent, of all the real estate, with Medina, in which town lots compose only 10 per cent, of the real estate, we find the result as follows : Ohio Valuations, iSSy. Personal Real Estate. Property. Hamilton $163,732,580 $53,144,182 Medina 8,304,740 5,012,304 Here we find that the real estate of Hamilton Gounty is assessed at tzventy times the value of Medina County ; while the personal property of Hamilton is assessed at less than eleven times that of Medina. Personal property constitutes 24^ per cent, of the valuation of Hamilton, and 371^ per cent, of the valuation of Medina. The total exemption of personal property from taxation, therefore, would, if taxes were divided only between the counties of Hamilton and Medina, relieve the farmers of Medina from exactly one sixth of their present burdens. Invari- ably, farmers are compelled to pay a much larger share of State taxation, as the result of taxing personal property. § 8. Taxation of credits heaviest on farmers. But let us test this question in still other ways. The chief clamor in favor of taxing personal property has been directed toward the taxation of moneys and credits. The money lender, who is supposed to have vast sums on deposit in bank, and the merchant, who is supposed to have vast outstanding credits due from the poor farmers, are the special objects against whom this method of taxa- tion is aimed — all for the relief of the farmers. Let us see how this works, by a comparison of the same typical counties. The Ohio report for 1887 shows that their relative assessments were as follows : EFFECT OF THE PERSONALTY TAX ON FARMERS. 9 1 1887. Real Estate. Money. Credits, etc. City counties $317,854,665 $5,328,050 $13,291,833 Rural counties 29,733,450 907,829 4,384,381 Roughly stated, it thus appears that if taxation were confined to real estate alone, the city counties would pay eleven times as much as the rural counties; whereas, if taxation were levied on money alone, they would pay less than six times as much, and if levied on credits alone, a little more than tJiree times as much ; while, if taxation were levied on both money and credits, they would pay about /(?/^r times as much. Consequently, the burden of taxation in rural counties as compared with the large cities is nearly three times as heavy on money and credits as it is on real estate. The only result, therefore, of taxing money, credits, and similar irivcstnients, is to relieve the bur- den of the cities and increase the burden of the farms. Let us test this particular illustration by comparing the County of Hamilton, in which town lots are worth seven times as much as farm lands, with Geauga, in which farm lands are worth twenty-seven times as much as town lots : 1887. Real Estate. Money. Credits. Hamilton $162,732,580 $1,833,279 $5,735,945 Geauga 5.555i8oo 282,118 534,477 Roughly stated, Hamilton County is assessed for nearly thirty times as much real estate, less than seven times as much money, and less than eleven times as much credits as Geauga County. If taxation were levied exclusively upon money on hand, Geauga County would pay between four and five times as much as it would if the taxes were levied exclusively on real estate. If taxes were levied solely upon credits, Geauga would pay nearly three times as much as it would if they were levied solely on real 92 NATURAL TAXATION. estate. There is not much evidence here of any advan- tage gained by the farmer, through his dihgent search after the money lender and the creditor. §9. The more effective the system, the worse for the farmers. For many years, and in fact persistently ever since 1846, when Ohio adopted the present system of taxation, Ohio farmers have been clamoring more and more loudly for protection from unjust taxation, for greater burdens upon merchants and bankers, and for more stringent enforcement of the law. The tax and assessment laws have been amended, again and again, in obedience to this demand ; and State ofificers have been continually more persistent in their efforts to shift the burden of taxation from farmers to capitalists, by means of a rigorous enforcement of taxation upon personal prop- erty. A spy law has been enacted, giving 20 per cent, or more to any spy who will expose false returns of per- sonalty. Let us, therefore, inquire whether there is any tendency to improvement in these respects, and whether the history of the last few years encourages the hope that the evasions of the " Shylocks " can be put an end to and the honest farmer relieved by a more thorough assess- ment of personal property. For this purpose let us again compare the typical counties of Hamilton and Geauga — the former having an almost exclusively city population and the latter being occupied almost exclusively by farm- ers, having no village with more than 1000 inhabitants. §10. Watches, carriages, and money. If there are any items in which the Shylocks ought to make a better showing than the farmers, surely watches, pleasure carri- ages, money on hand, and credits would stand first on the list. Let us take them in succession : Number of Watches. 1882. 1887. Ohio 118,286 114,631 Hamilton 9.283 8,659 Geauga 845 922 EFFECT OF THE PERSONALTY TAX ON FARMERS. 93 These statistics tell a sorrowful tale of poverty and destitution among the poor farmers of Cincinnati; while they indicate that the bloated capitalists of Geauga County are the chief patrons of the fine watchmakers of Paris and Geneva. Let us turn from this sorrowful pic- ture to Pleasure Carriages. 1882. 1887. Ohio 254,918 224,440 Hamilton 13,710 9,854 Geauga 2,488 1.717 Here one finds some slight relief, not, indeed, in the increasing prosperity of any part of Ohio, but in the fact that the poor farmers of Cincinnati do not seem to have given up any larger proportion of their pleasure carriages than the Shylocks of Geauga ; while a desolating wave of poverty has swept over the entire State, resulting in the loss of nearly one eighth of all its vehicles. Walking is evidently becoming fashionable in Ohio. Let us look at Money on Hand. 1882. 1887. Ohio $46,160,629 $35,132,131 Hamilton 2,321,502 1,833,279 Geauga 352,053 282,118 Here, again, a wave of poverty has flooded the whole State, in tolerably equal proportions. Money is evidently rapidly vanishing ; for the total stock of the State has fallen off $11,000,000 in five years, diminishing 25 per cent, in Hamilton, but only 20 per cent, in Geauga. We will now look at Credits. 1882. 1887. Ohio $104,838,938 $106,173,894 Hamilton 6,571,829 5-735,945 Geauga 560,693 534,477 Here we see that Ohio, as a state, is a money lender to the extent of one per cent, more in 1887 than in 1882. But again the poor agriculturists of Cincinnati come to g^ NATURAL TAXATION. the front, with a loss of $836,000, or 12^^ per cent, of their total stock; while the loss in Geauga County is only about one third as much, or a trifle over 4 per cent. § II. How Ohio watches go. In reviewing this sad picture of decline, one is reminded of Goldsmith's melan- choly words : " Where wealth accumulates and men decay." But in Ohio it appears that men accumulate and wealth decays ; for the population of the State has largely in- creased, while its wealth is apparently ebbing away. Truly was it said by the wise man of old, that " riches have wings" ; for the disappearance of money from Ohio conclusively proves it. Looking at the returns of car- riages, one is tempted to think that the principal reason why they have wheels is to enable the owners to take them out of Ohio ; and as for the watches, they are cer- tainly not open to the accusation so often brought against French clocks, that they will " never go." Ohio watches certainly can and do " go," with a rapidity and steadiness not often equalled.' § 12. Ohio in 1892. The foregoing statistics were pre- pared in 1889; and as no substantial change has taken place in the methods or success of Ohio taxation, it has not seemed worth while to go to the trouble of correcting these statistics by the latest information. But to prove that these figures are just as applicable now as they were in 1887, a few statistics will be given from the official re- ports of 1892. ' The speed of Cincinnati watches has lately increased. The latest report shows that 20 per cent, have " gone," in the last six years, against only 8 per cent, in the previous six years. The speed of Ohio carriages is even greater ; 25 per cent, having gone in six years. The honest farmers have taken the hint, and have dropped 58,000 carriages out of sight — of the assessors. Perhaps the owners have taken to bicycles instead. EFFECT OF THE PERSONALTY TAX ON FARMERS. 95 By authority of the Legislature of Ohio, Hon. Wm. McKinley, Governor of that State, appointed a tax com- mission of four members ; two being Repubhcans and two Democrats, but all professing themselves in favor of con- tinuing the tax on personal property. Their report, pre- sented to the Governor on December 23, 1893, confirms all which has been said above. It shows, moreover, that the disproportion between burdens imposed by the tax on personal property upon the cities and upon the farming districts, respectively, has increased considerably since 1887. A few comparisons are here given between the assessments in 1887 and 1892 in Hamilton and Geauga Counties respectively. Money on Hand. County. 1882. 1887. 1892. Hamilton $2,321,502 $1,833,279 $1,535,375 Geauga 352,053 282,118 451,567 Here it will be seen that the amount of taxable money reported in Geauga, which is a purely farming district, has largely increased, owing to the spy system established by the State. But the amount of taxable money reported in Hamilton County, which includes the great city of Cin- cinnati, has again largely decreased ; the spy system hav- ing entirely failed there. We will now compare results in Credits. County. 1882. 18S7. 1892. Hamilton.... $6,571,029 15,735,945 $4,289,901 Geauga 560,693 534,477 507,651 Although there has been a shrinkage of about 5 per cent, in the taxable credits of Geauga, since 1887, that is noth- ing, compared with the 28 per cent, reduction in Cin- cinnati. The Tax Commission Report gives many other most 96 NATURAL TAXATION. instructive figures ; too many to be repeated here. To mention, however, a few examples, it appears that the County of Lucas, which contains " the flourishing city of Toledo," is rapidly increasing in population, and has more than double the stationary population of Muskingum County, nevertheless returned in 1892 very much less than half as much intangible personal property for taxa- tion, little more than one third as much in credits, and not nearly one third as much in money. Thus the rural county is taxed thrice as heavily as the city. The County of Cuyahoga, including the great city of Cleveland, the population of which is rapidly increasing, and is already about twenty-five times as large as that of Geauga County, returned for taxation less than four times as much money, and much less than seven times as much credits. Thus Geauga was taxed, upon these values, about five times as heavily as Cuyahoga. The net result of all the comparisons made by the com- missioners, between city and farming districts, is to prove that the tax upon personal property makes farmers pay from $4 to $7, where it makes city residents pay %\. The preposterous nature of returns of personal prop- erty for taxation is further illustrated in the report of the Commission, by comparison of the amounts of money on hand or on deposit, thus returned, with the amounts ac- tually held on deposit in banks, within the cities making these returns. The following examples will show the general drift. Deposits {^Partly Estimated). 1892. Deposits in Bank. Deposits Taxed. Cincinnati $29,000,000 $1,300,000 Cleveland 63,000,000 1,000,000 Toledo 8,120,000 353,000 EFFECT OF THE PERSONALTY TAX ON FARMERS. 97 Here again the farmers come to the front, to bear their share of taxation with a generous hand ; for while five counties, containing all the large cities, held on deposit in banks $120,000,000, and returned for taxation only $6,000,- 000, the remainder of the State, including all the farm- ing districts, having only $70,000,000 in banks, returned for taxation over $32,000,000. That is, having 40 per cent. less, they were taxed 450 per cent, more ! So the tax on " money " bears upon farmers about ten times as heavily as upon city residents. § 13. Conclusions of the Commission. No wonder that the Commission, after giving many more illustra- tions, concluded by saying : " It is useless to pursue this subject further . . . While in the country counties . . . taxation of intangible property is perhaps feasible, it is in city counties an utter failure. . . . It is con- fidently believed that no appreciable part of the intangi- ble property existing in the city counties is reached by our method of taxation. It is the country counties which pay the taxes upon personal property'' The Commissioners further say : " It is to be remem- bered that we have in this State an extremely rigid sys- tem." They show that personal property is pursued with more severity and ingenuity in Ohio than in any other State ; and notwithstanding all this, they declare that the system is " an utter failure," and that even with the re- spect to the spy law of Ohio, " this scheme, like all other attempts to reach intangible property, follows the universal law . . . that the large cities escape, and the country counties feel its burden." Again they say : " The sys- tem 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. , . . The moral sense 98 NATURAL TAXATION. of the community is blunted ; its citizens are made familiar with all manner of evasion ; they are taught to lie." § 14. Experience of Missouri. Lest it should be imagined that the experience of Ohio is peculiar, let us inquire into the experience of Missouri, which is even more decidedly than Ohio an agricultural State. In Missouri there are only four cities of over 15,000 popula- tion, and only three of over 25,000. Only four counties show a decided preponderance of town-lot values over farm values ; and only two more even the smallest differ- ence that way, and those for one year only. The four counties in which all cities worthy of the name are situated, are Buchanan, Greene, Jackson, and St. Louis City. These we will call the city counties and the others the rural counties. The following are the official and latest published Missouri Valuations, J8gj fin Thousands of Dollars). Farm Lands. Town Lots. Total Personal Real Estate. Property. 4 city counties 29,572 320,177 349.749 70,161 loi rural counties. 277,348 67,524 344,872 I59.5I4 Total 306,920 387,701 694,621 229,675 Here it can be seen at a glance that the four cities, with their adjoining counties, in which farms form much less than one tenth of the whole value of real estate, pay taxes on more than one half of all the real estate in Missouri, but on much less than one third of its personal property. Per- sonal property in the cities amounts to less than 20 per cent, of their real estate ; while in the rural counties it amounts to 46 per cent, of real estate. The farmers of Missouri pay \\ per cent, less taxes on their land than the cities pay, but 127 per cent, viore on personal property. Even in the eight poorest counties in Missouri, where farm lands are worth from twenty to one hundred times EFFECT OF THE PERSONALTY TAX ON FARMERS. 99 as much as town lots, personal property is assessed at 40 per cent, of real estate ; so that the poorest farmers of the State pay 100 per cent, more taxes on personal property than do the richest cities, in proportion to their real estate. Let us compare St. Louis City with the rest of the State : Missouri Assessments, i8gj. Real Estate. Personalty. Money, Notes, etc. St. Louis $259,781,100 144,341,110 $8,449,790 Rest of State 434,839.557 185,334,285 67,663,576 Total $694,620,657 $229,675,395 $76,113,366 These figures show that, while St. Louis pays about 40 per cent, of the taxes on real estate, it pays less than 20 per cent, of the taxes on all personal property, and just 1 1 per cent, of the taxes on money and credits. The rest of the State pays 70 per cent, more on land than St. Louis does, but 318 per cent, more on personal property in general, and exactly 700 per cent, more on money and credits ! Yet Missouri is governed entirely by the farm vote, and it " enjoys " a general property tax as severe and all-reaching as the farmers are able to invent. The only result of their ingenuity is, as usual, to load heavier burdens upon their own shoulders. § 15. The moon-struck theorists. Figures like these might be collected, not only from Ohio and Missouri, but from every State and country under the sun, where statis- tics are kept and personal property is taxed. They are the moon-struck theorists, who, in defiance of all the facts and all the experience of the world, persist in the vain endeavor to tax personal property and in the absurd asser- tion that this form of taxation tends to relieve farmers. Farmers cannot conceal their sheep and oxen, their plows and implements ; and they have enormous difficulty in concealing their wealth in any form, because their lOO NATURAL TAXATION. affairs are so well known to all their neighbors. If they have any money in bank, all the village knows it. If they have loaned money or sold goods on credit, their debtor is pretty sure to be some one in the immediate neighborhood ; and all the circumstances are known to fifty people. The average farmer, when making his re- turns to the assessor, is afraid to understate his wealth very greatly ; because he could hardly look the assessor in the face after doing so, being conscious that, if the assess- or does not already know the truth, he can with very little difificulty find it out for himself. But in large towns and cities scarcely any man knows intimately the affairs of his neighbor ; and the assessor knows least of all. Peo- ple are reputed to be worth $1,000,000, who in reality are not worth $50,000 ; and others are reputed to be worth only $100,000, who in reality are worth $2,000,000. Even if the amount of any man's wealth is approximately known, none of his neighbors know how that wealth is invested, unless it is put in real estate. City assessors, therefore, have absolutely no means of ascertaining the value of any man's personal property, except by returns from that man himself, or from the corporations with whom he may happen to invest. If an Ohio man makes his principal investments in corporations outside of the State, the assessor is entirely at the mercy of the tax- payers. He can tell any number of lies with impunity. The assessor rarely or never examines his books of ac- count ; and if assessors once began to make such an ex- amination, many rich men would cease to keep books of account at all, as it is notorious that they did when the income tax was in existence between 1864 and 1872. All things combine to make it easy for the assessor to reach the farmer's personal property, and difificult for him to reach that of the merchant, banker, or city capitalist. CHAPTER VII. Taxation of Women and Children. § I. Women and children fully taxed. One of the worst features of the tax on personal property is that it always and everywhere bears with peculiar severity upon women and children. Their lot would be hard enough, even if they paid no more than their equal share, in pro- portion to their means ; because none of them have the same power to replace the tax by fresh earnings, which men have, and most women and nearly all children, who are reached by this tax, have no such power at all. Most women thus taxed are widows, who have spent their lives in the family, and have no training for any occupa- tion outside of the home. Their husbands or fathers have left them a little wealth, upon which to support them- selves and their children. Even the most equally appor- tioned taxation inflicts upon them a loss for which they can have no remedy, such as a man has, in some new effort of industry. But to that extent the burden, while it calls for sympa- thy, does not make any claim upon absolute justice. Far otherwise is it with the inequality of taxation which im- poses upon women and children a burden rarely less than twice and frequently four or five times as heavy as that which it imposes upon active business men. It is this, and only this, to which attention is now invited. I02 NATURAL TAXATION. § 2. Taxation of women, through trustees. All per- sonal property of children, most of the personal property of widows, and a large proportion of that held for other women, are held in the names of trustees. Probably nine tenths of these trust estates are created by the wills of de- ceased persons. All such trusts pass through courts of probate; the wills are recorded for public inspection; the courts always can and generally do require a full state- ment of the value of the property to be filed ; accounts of its disposition are also filed ; and all of these records are freely open to the assessors. It inevitably follows that such estates are assessed to their full value. Some friend of the testator is usually made executor and trustee. Will he take a false oath, simply to protect the widow and children of his best friend from taxation ? Every consideration of patriotism, of manhood and piety gives him a chill of horror at the bare thought ! Never, while an American heart beats true within his manly bosom, will he commit the smallest perjury, for the benefit of any one — except himself. Not even the most hardened pro- fessional oath-taker will degrade his honor by such treach- ery to his country and such defiance of his Maker. For how can he ask the widow to compensate him for such a service ? And shall he put his immortal soul in peril for nought ? No : the executor of any will, who is not also the principal legatee, may be trusted implicitly to make a true return. Thus the personal property of most women and of all children is correctly reported in a place, where the assess- ors cannot help seeing the report. For one year, at least, it is taxed up to its full value. Nor does the matter end there. The assessors, being once on the track, keep in pursuit. Unless some great change is made in the nature of the investments, the tax TAXATION OF WOMEN AND CHILDREN. 103 is never reduced. The property of all children and of most women is held permanently by trustees. Such trus- tees are confined strictly to a limited class of investments, most of which are taxable ; while such as are not produce a very small income. Trustees have no power to evade taxation by running into debt. They are required to make oath to annual returns of the taxable property in their charge ; and this duty they perform with the same pious conscientiousness which characterized their first returns. All property held in trust is therefore taxed for every dollar which it is worth, with few exceptions. Instances have been known where trustees have been base enough to evade taxation upon trust funds, for the sole benefit of those who are dependent upon their aid, without even the compensation of thanks from their innocent and un- suspecting beneficiaries. But, for the honor of human na- ture, let us hope that such gratuitous wickedness is rare. § 3. Women's tax returns honest. If a widow is herself sole executrix, she never thinks of taking a false oath, to evade taxation ; and she has never learned the art of so arranging her investments as to avoid taxa- tion. But if she had, she could not collect her thoughts sufficiently, in the first sense of her loss, to exercise her shrewdness immediately upon offering her husband's will for probate. Until the will is proved, she cannot touch the property ; and therefore it must be and is filed speed- ily after her husband's death. At the same time, an affi- davit of the value of the estate must be filed ; and this is sharply scrutinized by oflRcials, whose sole anxiety is to get taxes for the State, and who are certainly not open to small bribes, nor, generally speaking, to large ones. But if they were, the widow would not know how to reach them. Widows' returns, therefore, are always true. In many cases widows and sisters receive bequests free I04 NATURAL TAXATION. of trust. The result, however, is not materially different. They seek advice from the most honest man whom they know ; and how can he look them in the face, while advis- ing them to resort to the usual methods of evading taxa- tion ? Or, if he does, how can they carry out his advice? They are generally too simple-minded to want such advice or to act upon it, if given. Widows and their daughters can be seen in every tax office, asking advice, in their sim- plicity, from the tax collectors, as to what they ought to return for taxation. The writer has witnessed such scenes, and has heard the officials give advice, in fatherly tones, calling, not merely for a return of the last penny which the victims possessed, but also for returns of property which had been declared exempt by the highest judicial tribunal of the State. Noble public servants ! They would extract the last drop of a widow's blood, for the profit of the government to which their loyalty is due ! §4. Women taxed: men relieved. Contrast the sit- uation of these helpless women with that of the average man. His property is in his own hands. No probate court keeps any record of it ; or, if it has come to him through the court, he speedily makes such changes, real or nominal, in the form of investments, as enable him truthfully to say that none of the original investments remain. In those States where deductions for debt are allowed, he can run into debt, to some complacent friend, to an amount sufficient to relieve him entirely from taxa- tion. In other States, he can give away substantially all his taxable personal property on the day before assess- ment day, taking it back the next day. Or, if not shrewd enough or trustful enough to arrange his affairs in any of these ways, he can get rid of most of the tax by simply taking a false oath. That such oaths are taken in enor- mous numbers, wherever they are necessary to escape tax* TAXATION OF WOMEN AND CHILDREN. 10$ ation, is proved by the universal testimony of assessors, in every part of the country. It is proved more conclu- sively, by reference to the tax returns of Ohio and Cali- fornia, elsewhere given. The general result is that, while women and children are taxed upon nearly the full value of all taxable per- sonal property in their possession, men are taxed upon less than one third of similar property belonging to them ; while the great majority of men pay taxes upon a far smaller proportion than that. The effect is to make women and children pay, at the very least, three times as large a share of such taxes as is paid by men. It is difficult to speak with moderation of such methods and such results. Yet a recital of such iniquities is listened to by the very best Americans with perfect calmness, and by legislators with stolid indifference. The story of rob- bery, under the forms of law, in these cases, is usually dis- missed with a cheap and vulgar sneer at " widows and orphans." The hearts of our people are hardened by the universal injustice, oppression, and iniquity of our methods of taxation. " None calleth for justice ; nor any pleadeth for truth." ' * Isaiah, lix., 4. CHAPTER VIII. Taxation of Improvements. §1. Should improvements be taxed ? Buildings and most other improvements upon land are easily visible, and they cannot easily be removed ; and therefore it seems to most superficial thinkers that such improvements are certainly proper subjects for direct taxation. But it is obvious that most of the reasons for the exemption of visible chattels from taxation apply with equal force to improvements upon land. These are really nothing but chattels attached to land ; and the fact that they are so attached makes no difference in their real nature, and should not lead to their taxation. A little consideration will make it clear that a tax upon improvements is not, in the long run, a strictly direct tax. If the building taxed is occupied by the owner as a resi- dence the tax is levied upon and in proportion to his living expenses, just like a strictly revenue tariff. If he occupies it only for business purposes the tax must, in the long run, be added to his ordinary business profits ; otherwise he would be driven out of business by the com- petition of others, who were able to recover such taxes from their customers. If he rents the building to others they must repay the tax ; otherwise no one would put up new buildings to supply the demand of increasing popu- lation. Thus in any case taxes upon improvements are 1 06 TAXATION OF IMPROVEMENTS, I07 indirect taxes, which must be in the end repaid to the original taxpayer, with a profit out of the earnings of the masses. Like tariff taxes, they are eventually paid by men in proportion to what they spend, not what they have. They, therefore, bear with far more severity upon the poor than upon the rich ; and they tend, like tariff taxes, to increase the inequality between the two classes. Moreover, the value of buildings and other improve- ments upon land cannot be assessed with even approxi- mate equality, by the most honest assessors. The value of the rich man's house will inevitably be under-esti- mated ; while the value of the multitude of cheap houses will be relatively, if not actually over-estimated.* The tax on improvements, therefore, like that on personal property, is not a really direct tax ; and it cannot be fairly apportioned among the taxpayers. These taxes are as bad as a tariff for revenue, because they fall upon con- sumption and are paid chiefly by the poor ; and they are worse than such a tariff, because they cannot be as hon- estly and efficiently collected. There is but one reasonable excuse for taxing build- ings and improvements upon land, when personal prop- erty is not taxed. They cannot run away. All other objections to taxes on visible chattels apply with equal force to taxes on chattels affixed to land. § 2. Tax upon all improvements indirect. Intelligent residents of cities have so long been accustomed to the idea that taxes upon buildings distribute themselves among tenants, that it will meet with ready acceptance. But when we go further and assert that taxes upon the value of other improvements, and especially upon the ' This is true everywhere. But it has been shown, conclusively and in detail, that this unjust discrepancy is carried to an enormous extent iii Chicago. 108 NATURAL TAXATION. value added to land by cultivation, is not a direct tax, but distributes itself in the same way, the doctrine will be considered novel. The vast majority of farm owners and farm hirers have never thought of such a thing. Yet the one proposition must be as true as the other. Let us candidly inquire into the facts. Our first inquiry must be into the nature and average value of the class of improvements now referred to, which may perhaps be called "absorbed improvements," since they are so completely absorbed into the land as to be inseparable from it. Buildings can be torn down. Fences can be removed. But the value added by plowing, stub- bing, clearing, manuring, pasturing, and cultivation cannot suddenly be taken away. Even fences cannot profitably be carried off ; and drains or similar works cannot be removed, although they may be destroyed. The average value of such improvements, entirely exclusive of build- ings, is shown to be $40 per acre, in Massachusetts ' ; and it can hardly be less than $20 per acre in any place where the work of cultivation has been thoroughly done. Dealing first with the case of the tenant, and assuming the improvement of the land to have been made or paid for by the landlord, it would seem to be just as certain that the average rate of interest upon this added value must be paid by the tenant, in addition to the mere ground rent, as that such interest must be paid upon the value of a dwelling-house. For, if all farm tenants combine to refuse such payment, all farm landlords will cease to make such improvements. The process of enforcing payment of this increased rent might be much slower than the like process with respect to buildings ; but the end would surely be the same. This being conceded, how could there be any difference with regard to taxes on these ' Census 1S85 ; vol. 3, p. xlviii. TAXATION OF IMPROVEMENTS. IO9 improvements? If the landlord had to pay such taxes, without being able to recover them from his tenant, his interest upon the investment would fall below the rate which he could obtain upon other property; and he would cease to invest in farm improvements. Gradually, new tenants would find no improved farms ready for them ; and they would offer to pay taxes and interest on improve- ments of all kinds. The tenants' supposed combination would thus be broken ; and the tax would be shifted upon all tenants. Dealing next with the community at large, it would seem obvious that the tax upon such improvements, quite as much as the tax upon factories, mills, or shops, would be ultimately added to the cost of production and would be distributed among the consumers of farm products, just as surely, in the long run, as taxes upon imported goods or home-made whisky. Undoubtedly, it would take a long time to complete the transfer, if taxes upon improvements were newly imposed. But as they have been collected regularly, for time, whereof the memory of man runneth not to the contrary, they are most certainly distributed to-day, with as near an approach to accuracy as any other indirect taxes whatever. If taxes upon consumption are to be got rid of, taxes upon all kinds of improvements of land, which can be ascertained and sep- arately valued, must be abolished. § 3. Taxation of improvements injurious to the pub- lic interest. The taxation of improvements upon land is in many ways attended with injury to the public good. No attempt will be made here to deal with this subject exhaustively. Only a few obvious results will be men- tioned. It has already been pointed out that the tendency of all taxation upon things of human production is to dimin- no NATURAL TAXATION. ish the quantity and degrade the quaHty of such things. This principle apphes to land improvements as much as to movable chattels ; and if movables should be relieved from taxation, while fixtures remain subject to it, the weight of taxation upon them would of course be greatly increased ; and their production would be more than ever discouraged. Beautiful buildings are a source of constant instruction and delight. Those who design and erect such buildings, in places where they can be easily seen by multitudes of people, are public benefactors. But beauty in a build- ing attracts the attention of the assessor, and leads to an increase of valuation far in excess of its actual cost. It is no answer to say that the assessor will reduce the as- sessment, upon evidence that he has overvalued the build- ing. He will not have to r)ay the tax. Then his 124 NATURAL TAXATION. land would be offered for sale to the highest bidder, subject to the obligation of paying to the owner the appraised value of all improvements thereon, upon the principles already stated. The value could never be more than the cost of replacing the improvements, and it would often be much less ; because costly buildings are frequently erected in situations where they are or become useless, and therefore of no value. To the full extent of their actual market value, however, the purchaser at a tax sale would be required to indemnify the owner. Such a sale would determine the precise value of the land, for the purposes of taxation. Nor would such sales, however frequent they might be, work any hardship to the landowner. He would have a right to bid ; and he would have great advantages over any other bidder. All the money paid in excess of the tax and the penalty would go directly into his pocket ; and, therefore, he would be the only bidder not required to pay more than that sum. If the tax were really exces- sive no one would bid up to it ; because the purchaser would be compelled to pay annually thereafter as large a tax as he was willing to bid at the sale. The tax sale, in short, would fix the valuation upon which future assess- ments would be made. Thus the ground rent (which, capitalized, constitutes the only value of any land) would be fully taxed ; while the land-owner would have absolute security for the possession of the value of all his improve- ments, free of tax. But no such experiment would ever become really necessary. § II. Taxation of franchises and monopolies. It has been already mentioned that the professed defenders of farmers and other owners of small homesteads oppose the concentration of taxation upon ground rents, on the plea that this would exempt all franchises and monopolies. THE NATURAL TAX. 1 25 including railways, express companies, telegraphs, tel- ephones, gasworks, electric lighting works, oil-pipe lines, and the like. If this were the fact we may be sure that the shrewd managers of such monopolies, assisted as they are by the most sagacious and experienced advisers in the country, would have discovered it by this time. We may also be sure that the legislatures of two thirds of the States, owned as they are, body and soul, by corporations of this precise class, would hasten to avow their con- version to the principle of taxing ground rents and to embody it in their statutes. The Senate of the United States would before now have passed any necessary amendment to the Constitution, by a two-third vote. But do we see the slightest tendency in this direction ? Is the proposal received with favor by the managers of a single great railway or telegraph or of any great monop- oly ? On the contrary, is it not notorious that they are unanimously and bitterly opposed to it ? These gentlemen are not deceived. They know well enough that their valuable franchises represent exclusive rights to the use of land, and that they neither have nor can have any exclusive rights to anything else, except to patent rights, which are very costly, and which last only for a few years. § 12. Railway franchises. Take one of our great rail- way lines, for example. Add up either the market value or the cost of replacing its rails, equipment, building improvements and chattels of every kind, whether mova- ble or immovable, and at a most liberal valuation. The total will not come within millions of its nominal debt, and will never touch its capital stock. What gives value to the enormous amount of stock ? The exclusive privi. lege of using a narrow strip of barren land, five hundred, a thousand, or two thousand miles long, unbroken by 126 NATURAL TAXATION. highways or any other rights over land, whether public or private. Under the present system railway managers persuade local assessors that this land should be valued no higher than equally barren land in adjoining farms ; and the farmers' especial advocates insist that this is the true basis of valuation. But it is absurd. The value of all land depends upon the value of the use which can be made of it. No farmer can use his land for the carriage of goods or passengers, beyond the limits of his own farm. If all the farmers between New York and San Francisco agreed to build a railway, without forming a railway corporation, they would be compelled to break their line at every highway, to dismount their passengers and to unload their freight. Therefore, no- body outside of a railway company can use his land for this most valuable purpose. And this privilege of using an unbroken strip of land, with locomotives running forty miles an hour, is all which gives to the stock of any American railway company its market value ; while it generally covers from one third to one half of its bonds, in addition. The notion that such privileges on land are to be appraised by the acre, like farm lands, can be readily tested by applying the same principle to any other land. In great cities land is often sold at a price estimated by the square foot. Some lots, containing 2000 square feet, are salable for $200,000, or $100 per foot. But if a single foot of this land were sold by itself, with the knowl- edge that no more could be had, who would give even one dollar for it, except as a means of blackmailing the owner of the rest ? Just so, the value of a strip of land unbroken for a thousand miles, for use as a railway, is something immense ; while the same land cut up in a thousand sections, never to be united, would be almost THE NATURAL TAX. 12/ valueless. For purposes of transportation it would have no value whatever. Again, the value of land depends upon the variety of uses to which it may lawfully be put. Steam railways, although very useful, are to some extent a nuisance. The government cannot permit them to be operated upon every tract of land. Consequently land owned by indi- viduals is generally restricted to other uses ; and it is therefore worth less than land owned by railway com- panies. § 13. Other franchises. The franchise of a telegraph company is of the same nature. It is absolutely nothing but an exclusive privilege to extend its wires over land. But this is a privilege of enormous value. The founders of the Western Union Telegraph Company have man- aged to sell this privilege to investors in its stock, for at least $50,000,000. The franchises of gas companies, electric light com- panies, steam heating companies, water works, and the like, consist so obviously of mere privileges to use unim- proved land as to need no explanation. Street railroads, also, so palpably own no privileges, othei than the mere right to run over bare land, that it seems almost an insult to the understanding of any reader to explain the case. None of these corporations have any other franchises, than these rights over land. For these franchises, most of them have paid enormous bribes to legislators and aldermen. Upon these franchises they have issued vast amounts of stock and bonds. One such corporation, after purchasing all the rails, equipment, and other produc- tions of human labor connected with the road, for about $200,000, proceeded to issue $8,000,000 of stock and bonds, upon its land privileges. It will be said that there are general railway laws, so 128 NATURAL TAXATION. that anybody can construct a new rival line, and thus destroy the land values of an existing line. Whenever that can really be done, the truth of this theory is promptly proved, by the destruction of stock values in both corporations, as in the desperate struggle between the New York Central and the West Shore lines, in 1884. But this is only partially true. A rival line must run through towns and very near cities ; or it can get little business. The aldermen of every city must be bought up ; and as the old corporation will pay liberal bribes to induce the aldermen to do nothing, the new one must bring far more liberal considerations to bear upon our patriotic rulers. Nor is it merely a question of money. Bribery must be conducted decently and in order. Pub- lic sentiment must be judiciously worked up to support the scheme. It requires an immense amount of ingenious and well directed effort to carry any such project into effect. In the case of street railroads, telegraphic subways, gasworks, and other privileges in cities, it is obvious that the limit is soon reached ; and even the liberality of a legislature or a board of aldermen cannot make room for many rival schemes of this kind. The streets cannot be torn up forever ; although, in New York and Brooklyn, they do not fall much short of this. The limits imposed by nature are such that more than three fourths of the whole market values of the stock and bonds of corpora- tions, having these municipal privileges, consist of pure land values. Under the present system, in most cases, all these enor- mous values go untaxed. The law of New York distinctly exempts franchises from taxation ; although it is well settled that they would be taxable as " land " but for this legislative interference. Under the system here proposed all these values would be fairly taxed. THE NATURAL TAX. I29 § 14. Can the rent tax be shifted ? While the Duke of Argyll and all his landlord allies rend the air with their denunciations of the proposed tax on rent, as confiscation and robbery, other opponents of the tax, appreciating the fact that tenants far out-number landlords at the polls, devote their energy to proving that this tax would all be shifted upon tenants, by an increase of rent, so that landlords would finally pay none of it. If this were true, then no relief from the unequal distribution of wealth can be had ; for all direct taxes would ultimately fall upon consumption, just as surely as do indirect taxes. In short, no tax would be really direct. The greatest benefit thus far held out, as the result of adopting an exclusive tax upon ground rent, would be unattainable under that or any other system. On the other hand, if this doctrine is true, the indigna- tion of the Duke of Argyll and all the great landlords of Great Britain and Ireland is absurdly misdirected. If they can recover this tax from their tenants, precisely as the importer of foreign goods recovers customs taxes from the purchasers of those goods, they will lose nothing by the change, and may even profit by it. It is very clear that the landlords do not believe a word of this doc- trine of shifting taxation ; for if they did they would look with indifference, if not with positive favor, upon the taxation of ground rents. So far from doing this, dukes, earls, and marquises are eagerly struggling in England for election as councilmen and aldermen, for the sole pur- pose of preventing the taxation of ground rents. The weight of authority upon such a question is wor- thy of attention, although by no means decisive. Now, while a few respectable and sincere students of economic science hold to the doctrine of the transferability of the ground-rent tax to the tenants, no one will dispute that 130 NATURAL TAXATION. an overwhelming weight of authority, both in numbers and in reputation, scout that doctrine as absurd. Not only the entire school of Ricardo and Mill, but also nine tenths or more of other economic writers make it a fundamental doctrine of their science that such a tax never can be transferred to tenants. § 15. The question illustrated. Let us, however, con- sider the question for ourselves, as if it were entirely new. The simplest way of testing it is to imagine that the tax was made heavy enough to absorb the whole rent. For, although this is impossible, it really makes no difference whether half or the whole of rent is taken by taxation, so long as the state is determined to take some fixed pro- portion of rent. Any good accountant can satisfy him- self that the result would be the same under either plan. But persons unaccustomed to figures could not follow any other calculation so easily as they can follow one based upon a tax equal to the whole rent. Let us then suppose the " single tax unlimited " to be in operation. Let us suppose the total ground rent of the United States to be $i,ooo,ooo,ocxd. The total production of the nation does not exceed $13,000,000,000 per annum. Out of this, 65,000,000 people have to draw their living expenses. Even if they had no ground rent and no taxes to pay they could not possibly save $5,000,000,000 a year. But suppose they could. The landlords collect in rent $1,000,000,000. The government takes the whole of this in taxes. The landlords then shift the tax upon the tenants, and insist upon collecting $2,000,000,000 in rent. But the government next year taxes the whole ol this increased sum out of the landlords. The landlords* then raise their rent to $3,000,000,000. But the govern- ment immediately takes the whole of that in taxes. The landlords raise their rent to $4,000,000,000. The govern- THE NATURAL TAX. 131 ment again takes it all. They raise rent once more to $5,000,000,000. Again it is all swallowed up in taxes. Will the landlords raise their rent again ? How can they ? They would by that time have taken every dollar that tenants earned, over the barest living ; and if they at- tempted to extort another dollar, some tenant would die of starvation ; and rents would fall, from lack of tenants. And as the government would have extracted the whole of their rent, they would have gained not a dollar by their persistent oppression of their tenants. § 16. Distinction between land and houses. It will be said that nothing of this kind could really be done by any government. Quite true ; but that is simply because nothing of the kind could be done by landlords. Landlords know, to their cost, that it takes three or four years to enable them to recover from tenants even in- creased taxation upon houses ; although they will recover it in the end. But, since it is difficult to recover a tax which tends to diminish the number of houses, how vastly more difficult must it be to recover a tax upon the value of land, which has no tendency whatever to diminish the amount of available land. And here the reader can see the reason for the dis- tinction. If owners of houses cannot recover from ten- ants the tax upon houses, nobody will build any more houses for renting. But the owner of land cannot create any more land, no matter how liberally he may be paid for it ; and he cannot diminish the area of land, no matter how little he may receive for it. Every increase of taxa- tion upon ground rents makes it more difficult to keep land out of use ; and therefore it increases the competition between landlords to get tenants. Under a light tax upon ground rents, two tenants pursue one landlord. But under a heavy tax, two landlords pursue one tenant. If 132 NATURAL TAXATION. ground rents should be taxed even to half their amount, landlords without tenants would be compelled to sell at any price to other landlords who could get tenants. The tendency of all taxes upon ground rents, therefore, is to reduce rent, rather than to increase it ; and this makes the very idea of a transfer of such taxes to the tenant utterly absurd. A moment's reflection will satisfy every one that land- lords charge just as much for their land as they can possi- bly get, except in special cases of good nature, charity, or ignorance.' In all ordinary cases the only reason why they do not charge more is that they cannot find anybody able and willing to pay more. How can this condition be changed by taxes upon rent ? It is not and it cannot be. The average landlord will charge the highest rent which he can get, tax or no tax. And, as no man will ever get more than he can get, no amount of tax upon ground rents will ever be shifted over to tenants by an increase of rents. § 17. Amount of the tax on rent. It does not follow that the state should compel the landlord to pay over all that he receives. If the state could and should do this, the landlord would cease to do his work ; because he would receive no compensation for it. Natural laws again settle this question, by making such exact collection impossible. Not all the power of all governments, concentrated upon the landlords of a single town, could extract from them ' This is universally true in the United States. In many parts of Europe, especially in England, agricultural rents are limited by custom and public opinion. In Ireland, they are often limited by law. But all that results from such restrictions is that rent is divided between two or more landlords. The mass of the people, who are the real, final tenants, gain nothing what- ever. The farm-tenant either sublets the farm, at a higher rent, or he makes a larger profit out of the farm, without selling his produce any cheaper or paying a penny more wages to his laborers. THE NATURAL TAX. 1 33 precisely one hundred per cent, of the rent received by them. Nor does it follow that even ninety per cent, of rent ought to be taken. Where rents are large the retention of ten or even five per cent, might be sufficient to induce land- lords to follow up tenants and extract from them that just rent which every one ought to pay. Where rents are small a commission of ten or even fifteen per cent, may be in- sufficient for this purpose. An iron rule is not a natural rule ; and it will not work well. What would Nature or Science dictate upon this point? Is it not that the state should collect from the natural tax collectors whatever amount the state really needs, for the effective but economical administration of government? Is it not better, in case there should remain any considera- ble excess over this, that it should remain in private hands, rather than it should be taken by the state, before the state officers know how to use it for the real benefit of the people at large ? Grant, if you please, that there would be such surplus of rent as to breed wasteful luxury among landlords, is not this less injurious to the community than wholesale waste and embezzlement of public funds? Our whole national history illustrates the truth that surplus public revenues first corrupt public officers and then de- bauch the nation itself. But in fact, in the long run, there will be no such ques- tion to decide. The honest needs of public government grow faster than population and fully as fast as wealth itself. Local taxation will increase rapidly ; and it ought to do so. Such taxation increased in Ohio, for example, l4C)Oper cent, in forty years, between 1846 and 1886; while population increased only 100 per cent, and wealth lOOO per cent. It is more likely that vigilance will be needed to prevent the taxation of rent from rising too fast, than 134 NATURAL TAXATION. that it would be required to keep landlords from retaining too much. This does not imply that ground rent will not be sufficient to supply many, possibly all, of those addi- tions to human happiness which Henry George has pic- tured in such glowing words. But such extensions of the sphere of government must take place gradually ; or they will be ruinous failures, simply because the state cannot at once furnish the necessary machinery for their success- ful operation. This natural tax might be adopted in one day, not only without injury to the nation, but with positive benefit to more than nine tenths of all the people. But this would be strictly upon condition that the amount collected for public use should not at first exceed that which was pre- viously collected. Indeed, it would be essential to the permanence of such taxation that public revenues should be at the beginning of the new system even smaller than they were immediately before. And we may be perfectly sure that they would be. A body of 4,000,000 taxpayers will take care of that. § 18. New benefits shared with landlords. There is, nevertheless, a certain element of truth underlying the idea that a rent-tax can be shifted. While it is not true that one dollar of the tax can be transferred to the tenant, in any case where rent is fixed upon strictly busi- ness principles, it is true that, in many places, and espe- cially in rural districts of England, the owners of farm lands do not charge the full market value of the land to their tenants. Personal considerations, kindness of feeling, custom, long-continued relations between the families of the landlord and the tenant, public opinion, tradition, the desire to control votes, and many similar influences keep rents below their market value. Under a system of tax- ation, concentrated upon rents, these influences would lose THE NATURAL TAX. 1 35 much of their power. Under a tax, deliberately raised to the highest practicable point, these influences would lose all of their power. Tenants would, therefore, find their rents increased to the full value of the land. Here would seem to be a real shifting of the tax. But this would be only a seeming, not a reality. The tenants, who now receive the benefit of those influences, are in reality themselves landlords, to that extent. They divide economic rent with their landlords. They do not divide the rent, thus left in their pockets, with the com- munity at large. They do not reduce the prices of their products or charge any less for their services. Many of them sublet a part of the land to others, to whom they charge the full market price. The community, as a whole, pays just as much rent, when the duke allows the farmer to occupy land at 20 per cent, below its full value, as it does when the duke's creditors seize his land and make the farmer pay the last penny that the land is worth. The farmer sells wheat at the same price and pays to his laborers the same wages, in either case. But there is a good deal of difference in the style of his daughters' dresses and the length of his annual vacation. There is another result which must follow, if the com- munity gains in wealth and happiness, through this change in methods of taxation. Every advance in prosperity — every widespread increase in wealth, tends to increase rent. If it is true, as will be presently maintained, that this re- form in taxation will stimulate production, increase wages, promote the development of industry, add to the profits of capital and reward the efforts of skill, then there will be a greatly increased demand for the locations which offer the best natural opportunities for the use of capital, labor and skill ; and ground rents will rise. But this is not the shifting of an old burden ; it is the sharing of a new benefit. CHAPTER X. One Tax Enough. §1. Adverse statements considered. Is this one tax enough? Can all the needs of government be supplied by a tax upon ground rent alone ? Ambitious philosophers, on both sides of the Atlantic, have convinced themselves that in no country is economic rent (the annual value of land alone) large enough to pay even the existing taxes. This assumption was first brought forward to serve as an argument in England, with an air of triumph which has seduced American phi- losophers into reliance upon the same theory. It was as- serted by Mr. W. H. Mallock and others, with the utmost confidence, that the whole rental of Great Britain and Ireland would not suffice, within many million pounds, to pay the existing annual taxes, national and local. This assertion was supported by a bristling array of figures, not in round numbers, but with an impressive detail, im- plying absolute accuracy. We need not imitate this pre- tended accuracy, but may concede that the average British and Irish taxes, imperial and local, for several years past (excluding, of course, postal and telegraph revenues, etc.) have amounted to about ^i 18,000,000 sterling. Mr. Mal- lock calls the total rental of land in Great Britain and Ireland ;^99,ooo,ooo.' ^Pf-operty and Progress, -p. 21^. 136 ONE TAX ENOUGH. 1 37 Professor William T. Harris improves upon Mr. Mal- lock, and states the annual rent of all land in Great Britain and Ireland at ;^65,442,ooo {Forum, July, 1887). Mr. George Gunton {Forum, March, 1S87) presents, with " crushing " confidence, a third and entirely different state- ment of British and Irish rents, fixing them, with mathe- matical accuracy, at ^131,468,288; being double the estimate of Professor Harris and nearly one third more than that of Mr. Mallock. It is obvious that all these learned philosophers cannot be right ; and therefore it is not surprising to find that all of them are wrong. What is surprising is that their errors are so enormous, that they are caused by the use of second-hand authorities, yet could not have been made if even those authorities had been read with ordinary care, and that they prove an entire ignorance of the subject treated. All of their figures are absurdly erroneous. All of these gentlemen have used tables which excluded every penny of rent collected in the city of London ! All of them have excluded the value of land in railways, canals, mines, etc. Mr. Mallock further excludes all the rent of Scotland and Ireland. Prof. Harris caps the climax, by excluding the rent of all land not used for farming or similar rural purposes ! When a city population of over 4,000,000 pay no rent, and when houses, railways, canals, gasworks, and mines can hang in the air without earthly support, these statis- tics may have some value, but not until then. §2. Mr. Atkinson on Boston rents. Space would fail to enumerate all the professors, doctors of philosophy, editors, and essayists who have followed the same line of argument in America, and have demonstrated, to their own satisfaction, that American ground rents could never 138 NATURAL TAXATION. suffice to meet the necessary burdens of taxation. One example will suffice for all ; and a quotation from Mr. Edward Atkinson {Forum, February, 1889) will cover all that has been said by any one on that side. He says : " It is also probably an error to suppose that the present rental value of land, taken by itself, including that somewhat indefinite factor, the so-called ' unearned increment,' even if it could all be converted to public use in payment of taxes, would suffice to meet the necessary expenses of govern- ment even for state, city, and town purposes. For several years the assess- ors of the city of Boston, where the present valuation of land is very high, have kept the valuation of land for the purpose of taxation, separate from that of buildings and personal property. The valuation of the city for the year 1888 was $764,000,000, on which a tax is to be assessed of $10,000,000 for city, county, and state purposes, at the rate of $13.50 on each $1000 worth of property. Land and buildings are assessed nearly if not quite up to the market value. Personal property is reached by the assessors of the city of Boston in larger measure than in any other city in the country. At the average of recent years, the value of land is $333,000,000 ; of buildings and improvements, $230,000,000; of personal property, $201,000,000. In order to raise $10,000,000 revenue the tax upon the whole must be $13.50 on each $1000. If the assessment were made upon real estate, including land and buildings, the rate would be $17.75; or, making allowance for abatements, $18.50. If assessed on land value only, the assessment would be a little over $33, allowing for abatements about $35, on each $1000. It is doubtful if the rental now obtained by the owners of all the land of Bos- ton would more than meet the $10,000,000 expenses of the state and city, omitting wholly the amount required by the nation. It must be remem- bered that our national taxes amount to a sum as large, if not larger, than all the state, county, city, and town taxes combined." A close examination of all figures of this kind would disclose a great undervaluation of land, arising from the universal practice of assessors to rate vacant land held for speculative purposes, much lower than occupied land having precisely similar market value. But we should be so grateful to our opponents for condescending to drop into figures of any kind, as to accept Mr. Atkinson's statistics without troublesome criticism. For these figures, incor- i ONE TAX ENOUGH. 1 39 rect as they are, nevertheless fully suffice to refute the argument which they are brought forward to support. §3. What the critics have overlooked. All critics of this class have overlooked the transparent fact that ground rent already bears a certain proportion of taxation, and that when it is proposed to put all taxes upon rent, the taxes now borne by rent must be deducted from the total amount, before reckoning the amount which would be cast upon rent by such a change in taxation. They have also overlooked the equally obvious fact that the market price of land is always reduced by the capital- ized value of the taxes already upon it. For the price of land being nothing more than the capitalized value of the 7iet rent which can be derived from it, that value is invariably as much smaller, in proportion to the value which it would have if untaxed, as the net rent is smaller than the gross rent. To illustrate : If the gross rent of a tract of land is $1000 a year, and it is subject to no taxes, the market value, assuming the usual rate of interest to be 5 per cent, will be $20,000. But if it is subject to an annual tax of $200, the net rent being thus reduced by 20 per cent, the price of the land will also be reduced by 20 per cent. to $16,000. If putting all the taxes upon rent would require a tax upon rent of $500 a year, this would only mean an addition of $300 to the tax ; because the land was paying $200 already. But Mr. Mallock, Mr. Atkinson, and similar critics always assume that this change would involve the putting of an additional $500 on the rent, ignoring the fact that it already pays $200 of the amount. § 4. Fundamental principles. The principles govern- ing these questions can be stated in a few brief proposi- tions. I. In economic science " rent " means only ground I40 NATURAL TAXATION. rent, or the price which can be obtained for the use of the land alone, irrespective of improvements. 2. Ground rent, strictly speaking, is the amount paid by the tenant for the use of the land, without any deduction whatever, for taxes or anything else. 3. The market price or value of land, however, is al- ways based upon an estimate of the probable net rent, deducting taxes. 4. The market value of a perpetual title to land is equal to the expected net annual rent (deducting taxes), multi- plied by the number of years which, multiplied by the current rate of interest, would produce one hundred. Thus, if interest is five per cent., the title is worth twenty years' net rent. 5. The value of such a title, in economic science, is the same, only 7iot deducting taxes. 6. The annual value or ground rent of land, in eco- nomic science, is on the average equal to the usual rate of interest upon the market value of its perpetual title, with the addition of all taxes annually levied exclusively upon that value. The strictly scientific method of ascertaining the pro- portion of ground rent which would be taken by taxation if all taxes were concentrated upon it, would be to add the taxes now borne by rent to the present net rent, and then reckon the proportion of gross taxes to this gross rent. But as the writer made a calculation upon this principle some years ago, and it has apparently been too difficult for these critics to comprehend, a simpler method will now be adopted, more in accordance with the usages of real-estate dealers. We will ascertain as nearly as possible : I. The present net ground rent of a few important countries, states, and cities ; ONE TAX ENOUGH. I4I 2. The entire burden of taxation in these places ; 3. The amount of such taxation now borne by ground rent ; 4. The amount of taxation which would be added to the present taxes on ground rent, if all taxes were col- lected from them, and which, therefore, is all that would be taken out of the net rents which land-owners now receive ; 5. The proportion of net ground rent now collected by landlords, and remaining in their hands after paying existing taxes, which would be taken by this change in methods of taxation. In these statistics, we shall take the liberty of generally omitting fractions of a thousand dollars or pounds, count- ing everything under five hundred as nothing, and every- thing above five hundred as one thousand. The results will be just as correct as if the usual wearisome details were given ; and the figures will be vastly more intelligible. § 5. Proportion of land values to real estate. We shall adopt the uniform rule of estimating the value of the bare land at 60 per cent, of the value of all real estate. The substantial correctness of this estimate could be proved by an enormous mass of statistics. It is sufficient, however, to refer to the peculiarly careful and conscien- tious assessment of Boston, already quoted, as evidence of the fact in cities ; while the analysis of the Massachusetts census, which will presently appear,' as well as the in- vestigations of the Pennsylvania Tax Commission, give evidence of the fact in rural districts. The Pennsylvania return, it is true, reduces the average for the whole State to 5 1 1- per cent. But the returns from Philadelphia and other cities are plainly erroneous. They put the value of land in cities other than Pittsburgh at only 34 per ' Appendix to Chapter XII. 142 NATURAL TAXATION. cent, of real estate." But in Pittsburgh land is reported at 56 per cent, of real estate. Outside of cities, land is reported at about 70 per cent, of real estate. Correct- ing the error in cities, the average is about 60 per cent. A comparison of assessment returns from Boston, Buffalo, Cincinnati, Cleveland, Minneapolis, and many other cities, demonstrates that the 60 per cent, rule is, to say the least, fully as applicable to cities as it is to improved farms. Inquiry into British land values strongly indicates that they form 63 to 65 per cent, of all real-estate values there ; but we may rest upon the minimum of 60 per cent., as being sufTficiently near the truth to meet all cases. It has been already shown that all the stationary prop- erty and franchises of railway, telegraph, gas, electric light, pipe line, steam heating, and similar companies are real estate, and that by far the greater part of the value in such concerns is a pure land value. These concerns will, there- fore, be so treated, without further explanation. Much more than 60 per cent, of their incomes consists of pure ground rent ; but they shall be put upon the same footing with all other real estate. With this allowance the tables hereafter given will err only upon the side of our oppo- nents. In adopting this general estimate of land values as 60 per cent, of all real estate, the estimate elsewhere of a much lower proportion of such values in farm lands is not forgotten. But that estimate refers only to cultivated farms, which constitute but a small part of the real estate ' This error is probably due to the very general division of land owner- ship, in Philadelphia and Eastern Pennsylvania cities, between pure ground rents and leaseholds. The value of a long lease is often very great ; and this is part of economic land value or ground rent. The owner of a building, erected upon leased land, also owns the leasehold ; and the usual rise in city land values often makes the leasehold alone worth one fourth to one third of the fee. ONE TAX ENOUGH. 1 43 values of the United States, or of any state or country. Town lots alone far exceed in value all the farms of the United States ; and among them the value of the land alone exceeds 60 per cent, of all real estate values. Un- cultivated and unused lands form an enormous part of nominal farm values ; and in their case, the pure land or ground-rent value is, of course, 100 per cent, of the whole. An estimate of 60 per cent, for the pure land value of all American real estate, taken together, is extremely mode- rate. For Great Britain, and still more for Ireland, it is far too low. However, if any one doubts the correctness of this es- timate, he can easily make a calculation, on the basis of those which follow, but reducing land values to 50 per cent, of real estate. He will find that it does not change the general result. Nothing short of a bold estimate of 30 per cent, as the proportion of land values, will suffice to refute the general conclusions here reached. Such an estimate would be absurd. § 6. Rents in Great Britain and Ireland. The theory of the insufficiency of Rent to meet Taxes having origi- nated in England, it is as well to begin its refutation with that country, especially as its statistics of income are more full and correct than those of any other country. The returns for 1885 will be used, because they are the latest which have been used in this controversy or which have been made the basis of Mr. Giffen's valuable estimates of British wealth. The whole amount raised by taxation, national and local, in Great Britain and Ireland for 1885 was i; 1 18,341,000.' The official returns of the income tax, for 1885," show ' Stateman's Year Book, 1888, p. 236. * 28th Report Internal Revenue Department. 144 NATURAL TAXATION. the following results. For the sake of brevity let us call these " British," instead of " British and Irish " incomes: British Net Incomes from Real Estate ; Returned in i88j. I. From pure ground rents : Manors, tithes, fines, etc £ 853,000 Fishing and shooting rights.. . . 572,000 Market privileges and tolls. . . . 607,000 2,032,cxx> II. From land and improvements : Agricultural lands ;{[' 65,442,000 Houses and lots 127,050,000 Canals, water-works, mines, iron-works, gasworks, etc... 22,381,000 Railways 33,050,000 ;^247,923,ooo 60 ^ of this is ;f{^ 148,753,000 Net annual ground rents ;^i50,785,ooo We must now consider the taxes which have been levied upon land, and which have therefore been deducted from the gross rent before these returns were made. They are as follows : Land tax £ 1,045,000 Inhabited house duty 1,855,000 Income tax on rents 3,605,000 Local rates 37,846,000 Tithes 4.054,000 £ 48,405,000 Sixty per cent, of this amount, being ;^29,043,000, must be deducted from the gross amount of taxes, because the landlords bear this already, and receive the ;;^ 150,785,000 net. Gross British taxes ;^ii8,34i,ooo Deduct taxes now paid from. . . ground rents 29,043,000 ^89,298,000 This is the amount which would be collected from Brit- ish rents, if all taxes were levied upon them. It is almost I ONE TAX ENOUGH. 1 45 exactly 59 per cent, of British net ground rents, leaving all rent from houses and improvements untaxed. All British and Irish taxes could be paid out of existing rents and yet leave to the landlords a clear income of i^6 1, 487,000 ($300,000,000) per znnnm., besides their house rents, etc., amounting to at least as much more. But this is a great understatement of the truth. It makes no account whatever of the constant rise in value of town lots. It assumes the absolute correctness of the returns of rent made by landlords. It assumes that the tax collectors have not lost sight of a single rent or failed to collect a single pound of what was due. It does not reckon the annual value of the palaces and parks of princes, dukes, earls, and other men of wealth, at any figure; be- cause these places bring no actual income, and are not re- turned at all for income tax. The probability is that, if all such values could be ascertained, all the taxes of Great Britain would not absorb 45 per cent, of the present net value of the bare land. § 7. Rents in the United States. The census of 1890 estimates the total real " wealth " of the United States at $65,037,091,197; of which real estate is set down at $39,544,544,333.* But of this, real estate to the real value of $3,833,335,225 is exempt from taxation ; and as there is no use in taxing public property, only to pay the tax out of the public treasury, exempt property may as well be excluded from these calculations. The assessed valuation of property in 1890, which of course has little relation to the real value, was : Real estate $18,956,556,675 Personal property 6,516,616,743 Total $25,473,173,418 * It has been denied that ground rents are real " wealth." But they are always so reckoned in statistics. 146 NATURAL TAXATION. Thus it will be seen that real estate constituted 74^ per cent, of all assessed property, and therefore bore that share of ad valorem taxes. For convenience, this share may as well be called 75 per cent. The local ad valorem taxes amounted to $470,652,000. Reckoning land values as usual at 60 per cent of real estate, these values bore 60 per cent, of 75 per cent, of all local ad valorem taxes. This is exactly 45 per cent., leaving 55 per cent, to be borne by land improvements and personal property. Special taxes, such as licenses, succession taxes, corpora- tion taxes, poll taxes, etc., are not included. But, as a large proportion of what is assessed as personal property is in fact real estate in a disguised form, the probability is that real estate actually bears more than 75 per cent, of all local taxes, of every description. The valuation of real estate in the census was certainly not made upon any lower estimate of the rate of interest than 5 per cent, as even that would value land at twenty years' purchase. Only a small part of American real es- tate could be sold then or now at even that rate. Never- theless, that rate is here accepted. It follows that rent must be reckoned at 5 per cent, on the capitalized value of land, since " land " in law is nothing but a name for a title to ground rents. On this basis the following results are reached. They are extremely conservative ; that is to say, they err on the side opposed to the argument here presented. True Values of Real Estate, i8go. Real estate, taxed as such' $35,711,209,000 Railways 8,685,407,000 Mines and quarries 1,291,291,000 Telegraphs and canals, far more than 312,093,000 Total $46,000,000,000 Land Values, 60 per cent, of this $27,600,000,000 ' Real estate worth over $3,800,000,000 is exempt from all taxation. ONE TAX ENOUGH. 1 47 Ground Rental and Taxes in the U. S. Rent, at 5 ^ on $27,600,000,000 $1,380,000,000 National expenses $357,889,000 Local taxes 470,652,000 5,541,000 Deduct 45 ']t of local taxes, already laid on rent 211,793,000 Taxation on present net rents, if all other taxes are repealed 616,147,000 Surplus rent $763,252,000 Thus all national and local taxes, if collected exclusively from ground rents, would absorb only 44^ per cent, of those rents, leaving to the owners of the bare land a clear annual rent of $763,252,000, besides the absolutely untaxed income from all buildings and improvements upon their land. The above estimate of ground rents is very far below the reality. It does not include one dollar for the enor- mous value of oil wells, gas wells, pipe lines, the street privileges of gas, electric light, steam heating or water companies and other land privileges not expressly enumer- ated. § 8. Rents in Pennsylvania. Owing to a very remark- able example of public spirit, the State of Pennsylvania affords an opportunity for an inquiry of this kind, un- equalled in any other State, A Revenue Commission has been formed by associations of private citizens, represent- ing all interests, which has pursued a line of thorough investigation for several years past. Although its work is still incomplete and some of its statistics (as already pointed out) are plainly erroneous, they have been pre- pared in the best of faith and with unusual care ; while their errors are easily found and readily corrected. In round numbers the Commission estimates the entire 148 NATURAL TAXATION. wealth of Pennsylvania, in 1892, at a true value of $9,692,000,000. Of this, $1,250,000,000 are reported as " moneyed capital." This is an obvious error, in a com- putation of real wealth. Moneyed capital cannot mean anything else than debts and credits. Whatever it adds at one end of the total wealth must be taken off at the other, as previously explained in this book. Deducting this item there remains real " wealth " (reckoning land values as part of wealth) to the amount of $8,500,000,000. On the basis of a full report of fire insurance in the State, the Commission estimates that $5,000,000,000 of this amount is of an insurable nature, that is, the value of buildings and chattels. This leaves the value of the bare land (which is the only thing incapable of being destroyed by insurable risks) at about $3,500,000,000, or a trifle more than 41 per cent, of the value of all wealth. Now this result, which is reached without any reference to the na- tional census, and by a process utterly different from that which led to the conclusions given above, as to the United States at large, is nevertheless in perfect harmony with those conclusions. The estimated value of the land of the United States, given above, was 42 per cent, of all "wealth." The estimate of land values in Pennsylvania is over 41 per cent. The entire local taxation of Pennsylvania in 1892 was $49,383,906. Of this there was levied upon real estate, in various forms, $36,000,000, as follows : Taxes on " real estate " $32,645,631 " " railways 2,146,331 " " other land-owning corporations : about $1,200,000, say 1,208,038 $36,000,000 Sixty per cent, of this is $21,600,000; and this was the amount borne by the land values of Pennsylvania in 1892. I ONE TAX RNOUGIi. 1 49 The proportion of federal taxation which would have fallen upon Pennsylvania, had federal taxes been direct, and levied in proportion to population, as required by the Constitution, was less than $30,000,000. But if levied in proportion to land values alone, it would be about $36,000,000. These figures furnish all materials neces- sary to determine the effect upon Pennsylvania land-own- ers of a concentration of taxes upon ground rents. PENNSYLVANIA. Ground Rents and Taxes of i8g2. Rent, at 5 ^ on $3,500,000,000 $175,000,000 Federal taxes $36,000,000 Local taxes 49,384,000 $85,384,000 Deduct 60^ of real-estate taxes, already paid 21,600,000 Taxation on present net rents, if all other taxes are repealed 63,784,000 Surplus rent $111,216,000 Thus all national and local taxes, if collected only from ground rents, would absorb less than 36 per cent, of those rents in Pennsylvania, leaving to the land-owners a clear income of over $111,000,000 per annum, besides the untaxed income from their buildings and other improve- ments. It will be noticed that a much smaller proportion of ground rent seems to be required for the payment of all taxes in Pennsylvania, than in the United States at large. This apparent discrepancy is due to the fact that the valuation of real estate, made by the Pennsylvania Com- mission, was 25 per cent, higher than the census valuation of 1890. 150 NATURAL TAXATION. If the census estimates should be accepted with refer- ence to Pennsylvania, as in other cases, the result would be as follows : PENNSYLVANIA. Ground Rents in i8go : Taxes in i8g2 . Land values, per census 1890, $2,810,000,000 Rent at 5 ^ $140,500,000 Federal taxes $36,000,000 Local taxes 49,384,000 $85,384,000 Deduct taxes falling on ground rents in 1892 21,600,000 Taxation on net rents of 1892, if all other taxes were repealed 63,784,000 Surplus rent $76,716,000 On the basis of the census estimates of value, therefore, the concentration of all taxes upon ground rents would absorb about 45^ per cent, of Pennsylvania net rents. This, it will be seen, is nearly the same proportion of rent which would appear, from the census, to be subject to absorption by such taxation, if applied to the United States as a whole. § 9. Rents in Connecticut. The State of Connecticut having been cited by some advocates of the personal property tax, as an example of the insufficiency of ground rents to support the whole burden of taxation, let us examine its record. It appears, by the report of the Special Commission on Taxation, in 1887, that the local taxes of Connecticut then amounted to about $6,600,000, that the average tax rate was \\ per cent., but railways were separately assessed and taxed exactly i per cent. The assessed value of real estate was $251,000,000 ; of which land values, at the usual ONE TAX ENOUGH. 151 rate of 60 per cent., would amount to $150,000,000. Rail- way property within the State was known to be worth, at regular market prices, $62,000,000 ; and it was assessed at its full value, the tax being made low on account of the known undervaluation of all other property. The land value in railways, at 60 per cent., amounted to $37,000,000. The census of 1890 gives the following returns of the true market value of real estate in Connecticut. CONNECTICUT. True Values of Real Estate, iSgo : Real estate, returned as such $543,421,891 Railways 54. 550,504 Mines and quarries 3,108,787 Canals, telegraphs, etc' 14,753,310 $615,834,492 Sixty per cent, of this for land values amounts to $369,- 500,000. We can now calculate Connecticut Ground Rents, i8go ; and Taxes, 1887. Net ground rent, at 5 ;^ on $369,500,000 $18,475,000 Federal taxes, apportioned on basis of rents $4,800,000 Local taxes 6,600,000 $11,400,000 Deduct taxes already laid on ordinary land values : $150,000,000 at I J^ ^ $2,812,500 Do. on railways at 1% 370,000 3,182,500 Taxation on present net rents, if all other taxes are repealed 8,217, 500 Surplus rents $10,257,500 ' This item includes shipping. But as gasworks and other immensely valuable franchises on land are not included, this item is not too large. 152 NATURAL TAXATION. The concentration of all taxes upon the ground rents of Connecticut, therefore, would not absorb more than 44^ per cent, of those net rents, leaving to the land-owners a clear income of over $10,000,000 per annum, besides all their income from buildings and improvements. § 10. Rents in Boston. For the purposes of solving the problem submitted by Mr. Edward Atkinson, concern- ing the city of Boston, let us accept his figures, although they are not brought quite up to the date of 1890, and certainly understate the value of land. His figures are given for 1888, and are as follows : Land, assessed value $333,000,000 Buildings, " " 230,000,000 Personal property " 201 ,000,000 The whole amount of State and local taxes in Boston, in 1888, is given by Mr. Atkinson at $10,000,000 per an- num ; and he estimates the national taxes at " a sum as large, if not larger than all the State, county, city, and town taxes combined." But in this he is much mistaken. For many years local taxation has exceeded national taxation ; and, as we have already shown, the State and local taxes assessed upon property by its value, exclusive of licenses, succession taxes and many others, exceeded, in 1890, the whole amount of national expenditures by about $113,000,000. In 1888 a direct tax of $300,000,000 would have amply sufificed to cover all the expenditures of the federal government, pensions included. Apportioned according to population, as the Constitu- tion requires, Boston's share of such a direct tax would have been $2,100,000.' Apportioned according to the value of land, either with or without improvements, Bos- ton's share of such a direct tax would have been much ' Population, 1890 : United States, 62,622,000 ; Boston, 446,000. ONE TAX ENOUGH, 1 53 less than $4,500,000, The latter figure may be accepted, not only as affording stronger support to Mr. Atkinson's theory, but also as based upon just principles, in accord- ance with which it may be assumed that the Federal Constitution would be amended, whenever strictly direct taxation is adopted. It may be assumed with entire certainty, in this case, as in others, that the assessors' estimate of the value of real estate was based upon the theory that it was renting for at least 5 per cent, per annum, net, on its capital value: for it is incredible that the assessors should have valued land at more than twenty times its annual rent. The an- nual rental value of the bare land of Boston in 1888 was therefore at least 5 per cent, on $333,000,000 ; that is to say, $16,650,000. The tax rate was $13.50 per $1000, or $4,500,000 on the bare land. On this basis, and giving the benefit of every doubt in favor of Mr. Atkinson's views, the following conclusions are reached : Boston Ground Rents and Taxes in 1888. Ground rent, at 5 $? of $333,000,000 $16,650,000 Federal taxes .$4,500,000 Local taxes 10,000,000 14,500,000 Deduct taxes on land values already paid 4,500,000 Taxation on present net rents, if all other taxes are repealed 10,000,000 Surplus rent $6,650,000 Thus all national and local taxes, if concentrated upon the ground rents actually found and assessed by the assessors of Boston, would absorb barely 60 per cent, of those rents, leaving to Boston land-owners a clear income 154 NATURAL TAXATION. of over $6,650,000 per annum, besides the untaxed income from buildings and other improvements. § II. Omissions from Boston rents. Thus far it has been assumed that the figures of Boston assessors, upon which Mr. Atkinson rehes, correctly represent the market value of all Boston land. This concession has been made for the sake of argu- ment ; but it is utterly unjustifiable. No assessors in any city, however faithful in the performance of their duty, ever appraised land at its full market value, or anywhere near it. If the Boston assessors have appraised land at even 80 per cent, of its fair value, they have done their duty more faithfully than any other assessors in the United States. It may be said, however, that assessors never will do better, and therefore that in estimating the burden of taxation under the proposed system we must be content to value land on the basis of the best known assessments. The answer to this is, that we are not now seeking to know what will be the apparent burden of tax- ation upon ground rents, when this system goes into effect, but are inquiring what would be the real, bona fide burden thus imposed. And in order to judge of this we must calculate upon the basis of actual values, and not of mere assessed values. But it is not necessary to enter into this question just now. Even accepting the official assessment, these figures show upon their face that the assessors have omitted from their estimate of land values in Boston some items of immense importance. Where is there any account made of the privileges conferred over and under Boston streets, upon railway, telegraph, telephone, gas, electric light, steam heating companies, etc. ? So far as these corpora- tions actually own, in their own names and of record, offices and buildings, over which they have exclusive control, ONE TAX ENOUGH. 1 55 like any other private land-owner, such property is assessed, but only at the same rate per square foot as other private land. But not one dollar of the value of the franchises of any of these corporations, or of the privi- leges which they have over and under Boston streets, is included in the assessors' estimate of land value. This will appear even more clearly upon examination of the assessors* annual reports. Such franchises and privileges are never assessed under the head of " land " in any State of the Union. No doubt the Boston assessors and Mr. Atkinson were astonished at the suggestion, made some years ago, that all these franchises and privileges come within the defini- tion of " land "; but they certainly do, both under the principles of economic science and under the plain terms of American law. They are "hereditaments,"' which form a part of "land," under both Massachusetts' and New York law'; although exempted from taxation by statute in New York, and by the " dead hand " of Chief Justice Shaw in Massachusetts.* Applying this principle to railroad, telegraph, gas, and other corporate privileges, in or over the streets of Boston, there can be no doubt that the land values appertaining to these franchises would be eagerly bid for at $3,000,000 per annum. The whole ' Smith V. New York, 68 N. Y., 552. ' Rev. Stat. ch. 3, § 7. '■ I Rev. Stat., 750. * This famous judge, although undoubtedly honest, made some of the worst decisions in favor of corporations, which can be found in judicial history. He invented the theory under which masters are exempted from liability to servants for the negligence of co-servants. And he declared the roadbed of all railroads to be exempt from taxation, because the roads are permitted to acquire land under the power of "eminent domain " as for a public use (Worcester v. Western R. R. Co., 4 Mete, 564). The courts of New York, and probably of every other State, have treated this amazing doctrine as hardly worthy of discussion. 156 NATURAL TAXATION. of this large sum is entirely omitted from the official estimate of ground rents in Boston ; and, therefore, at twenty years' purchase, the land of Boston has been undervalued to the extent of $60,000,000. This estimate is confirmed by the census of 1890, which shows that the real values of real estate, including these franchises, were nearly 30 per cent, higher than the assessed values in Massachusetts. The official figures for Boston alone are not at present accessible ; but there is every reason for believing that the undervaluation there was as great at least as in the rest of the State, since Bos- ton has more valuable franchises than any other part of the State. In view of these facts let us revise the forego- ing table, on the basis of an addition of only 25 per cent, instead of 30. Boston Ground Rents and Taxes, 1888. Corrected by reference to Census. Ground rent, assessed as such $16, 650, OCX) Correction of under-assessment per census 4,162,000 $20,812,000 Federal taxes $ 4,500,000 Local taxes 10,000,000 $14,500,000 . Deduct taxes on land values al- ready paid 4, 500,000 Taxation on present net rents, if all other taxes are repealed 10,000,000 Surplus rents $10,812,000 The concentration of all taxation upon ground rents, in Boston, would not, therefore, absorb as much as 48 per cent, of those rents. § 12. Summary. All the foregoing calculations have been made without any preconceived theory as to the proportion which taxation would probably bear to rent, ONE TAX ENOUGH. 1 57 and without any anticipation that there would be much uniformity in the results obtained from such widely sep- arated and widely different communities. Let us now compare these results, reckoning the British pound at $4.85. Net Ground Rent Additional Proportion Less Present Tax. Tax. Taken by Tax. Great Britain $ 731,307,000 $433,095,000 59^ United States 1,380,000,000 616,748,000 ^\\% Pennsylvania 140,500,000 63,784,000 45^/^ Connecticut 18,475,000 8,217,000 44J Jf Boston 20,812,000 10,000,000 48^ The uniformity of result, where the figures are based upon the same census, as in the United States at large, Pennsylvania, and Connecticut, is remarkable. In Great Britain the estimate of ground rent does not allow a dollar for the value of vacant land or unoccupied houses, parks or pleasure grounds. The magnificent estate of Chatsworth is rated at only $3000 per annum. An addition of one third to the values included above would be far below the truth. With such an addition, the proportion of taxes to British rents would be reduced below 44^ per cent. All attainable statistics thus point to the conclusion that the entire cost of the most expensive and even ex- travagant governments in civilized countries could be placed upon ground rents, without taking in taxation even half of the present net income of land-owners from that source alone. The land-owning reader may be impatient and indig- nant with this cold statement of a result which, as he will think, means ruin to him. But he must remember that this chapter is devoted to the single inquiry : " Is Rent enough to meet Taxes ? " leaving other questions for 158 NATURAL TAXATION, future consideration. In a later part of this book, those other questions will be fairly met and dealt with. Anticipating, however, for a moment, one of those important questions, let it be observed that no allowance has been made, in the foregoing figures, for the undeni- able fact that the land-owning class own not merely the land but also all the buildings and improvements upon land, besides a vastly larger share of personal property than any other class of the cummunity. Under the pres- ent system, all these things are taxed. Under a system of natural taxation, none of them would be taxed, except the value of the land alone. It will presently be shown that the benefits conferred upon nine tenths of the land- owning class, by the release of all their other property, earn- ings and expenses from taxation, would be enormous. But that does not find its proper place in this chapter, which has to do with no other inquiry than the sufficiency of ground rents to supply government revenue. § 13. Ground rents in rural districts. Having analyzed the cases of large cities and large states, fully settled and highly civilized, and found that a moderate tax on their ground rent is sufficient for all their needs, there remain for consideration villages, small towns, and half settled states or territories on the border of civiliza- tion. It is said, with great confidence, that the land of these communities is of no value, and therefore that a tax upon this no-value land could not support government in these districts. Of course, if the assertion is true the argu- ment is conclusive. But the assertion is not true ; and the argument would apply only to a very limited district, even if it were based upon truth. No one lives permanently, within the real dominion of any government, on land which has no value. Robinson ONE TAX ENOUGH. 1 59 Crusoe, living alone, occupied land which was of great utility to him ; although it could not produce economic " value " (that is, value in exchange) until some one else came upon the island. But, until then, he had no gov- ernment. When Friday landed, Robinson formed a gov- ernment of one ; and economic rent or land value began. The price which Friday was glad to pay, for permission to live on the island, was his rent ; and that rent was, as we all know, amply sufificient to defray all the expenses of government. Wherever any government exists it necessarily, in the very nature of things, assumes the ownership of all land within its limits ; and ground rent at once begins. Between the government and the citizen any land, however poor, has a market value. The citi- zen who inflexibly insists that it has not is invited to emi- grate, and is forced to give place to some one who has a different opinion. Although it is ideally conceivable that a state of things might exist in which land might have no exchangeable value, as between private individuals, no one has ever known that state of things to exist, where even a hundred people live in civilized community together ; and such a state of things, as between any government and any per- son receiving any benefit from that government upon land permanently appropriated, by him, is inconceivable. § 14. Ground rents always exceed cost of govern- ment. Nor can the average annual cost of necessary government for any community ever be greater than the average annual value of its land. To say that it can, is a contradiction in terms. How can any government be necessary, which costs more than the priv- ilege of living under it is worth ? And what is the cost of the privilege of living in any particular place, except the ground rent of that place ? It makes no difference l6o NATURAL TAXATION. how you assess the price of the privilege. A landlord can, if he chooses, fix his asking price for rent upon a computation of his tenant's personal property. If the price thus fixed is less than the market value of the land, the tenant will gladly pay it, and bless the stars which gave him a fool for a landlord. If it is more, the tenant will move away, and the landlord will get nothing. The state can do no more. No one will pay more taxes than the privilege of residing within the jurisdiction of the state is worth. If any one pays less, he is better off than people who live in another place and pay full value. This difference is so much natural rent; which he puts into his own pocket or is compelled to pay to a private landlord. Ground rent, therefore, is invariably sufficient to meet all the expenses of necessary' government. But as gov- ernment never exists where society does not exist, and as society offers many advantages in addition to the mere benefits of government, the privilege of living in society is worth much more than the mere cost of government. This privilege is dependent upon the privilege of living within a tract of land in which society exists. Outside of such land, there is other land, with no society and no government. The difference between the value or no- value of the right to live in solitude and the value of the right to live in society is so much economic rent. Rent, therefore, will at all times, in all places and in all circumstances, exceed the entire cost of necessary govern- ment. § 15. Proper distribution of government cost. But a great central government finds it for the advantage of the whole nation to maintain much more complex and expensive government in places like Alaska, Wyoming, and Arizona, than is really needed for the small number of people actually residing there. It therefore maintains ONE TAX ENOUGH. l6l territorial governments, at the expense of the more ad- vanced States ; not because Arizona needs so much gov- ernment, but because New York, Chicago, and St. Louis need to have new countries developed faster than the resi- dents of those territories need for their own benefit. So great cities need costly roads through little villages, which would otherwise be satisfied with mule tracks. Roads ought to be a State charge ; and it is now seen that the failure to treat them as such has been a disastrous mistake. The consequence of leaving roads to be man- aged by local authorities has been that not one road in a hundred, throughout the United States, is properly laid out or respectably maintained. The governor of Pennsyl- vania, several years ago, called attention to this notorious fact and suggested that roads ought to be taken under the control of the State. This example has been followed by the governors of New York, New Jersey, and other States. The administration of justice should not be left to the control or the charge of small towns. Court houses and jails ought to be, at the very least, a county charge, if not furnished at the expense and under the supervision of the State. The State cannot afford to tolerate injustice within the limits of any township ; and while it may be that all these matters can be judiciously left to the con- trol of large districts, like a county, it is not desirable that they should be intrusted to the control of each little township for itself. Consequently, the expense of court houses and jails should be provided and their management should be controlled by counties, if not by the whole State. The State of New York is properly taking all lunatic asylums under its own charge. For similar reasons schools should be maintained at the expense and under the control of large districts. It is no more for the interest of the State of New York to 1 62 NATURAL TAXATION. permit ignorance to prevail in the woods of Hamilton and Ulster, than it is for the interest of the United States to allow robbery to flourish unchecked in Arizona. This is not a mere question of financial ability. There are many townships which have abundant means to provide for the proper education of their children, which, never- theless, have but little interest in seeing the work done, and the residents of which are in fact so isolated from the rest of the world that they have no idea how such work should be done. This principle is partially recognized in New York. Public schools are supported by State appro- priations ; although they are not controlled by the State as fully as they should be. The expenses of government will in the future more and more tend to centralization in counties, if not in States. Of course it will never do for the State to pay the bills, where it does not control the outlay. Whatever roads, courts, jails, or schools are paid for by the State should be controlled by the State ; otherwise townships which would receive all the benefit of expenditure would feel no direct interest in diminishing its burden. § i6. Rent sufificient, when burdens just. Now, no one seriously maintains that the ground rent of any county in the thickly settled parts of the United States is not amply sufficient to defray all the expenses of gov- ernment properly chargeable to that county, exclusive of federal taxes ; and no one can successfully claim that any State east of the Mississippi River is so poor that its ground rent would not suffice to defray all its own gov- ernment expenses, as well as the proportion of federal taxation which would fall upon it under the existing Fed- eral Constitution, which apportions such taxes according to population, instead of according to wealth. It may be claimed that some of the very new and thinly settled States could not bear the burden of federal taxation oo ONE TAX ENOUGH. 163 that basis, in addition to their own expenses, without trenching upon something besides ground rent ; although, for the reasons above stated, even this is highly improba- ble. It is quite certain that when taxation is adjusted, as it must finally be, in proportion to the ground rent of every State and county, the cost of government will not exceed, nor even equal, the amount of such rent in any county of the United States. When the burden of main- taining government is apportioned, as it also must be, between States, counties, cities, townships, and villages, in such manner as to relieve the smaller divisions from burdens which do not properly belong to them, there will no longer be any question in the mind of any reasonable man as to the sufficiency of ground rent, in every corner of the United States, to bear all the expenses of govern- ment, and yet to leave a generous margin.' ' The statements in the text can be illustrated by reference to the appro- priations for town purposes, made by several farming towns of small popula- tion in Massachusetts in the spring of 1895. With each town is given the population in i8go, number of acres assessed, and appropriations, including highways, paupers, etc., and schools. Berkshire County. Total Ap- Popula- High- Paupers, propria- Town. Acres. tion. ways. Schools. etc. tions. Alford 7,172 297 $400 $600 $1,075 Egremont 11. 107 845 T,ooo 1,000 3,060 Hinsdale I3,745 i,739 1,800 4,025 $1,100 9,840 Lanesboro' 17,332 i,oj8 1,190 1,700 1,000 7,020 Savoy 19,917 569 1,000 700 2,500 Tyringham 10,845 4^2 800 950 2,715 Richmond 11,321 796 1,500 2,050 700 5,725 Clarksburg 7,749 884 1,000 1,500 3,000 Hampden County. Chester 21,588 1,295 2,400 2,000 1,400 9,339 Hampden ii,752 831 750 1,825 600 3,960 Holland 7, 120 201 400 200 100 1,050 Montgomery 8,586 266 700 600 200 1,915 Hampshire County. Westhampton 15,282 477 1,000 1,150 500 3,100 Total 9,660 $13,940 $18,300 $5,600 $54,299 These statistics are taken from the Springfield Republican. They all tell 164 NATURAL TAXATION. To State the case again in another form, the whole matter can be summed up by saying that it is impossible that any government can be necessary, which costs more than the ground rent of the district which is called upon to pay for it ; since that rent will always represent, to the fullest extent, not only all that such government is reason- ably worth to the inhabitants of that district, but also the full market value of all other advantages which they derive from human society, as it actually exists among them. Any pretended taxation which takes more from the people than this is extortion, not genuine taxation. the same story. Highways (including bridges), schools, and paupers account for two thirds to three fourths of all local expenses in these little townships. Taken altogether, highways cost 26^, schools 34;?, and paupers \o% of all town expenses ; making 70^ of the whole expended for purposes which ought to be provided for by State taxation, and kept under State control. In New York schools and paupers are already provided for by a general tax, and highways soon will be. Observe the large area and small population of most of these towns, es- pecially Alford, Savoy, Tyringham, Holland, Montgomery, and Westhamp- ton, which are devoted almost exclusively to farming, and where there are 130 to 190 acres for each family. Is it reasonable to cast the whole expense of highways through this large territory on such a sparse population ? Can we wonder that country roads are bad ? Of course a State tax would be levied on these towns, as well as upon others. But they would pay only according to the proportion which the value of their ground rents bore to those of the entire State. Their gross taxes would be reduced by at least 50per cent. That this result would follow, is conclusively shown by the experience of New York. While all counties are taxed, for State purposes, in proportion to the value of their real estate alone, the State repays to every one of the farming counties (being 40 out of the entire 60), for school purposes alone, more than the whole county contribution to the State tax. And, in addition, the State provides for all their paupers and insane free of county charge. The adoption of a natural and rational system of local taxation, combined with a proper distribution of expenses, would thus relieve the farming popu- lation in Massachusetts from one half of their present burdens. It maybe safely assumed that it would have the same effect in other commercial or manufacturing States. CHAPTER XI. Justice uf Natural Taxation. § I. A tax on taxation only. If the proposed method of taxation is not just, it is not natural. But if it is natural, it is just. To state the case is to demonstrate the justice of the tax. For what is here proposed is simply this : To tax the proceeds of taxation, and nothing else. For ground rent is taxation, and nothing else. The power to collect ground rent is a delegated power of taxation. Can anything be more just than for the State to draw its revenue from the proceeds of such taxation and from nothing else? § 2. Privilege of collection implies duty of pay- ment. The duty of providing for the whole support of government is indissolubly attached to the right of col- lecting ground rent. The landlord, as the only natural tax-gatherer, is also the only natural revenue-provider. Every man who buys the privilege of taxation assumes, by the very act, a proportionate share of the burden of government expenses. No lapse of time, no misconcep- tion of the situation, no unwise or excessive payment for the privilege can ever relieve him from this inherent obli- gation. The State may justly resume its rights, to this extent, at any moment, even if it has left them in abey- ance for ages. It ought not to demand compensation for the past ; because in the United States, at least, the past 165 1 66 NATURAL TAXATION. misappropriation of these taxes has taken place under the eyes and with the free consent of the people. But nothing has happened which deprives the State of a perfect right to demand performance of this duty for the future. The case would be entirely clear to every disinterested mind, if a simple power of levying taxation had in terms been granted to a private citizen. Thus, if the State of New York had granted to the first Astor and his heirs forever the right to exact an annual poll tax of one dollar per head from all inhabitants of the State, either without consideration or for a cash payment of one dollar for each inhabitant then living, nobody outside of the Astor family would hesitate about the matter. Much less, if the State had granted to the Astors the exclusive right to collect for their own use all the taxes which should ever be levied in any form whatever, would there be any doubt that the State would have both the legal and moral right to require the Astors to pay, out of the proceeds, all the necessary expenses of government. No judge would hesitate a moment to say that such a condition was im- plied in the original grant, notwithstanding any words to the contrary ; or else he would hold the grant utterly void, as beyond the power of any legislature. Yet this is exactly a parallel case. Nay, it is not too much to say that it is the very case in question. The State, in parcelling out the land within its borders among private owners, gave to them the whole power of taxation which, in the nature of things, could exist at the founda- tion of any State. For in any newly settled country there is absolutely nothing to tax, except the rental value of the land. § 3, Illustrations from American history. Of this fact, there have been repeated illustrations in the recent history of the United States. Within the memory of JUSTICE OF NATURAL TAXATION. l6y most living electors, Kansas, Nebraska, North Dakota, South Dakota, Colorado, Wyoming, Idaho, and Oklahoma have been opened for the first time to settlement. Prior to that time it was not lawful for any white man to take up a permanent residence within their limits ; they had no local government and no taxes. When such a territory was opened, its first need was some government. This was, as a matter of fact, provided by the United States, which were only partly reimbursed by taxation. But if this had not been done, what would have been the natural course of events? The people would have organized a provisional government, as they actually did in California in 1849. There were no houses, no barns, no improvements, no mortgages, no personal property fixed long enough in any one spot to be capable of assessment. What was there which could possibly have been taxed in the first week of territorial existence? Nothing, except the value of the land. Was that sufficient ? Let the experience of Oklahoma answer. Scores of thou- sands of people swarmed to the border, kept out by gov- ernment rifles until the hour struck at which they were allowed to enter. Then they rushed in at full speed, tear- ing their way like mad bulls — where ? To the land offices ; where they could purchase for a trifling sum the legal right to tax those who fell behind in the race. What was there then to tax? Nothing but the privilege of living on the best tracts of land. Not the farming dis- tricts, but the town lots were the prizes in view. These were what the federal officials seized for themselves. These were the rewards which tempted men to perjury and fraud, as well as to zeal and long self-denial. And what did the government find to tax at that moment? No houses; no chattels; nothing but the privilege of settling upon the land ; and from this it 1 68 NATURAL TAXATION. derived an immediate and large revenue ; although it threw away nine tenths of what it might have received, to be scrambled for by the owners of fast horses and by its own knavish servants, leaving the honest mass of settlers to pay tribute to the favored few, who swore that they meant to settle on the land, and knew that they were swearing to a lie. All the powers of local government were then turned over to the few thousand voters, who thus gained possesssion of the land, either direct from the federal government, for nothing, or from those who had forestalled them by speed or fraud, for a price. Still there was practically nothing to tax, except land values. The annual ground rents were amply sufficient to pay all the cost of government. But in the course of a year or two, other settlers drifted in. The landowners, being still in the majority, not only exacted in rent from the new- comers the full market value of the privilege of living in the territory, but further proceeded to shift as much of the burden of taxation from their own shoulders as they possibly could, by taxing personal property. Now is this the natural and sensible method of opening new territory ? Is there not a better way ? Would not common sense and science agree that the true policy of the nation would have been to say to all the proposing set- tlers : "Take this land. Charge what you please to new settlers, who wish to buy of you the privilege of living there. But out of the sums thus collected you must pay all the expenses of government, local and national. You shall not make your tenants pay the cost of government, in addition to the rent which they pay you for the mere privilege of living on the land which has been given you free of charge." Clearly, if there is anything unfair in such an arrangement, it is not unfair to the gratuitous grantees of the land. JUSTICE OF NATURAL TAXATION. 169 § 4. " Confiscation." It will be said, of course, that this method of taxation is mere " confiscation " ; and, to the minds of many, this will be a conclusive objection. It is to be regretted that the brilliant author of Progress and Poverty should have even once used this word ; thus seeming to identify the cause of equal taxation with apparent robbery and to confound justice with injustice. Although such may not have been its original meaning, yet by long usage " confiscation" is understood to mean a punishment for crime or moral incapacity. We are not at liberty to confiscate, in this sense, either land or its rent. But no question of confiscation arises in the case. If all the land belongs to all the people, if past generations had no power to alienate it from the control of the present, if its rent is now wrongfully withheld from the people, their taking the whole of it would be merely a just resumption of their own, not confiscation. And this is all which Henry George ever meant ; as page after page of his book clearly shows. It is not necessary, however, to discuss that question here. We are not inquiring into the wrongs of the past or even into the general rights of the people in the present. We are considering only the proper method of raising necessary revenue. § 5. " Class legislation." The only pretence for charging that this method is a measure of confiscation is founded upon the allegation that it is unjust to put the whole burden of taxation upon a single class. In the Hght of past history, during which the owners of land have used all their powers, with immense success, to get rid of all taxes upon themselves and to cast the whole burden upon the landless poor, their present remon- strances, sometimes pathetic, sometimes ferocious, against a reversal of their methods, are highly entertaining. I/O NATURAL TAXATION. Every tariff duty, every excise tax, every indirect tax bears witness to the persistent ingenuity with which the collectors of rent, the natural tax, have shifted the bur- dens of public taxation upon other shoulders. Not one dollar of our vast federal revenue is collected from rent. Nine tenths of it is collected from the comparatively poor. Great Britain has been hitherto governed by large landlords : America by small ones. Both alike have evaded the taxation of rent as much as possible. Both alike have never hesitated to ruin vast numbers of their fellow citizens, by sudden, arbitrary and disastrous changes in methods of taxation. Both alike have never dreamed of allowing the smallest compensation to the victims of their caprice. But, as only great landlords can make a profit out of such methods, British landlords have made themselves wealthy in this way ; while the mass of American land-owners have plundered themselves for the benefit of a few. § 6. Compensation. There is no precedent for the doc- trine that taxation must be spread over the whole com- munity, and still less for the novel claim that the State is bound to compensate taxpayers for the payment of taxes. When will any congress compensate Americans whose property was destroyed by changes in the tariff? Originally, all land was granted by the State upon the express or clearly implied condition that the grantee should provide for all the expenses of government. The land-owners gradually shifted the burden off their own shoulders, by new taxes on the non-voting population. But even they had not the audacity to make a perpetual covenant between themselves and the government which they controlled, for exemption from taxation. The plea of their successors is that, by long failure on the part of the people to demand their rights and the performance JUSTICE OF NATURAL TAXATION. I /I of the conditions upon which the land was granted, land- lords have been led to believe that such a demand would never be made ; that many of them have paid large prices for the privilege of charging rent, in the belief that rent would never be taxed ; and that it is unjust for the State to change its policy in this respect, without giving to them as much with one hand as it takes from them with the other. The argument is just as valid in favor of kings and nobles ; and it has been urged upon their behalf with equal sincerity. Down to 1788 French nobles were ex- empt from most taxes. Many men (like Beaumarchais) bought a title, partly for the sake of this exemption. The French Revolution swept away all these privileges, without a shred of compensation ; and all the world now says that this was perfectly right. But to an army of tax-eaters in those days it seemed monstrously wrong. The parallel is complete. § 7. Compensation for vested rights. The concen- tration of all taxes upon ground rents, if enacted at the foundation of a state, would obviously be simple justice. Why is it not equally just at any later period ? " Be- cause," it is said, " there have been many changes of ownership : vested rights have sprung up : new men have bought the land from the original owners, paying a much larger price than they would have paid if it had been understood that rent would be taxed. Heavy taxation will destroy the market value of the land ; and this would be robbery under the forms of law." What is this land value, which is so sacred that it must not be heavily taxed ? Nothing in the world except the value of a power, conferred upon individuals, to tax other individuals for the privilege of standing upon the earth. It is the only kind of property which cost the original 172 NATURAL TAXATION. owner nothing, in either wealth or labor. Every other form of property was called into being by honest human skill and labor, and was therefore fully paid for. Property in ground rents was, in every instance, originally acquired either by undertaking to bear the cost of government, as in feudal times, or by gift or theft, just as we have seen it acquired in Oklahoma. No doubt, thousands sacrificed much, in the pursuit of Oklahoma land, by hanging on the borders of the territory for weeks, waiting for the day upon which the gift was to be made. But by doing so they no more gave value for the land, than beggars give value for what they get, by standing hat in hand all day long. It is true that this power to levy taxes upon other men has been sold, over and over again, at increasing prices, and is now generally held by men who paid something of value for it. But what of that? The State never pledged itself to exempt this privilege from taxation, or to limit the amount to which it will be taken for public pur- poses; and no legislature has any moral right to do so. The present owners of the taxing power have boughf upon a speculation, and must take all the chances of speculation. Among those chances is the possibility that the State may call for no part of the tax collected under the name of rent, and, on the other hand, the possibility that it may call for nearly the whole of it. All other forms of property are bought on a similar speculation. Iron, steel, glass, crockery, tin plates, buttons, laces, whisky, apples, eggs, horses, cattle, mortgage bonds, bank stocks, railway shares, and hundreds of other things are bought and sold, with full knowledge that there may be sudden and vast changes in the rates of taxation upon them, made without notice, without the slightest scruple, and without even a thought of compensation to the many JUSTICE OF NATURAL TAXATION. 1 73 who suffer thereby. The tax on whisky was suddenly raised to 50 cents, then to $1, then to $2, then reduced to 50 cents, then raised again to 90, and all without the slight- est compensation to anybody. The tariff taxes were sud- denly increased 50 per cent, all around, in 1864, in one night, without notice and without a dream of compensa- tion. Why, then, this amazing and unexampled tenderness for speculators in the privilege of taxing their fellow men ? The answer is easy. Most of the losses arising from in- crease in other forms of taxation fall upon the masses of comparatively poor , because the burden of such taxes is shifted upon them. None of the loss arising from an in- crease of taxation upon ground rents would fall upon the poor ; because that burden cannot be shifted upon any- body. It is the old, old story. The right of the rich to plun- der the poor is a vested right, sacred, even in the eyes of the poor themselves, through long training in abject ser- vility. CHAPTER XII. Where the Burden Falls. § I. Incidence of taxation. No matter how neces- sary or beneficial it may be, taxation must always cast a burden upon some one. No matter how justly this bur- den may be distributed, it still falls somewhere ; and it is necessary that we should know where it falls. The great change from unnatural and unjust taxation to natural and just taxation cannot be made without increasing the bur- dens of some classes ; and every class will properly insist upon knowing how its interests will be affected. Let us therefore now inquire upon what classes the burden will be increased, and upon what classes it will be diminished. Or, in technical language, what will be the " incidence " of natural taxation ? It must never be forgotten, however, that the burdens of natural and of unnatural taxation are not the same. It has long ago been explained that the burdens imposed by the clumsy and corrupting methods of taxation, now in force, are twice or thrice as heavy as would be the necessary burdens of a natural system. But, as readers are sure to forget this, their attention will be recalled to it more fully at a later stage, when some results will appear which, for want of bearing this in mind, will seem at first incredible. In the United States, the three principal classes for consideration are wage-earners, farmers, and other land- owners. To some extent these different classes mingle together. But only a small minority of farmers work for 174 WHERE THE BURDEN FALLS. 175 wages (for of course farm laborers are not included under the head of farmers) ; and a vast majority of wage-earners own either no land or so little as to have no effect upon their interest in this question. A division of the people into these classes, however, would be very incomplete. There is a considerable num- ber of persons who do not work for mere daily wages or on farms and who own no land. The correct division would be into two classes, the land-owning and the land- less. But American traditions so closely identify farmers with land-owners that farmers, whether owning or hiring farms, must be set apart as a class by themselves, in any popular discussion of these subjects. The most conveni- ent arrangement, therefore, for practical purposes, seems to be to consider the interests of the people in three classes, not scientifically distinct, as follows : 1. The landless class. 2. The land-owners. 3. The farmers, whether owning or hiring land. § 2. Relative numbers of different classes. The rela- tive proportions of these classes were ascertained, for the first time, by the census of 1890. The whole number of families was 12,690,152 Families on farms 4,767,179 Other families 7,922,973 12,690,152 Families owning land 6,066,417 Families owning none 6,623,735 12,690, 152 Owners of unincumbered land 4,369,527 Owners of incumbered land 1,696,890 Owners of no land 6,623,735 12,690,152 Families owning land, free and clear 4,369,527 Families hiring or mortgaged 8,320,625 12,690,152 Male owners 5,019,659 Female owners . . .1,046,758 6,066,417 Male tenants 5,837,590 Female tenants 786,145 6,633,735 12,690,15a 176 NATURAL TAXATION. It is interesting to note the relative proportions in rural and urban districts. The census gives the figures separ- ately for farms, for towns of 8,000 to 100,000 inhabitants, and for cities of over 100,000. From these figures an ap- proximately correct table may be framed, under the heads of farms, villages, large towns, and cities, as follows : Land-owners. Landless. Total. Farms 3,142,746 1,849,700 629,092 444,879 1,624.433 2,374,860 1,120,487 1,503,955 4.767,179 Villages 4,224,560 Towns 1,749,579 Cities 1,948,834 Total 6,066,417 6,623,735 12,690,152 The number of adult male persons in the United States, in 1890, was returned at 16,940,311. The numbers " engaged in gainful occupations " — in other words, earning their own living — was returned at 22,736,229 ; of whom 19,32 1 ,700 were over 20 years of age. These figures show that more than half the heads of families, more than two thirds of the adult males, and over 70 per cent, of the persons earning their own living, belonged, in 1890, to the landless class. As practically all adult males are possible voters, it thus appears that more than two thirds of the voters are landless. Confining our views to the white voters, it appears that the number of white adult males was 15,199,856, while the number of white males owning the homes or farms in which they lived was 4,800,799. The landless whites, therefore, compose two thirds of the white voters. The possible colored voters numbered 1,740,455. Of these only 218,860 owned homes or farms, being almost exactly one eighth of the whole, and leaving seven eighths in the landless class. WHERE THE BURDEN FALLS. 1 77 § 3. The landless. The immense advantage which would be gained by the landless class, through the aboli- tion of all taxes, except upon ground rents, is of course obvious. It would relieve them from all the taxes which they now pay, together with all the burdens, incidentally resulting from the present methods of taxation, which now fall upon them. They would continue to pay rent ; but, while they now pay botJi rent and taxes, they would then pay rent alone. Nine tenths of the absolutely landless persons belong to what is, for want of a better name, usually called the laboring class. The abolition of all indirect taxation, it has already been shown, would increase the possible sav- ings of this class, fivefold {Ante, pp. 36, 37). Nothing need be added to what has been said on that subject. The landless class, as will be seen by reference to the figures last given, constitutes more than half of the fami- lies and more than two thirds of the self-supporting popu- lation. It includes a majority of the voters, even upon farms, two thirds of the voters in villages, three fourths of the voters in large towns, and nearly, if not quite, seven eighths of the voters in cities. § 4. The land-owners. It has already been shown that the concentration of all American taxes upon Ameri- can land-owners would not absorb half of their ground rents. But it would be a great mistake to assume that such taxation would absorb half of their whole income, or anything approaching to it. No allowance has thus far been made for the important fact that, considered as an entire class, t/ie owners of ground rents also ozvn all the buildings and other improvements upon their land, besides a much larger share of all personal property, in propor- tion to their number, than any other class of the commu- nity. All these things would be relieved from taxation 178 NATURAL TAXATION. under the system here proposed. ^// taxes on real estate and probably 75 per, cent, of the taxes on personal prop- erty are paid by land-owners.' They also pay at least their full share, in proportion to their numbers, of tariff and excise taxes, and of the burdens which indirectly flow from those taxes. As American land-owners constituted 48 per cent, of the heads of families in 1890, they will be released from 48 per cent, of those burdens, the amount of which was estimated, on a previous page, at $1,050,- 000,000 per annum. The local taxes on both real and personal property in 1890 amounted to $470,652,000. As real property con> stituted three fourths of all assessed values, its owners paid three fourths of these taxes ($352,989,000), three fourths of the taxes on personal property ($88,248,000), and 48 per cent, of the $1,050,000,000 burden, created by federal indirect taxation ($504,000,000). These were the burdens borne by real-estate owners, as a class, in 1890: all of which would, under the taxation of ground rents alone, be replaced by a single tax of $828,541,000. The effect of such a change in taxation, upon American owners of real estate, taken as an entire class, would be as follows : American real-estate owners paid, in 1890, under the present system of taxation : All local taxes on real estate $352,989,000 75 per cent, of local taxes on personal estate. 88,248,000 48 per cent, of federal taxes and burdens at- tendant thereon 504,000,000 $945,237,000 They would pay, if all taxes were concen- trated on ground rents : All local taxes $470,652,000 All federal taxes 357,889,000 828,541,000 Net reduction of burdens on real estate $1 16,696,000 ' Not more than one tenth of the persons who are not assessed for some land are ever assessed for any personal property, taking the whole country together. WHERE THE BURDEN FALLS. 1 79 § 5. An apparent impossibility explained. This con- clusion will, at first sight, seem impossible and perhaps absurd. " What ! " the incredulous reader will exclaim ; " do you expect us to believe that the concentration of all taxes upon real estate, whether including improve- ments or not, can possibly reduce the burdens of real estate owners ? The very idea is repugnant to common sense." Nevertheless, the idea is well within the range of com- mon sense. The hasty reader has forgotten that indirect taxes always involve enormous burdens in their train, not known as taxes, not collected for public use, not capable of accurate computation, but none the less real and heavy. These incidental burdens have been estimated, throughout this book, at $700,000,000 per annum. They include a large private profit, through enhanced prices, maintained by tariffs and excise laws ; and they also include a sum, quite as large, absolutely wasted, by keeping up prices on goods which, after all, do not afford an average profit to domestic producers. Land-owners as land-owners do not get the profit, and nobody gains by the waste. No doubt a small section of the land-owning class do get a large share of the profits arising from the monopo- lies fostered by protective tariffs and excise taxes. But more than nine tenths of the land-owners derive no bene- fit from these monopolies. All of them must pay their proportion of the taxes and private tribute, levied by laws creating monopolies ; but the profit accruing goes to those who can run the monopolies, whether they own or only hire land. Direct taxation would put an end to all such monopolis- tic profits and all the indirect effects of indirect taxation. Owners of land, who did not hold any share in tariff-bred or similar monopolies, would save, by substituting direct l8o NATURAL TAXATION. for indirect taxation, their share of the $700,cxx),ooo an- nually lost to the people at large in this way. And this saving more than outweighs all the additional taxation falling upon them, through the exemption of labor and personal property from taxes. Another reason is of even greater importance, and clears up the whole apparent mystery. These statistics show that, if all the land were owned by a class, on perfectly equal terms, in equal shares, they would «// gain by direct taxation. But they do not stand on an equal footing or own equal shares. On the contrary, it is now undisputed that more than 75 per cent, in value of all American real estate, including railways, is owned by less than 10 per cent, of the whole number of land-owners. Indeed, it is prac- tically undisputed that this amount is held by less than 5 per cent, of the whole number, and that half of all the value is held by one-hundredth of all owners. This fact immediately puts a new light upon the whole question. Accepting the far too conservative estimate that one tenth of all the owners, or 600,000 families, own three fourths of all the land, and constructing a table, showing the effect of the change in taxation upon them, we should reach very different results. These families, being much richer than the remain- ing 5,500,000, of course pay even now a much larger share of taxes of all kinds. Owning three fourths of all real estate, they must now pay three fourths of the taxes on that, or, in round numbers, $264,000,000. They doubt- less pay one fourth of all personal taxes, or $29,000,000. Their quota of federal taxes, etc., would be very much larger than that of the same number of small land-owners. It would not be less than $200,000,000. On the other hand, this class includes nearly all those persons who de- rive profit from tariffs, monopolies, and bounties ; all of WHERE THE BU/iDEAT FALLS. l8l which would be swept away by a natural system of taxa- tion. This class, as a whole, would suffer some loss. § 6. Where the burden would fall. But the Hne must be drawn still higher up. The profits of artificial monopo- lies and bounties are almost entirely divided among less than 50,000 land-owners. The remaining 6,000,000 get practically none of these profits. The line of division, therefore, must be drawn between the 50,000 families, which own at least 30 per cent, of all the land values of the United States, and the 6,000,000, who own the re- mainder. Allowing one half the burdens, indirectly resulting from tariffs and excise laws, to be mere waste, bringing no profit to anybody, still, in years of average prosperity, annual profits to the amount of $350,000,000 would re- main ; of which more than $300,000,000 go to the 50,000 largest land-owners. Let us now construct a table, showing the incidence of direct taxation upon The ^0,000 largest land-owners. They paid, in 1890 : 30^ of taxes on real estate $ro6, 000,000 ioJ< of " " personal estate 11,700,000 10^ of tariff, etc., taxes, profits, and waste 105,000,000 $222,700,000 They gained profits from the tariff, etc 300,000,000 Their net profits from the system of indirect taxation were 77,300,000 Under direct taxation, they would make no tariff profits, and would pay 30^^ of all taxes 249,000.000 Their net loss, from direct taxation $326, 300,000 This explanation makes it easy to understand how the vast majority of land-owners may actually gain by assum- 1 82 NATURAL TAXATION. ing the whole burden of direct taxation. By so doing, they get rid of paying a tribute of $350,000,000 to a small band of bounty-fed capitalists, and of an annual waste of $350,000,000 more. The loss of this tribute will fall en- tirely upon the few who depend upon unjust legislation for their profits. But the case, even of the afflicted 50,000, is not so bad as it at first seems. Let us review their whole situation. Possessing 30 per cent, of all real-estate values, they enjoy an annual rent, from land and building, of close upon $700,000,000. Their income from tariff profits and the like has been put at $300,000,000. They would lose by the adoption of direct taxation only three per cent, of their rents ; although they would lose, and ought to lose, the whole of the tribute which they levy upon their fellow citizens, by means of an abuse of the taxing power. The immense benefits which would be conferred upon the country, by the abolition of indirect taxation, would cer- tainly increase rent by much more than three per cent.; and thus even this small class would lose nothing but the illegitimate profits, which they make by an abuse of the taxing powers of the national government. Yet there must be some class which will lose absolutely by the concentration of taxes upon ground rents. There is. It is that small number of persons whose chief in- vestment is in vacant land, and whose chief occupation is keeping land out of use. § 7. The farmers. In Great Britain and Ireland, no one who speaks of farmers thinks of men who own farms. And, indeed, the very word " farmer " signifies properly one who hires land from another. But, while we in the United States continued to use this English word, the totally different circumstances of our early his- tory completely transformed its meaning. So vast a WHERE THE BURDEN FALLS. 1 83 majority of those who tilled American farms owned their farms, in fee simple, that the name of farmer has, for long generations, necessarily implied the ownership of a farm. But little more than twenty years ago one of the best informed Americans, addressing an assembly of learned and distinguished Europeans, declared that the number of American farmers who did not own their farms was so small as to be entirely unworthy of consideration in the discussion of social or political questions. This tradition still remains with us ; and it is so in- grained in our ideas that in all discussions of public ques- tions it is uniformly assumed, in good faith, that all American farmers are farm-owners. And no class appears to be more convinced of the truth of this assumption than farmers themselves. Indeed, so deeply rooted is this con- viction in all their habits of thought, that, so far as can be judged from the public utterances of their especial representatives, American farmers are unanimously of opinion, not only that they all own their farms, but that they own substantially all the land in America, except a few thousand acres in a few large cities. The inevitable consequence is that, in all discussions of taxation, the mass of American farmers take it for granted that every proposition to increase the share of taxation which falls upon the value of land is a proposition to in- crease their share of the public burdens ; and up to this time all tillers of the soil have voted, with almost absolute unanimity, against every such proposal and in favor of every measure which even pretends to increase the burdens of taxation on buildings, improvements, and personal property. The census of 1890 has struck a fatal blow to this il- lusion. It has demonstrated, as the figures now to be given will show, that more than one third of American 1 84 NATURAL TAXATION. farms are held by mere tenants (who are, almost always, tenants only from year to year), and that less than half of them are held by absolute owners, free of mortgage. The ofificial returns on this subject are as follows : Ownership and Hiring of Farms. Families owning, free 2,255,789 " " incumbered.... 886,957 3,142,746 Families hiring 1,624,433 Total 4,767,179 Families owning, free 2,255,789 Families hiring or mortgaged 2,511,390 4,767,179 § 8. Farmers as a political factor. In addition to the 1,600,000 landless farmers thus hiring farms, there must be taken into account fully 3,000,000 farm laborers, of voting age, who constitute part of the farming popula- tion, but who neither own nor hire farms. Thus the land- less farm-voters number at least 4,600,000 ; while the land- owning farmers number only 3,100,000. Assuming that each of them is a voter, or the wife of a voter, the farm- owners constitute less than one fifth of the voting popu- lation. The proportion of land values held by farmers shrinks when put to the test of statistics as much as does their numerical proportion. The same census returns the aggregate real value of farms at (in round numbers) $13,279,000,000, out of a total taxable real estate value of $46,000,000,000, including railroads, etc. As much more than one third of all farms are not owned by farmers, we must deduct at least one third from this farm value, in estimating the amount owned by farmers. This would leave them in possession of a value, in both land and its improvements, of about $8,800,000,000, or less than one WHERE THE BURDEN FALLS. 1 8$ fifth of the whole value of real estate, which closely cor- responds with their proportion of the population. The independent farmer, therefore, is a rapidly dimin- ishing factor in American politics. He has had almost supreme power in his hands, in the past ; and the result of his control of the government has been to put his class into a course of speedy extinction. Nevertheless, the interests of the farmers and farm-owners are entitled to full consideration ; and they shall have it here. They, or those who assume to represent them, are the most clam- orous opponents of intelligent and just taxation ; and wherever they have control, they strenuously maintain a system of indiscriminate hodge-podge taxation, with its inevitable accompaniment of more perjury and more fraud to each cent collected than is attached to the collection of a dollar under even moderately scientific methods of taxation. It has already been demonstrated, it is hoped, to the satisfaction of every intelligent reader, that the tax on personal property, to which the average farmer clings so tenaciously, only increases his share of taxes. But the effect of abolishing taxes upon buildings has been reserved, so far as the farmers' interest is concerned, for this place. § 9. Do farm-owners gain by taxing improvements on land ? The farmer is apt to cry out against what he calls the injustice of exempting from all taxation the magnificent buildings sometimes erected in cities, forget- ting that such buildings always stand upon the most ex- pensive land, while his own farm house and barns stand upon land of utterly insignificant value. In adjusting tax- ation, the only question of importance is as to the relative proportion which will be borne by differ etit classes ; and it is of no importance whatever that any single piece of property should pay much or little, provided all other 1 86 NATURAL TAXATION. properties of the same kind pay in exact proportion with it. A farm house, costing $1,500 to build, will stand upon a piece of land which, including the surrounding garden, on an ample scale, would not be worth more than $15. But an average city house, costing $10,000 to build, will stand upon a lot worth at least $5,000 ; while a warehouse, costing $50,000 to build, will frequently stand upon a lot worth $50,000. So far, therefore, as the mere value of land which is required for the purpose of supporting the house or build- ing of any kind is concerned, the farmer would gain largely by concentrating taxes upon that and exempting all buildings.' But he holds, in addition to the land upon which his house stands, a number of acres which he uses for farm- ing purposes ; and he assumes that these will be heavily taxed under a system of taxation upon land values alone, and that thus a larger proportion of the burden will be thrown upon him. This is an entire mistake. When buildings are exempt from taxation all other improve- ments on the land must also be exempted ; and the result of this would be to assess improved farm lands at no higher ' Some readers may wish to see this statement proved in detail. Taking the illustrations from the text, and supposing a tax of $1165 to be laid upon the three pieces of property mentioned, the result, under the present system, would be as follows : Farm house and land, $1515 ; city house and land, $15,000 ; warehouse and land, $100,000. Total, $116,515 ; tax rate, \%. Tax on the farm house, $15.15, on the city house, $150, on the warehouse, $1000. Under a system exempting all buildings and improvements, the assess- ment would be as follows : Farm land, $15 ; city land, $5000 ; warehouse land, $50,000. The gross tax remaining the same ($1165), it would be divided on a total assessment of only $55,015, requiring a tax rate of 2|^. The farm house owner would pay 32 cents ; the city house owner, $106 ; the warehouse owner, $1059. Reduction of farmer'' s tax, ()2> per cent. WHERE THE BURDEN FALLS. 187 value than perfectly wild, uncultivated land in the imme- diate vicinity. All fences, all growing crops, all improve- ments of every kind would be left out of account ; and land would be assessed only at the value which it would bring if it had been just swept clean by a prairie fire. Very little consideration is required to enable any one to see that under such a rule of assessment the taxes levied upon farms would be much less, in proportion to those levied upon town lots, than they are to-day, and that such a change in the methods of assessment and taxation would result in lessening the burden of farmers and farm owners. § 10. Proportion of improvements in farm values. As, however, this point is most obstinately disputed, and statistics are constantly brought forward which upon their face indicate that improvements upon farms bear a much smaller proportion to land values than is the case in cities, the question needs further consideration. For, while we ought not to be affected by the mere fact that farmers constitute so large a portion of the voters in the United States as to give them a controlling influence in the decision of tax reforms, especially in view of their total failure in the past to exercise that power for their own good, we ought to give great weight to any evidence that an apparent reform would increase their burdens. But the manifest tendency of wealth to concentrate in cities, the rapid rise in the value of city lands, and the stationary values of farm lands raise a strong presump- tion that land values bear a larger proportion to improve- ments in cities than in the country ; and we may well dis- trust the correctness of any figures which indicate the contrary. Improvements, moreover, are merely items of personal property, which have been fastened to the land ; and having seen that wealth in general flows into cities, l88 NATURAL TAXATION. ' we have good reason to doubt any statistics which seem to show that a disproportionate amount of one kind of personal property settles on farms. On the other hand, having seen that the taxation of movable chattels falls most heavily upon farmers, notwithstanding the universal expectation that it would not do so, we are prepared to find some similar miscalculation with respect to those im- movable chattels which are called improvements upon land. § II. The true test. Some assessments profess to separate the value of lands from the value of improve- ments. But it would seem, in all cases, that only build- ings are reckoned as improvements ; and it is certain that the value added to land, by drains, irrigation, and all the different forms of preparing land for cultivation, is never separately stated. It is true that much of this added value cannot now be distinguished, having been created so long ago that no estimate of it can fairly be made. But precisely the same thing is true of still more expen- sive improvements made in cities, paid for by local assess- ments in past years. Setting these aside, as balancing each other, farmers have a great advantage in certain uni- versal tests, of easy and almost uniform application. Al- most every farm has some land within its limits, or closely adjoining it, which is entirely unimproved, either never having been prepared for cultivation, or having lost all that had been done for that purpose. The value of this land will afford the proper measure for valuing the rest. The improved land should be estimated at no greater value than the unimproved. In the very few cases, in which every foot of ground in a farm is cultivated, the price which could be obtained for land taken out of an adjoining highway would afford as good a test. In the latter case due allowance would be made for the superior value attaching to such land, ove r the_re st of the farm, WHERE THE BURDEN FALLS. 1 89 by reason of its nearness to the road. The valuation would, in every case of farm assessments, be based on the market price of the land, as it would be if the soil had never been broken up or in any way prepared for use. The assessor would not inquire what was on the land fifty years before ; but he would look at the surrounding land, under present conditions ; and it would b.i his duty to reduce the valuation of land which had been broken up, plowed, fertilized, drained, cleared, and cultivated, to a level with other land, equally well or ill situated, for which nothing of the kind had been done. At the present time, it is understood that Western wild land, which may be had for $5 an acre in its original state, sells for $15 when even fairly prepared for farm- ing. A deduction of 66 per cent., therefore, would seem to be the lowest allowance required on this account. But this low rate is only applicable to land free from heavy stones, stumps of trees, and similar natural defects. The deduction to be made from the market value of lands which have been cleared from such defects, or which have been drained, irrigated or otherwise permanently improved, would be much greater. In Massachusetts cultivated farm land is worth, on an average, $55, while uncultivated but improvable land is worth only $15.' As a matter of course, no assessment would be made upon the transient increase of value arising from fertili- zation, plowing, growing crops, fruit trees, or anything of that kind. To this extent the principle has been recog- nized in the new Constitution of California, which directs that cultivated and uncultivated land shall be assessed alike. Upon the whole, it is safe to say that, under a system of valuation excluding all improvements, cultivated farms * See Appendix to this chapter, 190 NATURAL TAXATION. would be assessed at less than 40 per cent, of their whole value, improvements included.' § 12. Comparison of farms with cities. The case of cities stands in strong contrast. In no large city are buildings worth more than 50 per cent, of all real estate ; while in Boston they are valued even by assessors at only 40 per cent. As under the present system vacant land is uniformly assessed much lower, in proportion to its mar- ket price, than is land covered by buildings, it is evident that the bare land of cities is worth much more than 60 per cent, of their real estate. From this value there can be no such deduction as is proper in the case of farms. Cultivation, crops, and fences add nothing to the market price of city lots. The cost of roads and other public improvements has not been deducted from the assessable value of farms ; and therefore it must not be deducted from the value of city lots. If allowed in one instance, it must be allowed in the other ; and in the end it would make little or no difference in the relative burden of tax- ation. It is better, therefore, to make no allowance for it in either case. The result of a total exemption of improvements from taxation would thus appear to be a reduction of more than 50 per cent, in the taxable value of farms, and of less than 40 per cent, in the taxable value of cities. Of course, the reduction would be less in farms lying close to cities, and more in towns of small population, even though dignified with the titles of cities. Farms, when really held on spec- ulation as town lots, are not entitled to rank with farms : and villages are not made cities, by labelling them as such. Comparing real farms with real cities, the exemption of all personal property and improvements would reduce the taxation of farm owners in states having large towns by ' See Appendix to this chapter. WHERE THE BURDEN FALLS. 19I at least 30 per cent. For every $100 now paid by them they would then pay less than $70.' Nor is this all which the farm owner would gain. Under the present system, an enormous amount of land value, in the form of railway, telegraph, telephone, gas- light and electric light franchises, goes untaxed. Most of this is found in cities and towns. All this would be taxed at its proper value, under the system which would immediately spring up if personal property and improve- ments were exempted ; and the taxes thus collected would go in relief of farms. But this belongs to a later period of this discussion. § 13. The farmers' loss and gain. It having now been shown that taxes upon personal property and improvements of land bear more severely upon farmers than upon any other class of property owners in the United States, it only remains to give a summary state- ment of the general effect which the concentration of all taxes upon ground rents would have upon American farmers, taken as an entire class. Using round numbers, it has been shown that the total ground rent of the United States for 1890 was $1,380,- 000,000 ; the whole amount of taxes to be provided for was $828,000,000 ; the local taxes on real estate were $354,000,000, and on personal property, $1 17,000,000 ; the national taxes, all indirect, were $358,000,000 ; while the burden of private profit or of waste, caused by the na- ture of indirect taxes, was about $700,000,000 in 1880, and could not well be less in 1890. ' This may be verified by comparing the assessments of Hamilton County (Cincinnati) and Medina County, Ohio {Ante, p. 90). It will be found that if these two counties were assessed on land values alone, estimating them at 60 per cent, of real estate in the city and 50 per cent, in the coun- try, Medina's share would be fully 30 per cent, less than it is now. 192 NATURAL TAXATION. It will not make much difference whether the farmers' share of land values in the United States is estimated at more or less than 30 per cent., since their proportion of local taxation will vary in proportion thereto. But according to the census of 1890 the value of farms was less than 30 per cent, of the value of all taxable real estate and land privileges.' Farmers have never made any profit out of the higher prices caused by indirect taxation ; and therefore they have paid their share of all profit so made, without re- ceiving any part of it back. Since American farms constituted, in 1890, 30 percent, of all real estate, their owners must have paid at least 30 per cent, of the taxes on real estate. In fact they paid more ; because land franchises did not pay their share. It has been demonstrated that they have always paid more than their proper share of taxes on personal prop- erty ; and they have certainly paid at least one fourth of such taxes, taking the country at large. Indirect taxes are of course paid, not in proportion to wealth or income, but according to consumption. If farmers live as well as other people, they pay such taxes in proportion to their numbers, not their property. It may be assumed that they are more frugal than most other land-owners. But farm oziniers, who form one fourth of all families, live in much better style than do the great mass of landless people. They therefore pay at least one-fourth of all indirect taxes. We thus reach the conclusions now stated. American farm owners pay, under the present system of taxation : ' True value of all taxable real estate, over $46,000,000,000 ; of farms, $13,279,000,000. WHERE THE BURDEN FALLS. 1 93 30 % of taxes on real estate ($354,000,000) $106,200,000 25 % of taxes on personal property ($117,000,000) 29,250,000 25 % of indirect taxes and profits thereon ($1,050,000,000) 262,500,000 $397,950,000 They would pay under the system here proposed : 30 per cent, of all necessary taxes, with no indirect burdens attached ($828,000,000) $248,400,000 Reduction of Farmers' Taxes, through direct taxation $149,550,000 Thus the farmers would save much more than one third of their present tax burdens by the concentration of taxes on ground rents alone. § 14. Relief of farmers, without injustice to others. The question is naturally asked : " Since a certain sum must be raised, in any event, for the support of govern- ment, how can the burden of farmers as a class be light- ened, without increasing to the same extent the burden of cities and towns ? " Of course, the proposal to collect taxes from only one source implies that the burden is to be increased upon the class which controls that source. But the proposal is that the whole burden shall be placed upon the otvncrs of ground rents, including the franchises on land. Such owners form a very small minority of the residents of cities and towns ; and therefore a vast majority of such residents would not suffer any increase of burdens, through any amount of relief which might be given to farmers. Town people will always pay most of the rent of every highly civilized country. They pay no less rent when the farmers are taxed heavily than they would pay if the farmers were not taxed at all. There is no conflict of interest between those who live in cities and those who live on farms. But there is a great conflict 194 NATURAL TAXATION. of interest between those who own city land and those who own the farms. Under a single tax upon ground rents, farm owners, as a class, would not pay nearly so large a share of taxes as they do now ; because the value of their land is so much less than the value of city, town, and railway land. All that they would thus save would be cast upon the owners of city and town lots, or de- ducted from the excessive profits of monopolies. But the tenants of town property would gain fully as much as the owners of farms. APPENDIX TO CHAPTER XII. The census of Massachusetts for 18S5 (the latest published) gives a full statement of the assessed value of farm property, distinguishing between improved land, unimproved land, unimprovable land, and buildings. The writer is not aware of the existence of any other statistics of this kind worthy of the least confidence. But these are evidently prepared hon- estly and intelligently, although large allowance must of course be made for errors. This census showed the results of investigations into 45,010 separate farms or farm plots. On these " farms " (as it is most convenient to call them) there were 46,109 dwelling houses and 50,275 barns or other outbuildings. The average value of each farm was $2,459.47, of each house $1,009.76, and of each outbuilding $408.70. The real estate of all farms was classified as follows : Cultivated land. . . . 939,260 acres. . . .$59,891,808 Unimproved 1,479,454 " ... 24,719,798 Unimprovable 90,213 " .... 809,892 Woodland 1,389,502 " .... 25,279,209 Total lanil values $110,700,707 Buildings 74,418,218 Total value of land and buildings $185,118,925 The average value per acre, for the entire State, of farm lands without buildings, was, for cultivated land, $63.76; for WHERE THE BURDEN FALLS. 1 95 uncultivated, $16.26; for woodland, $18.17; for unimprovable, less than $9. But these values include land in cities, which of course was held for sale as town lots. Omitting land in cities, the average values were, for cultivated, $55.05; for un- cultivated, $15.15; for woodland, $17.46. Under the California rule, which would be followed under any system for the taxation of pure ground rents, the cultivated land would be assessed at no higher value than the other land. Assuming, however, that cultivated land is better situated than other land, and should therefore be valued about one third higher, say at $20 per acre, the total valuation of Massachusetts farm lands would have been, in 1885, about $69,594,100. This would have been the taxable value, instead of $185,118,925, which was the taxable value under the present system, so be- loved by Massachusetts farmers. The result of excepting all buildings and improvements from taxation would, therefore, be to reduce the assessment of farms 62 per cent. Or, to put it in the other way, farms would be assessed at only 38 per cent, of the present rate. Now let us compare the reduction in the farm assessments which would be made under the tax on ground rents alone, with the reduction which would be made in city assessments as re- turned in 1890. The proportion has remained the same, sub- stantially, for many years. Boston and Brookline (which are territorially one) were as- sessed for $386,735,775 in land and $263,181,500 in buildings. There is no deduction to be made in cities on account of the non-cultivation of land. The pure land value of Boston was, therefore, 59 J per cent, of all its real estate; and the reduction in its assessment would be only 40^ per cent., as compared with 62 on the farms. The reduction to farms would thus be 50 per cent greater than the reduction in Boston. In Lowell, Springfield, and Worcester, which have within their limits a good deal of farm land,' the value of land and buildings are ' Farm land in Lowell, 3478 acres out of a total of 5989 ; in Springfield. 13.277 out of 16,807 ! in Worcester, 18,249 o"t of 20,835. 196 NATURAL TAXATION. nearly equal. But even as against them, farms would have an advantage of 25 per cent, under the proposed system. If all the taxes of Massachusetts were collected from real estate and divided between Boston and the farms, the farms would pay 45 per cent, more, under the present system of taxing both land and improvements, than they would pay under a tax upon the value of land alone. No statement of the whole amount of personal property as- sessed upon Massachusetts farms alone is accessible. But by comparing three counties, Berkshire, Franklin, and Hampshire, in which the value of farms in 1885 constituted more than half the value of all real estate, with Suffolk County, in which farms constituted only the one hundred and twentieth part of real estate, we can reach a very fair conclusion as to the effect of the exemption of both personal property and im- provements. As we are compelled to compare the farm values of 1885 with the total assessments of 1890, there is no use in giving precise figures ; and round numbers will therefore be used. The assessed value of all property in Suffolk County was $85 1 ,000,000. In the three farming counties it was $9 1 ,000,000. If personal property and buildings had been exempted, and land had been assessed at its unimproved value, the assessment of Suffolk would have been $377,000,000, and that of the three farming counties would have been less than $22,000,000. Thus the assessment of Suffolk County (which is only another name for Boston) would have been reduced 56 per cent.; but the as- sessment of the farming counties would have been reduced 76 per cent. Assuming the rate of taxation to be i per cent, on the present valuation, Boston would pay, under the present system, $8,510,000, and the farming counties, $910,000. Under the reformed system, Boston would pay $8,900,000, while the farming counties would pay only $520,000. The burden upon farms would be lightened by 43 per cent., and yet the burden of Boston would be increased by less than 5 per cent. ; the State receiving precisely the same revenue, in any case. Or, to put WHERE THE BURDEN FALLS. 1 97 it the other way, Massachusetts farmers are paying 75 per cent. more of the State taxes, under the present system, than they would pay under a tax upon the unimproved value of land alone. And still the Massachusetts farmers are clamorously demand- ing the perpetuation and extension of the very system which makes their burdens heavier, and would almost lose their senses if their taxes were reduced 40 per cent, by a rational system of taxation. These statistics are taken from the Massachusetts " Census of agricultural products and property," for 1885, and the offi- cial " Aggregates of polls, property, and taxes," assessed in 1890. The census can be found in any good library. The other document can probably be obtained from the Secretary of State. After the foregoing pages were in type, it was suggested by a critic, worthy of the highest respect, that these differences in value might be mainly the result of differences in site, near- ness to markets, or inherent qualities of the land. But it will be found that this is not so. The Massachusetts census shows that about the same ratio of difference runs all through the State, in the towns nearest to markets as well as in those most distant, in the largest cities and in the smallest villages, on the hills and on the plains, where land is dear and where it is cheap. The allowance of twenty per cent, made above for the probable superiority of natural advantages possessed by cultivated land seems, upon close examination of the returns, to be ample. Taking the three counties in Massachusetts where farms are of greatest importance compared with other investments, we find the average value per acre of all farm real estate, includ- ing buildings, of cultivated land, of pasture land capable of cultivation, and of all unimproved land, to run as follows : Cultivated Pasture Unimproved Counties. Real Estate. Land. Land. Land. Berkshire $31 20 $38 87 $12 43 $11 19 Franklin 29 20 40 ig 9 00 9 00 Hampshire 34 70 39 32 10 50 9 65 198 NATURAL TAXATION. All land which is considered not worthy of improvement is excluded from pasture land. Yet it will be seen that, if im- provements of all kinds were excluded from assessment, the real estate of farms in Berkshire County would be assessed at only 40 per cent., in Franklin County at only 2>Z V^^ cent., and in Hampshire County at only 30 per cent, of the assessed value under the present system. All these counties are within easy reach of good markets, but Franklin and Hampshire are especially so. Berkshire, on the other hand, has a much larger number of summer visitors, who are good customers for the season. Selecting single towns, at the extremes of wealth, we find much the same results. In Berkshire County Stockbridge has the highest-priced land and Savoy the lowest-priced. In Stockbridge the average value of improved land is about $112 per acre, of unimproved land $49, and of land and buildings $118. In Savoy improved land is valued at about $7, land and buildings the same, and unimproved land at $2.87. Therefore, if assessments were made upon the value of unim- j)roved land only, farms in wealthy Stockbridge would be assessed at 41 per cent, of their present rate, and in poor Savoy precisely the same. The writer is well aware that statistics can be prepared from assessment rolls in other States showing apparently different results. He has carefully studied such returns from a dozen different States. If any of them had even pretended to give an extended statement of farm values, it should have been ana- lyzed here. But not one of them does this ; nor does one pre- tend to distinguish between buildings and other improvements. Almost without exception, they are admitted, by the officers is- suing them, to be worthless. In Nebraska, the auditor states that the assessments are only about 5 per cent, of true values. In Illi- nois, they are about 12 to 15 per cent. If there were any uni- formity in such undervaluations, the tables might still be useful; but there is none. These returns are simply monuments of the phenomenal incapacity or dishonesty of American assessors. CHAPTER XIII. Social Effects of Natural Taxation. § I. The effect in general. The adoption of a natu- ral, intelligent, and scientific system of taxation would bring about a just distribution of wealth, would give a perpetual stimulus to industry and production, would greatly increase wages, would increase the profits of capital, would give a security to property now un- known, would encourage manufactures, commerce, and agriculture, and would incidentally solve many social problems which under present conditions seem almost insoluble. It is hoped that as each branch of the inquiry has been discussed, it has appeared that each step towards this great but simple reform has been attended with the solu- tion of some diflficult problem. But others have been reserved for this final review. § 2. Stimulus to production. It must surely be evi- dent, without argument, that when all taxes are concen- trated upon ground rents alone, and when every piece of land is estimated for assessment at the amount for which it could be rented for present use, the tax constantly in- creasing, in exact proportion to any increase in the rental value of the land, it would generally be impossible to hold any land out of use for the purpose of speculation. The only exception would be cases in which it was so clearly desirable that the land should be preserved for 199 200 NATURAL TAXATION. future use, that its possessor could better afford to pay the tax out of his capital than to allow the land to be put to any present use which would spoil it for a more desira- ble future use. The pressure put upon the land-owner to make immediate and beneficial use of the land would, in most cases, be irresistible. The result, in all but a few exceptional cases, would be that all land, which any one cared to claim as owner, would be put into immediate use for productive purposes ; while a vast amount of land which is now held for pure speculation, would be aban- doned to the use of any one who was willing to pay the annual tax. Under such a system all land would be made useful, up to its full capacity. The possession of land would neces- sitate the constant employment of labor in its use and development ; and all who were unable or unwilling to use land to the best advantage of the community wc ild abandon it to those who were both able and willing. But this is only one of the many stimulants to produc- tion which are involved in reformed taxation. Think of the many other encouragements which industry would receive. Money and credit, free from all taxes, would crowd into the industrial field. Factories, mills, furnaces, foundries, workshops, stores, offices, machinery, tools, in- struments of production in every conceivable form, would all be free from taxes. The farmers' barns, crops, plows, tools and implements, his horses, cattle, sheep, materials and products of every kind, would be free of tax. His land could be drained, stubbed, subsoiled and improved to the highest point, without adding a dollar to his taxes. Commerce would be free as air. The farmer would buy in the cheapest market, and sell in the dearest. Monopoly could no longer hinder production. The only limit of production would be the limit of demand. SOCIAL EFFECTS OF NATURAL TAXATION. 20I § 3. Effect on wages. Using the term " wages " as including all forms of compensation for personal labor, it should seem clear that the great increase in production which would thus be brought about must greatly increase the demand for labor, and would therefore produce a general and permanent advance in wages. Nominal wages, expressed in terms of money, must ad- vance, because there would be an anxious demand for labor on the part of all land-owners. For without a con- stant supply of efificient labor, the annual tax could not be paid ; and then the land would fall into the hands of those who would extract from the land, either by their own labor or by the labor of others, a revenue suf^cient to pay the tax, with a profit. The increased demand for labor thus arising would, in any country large enough to make a rate of its own, largely increase the general rate of wages. That this is the invariable result, in all similar cases, has been abundantly proved by past experience. The opening of new land to labor has always tended to in- crease wages ; and under the proposed system of taxation there would be an enormous increase in the new land thus opened to labor, and therefore a corresponding increase in the reward of labor. The effect upon wages would be precisely that which would be produced by the discovery of a new continent of fertile and healthy land. Real wages (in other words, the real reward of labor) would be increased to a much greater extent than nominal wages. For while wages, expressed in forms of money, must rise, as already shown, prices of the good things which wages buy would fall, on account of the much greater production of such things, which would result from the immensely greater application of labor and capital to land. More than this, it having been already shown that the bulk of taxation is now borne by the wage- 202 NATURAL TAXATION. earners, and that the whole of this taxation would be taken off their shoulders by the new system, their real income would be practically increased by the full amount of this reduction of taxation ; the effect of which they would feel in a general reduction of the cost of living. § 4. Effect on money wages. The advance in money wages must, of necessity, be rather vaguely estimated. But long experience has furnished abundant means for trustworthy calculations. It is not at all necessary that there should be a demand for double the number of laborers, to double the rate of wages. A much smaller increase in the demand will suffice, so long as the supply of labor does not meet the demand. It having been shown that the taxation of ground rents would compel their owners to employ labor in producing something, out of which taxes could be paid, while the release of the great purchasing class from heavy tax- ation would enlarge their purchasing power, it follows that an immediate demand for labor would arise, in excess of the local supply. The degree to which wages would rise, in consequence of this demand, would largely depend upon the extent of the field over which the new system of taxa- tion was in force. The adoption of just taxation in a single county, or even in an entire State, would cause a great in- crease of production there ; but wages would be kept down, to a considerable degree, by the incoming of labor- ers from outside. § 5. Immigration and wages. But the adoption of just taxation, throughout the United States, would cause a rise in wages far too great to be repressed by foreign immigration. Laborers of all kinds have never yet come to America, in any one year, to the extent of even one twentieth part of the home supply. As the new arrivals furnish a market for nearly all that they earn, they do not, SOCIAL EFFECTS OF NA TURAL TAXA TION. 203 at the utmost, furnish an element of competition with native laborers in excess of one half of their earnings.' If, therefore, the average rate of American wages could be doubled, by causes having a permanent operation, immi- gration might continue at full tide, for many years, before it could seriously affect wages. The truth of this theory may be illustrated by the case of domestic servants. From various causes their average wages in the United States have much more than doubled since i860. Those who then received $6 a month could now readily earn $14, while living in much greater comfort and having much easier work. The immigration of women of this class has been enormous ; but it has never reduced wages. It may well be doubted whether it has even had any material influence in preventing a further advance. All the great advance in the wages of domestic servants has occurred since they began to arrive in great numbers. We may safely assume that any rise in wages which would result from a reform in taxation, extending over the whole or the larger portion of the United States, would be permanent, notwithstanding any probable amount of immigration. § 6. Amount of rise in wages. As the purchasing power of laborers would be increased at least 1 5 per cent, from the instant at which taxes were taken off their pur- chases, an increase of demand to that extent may be as- sumed as certain, subject to such reduction of demand as might be caused by the reduced profits of the not more than 5o,(X)0 families, who would suffer any loss of in- ' Thus, suppose 800,000 immigrants to arrive in one year, less than half of them would be competitors for wages. Suppose the 400,000 competing laborers to earn $400 each. They would spend $350 of this. Half of this would be paid in wages to other laborers, producing what the new-comers wanted. Even if the other half injuriously affected resident laborers, it would amount to less than one cent in each dollar of their annual wages. 204 NATURAL TAXATION, come through the new taxation. As their losses would not trench upon their usual fund for expenditure, their pur- chases would fall off only to a very moderate degree. An allowance of $3000 for each of these families would be ample. This would amount in all to $i 50,000,000, or not more than one tenth of the increase in the purchasing power of the other classes. After making large allowance for a saving dis- position among the poorer classes, under their new pros- perity, it is impossible to estimate the increase in purchases at less than ten per cent., or 1,000,000,000 per annum. It would probably be much more. On the other hand, the anxiety of land-owners to put their land to profitable use, the absolute release of all pro- ductive industry from burdens, shackles, and restrictions, the untaxed money, untaxed manufactures, untaxed com- merce, untaxed agriculture and untaxed credit would all combine to give a sudden and tremendous stimulus to industry. Production, for these reasons alone, could not fail to increase immensely. Adding this consideration to the other, the effective demand for labor could not fail to increase by more than one third ; and this would cause a rise in wages of fully lOO percent. §7. Effect on capital. Theownersof capital will natu- rally desire to know how their interests will be affected. Will not the doubling of wages diminish the profit of cap- ital ? No. On the contrary it will greatly increase that profit. In the first place, it must be remembered that ground rents are not capital. Correctly speaking, they are not even true wealth. They are mere taxes upon wealth — in- struments by which tribute can be exacted from wealth. We are now considering only genuine capital — true wealth, employed in the reproduction of wealth. In the next place, capital necessarily depends for its SOCIAL EFFECTS OF NATURAL TAXATION. 20$ profit upon a large demand for its productions. Modern capitalists are fully aware that great gains can never come from small transactions, no matter how large the profit on each transaction may be. Sales of $1,000,000 at a profit of 50 per cent, are of small account, compared with sales of $100,000,000 at a profit of 5 per cent. The number of those who live without their own labor is and must be al- ways and everywhere so small, compared with the vast mass of mankind, as to afford an insignificant market for the enormous production of modern industry. The vast majority, who labor with their own hands, furnish the only market worthy of consideration for modern capital. This great majority always spend the larger part of their earnings ; and they would continue to do so, even if their earnings were doubled or trebled. The doubling of their wages means, therefore, the doubling of the market for the joint production of labor and capital. It means the doubling of the gross profit of capital. This would not be true of a similar increase of income to any other class. The owners of rent would not double their pur- chases, if rent were doubled. They would put much of their surplus into capital, competing with capital already invested. This might be good for others than capitalists. Yet, unless it brought about an increase of wages, it would not increase the demand for goods ; and so it would not increase the profit of capital. An increase of wealth, in the hands of the few, leads to increased wastefulness in the nature of their expenditures. Their outlay does not reproduce capital. The outlay of the working classes does. Not only does their food renew their vigor, but even their amusements, when intelligently directed, greatly increase their productive power and energy. High wages lead not only to cheap production, but also to a vast in- 2o6 NATURAL TAXATION. crease of production. They also lead immediately to a corresponding increase of the market for such produc- tions. There is no conflict of interest between labor and capi- tal ; although there are many conflicts of interest between individual laborers and individual capitalists. The lifting of all taxation from labor and capital will benefit both. § 8. Absolute security of property. When taxation is levied exclusively upon ground rent every man will have, for the first time in human history, an absolute and inde- feasible title to all of his property which is the produc- tion of human skill and industry, subject only to the right of the state to take it, upon making full compensation for its value. Such compensation would enable the owner to replace the property thus taken with other property of the same description and value. This general right of the state is practically no limitation upon the absolute right to individual property. It is perfectly plain that no one has any such right at present, and that no one can have it, under any existing system of taxation. For, so long as the state assumes the right to tax any thing besides rent, it is impossible for any man to retain the entire fruits of his own industry. Every year the state will deduct something from those fruits, under the name of taxation ; and no one can ever foresee precisely how much will be taken in this manner. The fluctuations, both in the amounts and methods of such taxes, are so great and incalculable, that no one can have any reasonable certainty as to the extent to which his earnings will be secure against the demands of the state. But if taxes were once confined strictly to ground rent, all this would be changed. Chattels of every description would of course be absolutely secure ; since the only rem- edy which would be allowed to the state for the coUec- SOCIAL EFFECTS OF NATURAL TAXATION. 20/ tion of taxes would be a sale of some exclusive privilege on land. But buildings and all other improvements on land would be equally secure against all taking without compensation. This is not at first sight so clear ; and it needs, therefore, fuller explanation. § 9. Improvements paid for on tax sales. The exclusive tax upon ground rent would lose its entire character if the state were allowed, under any pretence, to collect it from personal property or improvements. It is a fundamental condition of such a tax that it be collected only out of rent. It must, therefore, when payment is refused, be collected only by selling the control of the taxed land to some person, who will not only pay the tax, but will also pay to the landholder, thus sold out, the full value of all his improvements. If no one will pay the tax, subject to those conditions, that is conclusive proof that the tax is too high, and that it is in reality based upon an assessment including other values than the mere value of the land. The purchaser in such case would, of course, take the land, subject to the annual liability for taxes ; but he would also acquire the same absolute title to improvements which the previous pos- sessor had ; so that he, in turn, could not be sold out for taxes without full compensation for improvements. Thus no one would ever pay taxes upon the value of any other property than the bare land. Universal experience has demonstrated that there would not be the slightest difficulty in carrying such a system into practical operation. This system has long been in operation, upon a great scale, both in public and private affairs. Wherever ferry franchises belong to a munici- pality, as in the city of New York, such franchises are sold at auction, at intervals of five or ten years, always subject to two conditions : first, the payment of rent to 208 NATURAL TAXATION. the municipality; and second, the payment of full com- pensation to the former holder of the franchises, for boats, piers, houses, and all other structures and materials used in operating the ferry. Street railroad franchises are sold in the same manner, for terms of years, by every Jionest municipal body having control of the subject.' So land- lords constantly lease their land for terms of years, to men who erect expensive buildings thereon ; the landlords covenanting to pay the value of such improvements upon the expiration of the lease. There is no more difficulty in providing for an annual sale of land, if necessary, sub- ject to these conditions, than there is in providing for a sale in every five, ten, or twenty years. A ferry franchise is just as much a title to " land," within the meaning of law, science and common sense, as is any other land title whatever." Of course the valuation of improvements would be made upon a common-sense basis. The land-owner, upon making default in taxes, would be entitled to just as much compensation for his buildings as those buildings really added to the market value of the land on which they were built, but no more. If, as often happens, an expensive building had been put up in a district where it could never be of any use, nothing should be allowed for it be- yond the value of its materials, after it had been pulled down. But for any really useful building, compensation would be allowed, sufficient to enable the owner to put up a similar building, in similar condition, upon an adjoining tract of land. In short, whatever loss the owner of the ' The conception of a really incorruptible city council will seem, to most American readers, too wildly improbable for the basis of even a theory. But effete Europe is so far behind us, in the grand march of civilization, that such Utopian bodies are quite common there ; and the method of the text is common also. * Benson v. New York, lo Barbour, 223. 233. SOCIAL EFFECTS OF NA TURAL TAXA TION. 209 building incurred, by reason of his own mistakes or ex- travagance, he would be left to bear ; but whatever value belonged to the building, exclusive of the land under- neath it, he would invariably be allowed to retain. § 10. The railway problem. This is no place for even a full statement of the great railway problem, with its almost endless branches. Much less will an attempt be here made to give it a complete solution. All that will be attempted is to suggest the close connection between this complicated problem and the simple one of taxation. It is by no means so clear as it seems to those who suffer from them, that high railway rates are actually unjust. That which is unjust in such cases is generally the fact that the large profits made upon such transac- tions are in the nature of rent, and equitably belong to the whole community. All attempts to correct this apparent injustice have thus far failed ; and it may be worthy of inquiry whether this failure is not caused by some unrecognized justice in the system complained of. May it not be, that the wrong consists, not in the differen- tial rates, but in the failure of the government to collect any part of these differences for public use? Are not many of the evils complained of due to inflated nominal values and fictitious securities? That such is the general opinion, is strongly indicated by the stringent prohibition of fictitious stocks and bonds, in the new constitutions of Illinois, Pennsylvania, and other States, as well as in the statutes of still more. But if this opin- ion is well founded, the concentration of taxes upon land privileges, including railway franchises, will practically settle that question, by taking a very large part of such inflated values for public use. The complete separation between the ownership of the road and the ownership of moving stock, proposed by 2IO NATURAL TAXATION. Mr. Hudson, ' would seem to cover all the remaining ground. Under the one natural tax, the owners of the road would be taxed in proportion to the value of its franchise ; but the owners of rolling stock would not be taxed at all. All persons and corporations could operate trains upon the road, subject to general rules. If the people of any place were charged too much for the car- riage of their persons or property, they could put their own trains upon the road, on equal terms with all others. This was the original railway idea ; and it has been aban- doned, not because it is really impracticable, as railway managers pretend, but because it is less profitable to railway companies than the monopoly which is created by the present system. § II. Just taxation the remedy for unjust appropria- tion. The proposal of a method of just scientific, and natural taxation is so simple and unpretending, that eager social reformers cannot believe it possible that it can carry with it any cure for the evils of our time. They point to the unequal distribution of wealth, the growth and powers of monopolies, the watered stocks and bonds, the bribe- bought franchises, the usurped privileges, the stolen lands, the wholesale appropriation of public property to private use ; and they ask how it can be possible that " a mere fis- cal reform " can bring relief from any of these evils. Yet it can. No great upheaval of society is needed. No social re-organization is required. No general state assumption of the machinery of production is either necessary or desirable. It is continually but erroneously denied that the enor- mous fortunes of the present day are due to land monop- oly or to methods of taxation. Fortunes of considerable > Th* RailvMys and the RtpubUc, SOCIAL EFFECTS OF NA TURAL TAX A TION. 2 1 1 extent are gained by skill and genius ; and there is no good reason why such fortunes should not be encouraged. Bessemer, Edison, Bell and other inventors have deserved wealth ; and the capitalists, who made their inventions possible and forced them upon public attention, deserve it too. But all the unwieldy fortunes, and all which have had an undesirable origin, owe their existence to some form of monopoly, which could not have existed under the natural system of taxation. The enormous wealth of British dukes and of our own — or lately our own — Astors, is of course due entirely to the comparative exemption of ground rents from taxa- tion. But all the excess of wealth gained by railway kings, above a liberal compensation for shrewdness, sagacity, and foresight, is due to precisely the same cause. It has been shown that the chief value of railways con- sists in exclusive and peculiar privileges upon land ; and the greatest part of this value arises from its compar- ative exemption from taxation. The great monopolies, which have grown with such startling rapidity, into such overshadowing power, owe all their wealth and power to their manipulation of rail- ways and of duties on imports. Under natural taxation there would be no import duties to manipulate; and rail- ways could not afford to be manipulated. § 12. " Watered stocks." Let us pass to the consid- eration of the inflated stocks and bonds, which are made the excuse for extortion. What can taxation do with them ? The answer is so plain that one wonders at the question. Even without the adoption of the full reform here proposed, the change of a few lines in the tax laws would put a speedy end to these abuses. If all corporate securities were made subject to the general tax rate, at their full nominal value, the " water " would be let out of 212 NATURAL TAXATION. them within three months. " Yet show I unto you a more excellent way." Stock inflation does not really enable railways to charge high rates. The Erie line cannot charge more on through traffic than the Central. And, upon the whole, those who use railways do not pay more than the service is worth. The real evil is that a very great part of the value of such service consists in the use of the land over which the rail- way runs, that this portion belongs to the public, and that hardly any of it is taken, as it ought to be, for public use. The proper remedy is not to give service to those who use the railways, for less than it is worth, but to use the same share of the value of railway land for public pur- poses, as in the case of other lands. When this is done, the entire people will receive through relief from other taxation their share of the value which they have given to the railways. And, at the same time, it will become impossible for railway companies to maintain inflated stocks and bonds ; because to do so would be to invite greater taxation than they could bear. § 13. Corrupt grants. So as to bribe-bought fran- chises. It would be quite unnecessary to rescind them. It would only be necessary to tax them on the basis of their true value, which is pure ground rent. Thus American street railroads, which generally owe their franchises to the grossest corruption, and which charge fares of five or ten cents for a service which costs less than half that sum, need not be interfered with. Under a proper system of taxation, it would make little differ- ence whether the fares were reduced or not. If the fares were reduced to three cents, ground rents would be in- creased, and the city would derive greater revenue from its taxes on those rents. If the fares remain unchanged, the value of the railroad franchise would be so much SOCIAL EFFECTS OF NATURAL TAXATION. 213 greater, and the tax upon that would be greater in pro- portion. It would make little difference, even to those who travelled in the cars. If the fares were reduced, the travellers would have to pay more rent for their homes. Thus they would contribute as much to the public funds in one way as in the other. At first sight it would seem that the redress thus ob- tained would be very inadequate. But it would not. Of course, no past wrong can be entirely obliterated. No scheme of social reform seriously proposes to secure com- pensation for all the past. The world does not contain wealth enough to pay damages for all past injuries. But the taxation of all franchises, on the basis of their present fair market value, with the concentration of all taxes upon ground rents, of which these are a part, would take for the public benefit all that the public could have secured, under the most honest and impartial sale of such fran- chises. It will also tax those corporations which obtained their grants for nothing, just so much more than it will tax those which paid a fair price. § 14. Taxation the best remedy for past corruption. For these franchises could not, upon the average, have been originally sold for more than they would now pay under such taxation. If they had been sold at auction, for a sum in cash, free of taxation, they would never have brought a sum which, however well invested, would pro- duce an income equal to the average annual tax. If new franchises should be sold, free of taxation, to the highest bidder for an annual payment, that payment, in the long run, would rarely, if ever, equal the taxes which would be paid under this system. Therefore it would be better, in the long run, to give these franchises to the corpora- tions which will give the best security for the best and cheapest public service, than to sell them to the highest 214 NATURAL TAXATION. bidder, either for a single or an annual payment. Indeed, to sell them for a single present payment is obviously a bad method. It confines competition to a very few men of great wealth, depriving the municipality of the better service, which less wealthy but more energetic men would probably render ; it cripples the operation of the fran- chise by impairing the capital of the managers ; and it pours into the public treasury a large sum, which cannot be well invested, and which is an almost irresistible temptation to extravagance and waste. And those corporations which have obtained valuable franchises for nothing, except bribes, will necessarily be taxed more heavily than those which are already subject to an annual payment. Thus the Broadway Railroad, in New York city, is subject to an annual payment of $40,- 000. The real annual value of its franchise (obtained by paying aldermen $20,000 each) is so much more than $400,000, that this figure may be taken, as an extremely moderate one. Assuming that to be correct, the taxable value of this franchise would be reduced to $360,000, by this liability to an annual payment. If another charter, equally valuable, should be granted in a parallel street, for nothing, its taxable value would be the full $400,000. Supposing half of such values to be taken by taxation, half the amount gained by bribery would be recovered. Under the present system, every conceivable method for recovering the loss sustained by the commu- nity through such schemes of corruption has been tried, without the slightest success. Even if the adoption of just taxation should only recover half of a just compensa- tion for the franchises corruptly given away, that is a thousand times more than has ever yet been recovered, and ten times more than ever can be recovered in any other way. SOCIAL EFFECTS OF NA TURAL TAX A TION. 2 I 5 § 15. Usurped lands. Take the case of usurped or stolen lands. In Great Britain, the lords of the manor, having had control of Parliament for centuries, have stolen vast quantities of land from the people, under the forms of law. In the United States, vast tracts of land have been taken up, under forged grants or under per- jured testimony. Spanish grants are a by-word ; and the homestead law has been perverted into the most success- ful scheme for buying government land at a fourth of its value, which could have been devised. It ought to be entitled : " An Act to prohibit the purchase of land by honest men, and to encourage monopoly and perjury." Railroad lands, to the amount of hundreds of millions of acres, have been obtained for nothing, except a few beg- garly bribes to Congressmen and State legislators, amount- ing in all to less than a ten thousandth part of the market value. What then? Shall we sue in the courts for relief? None could be had, without laying down rules of law, which would be ruinous to innocent purchasers, all over the land. Shall we pass confiscatory laws? The Constitution forbids ; and if it did not, our own consciences would revolt at the idea. There is no possible relief in that direction. Great Britain has no written constitution ; and her Par- liament has unlimited power. Shall Parliament direct the confiscation of the old common lands ? Shall it under- take to reclaim literal possession of " the land for the people"? Let us not waste time in discussing the ques- tion on moral grounds. Rightly or wrongly, the moral sense of the people would revolt at such a proposition. And if it did not, yet the immense complications involved in awarding compensation for improvements would break down the whole project. It is not worth while to in- quire into the abstract morality of an utterly impractica- ble scheme. Sl6 NATURAL TAXATION. But, in Great Britain and America alike, the adoption of a just, natural, and uniform method of taxation would give an immediate remedy. Without confiscation, with- out violence, without any social upheaval, it would take for public use about half of the revenue thus misappro- priated, which is no more than ought to be taken, in any case ; while it is far more than can ever be obtained in any other way. "The best remedy for injustice is simple justice." § l6. Reform in government. By this time, it is hoped, the attentive reader will have begun to see that the adoption of natural taxation leads, by an easy course, to reform in all methods of government and the abolition of corruption in public office, by removing most induce- ments to corruption. It would nearly extirpate the bribery of legislatures and councils, by leaving nothing for any one to gain by offering bribes. Not absolutely, of course. It cannot be too often repeated, that nothing in this world is or ever will be perfect. But this reform in taxation would remove most of the present inducements to brib- ery, falsehood and fraud in public affairs. § 17. Abolition of fraud and bribery in tax matters. The most prolific sources of these evils are directly connected with bad methods of taxation. Every change in laws imposing taxes upon commodities, either by a tariff or by excises, affects so many private interests that all parties agree in charging wholesale bribery and corruption upon each other, and none seriously claim to be innocent. This branch of the subject has already been sufficiently treated. The innumerable frauds and perju- ries which arise out of the taxation of personal property have also been referred to. All these abominations would disappear, with the acceptance of natural taxation. No- body would be required to make any return of his wealth; SOCIAL EFFECTS OF NATURAL TAXATION. 21/ and no attention would be paid to it, if he made any. There would be but one thing to be taxed ; and its value would be ascertained by independent investigation. Valu- ations of land might be compared with the rents actually paid ; but those rents would be learned by inquiry among tenants, not among landlords. Large land-owners might attempt to bribe assessors, as they do now. But the value of land is so easily determined, that other land- owners could be provided with an ample remedy, in an application to the courts to make assessments just and uniform. § i8. Special local assessments dispensed with. The complex system of special assessments for local improvements, which is indispensable under all existing methods of taxation, with its allowance for *' better- ments," to use a current English term, would become unnecessary. All improvements could be made at the common expense ; because whatever improvement might thus be made in the value of adjoining property would all be an increase in the value of the mere land ; and this addition would lead at once to a permanent increase in the tax upon that land, to a proportionate amount. Such assessments have always been a fertile source of injustice, inequality, and fraud. They are, inevitably, largely based upon guesswork ; whereas the subsequent taxation would be measured by actual, known values. §19. Bribery made unprofitable. The -most appalling developments of crime in American government, how- ever, have taken place with regard to the grants of special privileges on land, especially to railway, gas, electric light, and similar companies. The notorious robbery of the United States by the Union Pacific and Central Pacific companies, to an amount exceeding $100,000,000, is only one of many instances, although the most prominent one. 2l8 NATURAL TAXATION. The repeated purchase of the Broadway Railroad fran- chise from corrupt aldermen and legislators, repeatedly set aside by the courts, has attracted more attention than hundreds of similar crimes. But every street railroad franchise in New York has certainly been procured in precisely the same way ; and probably every such railroad in the country, the franchise of which was worth anything, was chartered upon similar terms. Gas companies, elec- tric light companies and steam heating companies, all pay heavy bribes for permission to lay their pipes or wires in city streets. The taxation of all these franchises, at their full value, on the same basis with other privileges over land, would make it impossible to obtain them for nothing. No bar- gains with aldermen could relieve them from paying hand- somely for their annual value. There would no longer be an eager crowd of bribe-offerers ; and therefore the crowd of bribe-takers would cease to buy their way into munici- pal government. The bribes offered to aldermen would be too small to repay the aldermen's bribes to their electors. Such franchises would be generally given to those who would accept them on terms most favorable to the public, with respect to low charges, good accommoda- tion, and faithful service. No money would be paid, either to the municipality or to the aldermen ; for taxes would have to be paid ; and they would automatically increase, as the value of the franchises increased. § 20. The tenement house problem. The rapid increase of low-class tenement houses in large American cities, especially in New York, has excited the just anxiety and alarm of our most thoughtful citizens. Many plans of restriction and regulation are urged. They all aim at results which are eminently desirable. But they all in- volve large expenses, which must be finally borne, under SOCIAL EFFECTS OF NATURAL TAXATION. 219 our present methods of taxation, by the very tenants whose extreme and degrading poverty is the very cause of the difficulty. It is perfectly true that such houses do not afford sufficient space and air to sustain health. It is often true that they do not furnish accommodations neces- sary to maintain decency ; although much has been done of late years to improve them and to keep them under careful inspection. But every good thing is costly; and who is to pay the cost ? If the landlord is forced by law to provide better accommodations, he must charge more rent for the house ; and it has been already shown that he can, in the long run, compel the payment of such addi- tional rent ; because, if he could not, no more tenement houses would be built until tenants were able and willing to pay a fair rate of interest upon all the cost of building such houses, including all compulsory improvements. Or suppose that the cost of such improvements is paid by the government. The expense would be paid out of taxes. Who would pay the taxes ? A full share would fall upon these very houses ; and, as the cost of such improvements when made by the city would be far greater than it would be if they were made by the land- lord, the probability is that the tax upon the class of houses thus State-repaired would be nearly as great as the cost of private repair would be. Be it more or less, this tax must be finally paid by the tenants. And in this event, a large share of the tax would fall upon other buildings, occupied by a class but little less poor than the occupants of tenement houses ; and thus they would be dragged down into actual poverty. The next result would be that the tenement dwellers would be so impoverished by the increase of their rents, as to deprive them of some portion of the food or cloth- ing, which t'hey had with difficulty managed to provide 220 NATURAL TAXATION. under the original rent. All of them would suffer inconvenience ; most of them would suffer actual priva- tion ; their earning power would be reduced ; and many of them would be driven out altogether, by the bidding of other tenants, who had previously occupied houses or parts of houses of a slightly higher grade, which they had been compelled to give up by the pressure of taxation, or which, while they were much better than the tenements had been before tenements were reformed, were no better than the reformed and improved tenements. Any compulsory improvements of this kind must in- evitably make the lot of the lower class — the " residuum," as it is called — harder than ever. As usual, it will be said that " this is all theory." Un- fortunately it is a theory which was never much thought of, until practical experience called attention to it. The dwellings of the poor have been torn down and rebuilt with improvements, upon a large scale, in Paris, London, Berlin and other cities, and always with precisely these results. Those who occupied the old, condemned build- ings did not return to the new ones. They simply could not afford it. Their places were taken by others, who had always occupied rather better homes, and who were driven by increased taxation to descend a step in the social scale, finding in the new dwellings, homes not quite equal to their old abodes, but much better and more ex- pensive than the buildings which had been destroyed as unhabitable. The " residuum " were driven into more de- graded conditions than those under which they previously lived. § 21. Its solution. Must we then abandon all hope of improvement in the homes of the poor? Not at all. While insisting upon renovations and necessary improve- ments, let us remove all taxes from houses. This will SOCIAL EFFECTS OF NATURAL TAXATION. 221 make houses more abundant ; this will make house rents cheaper ; this will enable house owners to furnish necessary improvements, without increasing rents or losing interest on their investments. Let us work out an illustration. Twenty thousand dollars is a reasonable estimate for the price of many tenement houses in New York ; half for the house and half for the land. Houses being usually assessed for 70 per cent, of their full value, the house, as distinguished from the land, would be assessed at $7000, and taxed, at present rates, $133. If this tax were taken off, repre- senting, as it does, a capital of about $2600, the owner could afford to spend $2000 on improvements without raising the rent, and yet make a profit. Competition with other house owners would eventually compel him either to spend about as much or else to reduce his charge for the house by more than $100 a year. Legislation might hasten his action or require him to make the improve- ments, instead of lowering his rent. In either case the tenants' condition would be greatly improved. Without deciding that no other reform is necessary or desirable, it is at least demonstrated by long and wide experience that no permanent and complete reform of the tenement house is possible, without first abolishing all taxes on buildings. § 22. Summary of conclusions. The adoption of natural taxation would obviously relieve the great mass of the people from all taxes and tax-burdens whatever, except rent ; which they now pay, in addition to taxes. It would put an end to that artificial concentration of wealth in the hands of a few, which is now making such rapid progress. While leaving natural inequalities in human skill, in- telligence, industry, and productive power to produce their 222 NATURAL TAXATION. natural effects, in moderate inequalities of wealth, it would gradually remove those unnatural and monstrous inequali- ties which now exist, with no benefit to any one and with vast injury to society as a whole. It would put a premium upon improvement and in- dustry, by relieving them from double taxation ; while it would lay such burdens upon mere " dogs in the manger," as would drive them into productive industry. It would secure to the owner of every product of human industry and skill an absolute and indefeasible title to such property ; so that it could not be taken from him, even for taxes, without full compensation for its market value ; a title, therefore, far superior to any which can now be held by any human being. It would increase the demand for human labor in the production of good things for human use, to the utmost possible limit ; thus causing a general rise in wages of at least 50 per cent, and more probably 100 per cent. It would relieve wages from all present forms of taxa- tion ; thus increasing the net income of laborers, at once and forever, by at least 15 per cent. more. Whether "times" were good or bad, wages high or low, the net income of every laborer would always be «/ /