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NATIONAL 
 CONFERENCE 
 
 ON 
 
 TAXATION 
 
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 Nation^ttCivicItoeration 
 
 Held at 
 
 HISTORICAL SOCIETY HALL 
 BUFFALO, N. Y. 
 
 Thursday and Friday, May 2^^24 
 
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NATIONAL Conference 
 ON Taxation 
 
 Under the Auspices of the 
 
 NATIONAL CIVIC FEDERATION 
 
 HELD AT 
 
 Historical Society Hall 
 
 BUFFALO, N. Y. 
 
 Thursday and Friday, May 23 and 24, 1901 
 

CALL FOR CONFERENCE ON TAXATION BY 
 THE NATIONAL CIVIC FEDERATION. 
 
 For some years the dissatisfaction with our methods of taxation, both State 
 and local, has been growing apace. We have been so long accustomed to a system 
 which was suited to the early conditions of our American life, that we are only 
 slowly awakening to its shortcomings in the light of modern business activity. 
 Industry has overstepped the boundaries of any one State, and commercial 
 interests are no longer confined to merely local lines. Corporate activity has 
 largely changed the character of personal property and individual investments. 
 
 The problem of just taxation is no longer a local problem. It cannot be 
 solved without considering the mutual relations of contiguous States and locali- 
 ties. An unequal tax on the farmer in one State may make it difficult for him 
 to sell his products in the world markets. An unjust tax upon the manufacturer 
 or business man may drive him out of the business; an unfair tax on the 
 corporation may cause it to move to another State. Action by any one common- 
 wealth evidently reacts upon its neighbor. 
 
 The time has come for those dissatisfied with the spasmodic and make-shift 
 efforts at reform in some States to consider the problems involved from the 
 higher standpoints of principle and of mutual co-operation. We, therefore, join 
 in the call of the National Civic Federation for a conference at Buffalo, N. Y., 
 May 23d and 24th, of the friends of tax reform from the various States in the 
 hope that it may formulate some ideas which will tend toward more uniformity 
 and interstate comity. 
 
 Among the questions pressing for solution and which will be considered at 
 this Conference are the following: 
 
 First — The interstate taxation of quasi-public corporations. 
 
 Second — The taxation of personal property. 
 
 Third — The taxation of mortgages. 
 
 Fourth — The separation of State and local revenues. 
 
 Fifth — The taxation of the farmer. 
 
 Sixth — The equitable assessment of real property. 
 
 Seventh — The inheritance tax. 
 
 Eighth — Taxation of corporations. 
 
 Ninth — The franchise tax. 
 
 Tenth — The income tax. 
 
 All of these subjects must be considered not in and of themselves, but also 
 in relation to the complications of interstate taxation. 
 
 T. Jefferson' Coolidge, late member Massachusetts Commission on Taxation. 
 
 Charles S. Hamlin, President Anti-double Taxation League of Massa- 
 chusetts. 
 
 William H. Lincoln, President Boston Chamber of Commerce. 
 
 George G. Crocker, President Boston Transit Commission. 
 
 F. W. Taussig, late member Massachusetts Commission on Taxation. 
 
 114324 
 
George E. McNeil, late labor representative Massachusetts Tax Commis- 
 sion. 
 
 Richard H. Dana, ex-President Taxation League, Boston. 
 
 George F. Seward, Chairman Committee on Taxation, Chamber of Com- 
 merce. 
 
 Oscar S. Straus, President New York Board of Trade and Transportation. 
 
 William F. King, President Merchants' Association. 
 
 Julian T. Davies, President New York Tax Reform Association. 
 
 Charles S. Fairchild, President New York Security and Trust Company. 
 
 Edwin R. A. Seligman, head of Department Political Economy, University 
 of Columbia. 
 
 J. Harsen Rhodes, late President New York Savings Banks Association. 
 
 John F. Doyle, President New York Real Estate Board of Brokers. 
 
 Lawson Purdy, Secretary New York Tax League, New York. 
 
 Martin Murphy, President of Workingmens' Federation of the State of 
 New York. 
 
 Elijah Kennedy, fire insurance. New York. 
 
 Foster M. Voorhees, Governor of New Jersey. 
 
 Mahlon Pitney, President State Senate, New Jersey. » 
 
 W. R. Tucker, Secretary and Treasurer National Board of Trade, Phila- 
 delphia. 
 
 William E. English, President Commercial Club, Indianapolis. 
 
 Samuel Mather, manufacturer, Cleveland, Ohio. 
 
 Richard T. Ely, head of Department Political Economy, University of 
 Wisconsin. 
 
 J. Sloat Fassett (late State Senator, New York). 
 
 Thos. G. Hayes, Mayor of Baltimore. 
 
 Henry C. Adams, head of Department Political Economy, University of 
 Michigan. 
 
 C. C. Plehn, head of Department Political Economy, University of Cali- 
 fornia. 
 
 Aaron Jones, Grand Master National Grange, Indiana. 
 
 James R. Garfield, Chairman Ohio Senate Committee on Taxation. 
 
 Frederick N. Judson, Attorney, St. Louis, Mo. 
 
 John M. Stahl, Secretary Farmers' National Congress. 
 
 Lawrence Y. Sherman, Speaker Illinois House of Representatives. 
 
 Fred. W. Upham, President Chicago Taxing Board of Reviews. 
 
 Henry K. Boyer, Superintendent United States Mint, Philadelphia. 
 
 D. A. Hayes, Vice-President American Federation of Labor, Philadelphia. 
 William Wirt Howe, ex-President National Bar Association, New Orleans. 
 George R. Peck, General Counsel Milwaukee and St, Paul Railroad, Chicago. 
 F. P. Crandon, Tax Commissioner, Chicago Northwestern R. R., Chicago. 
 Theodore Marburg, Vice-President American Economic Association, Bah 
 
 timore. 
 
 T. B. Ne.\l, President Chamber of Commerce, Atlanta, Ga. 
 
 P. I. BoNEBRAKE, President Central National Bank, Topeka, Kan. 
 
 Dudley Wooten, late Chairman Committee on Taxation, Texas Legislature. 
 
 Max Adler, President Chamber of Commerce, New Haven, Conn. 
 
 S. A. Harris, President National Bank of Commerce, Minneapolis. 
 
 George Gaither, Jr., late Attorney-General, Maryland. 
 
PROCEEDINGS 
 
 OF THE 
 
 NATIONAL CONFERENCE ON 
 TAXATION 
 
 UNDER THE AUSPICES OF THE 
 
 NATIONAL CIVIC FEDERATION 
 
 HISTORICAL SOCIETY HALL, BUFFALO, N. Y. 
 
 May 2.3, 1901. 
 
 Mr. Edwin R. A. Seligman: Gentlemen of the Conference, as Chairman 
 of the Committee on Program I have the honor of calling the Conference 
 to order, and of suggesting that the Chairman of this session should be Hon. 
 Frederick N. Judson, of St. Louis, Mo. All those in favor of having Mr.* 
 Judson act as Chairman of this session to-day will signify it by the usual sign. 
 
 Mr. Judson was unanimously chosen as Chairman, and responded as 
 follows : 
 
 I feel highly honored in being requested to preside over such a representa- 
 tive gathering of American citizens, called to consider what to my mind is the 
 gravest problem free people can be called upon to solve. We are honored by 
 the presence of the Mayor of Buffalo, Mayor Diehl, who will give you an 
 address of welcome. 
 
 Mayor Diehl : Mr. President and Gentlemen, I extend to you the City 
 of Buffalo's most hearty welcome. The City of Buffalo feels highly honored 
 in having this Convention held here at this time to consider these important 
 subjects. I believe if this Convention succeeds in its aim, if its objects are 
 carried out, equalization of taxation and other kindred subjects connected 
 therewith, it will do more to make the United States great than any other 
 factor. Of this you gentlemen must be as well aware as I am. Every paper 
 in every State has daily some article in regard to taxation in its different 
 aspects. Now, we look to you to suggest some method for the equalization 
 of taxation ; and I am sure you gentlemen will succeed. I can see by your 
 faces that you mean business, and you are going to suggest something to the 
 country at large that they will appreciate and attempt to carry out. Now, 
 gentlemen, you have important business and you are going to work hard, but 
 I believe all work and no play will fit as well with business men as with 
 boys ; therefore I suggest to you after you have worked hard to take in part 
 of our city. I will not refer to the Pan-American. You all know about that, 
 yourselves, but we can show you a city here second to none, with our two 
 hundred and fifty miles of asphalt, with our great river front, with our lake 
 front and our harbor. You can see at our harbor a breakwater that very few 
 people have ever seen — the largest breakwater in the world. The good Gov- 
 
6 THE NATIONAL CIVIC FEDERATION. 
 
 crnmcnt has been kind enough to put a breakwater there about four miles long, 
 giving us a harbor and facilities that are interesting aside from the business 
 capacities, which are the main thing. 
 
 Gentlemen, my best wishes, in tendering you the freedom of the city, 
 which I trust you may all enjoy to the fullest capacity consistent with your 
 work. 
 
 The Chairman : Gentlemen, I am requested by the Committee to announce 
 for the general information of the Conference that the program contem- 
 plates, so far as they have been able to arrange it at this hour, meetings during 
 the coming three days and two sessions daily. It is proposed, if that meets 
 the wishes of the Conference, that the sessions be held during the day, so that 
 members can have the evenings for taking in attractions which Buffalo has to 
 offer us. The papers will, when read, be open for discussion. It has been 
 suggested by the Committee that in order to facilitate the time of the Conven- 
 tion or Conference, the subject of taxation being so far-reaching and involving 
 so many questions, that the discussion be limited to the different topics pre- 
 sented in the different papers. It is also suggested, with a view of giving an 
 opportunity of having as many as possible participate in the discussion, that 
 speeches be limited to five minutes. It is hoped that these suggestions will 
 meet the approval of the members. 
 
 For this morning I will state that we will have an introductory address 
 by Professor Seligman, and a paper by the Hon. J. R. Garfield, of Ohio, and 
 one by Dr. West, of Washington. This afternoon, so far as the program 
 is outlined, we will take up the different subjects connected with the taxation 
 of corporations and of public franchises. To-morrow morning the subject 
 especially assigned will be tlie taxation of mortgages, and with that we will 
 take up other topics as they will naturally occur to you. 
 
 Gentlemen, I have now the honor to introduce to you a gentleman whose 
 name is known all over the country and all over the world in the cause of 
 economic science, Professor Seligman, of Columbia University, New York: 
 
 INTRODUCTORY ADDRESS. 
 
 BY EDWIN R. A. SELIGMAN, 
 
 Professor of Political Economy and Finance, Columbia University. 
 
 The calling of this — the First National Conference on Taxation— is a matter 
 of the highest significance. It shows that the national conscience has been 
 awakened and that the whole country is now permeated by the conviction that 
 we are confronted by a grave problem. Why should this be so? What are 
 the causes of the existence of this problem? 
 ] The causes may, I think, be summed up under three heads: Increase of 
 
 1 burden, economic changes and inequality of pressure. In the first place, the 
 ^ burdens of taxation are now being felt. The growth of democracy has brought 
 with it new conceptions as to the duty and function of government. Expendi- 
 tures which would have appalled our fathers seem to us reasonable and necessary. 
 To hope to remove the problem of taxation by cutting down expenditures is 
 vain. Economy we must, indeed, have, but not parsimony. The ideal of expen- 
 diture is not to spend little, but to spend well. Savages spend little or nothing, 
 but are none the less savages. Democracy must spend much — will spend ever 
 more — but it should spend intelligently. With the growth of civilization, 
 
NATIONAL CONFERENCE ON TAXATION. 7 
 
 expenditures must increase. The burden of taxation necessarily becomes 
 heavier. The population of New York City to-day is about the same as that 
 of the entire country at the beginning of the present government. Yet whereas 
 New York spends about one hundred millions a year, the expenditures of the 
 United States began at four millions, and even during the first decade of its 
 existence under the present Constitution averaged only about eight millions a 
 year. In the Federal Government whereas since 1790 the population has 
 increased twenty-fold— from four millions to eighty millions— the expenditure ( 
 has increased one hundred and fifty-fold, from four millions to six hun- t 
 dred millions. In state and local finance the figures are still more striking. \ 
 New York State spent in 1796 less than $150,000; it spent in 1900 about twenty- 
 five millions, or one hundred and sixty-six times as much. New York City 
 spent in 1800, with a population of 60,000 souls, a little over $100,000. By 1900 
 its population had increased sixty times, but its expenditures had increased one 
 thousand times. The burdens are beginning to be felt. 
 
 The second cause is the economic transition to be referred to in a moment, 
 and which has brought about a growing differentiation of classes; and the 
 third reason is inequality of pressure, which because of this increase of burden 
 and this differentiation of classes, has been accentuated Many a man may be 
 willing to pay his own taxes ; but none is willing to pay another man's taxes. 
 The practical inequality of taxation, more than anything else, is responsible 
 for the feeling which has led to this Conference. 
 
 Let us see, then, in what the problem consists. It must be understood at the 
 outset that we are not assembled to deal, except in passing, with national taxa- 
 tion. The Federal fiscal system is relatively simple and its principles are fairly 
 well understood. We may agree or disagree on the policy of the customs 
 duties — but the question of a protective versus a revenue tarifif involves a wider 
 economic and political controversy which cannot be settled simply from the 
 point of view cf finance and taxation. We may like or dislike the precise 
 character of our indirect internal revenue taxation. But the system as it has 
 been elaborated has caused no widespread discontent, and seems to respond fairly 
 well to the sentiment of the community. The only point that might be urged is 
 that of the income tax. Under the existing conditions of our Supreme Court, 
 however, the income tax is not a practical question; nor could it become so, 
 under any possible constitutional changes, without being in the closest relation 
 with the whole system of State and local finance. 
 
 The real problems, thus, with which we are called upon to deal are those 
 of State and local taxation. They are the important problems for three reasons : 
 First, because the local burdens greatly transcend in importance those of the 
 nation ; secondly, because our local taxes are primarily direct taxes and are thus 
 consciously felt by the citizens; thirdly, because the questions of principle are 
 far more delicate and complicated. 
 
 In attacking these problems, the chief consideration is the close connection 
 between economics and finance, between industrial conditions and fiscal institu 
 tions. To those who have not given a careful study to the question, it may 
 come as a surprise to be told of the inevitable dependence of methods 
 taxation upon general economic conditions. Yet it is a well-established scienti 
 generalization that every change in the economic structure of society brings 
 with it an alteration in the methods of taxation. A history of taxation through- 
 out the world is really a history of economic transitions. At these times of 
 transition, however, the fiscal methods always lag behind the economic facts. If 
 
 \ 
 
 ay\ 
 of 
 
 fief 
 
8 THE NATIONAL CIVIC FEDERATION. 
 
 we wait long enough, the fiscal methods will finally adjust themselves to the 
 new facts; but in the meantime there is a misfit, with all its attendant discom- 
 forts. The#function of the statesman is to accelerate this process; is to change 
 the old methods as wisely but as speedily as possible so as to adjust them to 
 the new conditions and thus to prevent the misfit from growing intolerable. We 
 are here to deliberate whether we cannot educate the public mind to a realization 
 of the misfit. 
 
 It will be asked, however, what are these economic changes which call 
 for an alteration of fiscal methods? The changes which have taken place during 
 the past few decades are three in number— first the transition from the agricul- 
 tural to the industrial stage, second the growth of corporate enterprise, third 
 the broadening of the market and the disappearance of State lines in business 
 activity. 
 
 First, the transition to the industrial stage. For many decades our country 
 was an agricultural community. Differences of wealth were slight, and what 
 capital existed was invested either in land or in the commercial enterprises con- 
 nected with the marketing of the raw produce. Manufacturing industry was 
 confined to relatively unimportant articles, and played an insignificant role in 
 the national economy. To-day all that is being changed and the United States 
 is fast becoming an industrial nation on a huge scale. Fiscal methods instituted 
 for a simple and primitive farming community are manifestly unfit for the 
 complex conditions of a modern and highly differentiated industrial society. 
 
 Secondly, the growth of corporate enterprise. Business corporations are a 
 modern institution. In former times associations, whether of a corporate or of 
 a joint stock character, were found only in exceptional cases, like the East India 
 Company or the Bank of England. With us it was not until about 1850 that 
 corporate activity assumed any importance at all. Just as individuals were then 
 replaced by unions of individuals, so now, whether we like it or not, small 
 corporations are being replaced by unions of corporations into huge enterprises 
 that are popularly called trusts. Property to-day is coming to an ever-increasing 
 degree to take the shape of corporate securities and trust certificates. The 
 simpler methods of older days no longer suffice. 
 
 Thirdly, and above all, industry is no longer confined to merely local limits. 
 Commercial interests have overstepped the boundaries of any one commonwealth. 
 An unequal tax on the farmer in one State may make it difficult for him to sell 
 his product in the world market. An unjust tax upon the manufacturer or 
 business man may drive him out of the business in that State; an unfair tax 
 on the corporation may cause it to move to another State. Action by any one 
 commonwealth inevitably reacts upon its neighbor. Business has become 
 national; and even international; fiscal methods framed on the old assumption 
 that business is local are bound to create injustice and disatisfaction. 
 
 One note of warning, however, must be sounded. When we speak of 
 economic transitions, we must remember that our country constitutes a huge 
 empire whose sections are still in varying stages of economic progress. Missis- 
 sippi is vastly different from Massachusetts ; South Dakota is not the same as 
 /Pennsylvania. A system of taxation may still work fairly well for an agricul- 
 ,' tural community and may be entirely unsuited for its mdustrial neighbor. Yet 
 even here it must be remembered that in Mississippi and South Dakota, as well 
 as in Massachusetts and Pennsylvania, we find the railroad, the telegraph, the 
 electric Ijght, and the bank — i.e., some of the agencies of a complex modern 
 society in the midst of a new and pioneer, or still primitive, economic community. 
 
NATIONAL CONFERENCE ON TAXATION. 9 
 
 Thus, in so far as certain, economic institutions are common to the whole 
 country, the problem is everywhere the same ; in so far as other economic condi- 
 tions are fundamentally dissimilar, the problem itself is different. 
 
 Let us now apply these considerations to the practical questions. Every- / 
 where in this country the chief reliance for revenue is the general property tax. I 
 There is no doubt that in most respects this responds in theory to the ideal of 
 the community. That a man should pay according to his ability, and that his 
 ability may justly be measured by his property, seems to most people fair and 
 equitable. The difficulty arises when we attempt to realize this ideal amid the 
 complications of modern society. So far as property consists in real estate,^ 
 indeed, no one raises any fundamental objection. Yet even here there are 
 minor difficulties, which often become of considerable practical importance. 
 The unequal assessment of real estate which sometimes assumes the proportions 
 of a scandal, is above all due to the mad race of the local assessors to diminish 
 the obligation of the country to the State by keeping down the nominal valuation. 
 The separation of State from local revenues, the selection of different sources of 
 income for each, of which I trust you will hear nluch more, is the one avenue 
 of escape, which is even now being sought for by our most progressive common- 
 wealths. 
 
 It is about personal property, however, that the chief controversy rages.fv 
 The change from the tangible personalty of an earlier stage to the intangible - 
 personalty of modern society has resulted in the gradual disappearance of per- 
 sonal property from the tax lists. Who can help sympathizing with the farmers?. 
 Their personalty is tangible, and they thus pay not only their own share but that 
 of the others as well. But although we sympathize with their complaints, can we 
 approve of their remedy? The attempt to enforce the taxation of intangible 
 personalty has been tried again and again. Its only result has been to produce 
 not revenue, but dishonesty. The enforcement of the personal property tax is 
 converting us more and more into a nation of perjurers. 
 
 Moreover, the idea that it is necessary to tax all kinds of property to 
 reach the property o\yner rests on the widespread delusion that to pay a tax 
 is to bear its burden. What is needed is a study of the incidence of taxation. 
 We tax cigars, and we know, indeed, that the tax is shifted to the smoker. 
 We tax mortgages, but we forget that the tax although levied on the mortgagee 
 is always ultimately borne by the mortgagor. What is true of mortgages is 
 true of many other kinds of personal property. If there is any science of taxa- 
 tion, it rests upon the study of the real effects. Nowhere is it truer than in the 
 domain of taxation that there is a great difference between "what is seen and 
 what is unseen." 
 
 But if the personal property tax is unworkable and practically inequitable, 
 is there not a method of reaching the owner of personalty in an indirect manner? 
 Here again our foremost commonwealths are pointing out the way. If you 
 cannot reach the personalty of a living man, you can reach that of a dead man. 
 If you cannot reach the intangible property of the security holder you can reach 
 the corporation which issues the security. We shall, I trust, hear much of the 
 inheritance tax. I pass it by with a simple mention that here also are important 
 questions to be solved: Shall the inheritance tax apply to realty as well as to 
 personalty? Shall it apply to direct relatives, as well as to collaterals? Shall 
 the rate be proportional or progressive? and, finally, shall the Federal Govern- 
 ment continue, as it now does, to interfere with one of the growing resources of 
 the commonv/ealths? 
 
 /> 
 
lo THE NATIONAL CIVIC FEDERATION. 
 
 With the corporation tax we come to the knottiest part of the subject. How 
 to make the corporation pay its share of the taxes, and yet not to burden it 
 unduly, is the question of questions. Here the difficulties seem to be multiplied. 
 ^To mention only a few of the points: What is the franchise of a corporation, 
 and how shall it be estimated? Shall earning capacity or other criteria form the 
 test of taxable ability? Shall we seek a method of assessment which even 
 though only roughly approximate, is certain, or a method which while more 
 subtle and delicate, involves arbitrariness? Shall all corporations be treated 
 alike, or shall different classes be taxed at different rates? Shall pure business 
 corporations be exempted or favored? Shall foreign and domestic corporations 
 be assessed in the same way? Shall interstate corporations be treated according 
 to a uniform rule? These are only a few of the points on which light must be 
 thrown before we can even approach a satisfactory solution of the problem. 
 
 And, finally, even though we may come to some understanding as to the 
 principles and practice of the inheritance tax and the corporation tax, we are 
 still confronted by the question whether some additional substitutes for the 
 decaying personal property tax must not be provided. We must study the 
 question of business taxation in general, and conclude how far a tax on the 
 business man is really a tax on the purchaser; and how far the license system 
 of the Southern States is to be regarded as a model or a warning. We must 
 investigate the problem of the occupation tax, and decide as to how far a tax 
 on the residence occupied by the city man may be considered a fair evidence 
 of his ability to contribute to the local burdens. 
 
 Let us approach the problem in a spirit not of fanaticism, but of fairness. 
 Let us be prepared to look not only on the surface, but on the hidden currents 
 and the deeper forces. Let us recognize the fact that taxation is both a scien- 
 tific and a very practical problem, and that any system which is to give enduring 
 satisfaction must be at once in harmony with the principles of economic science 
 and in accord with the feelings of justice in the average man. In a democracy 
 like ours no reform can be a lasting one unless it responds to the sense of 
 equity in the mass of the voters. 
 
 Hence the heavy responsibility upon the leaders of thought and of action in 
 educating the public in so abstruse and so difficult a field as that of taxation. 
 May this interchange of opinions conduce to the clearing up of ideas. May 
 this meeting of the North and the South, of the East and the West bring about 
 a dissemination of knowledge and a better understanding. May the labors of 
 this Conference be crowned with success and lead to a permanent organization 
 which will keep before each one of our States the larger aspects of the problem- 
 and thus hasten the time when interstate comity and agreement will take the 
 place of the present distrust and suspicion, when the actual spasmodic and make- 
 shift efforts at reform will give way to a movement based on the higher stand- 
 points of sound principle and mutual co-operation. 
 
 The Chairman : Gentlemen, I think you will agree with me that the 
 very comprehensive character of the interesting and exhaustive paper to which 
 we have just listened, suggests that discussion would perhaps better be deferred 
 until the specific subjects which have been thus treated have been presented. 
 If this meets with the approval of the meeting I will proceed with the 
 program, 
 
 Mr. Purdy: I beg to call your attention to the fact that we are at present 
 without a Secretary. I move that Mr. Ralph M. Easley be elected as the 
 Secretary of this Conference. 
 
NATIONAL CONFERENCE ON TAXATION, i, 
 
 The motion was duly seconded. 
 
 The Chairman put the question on the motion and the same was unani- 
 mously carried. 
 
 The Chairman: It is one of the most interesting phases of the taxation 
 question that it interests men of radically different pursuits in life. It interests 
 the economists, of whom you have just heard a distinguished representative, 
 who are especially qualified to present to us the economic justice and the 
 scientific problem involved. But questions of taxation equally interest the 
 profession to which I belong— the lawyers, for it is our business to aid in 
 enforcing the law and in protecting our clients against unjust applications of 
 the law. 
 
 I have the honor to introduce to you a representative of the lawyers who 
 takes an interest in the subject of taxation, a gentleman who bears an hon- 
 ored American name at the bar of Ohio, and who has represented that State 
 in the Legislature. I take pleasure in introducing to you Hon. James R. Gar- 
 field, of Cleveland, Ohio. 
 
 LISTING AND VALUATION. 
 
 BY JAMES RUDOLPH GARFIELD. 
 
 Mr. Garfield: Mr. Chairman and Gentlemen, whatever may be the system 
 of taxation adopted, and upon whatever theory that system may be based, the 
 fundamental, practical part of that system, and upon which must depend its 
 success or failure is the listing of the property and its valuation— that is, the 
 placing of the property upon the bill-book in order that it may bear its share 
 of the taxes levied. The existing methods of listing and taxation are divided 
 into two general heads — that is, one where the listing is done and the valuation 
 placed by an Assessor or Board, and the other where the listing is done and 
 the valuation placed by the taxpayer himself. We may now consider these two 
 systems : 
 
 Whatever may be the system of taxation or whatsoever kind of property 
 may be made the subject of taxation, the fundamental practical question is: How 
 shall the system be carried into effect and the property placed upon the duplicate 
 at its proper valuation. 
 
 The existing methods of listing and valuation are divided into two general 
 classes: First, the personal return of amount and value by the taxpayer; 
 second, the assessment of value by a public officer or board. Originally, these 
 different methods were applied to two different kinds of property; the first 
 applicable to personal property; the second to real estate. In a community 
 where life was simple and homogeneous, the results could be and were a fairly 
 uniform valuation; but as the industrial condition became more complex the 
 character of personal property became differentiated and hence its proper 
 valuation more difficult. 
 
 As to real estate, it is universally conceded that the proper method for its 
 listing and valuation is by the local assessor of the tax district, he fixing the 
 value of real estate and improvements and placing such value upon the duplicate 
 in the name of the owner of record. 
 
 Various methods for the listing and valuation of personal property have 
 been tried, and experience shows that the method of listing by the taxpayer, t 
 whether under oath or not, is not satisfactory. The general tendency is to omit [ 
 
12 THE NATIONAL CIVIC FEDERATION. 
 
 intangible personal property altogether, and to place an absurdly low valuation 
 upon such personal property as cannot readily be secreted. How far-reaching 
 is the result of such returns is strikingly shown by comparing the returns of 
 personal property during a series of years. 
 
 I take Ohio as an example. There, the law provides for a general property 
 tax and a personal return is required of the taxpayer covering the most minute 
 and detailed schedule of all personal property, both tangible and intangible. The 
 return is supposed to be under oath. 
 
 The following table shows the changes in the grand duplicate of personal and 
 real property since the adoption of the present constitution and covering a period 
 of thirty years : 
 
 Date. Real. Personal. 
 
 1870 $ 807,846,636 $459,684,861 
 
 1875 1,062,915,044 535,660,818 
 
 1880. ■ 1,102,049,931 456,166,134 
 
 1885 ■. . . . 1,160,165,882 509,913,986 
 
 1890 1,232,305,312 543-833,165 
 
 1895 1,214,928,085 527,589,429 
 
 1900 1,274,203,721 559,849,507 
 
 <r 
 
 The highest valuation of personal property appeared in 1893, being 
 $568,567,255- 
 
 It will thus be seen that during the last twenty-five years, there has been 
 practically no increase in the valuation of personal property, while the State 
 during that period has increased enormously both in wealth and population. 
 
 The listing and valuation of real estate is, in Ohio, made by local assessors 
 every ten years, with the result that there has been a gradual increase of land 
 valuation. The proper increase of land value is, however, checked by the failure 
 to obtain personal property returns, as naturally the real estate owners object 
 to an increase of real estate valuation not in proportion to an increase of 
 personal property. 
 
 The failure of the personal property returns is still more marked by compar- 
 ing the valuation of personal property with the market values of the stock and 
 bonds which are known to be in existence, but which seldom, if ever, appear 
 on the duplicates. The marvelous industrial development in twenty-five years 
 is in evidence everywhere except upon the tax duplicate. The failure of this 
 method has caused the adoption of various remedial schemes which have 
 accentuated its inherent weakness. The valuation thus fixed becomes the 
 valuation for the tax districts, State, county, township, municipal, school and 
 special. It early developed that while the individual might be willing to return 
 a fair valuation for local purposes, he objected to making a return higher than 
 that of taxpayers in adjoining townships and counties. Hence, the tendency was 
 to reduce his return. The remedy for this fault was equalization boards, aiM 
 the remedy has grown to be as much of an evil and proved as great a failure 
 as the system itself. Political jobbery and official corruption have been added to 
 personal dishonesty. 
 
 A most stringent remedy was adopted in Ohio, namely, the tax inquisitor 
 system. This was first instituted in 1882, the owners of real property believing 
 that by arbitrary measures personal property could be found. 
 
 By reference to the above table, it will be seen that the personal property 
 
NATIONAL CONFERENCE ON TAXATION. 13 
 
 return in Ohio decreased from $535.66o,8i8 in 1875 to $456,166,154 in 1880. Soon 
 thereafter the Inquisitor Law was enacted and first made applicable to certain 
 counties onljs but afterwards extended to the whole State. Under that law, 
 the County Commissioners may employ individuals to search for personal prop- 
 erty, and when discovered, place the same on the duplicate, inflicting certain 
 severe penalties. This is done under the authority of the Auditor, and the 
 Inquisitor is paid from 20 per cent to 25 per cent of the amount collected. The 
 immediate effect of this law seemed beneficial, and the total return of personal 
 property increased in 1882 to $518,229,097, and reached its highest point in 1893, 
 when it was $568,567,255. Since that date, it has steadily decreased until in 
 1897 it was but $511,096,768, although during that year the tax inquisitors were 
 working in fifty-seven of the eighty-eight counties. 
 
 Since 1897 there has been an increase from $511,906,768 to $559,849,507. 
 
 The Inquisitor Law is an attempt to enforce a bad system by the infliction 
 of severe penalties. It has proved not only useless but demoralizing. Demoral- 
 izing, because it has produced contempt for the law and put a premium upon 
 dishonesty. The high rates of taxation in most localities resulting from a failure 
 to increase the valuation have made an honest return of tangible property 
 practically impossible. For instance, if the tax rate be 3 per cent, as it is in 
 many places, the return of money or intangible property at its market value, 
 at the present time when the average interest earnings are about 4 per cent, 
 would mean practical confiscation of the earning power of that property. Hence, 
 estates which are in the hands of executors and guardians and the few individuals 
 whose consciences compel them to obey the law, bear excessively unjust propor- 
 tions of the burdens of taxation. The average man declines to make the return, 
 and is willing to take the chance of successfully evading the Inquisitor or 
 settling with him for an amount much less than the tax would be, or he leaves 
 the State and withdraws all his personal property from the duplicate. 
 
 Again, the amount of money obtained by the Inquisitor is out of all 
 proportion to the value of the service rendered. Since the operation of the law 
 under which they act, the Inquisitors have been paid over $1,000,000, making this 
 the most lucrative official business in the State, and from which business the State 
 has suffered rather than benefited. The practical effect of the law has been to 
 drive away millions of property which otherwise would have been returned for 
 at least a partial valuation. The Inquisitors have successfully prevented its 
 repeal by deceiving the people with the statements that they are bringing the 
 "tax dodger" to justice. While, in fact, the real reason for the Inquisitor's 
 anxiety to prevent a repeal is that he is obtaining an enormous return for 
 little work, and with no investment of capital. The system is bad ; the remedy 
 has proved worse, and the sooner Ohio abandons the effort to tax by the present 
 method intangible property the better the State will be both financially and 
 morally. 
 
 We should have no sympathy for the "tax dodger," that citizen who would 
 make his neighbor pay for the protection of his life and property. But let ui 
 bring him to justice by sensible methods, not by a method which enriches the 
 Inquisitor, brings discredit to the law, and a decreased valuation of property. 
 
 The experience of Ohio shows the utter uselessness of attempting to reach 
 personal property by individual return, and the Inquisitor Law instead of 
 affording a remedy has driven millions of capital away from the State and has 
 brought the State into disrepute. 
 
 The growth of corporations has developed special methods for listing and 
 
14 THE NATIONAL CIVIC FEDERATION. 
 
 valuation of corporate property, and the laws enacted for this purpose have 
 in great part been formed along logical and practical lines. The corporation 
 being the creature of the Stale, it is more subject to governmental inspection and 
 control than the individual. It may readily be required and compelled to make 
 public its resources and business, thus affording all the facts necessary for 
 public officers who may properly value and list its property. 
 
 However, many States still permit corporations, through their managers, to 
 make returns as individuals and in such instances, the same unsatisfactory 
 condition obtains as with individuals. Both these systems are in force in Ohio. 
 Certain quasi-public corporations, such as street railroads, steam railroads, 
 electric light, water and gas companies, are taxed for State purposes upon their 
 gross income, the corporation being required to return a full statement of its 
 earnings to State officers. Certain other corporations, such as express, telegraph 
 and telephone companies, make a return to State officials of their property stating 
 the amount of their capital stock and bonds. A State board then fixes the 
 valuation of the property of that corporation upon the selling value of its 
 securities. Banks make return to the Auditors of the various counties, stating 
 their resources, liabilities, capital stock and stockholders. The Auditor and 
 thereafter a State Board fix the valuation of the property of the bank from these 
 facts, and list the same against the various shareholders. 
 
 Under the last two of these three methods, corporate property may be, and 
 often is, completely listed and fairly valued. The first or excise tax upon gross 
 earnings may be enlarged and developed so thaf there would be a full listing of 
 corporate property, and the obtaining of a fair valuation upon which the State 
 taxes could be easily and economically raised. 
 
 None of these methods, however, apply to industrial corporations. Such 
 corporations make returns through their officers as individuals ; and, as a result, 
 there is a gross evasion of the law and the most inadequate return of corporate 
 property. Much of the street railroad property of Ohio, although paying its small 
 gross earnings tax to the State, pays local taxes upon a valuation of but three per 
 * cent to fifteen per cent of the actual earning and selling value of its property. 
 Industrial corporations are often valued at but from ten per cent to twenty-five 
 per cent of their true value. 
 
 Another evil which has developed from these conditions (the various 
 methods being in force in the same taxing district) is the great lack of uniformity 
 in valuation, producing constant friction between the owners of various classes 
 of property which are differently listed for valuation. Each class attempts to 
 force down the valuation of its special property, so that it may not be compelled 
 to bear a disproportionate share of the tax imposed. The property which 
 suffers most under these conditions is real estate and the personal property 
 which cannot be secreted. This condition is aggravated by reason of the fact 
 that there are many different taxing districts whose geographical limits are not 
 identical with the assessment district. Hence, as has been before suggested, 
 various boards of equalization are formed for the purpose of equalizing the 
 inequalities existing between the valuations in the various taxing districts. 
 
 From this brief outline of the different listing and valuation systems 
 existing in Ohio, and which may properly be considered as a fair example of the 
 condition obtaining in most of our States, the following general conclusions may 
 be deduced: 
 I First — The method of listing property by the personal return of the tax- 
 
 payer is most unsatisfactory in that it (a) produces gross inequality between 
 
NATIONAL CONFERENCE ON TAXATION. 15 
 
 personal property and real estate; (b) places a premium upon the secreting 
 of property and the evasion of returns; (c) utterly demoralizes the public sense 
 of honesty in matters of taxation. 
 
 Second— The listing of real estate by local assessors is a just and practical 
 method. 
 
 Third— The listing and valuation of corporate property by official boards 
 which have the power to compel a return by the corporation of its resources and 
 business, have proved on the whole satisfactory and practical. 
 
 Fourth — The attempt to combine these various methods is not satisfactory 
 in that it has produced the grossest inequality and lack of uniformity in the 
 valuation of the various kinds of property valued under these various systems. 
 
 Fifth— The general result of lack of uniformity is that real estate bears an 
 unfair and unjust proportion of the public burden, whereas intangible personal 
 property and corporate property are grossly undervalued and in many instances ' 
 escape taxation altogether. 
 
 The general propositions which I beg to suggest as remedies for these 
 conditions are as follows : 
 
 First — The method of valuation of personal property should approximate 
 as nearly as possible the method for the valuation of real estate. 
 
 Second — The efforts to compel the personal return by the individual should 
 be abandoned. The listing should be made and the valuation determined by a 
 local assessor or board upon such information as the individual might see fit 
 10 give ; but by which the board or assessor should not be bound. The individual 
 should be given the right of complaint and appeal upon the valuation fixed by the 
 board, and such valuation could be reduced upon full proof by the individual 
 that the valuation was excessive. This method would be necessary in States 
 where, by the Constitution, personal property must be subjected to the general 
 property tax. In States where such a constitutional provision does not exist, 
 there should be no attempt to tax intangible personal property in the hands of the 
 individual owner. Such property consisting of stocks and bonds of corporations 
 should be taxed against the corporation itself as it can there be easily reached 
 by reason of the government right of inspection and control. 
 
 Third — The listing and assessment district should be as nearly as possible 
 identical with the taxing district, thus obviating the necessity of boards of 
 equalization, whereby great practical benefit would be obtained. The State 
 should raise its revenues from sources other than a general property tax, such as 
 through or by means of the excise, liquor and corporation taxes. This would 
 result practically in county local option, making the county the unit for valua- 
 tion. Ordinarily, the people within a single county are surrounded by the same 
 industrial and commercial conditions, and if they are free from the imposition 
 of a State tax upon their general property, they may adopt such a rule for the 
 valuation of their property as will best suit the needs of their special com- 
 munity. 
 
 Fourth— The chief aim of tax reform to-day should be the arousing and 
 awakening of the public conscience upon the subject of taxation. It is unfor-^ 
 tunately true that our crude, unjust and unequal systems of taxation are', 
 responsible for much of the official corruption and personal dishonesty that j 
 obtains to-day. The unprecedented growth of the country has produced the 
 need of enormous public expenditures which must be met by increased taxation. 
 If we continue a system by which the larger portion of the wealth of the 
 country escapes its share of this taxation burden we are tending toward a 
 
i6 THE NATIONAL CIVIC FEDERATION. 
 
 condition of affairs which is unbearable and must produce revolution unless 
 checked by a change in the method of taxation which will produce approximate 
 justice and equality. 
 
 The Chairman: Gentlemen, I have no doubt that many of those present 
 will find illustrations in their own conditions of what we have just heard from 
 Senator Garfield. The subject is now open for discussion, and we shall be 
 glad to hear from any one who desires to discuss this paper, 
 
 Mr. Wright, of Lansing, Mich.: Mr Chairman, I would simply state as 
 a matter of information that in my own State we have increased the personal 
 valuation in one year, twenty-five times, or, rather, ten times as much as our 
 friend's State, Ohio, has succeeded in doing in the twenty-five years he speaks 
 of. That is largely due, as we believe, to the fact that in our last legislature 
 provision was made for requiring a sworn statement by the individual. At 
 the same time, the Assessor is not bound by that. If he does not deem it 
 equitable he makes his assessment upon his own valuation. 
 
 Mr. Brainard, of Delaware: Mr. Chairman, I suppose it is not in order 
 for the smallest State to do the most talking, but I see we are all afflicted alike. 
 We all have trouble with personal property taxation. Senator Garfield sug- 
 gests as one of the remefdies, that corporation stock should be taxed to the 
 corporation and not to the individual, I would like to ask, for information, 
 what he would do of what he would suggest in regard to the stock of the 
 corporation where the corporation was outside of the State. The reason I 
 ask the question is this, that we might tax the stock of State corporations and 
 by so doing induce investors to invest their money outside of the State and 
 thereby injure the State's interests. How would Senator Garfield treat that 
 matter ? 
 
 Mr. Garfield: Mr. Chairman, that is certainly a very pertinent question, 
 coming from Delaware. The States of the West have attempted in some way 
 to tax Delaware and New Jersey corporations. The method which is adopted 
 in Ohio, and is apparently working satisfactorily, is this. Any foreign corpo- 
 ration seeking to do business in the State must make a return to the Secretary 
 of State setting forth its resources, its capital stock, its liabilities, its plant 
 within the State of Ohio, the valuation of that plant in proportion to the total 
 valuation of the property of the corporation; also a list of the stockholders of 
 the corporation. All the stockholders resident in Ohio may then deduct from 
 the value of the stock the proportionate value of the property of the corpora- 
 tion within the State of Ohio. By that means the foreign corporation is com- 
 pelled to make practically the same return that the domestic corporation must 
 make, and by giving a list of its stockholders they then may be reached in the 
 counties where they reside. In Ohio we must still impose a personal property 
 tax, but by this method we may bring that property to light so that it may be 
 taxed, and, at the same time, to avoid double taxation, deduct the amount of 
 the property which is chargeable against the corporation itself on its business 
 done in Ohio. Hovi that is going to work we can not now say. The law was 
 passed a year and a half ago, and the first returns will be completely made 
 this year. But the foreign corporation can readily be made to return under 
 the law for the reason that if they do not make the return they are subject to 
 the inconvenience of an attachment in any action that may be brought against 
 them, on the ground of non-residence; in the second place, they can not defend 
 or bring an action until they have complied with the statute and designated a 
 certain agent within the State upon whom service may be made, and by whom 
 
NATIONAL CONFERENCE ON TAXATION. 17 
 
 action may be instituted. In that way it is believed the return of a foreign 
 corporation rnay be compelled as to their property so that it may be placed on 
 the duplicate of Ohio. 
 
 Mr. Crandon, of lUinois: Mr. Chairman, if the State which authorizes 
 the existence of a corporation taxes its stock and property in full, how then 
 is it fair to the stockholder in another State to tax him on the property which 
 he holds, simply deducting from his share of that taxation that part of the 
 value of the company's property which happens to be located in that State, 
 and if it has no property in the State then he is required to pay taxes to the 
 State to which the corporation owes fealty, first, and second to the State in 
 which he resides, and where the corporation has no property? 
 
 Mr. Garfield : Mr. Chairman, I do not know that the question is addressed 
 to me, but I will say as far as Ohio is concerned we all say amen to a proposi- 
 tion that is eminently unfair, but unfortunately under our constitution we are 
 compelled to tax stock of foreign corporations, and the Supreme Court has 
 held that we cannot evade that provision of the constitution. It does amount 
 to double taxation, unquestionably. 
 
 Mr. Rodenbeck, of New York: Mr. Chairman, Senator Garfield has 
 suggested the taxation of stock as a part of the capital stock of corporations, 
 rather than in the hands of original holders. That is the provision which 
 prevails in New York State, but we find some difficulty in respect to it. Cor- 
 porations practically escape taxation on their capital stock under the decisions 
 of the courts, so that while the stock is exempt in the hands of the individual, 
 practically it is also exempt as a part of the capital stock of the corporation, 
 that captial stock being valued at the value of the tangible property of the 
 corporation and the Assessors not being directed to take into account as a 
 part of the tangible property the value of the franchise of the corporation. 
 In New York we have recently made public franchises, the right to operate 
 in public streets and places, real estate; so that certainly in corporations of that 
 character, debts being largely contracted upon the strength of the franchises 
 of the corporation after you have estimated the amount of the tangible property 
 of the corporation, you will find that the debts vastly exceed the value of the 
 capital stock under the rule for estimating that value as laid down by the 
 courts. So that I say under the method of taxing the stock to the corporation 
 as a part of its capital stock we find that stock escapes taxation. 
 
 Mr. Niles, of Maryland: Mr. Chairman, I would like to get exactly the 
 idea of the gentleman from Ohio in regard to Delaware corporations. With 
 the permission of the Chair I would like to ask if I understood him rightly. 
 The Delaware corporation that does business in Ohio makes a return of all 
 its property, as I understand it, in the first place, its real estate situated in 
 Delaware, New York and wherever else it may be, and all its other property; 
 it also returns its number of stockholders and shares of stock, and from the 
 gross value of all its property is deducted simply the real estate in Ohio. Is 
 that the proposition? 
 
 Mr. Garfield: Real estate and such personal property as a manufacturing 
 corporation may be compelled to return. 
 Mr. Niles: Simply in Ohio? 
 Mr. Garfield: In Ohio, yes. 
 
 Mr. Niles: Then that remainder is a dividend that is divided among the 
 shares of stock and that gives the value of each share of stock for taxable 
 purposes in Ohio, and then those shares are sent to the Auditor of the County 
 
1 8 THE NATIONAL CIVIC FEDERATION. 
 
 and the deduction is to be made on the value of this stock as so found, and the 
 tax is then paid at the regular county rate without deduction for any property 
 which the corporation may own outside of Ohio. 
 
 Mr. Garfield: Mr. Chairman, the deduction is made but it is simply the 
 proportion, it is not a division of their property; it is simply to get a portion 
 of their property taxed in Ohio, as against the corporation, and deducting 
 that from the total valuation of the stock; so that it is simply allowing, as 
 the courts have now held, the stockholder to deduct that proportion of the 
 corporation property which bears its tax within the State of Ohio. 
 
 Mr. Niles : Mr. Chairman, as I understand it, that amounts to this : That 
 Ohio taxes in the first place corporate property within the State of Ohio 
 <iirectly to the corporation, then it taxes the holders of the stock on the same 
 basis as if all the other property of the corporation were in Ohio, too. 
 ^ Mr. Seligman: Mr. Chairman, if I may be permitted to say just a word 
 on this general question, I think that a very slight investigation into the 
 actual methods of taxing corporations in this country would show that we 
 have scarcely begun the attempt to solve the problem in the right way. The 
 gentleman from New York has told us of the undoubted difficulty which 
 exists in that State. The representative from Pennsylvania could tell us that 
 Pennsylvania avoids the difficulty alluded to by the speaker from New York 
 by making corporations pay, not alone on their capital stock, but also upon 
 their debts, their mortgage debts, so that in Pennsylvania the corporations can- 
 not evade the tax as they do in New York. Somebody else might come along 
 and say that even in Pennsylvania they had not fully met the difficulty, because 
 in Pennsylvania the courts have held that the State cannot tax such mortgage 
 bonds of a railway or other corporation as are held by non-residents. And so 
 we might go on from one point to another. It all brings us simply to this 
 conclusion, that it is absolutely futile for any State to think that it alone can 
 solve the problem in a satisfactory way. What we need is a campaign of 
 education in this country, leading, ultimately, if necessary to a change of 
 constitutional methods. Without that we cannot bring about the inter-State 
 co-operation or system of uniformity agreed upon, I will not say by all the 
 fifty States of the Union, but at all events by certain of the contiguous States 
 where the corporations carry on their work, and where the ownership of 
 securities happens to be most widely disseminated; so that that branch or 
 group of States, at all events, will make a beginning, and agree to assess cor- 
 porate property on some approved but uniform basis. It makes no difference 
 what basis you accept as long as you all agree to conform to it in the same 
 way, and to apportion the tax among the States according to some definite 
 method, whether it be mileage, whether it be the situs of the property, whether 
 it be the location of the security, or whatever other method you choose. When 
 the period comes that we can look forward to such an inter-State agreement 
 it will be time to discuss the subject in all its details and to decide which of 
 the methods is the best one to adopt. The point I wanted to emphasize, however, 
 is that it is useless to expect the difficulty to be solved without mutual co-opera- 
 tion and without inter-State agreement. 
 
 The Chairman : I would call attention to the fact that the subject of 
 inter-State corporations is more specifically set apart for this afternoon, and 
 I would suggest that discussion be confined now to the other subjects treated 
 by Senator Garfield, such as the taxation of personal property, listing, etc. In 
 that way we can clear the decks as we go on. We will be glad to hear further 
 from any gentleman. 
 
NATIONAL CONFERENCE ON TAXATION. 19 
 
 Mr. Spahn, of Rochester, N. Y. : Mr. Chairman, the thing that impressed 
 me most in reference to the two very exhaustive and able papers read here 
 is this, that Senator Garfield substantially put himself upon record as saying 
 that were a wise and equitable system of corporate taxation adopted it alone 
 would suffice to pay all the expenses of government. Fundamentally that, I 
 think, should interest us most as individuals. So far as I am personally 
 concerned there is nothing that afflicts me in the least in relation to the corporate 
 taxation. I have no stock in any corporation, I am, however, an extensive 
 holder of real estate in one of the municipalities of this Commonwealth, and 
 when the matter of personal taxation is adverted to it comes home into a 
 domain where I am interested. If there is any device by which the private 
 individual can be spared the enormous burden, and I mean now, particularly, 
 the individual who is an owner of real estate, the enormous burden that is 
 now loaded upon his back, I welcome any suggestion which points to that result. 
 For my part in resolving the question of taxation generally some years ago 
 I concluded that so far as the private individual was concerned, with a wise 
 and honest administration, he might be spared from all burdens, and the State 
 might be rendered a self-supporting institution, just as any private institution 
 has been rendered by the genius of American mind. I have no hesitation in 
 saying that if the same amount of energy were devoted by the politics, by the 
 statesmanship of this country, to that problem that is devoted to the matter 
 of arranging a party organization for a political success in a campaign, the 
 problem would be solved without any trouble whatever. We are a nation of 
 geniuses. There is no question about that. We have solved the matter of 
 political organization so completely that we are able to furnish the executive 
 head of the government all of the advice he may need unofficially to run the 
 government, and when we are able to do that, which may be, perhaps, an 
 ironical reflection on the situation, I think that there is nothing in the field 
 of politics which we can fail of doing. A country that is able to ramify with 
 steel tracks run by a single corporation, fifty States, and make the corporation 
 not only self-supporting but dividend-paying as the result of genius, of indus- 
 trious enterprise, I have no hesitation in saying, with the statesmanship we 
 could put into the field, would be able to absolve absolutely the individual 
 from any burden for the support of government; and that I think is the most 
 important problem that a gathering of this kind has before it. 
 
 The Chairman: If there are any gentlemen who can give us news from 
 any State where personal property taxation is a success we will be glad to hear 
 from them. 
 
 Mr, Wright: Mr, Chairman, In my State, Michigan, we have had the 
 question of equal taxation before us for the last few years, and all minds seem 
 to work in one direction, but none of them has been quite as candid as our 
 friend who has just taken his seat, who seems to put it in this way, that the 
 true ideal for tax reform would be to tax the other fellow. 
 
 Mr, Williams, of Maryland: Mr, Chairman, on this subject of the 
 taxation of property it seems to me that we have as the property that ought 
 to be listed by the Tax Assessors, actual real estate and actual personal property, 
 and we have in addition to that franchises granted by the State and franchises 
 in the nature of special privileges. It is generally agreed now that these 
 ought to be taxed by a system of rentals. The only remaining property is 
 really not property at all; that is, choses in action. As a matter of fact, when 
 we have taxed all the existing property in the world and charged all the 
 
20 THE NATIONAL CIVIC FEDERATION. 
 
 corporations rent for their franchises we have reached by way of taxation 
 all the property there is in the world, and that is all there is to it. What 
 we are now hinting at doing is to tax property that does not exist ; that is, 
 
 Ichoses in action. If you want to tax choses in action there is only one way 
 to do it, and that is by an income tax. 
 Mr. Bromhall, of Ohio: Mr. Chairman, I wish to make a suggestion 
 along the line of the remarks of the last speaker, Mr. Williams. Taxation 
 might be defined as taking private property for public purposes. Another 
 thought suggested by a gentleman who spoke just a moment ago, that it might 
 be well in taxation to only take public property for public purposes, and when 
 we find what public property truly is there will no longer be any necessity 
 for taxing private property. One of the things that may be properly called 
 public property is the privileges which government sometimes confers on 
 individuals or corporations. Wherever we find any necessity or find that a 
 State is conferring a benefit on some individual or some corporation which 
 is not common to all the individuals of the State, there we find a fund which 
 is properly a public fund and which may be properly applied to pubHc purposes. 
 Therefore, I maintain before the question as to whether we shall tax choses 
 in action or personal property which is the result of human effort we must first 
 find whether or not there is not this public fund to draw upon, and when that 
 public fund is found let it be drawn upon and exhausted before we raise the 
 question of taxing private property at all. 
 
 Mr. Curtis, of Wisconsin: Mr. Chairman, I wish to add an item of 
 testimony to the propositon of Senator Garfield. In Wisconsin we believed for 
 a considerable period of time we had a system for the listing of personal 
 property by the property owner under oath. That system in 1888 was abolished, 
 and since that time no sworn returns of personal property are required 
 except choses in action alone, if they may be called property ; but when the 
 \ change in the law was made Assessors were given some measure of power to 
 /.'assess personal property by estimate. In a single year our personal property 
 
 
 assessment increased some 60 per cent., whereas in ten years before that the 
 increase had only been about 10 per cent, per annum. 
 
 Mr. Garfield: May I ask the gentleman how long that increase has 
 continued? 
 
 Mr. Curtis: It has not continued at that rate, but it simply illustrates that 
 an inquisitorial system did not succeed in Wisconsin, but this system has 
 worked beneficially. The increase mentioned was substantially maintained. 
 
 The Chairman : You have reference to a system whereby the Assessor 
 puts on his own estimate? 
 
 Mr. Curtis : You place the responsibility upon the Assessor giving the 
 property owner an opportunity to be heard before a local Board in case the 
 Assessor's estimate should fix too high a rate upon his property. 
 
 The Chairman: The Assessor in such case bases his judgment upon a 
 taxpayer's mode of living, does he not? 
 
 Mr. Curtis: Upon such information as he can practically obtain, having 
 power to examine the taxpayer and other persons under oath, if he chooses, 
 but not requiring any sworn list. 
 
 Mr. Niles, of Maryland: Have there been any prosecutions or convictions 
 for perjury in the matter of tax returns in Ohio or any other State? 
 
 Mr. Garfield: We do not know anything about this life, but hereafter 
 I imagine there will be a great many. 
 
NATIONAL CONFERENCE ON TAXATION. 21 
 
 Mr. Niles: I am not referring to the other life, but would like to ask 
 the gentleman if, as a matter of fact, in this life there have been any in Ohio? 
 
 Mr. Garfield: None whatever. 
 
 The Chairman: Gentlemen, there are many subjects connected with this 
 immediate one under discussion which perhaps we can defer to a later time. 
 We have with us Dr. Max West, of Washington, of the Industrial Commission, 
 whom I have the honor to present, and who will read a paper on "The Taxa- 
 tion of the Farmer." 
 
 THE TAXATION OF THE FARMER. 
 
 BY MAX WEST. 
 
 The most obvious remedy for the universal difficulties growing out of the 
 attempt to tax per.sonal property would be the discontinuance of the attempt; 
 but the proposal to exempt personal property from taxation has never been 
 popular among farmers. It has seemed to many that as the farmers own so 
 large a portion of the land of the country, the exemption of other forms of 
 property and consequent increase of the taxes on land would fall most heavily 
 upon them. Even under the present system, the complaint is made by farmers 
 and on their behalf that the escape of personal property from assessment throws 
 an undue burden of taxation upon real estate, with the effect of depreciating 
 the value of land. It is often assumed that this heavier taxation of real estate 
 as compared with personalty is necessarily a disadvantage to the farmer, and so 
 it is urged that instead of relieving large classes of property from taxation, 
 the administration of existing laws should be so improved as to reach the 
 greatest possible amount of property. But, on the other hand, it may be argued 
 that the land of the farmer is of so little value compared with the city building 
 sites, acre for acre, as to more than counterbalance its greater extent, and that 
 the overburdening of the farmer is due not so much to the tax on land as to the 
 tax on personal property. 
 
 In order to determine whether farm owners as a class would gain or lose 
 by the exemption of a certain kind of property, to be made up by heavier 
 taxation of the remainder, it is necessary to ascertain whether their assessments 
 would be diminished more or less, proportionately, than the assessments of 
 other classes. That is to say, if it is proposed to exempt personal property, the 
 question is whether the assessment of personalty is a greater or less proportion 
 of the total assessment on farms than in cities and towns. 
 
 As there are no available assessment statistics distinguishing between strictly 
 agricultural and other rural property, it is necessary to make the comparison 
 simply between urban and non-urban property. Statistics of assessed valuation, 
 however worthless if taken as representing true values, are plainly the figures 
 to be used for this purpose, for the question is not whether farmers own more 
 or less personal property in proportion to their total wealth than other classes of 
 the population, but rather what are the relative values of personal property 
 which are found by the Assessors, and on which taxes are thereafter actually 
 paid. It is quite possible that there may be a decided difference between the 
 two sets of facts. For instance, the personalty may be a larger proportion of the 
 total wealth in the cities than in the country, and yet be of kinds which 
 escape assessment to such an extent that the returns of the Assessors will show 
 a greater proportion of personalty in the country than in the cities. By taking 
 
22 THE NATIONAL CIVIC FEDERATION. 
 
 assessed valuations, it is possible to ascertain the actual distribution of taxation, 
 and the probable effect of proposed changes in the taxing system upon the 
 different kinds of property and upon different classes of population. 
 
 Most of the writers who have investigated this subject have reached the 
 conclusion that the exemption of personal property would benefit the farmer, 
 but the contrary opinion is maintained very emphatically by Dr. Spahr, as well 
 as by many of the farmers themselves. As to the effect of exempting real 
 estate improvements, there is a more nearly even division of evidence and of 
 opinions. The contention of Mr. Henry George and Mr. Shearman that this 
 also would benefit the farmer seems to be supported by Massachusetts figures, 
 but contradicted by statistics relating to Pennsylvania, West Virginia, the District 
 of Columbia, and a number of Western States. This suggests that conditions 
 may vary greatly from place to place, and that any general conclusion should 
 be based upon statistics covering the entire country. 
 
 I have compiled tables showing the assessed valuation of urban and rural 
 communities in all the States and organized Territories except Hawaii, distin- 
 guishing in all cases between real and personal property, and wherever possible 
 between land and improvements, and between tangible and intangible personalty. 
 The tables are made up, with one or two exceptions, from the assessments of 
 1896, that being the latest year for which reports were generally available when 
 the tabulation was begun. Unfortunately, the reports of comparatively few 
 States give the assessments of land and improvements separately; and in 
 many cases it is impracticable to divide the assessments of personalty into 
 tangible and intangible property. The line between urban and rural communi- 
 ties is of necessity drawn somewhat arbitrarily, by reference to population; 
 and the dividing line is placed at a population of 8,000, partly because that is 
 a point at which the Census Office draws the line. In most of the Southern 
 and Western States the assessments are reported only by counties, not by 
 towns; hence it is necessary in these cases to take the counties containing 
 cities of more than 8,000 inhabitants as urban counties, and the others as 
 rural counties. 
 
 Taking the whole country together, personalty is found to represent 21 per 
 cent of the total assessment in the rural districts, as compared with i8]^"^er cent 
 in the urban districts. But as the taxation of property is a State matter, it is 
 much more important to know how the assessments compare in the separate 
 States and Territories. The proportion of the total assessments represented by 
 personal property is found to be greater in the rural than in the urban districts 
 in thirty-six cases out of forty-nine, or in one more than five-sevenths of all 
 the cases, the reverse being true in the District of Columbia and in the States 
 of Maine, Vermont, Connecticut, New York, Pennsylvania, Maryland, West 
 Virginia, Mississippi, Tennessee, Michigan, Kansas, and California. It is 
 noticeable that most of the exceptions are found in Eastern States, the only 
 ones west of the Mississippi represented in the list being Kansas and California. 
 
 On the other hand, the proportion of intangible personalty, as might be 
 expected, is greater in the urban than in the rural communities in a majority 
 of the commonwealths for which the. figures are given; that is to say, in 
 fifteen out of twenty-seven cases, Iowa showing the same proportion in the 
 urban and rural counties. The assessments of land and improvements are 
 separately reported in only sixteen cases. The ratio of the assessment of land to 
 the aggregate assessment is found to be greater in the urban than in the rural 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 23 
 
 districts in a majority of these cases, namely, in the District of Columbia and in 
 eight States, while the reverse is found to be true in seven Commonwealths. 
 
 The conclusion is that in at least five-sevenths of the States and Territories 
 the rural districts would gain by the exemption of personal property from 
 taxation, although apparently the exemption of intangible property alone would 
 in a small majority of cases relieve the urban at the expense of the rural districts. 
 If intangible property is to be relieved from taxation, therefore, the exemption 
 must in fairness to the farmers be extended to tangible personalty also. The 
 exemption of both personal property and improvements, leaving only land to be 
 assessed, would also, in a bare majority of the cases where the statistics are 
 obtainable, leave a larger proportion of the assessment in force in the country 
 than in the urban communities. 
 
 Generally speaking, therefore, the farmer has nothing to fear from the 
 exemption of personal property, but would be actually benefited by it; and the 
 knowledge of this fact ought to do much to remove one of the chief difficulties 
 in the way of the abolition of the tax on personal property ; namely, the opposition 
 of the farmers themselves. Another fact brought out by the statistics is that 
 conditions vary greatly from place to place, showing that each State must to 
 a large extent work out its own salvation, and that any proposed change in the 
 taxing system should be based upon careful statistics showing what effect the 
 change will have upon the distribution of taxation. 
 
 Thus far I have been considering the subject from the farmer's standpoint; 
 but there may be opposition to the exemption of personalty in the cities also, 
 if it seems likely to throw an increased burden of taxation upon the cities, at 
 least unless the city residents are convinced that they are now bearing less 
 than their just share of taxation. The feeling has long been gaining ground 
 in many quarters that the farmers bear more than their just burden of taxation; 
 but, on the other hand, in some of the large cities complaints are frequently 
 made to the effect that the cities are overburdened, by the action of Boards of 
 Equalization or otherwise, and the country districts unduly favored. 
 
 The question whether the farmers are unduly burdened by the property tax 
 may be considered under three heads : First, real estate ; secondly, personal 
 property in general; and thirdly, mortgages. 
 
 As far as real estate is concerned, the data for a statistical study of the 
 question "with reference to several States exist in official documents and else- 
 where, mainly in the form of comparisons of assessed valuations with the 
 selling or estimated true value of real property; but the comparisons are not 
 always expressed conveniently in percentages, and in most cases the figures 
 have required to be rearranged in order to bring out the contrast between 
 agricultural and city property. Although the statistics bearing on this subject are 
 not as complete or as perfect as could be wished, they seem to warrant the 
 conclusion that in the Eastern States, at least, farms are usually assessed too 
 high as compared with urban real estate. For the Central and Western States 
 no general statement can be made, the conditions vary so greatly from place 
 to place. 
 
 The explanation of this distinction between the East and West may be 
 found in the abandonment of farms, especially in New England, coupled with 
 the tendency to retain the same assessments from year to year. As prices have 
 fallen in response to the lessening demand for Eastern farms, the assessments 
 seem not to have been revised sufficiently to keep pace with the falling values; 
 
24 THE NATIONAL CIVIC FEDERATION. 
 
 and in like manner, in some portions of the West there seems to have been a 
 failure to increase the assessments as rapidly as the value of land has risen. 
 
 As to whether the underassessment of town lots is to be attributed chiefly 
 to the large cities or to the smaller places, no general conclusions can be drawn 
 from the data at hand. The statistics do show, however, that acre property in 
 the vicinity of large cities is often assessed much too low, as compared either 
 with the city or with farming property. This is shown, for example, by the 
 very low assessments of acre property in Philadelphia, Allegheny, and Lacka- 
 wanna Counties, Pennsylvania; in Cuyahoga County, Ohiot in Cook County, 
 Illinois; in Hennepin and Ramsey Counties, Minnesota, and in the District of 
 Columbia. That is to say, imdivided property in the vicinity of Philadelphia, 
 Pittsburg, Scranton, Cleveland, Chicago, Minneapolis, St. Paul, and Washington, 
 which is of a somewhat speculative character, is assessed at a lower percentage 
 of its value than either city lots or farms. Leaving such property out of 
 account, therefore, the average assessment of strictly rural property, including 
 farms, would be higher than indicated by the figures I have referred to. 
 
 So much for real estate. It is impossible to make any corresponding 
 comparison between the assessed and true values of personal property, the neces- 
 sary statistics not being obtainable ; but there is some evidence tending to 
 show that personal property, also, is usually assessed more nearly at its true 
 value in agricultural districts than in cities. Professor Plehn, in his study of 
 "The General Property Tax in California," brings this out very forcibly. He 
 says : "But, after all, the payment each year by the farmer of from four to six 
 per cent too much on each $ioo of his real estate for State taxes shrinks into 
 ridiculous insignificance when compared with the injustice which arises from 
 the evasion of taxation by personal property owners. This again adds peculiarly 
 to the burden upon the farmer, the bulk of whose personal property consists of 
 visible tangible implements, stock, and household goods." 
 
 In examining the reported assessments for those States in which the assess- 
 ments of personal property are itemized, it is very noticeable that the class of 
 property which is most elaborately classified, and which is probably most fully 
 returned, is live stock, or farm animals. The personal property tax seems to 
 belong properly to that age in which men's wealth was reckoned according to the 
 number of their cattle. 
 
 There is a very general agreement among students of the subject that a 
 larger proportion of the farmer's personalty is assessed for taxation than of the 
 personalty belonging to city residents. This opinion is based to some extent upon 
 considerations of the differences in the nature of the property in the two cases, 
 but it is in some cases supported by statistics of more or less value, which, while 
 not amounting to absolute proof, at least establish a decided probability that the 
 proportion of all existing personalty taxed is greater in the country than in the 
 city. It may, therefore, be stated with some degree of confidence that where 
 real estate is taxed more heavily in the country than in the cities the personal 
 property assessment aggavates the inequality, while in the apparently smaller 
 number of States where real estate is taxed more heavily in the cities than in 
 the country the assessment of personalty tends to counterbalance this inequality, 
 and may throw the balance against the country. If in a majority of the States 
 real estate taxes are more burdensome in the country than in the cities, as the 
 statistics seem to indicate, the taxes on real and personal propety together, in 
 all probability, discriminate against the country in a still larger number of 
 cases. 
 
NATIONAL CONFERENCE ON TAXATION. 25 
 
 Many of the witnesses before the Industrial Commission, especially those 
 testifying on the subject of agriculture, have testified that in their respective 
 States the farmers pay more than their share of the taxes. Special stress has 
 been laid upon the distinction between the visible personalty of the farmer, 
 which cannot escape the Assessor's eye, and the intangible property of the cities, 
 which is hard to find; but several witnesses have also given evidence of dissatis- 
 faction among the farmers growing out of the taxation both of mortgages and 
 of mortgaged real estate. Thus a very intelligent farmer from West Virginia 
 declares that the farmer really pays the tax on his land, and pays the tax 
 over again to the lender, that is, in increased interest; although, as a rule, the 
 mortgages are not listed for taxation. The Secretary of the Ohio State Board of 
 Agriculture states the situation as follows: "The owners of the intangible 
 property actually own their property, while the man who pays the taxes on his 
 real estate is paying for the privilege of calling it his own at some future time." 
 That, it seems to me, hits the nail on the head as far as the double taxation of 
 mortgaged real estate is concerned. 
 
 That, however, is a case in which it is much easier to point out the evil than 
 to suggest a remedy. Interest rates are so sensitive to changes in taxation that 
 it seems to be almost impossible to make the mortgagee, who is virtually part 
 owner of the mortgaged real estate, pay his share of the tax. But, at any rate, 
 by doing away with the taxation of personal property in general, an end would 
 l3e put to double taxation of mortgaged real estate. 
 
 The Chairman : We should be glad to hear now from any of the gentle- 
 men of the different States on the subject treated by Dr. West. 
 
 A Member from Indiana: Mr. Ciiairman, over in our State we find since 
 our new law has been enacted that our farmers have not been benefited at 
 all by looking after the personal property; that the parties who were supposed 
 to own so much personal property are paying about the same, but that the 
 farmers in our country are paying a much greater tax now than they did a 
 few years ago, because, it seems, that they hold most of this mortgage paper. 
 In the matter o^ money in our town about 65 per cent, of the deposits are 
 made by farmers. It might be a little unpopular, but, after all, it looks to me 
 as though this matter would have to be remedied in some way by looking after 
 real estate. For instance, I sell a man in our State a piece of property for 
 $4,000 and he can only pay me $2,000, and I take a mortgage for $2,000. Then 
 the Assessor will assess that man $1,500, and I pay on my $2,000 at its face. It 
 seems to me as though in some way a remedy should be worked out in reference 
 to this matter. 
 
 Mr. Crandon, of Illinois : Mr. Chairman, we had a Tax Commission which 
 worked over a year on the question of how to reach personal property. The 
 deliberate judgment of that Commission was that if it was constitutional to 
 do so, justice would be secured by abolishing the tax on personal property 
 altogether. Had it been within the limits of the constitutional provision the 
 Commission of which I was a member would have so advised. 
 
 Now, in reference to these poor farmers who are so generally the subject 
 of commiseration, I have just a little bit of personal experience to give. Last 
 March it was necessary for me to examine this question, to present the matter 
 to the Executive Council of the State of Ohio. A little examination showed 
 that of the personal property that was assessed in Iowa, the amount of moneys 
 in banks and bank stock was greater than one-half of all the personal property 
 
 \ 
 
26 THE NATIONAL CIVIC FEDERATION. 
 
 that was assessed; and it was further found that 80 per cent, of the bank 
 stock and 75 per cent, of deposits belonged to the farmers. 
 
 A Member from Ohio: Mr. Chairman, the question has been asked what 
 would it profit a man if he should gain the whole world and lose his own 
 soul. I have been inclined to think that the question might properly be asked 
 in connection with the personal property tax. We would better lose a por- 
 tion of the personal property than to become a confirmed nation of perjurers. 
 But there is not so much involved in the question if we look at it right. 
 I caused an investigation of the return of taxes in my own State, and I 
 discovered that the owners of real estate in the State owned seven-eighths of 
 all the personal property in the State. So that when the owners of real estate 
 and the owners of personal property raise the question as to whether we should 
 abolish the personal property tax, it is well to remind them that there is 
 only about one-eighth of the property taxed which is involved in the discussion. 
 
 The Chairman : We should be glad to hear any further remarks on this 
 question. 
 
 A Member from Indiana: Mr. Chairman, I do not quite understand the 
 basis of this discussion in reference to personal property when it is admitted 
 that the great difficulty is that you do not reach the personal property. Now 
 all the discussion that has been had here this morning is on the basis of the 
 personal property that is reached. It seems to me you are not reaching the 
 difficulty at all when you propose to throw this aside and not tax personal 
 property, but that the difficulty is to be found by reaching personal property. 
 I cannot give estimates. T do not know. There is no one here who knows 
 what the personal property of the country is. Nobody knows its value because 
 we do not reach its value, but it seems to me if you relieve personal property 
 entirely from taxation through the fear that we are about to become a nation 
 of perjurers you are missing the remedy entirely. What we want is some way 
 to get hold of personal property, to find out what it is. The gentleman from 
 Maryland said there was a way to do it and that was to make an inheritance 
 tax. It seems to me there ought to be some other way of doing it. I do not 
 know what it is, but it seems to me our discussion here ought to center on some 
 way of reaching the personal property itself. As a matter of fact we know 
 that the great wealth of the nation to-day, its increase, is in personal property, 
 or, if you do not choose to call it personal property, though I insist it is personal, 
 property, although it may be choses in action, the great wealth of the nation, 
 that which is dealt in day after day, that in which fortunes are lost day after 
 day, is the personal property of the country. Men are putting their wealth 
 into the personal property of the country. The men who become richest are the 
 men who evade taxation and go through life not paying a cent to support the 
 government, if you take the tax off of personal property and impose it upon< 
 real estate. 
 
 Mr. Purdy, of New York: Mr. Chairman, it seems to me some attention 
 should be devoted to the fact that it is impossible, made so by nature, to 
 tax the owner of a chose in action by taxing the chose in action. I might 
 illustrate that a little for the benefit of some who, perhaps, are not lawyers. If 
 you tax all mortgages, money will not be invested in mortgages until the rate 
 of interest upon mortgages has risen to the point at which the returns of the 
 investor will be the usual return, risk and convenience considered. Inevitably 
 that tax imposed upon the mortgage shifts itself over to the owner of the 
 property which is represented by the mortgage. If you tax the bonds of some 
 

 NATIONAL CONFERENCE ON TAX A T TO W:^ 27 
 
 corporation, which are merely a mortgage split up into pieces, you impose a 
 burden which falls upon the borrower of the money — the corporation itself. It 
 falls ultimately upon the owners of the title deeds of the property, called shares 
 of stock. It does not touch the man who buys the bond the following day. The 
 purchase price has fallen by the amount of the tax, and it is impossible to reach 
 the man who buys bonds the day after the tax has been imposed. That principle 
 applies to every case of an attempt to tax any piece of paper evidencing property. 
 You cannot tax the owner of that paper. Nature will not let you do it. 
 
 A Member: Is it not true that the tax on mortgages was abolished in 
 Baltimore. Md.. and that interest fell? 
 
 Mr. Purdy: I have heard it did, and they have since reimposed it. They 
 have imposed a tax of 8 per cent, on the income of the interest derived. 
 
 Mr. Williams: It does not pay for the collection. They had to have a 
 special department for the collection, and the thing did not pay the expenses 
 of the collection department. 
 
 Mr. Niles: But it has the effect of making the rate of mortgage interest 
 higher than the rate of interest on good bonds. That effect it has now. 
 
 Mr. Bates, of Ohio: Mr. Chairman, is this argument really pertinent? Is 
 it not a fact that in the taxation of all classes of property on that theory the 
 capitalist is the one who escapes? In the taxation of the large building — the 
 sky-scraper — is not the tax really paid by the tenant? Is not the tax on the 
 mortgage paid by the borrower? Is not the tax upon the stock in goods of 
 the merchant paid by the purchaser in the price? There is a question which 
 comes before us : How to reach the capitalist. Bank stocks are taxed. They 
 are not taxed in the national banks, we all know. There is no direct tax on 
 the national bank. It is paid by the stockholder. Should we not pursue legitimate 
 inquiry to some method by wMch the real capital invested should be taxed, and 
 not the borrower and the tenant and the purchaser in every case? I am 
 sorry to say I have no remedy to suggest. It has been said it is a demagogue 
 who points out an evil and a statesman who suggests a remedy. I wish I 
 were the statesman in this case, but I am not. I merely suggest this as a line 
 of thought. 
 
 The Chairman : Gentlemen, we would be very glad to hear from any 
 gentleman from any State which has solved the problem of reaching personal 
 property, or adopting a substitute for it. 
 
 Mr. Williams, of West Virginia: Mr. Chairman, I would like to ask 
 the gentleman who has just taken his seat, whether or not the same effect would 
 not result if the tax were put wholly upon real estate, if it would not have 
 the effect to raise the value of all farm products and simply be another illustra- 
 tion of the principle that the consumer pays the tax as the man who uses the 
 tobacco pays the revenue. 
 
 Mr. Purdy: I believe there is a method of taxing personal property. I 
 believe if mortgages were taxed, perhaps not at the uniform rate of real estate, 
 but some smaller rate, one-quarter of one-half of i per cent., and if bank 
 deposits were taxed by charging them to the bank itself, compelling the bank 
 to pay the tax, perhaps at not so large a rate as real estate is taxed, the result 
 would be much more satisfactory to the taxpayer and everybody concerned. I 
 believe something a little on the line of the gentleman from New York, that 
 there is a proper solution if thought and care were given to it by which personat 
 property might be made to bear its proper share of the burden of taxation. 
 
28 THE NATIONAL CIVIC FEDERATION. 
 
 Mr. Williams : Mr. Chairman, one of the difficulties about taxing personal 
 property is that the property represented by shares of stock is not properly taxed. 
 Take the property of railroads. I would like to hear from any State where the 
 tunnels of railway companies are taxed. You tax a man's house and the cost 
 of production. Take it in the State of Maryland; the cost of railroad bridges 
 in ^hat State is very great as the bridges are very extensive in character. I 
 believe they are practically not taxed at all. Take the railroads of Maryland 
 as far as they are not exempt — and most of them are exempt — but railroads 
 that have been constructed since the charte^; and I think that through the 
 influence of corporations in politics these railroads are taxed simply so much 
 a mile. That "so much a mile," I do not suppose, represents much more than 
 the cost of the iron. The stock of the Baltimore & Ohio Railroad is an imma- 
 terial thing. It is simply a chose in action. It represents my interest in the 
 iron, in the tunnels, in the bridges, the rolling stock and the rights of way; 
 represents my interest in all those things. 
 
 A Member: The profits? 
 
 Mr. Williams: The profits are different. It represents my interest in all 
 those things, and there would be no reason to complain if my stock were not 
 taxed, if, as a matter of fact, the tunnels and bridges were taxed. If the tunnels 
 and bridges are taxed, my stock is taxed. But the tunnels and bridges 
 and iron are not taxed. The tax is on a plan which is an absurdity. 
 The difficulty is, as far as personal property is concerned, choses in action, 
 the property of the large corporations of the United States is not taxed. 
 It is taxed on a conventional plan, but not on its actual cost. In Maryland the 
 Baltimore & Ohio comes before the Legislature and says that it is a mean thing 
 to tax them for tunneling under Baltimore City, which cost them twenty-five 
 ■million dollars. The cheerful, rural man is appealed to by that and other methods 
 and releases the Baltimore & Ohio from taxation on its twenty-five-million-dollar 
 improvement. Yet, if this man builds a pigsty, though the pig would live 
 cheaper if he did not build it, he is taxed on the pigsty. The people of various 
 States recognize that the difficulties that these railroads have to overcome is a 
 reason for imposing large taxes and not a reason for releasing them ; that, if the 
 •conduct of their business requires a vast amount of capital, that is no reason 
 vi^hy their taxes should be reduced. As far as taxation of evidences of corporate 
 enterprise is concerned, I think it should be proportionate to the cost of improve- 
 ment. The cost of the Baltimore & Ohio Railroad in Maryland, I suppose, could 
 "hardly be guessed at. Take street railroads, and the cost of an electrical system 
 is a certain amount per mile. It i« taxed at so much a mile — on an average, five 
 thousand dollars, which is supposed to represent the cost of the railroad. Every- 
 body knows that in a large city when you commence to build an extensive 
 street railroad system, it is necessary to pay out from fifty to two hundred 
 thousand dollars a mile outside of the franchise and other matters. The right 
 way to get at it is to see that the large corporate businesses are taxed according 
 to their cost. 
 
 Mr. Hines, of Louisville, Ky. : Mr. Chairman, I just desire to say that I 
 think the railroad paradise Mr. Williams has spoken of does not extend beyond 
 the State of Maryland. It does not exist in Kentucky. There the railroads 
 are taxed on more than the cost of producing their property. 
 
 Mr. Grosser, of Kansas: Mr. Chairman, no doubt there is a good deal of 
 perjury committed in reference to the valuation of personal property; is not 
 that also true of real estate? I believe I am safe in saying that in Kansas there 
 
NATIONAL CONFERENCE ON TAXATION. 29 
 
 are a great many inequalities in the taxation of real estate in the same town- 
 ships and in different counties. As far as railroads are concerned in Kansas, 
 they are assessed by a Board of Assessors composed of State officers, and the 
 railroad valuation is greater than the rest of the personal property of the State. 
 Railroads pay their share of taxes and we get at them very simply and very 
 easily. It costs comparatively Httle to levy and collect the tax. The plan is 
 simple, and it seems to me it is feasible and ought to be practicable in any 
 State. 
 
 Mr. Howard, of Indiana : Mr. Chairman, it seems to me I have noticed an 
 effort to consider the question of taxation from some scientific or exact and 
 mathematical point of view. I do not understand that taxation is anything 
 more than a practical question. The fact that we have difficulty in reaching 
 the personal tax in any particular case is no argument against it. As the gentle- 
 man from Kansas says, that is true of all kinds of taxation. Another observa- 
 tion made here seems to be beside the question as to what property has cost — 
 as to what the property of railroads has cost. Sometimes the taxes are made 
 too low on that ground. In a tunnel case it might be made too high on that 
 ground. The question is, rather, what the property is worth, what the property 
 is, what income comes from it. This question seems to me entirely a practical 
 one and that we should approach it from practical points of view in determina- 
 tion of values. One thing I think has been lost sight of to some extent — we 
 seem to forget our constitutions. The constitutions of different States, as well 
 as that of Indiana, require that all property should be t^xed. In Indiana we 
 cannot avoid that. We must tax all property the best we can. There it becomes 
 entirely a practical question. There are certain kinds of property, the property 
 of railroad, telegraph, telephone and express companies — property of that kind 
 extending from one State to another. In Indiana we think such property should 
 be taxed by a State Board, and we do not look at the question of the cost of 
 this property, simply, because a poor-paying railroad may cost in the beginning 
 as much as a good-paying railroad. We look at what the property is worth. 
 And while we do appeal to the companies in the first place to send in a list 
 of their property, their bonds and indebtedness, and their evidences of property, 
 our State Boards are not bound by such returns in determining what the 
 property is worth, also basing their determination upon the bonds of the company 
 and the selling price of the stock, and in that way making the companies them- 
 selves the actual judges of their property by the best test possible, namely, 
 what it would bring in the market. I have noticed, it seems to me, in the papers, 
 generally, that this question has been approached also from the scientific point 
 of view. It is not a scientific question. We cannot, value property on any 
 basis except by the best judgment of men. In Indiana we have a method by 
 which that can be done, and it strikes me that a good deal of the difficulty 
 suggested here has been removed in our State. 
 
 Mr. Curtis : Mr. Chairman, It seems to me that in this discussion, and as 
 to those who insist that we must continue the attempt to tax personal property, 
 that they are persisting in what the whole American nation have persisted in for a 
 hundred years, and which I will call by no better name than the great American 
 folly of trying to tax everything in sight and also everything out of sight. Pro- 
 fessor Seligman has sounded the keynote of the matter when he insists — I say that 
 it is a scientific question — that taxation must be laid, not so much with reference 
 to what may be taxed, but with reference to where the burden will ultimately 
 rest. If we will stop for a moment to consider, we know that nine-tenths. 
 
30 THE NATIONAL CIVIC FEDERATION. 
 
 speaking roundly, of the taxes imposed by the general property method, do not 
 rest ultimately where they are placed in the first instance. If we will bear 
 that in mind, we will get a long way on the road to reform. Someone writing 
 within a few years has said that in order t6 accomplish any considerable reforms 
 in taxation we must amend the Constitution of the United States, the Consti- 
 tutions of the several States, the constitution of human nature, and the constitu- 
 tion of things. We may amend the Constitutions of the several States, but 
 we cannot amend the constitution of human nature or the constitution of 
 things. Until we make the two last classes of amendments, we never will 
 successfully tax personal property. 
 
 Mr. Hall, of Missouri: Mr. Chairman, the remarks of the last gentleman 
 are a little too scientific for practical purposes. If it is true that the taxes of 
 ^ hoses in action fall upon another than the owner, why is it so many dodge 
 the listing of the choses in action when called upon? That very fact proves 
 that the party who owns the choses in action pays the tax. You may, by a 
 scientific reasoning bring it out that the other property — the borrower, for 
 instance — finally pays a higher rate than he would if the loaner did not have to 
 pay the tax; nevertheless, the man who holds or owns the chose in action 
 is the one who pays on it. Now, the principle of taxation is based upon the 
 right or the protection offered to the party. An owner of a note that is 
 good demands as much protection as an owner of a lot or of a horse. He 
 ought to be required to bear his proportion of the burden. ' The question of 
 getting the facts in the case could be arrived at, it seems to me, by requiring 
 the party who owns the chose in action to make a list of his choses in actions, 
 a list of all his notes and bonds and his horses and cattle, and let notes and 
 bonds be taxed, as horses and cattle. In order to carry that into effect, it 
 need not be required that he should swear to it, but make it a law that it 
 should be a good legal defense to any note or the payment of any bond. 
 Let the burden be laid upon the defendant; the defendant may show in a 
 court of law that the note or bond was not listed for taxation by the owner. 
 You will find that it will not be necessary to make him swear to it. He is 
 compelled to give in his property because he is afraid his neighbor will hold 
 him to the law. It seems to me that it is a practical proposition; if you 
 make men give in a list of the property they have, including immaterial as 
 well as material property, you comply then with the demands of the system 
 and the justice of the system, and make each one bear his proper proportion 
 of the burden. 
 
 Mr. Heermance, of New York: Mr. Chairman, it seems to me a good 
 deal of the difference of opinion which seems to exist here is only apparent 
 and, perhaps, from lack of defining terms. I doubt very much whether there 
 are many delegates in this Convention who would really suggest, or propose, 
 at any rate, as a practical scheme at present, whatever theories they may 
 have in regard to what may be accomplished some time in the future, the 
 absolute abolition of a personal property tax. For instance, the gentleman 
 who spoke at my right a few moments ago spoke as though the words of 
 Professor Seligman might be interpreted as favoring such an abolition. Unless 
 I have misunderstood what the professor says, I certainly do not believe he 
 favors anything of the kind. Now, the question is as to the methods of getting 
 at it. I assume that those who speak of doing away with the personal property 
 tax have reference more particularly to doing away with it as a part of the 
 general property tax rate in the way it is usually laid now, whether it is 
 
.NATIONAL CONFERENCE ON TAXATION. 
 
 31 
 
 by a listing system or whether it is within the purview of the local assessor to 
 get at it as best he may, usually by guesswork, and to reach it, as was suggested 
 by Senator Garfield, by getting at the fountain-head so that it will be impossible 
 for personal property to become exempt. There is a certain kind of income- 
 producing property, which it seems to be difficult to reach. Suppose, here 
 in the City of Buffalo, for the purposes of illustration, you have some railroad 
 or street railroad which is put in at the cost of the actual plant at five million 
 dollars. It goes to work and in a few years the stock is five million dollars, 
 and it pays five per cent on that amount. In a few years more it pays five 
 per cent, on ten million dollars, and the stock would go up to two hundred per 
 cent. The additional valuation very largely escapes taxation, and some method 
 of reaching that additional value is certainly desirable. If I may be permitted, 
 I want to say something in reference to the question that has called forth 
 this later discussion in regard to the condition of the farmer. It illustrates 
 how very widely conditions differ in the different States of this country. The 
 gentleman from Indiana and some of the other Western representatives have 
 shown that the farmers in those sections were very prosperous, that they 
 owned four-fifths, or held that proportion of the bank stock and the mort- 
 gages. They want to take into consideration that the wealth and prosperity 
 of the Western farmer is at the expense of the agricultural interests of this part 
 of the country. It would not do for the gentlemen who come from the West, 
 where such a prosperous agricultural condition prevails, to go away without hav- 
 ing some idea of the conditions in New York. There are gentlemen from other 
 States who will enlighten them as to the conditions prevailing in those localities; 
 but here, owing to the very fact of the Western competition, with their increased 
 facilities for getting their products into the market, farming lands in New 
 York and in the Eastern States generally, have depreciated in value from 
 fifty to seventy-five per cent. This seems like a pretty wild statement; never- 
 theless it is a fact. The assessments have been largely kept up owing to 
 the habit Assessors have fallen into of following right along. To be sure, 
 there has been some little decrease, but it has been nothing whatever in propor- 
 tion to the decrease in the selling value of farm property which has grown 
 out, not so much from the decrease in the productiveness of the farm, but 
 from the competition of the Great West. So that here, in this State to-day, 
 where there was at one time a demand for a farm — and if a farm were adver- 
 tised for auction there would be, not only the neighbors of the man and others 
 in the township, but from without the township, capitalists would come with 
 the expectation that they might have an opportunity to make a good invest- 
 ment in real estate; and if it were sold at a reasonable price, they would 
 be able to make a good investment. That is the state of affairs that formerly 
 existed, but to-day, ninety-nine times out of a hundred, the mortgagee gets 
 the property sold on foreclosure, and nine times out of ten he gets it for 
 less than the assessment; and nine times out of ten he might advertise the 
 foreclosure sale in all the papers of the county and have handbills distributed 
 all about, and when you came to the day of the sale the only ones that would 
 be there would be the mortgagee and his attorney — and possibly one or two 
 owners of adjoining property, if they were not too busy with their crops — 
 -would walk around as a matter of curiosity to see what figure the farm goes 
 at. Then, when the mortgagee buys it, he does not know what to do with it. 
 I found, in going through this State, a man who had a mortgage on a farm 
 -and had to sell it, and the property was bought in. It was a farm of one 
 
32 
 
 THE NATIONAL CIVIC FEDERATION. 
 
 hundred eighty acres of land, with good buildings. When he began to 
 look around to find some one to hire that farm he found the class of people 
 who worked farms and owned farming implements had ceased to exist. They 
 had sold their implements and gone to work for other farmers or for the 
 railroads or elsewhere. And it resulted, to make a long story short, in the 
 mortgagee going to a young man whom he knew, and sayiqg to him that 
 if he would take the farm and work it and keep the fences and buildings 
 from falHng down, and the weeds and bushes from growing up, till he could 
 sell it, he would buy a pair of horses and all the implements necessary to 
 run it, and pay the taxes and furnish the young man the seed, and he could 
 have all he made out of it. A man who gets a farm on his hands in this 
 State, and is not a practical farmer, ready to get up at four o'clock in the 
 morning and work eighteen hours a day, will find that that is about the result 
 of his ownership. 
 
 The Chairman : Why are not your valuations reduced under those circum- 
 stances ? 
 
 Mr. Heermance: Well they have been reduced, but the Assessor has not 
 kept pace with the depreciation. For instance, I may mention this thing, though 
 It may seem petty, but when you come into the rural community the farmers, 
 of course, are always considering small matters. A few hundred dollars is 
 of as much importance as tens of thousands to men in the great municipalities. 
 In the rural communities they deal with small figures. Only a few days ago 
 I knew a piece of property belonging to a poor man — a farm of thirty-four acres 
 of land — had to be sold to pay the debts. He was in the asylum and had a 
 few hundred dollars of debts. I do not know what he paid for the property, 
 but it was assessed for five hundred dollars, and was advertised in all the 
 local papers, and handbills stricken off, and everything possible done to obtain 
 a good price; and it sold for three hundred fifty dollars. I can cite a large 
 number of similar cases. 
 
 The Chairman : Gentlemen, if there is any State that has put in force 
 any such measure as suggested by the gentleman from Missouri, we should 
 be very glad to hear of its success, on reassembHng. Our legislature in 
 Missouri passed a bill a few years ago, not only making a failure to list for 
 taxes an offense, but requiring as a condition of negotiability of any note or 
 bond, whether secured by mortgage or not, that it be stamped by the Assessor 
 and listed for taxation. The bill was vetoed by the Governor, on the ground 
 that it would have a tendency to drive capital from the State and be disastrous 
 to the farmer and all other classes of people. 
 
 Mr. Mather, of Illinois: Mr. Chairman, I suggest that some arrangement 
 or provision ought to be made for the pubHcation of the papers and the discus- 
 sions of this conference. If no other provision has been made, I beg to suggest, 
 and make a motion to the effect, that a committee of five be appointed by the 
 Chairman, on publication. 
 
 The motion was duly seconded. 
 
 The Chairman: The Chair -understand's that arrangements have- been- 
 made for a stenographic report of these proceedings, and that such a report is 
 being made. 
 
 The Chairman put the question on the motion, and the same was duly 
 carried. 
 
 Mr. Seligman : Mr. Chairman, I have a motion which I wish to offer. 
 I think that many of us who have come here to this gathering, have come not 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 33 
 
 alone with the expectation of learning a great deal from one another, but also 
 with the hope that there might be some definite outcome of this Conference. I 
 therefore suggest that the Chairman appoint a committee of five, of which 
 he should be one, to bring in a report at some future meeting of this Confer- 
 ence as to the advisability of forming a permanent organization, and to report 
 to the Conference as to what kind of a permanent organization, if any, is 
 deemed desirable. 
 
 Mr. Heermance: Mr. Chairman, it seems to me that is a matter of a 
 great deal of importance. This Convention was called for the 23d and 24th, 
 although it is now the intention to carry it along over Saturday. There are 
 proably some who will be called away by to-morrow night, as I myself 
 shall be, and I know of several others who came here expecting a two days' 
 session. I would therefore suggest that, if such a committee is appointed, 
 it should report as soon as possible and an hour be fixed for taking up this 
 matter as a special order. It seems to. me that the practical outcome of such 
 a gathering as this is to be largely found in just such an organization, where 
 there would be permanent means of bringing together all the data the different 
 States might provide in the hands of some general secretary, so that not only 
 the members of such an organization after it is formed, but the tax officials of 
 every State in the country ultimately, may be able to have access to them 
 at once, and that a new man upon his inauguration into office may have the 
 resuhs of the work that has been done before, and not have to start in as an 
 original investigator and go over all the ground which many other tax officials 
 have gone over. 
 
 The Chairman : The question before the house is the appointment of a 
 committee of five to report to an adjourned meeting to-morrow afternoon upon 
 the plan of permanent organization. 
 
 The Chairman put the question on the adoption of the motion, and the 
 same was adopted. 
 
 On motion of Senator Sloan, the Conference took a recess until half-past 
 two o'clock. 
 
 PROCEEDINGS OF THE AFTERNOON SESSION, MAY 23, 1901. 
 
 Chairman Judson called the Conference to order at half-past two o'clock. 
 
 The Chairman : Gentlemen, a committee of five was authorized this morn- 
 ing to be appointed on the matter of publication. The Chair appoints as such 
 committee ex-Secretary Fairchild, of New York; Mr. Mather, of Illinois; Mr. 
 Russell, of Delaware; ex-Senator Davis, of West Virginia, and Mr. Little, of 
 Massachusetts. 
 
 In the matter of permanent organization, the Chair has named upon the 
 committee as the four gentlemen he was authorized to designate, Mr. Seligman, 
 of New York ; Mr, Garfield, of Ohio ; Mr. Gilson, of Wisconsin, and Mr. Purdy, 
 of New York. 
 
 Gentlemen, the program outlined for this afternoon is the general discus- 
 sion of the taxation of corporations, on which subject we have papers from 
 Mr. Howe, of Cleveland, on the "Federal Restraints on the Taxation of 
 Corporations"; a paper from ex-Secretary Fairchild, of New York, who unfor- 
 tunately is detained and unable to be present himself but whose paper will 
 be read, on the subject of "Banks and Trust Companies," and also a paper 
 from Mr. Allen Ripley Foote, of Chicago. 
 
34 THE N^ATIONAL CIVIC FEDERATION. 
 
 Mr. Davis: Mr. Chairman, while I am ready to serve, and will be glad 
 to help the Commission in any way I can, yet I am so far away as to be 
 unable to serve on the committee upon which you have just done me the honor 
 to appoint me. 
 
 The Chairman: I think there will be little work after the adjournment 
 of the Conference, and perhaps in that view Senator Davis will be able to 
 serve. 
 
 Mr. Davis : I think, however, it will be better to have some one else 
 named in my place. 
 
 The Chairman : That position will, then, be filled later. 
 
 I now have the pleasure of introducing to you, gentlemen, Mr. Frederic C. 
 Howe, of the Bar of Cleveland, Ohio, who will read a paper on "Federal 
 Restraints on the Taxation of Pubhc Service Corporations." 
 
 I will ask Attorney-General Godard of Kansas to take the Chair. 
 
 Mr. Godard took the Chair. 
 
 FEDERAL RESTRAINTS ON THE TAXATION OF PUBLIC SERVICE 
 
 CORPORATIONS. 
 
 BY FREDERIC C. HOWE. 
 
 It is a significant thing that the forces which animated the calling of the 
 Annapolis Conference by Virginia in 1786 should remain the most powerful forces 
 for union in the United States at the present day. It was for the purpose of 
 securing united action for the establishment of a line of intercolonial communica- 
 tion and the freeing of such communication from regulation and restraint by the 
 several colonies that led the colonies to seek a more perfect union. That effort 
 resulted in the establishment of the Federal Constitution. The old confederation 
 had fallen as much by virtue of the harassing exactions on intercolonial com- 
 merce as by the financial and political impotency of the Continental Congress. 
 
 And it is a fact of no little political interest that the controversy between the 
 different colonies over the regulation and taxation of intercolonial commerce 
 should remain one of the most persistent political and legal questions of Ameri- 
 can history. It persists in certain classes of laws aimed at the sale of such articles 
 of commerce as intoxicating liquors, oleomargarine and the like, as well as in the 
 taxation and regulation of the instruments of commerce as railroads and trans- 
 mission companies. But the ground of the controversy has shifted, for whereas 
 the struggle theretofore had been between the colonies, jealous of their individual 
 integrity and privileges, the subsequent issues have been between the States 
 and the National Government, and have been wrought out in the courts rather 
 than in legislative halls. 
 
 It is only in the matter of taxation, however, that the constitutional evolu- 
 tion which has taken place about that section of the Consitution which provides 
 that "the Congress shall have power to regulate commerce among the several 
 States," interests us to-day, although the early controversies of the courts over 
 the question of whether this power is exclusive in Congress or concurrent with- 
 the States is most alluring. The latter question, however, is but part of a 
 greater political issue which found its termination in the Civil War, although 
 
NATIONAL CONFERENCE ON TAXATION. 35 
 
 in a modified form it exists to this day in the attempts of the States to regulate 
 interstate commerce in intoxicating liquors, oleomargerine and the like. 
 
 In recent j'ears the struggle over the regulation of interstate commerce has 
 been transferred to the domain of finance and taxation, and the aid of the 
 Federal Judiciary has been called upon with recurring frequency for the purpose 
 of staying the hands of State Legislatures in their efforts to bring the taxation 
 of corporations more into harmony with modern industrial conditions. 
 
 While the question has already passed from the domain of legal discussion 
 into that of established jurisprudence, it is doubtful if the question arose de novo 
 whether the courts would again hold that any fair and legitimate exercise of 
 sovereignty in the form of taxation, was per se such "regulation" as is contem- 
 plated by the Federal Constitution under the commerce clause. The obiter of 
 Marshall that "the power to tax involves the power to destroy" has ever proven 
 a bogey in the eyes of the courts, and scores of enactments have been sacrificed 
 at that altar. 
 
 While I do not mean to question but that the power of taxation may be 
 used for the purpose of regulation, as in the case of liquor license laws and 
 similar enactments, it is unwarranted to assume that every tax upon commerce 
 is of necessity a regulation, for a tax only assumes that form when certain ele- 
 ments coincide which prejudice the class or property aimed at, or when the law 
 has a social or sumptuary object in view. In some recent cases, the Supreme 
 Court has held that it would take into consideration any injustice, double taxation 
 or discrimination on the part of the States which involved interstate properties, 
 and had this attitude of mind on the part of the court obtained heretofore, much 
 confusion would have been avoided. 
 
 It is my purpose to consider the limitations which the Federal Courts have 
 imposed upon the power of the State to tax railroads and transmission com- 
 panies engaged in interstate traffic, and, if possible, to deduce from their decisions 
 the powers of the individual commonwealths in this respect. 
 
 The controversy which has of late occupied the attention of the courts to 
 so great an extent over the taxation of transportation companies on some other 
 basis than the general property tax first arose nearly a generation ago. It grew 
 out of an attempt on the part of the State of Pennsylvania to tax the tonnage 
 carried by railroads, steamboats and canals at a specific rate of from two to five 
 cents a ton for freight carried. The tax was made applicable to all traffic carried 
 over, through and into the State, as if the whole of the respective railroad lines 
 were in Pennsylvania. The case was most exhaustively argued and the tax held 
 a regulation of interstate commerce, and hence repugnant to the Constitution of 
 the United States.^ 
 
 Some time prior to this it had been questioned by the Supreme Court whether 
 the transportation of passengers was commerce,* but later decisions' have settled 
 that a tax upon passengers is a regulation of commerce, and void. 
 
 Of a somewhat similar character to the taxes upon tonnage are those levied 
 upon telegraph messages, as such, transmitted beyond the State line,* or on the 
 receiving and landing of express or freight in one State from another State.' 
 
 ^ State Freight Tax Case. 15 Wall. 232. 
 
 * Crandall vs. Nevada, 6 Wall. 35. 
 
 * Hall vs. DeCuir, 95 U. S. 485. 
 
 * Telegraph Co. vs. Te.xas. 105 U. S. 460. 
 'Ferry Co. z's. Pennsylvania, 114 U. S. 196. 
 
36 THE NATIONAL CIVIC FEDERATION. 
 
 Such duties have been held to be restraints upon interstate commerce, and hence 
 illegal. 
 
 The principles underlying these decisions are uniform and easily recon- 
 cilable. 
 
 The same harmony does not exist, however, in the attitude of the Supreme 
 Court upon taxes levied by the States upon gross receipts, or taxes imposed 
 by way of licenses. In a number of Southern States it has been attempted to 
 tax transmission companies by the latter method. Both States and cities have 
 imposed license taxes, which have been resisted by the corporations. These 
 licenses have been imposed either at an arbitrary rate or proportioned to the 
 amount of business transacted. On a number of occasions these enactments have 
 been declared invalid on the ground that they affected the entire business of the 
 company, interstate as well as local, and hence regulated comm^erce.* The same 
 Court, however, has permitted license taxes to stand where the act itself declared 
 that they were levied upon business done exclusively within the city or State/ 
 It thus appears that the fate of such taxes at the hands of the Court has depended 
 not so much on their effect and purpose as upon the form in which they are 
 drawn. 
 
 A similar lack of harmony exists in the decisions of the Federal Courts upon 
 taxes imposed upon the gross receipts. This is the most prevalent form of taxa- 
 tion in vogue in the States, with the exception of the general property tax. It is 
 simple, easily assessed and supplements local rates. The decisions of the courts 
 upon this tax are reconcilable only upon legal and technical grounds. 
 
 In the early seventies, the State of Pennsylvania, which has been prolific of 
 tax experiments, attempted to tax railroads on their gross receipts, including the 
 receipts made up from interstate traffic. The Court held that this was not a 
 regulation of interstate commerce, and established a principle which has been far- 
 reaching in its consequences. The decision was explained on the ground that, 
 under the terms of this statute, the receipts had lost their character as receipts 
 and had become merged into the company's property before the tax was levied. 
 It thus became a tax on property, and not a tax on commerce. Moreover, as the 
 corporation was a Pennsylvania one, it was held that the tax might be viewed 
 as levied upon the franchise created by the State taxing it, and that there was no 
 more reason why such a franchise should not be valued by the gross receipts or 
 ■earnings of the road as by any other method.* And the same principle has been 
 sustained when applied to a tax upon the gross receipts of a foreign railroad 
 corporation, where the law was declared to be an excise tax for the privilege of 
 exercising its franchise within the State. In this latter case, the amount of the 
 receipts to be taxed was determined by the proportion of the mileage within the 
 State to the total mileage of the road. Four judges, however, dissented to the 
 majority opinion." 
 
 And it has been repeatedly held that a State may impose conditions upon 
 foreign manufacturing corporations, and may make the privilege of doing 
 business in the State dependent on the payment of a specific license tax. or propor- 
 tioned to the amount of capital used within the State, as a tax on its corporate 
 
 *LeLoup vs. Mobile, 127 U. S. 640. Moran vs. New Orleans, 112 U. S. 69. 
 ' Postal Telegraph Co. vs. Charleston, 153 U. S. 692. 
 * State Tax on Railway Gross Receipts. 15 Wall. 284. 
 
 *■ Maine vs. Grand Trunk Ry,, 142 U. S. 217. Railway Co. vs. Pennsylvania, 
 158 U. S. 431. 
 
NATIONAL CONFERENCE ON TAXATION. 37 
 
 franchise or business." The reason for this rule is that just as a State may 
 refuse to create a corporation, or may impose any sort of a franchise tax upon 
 its creation, so it has the absolute power of excluding a foreign corporation 
 (saving those engaged in interstate or foreign business), from its jurisdiction, or 
 of imposing such conditions upon that privilege as it may deem expedient. 
 
 But the Supreme Court has further held that a tax upon the gross receipts 
 of a New York express company doing business in Michigan for the carriage 
 of freights into, out of or through the State, was invalid. The duty in the latter 
 case was imposed upon the receipts specifically as receipts," and a Pennsylvania 
 case in which the tax in terms was levied upon the gross receipts of business 
 between different States was held to be a regulation of interstate and foreign 
 commerce, and hence invalid." All of the taxes referred to above were levied 
 upon either the evidences of property or the privilege of transacting business. 
 They were in no sense property taxes. 
 
 In recent years a tendency has been manifest to abandon such expedients as 
 licenses, receipts and tonnage duties, and return to the taxation of property. 
 But the return has not been to the general property tax as such. It it rather to 
 the adoption of new methods of valuation and assessment. Under the early laws, 
 railroads and transmission companies were, and still are in many States, assessed 
 not as a whole, but upon their various constituent parts as roadway, rolling stock, 
 stations, etc. The tendency of more recent statutes is to assess the property as 
 a unit, as a going concern, the valuation being obtained from the stock and bonds ; 
 or by the capitalization of net earnings or by a special board authorized to use 
 the best evidence obtainable as to valuation. In some jurisdictions, this is termed 
 a franchise tax, in others an excise tax, in others a property or franchise tax. 
 In all cases, however, the effort is to assess the franchise as property and the 
 physical property as a unit. In a number of States, franchises are specifically 
 enumerated as property to be taxed, and the object of these laws is to secure this 
 special value which the corporation enjoys over and above its physical property 
 for the purpose of taxation. How valuable a right this may be is seen in the 
 fact that the valuation of local public service corporations was increased $170,- 
 000,000 under the Ford Franchise Law passed by the New York Assembly in 
 May, 1899. In Ohio, the valuation of one express company, based upon its capital 
 stock, was increased from $93,933 to $1,520,734 under the Nichol's Law, while 
 in a Kentucky case, the franchi.se of a bridge over the Ohio River used for rail- 
 way purposes, was appraised at $865,157 in addition to the tangible property. In 
 Kentucky, under a law similar to the Nichol's Law in Ohio, the valuation of an 
 express company was increased from $36,614 on the personal property to $1,463,- 
 040 upon its franchise. 
 
 THE LEGALITY OF THE FRANCHISE TAX, OR TAXATION BY THE UNIT RULE. 
 
 Valuation based upon the franchise or unit rule has been upheld by the 
 Supreme Court of the United States in a large number of cases. The question 
 was first raised under an Illinois statute taxing all corporations on the value of 
 the capital stock, the franchise being assumed to be the value which existed over 
 and above the assessed value of the tangible property. Under this act the market 
 
 "New York State vs. Roberts, 171 U. S. 658. Paul vs. Virginia, 8 Wall. 
 168. Mining Co. vs. New York, 143 U. S. 305. 
 " Fargo vs. Michigan, 121 U. S. 230. 
 " Steamship Co. vs. Pennsylvania, 122 U. S. 326. 
 
38 THE NATIONAL CIVIC FEDERATION. 
 
 value of the capital stock, plus the market value of the debt (exclusive of floating 
 indebtedness), was assumed to be the fair value of the property. From the 
 amount as thus ascertained, all tangible property was to be deducted, and the 
 amount remaining was to be taxed as the fair cash value of the franchise. In 
 passing upon this plan, the Court said : 
 
 "This method may not be the wisest mode of doing complete justice in this 
 matter; but we confess we have on the whole seen no scheme which is better 
 adapted to effect the purpose, so far as railroad corporations are concerned, of 
 taxing at once all their property, and of making the tax just and equal in its 
 relation to other taxable property of the State." 
 
 And the Court further said: 
 
 "It is, therefore, obvious that when you have ascertained the current cash 
 value of the entire number of shares, you have by the action of those who above 
 all others can best estimate it, ascertained the true value of the road, of its 
 property, its capital stock and its franchise, for these are all represented by the 
 value of its bonded debt and the shares of its capital stock." ''' 
 
 Valuations for purposes of taxation based upon the capital stock, or upon the 
 stock and bonds, have since then been repeatedly sustained by the Federal 
 Courts.'* 
 
 The economic considerations underlying this tax are nowhere better stated 
 than in the case of Adams Express Company I's. Ohio State Auditor,*^ on a 
 petition for a rehearing. In this case, all of the alleged inequalities of the law 
 were placed before the Court and exhaustively treated. 
 
 Justice Brewer said, in affirming the previous action of the Court : 
 
 "Again and again has this Court affirmed the proposition that no State can 
 interfere with interstate commerce, through the imposition of a tax, by whatever 
 name called, which is in effect a tax for the privilege of transacting such com- 
 merce. And it has as often affirmed that such restriction upon the power of a 
 State to interfere with interstate commerce does not in the least degree abridge 
 the right of a State to tax at their full value all the instrumentalities used for 
 such commerce. . . . The only real substantial question is whether, properly 
 understood and administered, they (the tax laws), subject to the taxing power 
 of the State property not within its territorial limits. The burden of the conten- 
 tion of the express companies is that they have within the limits of the State 
 certain tangible property, such as horses, wagons, etc. ; that that tangible property 
 is their only property within the State; that it must be valued as other like 
 property, and upon such valuation alone can taxes be assessed and levied against 
 them. 
 
 "But this contention practically ignores the existence of intangible property, 
 or at least denies its liability for taxation. In the complex civilization of to-day, a 
 large portion of the wealth of the community consists in intangible property, and 
 there is nothing in the nature of things, or in the limitations of the Federal Con- 
 stitution, which restrains a State from taxing at its real value such intangible 
 property. ... It matters not in what this intangible property consists, — 
 whether privileges, corporate franchises, contracts or obligations. It is enough 
 that it is property, which, though intangible, exists, which has value, produces 
 
 " State Railroad Tax Cases, 92 U. S. 575. 
 
 "Western Union Telegraph Co. vs. Mass., 125 U. S. 530. Pullman Co. 
 vs. Pennsylvania, 141 U. S. 18. Telegraph Co. vs. Taggart, 163 U. S. i. Express 
 Co. vs. Auditor, 165 U. S. 194. 
 
 " 166 U. S. 185. 
 
NATIONAL CONFERENCE ON TAXATION. 39 
 
 income and passes current in the markets of the world. To ignore this intangi- 
 ble property, or to hold that it is not subject to taxation at its accepted value, is 
 to eliminate from the reach of the taxmg power a large portion of the wealth of 
 the country. Now, whenever separate articles of tangible property are joined 
 together, not simply by a unity of ownership, but in a unity of use, there is not 
 infrequently developed a property, intangible though it may be, which in value 
 exceeds the aggregate of the value of the separate pieces of tangible property. 
 Upon what theory of substantial right can it be adjudged that the value of this 
 intangible property must be excluded from the tax lines, and the only property 
 placed thereon be the separate pieces of tangible property? 
 
 "Now it is a cardinal rule that should never be forgotten, that whatever 
 property is worth for the purposes of income and sale, it is also worth for the 
 purposes of taxation. . . . Substance of right demands that whatever be the 
 real value of any property, that value may be accepted by the State for the pur- 
 pose of taxation, and this ought not to be evaded by any mere confusion of words. 
 . . . The value which property bears in the market, the amount for which its 
 stock can be bought and sold, is the real value. Business men do not pay cash for 
 properly in moonshine or dreamland. They buy and pay for that which is of 
 value in its power to produce income or for purposes of sale. ... In con- 
 clusion, let us say that this is eminently a practical age ; that courts must 
 recognize things as they are and as possessing a value which is accorded to them 
 in the markets of the world, and that no fine-spun theories about situs should 
 interfere to enable these large corporations, whose business is carried on through 
 many States, to escape from bearing in each State such burden of taxation as 
 the fair distribution of the actual value of their property among those States 
 requires." 
 
 Difficult questions have arisen in the case of corporations lying partly in one 
 State and partly in another, for manifestly a State cannot tax property lying 
 outside of its borders. This difficulty has been obviated by a plan of apportion- 
 ment by which the valuation for the entire property being obtained, so much 
 thereof is accredited to the taxing State as the length of mileage in that State 
 bears to the entire mileage covered by the valuation. This, it is assumed, repre- 
 sents in a fairly accurate way the valuation to be taken in the making up of the 
 State appraisal. Such is the plan adopted in Massachusetts, Connecticut, Indiana, 
 Kentucky, Ohio and probably elsewhere. 
 
 In a recent case from Ohio, the Supreme Court of the United States sustained 
 this method. Under this law telegraph, telephone and express companies are 
 taxed on their capital stock, the value of the property within the State of Ohio 
 being determined by the length of mileage or gross receipts within the State. 
 The Court said the act was not repugnant to the commerce clause of the Consti- 
 tution, because it was essentially a property tax, and did not effect interstate 
 commerce. And the Court said further : 
 
 "No more reason is perceived for limiting the valuation of the property of 
 express companies to horses, wagons and furniture, than that of railroad, tele- 
 graph and sleeping-car companies to roadbeds, rails and ties, poles and wires, or 
 cars. The unit is a unit of use and management, and the horses, wagons, safes, 
 pouches and furniture; the contracts for transportation facilities; the capital 
 necessary to carry on the business, whether represented in tangible or intangible 
 property, in Ohio, possess a value in combination and from use in connection 
 with the property and capital elsewhere; which could as rightfully be recognized 
 
40 THE NATIONAL CIVIC FEDERATION. 
 
 in the assessment for taxation in the instance of these companies as the others. 
 We repeat that while the unity which exists may not be a physical unity, it is 
 something more than a mere unity of ownership. It is a unity of use." ^^ 
 
 Four judges dissented to this decision upon the ground that it was an 
 attempt to tax property outside of the commonwealth of Ohio. Many other 
 decisions have been rendered sustaining apportionment upon the basis of mileage 
 or gross receipts. From these and other decisions, it seems to be possible to 
 construct a consistent, and, it is hoped, final delimitation of the powers of the 
 States in the matter of taxing this class of property. 
 
 It would now seem to be settled that a State may not tax corporations 
 engaged in interstate traffic : 
 
 First — By license or privilege taxes, which in terms or by reasonable implica- 
 tion, affect business of an interstate character, nor 
 
 Second — Levy a tax upon gross receipts as receipts from interstate business, 
 nor 
 
 Third — Levy a tax on tonnage, freight or passengers carried from State to 
 State, or from one State into another. 
 
 On the other hand, it is established 
 
 First — That a license tax, as a tax upon business done wholly within the 
 State is valid. 
 
 Second — That a tax levied upon receipts from business done or commerce 
 carried wholly within the State is valid. 
 
 Third — That a tax upon a domestic corporation as a franchise tax, the earn- 
 ings being adopted as a means of ascertaining the value of the franchise ; or a 
 license or excise tax upon a foreign corporation as a payment for the privilege 
 of doing business in a State, even when levied on the gross earnings or the 
 franchise, is valid, for the courts have held that a franchise to do is as subject to 
 taxation as a franchise to be. 
 
 Fourth — That a tax upon gross receipts after they have lost their character 
 as interstate receipts and become merged into a part of the corporate property, 
 is valid. 
 
 Fifth — That taxation by the unit rule upon a valuation obtained upon the 
 capital stock, or the capital stock and the bonded indebtedness, is valid as a 
 property tax, franchise tax or excise tax. It is valid as a property tax on the 
 theory that a valuation thus obtained more accurately represents the value of the 
 property than any other. As a franchise tax, it has been sustained on the 
 ground that the enjoyment of the franchise may be bestowed on any terms the 
 State may determine on, and that as the State creates it, it may declare it to be 
 property subject to taxation. As an excise tax, it has been upheld on the same 
 grounds as the franchise tax, as a payment for the privilege of doing business 
 within the taxing commonwealth. 
 
 Sixth — It has been further held that in the valuation and appraisal of corpora- 
 tions engaged in interstate business, a correct basis for appraisal for State 
 purposes is the percentage of total valuation that the mileage or gross receipts 
 in the State bears to the total gross receipts or mileage of the corporation. 
 
 It is a matter for congratulation that a way has been found out of the 
 confusion which existed in the taxation of railroads and transmission companies. 
 Whatever be the details of the method finally approved, whether it be one of 
 appraisal by the stock and bonds, by the capitalization of the net receipts, or by a 
 
 Adams Express Co. vs. Auditor, 165 U. S. 194, 221. 
 
NATIONAL CONFERENCE ON TAXATION. 41 
 
 board authorized and empowered to take into consideration every class of evidence 
 which would tend to establish value, the courts have at least placed the stamp 
 of approval upon the valuation of such property as a unit, and it is believed that 
 this plan is as equitable as any that could be devised. For, as the Supreme Court 
 has said, such a valuation is, in reality, the valuation of the commercial world. 
 It is the appraisal of those best qualified to speak on the subject. And at the 
 present time, with all classes of corporations listed on the stock exchange, and 
 with daily sales of the stock of all transportation, transmission and the larger 
 industrial companies, a true valuation is more easily attainable of them than of any 
 other class of property. Manifestly, sales of stock under extraordinary conditions 
 should not be adopted as a standard, but an average of the sales for a given 
 period, as a year, would relieve from any sudden or speculative variations. 
 
 Such a plan as this also views the corporation as a unit for business purposes. 
 To assess it in any other way, as by an inventory of its right of way, stations, 
 rolling stock and similar elements, is as logical as the valuation of an engine, 
 pump or boiler obtained by reducing it to its plates, pistons, rivets, bolts, etc. 
 
 Moreover, such a valuation as is here suggested is in harmony with the 
 rules laid down by the Supreme Court. of the United States in condemnation pro- 
 ceedings where it has been attempted to appropriate private property for public 
 purposes. The Court has said in such cases that it must be viewed as a going 
 concern, and payment has even been required for the franchise which the State 
 itself has voluntarily given. And it is only suggested that in the matter of taxa- 
 tion, the State adopt the same basis of valuation that the corporation insists upon 
 in case of appropriation by the State. 
 
 Some difficulties of detail arise in the method of appraisal. Shall this be by 
 hard and fast rule, or be more or less discretionary with the valuing board? In 
 the commonwealth of Connecticut, the tax is levied on the market value of the 
 stock and the par value of the funded and floating indebtedness. If any of the 
 indebtedness is below par, then the actual valuation of the indebtedness is taken. 
 The same method obtains in Massachusetts and to a limited extent in other 
 States, saving that in Massachusetts the valuation is based exclusively on the 
 capital stock. 
 
 The latter plan, especially in the Western States, would leave out of consid- 
 eration the chief element of cost, for it is a well-known fact that most Western 
 transportation companies have been constructed by the sale of bonds. The same 
 is true of nearly all corporations operating under a special or monopoly franchise. 
 The Ford Franchise Law recently passed by the State of New York provides no 
 hard and fast rule for valuing the special franchise, but leaves it to be assessed 
 as real estate and the valuation to be made up by the assessing board from such 
 evidences as the board may acquire or adopt. 
 
 It has been contended by some that a fair valuation may be more equitably 
 reached by capitalization of the net earnings on a basis to be agreed upon. 
 This latter plan presupposes, however, that the rate of interest adopted is the 
 prevailing rate of interest. It moreover leaves the question of net earnings 
 always to be determined, which is a somewhat difficult matter. All things con- 
 sidered, and especially in view of the necessity of having some fixed and estab- 
 lished standard to prevent discrimination between different companies, it seems 
 wise to adopt the plan suggested by the Pennsylvania Tax Conference — i. e., the 
 valuing of property upon the market value of the stock, plus the par value of 
 the bonds, if the bonds are at or exceed par, and the market value of the 
 bonds if they are below par. 
 
42 
 
 THE NATIONAL CIVIC FEDERATION. 
 
 From the valuation thus obtained, certain deductions should be made as, 
 for instance, the stock and bonds held by the corporation of other corporations 
 already taxed. 
 
 In the case of corporations of an interstate character, fairness further 
 demands that from the valuation of the corporation for its entire mileage there 
 should be subtracted the valuation of all real estate held outside of the State 
 and taxed locally, and which is not necessary to the operation of the road. 
 
 Matters of local expediency will determine the policy to be adopted by the 
 taxing State in the distribution of the valuation as thus obtained. Two plans 
 have been adopted. In Connecticut an arbitrary rate of ten mills is assessed 
 upon the entire valuation for State purposes and the company relieved from 
 all local burdens. This is the plan suggested by the Tax Conference of 
 Pennsylvania. 
 
 Under the Nichols Law in Ohio, the valuation is redistributed to the 
 counties and local civil divisions upon the basis that the gross receipts of 
 each county bears to the total gross receipts in the State. And the same 
 proportion of the State valuation is certified to the local taxing authorities to 
 be by them placed upon the tax duplicate. The prevalent plan of apportion- 
 ing by mileage militates against the large industrial and commercial centers, 
 but this injustice is in large part corrected by distribution according to gross- 
 receipts. 
 
 It would seem that a better plan than either were to deduct from the 
 valuation as obtained bv the State Board, all terminal values and other local- 
 ized properties owned by the corporation within the State, which values should 
 be certified back to the local officials as local realty. The balance or franchise 
 value remaining should be divided among the local taxing divisions in the 
 proportion that the gross receipts each subdivision bears to the total receipts 
 within the State. This plan enables each county to enjoy a revenue from any 
 local physical property and improvements and distributes the franchise value 
 in accordance with the business transacted, which is, of course, the deter- 
 mining element of value. Mileage apportionment within the State is at best 
 but a fortuitous method. 
 
 And any plan which deprives the counties and cities of the valuation 
 given their tax duplicates by transportation and transmission companies, and 
 turns the same over to the State for State taxation exclusively, diminishes 
 the duplicate of the divisions which can least afford such a loss. This latter 
 method necessitates, moreover, the adoption of a purely arbitrary rate for 
 State purposes, or an average rate, as is done in Massachusetts. Moreover, 
 if this class of property be appropriated for State purposes, it may subject the 
 corporation to heavy rates for State purposes, at a full valuation, while the 
 average valuation of real estate throughout the State may be very low, for 
 it is a notorious fact that property within the same State may be assessed 
 in different counties all the way from 5 per cent to 100 per cent of its true value. 
 
 There seems to be no good reason why such a method of valuation, based 
 upon stock and bonds, should not be extended to all classes of corporations, 
 including those organized for mining, manufacturing and general industrial 
 purposes. With this accomplished, the personal property tax upon stocks 
 and bonds might be abandoned altogether, for such a method would reach 
 all the intangible personalty within the State, with the possible exception of 
 5tock and bonds of foreign corporations, mortgages, book accounts, etc. But 
 if the property which they represent is already taxed elsewhere, this is double 
 
NATIONAL CONFERENCE ON TAXATION. 43 
 
 taxation. The same is true of the taxation of mortgages, while the other 
 classes of intangible personalty are too insignificant to warrant their retention. 
 
 It is believed that the adoption of such a method for the valuation of all 
 corporations would so materially increase the valuation of property within the 
 Eastern industrial and manufacturing States as to materially relieve real 
 estate from the burdens under which it now labors, would simplify our tax- 
 ing systems and would lead to the eventual abandonment of the personal 
 property tax. 
 
 fHE Chairman (Mr. Godard in the Chair) : The next thing in order, 
 gentlemen, will be a discussion of this paper. The subject which Mr. Howe 
 has treated so ably is an interesting one. We will be glad to hear from any 
 gentlemen who desire to discuss the subject. 
 
 Mr. Dudley, of Wisconsin: Mr. Chairman, I am not a lawyer, but I have 
 listened with much interest to the citation of cases by Dr. Howe. There is one 
 <:ase. however, I have heard of that he did not cite, and it is a case in 171 
 U. S., later than that cited in 154, I believe, in which Justice Miller held that 
 the value of railway property might properly be ascertained by taking the valu- 
 ation of the market quotation of the stocks and bonds; that by so doing, 
 the value of the property will be ascertained through the judgment of those 
 best acquainted with the valuation of such property, or something to that eflFect. 
 That was, I think, in 154. 
 
 Mr. Howe: The particular case I read from was in the 92d. 
 
 Mr. Dudley: Well, in the 171 U. S. there is a case entitled Pullman Palace 
 Car Company against Central Transportation Company. In that case it was 
 expressly held that the value of the stock and bonds, while affected by the 
 value of the property, yet the value of the property did not conclusively 
 control the value of the stock and bonds, that it is the property which is 
 the basis of the assessment or taxation. Now, in the present month on 
 a single day the quotations of a certain railroad on the New York Stock 
 Exchange varied from 160 to 1,000. Will anyone say that the value of 
 the Northern Pacific Railway was six and a half times greater at one hour 
 of that day than another? Manifestly not. Let us consider, then, what the 
 stock represents. Does it represent the railroad property proper, or does it 
 in some instances represent a great deal more? The Northern Pacific Railway 
 has a vast land grant. The stocks, I presume, cover that grant. The stock of 
 the Chicago & St. Paul Railway covers all property owned by the company. A 
 great deal of that property is subject to local assessment and the valuation of 
 the stock would cover the property which is locally accessible and properly so 
 as the general property of a State. So that, if in a given State you assess a 
 railroad by ascertaining the value of the entire property, and apportioning that 
 in any way among the States through which the road is operated, the result 
 is that the local property is transferred by this means into the various States 
 and will be taxed as many times as there are States in which the particular road 
 is operated. I think that the Supreme Court, in a later decision, does not hold 
 and expressly holds to the contrary, that a valuation of railroad property is not 
 properly made by looking solely to the stocks and bonds. 
 
 Mr. Howard: Mr. Chairman, I want to say one word in reference to what 
 has been said by the gentleman from Wisconsin. I think he is correct and that 
 the courts have so held, I think, at all times, practically, although it may not 
 always have been so stated in so many words that while the value of the bonds 
 added to the value of the stocks does approximately give the value of the 
 
44 THE NATIONAL CIVIC FEDERATION. 
 
 property, yet it does not necessarily do so. There may be as in the instance- 
 stated, property of a special character in special locations, not only lands, as 
 mentioned of the Northern Pacific Railway, but large terminal values in some 
 of the large cities, which ought to be taken mto account, and which, I think, in 
 151 U. S., it is said are to be taken into account by a taxing board in determining 
 the actual value of the property. It is, indeed, the value of the property which 
 must be determined, and while the sum of the value of the bonds and of the 
 stock will in general be an approximate value of the property, it will not nec- 
 essarily be so at all times, and it seems that the just rule is, that while this 
 should be taken as a basis of taxation of railroads, it ought not to control 
 entirely, but other matters affecting the value ought to be taken into account. 
 Certainly the value of the property measured by its stocks and bonds at one 
 time is not a correct indication of the property if the valuation of the stocks 
 and bonds is very different at any other time. Those are matters to be sub- 
 mitted to the good judgment of the taxing board, and consequently are simply 
 an element, generally being about correct if not necessarily so at all times, 
 other matters, if any, being taken into account in determining the real value. 
 But, I think there is no doubt that in general, and speaking of the average 
 value of the bonds and stocks, that the taxing board will come very near the 
 correct value, because, as the courts have said, at different times, that is the 
 value placed on the property by those who know it best. 
 
 Mr. Hines, of Louisville, Ky. : Mr. Chairman, the gentleman from Wis- 
 consin made a very pertinent suggestion in regard to the speculative ele- 
 ment of the value of the bonds and stock. I wish to suggest another consid- 
 eration, especially in reference to bonds, which I have known to be overlooked 
 entirely by a good many taxing tribunals, and that is, that it is entirely incor- 
 rect to assume that the premium on a bond, under ordinary circumstances,, 
 goes to indicate an added value to the property. The bondholder can never 
 get more than the principal of his bond. Now, you take a four per cent. 
 bond of a solvent railroad company, which bond has fifty years to run; that 
 bond has a value as an investment by reason of the term for which it is to 
 run, which is entirely aside from the value of the security back of it. You 
 take another bond given by an equally solvent railway company, bearing the 
 same rate of interest which is to fall due next year, and the latter bond will 
 be worth par and no more; the other bond may be worth 115. That does 
 not signify at all that the property of the one railroad is worth fifteen per 
 cent, more than the other. It signifies that the first bond is simply a convenient 
 form of investment, that it is going to run fifty years, and for all that time is 
 a convenient way in which money may be raised by using that bond as collat- 
 eral, or selling the bond, if necessary, so that the premium upon the bond 
 ought in any event to be elminated before looking at it at all as a symbol of 
 the value of the property back of it. Then when you do that you still have 
 the speculative value, the speculative element in the value, rather, to contend 
 with; and I would suggest that when you have eliminated all objectionable 
 elements from the market price of stocks and bonds, you have simply got at, 
 in an awkward way, what you can get at in a more direct way by taking the 
 net income of the property and using that, and when you take that net income 
 as the basis of valuation the general result is that you impose an income tax 
 on the corporation when you do not impose it upon other persons in the 
 State. Take the rule that is to-day popular of capitalizing net income at six 
 per cent.; assume the tax rate is 1.50 per hundred; that simply means that 
 
NATIONAL CONFERENCE ON TAXATION. 45 
 
 upon that corporation you are imposing an income tax of one-quarter of its 
 net income. Until other forms of property or other citizens of the State 
 are subjected to a Hke income tax there is an unfairness which the holders of 
 -corporate securities cannot reconcile themselves to. 
 
 Mr, Dudley: Mr. Chairman, the decision Mr. Howe quoted from is 
 something like this: When you have obtained a value of all the stock and 
 of all the bonds, then you have obtained the value of the railroad property. 
 How are you going to ascertain the value of all the stock and of all the bonds? 
 Are you going to take the market quotations? Suppose they have not been 
 the subject of manipulation and they are at a normal figure, can you even 
 then take the market quotations given for the sale of a few bonds or a few 
 shares of stock and multiply that figure by the total number of bonds and 
 shares? It seems to me that very often a higher rate is paid for a few shares 
 than any man would dream of paying for the entire issue of shares, and 
 that for strategic reasons. To gain control a higher rate is paid for a few 
 shares than would be fair to place as a proper figure in considering the 
 value of the entire issue. 
 
 Mr. Mather: Mr. Chairman, there was one suggestion at the beginning 
 of this paper that I think ought to be elaborated upon and kept in mind. The 
 writer of the paper called our attention to the fact that the calling of the 
 Annapolis Convention, which was the beginning of the movement leading to 
 the formation of the Federal Constitution, was suggested in behalf of a 
 movement for a line of interstate commerce. We all know very well that 
 •George Washington was the moving spirit in the calling of the convention 
 at Annapolis. It probably is not so well known that Mr. Washington had 
 in mind at that time, being then a private citizen himself, the organization of 
 what afterwards became the Chesapeake & Ohio Canal. In other words, 
 "George Washington at that time was the promoter of a line of interstate 
 <:ommerce, and if railroads had been known at that time, George Washington, 
 the father of the country, would have been the promoter of a line of rail- 
 roads, because a railroad would have served his purpose much better. But it 
 is to be borne in mind particularly that Mr. Washington had not in mind at 
 that time the making of money particularly in the establishment of his line 
 of interstate commerce. He saw as a statesman that the future of this coun- 
 try depended upon its commercial development. He saw further, as a states- 
 man, that the continuance of the little insignificant power on the Atlantic 
 Coast depended on the development of the vast territory which lay back of 
 it, and he saw, also, that the Spanish power, then intrenched on the Gulf of 
 Mexico, was drawing to New Orleans through the natural artery of commerce, 
 the Mississippi River, the commerce of this great West and Northwest. And 
 he proposed, as a measure for the benefit and perpetuation of the government 
 which he had given his services to establish, the building of a line of inter- 
 state commerce, through the only means then known, of navigation by water. 
 He saw at the outset that the difficulty in the way of the establishment and 
 the final success of his scheme of interstate commerce lay in the power of the 
 States to regulate and to tax the instrument of that commerce when it should 
 once be established. It was then the fashion of one State to establish regula- 
 tions against the commerce of another, and to tax, wherever possible, the 
 <;ommerce of another. Mr. Washington, in order to make possible and successful 
 ihis line of interstate commerce, suggested to the States of Mar>'land, Virginia 
 and Delaware the holding of a convention, not for the purpose of establishing a 
 
46 THE NATIONAL CIVIC FEDERATION. 
 
 new constitution for this country, but for the purpose of agreeing upon uniform 
 regulations of commerce. When they got together at AnnapoHs, the broader 
 possibiHties of a general convention upon the questions of interstate com- 
 merce presented itself to the members of the convention, and out of the Annap- 
 olis Convention grew the movement which culminated in the Federal Con- 
 vention and in the Federal Constitution. That historic fact is of as much, if 
 not more interest to us, in the discussion of the problems of this Conference, 
 than it was then in the discussion of the problems of the Annapolis Convention ; 
 and the developments of the last few years in the establishing of new methods 
 of taxation of interstate corporations and in the upholding of the powers of 
 the States as against the properties of the corporations of other States for 
 purposes of taxation, makes it essential that in the consideration of the prob- 
 lems now before us we should hark back to the difficulties that confronted the 
 country at that time and to the spirit that controlled the settlement of those 
 difficulties. So much for the beginning of the gentleman's paper. These con- 
 siderations, this reflection, leads me to a conclusion which makes it impossible 
 for me to agree with the writer of the paper in his congratulations that a way 
 has been found out of the difficulties which have heretofore surrounded the 
 taxation of this kind of corporations. It seems to me that the doctrine which 
 was upheld in the express cases, forgets the reason which lay at the founda- 
 tion of the Federal Constitution. While it is not a gracious thing for a mem- 
 ber of the Bar to criticise the Supreme Court of the United States, still, in view 
 of the fact that four out of the nine Justices of the Supreme Court dissent 
 from the opinion which sustains the doctrine of those cases, even a member 
 of the Bar may be permitted to voice his opposition. The Supreme Court has 
 held, as the gentleman has pointed out to us, that there are elements of value 
 in the business and property of an interstate corporation which it is not within 
 the power of the State to tax. But when a State has taxed its proportion of 
 every element that goes into the valuation of a corporation, I insist, and the 
 dissenting opinion in this case also insists, that the State has taxed, to the 
 extent of that proportion, every one of those elements which the Supreme Court 
 has held it had no power to tax. Into the ultimate value, the unit value, as the 
 cases put it, of an interstate corporation enters every element that goes to pro- 
 duce revenue to that corporation. There is there not only the franchise of the 
 State which levies the tax, but there is the franchise of the Federal Government, 
 which grants to this corporation the right and the power to do an interstate 
 business. There is in the ultimate unit value of this corporation the value of 
 its franchise to take tolls upon interstate business, and that value is taxed in 
 the proportion of the unit value ; and yet it has been distinctly held that the 
 power to take tolls and the tolls themselves, when taken, are beyond the reach 
 of the State in its taxing capacity. So that in this latter development of the 
 power of the State to tax interstate corporations we have got back to the 
 situation that existed before the Federal Constitution was adopted. We have 
 given to the State the power to regulate and the power to tax interstate com- 
 merce. 
 
 There is another principle which has always heretofore been upheld, which 
 to my niind, and in the view of the dissenters from that opinion, is violated by 
 the decision and the principle in these cases. The State of Ohio has no power 
 to tax property in the State of New York. That is perfectly clear. Yet to 
 the value of the express company's property in the State of Ohio, has been 
 added the value of all its property in the State of New York and of every 
 
NATIONAL CONFERENCE ON TAXATION. 47 
 
 other State through which it runs, and there has been apportioned, by the 
 arbitrary action of the taxing body of the State of Ohio to the State of Ohio 
 its proportion of the vahie of that property in the other States, and upon 
 that arbitrary division, that arbitrary grasping to itself by the State of Ohio, 
 the taxes of the State of Ohio are assessed. In the State of Ohio, in the express 
 company cases, the express company had in actual property by absolute proof one 
 hundred fifty thousand dollars. The value of its property in Ohio and elsewhere 
 and the value of its franchises to do an interstate lousiness had been accumulated 
 and aggregated, and then divided by the State of Ohio by an arbitrary proportion 
 w^hich it itself established. The State of Ohio taxed that property in Ohio and 
 elsewhere, and that inter-state franchise to do an inter-stale business, and levied 
 an assessment upon that hundred fifty thousand dollars of property of one million 
 five hundred thousand dollars and levied taxes upon it. Take the case of a rail- 
 road, if that principle is applicable to them, and it is, and the States are 
 adopting it at present. A railroad company in the State of New York, we 
 will say, has immense terminal facilities which cost millions and millions of 
 dollars. Within a few miles it runs into the State of Connecticut and then into 
 the State of Massachusetts, and so on. Under this principle, the value of 
 those terminals neces.sarily goes to make up the total unit value of that cor- 
 poration, and the States of Connecticut and Massachusetts apportion to them- 
 selves an arbitrary proportion of the value of those terminal properties, and 
 assess a tax upon it. I say, Mr. Chairman, and I have said it before, that in 
 the adoption and enforcement of this system of the unit value we have lost 
 sight of two important elements, two important principles of law that hereto- 
 fore we have considered sacred. One is the very foundation principle upon 
 which our Federal Government was established, that this Government cannot 
 exist as an aggregation of States with the power in the individual States to 
 regulate and to tax the commerce of the other States ; and the other, an equally 
 vital principle of law, though it is not embodied in so many words in our 
 Federal Constitution, is that no State has the power or ought ever to have the 
 power to tax property in another State. This Conference, when it comes to 
 consider this question of taxation of interstate corporations, ought to look at 
 it, not from the interests of the individual States, not from a desire to get 
 money out of these corporations, but with these underlying, these essential, 
 elemental principles of our government in mind. 
 
 Mr. Judson, of Missouri : Mr. Chairman, to a student of our Constitution 
 it is no wonder that there was such a dissent in the Supreme Court of the 
 United States, because the taxation of an interstate line of railroads does pre- 
 sent one of the most serious and perplexing problems that can arise under 
 our dual form of government. But, as I understand the effect of the recent 
 decision of the Supreme Court of the United States, however opinions may 
 differ as to the reasoning of the Court, it amounts to this, that while a State 
 cannot tax the privilege of doing an interstate business within its borders, it 
 can tax all the property tangible and intangible employed by a corporation in 
 doing that business. It then becomes, as other property of the State, subject 
 to taxation, and to tax it then they adopt such methods of valuation as they 
 deem proper. Absolute equality of taxation, as the Court has said, is a dream. 
 We never will realize it under imperfect human conditions. It is very true that 
 the upit rule of valuation bears unequally in different States. Take a railroad 
 that runs, as the railroad represented by the gentleman who has just spoken, 
 through several States. Its track per mile is apparently worth much less on 
 
48 THE NATIONAL CIVIC FEDERATION. 
 
 the plains of your State, Mr. Chairman, than in the suburbs of Chicago; but 
 it is precisely the same principle we employ. In Missouri, and no doubt other 
 States, we tax our railroads as an entirety in the State, and the valuable 
 roadbed in St. Louis terminals are ranked precisely in the valuation as the 
 roadbed in a rural county of the State. In other words, St. Louis gets no 
 benefit from the valuable terminals of the railroad because the roadbed was 
 taxed as a whole by the State Board, and is apportioned per mile to every part 
 of the State, I understand the same principle is in force in other States — 
 Western States. So that after all it is an approximation, but we must approx- 
 imate in these matters. The gentleman from Louisville suggested that valuing 
 a railroad by its earnings was imposing in effect an income tax. That does 
 not strike me as the correct view. If I go to buy a house the very first question 
 I would ask as to the value of the house is, what it produces, its rental, and 
 then capitalizing that rental we reach a standard in value. That is precisely 
 what you do in applying a standard of net earnings to a railroad property 
 or any other corporation. It is an approximate means of ascertaining values. 
 I entirely agree that it is unjust to tax a railroad on a different proportion 
 of its value from an individual, and that is one of the most serious problems 
 in our taxing system — the inequality of valuation. It is unjust to tax farms 
 at twenty or thirty cents on a dollar, as we do in my State, and then tax 
 a railroad at eighty to a hundred cents on its valuation. Justice requires the 
 same standard applied to all properties, but we must adopt an approximate 
 measure "of ascertaining value. There is another point in this connection that 
 it seems to me is very important to these corporations and to the public, and 
 that is this: We ought to have a fixed standard of valuation which would be 
 simply a matter of arithmetic, and leave as little as possible to the discretion 
 of public officials. Our present method of valuing these properties by Boards 
 elected or appointed simply forces these corporations into our politics and is 
 altogether unwise and injudicious. If we could have an ideal method of tax- 
 ation ; that is, ideal as far as human conditions would permit, it would be to 
 take the value of a road based upon its earnings, because it has no value if it 
 has no net earnings; let that be capitalized as its value and then apportioned 
 according to mileage in the different States. We know precisely what taxes 
 it has to pay. It would not have to go into politics. It would not be interested 
 in the appointment of an Assessing Board, and we would have all complaint 
 about taxation on that score removed. But we must take the situation as we 
 find it. The Supreme Court has decided that it is the property tangible and 
 intangible, that part which is in the State, apportioned to the total value, and 
 taxed by the State. What we should all aim at is to so elevate public opinion 
 as to see that it is taxed fairly, and only fairly, and on a level with other 
 property. 
 
 The Chair (Mr. Godard in the chair) : How about feeders or branch 
 lines which may be owned by separate corporations, and which of themselves 
 produce no income, but are valuable because of their connections? How would 
 you treat them under your proposed plan? 
 
 Mr. Judson: If they belonged to the corporation they would have to take 
 the burden of the profit. If the corporation has branches which it controls 
 which produce nothing it would presumably show itself on the profits, on what 
 they earn on the balance of the line. If it did not help them they would not 
 have it. In my State we tax according to the estimate of value, and it is 
 apportioned to the different counties of the State according to mileage. The 
 
NATIONAL CONFERENCE ON TAXATION. 49 
 
 county that has a hundred miles gets twice the railroad valuation for taxation 
 that a county which has fifty miles will get. 
 
 Mr. Sloan, of Oswego, N. Y. : I do not rise, Mr. Chairman, to speak upon 
 the question that appears to be immediately under discussion at this time. In 
 fact, I do not know that there is any specific thing in question before this 
 Conference, but I rise more to ask whether it would not be well for economy 
 of time and equally as efficient a transaction of the business engaging the 
 attention of this body to name a time now, some little time in the future, 
 whatever time should be deemed most advisable according to the sentiment of 
 the assemblage here, when the discussion of this specific branch of the general 
 <luestion shall terminate, so that other branches can be taken up and discussed 
 in the same specific way that this question of assessment has been discussed. 
 We have heard some excellent addresses here to-day.. I think the session 
 of this body at this time is going to bear fruit. I believe we have had some 
 very illuminating addresses, the prepared addresses in particular, and a great 
 many suggestions have been made in the running fire of debate that are worthy 
 of thought and reflection, and I may say of preservation. In that connection 
 I wish to make a suggestion if this body will allow me to do so. As I understand 
 it is the general purpose and expectation of the promoters of this movement 
 which has led up to this Convention, and I do not use the word promoters 
 in a commercial sense, for I do not think there is anything but a desire for 
 the general good and the general welfare of the people of the United States 
 that is at the bottom of the effort that the gentlemen have made to bring about 
 this meeting and this discussion, but the effect of these speeches and this 
 discussion here to-day should be broad and wide, and should reach out beyond 
 this meeting. We should take some action here to secure their publication 
 according to the stenographer's notes and give a wide and systematic circulation 
 of the pamphlet they would make. It would not be such a very bulky document. 
 I think it would be well to make provisions specifically so that there would 
 be no omission and no oversight, by a resolution or otherwise, so that the 
 proceedings of this Convention should be printed and circulated in the manner 
 I have suggested. I would say that I think this document should be sent, not 
 only to the delegates of this Convention, but to every daily newspaper in 
 the United States, in order that we might accomplish what was felicitously 
 expressed by Senator Garfield in the way of arousing and awakening the public 
 conscience to the importance of securing more equitable taxation in this country. 
 I make that suggestion now, hoping that it may be followed by a motion at 
 the proper period of the proceedings of this body. 
 
 I know very little about this question of taxation as a result of any study; 
 and I have received a good deal of information here. The more information 
 I gather from the speeches such as have been made here the more I am impressed 
 with the great importance of this question, and hence it occurs to me that we 
 ought not to let the proceedings die with the adjournment of this Convention, 
 but that what has been said here, and so well said, should be preserved in the 
 way I have suggested in order to induce more discussion which a wide circula- 
 tion of the proceedings of this Convention would naturally bring about on the 
 part of the newspapers and be brought to the attention of people who are 
 thinking on this subject. The thought of one man expressed is very apt to 
 lead to another thought, and by this concentration upon the question you will 
 iihimately bring out the great results that the people are interesed in and which 
 the gentlemen who have brought together this body of intelligent men are so 
 
so 
 
 THE NATIONAL CIVIC FEDERATION. 
 
 desirous to accomplish. I will not make any motion, Mr. Chairman, but I hope 
 that in order that the business may be facilitated more rapidly that a time be 
 named when the discussion of this particular branch of the question shall be 
 discontinued and given opportunity for the discussion of other branches of it. 
 Professor Seligman, who knows a great deal about this question and has 
 probably done as much work as any other man upon it, might suggest a time 
 when he thinks, if he approves of this suggestion, that the discussion of this 
 branch of the question should be discontinued. 
 
 The Chairman (Mr. Godard in the chair) : In response to the suggestion 
 of Senator Sloan the Chair would state that a Committee on Publication has 
 already been appointed and that matter will be taken up. The question of 
 limiting this debate is in the hands of this Conference for its action whenever 
 you think advisable, but I hope you will all bear in mind that we have a five- 
 minute rule here. The gentlemen of this Conference are much in earnest. 
 
 Mr. Sloan : Mr. Chairman, I want to say a single word. I do not know 
 anything about the organization of this body or what facilities you have for 
 paying expenses of doing this printing efficiently. I feel that there ought to 
 be an expression of this body that not only the printing should be done, but 
 the circulation of it should be sure and certain. Let this information go out, 
 and if there is any expense attached to it that there is no way provided for 
 I have no doubt that there would be enough gentlemen who would make volun- 
 tary contributions for that purpose if it were necessary. I should like to for one. 
 
 Secretary Easley : We have your name on the list. 
 
 Senator Sloan: I shall be happy now, or at any other time, to respond 
 to any call the gentleman may make. And he may name the amount. 
 
 Mr. Niles^ of Maryland : Mr. Chairman, I want to say that I most heartily 
 sympathize with what Senator Sloan has said. The discussion I have heard 
 on this question has well paid me for coming here, but at the same time it 
 seems to me that the great effect of it upon me has been to bring me back tc 
 what I might call the storm center of the discussion of this morning, and thai 
 is the tax on intangible personal property. This morning it was evident that 
 there were two sides, two points of view, from which to look at the matter. 
 At first it was said that the tax on personal property ought to go, for two 
 reasons: First, that it was impracticable, and, second, that it was unjust. A 
 little later the gentleman from Indiana and some others stated the tax on 
 personal property ought to stay, because if it had been impracticable under old 
 regulations new regulations should be made to. bring it in because it was just. 
 It seems to me that is the storm center of the discussion, and if this particular 
 question throws a side light upon that discussion it will be of immense value. 
 An answer to the question I am about tt) put will, I think, point somewhat in that 
 direction. In the opinion of the gentleman from Indiana it seemed to go without 
 saying that a man who owned shares of stock or bonds in a corporation ought 
 to pay his taxes on them because he would not give them away for nothing. 
 What I would like to know is this, assuming that it is constitutional, and that 
 it is right to value the whole stock of the corporation as a unit, its stocks and 
 bonds together, and tax the corporation on that whole value, then does the 
 gentleman from Indiana, or the other gentleman who spoke on that side, think 
 that those certificates of stock ought to be again taxed in the hands of the 
 holders? It seems to me that that is the crucial point. I do not know whether 
 I make myself clear, but my idea is this, taking a scheme such as has been 
 suggested and taxing the whole value of the corporation, stocks and bonds, that 
 
NATIONAL CONFERENCE ON TAXATION. 51 
 
 represents all that the corporation owns. You tax the corporation on that. Now, 
 then, do you still tax the holder of those stocks and bonds? Is there anybody 
 here who would say that that was just? And, after all, is not that what we are 
 after? As some of the other gentlemen have said, it is not what will yield 
 the most money, but what will do the most justice. If it is true that after 
 you have taxed the corporation on its whole value of both stock and bonds, 
 is it not true that you have taxed the whole value of the corporation? Is it not 
 true, as Mr. Williams, of Baltimore, has said, that the stocks and bonds them- 
 selves are simply representatives of value, and are not property at all ; and could 
 not they all be burned up and leave the corporation as a corporation neither 
 richer nor poorer? Could not all the bonds and stocks of the New York Central 
 Railroad, if the value of the corporation had been once calculated in such a 
 way as has been suggested, be burned up, and although some of the holders 
 might find their property relatively increased or decreased, would not there 
 be just the same property in the State, except the value of the paper, as if those 
 stocks and bonds were still in the hands of the holders? If that is so, does not 
 that throw a light upon this discussion? Is it not true that when you tax a 
 corporation in some such way as suggested here by the unit rule that you have 
 taxed the only thing of value, and that the addition of taxes after that on 
 so-called intangible property is unjust; and is not that really the reason why 
 it is not. practicable because there is a sentiment in the minds of the people 
 that if you tax a corporation once you have no business to tax it over again in 
 the hands of the people who hold the title to the corporation assets? If you 
 tax a horse that belongs to three people and is worth $150.00, and you tax it 
 once at the rate of $150.00, then are you going to tax the evidence of each of 
 those three people that they own $50.00 worth of value in that horse over 
 again? I apprehend not. It seems to me this discussion ought to bring about 
 a clearer view in regard to the position of the certificates, the various pieces 
 of paper indicating shares of stocks and bonds, and throw some light on the 
 question as to whether personal property, intangible, in the hands of the holders 
 of the paper certificates, of some value and which ought to be taxed in some 
 way, is properly taxable in the hands of the holder. 
 
 Mr. Russell, of Delaware: Mr. Chairman, I have been as interested as 
 any member of this Conference in the discussion that has taken place at these 
 two sessions, but it seems to me that we have not gotten at the germ of the 
 issue. We have been discussing, not the broad question of taxation, but rather 
 the question of the assessment of property for the basis of taxation. It is true 
 that no system of taxation is perfect that has not an ample provision and a 
 well-defined provision for assessing the property upon which the taxes are to 
 be laid. But we might go on with the discussion of the best method of assess- 
 ment for weeks and months, and I doubt very much whether we would be 
 able to arrive at that quality which must always lie at the foundation of a true 
 and just system of taxation in view of the various kinds of property which 
 we propose to make the subject of taxation. For instance, we have heard a 
 great deal this afternoon about the assessment of corporations, and the Supreme 
 Court appears to lay down very clearly and distinctly as a principle of law 
 that the bonds and capital stock are a fair basis of taxation, and that the 
 property of the corporation may be fixed at the aggregate amount of the capital 
 Stock and the bonds. We are met at once with the fact that in the market 
 these securities fluctuate, to-day selling far beyond their value, another day far 
 below their value. The illustration of the Northern Pacific deal shows how 
 
52 THE NATIONAL CIVIC FEDERATION. 
 
 unreliable market quotations may be, and hence it seems to me that we must 
 arrive at a method of equalization not only in respect to real property, but 
 personal property also, and get as near as it is possible to get to a fair, honorable 
 basis of assessment. But beyond that, and to this I wish to direct your atten- 
 tion in particular, is the question of the tax levy. For what matters the assess- 
 ment if it be high or low providing it is equal, providing it is on the same 
 basis ? It is, after all, the tax rate which affects us ; if it is thirty cents it may be 
 easy to pay, whatever the assessment may be, but if it is sixty cents that is 
 quite another matter. And beyond that and as the cause that affects the levying 
 and fixing of the tax rate is the question of the expense of government. In 
 the exercise of this great power of taxation by the government, which is one of 
 the greatest of its powers, for it affects so directly the interests of the people, 
 we must look to an honest, efficient and economical administration of the public 
 service; we must look to the cutting down of expenditures, which can be 
 accomplished only by the adoption of a comprehensive system of local and State 
 administration, and as citizens we must, when occasion requires it, rise above 
 party and see to it that only those persons are placed in charge of the public 
 service who have our full confidence and who can be relied upon to honestly 
 discharge the duties upon tl.^m. Mr. Chairman, it was not my purpose to 
 engage in any extended discussion, but my object at the moment in rising was 
 to direct the attention of the conference a little beyond the mere matter of 
 assessment, to that of the tax rate and of the expense of administration, which is 
 really, after all, a problem at which we are driving. 
 
 The Chairman : (Mr. Judson having resumed the chair.) Ex-Secretary 
 of the Treasury Fairchild was expected to be here to-day, but unfortunately has 
 been detained and has sent some remark^ on the subject of the taxation of banks 
 and trust companies. An opportunity for discussion will be given after the paper 
 is read. He has sent his paper here and it will be read by his Secretary, Mr. 
 Root. 
 
 TAXATION OF BANKS AND TRUST COMPANIES. 
 
 BY HON. CHARLES S. FAIRCHILD. 
 
 The fact that a paper is called for at this Conference devoted to the special 
 subject of the Taxation of Banks and Trust Companies, raises the presumption 
 that property in such institutions is different from other property and should be 
 differently treated in the tax laws ; at least there must be a popular idea that such 
 is the case. Therefore it is necessary to define such differences, if any there be, 
 before the subject of the taxation of such institutions can be considered intelli- 
 gently. 
 
 Before one of these corporations is formed there is in a city or village, prop- 
 erty belonging to some of the inhabitants thereof. Influenced by some motive, 
 these people determine to take a portion of their property out of the investments 
 that it is in, and put the cash thus realized into a common fund, which shall be 
 loaned to any of the people of the community who may wish to use it in carrying 
 on the business of that community. In the great majority of cases the motive is 
 the promotion of the general welfare — distinctly patriotic — a conviction that 
 the place needs that which this combining of capital alone can give. 
 
 In other words, banking facilities are needed, and they are as necessary 
 to the prosperity of an industrial community as in any other thing that it may 
 have. If there be in the place, one, two, three or four men who will use their 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 53 
 
 property in this way, the people can get the use of a bank quite naturally and 
 easily. Usually, however, such is not the case: the property available for this 
 service is scattered in many hands — perhaps in the hands of women or people 
 in no position to loan it safely to their neighbors. In this position it is inef- 
 fective and of comparatively small benefit to the town. If they know their inter- 
 ests they will not put their little funds together in a partnership for banking 
 purposes ; it is too dangerous, because of the unlimited liability of the partnership. 
 But some one may ask, What liability do they incur when they loan their money? 
 None, surely. No more when combined than if each had loaned his own share 
 separately; and I may add if nothing was done save to loan the original capital, 
 but little would have been accomplished by the combination. If it incurred no 
 liabilites it would be of little public use. The debts of the banks make them a 
 power for usefulness beyond any other single power. Their capital is only a 
 means to enable them to incur the indebtedness and thus become beneficient. 
 
 It would be interesting to follow the original capital of the bank under the 
 system of deposit and cheque to see how many times that capital had been multi- 
 plied and then to consider how much the community had been benefited by this 
 multiplication of capital. It is obvious that when the capital of a bank has 
 been loaned once and then deposited by the borrower in the bank that loaned 
 it, the effective power of the. community has been increased by the amount of 
 that bank's capital; and that each time the process is repeated, the result is re- 
 peated. Of course in practice this process is circuitous, through many persons, 
 and when there is more than one bank or trust company, through several insti- 
 tutions, but the result is the same. As has been said, the bank now acts as an 
 insurer of the credits of the members of the community — the interest paid by the 
 borrowers being premium for insurance; and the bank's capital is the reserve 
 against the insurance. This premium must be large enough to pay the expenses 
 of the institution, make good losses, give a return upon the capital and also pay 
 the interest which is now given by banks to many depositors and by trust com- 
 panies to almost all depositors. This payment of interest should take the place 
 of the implied obligation on the part of the corporation to loan depositors in 
 proportion to the amount of their deposits. Thus the bank acts as the guarantor, 
 go-between, and generally useful man of all the members of the community. 
 
 Now what is there in all of this that calls for peculiar or enlarged taxation, 
 as distinguished from other property or business, private or corporate? The 
 property of the stockholders of the bank is no greater than it was when in other 
 forms of investment; if it accumulates, the accumulation will be property just 
 the same as the accumulations would have been from the other investments, and 
 should be subject to no more taxation than any other property. All property 
 should be equally taxed ; all should have like burdens and like exemptions. No 
 one, I am sure, will claim that property in bank stock should be fined because it 
 is property in that form; for that would imply that it should be punished or 
 prohibited. The tax laws should not be used for that purpose. 
 
 But it may be claimed that the franchise grants privileges which should be 
 taxed. This is a valid claim, provided the franchise gives something of money- 
 earning power that would not exist except for the franchise. This is not true, 
 however, of a bank or a trust company. Neither is a monopoly. Under the law 
 any persons who wish to do so may form either kind of corporation. This busi- 
 ness is freely open to competition and in fact is subject to very sharp competition. 
 What is accomplished by the incorporation is to put a large number of men and 
 women of small means in a position to compete with the small number of men 
 
54 THE NATIONAL CIVIC FEDERATION. 
 
 with large wealth who can do the same business either singly or in partnership. 
 I dismiss the bank note subject because that gives no earning power greater 
 than that which comes from the deposit system; it is for the convenience of the 
 public, and it is entirely at its discretion to use it or not, as it finds most advan- 
 tageous. 
 
 It may be claimed that the limitation of the liability of stockholders is some- 
 thing that justifies taxation. This is not true; there is nothing in this limitation 
 that gives earning power with which to pay taxes. It is not provided under the 
 law primarily on account of the stockholders. It is in the law for the benefit 
 of the community as a whole. It is the inducement which the government offers 
 to the men of small means to put their property at the service of the public in 
 this efficient way, to enter into competition with the men of large means and 
 thus render a service without which our present business civilization could not 
 exist. Through this means resources and property are greatly increased, and 
 the bases of taxation are increased in like measure. I submit that property thus 
 employed with these results should not be either fined or taxed more than other 
 property. It is hardly necessary to suggest that in the long run all of the taxes 
 upon these institutions must be contributed by those who use them, either as 
 depositors or borrowers. 
 
 I do not discuss the subject of the differences between the taxation of banks 
 and trust companies. They should be taxed alike and equally. Banks have 
 been taxed too much, unfairly, without intelligence, and to the injury of the 
 pubHc; but this is not a reason why trust companies should be also taxed in a 
 like wrongful manner. The remedy lies in doing right toward banks, not 
 wrong towards trust companies. 
 
 There is one other clg.im that has been urged for the taxation of trust com- 
 panies. That is the advantage which comes from the continuous existence of 
 such corporations. In this respect they differ from no other corporations ; and 
 judging from my own experience, I find that the amount of business and profits 
 coming from that fact is very small, all of it derived by the company with which 
 T am connected during its twelve years of existence would not pay the tax im- 
 posed upon us in this one year by the State of New York. 
 
 It is charged that these companies do not pay taxes because they pay so small 
 a sum directly. They do pay, however, through their holdings of public se- 
 curities, which by a misuse of words are called "exempt from taxation." Such se- 
 curities are not exempt, in truth; the tax is commuted by the low rate of in- 
 terest and high price of such public obligations. It is so intended by the law 
 makers when they enact the laws. They do not mean to make a gift to the 
 buyers of those securities ; they intend that the governments shall get pay for the 
 so-called exemption, and they do get it. When the invitation of government 
 has been accepted and then a tax is also enacted, it would seem that repudiation 
 is involved, which in no wise differs from any other repudiation. 
 
 It may be asked why trust companies do not hold bonds and mortgages and 
 pay the tax upon them, instead of holding the so-called exempt securities. The 
 answer is that upon the exempt securities they pay the tax once ; upon the bond 
 and mortgage they pay twice, and after the second payment but little income is 
 left for the holder of the mortgage. This comes about in this way. Bonds and 
 mortgages are exempt by law from taxation in the hands of their great holders 
 — the savings banks and life insurance companies ; they are practically exempt in 
 the hands of most other holders, because the Assessors do not find them. The 
 result of this long continued exemption has been a very low rate of interest — four 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 55 
 
 per cent, in New York City upon such mortgages as a trust company can invest 
 its capital in. This condition of cheap borrowing has raised the value of city real 
 estate, and through this increased value the tax is collected from the mortgagee — 
 he having paid it in the low interest rate. Under these circumstances when the 
 holder of a mortgage is forced to pay a tax upon it directly, he pays a second 
 time, with the result that the net income from his investment is only about 1.70 
 per cent, in New York City. I claim that the mere statement of this fact is proof 
 of my assertion. If taxes were collected upon all mortgages, the rate of interest 
 upon them would rise and in time the average value of real estate would cor- 
 respondingly fall. The net result in taxable values would be the same as under 
 present practices. As the matter now stands he who happens to pay a tax upon a 
 bond and mortgage is in reality pillaged. I have given sufficient reasons for the 
 fact that trust companies do not hold such securities to a considerable extent. In 
 New York State they did, in fact, under the law as it was until this year pay taxes 
 upon every thing that they owned, in this respect differing from almost all of 
 their fellow citizens. 
 
 These corporations have no privileges of money-making value not shared by 
 every other person. They may receive deposits, so may individuals. They may 
 be appointed trustees, executors, administrators, and guardians ; so may indi- 
 viduals. They cannot escape taxation upon any of their property because it is all 
 exposed to the Assessor; individuals can escape it because their property is not 
 and cannot be thus exposed. 
 
 Some of these corporations fail; more of them succeed. They succeed be- 
 cause they are bound up with the business of prosperous communities. Some are 
 more successful than others, as is true of communities. This is because in the 
 case of both individuals and corporations greater opportunities come to one than 
 to another, and above all because with one man or corporation there is more 
 brain and energy than with the other. 
 
 The community gains immensely from this gathering together of scattered 
 capital. In its own interest it should take care to treat it justly and equably, if 
 not liberally. 
 
 A short intermission was here taken to permit a photograph of the Assem- 
 blage to be taken, after which the conference reassembled. 
 
 The Chairman: Gentlemen, we now have a paper which is in line with 
 the general subject we have been having this afternoon, by Mr. Allen Ripley 
 Foote, of Chicago. 
 
 TAXATION OF PUBLIC SERVICE CORPORATIONS. -^ 
 
 BY ALLEN RIPLEY FOOTE. 
 
 FUNDAMENTAL PROPOSITIONS. 
 
 1. All delegations of the right to exercise the power of taxation by the people 
 to the State, and by the State to any political division, should require a strict ac- 
 counting for the methods and the results of exercising this sovereign power. 
 
 2. No subject should be taxed by more than one taxing body or political di- 
 vision. 
 
 3. The subjects of taxation assigned to the exclusive use of the State, or of 
 a political division, should be those with which it is best able to deal intelligently 
 and justly. 
 
 4. Taxation for the purpose of revenue should deal with property not persons. 
 
56 THE NATIONAL CIVIC FEDERATION. 
 
 5. Taxation for the purposes of regulating protection for health, life and 
 property, and for the suppression of evils, should deal with persons not property. 
 
 6. Property devoted to a public use should not be taxed. 
 
 7. The property of public service corporations is devoted to a public use. 
 
 A FUNDAMENTAL ERROR. 
 
 A fundamental error has been made in dealing with public service corpora- 
 tions on the assumption that they are engaged in a private instead of a public 
 business. In attempting to correct this error we will be compelled to realize 
 that the problem of taxation is only a part, and relatively an exceedingly small 
 part, of the larger problem of regulating the extent, efficiency and charges for 
 services rendered by public service corporations. The taxation problem cannot 
 be correctly settled until this error is corrected. 
 
 The error of dealing with public service corporations on the assumption 
 that they are doing a private instead of a public business is responsible : 
 
 1. For all increase in investment and costs due to dividing the business on a 
 competitive basis instead of combining it as a monopoly as is done in the case of 
 all pubHc businesses. 
 
 2. For capitalizing the full cost of public service improvements instead of de- 
 creasing the capitalization by securing a part of it from special improvement as- 
 sessments, thus socializing a part of the increment in value created by the im- 
 provement, as is done in the case of other improvements of public rights of way. 
 
 3. For permitting the entire increment in value caused by such public im- 
 provements to enrich owners of private property, and allowing them to charge 
 damages, but never assessing them for benefits, on account of the improvements ; 
 also for relieving general taxation by amounts collected from public service cor- 
 porations as compensation for improving the right of way, and for license fees 
 and taxes upon property and franchises devoted to a public use. 
 
 4. For unjust discriminations, secret rebates and favoritism, giving benefits 
 to one class of users not enjoyed by others. 
 
 5. For arbitrary rates established in ignorance of and without being regulated 
 by the cost of service. 
 
 All of these results are the reverse of what should be realized from rec- 
 ognizing the business done by public service corporations as a public business, 
 their property being devoted to a public use, their organization, executive 
 management and capital being employed as the agent of the public, thereby 
 the better to promote the general welfare. 
 
 The existing situation is as though a municipality had granted franchises 
 to the county, the State, and the United States to perform the postal service 
 of the city; had charged each competitor full price for a site for a post 
 office building and then required them to pay damages to abutting property 
 owners for erecting the building and to pay compensation for the privilege of 
 placing letter boxes in convenient localities for the people; also an annual tax 
 upon the property and franchises for permitting their letter carriers to distrib- 
 ute and collect the people's mail. This is not all. It is as though the business 
 of these competitors had been declared to be a private business, their accounts 
 private accounts, the dependence of the public for fair treatment being upon 
 the under-bidding of each by others in their effort to secure business, each 
 competitor being at liberty to make discrimination between customers of the 
 same class, to enter into secret rebate agreements in order to retain customers, 
 and to fix prices as high as the traffic would bear or competitors would permit, 
 
NATIONAL CONFERENCE ON TAXATION. 57 
 
 the compensation of each competitor being all that could be made out of the 
 business. 
 
 When competitors find a community of interests in having all they can 
 make out of the business, combination for the purpose of securing the benefits 
 of economies accruing from monopoly management is inevitable. They then 
 enter politics for the purpose of getting prices for services fixed by municipal 
 council, or State Legislature, in ignorance of and without regulation by the 
 cost of the service, and for the purpose of fighting down taxation. They 
 prefer, however, to have all that can be made out of the business with prices 
 so fixed and with taxation, even with a franchise tax, to having their business 
 declared to be a public business, their property devoted to a public use not 
 subject to taxation, their accounts kept as public accounts, and their charges 
 determined by cost plus interest and a reasonable profit on an actual investment. 
 
 It is clear from this imaginary illustration, every feature of which is the 
 exemplification of existing facts all over this country, that the problem to be 
 solved is vastly greater and far more important than the problem of how 
 public service coroporations should be taxed, and that the taxation problem 
 cannot be solved until the larger problem is correctly settled. 
 
 INCREMENTS OF VALUE. 
 
 During the past fifty years the increment of values due to improvements 
 made by public service corporations have been enormous. No reliable estimate 
 of them has ever been made. A complete statement of them would so far 
 exceed the entire market value of all outstanding securities of public service 
 corporations as to cause the most daring robber of them all to stand humiliated 
 by the exposure of his moderation. Such an exhibit would forever silence the 
 charge that corporations have been given valuable franchises for which the 
 people have received no consideration. 
 
 Increment of values is disseminated among property owners, and for this 
 reason does not attract attention. The gains of corporations are concentrated, 
 they can be seen and counted, and for this reason attract attention and excite 
 antagonism. Those who have grown rich through increased values of prop- 
 erty induced by the improvements made by public service corporations are the 
 beneficiaries of a system made respectable by custom and the consent of society 
 for ages. Their investments are all capitalized on the basis of earning power, 
 and as values have been marked up from decade to decade, many times oftener, 
 few have been found wise and courageous enough to denounce them as rob- 
 bers and their increased values as watered stock. Only men with brain power 
 and enterprise are denounced as public enemies who have created the condi- 
 tions that have made increases of values possible, while supplying the people 
 with constantly improving services at decreasing prices. No franchise granted 
 to a corporation has ever had one dollar of value in it, until it has been made 
 valuable by the rendering of a service on terms that benefited the people. In 
 the great game of grab, played in accordance with the rules of competition, 
 increments of value, however caused, have been freely taken by all who were 
 in position to make legal claim to them. Sagacious minds are seeing that 
 competition is a destructive power and are trying to displace it with a com- 
 munity of interests for mutual protection and benefit. 
 
 The largest community of interests is that of the whole people, which can 
 be properly served only by having all public services managed as public busi- 
 ness monopolies, the accounts kept as public accounts, prices made uniform 
 
58 THE NATIONAL CIVIC FEDERATION. 
 
 for all users of the same class, discriminations and secret rebates made unlaw- 
 ful, and financed on a scale of charges calculated, as a general result, to produce 
 only sufficient income to fully pay the true and entire costs of ownership and 
 operation plus interest and a reasonable profit on a bona fide investment. Under 
 the monopoly rule of charging as little as costs will permit, instead of all the 
 traffic will bear, as required by the competitive rule, reason and opportunity for 
 taxation will be eliminated. The property will be devoted to a public use, and 
 the public will be in enjoyment of all possible benefits through improved service 
 at lowest self-sustaining price. 
 
 REGULATION OF TAXATION OF CORPORATIONS. 
 
 If charges for public services were always called taxes instead of "prices," 
 the people would quickly understand that the important question is not how 
 to regulate the taxation of public service corporations, but how to regulate 
 taxation BY corporations. The people would then understand the full force 
 and meaning of the first fundamental proposition governing the subject of 
 taxation and would see that authority to collect a tax, a price, for a public 
 service should always require a strict accounting of the methods and the results 
 ■of exercising such power. This leads directly to public accounting and prepares 
 the way for the application of the principle that charges shall be determined 
 hy cost plus interest and a reasonable profit. Under such an accounting system 
 actual investments only will be taken into consideration and the question of 
 corporation securities, either as to their volume or market value, will cease to 
 "be of public interest. Instead of illogical and ineffectual attempts to equaHze 
 conditions between corporations and the people by taxing franchises made 
 valuable by granting authority to collect excessive taxes (prices), contracts can 
 "be negotiated with corporations to supply service "at a price so low that no 
 more than a fair return would be realized on the capital actually invested," 
 thus realizing in a scientific way the identical condition former State Senator 
 John Ford lays down in his article in the North American Review for May, 
 1901, as the limit of extortion to be practiced by the public upon public service 
 ■corporations. In this article Senator Ford also says : 
 
 "Public franchises of an incalculable value have been given away to pri- 
 vate individuals and corporations. Were the cities in full enjoyment of the 
 revenues derived from these sources alone, municipal tax rates would be cut 
 nearly in two, and the whole population — for it is the rent-payer, not the land- 
 lord, who is the real tax-payer — would be proportionately benefited." 
 
 It is regrettable that the legislative sponsor for a franchise tax law should 
 be the author of this unverified statement, and that it should be given credence 
 by publication in the leading magazine of the country. The "incalculable value" 
 of franchises is in the right to collect excessive taxes (prices) for services 
 rendered. By legalizing this value and classing it as real estate for the pur- 
 pose of taxation, the Ford franchise law has created an obstruction to the 
 reduction of prices. Instead of reducing prices to "no more than a fair return 
 on capital actually invested," this law creates a partnership between the State 
 and the corporation by taking a small per cent of the capitalized value of earn- 
 ing power for the State and giving the corporation all that is left. Instead 
 of seeking to destroy the corporations' power to collect the extortionate taxes 
 (prices) of which such loud complaint is made, this franchise tax law accepts 
 a trifling rebate for the State and continues the iniquity. 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 59 
 
 Cutting the municipal tax rates nearly in two, by securing the revenues 
 •derived from public service franchises, as Senator Ford declares, can never be 
 done by maintaining prices, as his franchise tax law will do. 
 
 A correct regulation of taxation by public service corporations will reduce 
 prices to the lowest self-sustaining level, which is the only way in which the 
 whole population can be benefited. 
 
 TAXATION AND PRICES. 
 
 In discussing this subject before the American Economic Associatfon, 
 December 27th-29th, 1900, the following opinions were expressed: 
 
 Prof. W. Z. Ripley: *T would emphasize this fact, that the taxation ques- 
 tion is only a part and a mere branch of the question of control of capital of 
 public corporations." 
 
 Prof. Edzvin R. A. Seligman: *'No lasting reform of corporation taxation 
 can take place unless it goes hand in hand with a reform of the whole system 
 •of taxation. You cannot expect to have a good system of taxation of corpora- 
 tions, unless you have a good system of taxation in general. Owing to the 
 fact that a comprehensive reform of taxation is almost impossible in any State 
 of this country because of the diverse interests of the farmer and the indus- 
 trialist, it has become necessary to approach the problem piecemeal; but if you 
 approach the question piecemeal, there is always danger of getting into con- 
 iusion worse confounded. Not until the results of scientific research have 
 sifted down to the community through popularizing of conclusions, will the 
 time be ripe for action." 
 
 Prof. John Henry Gray: "It is possible to confine ourselves so closely to 
 a single element in the problem, as to lose sight of its wider and more serious 
 bearings. It is not primarily a question of what is right between a street car 
 company and its patrons, but rather what relation should exist between these 
 two in the public interest. I know of scarcely an attempt to tax a company of 
 this kind that has not led to social conditions which necessitated a public 
 expenditure greater than the amount of the tax. I am not sure of the effects 
 of the incidence of such a tax on the ultimate prosperity of the company, but 
 am sure that such attempts usually result in limiting the extent and diminish- 
 ing the efficiency of the service, and in intensifying the evils of slums in our 
 large cities. The man who pays too high a fare may not be wronged. But 
 the man who is by such tax entirely deprived of the service, and the public 
 which must raise large sums apart from this tax to check and abolish the 
 slums, are greatly injured. These services are all too essential to social wel- 
 fare to justify us in checking or crippling them by attempts to make them 
 contribute directly to the public treasury. The minimum demand of the pub- 
 lice ought to be a fare low enough to make the service self-sustaining without 
 any special taxation." 
 
 Prof. E. J. James: "Even if the business were in the hands of the State 
 itself, it would be reasonable to tax the plant in the same way in which it 
 might be taxed if in the hands of a private owner not subject to supervision 
 as to charges or quality of service. The tax-payer who does not use gas may 
 very reasonably demand that those who do, pay enough for it to afford a 
 profit equivalent to the taxes which the city would have collected from a sim- 
 ilar gas plant in private hands. Unless this be done, the sum must come out 
 of other tax-payers, and the non-consumers of gas must, as tax-payers, con- 
 tribute their share, which virtualy goes to furnish cheaper gas to consumers." 
 
6o THE NATIONAL CIVIC FEDERATION. 
 
 Mr. James B. Dill: 'The payment for a franchise should not be fixed im 
 full at the time of its granting; there should be an annual charge, determined 
 not on the primary charge to the grantee, but upon the value of a franchise to 
 its user. For practical reasons this annual charge should be fixed according 
 to a definite method of calculation. A rule for solving the problem should be 
 established and no State official should be allowed to work out the result in 
 private, but only on the public blackboard, where it will be possible to examine 
 his mathematical processes as well as his results. Then the same method that 
 is applied to corporation No. i will have to be applied to corporation No. 2." 
 
 Mr. Arthur J. Eddy: "It is illogical to regulate on the one hand the 
 character of the service performed and the charges therefor, and on the other 
 hand to tax the income resulting from the charges so established. The imposi- 
 tion of a tax is an assumption that the charges of quasi-public corporations 
 for services are higher than is reasonably warranted by at least the amount of 
 the tax. It is probably true, that the charges of most quasi-public corporations 
 are based upon the necessities of security holders, and the exigencies of cor- 
 rupt or extravagant financing, rather than upon the cost and character of the 
 service performed, and it is because the charges are so determined that taxa- 
 tion, together with much adverse legislation, is excused; but the mere fact 
 that the public is overcharged in order to protect securities extravagantly or 
 corruptly issued, is no excuse for making a bad condition worse by imposing 
 taxes contrary to sound principles of economy and finance. Over capitalization 
 and extravagance in cost of construction and management are not to be cor- 
 rected by imposition of taxes. If it be assumed that service and charges have 
 been wisely regulated through the intervention of the public, the imposition of 
 any additional charge in the way of a tax or a license fee is illogical and detri- 
 mental to the interests of the public. In the case of street railroads, for 
 instance, the requirements are, good service and low fares. The better the 
 service and the lower the fares, the more efficiently do street railways perform 
 their functions. If street railways can pay a tax imposed, then without the tax 
 they could give either better service or lower fares. There is no sound reason^ 
 why the public should pay to street railway companies, in the shape of high- 
 rates for transportation, the amount of the tax which is to be returned by 
 the corporation. Certainly the practical end to be sought is the lowest possi- 
 ble fare consistent with economic construction, prudent management and good' 
 service, fares to be adjusted from time to time according to changing conditions;, 
 every additional expense, such as taxes, license and franchise fees, are direct 
 obstacles to the attainment of the best conceivable practical conditions, and are 
 to be excused only upon the assumption heretofore suggested, viz. : That con- 
 struction, management and financing are of a character so extravagant and 
 corrupt that the people are entitled to a share in the plunder to the extent of 
 the tax imposed." 
 
 Mr. Lawsons Piirdy, in a recent article under the title of "The Burdens of 
 Local Taxation and Who Bears Them," says: 
 
 "When prices charged by public service corporations are so fixed by statute 
 *as to yield a legally limited profit in excess of cost, computed upon actual 
 investment, regardless of outstanding securities, any tax will be an element of 
 cost and will therefore be paid by the user of the service. Under this condition 
 choice can be made between taxation and high prices for service, or no taxa- 
 tion and low prices for service. To carry out this system, all the accounts of 
 the corporation necessary to determine cost must be kept as public accounts ir> 
 
NATIONAL CONFERENCE ON TAXATION. 6i 
 
 -form prescribed by the State, and audited by State authority. If there should 
 be any profit in excess of the legal limit it can be absorbed in whole or in part 
 by a graded tax on gross receipts." 
 
 THE SOLUTION OF THE PROBLEM. 
 
 The franchise que.stion, 
 
 The rate of charge question, 
 
 The discrimination and secret rebate question, 
 
 The capitalization question, 
 
 The taxation question, 
 all have an identical solution. This solution affects the interests of every per- 
 son engaged in agriculture, mining, manufacturing and commerce; it is in the 
 direct interest and should have the undivided support of the whole people. It 
 will fix rates as low as they can be maintained and provide a good service on 
 a self-sustaining basis. It will make discriminations and secret rebates impos- 
 sible. It will permit the earning of interest and a reasonable profit on an 
 actual investment only. It will enable the people to know the true cost of 
 service and to determine their own policy regarding taxation. If they relinquish 
 all taxation they will be compensated by better service or lower prices, or both. 
 If they wish to tax net income, gross income, or the value of the investment 
 it will furnish the facts upon which such action can be based intelligently. It 
 is ^s easy to solve the entire problem as it is to solve any one of its branches 
 In fact, none of the branches of the problem can be correctly solved except 
 through the solution of all of them. 
 
 In view of these facts I affirm: 
 
 1. That public service corporations are the agents of the public engaged 
 in transacting a public business. 
 
 2. That all of their accounts, necessary for the determination of the true 
 and entire costs of the services rendered by them, should be kept as public 
 accounts in form prescribed by State or national authority, and should be aud- 
 ited by such authority. 
 
 3. That charges for services should be determined by cost plus interest 
 and a reasonable profit calculated on an actual investment only. 
 
 4. That discrimination in charges between users of the same class, and 
 secret rebates, should be declared unlawful. 
 
 5. That each political division should decide for itself, having a knowledge 
 of all the facts gained through public accounting, between low prices and no 
 taxation and higher prices with taxation, and should assess the tax, in case 
 taxation is approved, in the maner best suited to its local conditions. 
 
 6. That it is inexpedient to attempt to reform laws for the taxation of 
 public service corporations without solving the whole problem of public ser- 
 vice regulation by transferring the industry from a private to a public under- 
 taking. 
 
 7. These affirmations include all public service industries, municipal, State, 
 and national. 
 
 The Chairman: We are honored by the presence to-day of the chief 
 executive of the State of Indiana. We would all be glad to hear a word from 
 Governor Mount, of Indiana, whom I now have the pleasure of introducing. 
 
 Governor Mount: Mr. Chairman, in the discussions that I have listened 
 to in the few minutes that I have been present, it seems as though Indiana has 
 already been heard from to an extent to provoke further discussion. Indiana 
 
62 THE NATIONAL CIVIC FEDERATION. 
 
 is here. You have not heard from all of it. There is more in reserve. Prob- 
 ably an explanation, not an apology for the late appearance of a larger part 
 of our delegation, is that we have been so cordially received and so hospitably 
 entertained, and the entertainment so seductive that we could not break away^ 
 from it. We were taken in charge by the managers of the Exposition to assist ia 
 entertaining the Vice-President, and that explains the delay in our getting 
 here. But if it shall meet the good wishes of your presiding officer and the 
 Conference, there is more of Indiana to be heard from to-morrow. We pride 
 ourselves on our system of taxation in Indiana, although it may not be in 
 harmony with the views of other States; but it is a very interesting question 
 to us, just now, and is enlisting the attention of all classes of our citizens. We 
 are having good results from it. We are gradually reducing our State debt, 
 and I hope at the close of my term to look back with pride and say that Indiana 
 has no State debt but can be extinguished. I thank you, gentlemen, for your 
 cordial reception. 
 
 The Chairman: Gentlemen, the general subjects presented by the three- 
 papers you have heard this afternoon, are open for discussion now. 
 
 If there is no further discussion the Chair will state that the program 
 for to-morrow morning at 10:30 will be first the taxation of mortgages. A 
 paper will be read upon that subject and will be open for discussion. Then 
 the subject of inheritance taxes and the subject of local option in taxation and 
 the separation of State and local revenues. 
 
 The Chair will state that Senator Sloan, of New York, is appointed a 
 member of the Committee on Publication in place of Senator Davis. 
 
 Mr. Stotsenburg: In line with the suggestion of Prof. Seligman, that 
 nothing can be accomplished by a conference which simply meets for discus- 
 sion, no matter how good the views of those composing that conference mav 
 be, unless there is some united action by the several States of the Union, in 
 view of that fact, which is undeniable, I desire to present a resolution for the 
 purpose of having it referred either to the Committee on Organization or to 
 another committee, which will give us an opportunity to bring before the prop- 
 erly constituted bodies which act upon taxation, the actual thought of this 
 Conference. Whatever we may say here, no matter if it is presented in a 
 pubHc news paper, is like water spilt upon the ground unless it is brought to 
 the attention of that body which in each State has the right to dictate what the 
 system of taxation shall be. If any delegate to his Conference has a plan 
 which comes nearest to suiting the minds of the members of the different gen- 
 eral assembles of the different States, that plan ought to be presented to one 
 of these committees. The gentleman from Ohio presented a plan this morning 
 which struck me with a great deal of force. That was a plan to divorce the 
 taxation of the State from that of the county. He presented a plan by which 
 State taxation could be taken care of and County taxation could be taken care 
 of, but he failed to present that which will take care of the system of taxation 
 in the imperium itnperio. Such a one, for instance, as described by Professor 
 Seligman, which has one thousand times increased the valuation of property 
 and assessment. For my part, I agree with what our executive has said, that 
 the State of Indiana has a plan of taxation which with one exception is the very 
 best we could have, and that exception is the one dwelt upon by the gentleman 
 from Delaware, which is really the storm center, which brings this Conference 
 here, which creates discussion, which fills the public mind now with distrust, 
 the question of keeping up taxation, of constant levies more than are necessary 
 
NATIONAL CONFERENCE ON TAXATION. 63 
 
 for the best government of the people in the simplest and most economical form. 
 If you can only get at this one point, to limit in some way the measure of taxa- 
 tion, State, county and municipal, there will be no necessity for this question of 
 discussing what shall be taxed. Therefore I present this resolution : 
 
 Resolved. That all plans suggested by any delegate for the improvement of 
 the system of taxation of the several States of the Union shall be referred to 
 the Committee on Organization; the said committee shall report the same back 
 to the Conference with its opinion thereon, and if the opinion of the com- 
 mittee and of the Conference shall be in favor of such plan the report as 
 approved shall then be presented by the delegates from each State to the Gen- 
 eral Assembly of the State for its information and consideration. 
 
 I present this resolution for the consideration of the Conference. 
 
 The Chairman : The resolution is before the Conference. What action 
 shall be taken in reference to it? 
 
 On motion duly seconded the resolution was referred to the Committee 
 on Organization. 
 
 On motion of Mr. Seligman the Conference adjourned until Friday 
 morning at half past ten o'clock. 
 
 PROCEEDINGS OF FRIDAY MORNING, MAY 24, 1901. 
 
 The Chairman (Senator Garfield in the chair) called the Conference to 
 order at half past ten o'clock. 
 
 The Chairman : Gentlemen of the Conference, I have been requested to 
 preside at this session. Owing to the interest that has been taken in this Con- 
 ference and the number of able papers that have been presented, it has been 
 necessary to prolong the Conference beyond to-day, and tOrmorrow forenoon 
 there will be a number of special papers read. We hope that the delegates 
 will be able to remain over and attend until the end of the Conference, which 
 will be to-morrow forenoon. This morning the session will be devoted to the 
 discussion of four separate papers. The first one is by Mr. Judson, of Missouri, 
 the question being the taxation of mortgages. The Chair wishes to announce 
 that by reason of the number of papers that are to be read we will attempt to 
 strictly confine the discussion to the five-minute rule and endeavor to finish 
 with four papers this morning. I take great pleasure of introducing Mr. Jud- 
 son, of Missouri, who will address us on the subject of the taxation of mortgages. 
 
 TAXATION OF MORTGAGES. 
 
 BY FREDERICK N. JUDSON. 
 
 The chaotic condition of American taxation as the result of the now con- 
 fessed failure of the general property tax cannot be better illustrated than in 
 the experience of the States in the taxation of mortgaged real estate, especially 
 the recent experience in that matter of the States of California and Missouri. 
 It is the theory of the general property tax that all property, tangible and 
 intangible, is subject to taxation. Lands within the limits of a State are 
 subject to be listed by the holder with other personal property for taxation 
 upon these lands are represented by notes or other securities, and these are 
 
64 THE NATIONAL CIVIC FEDERATION. 
 
 subject to be listed by the holder with other personal property for taxation 
 at his domicile. Where the landowner is taxed upon the full value of his 
 land without deduction for mortgage, as is the usual rule, and the mortgages 
 are taxed as personal property at the domicile of the holder, the effect is 
 double taxation; that is, the taxation of both of the property at its full value 
 and of the credit whose value is based upon the same property. Thus, in the 
 State of Missouri, prior to the recent constitutional amendment, all the lands 
 in the State were taxed without deduction for mortgages, and the citizen was 
 required to list for taxation all his mortgages, whether secured by land in the 
 State or elsewhere, and whether the securities were in the State or not, with- 
 out deduction for debt in the assessment of either real or personal property. 
 
 In some States debts, including mortgage debts, are allowed to be deducted 
 from taxable credits, and in New York debts are allowed to be deducted from 
 the general return of personal property, and in a few cases these debts so 
 allowed to be deducted are limited to those due residents of the State. 
 
 But while this is the theory of the general property tax, it has failed to 
 be effective in the taxation of mortgages as personal property, as the taxation 
 of all intangible property when dependent upon self-listing for appraisement 
 is ineffective. This failure of the general property tax to reach intangible 
 personal property is too notorious to need extended comment, and the experi- 
 ence of Missouri is the same as that of other States. With the exception of 
 what is secured from estates in the Probate Court and Trustees, mortgages 
 have been practically untaxed. This failure of the tax is more complete in 
 our large cities than in rural communities. In the city of St. Louis, about 
 forty-five per cent of the entire personal tax is collected from estates in pro- 
 bate; that is, from widows and orphans; and it may be assumed that prac- 
 tically all of the tax collected upon mortgage notes in our cities is collected 
 from such estates and trust estates. 
 
 Thus, in the practical working of the general property tax, the entire burden 
 of taxation upon the mortgaged property is thrown upon the mortgagor, and 
 the sense of injustice which he feels in being required to pay a tax on the full 
 assessed value of his land when the value to him is reduced by the amount of 
 the mortgage, is intensified by the recognized fact that the mortgage as a rule 
 escapes taxation. 
 
 When the State of California adopted its new constitution in 1879, this 
 prevailing general property tax had been modified by the decision of the 
 Supreme Court of that State to the effect that mortgages were not taxable, the 
 court holding that the taxation of the mortgage interest to the mortgagee after 
 taxing the full value of the mortgaged land to the mortgagor, would be double 
 taxation. Thus, in California mortgages were legally exempt, while in other 
 States they were, for the most part, practically exempt. But this legal exemp- 
 tion of mortgages from taxation created a demand for a change which would 
 compel the mortgagee to share with the mortgagor the burden of taxation upon 
 the land in which they both had an interest. Thereupon, the Constitutional 
 Convention adopted a plan, which was ratified by the people, and has ever 
 since been known as the California plan, whereby the mortgage interest and 
 the equity of the mortgagor were separately taxed as distinct interests in the 
 land. This plan was indorsed by economists of high authority as consistent 
 with economic justice, and was adopted, not for the purpose of preventing 
 double taxation, as the decision of the Supreme Court exempting mortgages 
 from taxation had rendered this unnecessary, but in order to compel the 
 
NATIONAL CONFERENCE ON TAXATION. 65 
 
 mortgagee to share the burden of taxation when he was logically and prac- 
 tically, though not legally, a co-proprietor in the land. 
 
 Oregon adopted the same system, (but has since repealed it) and in a 
 case going up from that State, it was held by the Supreme Court of the United 
 States that this separate taxation of the mortgage interest, whether owned by 
 a resident or a non-resident, was within the lawful power of the State.^ The 
 court said that the State could, for the purposes of taxation, treat the mort- 
 gage debt as personal property, to be taxed like other choses in action to the 
 creditor at his domicile, or treat the mortgaged interest in the land as real 
 estate to be taxed to him like other property at its situs. 
 
 But this system, though its justice was indorsed by economists and its 
 legality affirmed by the courts, has proved wholly ineffective in relieving the 
 mortgagor from the burden of taxation. The tax thus imposed upon the 
 mortgagee has been shifted back upon the mortgagor, notwithstanding the 
 express prohibition in the constitution of any contract whereby the mortgagor 
 was obliged to pay the tax of the mortgagee. The testimony is universal that 
 this prohibition has proved ineffective. The Supreme Court of California has 
 sustained agreements whereby the mortgagee agrees to reduce the interest 
 stipulated for in the event the debtor pays the taxes, thus giving the debtor 
 the "option" of paying the taxes without being "obligated" to pay them. So 
 universal is this shifting of the burden, that printed blanks are used embody- 
 ing these agreements. It was said by the Supreme Court of California in 
 answer to the argument that its ruling would defeat the purpose of the consti- 
 tution, that the Legislature could have made the prohibition effective by 
 reducing the lawful rate of interest, and this it had failed to do. 
 
 it seems also that it is a common practice in California for the holder of 
 mortgaged property to have his land assessed as free from encumbrances. The 
 interest upon the loan is large enough to cover the probable tax and the 
 borrower is credited with the amount of the actual tax when he exhibits to the 
 lender his receipted tax bill. We have the high authority of Professor Plehn ' for 
 saying that the necessity for resorting to these devices for shifting the tax has 
 had a tendency to increase the rate of interest and to divert capital from the 
 State. A gentleman of that State who has had large experience as a borrower 
 writes me: "It is difficult to explain to non-residents that this is a tax that 
 does not tax". 
 
 Michigan, in 1891, attempted a direct tax upon mortgages as interests in 
 the land, but the act was repealed after remaining in fofce only two years.* 
 
 New Jersey permits the amount of a mortgage to be deducted from the 
 taxable value of the land, if the deduction is claimed by the owner and the 
 mortgage is taxed against the mortgagee. No means are provided for collect- 
 ing the tax upon the mortgage of a non-resident holder, and in certain parts 
 of the State, as will be hereafter seen, the parties are permitted to contract 
 against the claiming of such deduction. 
 
 The State of Missouri, in November, 1900, notwithstanding the failure of 
 the California experiment to relieve the mortgagor, adopted by a constitu- 
 tional amendment the same system, the prohibition against the shifting of the 
 tax being a literal copy of the California provision — an interesting illustration 
 
 ^ Savings Society v. Multnomah County, 169 U. S., 421. 
 ' See Yale Review, May, 1899. 
 
 ^ I am informed that a direct mortgage tax in some form was recently 
 re-enacted. 
 
66 THE NATIONAL CIVIC FEDERATION. 
 
 of the anomalous condition of American taxation. Although there was little 
 public discussion on the subject before the election, and there was an active 
 campaign in behalf of other constitutional amendments submitted at the same 
 time, there can be no doubt that the public discontent with the failure of the 
 taxing system in reaching mortgage notes was a potent cause in securing the 
 adoption. The position of Missouri differed from that of California, in that 
 mortgages were subject to taxation as personal property at the domicile of 
 the holder, the State thus exercising its utmost power of taxation, regardless 
 of the resulting double taxation. But so far as the taxation of mortgages was 
 concerned, the effort to tax had failed in Missouri, as everywhere else.* The 
 purpose, therefore, of the amendment in Missouri, was not only, as in Califor- 
 nia, to relieve the mortgagor, but also to reach property which had thereto- 
 fore evaded taxation and to remove the anomaly of double taxation, with the 
 inequalities resulting from the failure of the existing system. In Missouri, 
 as in California, the mortgages of railroad and other quasi public corporations 
 are excepted from the operation of the amendment.' 
 
 The adoption of the Missouri amendment in November last was so unex- 
 pected that it caused at first a panic among money lenders, and a few foreign 
 companies withdrew from the State, refusing to renew their loans. But others 
 soon discovered the successful expedients adopted in California for shifting 
 the tax back upon the mortgagor, and the loaning business has now adjusted 
 itself to these conditions. The General Assembly of the State refused to reduce 
 the authorized rate of interest from eight per cent to six per cent, though 
 importuned so to do for the very purpose of preventing the success of this 
 method of shifting the tax. The usual method is to take with the interest 
 notes at the agreed rate, additional notes for probable amount of taxes, paya- 
 ble annually until the maturity of the principal, with a collateral agreement 
 for the cancellation of these notes upon the production by the mortgagor of 
 receipts for all taxes upon the land. 
 
 The act of the General Assembly of Missouri carrying this amendment 
 into effect specifically declares the purpose of "avoiding double taxation" and 
 provides that mortgages which are subject to be taxed as interests in property 
 mortgaged shall not be included in the personal property subject to taxation. 
 Equality of taxation had been declared in the constitutional amendment, which 
 said that the interests of the owner of the mortgage as well as that of the 
 mortgagor should be assessed on terms equally fair and just. This was in 
 recognition of the practice prevailing in Missouri, as elsewhere, of assessing 
 property at a fraction of its value. The act of the General Assembly declares 
 that property subject to a mortgage and ^he total of all interests therein 
 shall not be assessed at any greater or higher valuation than that at which 
 other property of the same value is assessed ; and that it is not the intention 
 or purpose of the act to cause or permit property which is subject to a mort- 
 gage to be assessed or taxed to any greater extent or in any higher proportion 
 than if it were not subject to a mortgage. The rate of assessment prevailing 
 in the State at large is from thirty to forty per cent of the actual value. Thus 
 if property worth twenty thousand dollars is subject to a mortgage of ten 
 thousand dollars and the rate of assessment is thirty per cent, the mortgage 
 interest would be taxed at three thousand dollars to the mortgagee, and the 
 
 *See "Law and Practice of Taxation in Missouri", by present writer, pp. 
 215, 282. 
 
 ' This exception has proved fatal to the amendment in Missouri; infra p. note. 
 
NATIONAL CONFERENCE ON TAXATION. 67 
 
 equity at three thousand dollars to the mortgagor. It frequently happens that 
 property is mortgaged in excess of its assessed value. In such cases, the assessed 
 value must be apportioned between the mortgagor and the mortgagee on the 
 same proportionate basis of value. The act went further, and gave the Circuit 
 Courts of the State jurisdiction over appeals from the assessing boards in any 
 case where they were charged with violation of any of the provisions of the 
 act, this being the only case in the State where equality of assessment is secured 
 by the judicial power. 
 
 It is now but little over six months since the adoption of the amendment 
 and but a few weeks since the legislative act above referred to went into 
 effect, and as the annual assessment of property for taxation is made on June 
 I of each year, the first assessment under the new system is not yet made. 
 Mortgages existing at the date of the adoption of the amendment which pro- 
 vided, as they invariably do. for the payment of taxes by the mortgagor, are 
 of course not affected by the change. But it may be said from all reports that 
 in new mortgages or in the renewals of maturing mortgages, the mortgagor 
 still bears, as before, the full burden of taxation upon his land by an increase 
 of interest above the normal rate or by a direct shifting of the tax in the 
 method above explained. 
 
 The anomaly of double taxation, however, will be removed. Notes secured 
 by mortgages upon lands and estates can no longer be taxed as personal prop- 
 erty, and the discriminations and inequalities incident to the ineffective attempt 
 to enforce the taxation of such securities will cease. In great part such secur- 
 ities escaped taxation before, from the inability of the Assessor to reach them, 
 and this practical exemption is now legalized. To what extent this legal 
 exemption will reduce the revenues of the State remains to be seen. 
 
 But an unforseen result has been developed in the application of this 
 system which will complicate results, and if it had been foreseen it probably 
 would have prevented its adoption. A large proportion of the mortgages held 
 in Missouri are held by savings banks and trust companies, which are taxed 
 in Missouri, not upon their property, but upon their capital stock and surplus, 
 their real estate being deducted from such valuation. The Attorney-General 
 of the State has recently advised that the mortgage loans of such institutions 
 must be treated as real estate, and that to tax them upon such loans in addi- 
 tion to their capital stock would be double taxation, which it was the purpose 
 of the amendment to avoid. It necessarily follows that the public revenues 
 of the State will suffer loss to the extent of these mortgage loans, as the 
 mortgagor can only be taxed upon his actual interest in the land — that is, upon 
 his actual equity — whether his mortgage is held by a bank or an individual. 
 This discriminates against the individual lenders, who are compelled to pro- 
 vide by contract for the shifting of the tax, while the companies referred to 
 are relieved from such necessity, and also discriminates against the borrowers 
 from such individual lenders. This discrimination will be a strong argument 
 for the repeal of the amendment, and if a serious loss in the public revenues 
 results from this cause as well as from the exemption of mortgages from taxa- 
 tion as personal property, it is not improbable that Missouri's experience in 
 this class of taxation will only last until the next general election in November, 
 1902. The people will then vote upon a resubmission of this amendment, this 
 
68 THE NATIONAL CIVIC FEDERATION. 
 
 resubmission being one of the first acts of the last General Assembly, a pro- 
 ceeding unprecedented in the history of constitutional amendments in the State.' 
 
 The General Assembly in its act enforcing the constitutional amendment 
 already referred to, seems to have anticipated this contingency, as it expressly 
 provides that a repeal of the constitutional amendment or any legal suspension 
 of its force and action, shall effect a suspension of this act, and this act shall 
 he in force only so long as said constitutional provision is in force. 
 
 This discrimination in favor of the companies named may complicate the 
 t:onditions bearing upon the economic shifting of the tax in other mortgage 
 loans, and will probably lead to giving the companies named a monopoly of 
 such loans. It it also true that in the rural districts, where the mortgages are 
 now taxed as personal property, they are taxed as a rule at their full face 
 value, one hundred per cent. Thus, if the money-lender is assessed now on a 
 five-thousand-dollar mortgage loaned in the county, he would pay taxes on the 
 full face value, and if he lives in the county seat or other town, at the municipal 
 tax rate, making his probable tax seventy-five to one hundred dollars. Under 
 the new system, assuming that his mortgage is assessed at thirty per cent, 
 the usual rate on real estate in the country, he will pay taxes at the county 
 rate, as a rule considerably lower than in the county seat, reducing his taxes 
 thus from, say, seventy-five or one hundred dollars to, say, fifteen or twenty 
 dollars. In this connection, also, it should be stated that the tax upon notes 
 and mortgages is collected far more generally in the country than in the cities. 
 Or, in other words, the failure is far less complete. Thus in 1898 the total 
 valuation in Missouri, exclusive of railroad property, was $959,296,907, and 
 
 * The experience of Missouri has ended sooner than suggested above. 
 Since the above was written, the Supreme Court of the State, on June 18, 1901, 
 in Russel vs. Croy, three of the seven judges dissenting, decided that the consti- 
 tutional amendment is void, on the ground that the exception of the property 
 of railroad and other quasi public corporation created inequality of taxation 
 by an unreasonable classification, in violation of the fourteenth amendment of 
 the Constitution of the United States. This decision by the State Court, being 
 favorable to the right claimed under the Federal Constitution, is final and ends 
 Missouri's experiment. The Globe-Dewocrat of St. Louis of June 19, 1901, com- 
 menting on the decision says : 
 
 "As a matter of fact, mortgagees took measures to maintain their interests 
 as before, while mortgagors and real estate men were greatly inconvenienced. 
 The amendment proved itself to be practically inoperative and a nuisance, before 
 at was decided to be invalid ". 
 
 The same point was raised in California by a railroad company, R. R. Co. 
 TS. Board of Equalization, 60 Cal. 35, but was overruled. It was sustained, how- 
 ever, by Mr. Justice Field and Sawyer. J., in the United States Circuit Court, 
 18 Fed. Rep. 385. It was suggested by Justice Field, (p. 414) » that the 
 constitutional amendment could be sustained by eliminating the exception. The 
 judgment was affirmed in the Supreme Court of the United States, 118 U. S. 394, 
 on another ground, and the point in question has never been decided by that 
 Court. 
 
 Judge Valliant, in delivering the opinion of the Missouri Supreme Court, 
 commenting upon the cessation of the litigation in California, after quoting in 
 extenso from Professor Plehn's article as to the successful evasion in California, 
 says: "It may be, therefore, that the evasion of the law has been found to 
 be so much easier than contesting its validity, that the legal warfare has ceased 
 and the patient borrower bears the burden as .of old. We do not know of 
 another State that has copied this feature of the California law, and if, as indi- 
 cated in the above quotation, the conflicting interests there have made peace 
 on terms that practically annul the law, the fact may account for the absence 
 of other decisions on the question". 
 
NATIONAL CONFERENCE ON TAXATION. 69 
 
 the total value of money, notes and bonds (including mortgages) was $62,781,- 
 806. But of this latter sum $54,421,192 was collected outside of the city of 
 St. Louis, Jackson County (Kansas City) and Buchanan County (St. Joseph), 
 the great bulk of the urban population of the State being in these three cities. 
 In other words, the percentage of money, notes and bonds to the total valua- 
 tion in the State outside of these urban communities was loj^ per cent, while 
 in those three cities and adjacent counties the percentage was 1.89 per cent. 
 Thus it is literally true that with this class of wealth, as has been often said, 
 the more it increases the less taxes it pays. In some counties of the State, the 
 percentage of money, notes and bonds to the total valuation reaches as high 
 as 23 per cent, while in the city of St. Louis it is only 1.36 per cent. 
 
 The more distinctively rural the population, the larger the per cent of 
 money, notes and bonds to the total valuation ; and it is also true that the 
 smaller the community where the loan is made and the mortgaged property is 
 situated, the harder it is for the individual lender to hide his mortgage. 
 
 In New York it was recently proposed to levy a State tax of one-half of 
 one per cent upon all mortgages, with exemption when paid from all local 
 taxation ; but the effort was defeated. Such a reduced tax rate would not be 
 admissible in States where the constitutions prohibit any discrimination in 
 the tax rate between different classes of property. 
 
 This experience of California and Missouri shows clearly that this prob- 
 lem in taxation is not academic, but is severely practical. It seems just that 
 the mortgagee should share with the mortgagor the burden of taxation upon 
 the land in which they both had interests; and the failure is only another 
 proof that it is idle to attempt equality in taxation unless we can make the 
 system effective. But while this remedy has proven ineffective, it is none the 
 less true that the condition of double and discriminating taxation, such as 
 prevailed in Missouri which it was sought to remedy, had proven intolerable. 
 The inevitable conclusion is that land should be taxed without deduction for 
 mortgage loans, and that no attempt should be made to tax mortgages, or 
 any form of intangible personal property, for the obvious reason that the tax 
 on such property cannot be made effective. The holder of real estate does 
 receive benefit from the free competition of capital, in that he can borrow at 
 a lower rate of interest. This is the experience of Massachusetts, where mort- 
 gages are virtually exempt from taxation, with a resulting tendency to lower 
 rates of interest on mortgage loans through the attraction of foreign capital.' 
 The holder of real estate expects to receive a normal income, say three to five 
 per cent net, on his property, after paying taxes. But the unfortunate holder 
 of mortgages or other personal securities, when assessed, is compelled to pay 
 taxes out of his three to five per cent income. This is an income tax in effect 
 of from forty to sixty-six per cent. The report that a forty per cent income 
 tax had been levied in Cuba under the Spanish rule aroused the just indigna- 
 tion of the American people, yet a tax equaling, even exceeding, that is col- 
 lected under our system from the estates of widows and orphans in our pro- 
 bate courts. This practical working of a tax upon mortgages was forcibly 
 illustrated by an instance which came to my knowledge in St. Louis. A boy, 
 made a helpless cripple in a railroad accident, and recovering damages of 
 $5,000, was fortunate in having an exceptionally efficient trustee, who suc- 
 ceeded in loaning this fund upon a mortgage at six per cent, yielding $300 a 
 
 ' Report of Massachusetts Tax Commission, 1897, pp. ;;i6 and 40. 
 
70 THE NATIONAL CIVIC FEDERATION. 
 
 year. The vigilance of the Assessor discovered the cripple's fund, and it is 
 now paying a tax of two per cent on the full amount, making an income tax 
 of thirty-three and one-third per cent. But this six per cent was exceptional 
 and is continued at the risk of hazarding the principal. When reduced to five 
 per cent, the tax will be forty per cent of the income and when reduced to 
 four per cent it will be fifty per cent of the income. 
 
 It is not within the scope of this paper to discuss how the wealth invested 
 in mortgages" and other personal securities should be taxed. But whatever 
 substitute is adopted for the direct general property tax upon such securities, 
 which is thus shown to be ineffective, this much is clear, that it is the very 
 beginning of any tax reform that all self-assessment and inquisitorial process 
 should be abolished, and that it is the first requisite of any rational system 
 of taxation that the Assessor should only tax what he can see and value. 
 
 The taxation of mortgages in any State must be considered with reference 
 to the interstate phase of the question — i. c, our dual form of government — 
 and the facility for the removal of capital and residence from one State to 
 another. It was a homely but a very practical maxim of Mr. Ensley, of Ten- 
 nessee, to which our lawmakers are compelled to pay heed :* "Never tax any- 
 thing that will be of value to your State, that can or would run away or that 
 can or would come to you". Experience has shown that money and credits 
 may be concealed and loaning capital withdrawn from a State, while land 
 cannot be concealed or removed. We now have corporation-inviting States, 
 and it is probable that we shall soon have States inviting business and capital, 
 and even the residence of wealthy men through liberal tax laws. The Governor 
 of Vermont recently recommended to the Legislature of that State, which has 
 many attractions for summer homes, that towns should be allowed to contract 
 with citizens coming from other States for a certain amount of personal taxes 
 to be paid for a period of years in lieu of all returns for taxation. An inter- 
 esting illustration of this was found in the experience of the State of New 
 Jersey on this very subject of the taxation of mortgages, to which the late 
 David A. Wells calls attention. ® The State enacted a law authorizing mort- 
 gagors to claim deduction for mortgages from the value of their property, 
 and authorizing the mortgagors to pay the tax on the mortgages, deducting 
 the same from the principal and interest and settling with the mortgagee. The 
 inhabitants of the counties adjacent to the city of New York, finding it impos- 
 sible to negotiate loans, secured the passage of a law exempting all mortgages 
 upon lands in these counties from taxation when in the hands of any citizen 
 of such counties. Subsequently, the constitution of the State prohibited such 
 discriminating tax laws, and thereupon the Legislature made it lawful for the 
 owners of land situated in these counties adjacent to New York, and in certain 
 cities of the State, to agree with their mortgagees not to apply for deduction 
 from the taxable value of their lands on account of their mortgages, and that 
 in case the mortgagor did claim deduction in violation of such agreement, 
 that then the mortgage should immediately become due, and the tax paid by 
 
 ' In 1897 Governor Stephens of Missouri vetoed an act of the General Assem- 
 bly requiring mortgage and other notes to be stamped by the Assessor as a 
 condition of negotiability, on the ground that such legislation would tend to 
 drive capital from the State and thus increase the burdens of the people, 
 
 ' "Theory and Practice of Taxation," p. 479. 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 71 
 
 the mortgagee, with interest, added to the principal of the debt secured by 
 the mortgage. 
 
 There is another phase of this interstate relation, and that is the attempted 
 taxation by a State of mortgages held by its citizens secured by property in 
 other States or countries. Such taxation was held by the Supreme Court of 
 the United States to be within the lawful power of a State," but it is obviously 
 repugnant to economic justice, as it is also repugnant to the principles of 
 comity which should control in interstate relations in taxation. In the nature 
 of things such taxation can seldom be effective, except in the case of estates 
 m probate. But the principle should be clearly established as the very begin- 
 ning of any rational tax reform, that it is double taxation for property taxed 
 in one jurisdiction to be subject to taxation in any other jurisdiction through 
 the security representing that property. It is only by the recognition of this 
 principle that justice can be secured and double taxation avoided in our 
 system of dual sovereignties and intimate interstate business relations. 
 
 The Chairman : Mr. Judson's paper is now open for discussion. 
 
 Mr. West: Mr. Chairman, it seems to me one of the most hopeful signs 
 of the times is the number of lawyers taking a scientific, economic interest in 
 the taxing of property. With Messrs. Garfield and Howard members of the Su- 
 preme Court in their respective States, we should no longer have decisions holding 
 that the way to make the tax on mortgages effective is by reducing the legal rate 
 of interest. I venture to say that when any of these gentlemen or others tak- 
 ing a scientific interest in the subject of taxation become members of the 
 Supreme Court of California, the doctrine there held will receive a severe 
 shock. Perhaps it may be dealt with in the way in which the Supreme Court 
 of the United States in the Oregon case got around the case of the State tax 
 on foreign-held funds. In the matter of the State tax on foreign-held bonds, 
 the Supreme Court had held that the State of Pennsylvania could not tax rail 
 road bonds held outside of the State, on two-fold grounds; first that bonds 
 held outside of the State were beyond the jurisdiction of the State, and sec- 
 ondly, that to tax bonds as proposed in the law in question, namely by requir- 
 ing the tax to be deducted from the interest payable on the bond, was in vio- 
 lation of the contract. The Supreme Court in the Oregon case, by regarding 
 the first part of this decision as a dictum, has thrown the burden of a 
 previous decision upon the second part, and it would now seem possible that 
 bonds can be taxed to the holders even when they reside outside the State in 
 which the tax is levied, if some way can be found to collect the tax other than 
 by infringing the obligations of the contract. That is to say, the corporation 
 cannot be required to deduct the tax from the interest payable upon the bonds. 
 The corporation can be required to report the names and addresses of the 
 bondholders, and if they can be reached in some other way it is merely a matter 
 of less convenience. I should like to ask Mr. Judson if Oregon has gone back to 
 the system of double taxation of mortgages? 
 
 Mr. Judson : That I cannot say, Doctor. My information is that they had 
 repealed this California system. 
 
 Mr. West: Another legal point which I would like to refer to the law- 
 yers present is, whet/lier in those States where the constitution requires assess- 
 ment of all property at full value, it would not be possible to assess property 
 
 See Kirtland tx Hotchkiss, 100 U. S. 499. 
 
12 THE NATIONAL CIVIC FEDERATION. 
 
 according to its annual value. According to its value as reckoned by its income 
 instead of according to its capital value. 
 
 Mr. Bates, of Ohio: Mr. Chairman, I desire to say just one word on this 
 subject. The remarks which have been made in regard to double taxation raise 
 the question to my mind which we may all well think of: Is it really double 
 taxation? Is it not a fact that the subject of taxation is in reality the debt, 
 and that the mortgage security is in reality an incident, the same as an indorse- 
 ment on a note? I hold that that is the correct theory, that the mortgage 
 interest is merely an incident, that the debt is the property, and that when you 
 tax the debt you do not tax the property the second time. The mortgage may 
 be wiped out, but if the debt remains there is the property. It looks to me 
 as if it came back, as Dr. West has said, to this proposition in regard to the 
 taxation of intangible personal property about which there seems to be quite 
 a little difference of opinion here, and that question resolves itself into two 
 simple propositions in my mind: Should intangible personal property, or 
 choses in action be taxed as a matter of right and equity? Should they bear 
 their just proportion of the taxes which all property should be required to pay? 
 I think there can be but one answer to that as a matter of right and of theory, 
 that stocks, bonds, notes and all classes of intangible personal property should 
 theoretically be taxed, that as a matter of right they should bear their just 
 proportion of taxation. The second question which comes up is a serious 
 problem: Is it practicable? Can any practicable means be suggested or 
 devised to tax this intangible personal property equitably so that it will be 
 reached and be made to bear its just proportion in comparison with real estate 
 and other classes of property? That is the great problem. It seems to me 
 that the first one answers itself, that it should be taxed if there is any practic- 
 able method. AH the arguments that I have heard here, all that I have ever 
 heard in opposition to the taxation of intangible personal property, are that it 
 is impracticable to tax it. That adequate methods of getting it taxed and 
 assessed have not yet been found. The problems which arise in connection 
 with this subject have not yet been solved. It seems to me that the question 
 for a body like this is to determine whether there is any proper or equitable 
 method of getting this intangible personal property to bear its proportion of 
 taxes. If we settle that question in the negative then let us take up the single 
 tax question. Let us wipe out all taxes on personal property and adopt the 
 single tax method. If we decide that there is some reasonably satisfactory 
 method by which this class of property may be taxed, as I for one believe that 
 it is possible to be taxed, then let us take hold of that method and let us see 
 if we cannot compel that great mass of property which is now not paying its 
 tax, and which is by far the greatest part of the property of the country, to bear 
 its just proportion of taxation. 
 
 Mr. Taylor, of Indiana : Mr. Chairman, it seems to me that some confu- 
 sion might be saved on this question of taxing intangible property by a very 
 direct method. In Indiana the total assessed value of all property to-day is 
 about thirteen hundred million dollars. The real estate of Indiana pays about 
 seven hundred millions. The railroads and corporations pay on one hundred 
 fifty millions, and four hundred fifty millions are paid upon intangible property 
 that is talked about so much here. We have a very direct method, and the 
 best I know of in this country. Every domestic corporation in Indiana is 
 obliged to pay taxes upon all the property of the corporation. We do not 
 look to the stockholders. Every domestic corporation in Indiana by law pays 
 
NATIONAL CONFERENCE ON TAXATION. 73 
 
 the taxes for the corporation. The report made by the Secretary to the taxing 
 officer gives a statement first of the total capitaHzation, the total bonds out- 
 standing, the number of shares in value, the market value of each share, if it 
 has any, and if it has not, the actual value of each share of stock, so that 
 every domestic corporation in the State pays the taxes itself for all of its 
 stockholders — every corporation except the banks. National banks do not, for 
 the reason, a very good one, that the Federal judiciary has said that it cannot 
 be done. But we reach national banks by exactly the same method around 
 the corner. We say that the bank's shareholders shall pay the taxes upon all 
 the shares of stock of the national bank, but we say that all of it shall be paid 
 within the State no matter where the shareholder lives; that if the bank is 
 assessed to five hundred thousand dollars of capitalization the shareholders of 
 the bank shall pay the tax upon five hundred thousand dollars, and then we 
 go on to say, lest there might be some unwary stockholder living outside the 
 State, that the cashiers of the bank shall retain out of the dividends declared 
 upon that stock, sufficient to pay all the taxes upon all the shares of stock, and 
 no matter where the stockholders may live. So that it is the nimble sixpence that 
 ever gets away from the taxing officer in Indiana when it is owned by a bank. 
 We have thus disposed of all domestic corporations and all banks, and there 
 is nothing left but foreign corporations and interstate railroads. We reach the 
 railroads by requiring them to make a list of the number of shares, the capi- 
 talization, the debts, the length of the lines and many other things that the 
 tax law specifics to be reported, and the railroad corporation is to pay all the 
 taxes upon all of its property, corporate, tangible and intangible. We do not 
 care, thefore, where the stockholder lives. The corporation itself pays the tax 
 directly into the treasury. Out of thirteen hundred million dollars we have one 
 hundred fifty million dollars personal property, intangible property that is 
 reached in that way. There has never been any question about the constitu- 
 tionality of any of this legislation. There has never been any doubt about the 
 propriety of it, and we have had no trouble about it. It seems to me that 
 much of this difficulty and much of this sentiment in favor of a single tax has 
 grown up because of the attempt to reach the stockholders instead of the cor- 
 poration, which is always come-atable and easily assailable, afid never can dodge. 
 
 Mr. Seligm.\n : Mr. Chairman, I should like to ask the gentleman who 
 has just spoken one question, namely: Whether in Indiana, in assessing per- 
 sonal property to the individual, the individual is exempt on all of the stocks 
 and bonds of domestic and foreign corporations that he owns? 
 
 Mr. Taylor: Mr. Chairman, the individual never reports stock in any 
 domestic corporation. If he owns stock in a foreign corporation he is assessed. 
 
 Mr. Seligman : How about bonds ? 
 
 Mr. Taylor : The same way. 
 
 Mr. Seligman: He is not assessed? 
 
 Mr. Taylor: He is not assessed on the bonds of a domestic corporation 
 because the bonds of a domestic corporation are taken into account when the 
 valuation is placed on the property, but not the stock. 
 
 A Member: Do we understand the rate is the same as on all classes of 
 property ? 
 
 Mr. Taylor: Precisely. There are two corporations whose tangible prop- 
 erty is worth more than the stock. If the tangible property exceeds the value 
 of the stock then the rate is fixed on the tangible property, but if the stock 
 exceeds in value the tangible property, then no account is taken of the tangible 
 
74 THE NATIONAL CIVIC FEDERATION. 
 
 property, and the stock alone is made the basis. Let me ilhistrate. There are 
 corporations in our State whose tangible property is worth a hundred thousand 
 dollars, but who are capitalized at a million dollars, and whose stock is worth 
 that. We assess on the valuation of a million dollars and not a hundred thou- 
 sand. That applies to every conceivable corporation in the State — railroad, 
 pipe-line companies, gas companies, tank lines, fast freight companies, refrig- 
 erator line companies, fruit companies and everything of that sort. 
 
 Mr. Crandon, of Illinois: Then if the foreign stockholder in your State is 
 obliged to pay the tax on this property, why should not your property, the 
 stocks in your domestic companies held elsewhere be exampt? 
 Mr. Taylor: We do not do that at all. 
 
 The Chairman : If we are to continue our program we must confine our 
 discussions to the papers that have been read. This discussion will come 
 in under another head, but the present discussion is now upon the subject of 
 the taxation of mortgage, and the Chair suggests that it should be deferred and 
 taken up in its order. 
 
 Mr. Bailey, of West Virginia : I would like to ask if there is any exemp- 
 tion as to mortgages? 
 
 Mr. Taylor : We have a mortgage exemption. It exempts property to the 
 extent. of seven hundred dollars, provided it does not exceed half the value of 
 the mortgaged estate. As a result we took off twenty-eight million dollars of 
 property in the State, The man who gets the exemption must state the name 
 of the mortgagee, his residence, the amount, etc. As a result of that we have 
 put on the duplicate thirty-one million dollars, and gained three million dollars 
 by the operation. 
 
 Mr. Matthews, of Buffalo, N. Y. : Mr. Chairman, I want to ask in regard 
 to the listing of property, if the Assessor presents to the party owning the prop- 
 erty a list and he makes out his own statement and verifies that statement by 
 affidavit? I know that is the case in many States, and I would like to inquire 
 how it is in Indiana? 
 
 The Chairman : The Chair must hold that the question is out of order at this 
 time. We must confine ourselves to the discussion of this paper. Is there any 
 further discussion on this subject? 
 
 Mr. Matthews : I simply wanted to know how personal property was 
 listed. 
 
 The Chairman : That question will come under discussion this afternoon. 
 AVe must confine ourselves now to the subject of the paper. 
 
 Mr. Bromhall, of Ohio: Mr. Chairman, to bring the question back to the 
 subject of the paper, I want to call attention to what seems to me to be an over- 
 sight in these discussions. We start in all these discussions on the basis of the 
 general property tax. Let us not forget that there are things worse than the 
 general property tax. A general property tax is the growth of democratic 
 thought growing out of the principle that every man should contribute to the 
 support of the State in proportion to his ability to pay; in proportion to his 
 property in the form which it now takes. The basis of the general property tax 
 is the amount of property a particular individual may own. In the application 
 of the principle of taxing all persons in proportion to the amount of property 
 they have, you carry out your ideal just in the proportion that you are able to 
 make the individual who owns the propertj"^ pay. It makes no difference whether 
 or not you can enforce the taxation of intangible personal property if you cannot 
 make the man who owns it pay. That is the real proposition. When you come 
 

 NATIONAL CONFERENCE ON TAXATION. 75 
 
 clown to the question of the taxation of mortgages, and it is conceded as so 
 lucidly shown by Mr. Judson, that the man who owns the mortgage never pays 
 the tax, the moment you attempt to enforce the mortgage tax you violate the 
 general principle of taxation. When the principle fails the tax ought to fail. 
 
 Therefore, I maintain that wherever it is shown that the principle of the 
 general property tax does not apply, that you cannot enforce it against a given 
 piece of property, it is time to abandon it. If this Conference can find a way 
 to assess intangible property it flies in the face of all human experience. I 
 challenge the experience and investigation of any one present at this meeting 
 who has read the history of taxation to point to a single instance where any 
 government upon this earth, republic or monarchy, ever succeeded in enforcing 
 equitably and justly the taxation of intangible property, or, if you please, the 
 taxation of any kind of personal property which is in the course of exchange. 
 I wait for an answer. 
 
 Mr. Russell, of Delaware: Mr. Chairman, just a moment to announce that 
 mortgages are not taxed in Delaware. 
 
 An effort was made to tax them under a law that was enacted to imprison 
 every one who resisted it, and we have failed most signally. The Court in 
 banc within the last ten days passed upon the question of the constitutional- 
 ity of the investment tax law and decided that it was unconstitutional and 
 void. But even if the Court had upheld the law, the experience we had dur- 
 ing the short time it was in operation proved conclusively that no tax could be 
 more unequal or unjust than a tax on investment. The assessments were made 
 by men of good intentions, and who sought to place upon mortgages and upon 
 bonds and stock a fair valuation, but they were deceived by the holders who 
 either gave them a smaller return than they should or else declined to make any 
 return at all. Hence there was collected for one year only a small sum of 
 money, much of which was paid under protest, and remained and still remains in 
 the hands of the tax collectors. Delaware offers you now an opportunity of real 
 estate investments without any taxation of mortgages. It is not likely that we 
 shall undertake to improve upon the law that has just been declared unconstitu- 
 tional, for we are now granting charters. You may apply at a very reasonable 
 figure. We are getting all the money that we need for the support of our 
 government. In addition, the State is a large holder of stock in the local 
 hanks. It also holds securities in the railroads operating in the State of Delaware 
 We have no State tax that is a burden upon real estate, or that will be a burden 
 upon any of the personalty. 
 
 Just a moment further, if I am not trespassing upon my time. What is there 
 in a mortgage that may be properly taxed? We must have something that is 
 substantial and real. I can see nothing there except the privilege to the man 
 who lends to secure his money, and who has nothing coming out of the mortgage 
 except the profit upon his money, and the rate of his interest is just exactly what 
 the demand for money at the time the loan is made will give him. It is purely 
 a commercial transaction. I cannot see how it is possible fairly and justly to tax 
 mortgages. 
 
 Mr. Rogers, of Indiana : Mr. Chairman, as to the question propounded by the 
 gentleman, it seems to me he might very well refer to the illustration given by 
 Mr. Taylor. Mr. Taylor said that in Indiana twenty-eight million dollars of 
 mortgages have been deducted from the assessment of real property and at the 
 same time the owner is required to give the name of the mortgagee, and the 
 mortgagee is easily found, and that means thirty-one million dollars has been 
 
76 THE NATIONAL CIVIC FEDERATION. 
 
 added to the tax duplicate. It seems to me that is a pretty good illustration^ 
 although it is not very old and does not go back to any foreign country or 
 kingdom. It is right in our own midst, but it is a pretty good illustration where 
 mortgages are actually taxed. The gentleman who spoke upon this subject a 
 moment ago presented a question as to whether it is right to allow property of 
 this kind to escape. That is the question we are here to discuss. Is it right that 
 a man who has property or who has money, and it does not make any difference,, 
 it seems to me, whether he has a mortgage or whether he does not have a 
 mortgage, for what you are taxing when you are taxing a mortgage, after all, 
 is the debt, and the mortgage counts for nothing. It is the mere security. A 
 mortgage now is different from what it formerly was in nearly every State 
 in the Union. It is not an equity in real property, it is simply a lien, and you are 
 not taxing your property, you are taxing a debt. You are taking, in other words, 
 a man's money, and if his estate is all in money and the property he gets is from 
 money, as the gentleman said, it is the same as if it were real property and all of 
 his profits came from the real property. What is the difference? In the one case 
 you tax what a man owns. 
 
 A Member: In one case you tax what a man owns and in the other you tax 
 what a man owes. 
 
 Mr. Rogers : No, you tax what a man owns. Do I understand you to say that 
 if you had a hundred thousand dollars you own nothing? If you lend that to 
 your neighbor, are you a pauper? Do you have nothing? Have you not the 
 hundred thousand dollars, or that which stands for it ? If yesterday you owned a 
 hundred thousand dollars you would be taxed upon it, but according to your 
 theory if you loan it to-day you are not taxed upon it. I say it is a question of 
 morals and a question of right, and I should like any gentleman on this floor to 
 prove why a man should not be taxed who owns notes and bonds and mortgages 
 just as the man who owns real estate is taxed. A man who owns money to-day 
 should be taxed on his money, but if he makes an investment to-morrow and 
 gets something back in place of his money I see no reason why he should be 
 taxed in one case and not in the other. 
 
 Mr. Purdy : If all mortgages are taxed, will you be kind enough to state on 
 whom the burden of the tax falls? 
 
 Mr. Rogers: That is a question that seems to me purely theoretical. As a 
 matter of fact where they are taxed, as they are taxed in Indiana, it falls upon the 
 mortgagee. 
 
 Mr. Purdy: Has it raised the interest in Indiana? 
 
 Mr. Rogers: It has not. It seems to me, Mr. Chairman, that here is the 
 most vital thing that has come up in all the discussions of these meetings. It is 
 a question of right. It is a question of morals. I would like to ask this gentle- 
 man a question. If you do not tax mortgages would you tax money? 
 
 Mr. Purdv No. 
 
 Mr. Rogers : Then you would tax no personal property ? 
 
 Mr. Purdy : Certainly not. 
 
 Mr. Rogers : If, then, no personal property is to be taxed, and real estate 
 alone is to be taxed, the man who is a millionaire in your community, because he 
 has a million dollars in his pocket, pays nothing to run the government, but the 
 man who owns the real property pays it all. Is not that so ? 
 
 Mr. Purdy : The millionaire cannot keep his money in his pocket. 
 
 Mr. Rogers : Suppose he puts it in mortgages ? 
 
 The Chairman : The gentleman's time has expired. 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 77 
 
 It was moved and 6i»ronded that Mr. Roger's lime be extended. 
 
 The Chairman put the question upon the motion, and the same was 
 tinamiously carried. 
 
 Mr. Rogers : Mr. Chairman, this Convention is very kind. I am looking for 
 information. I am ignorant, and I am wilHng to be ignorant for a while, but I 
 want to learn and I came here to learn. The gentleman from Ohio presented cer- 
 tain propositions. I want to know if I am wrong. Am I wrong when I say 
 that the man who has simply money or stocks and pays nothing is not helping 
 to sustain the government? If the tax all falls upon real property is not the man 
 who owns real property the man who is paying the money to run this govern- 
 ment ? Am I wrong about that? 
 
 Mr. Purdy : I think you are wrong. 
 
 A Member: Where do millionaires live? Do they not pay tax upon the 
 ground they live upon? 
 
 Mr. Rogers : I presume not. 
 
 A Member: They do pay a tax on real estate, do they? 
 
 Mr. Rogers : I presume they do not pay a tax upon the property they live 
 upon, if, as one of the gentlemen said, they generally live in hotels 
 
 Mr. Chairman, the only thing I desire to say in answer to the gentleman, is 
 that I am here as a listener, and I would like to listen to some of these gentle- 
 men who would explain that question so that I would go away feeling that 
 it was not a moral wrong to relieve the millionaire who has simply money and 
 to tax the poor farmer or any other person who owns simply property. 
 
 Mr. Williams: I will appear to say something in reference lo the unfor- 
 tunate millionaire. I, myself, personally, am not a believer in taxation of so- 
 called intangible property, for the reason I stated yesterday, that there is no 
 such thing in the world. Therefore, I desire to tell the gentleman from Indiana 
 how the millionaire is taxed. The millionaire cannot keep his million dollars in 
 his pocket. There is no such thing. You go now and then down to the bank and 
 see a million dollars in money, but there is no such thing as a million dollars 
 in money for the purposes of taxation. How has the millionaire got his 
 property? Assume he has no real estate. Assume he has not a dollar. What 
 he has got, as a rule, is stocks and bonds and mortgages. He usually has those 
 three things, treating bonds as railroad securities. The stocks and bonds abso- 
 lutely pay taxes, because it goes without saying that if a corporation is taxed 
 on everything it has got and pays a fairly high franchise tax in addition to the 
 tax on the property he actually possesses, the corporation of which he is simply a 
 part owner unquestionably pays his taxes as far as he owns the stocks and 
 bonds. Stock is absolutely nothing except, of course, an undivided interest in the 
 property of the corporation. It pays two taxes, a tax on its actual property, and 
 in addition to that a franchise tax on its gross earnings or whatever you may 
 choose to call it. As to the matter of a tax on mortgages I agree with the gen- 
 tleman that a mortgage is absolutely nothing whatever. It is nothing but the debt. 
 The thing that requires to be taxed is the debt. If I have a hundred thousand 
 dollars to-day, and it is taxed, and I convert it into money, loan the money to 
 somebody else, and I have not a cent left, I should not be taxed on that hundred 
 thousand dollars. I do not want to say I am a poor man, because I have loaned 
 a hundred thousand dollars, but I have given a hundred thousand dollars to that 
 man and he has bought real estate with it, and the money has got into real estate. 
 What I have got is the right to receive four thousand dollars a year. 
 
78 THE NATIONAL CIVIC FEDERATION. 
 
 A Member : Did you not have that also when you had the land, the right to- 
 receive the income from the land? You say now you have the right to receive 
 four thousand dollars a year. 
 
 Mr. Williams: No, I had the actual property. If you make anything out 
 of the property so much the better. 
 
 Mr. Seligman : Mr. Chairman, it seems to me that the members of this Con- 
 ference are really not quite so far apart as they seem to be. I think it is very 
 largely a misuse of terms, and a little misunderstanding of the real question. I 
 for one can sympathize, and I think every one who looks at the question from 
 the broad point of view, can sympathize with these gentlemen, especially with 
 those from Indiana, who have spoken to-day and who represent the common 
 opinion of our democracy, that every man who possesses property has a certain 
 obligation to share in the burdens of his country. On that we all ought to agree 
 as a very starting point of the discussion, whether it be a discussion of mortgages 
 specifically, or anything else, that every man should pay according to his ability. 
 The very practical question, however, is the one raised by our friend a moment 
 ago, namely : Can we devise a system of taxation which will cause every man 
 who owns property to pay taxes on his property? If the gentleman will pardon 
 me, I think the experience of Indiana is precisely the same as that of most of the 
 other States. Most of our States tax corporations, or many of them do, as 
 Indiana does. Most of them exempt the stockholder who is already taxed, by 
 having the corporation assessed, but in Indiana and pretty much everywhere 
 else throughout the country we attempt to make the individual pay upon all his 
 property, real and personal, tangible and intangible, with the possible exception 
 of stocks of corporations. Everywhere where that has been tried, it has worked 
 badly, and I venture to say that if we look into the details of the Indiana system. 
 we shall find it works just as badly there as anywhere else. They may succeed 
 in getting a few more mortgages than in other States, but if you compare the 
 great mass of the personalty in Indiana, all the money and the bonds and the 
 mortgages, I make bold to say, without knowing anything about the statistics at 
 present, that in Indiana not one tithe of the intangible personalty is assessed to 
 individuals. In Indiana, as everywhere else in this country, the attempt to make 
 the individual pay upon his personalty is a practical failure. 
 
 I do not, however, say that as a result we must agree with some of the 
 gentlemen here to-day, that only real estate should be taxed. The question is not 
 between the taxation and the exemption of personal property. The question is 
 between the direct and the indirect taxation of personal property. We all want 
 the individual to be taxed upon his property. We all find that under actual 
 conditions we cannot reach the individual directly upon his personal property, 
 although we can reach the landowner directly upon his real property. The con- 
 clusion is that if we desire to make every man pay his share so far as it is 
 humanly possible to do so, we must try to reach indirectly what we cannot reach 
 directly. The whole problem of the reform of taxation in the United States 
 to-day is how to reach the owner of personal property indirectly. The indirect 
 methods, some of which were suggested yesterday, and more of which will 
 undoubtedly be suggested to-day, amount to this: You cannot reach the indi- 
 vidual personal property owner upon his mortgages, because if you attempt to 
 tax the mortgage we all know it will be shifted to the man who borrows the 
 money; that is, the landowner, and the man who has loaned the money will 
 simply be getting back in a higher rate of interest what he pays out to the State 
 in taxes. While, therefore, we know that we cannot reach him directly in that 
 
NATIONAL CONFERENCE ON TAXATION. 79. 
 
 way, while we know that we cannot find his bonds and stocks and his other 
 intangible personalty, we do know that some of our States are now beginning to- 
 reach the owner of personal property by taxing him indirectly at the source, 
 namely, by taxing the thing that gives him the income which has been capitalized 
 into his property, by taxing the corporation from which he derives his dividends 
 and his interest. And if that does not suffice, we know that in some of our 
 States we also have an inheritance tax so that if you cannot reach the man while 
 he is living you can, at all events, reach the estate when he is dead. If even 
 that does not suffice, we know that other schemes have been successfully tried in 
 many countries of the world where they have gone through the very same experi- 
 ence that we have. For, gentlemen, this is not, as it seems to many of you. a 
 new question in the world. Every country in Europe, every civilised country 
 in the world has made at one time or another this attempt to secure the direct 
 taxation of the personal property owner; and as a result of a long sequence of 
 years, even of centuries, every country, almost without exception, has abandoned 
 the attempt to reach the personal property owner directly; but they all attempt, 
 and many of them succeed in the attempt, to reach the personal property owner 
 indirectly. Therefore, gentlemen, I conclude with the statement that we are 
 really all at one if we only knew it. We all want to tax the personal property 
 owner; but do not let us any longer continue the attempt to do a thing which 
 means practical inequality of taxation between man and man, and which means 
 that we do not achieve what we really set out to accomplish. Let us endeavor to 
 secure indirect taxation of personal property, not direct taxation of personal 
 property. 
 
 The Chairman : There are three others papers to be presented this morning. 
 We shall have ample opportunity for further discussion of this subject this 
 afternoon, and I shall, therefore, call upon Mr. Robert H. Whitten, of Albany. 
 N. Y., who will give us a paper on the inheritance tax as a source of State 
 revenue. 
 
 THE INHERITANCE TAX. 
 
 BY ROBERT H. WHITTEN. 
 
 Inheritance taxes, though imposed in various forms and at various times for 
 centuries, are in their present form a modern development. They now exist in 
 Great Britain, France, Germany, Switzerland, Belgium, Italy, Russia, and other 
 European states, and in Australia, Canada, and the United States. In the United 
 States, though Pennsylvania imposed a collateral inheritance tax of 25^ per cent 
 as early as 1826, it is only within the last ten or fifteen years that the movement 
 has attained any great importance. New York has probably exercised the great- 
 est influence in this development. In 1885 it imposed a tax of 5 per cent on 
 estates of $500 going to collateral heirs, and in 1891 supplemented this with a 
 tax of I per cent on direct inheritances of personal property of $10,000 or more. 
 The direct tax more than doubled the State's receipts from inheritance taxes 
 and furnished a practical example of the importance of inheritance as a subject 
 of taxation, that was quickly followed by other States. At present New York's 
 average annual receipts from this source are about $2,000,000, though for the 
 year 1900 they amounted to over $4,000,000, the increase being due to receipts 
 from a single estate: a single estate paying into the State treatury $1,934,000. 
 
8o THE NATIONAL CIVIC FEDERATION. 
 
 During the period 1890 to 1895 receipts from the inheritance tax throughout the 
 United States increased more than twofold, or from $1,886,000 to $4,016,000; and 
 there is no doubt but that during the period since 1895 the increase has been 
 even more rapid. 
 
 The colateral inheritance tax is now imposed by twenty-seven States, namely, 
 Arkansas, California, Colorado, Connecticut, Delaware, Illinois, Iowa, Maine, 
 Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, 
 New Jersey, New York, Ohio, North Carolina, Pennsylvania, Tennessee, Utah, 
 Vermont, Virginia, Washington, West Virginia, and Wisconsin; and twelve 
 of these States, namely, Colorado, Connecticut, Illinois, Michigan, Minnesota, 
 Montana, Nebraska, New York, North Carolina, Utah, Washington, and Wiscon- 
 sin, have supplemented this tax with a tax on direct inheritances. It is thus 
 evident that the inheritance tax is rapidly gaining in popular favor and is destined 
 to play a most important part in State tax systems. 
 
 The inheritance tax cannot be considered a tax on the decedent, but must 
 be and practically is regarded as a tax on the recipient. Only on this theory 
 would the rate be graded according to the relation of the recipient to the 
 decedent. It is a method of taxing income or property at its source. The 
 arguments presented in its justification are numerous and diverse. Those com- 
 munistically inclined would use the tax to diffuse and equalize wealth, but almost 
 any other tax could be 'ised for the same purpose, so that its advocacy from 
 this source need not disturb the individualist. It is not my purpose to enter into a 
 discussion of the various arguments, but merely to present briefly a few that 
 appeal to me most strongly. 
 
 1. One of the strongest arguments in favor of the inheritance tax arises 
 from the recognized right and duty of the State to regulate inheritance to such 
 an extent as the public welfare my require. The right of bequest and inheritance 
 is a natural right only to the extent that it is socially useful; that it furnishes 
 an incentive to the creation of wealth or furthers its preservation and judicious 
 management. Although we uphold device and descent as the best known method 
 of securing this end, yet we must admit that it is open to very serious objections 
 and very often fails completely. While the man who acquires wealth by that 
 act gives evidence of his ability to manage it properly, it is by no means so 
 certain that his heirs will possess that qualification. It is most fitting, therefore, 
 that the State in apportioning the burden of taxation should take cognizance of 
 this condition and obtain a portion of its revenue from estates at the time of 
 their transfer to hands that have given no evidence of ability to manage them 
 economically. Such a tax, if the rate be moderate, can only further the true 
 social function of device and descent, i. e., the furtherance of the creation and 
 the judicious management of wealth. The tax is an incentive rather than a 
 hindrance to the creation of wealth and insures that after its transfer at death 
 a certain portion, at least, will serve a socially useful purpose. 
 
 2. The inheritance tax is a tax on property that can in no way be shifted so 
 as to become a tax on labor or industry. It is generally recognized that property 
 should be taxed at a much higher rate than labor, and from this it follows that 
 the man in active business whose income is largely the result of his own energy 
 and labor should not be subject to as high a rate of taxation measured by 
 income as the man whose income is from money in savings banks, bonds, and 
 other perfectly safe investments. The income in the one case is largely the 
 reward of labor, and in the other the interest on past accumulations in the 
 investment of which only a trifling amount of labor is involved. The tendency 
 
NATIONAL CONFERENCE ON TAXATION. 8i 
 
 of a moderate additional tax on the latter form of income is to decrease the num- 
 ber of those who do or may enjoy a competence without any personal exertion; 
 it decreases the number of social drones and adds to the effective labor force. 
 Its effect is somewhat similar to that of a decline in the rate of pure interest. 
 When it is remembered that most fortunes are created by men in active busi- 
 ness, who give their entire time and strength to the work, and that those who 
 Jive from their incomes without themselves engaging in active business, or. in 
 other words, laboring, are in most cases those whose fortunes have come to 
 them through inheritance, the advantage of the inheritance tax as a means of 
 placing an additional burden on property without at the same time taxing 
 labor or industry, is very apparent. A tax of lo per cent on a bequest is equiva 
 lent to an annual tax of lo per cent on the income from the bequest. 
 
 3. The inheritance tax is, moreover, the best substitute for the present 
 ineffectual attempt to tax intangible personalty directly by means of the general 
 property tax. A common sense of justice demands that the bond and mortgage 
 holder should pay a substantial tax on his income from the investment, but as is 
 well known the direct tax on this class of property is either evaded entirely or 
 shifted to the borrower. The inheritance tax, however, can only with great 
 difificulty be evaded and can not be shifted; and will most effectually reach this 
 class of wealth that is at present practically exempt from taxation. To partly 
 compensate for their exemption from direct taxation, bonds and mortgages 
 passing at death should be subject to taxation at a higher rate than property, 
 not thus exempt. And even if no bonds or mortgages are included in the estate, 
 the inheritance tax nevertheless indirectly reaches this kind of property, for the 
 recipient will most probably invest a portion of his inheritance in stocks and 
 bonds, and the tax is equivalent to annual tax on the income from this invest- 
 ment. 
 
 4. As a result of the fact that the inheritance tax does not tax industry and 
 can in no way be shifted, its imposition or alteration results in no disturbance of 
 business or industrial relations. This is a most notable advantage, for the 
 restrictive and prohibitive effects of some taxes and the severe disturbance of 
 industrial conditions resulting from the introduction of other taxes, are extremel> 
 important, and are the causes that most often prevent the adoption of legislative 
 reforms. It is the very great hardship and injustice resulting from the sudden 
 imposition of a tax or from a change in its rate that effectually blocks 99 out of 
 100 of the proposed reforms. The inheritance tax can be imposed and its rate 
 altered from time to time in response to the demands of justice or to the needs 
 of the State without producing industrial disturbance or hardship. 
 
 The justification and desirability of the tax having been considered, the next 
 question is that of a proportional or a progressive rate. 
 
 I. In the first place, it is universally recognized that there should be some 
 progression in rate as between different classes of heirs. If direct heirs are 
 taxed at all they are always taxed at a lower rate than collateral heirs. In the 
 United States the general rule is to tax direct inheritance i per cent, and collateral 
 5 per cent. The heirs should be divided into a certain number of classes based 
 on the equitable claim which they have to the property of the decedent, due to 
 dependence on him for support or to co-operation in any degree in the accumu- 
 lation of the property. It seems just that in the case of husbands, wives, and 
 minor children there should be a larger exemption or lower tax than for any 
 other class of heirs, and that adult children and parents should not be taxe<? 
 ^o highly as collateral heirs. 
 
82 THE NATIONAL CIVIC FEDERATION. 
 
 2. The same reasons that have been adduced to show the justice of the 
 inheritance tax are also arguments for a rate progressive as to the amouni of 
 the inheritance, (i) The danger of mismanagement is greater in the case of 
 large than of small inheritances ; (2) the larger the inheritance the greater thr 
 probability that its recipient will render no adequate social return for the income 
 he receives; and (3) the larger the inheritance the greater the probability thaf 
 it will be invested in such a way as to largely escape direct taxation. The prac- 
 tical limit to the progression is the point at which the creation of wealth is 
 discouraged or means of evasion devised. 
 
 Inheritance taxes progressive as to the amount of the inheritance, are 
 imposed by Switzerland, Great Britain, Australia, and Canada, and in the 
 United States by Colorado, Illinois, Nebraska, North Carolina, Washington, 
 and the National Government. The Illinois Act, passed in 1895, and upheld by 
 the United States Supreme Court, imposes taxes at the following rates on all 
 property, real and personal: 
 
 1. One per cent on excess of $20,000 passing to father, mother, brother, sister. 
 husband, wife, child, or lineal descendant. 
 
 2. Two per cent on excess of $2,000 passing to uncle, aunt, nephew, niece, or 
 lineal descendant of same. 
 
 3. On all estates passing to other heirs : $500 to $10,000, 3 per cent ; $10,000 
 to $20,000, 4 per cent; $20,000 to $50,000, 5 per cent; exceeding $50,000 6 
 per cent. 
 
 The national inheritance tax was imposed in 1898 as a war tax, but has since 
 been continued. It applies only to personal property, the rates being graduated 
 first as to degree of relationship and second as to amount of inheritance. The 
 rates according to degree of relationship, when the whole amount of the per- 
 sonal property exceeds $10,000 and does not exceed $25,000, are as follows : 
 
 1. Three-quarter of i per cent when passing to lineal issue, lineal ancestof, 
 brother, or sister. Property passing to husband or wife is entirely exempt. 
 
 2. One and one-half per cent, when passing to lineal issue of brother or 
 sister. 
 
 3. Three per cent when passing to brother or sister of father or mother or 
 to a descendant of same. 
 
 4. Four per cent when passing to brother or sister of grandfather or grand- 
 mother or to a descendant of same. 
 
 5. Five per cent when passing to other than above. 
 
 Personal estates exceeding $25,000 in value are taxed at multiples of the abov;* 
 rates as follows : 
 
 1. $25,000 to $100,000, iy2 times above rates. 
 
 2. $100,000 to $500,000, 2 times above rates. 
 
 3. $500,000 to $1,000,000, 2j^ times above rates. 
 
 4. Exceeding $1,000,000, 3 times above rates. 
 
 The progressive taxes of Colorado, Nebraska, North Carolina, and Washing- 
 ton were established in 1901. The rates in Colorado and Nebraska follow quite 
 closely those of the Illinois act. The North Carolina tax is modeled after that 
 of the National Government. 
 
 The Washington Act imposes a direct inheritance tax of i per cent, on all 
 property above $10,000 and a progressive collateral inheritance tax on all 
 amounts of property at rates varying from 3 tp 12 per cent. On property passing 
 to collateral heirs to and including the third degree of relationship, the following 
 progressive rates are established : 
 
NATIONAL CONFERENCE ON TAXATION. 83 
 
 1. On all sums not exceeding the first $50,000, 3 per cent. 
 
 2. On all sums above the first $50,000 and not exceeding the first $100,000, 
 4^ per cent. 
 
 3. On all sums in excess of the first $100,000, 6 per cent. 
 In the case of collateral heirs beyond the third degree of relationship, and 
 strangers, the progression is as follows: 
 
 1. On all sums not exceeding the first $50,000, 6 per cent. 
 
 2. On all sums above the first $50,000 and not exceeding the first $100,000, 
 9 per cent. 
 
 3. On all sums in excess of the first $100,000, 12 per cent 
 
 The progression in Illinois is from i per cent to 6 per cent, and in tho 
 national tax from ^ of i per cent to 15 per cent. The inheritance tax, State 
 and National, on personal property of residents of Illinois, therefore, ranges from 
 iJ4 per cent to 21 per cent. This brings up the question of the separation of 
 the sources of revenue. Would it not be wise to restrict the use of the 
 inheritance tax either to the National or to the State governments? At present 
 the double rates are not excessive; but could not a more equitable system be 
 expected if there were not two entirely distinct authorities imposing the tax" 
 If the tax should be relinquished to the National Government many complications' 
 growing out of the different methods of the different States and the resulting 
 double taxation and injustice would be avoided. There would be a uniform tax 
 for the whole country, thus greatly reducing the possibility of evasion througli 
 a change of residence, and the revenue from the tax on account of the large area 
 included would be subject to less fluctuation from year to year than the revenue 
 of a single State from the same source. Moreover, the fact that the impositior. 
 or alteration of the inheritance tax results in no injustice or industrial dis- 
 turbance, together with the fact that it can be put in full operation without much 
 delay, and that an increase in rate results in an immediate and proportionate 
 increase in revenue, makes it peculiarly valuable as a war tax. 
 
 On the other hand, the complications arising from the diverse systems of the 
 States may be largely obviated by the adoption by the States of simple prin- 
 ciples of interstate comity. Except in the emergency of war the National 
 Government is not in so great need of the inheritance tax as a source of revenue 
 as are the States, and with the very considerable centralization and development 
 of State administration, which must inevitably take place. State expenditures 
 will continue to increase. The States need the inheritance tax as a substitute io: 
 the present attempt to tax intangible personalty directly, and as a means o^ 
 rounding out their tax system. It will also be of great assistance in bringing 
 about a separation of the sources of revenue between the State and the loca? 
 governments. Perhaps the most desirable arrangement would be to reserve the 
 tax in times of peace for State purposes, and for the National Government to 
 use it strictly as a war tax. As a war measure the increased rate would be 
 borne without great discontent. The inheritance tax would thus serve the 
 real need of the National Government while at the same time helping materially 
 to bring order out of the existing chaos of State Taxation. 
 
 Mr. Judson : Mr. Chairman, it seems to me that this question of Inheritance 
 Taxation is one of the most interesting and important in the whole range of 
 taxation' problems. It furnishes an answer to the suggestion of our friend from 
 Indiana. I agree with him that the wealth which is not invested in the land 
 should bear its share of public burdens, but what I say is, that we shonl t 
 reach it by effective and not by ineffective methods. An inheritance tax, as the 
 
84 THE NATIONAL CIVIC FEDERATION. 
 
 paper stated, cannot be shifted and cannot be evaded. All the estates of the 
 country will in the course of human events pass through the Probate Court in 
 the course' of thirty or forty years, and the inheritance tax is a sure means of 
 reaching the wealth that is invested in such estates. We now have that ta.K 
 imposed by the United States Government and by some of our States. There 
 is one point suggested by the speaker to which I would call attention, and that 
 is the matter of double taxation through the conflicting State authorities in 
 inheritance taxes. A man dies in the State of New York so that the principnl 
 administration upon his estate is there, and he leaves property in other States 
 which can be secured to his heirs or legatees through ancillary adminis- 
 tration in such States. Our inheritance tax laws, as a rule, levy a tax 
 in each State not only on the right of inheritance acquired under the laws 
 of that State primarily, but also upon property of the State which passes 
 under the laws of other States. In other words, the devise or legacy to 
 the devisee or legatee pays a double tax, both under the law of the State 
 where the property is located, and- the law of the State where the primary admin 
 istration is had. No doubt the lawyers present have known of several such 
 Cases of double taxation of inheritance. The principle of interstate comity 
 should prevail in a government like ours where State lines divide us, but where 
 we are one government nationally. Commerce, business, and social relations 
 know no State lines, and we should have the principle of interstate comity i^. 
 all forms of taxation, and certainly in the form of inheritance taxation. While 
 I believe heartily in the justice of an inheritance tax and in its policy, it should 
 be limited to the State of the primary administration; that is, the State under 
 whose laws a citizen passes title to his property to those who come after him, 
 to pay for the maintaining of the government of that State. Our Supreme 
 Court in Missouri held unconstitutional a progressive inheritance tax holding 
 that it Was class legislation, but sustained a subsequent law, following the 
 decision of the Supreme Court of the United States, where the discrimination 
 was as between different degrees of relationship. Under the collateral inheri- 
 tance law in Missouri the proceeds of the tax are given to the State University. 
 
 The Chairman : The gentleman's time has now expired. If there is no 
 further discussion of this special question of inheritance tax the Chair will call 
 upon Judge T. E. Howard, of Indiana, who has a paper prepared on the Indiana 
 laws, which paper and the discussion I am sure will be of interest this morning 
 ■jto the members of this Conference. 
 
 . THE INDIANA GENERAL PROPERTY TAX LAW. 
 
 BY JUDGE TIMOTHY E. HOWARD. 
 
 The essential principle of the Indiana Tax Law, the Reform Act of 1891, and. 
 its several amendments, is that all property within the jurisdiction of the S>t2^^ 
 shall be assessed at its true cash value. This is the basis upon which the law 
 rests and upon and around which all the provisions of the system are con- 
 structed. 
 
 By "true cash value" is meant, as defined in Section 53 of the Act, "the usual 
 selling price" at the place where the property is at the time of assessment, "bein<* 
 the price which could be obtained therefor at private sale, and not at forced 
 or auction sale." And, as said in Section 48, if there is no selling price or 
 market value, then the property is to be assessed at "the actual value." - 
 
NATIONAL CONFERENCE ON TAXATION. 85 
 
 The authority of the Legislature for the enactment of the statute is found in 
 Article X, Section i, of the Constitution, which reads as follows: 
 
 "The General Assembly shall provide, by law, for a uniform and equal rate 
 of assessment and taxation ; and shall prescribe such regulations as shall secure 
 a just valuation for taxation of all property, both real and personal, excepting 
 such only for municipal educational, literary, scientific, religious, or charitable 
 purposes, as may be especially exempted by law." 
 
 With the exceptions named, therefore, all property within the State, whether 
 real, personal or mixed, whether chattel or credit, whether tangible or intangible, 
 is subject to just valuation, uniform assessment, and equal taxation. 
 
 The only privilege allowed to the Legistlature, and the only privilege taken 
 by that body, is to fix upon what shall be the uniform and equal valuation and 
 assessment of the property within the State. 
 
 Previous to 1891 the Legislature, while directing that the rate of assessment 
 and taxation should be uniform and equal, as required by the Constitution, had 
 been content to provide as to the valuation simply, that it should be "fair." The 
 word fair in this connection proved to be a term without definite meaning. In 
 one county or one township it was taken to mean one thing, in another another. 
 It was considered "fair," in even the same assessing district to value one kind 
 of property at one rate and another at another. Townships, too, vied with 
 one another to diminish their own property valuation, so as to ;-educe their 
 relative proportion of county and State taxes ; and counties vied with one 
 another in like manner as to State taxes. Moreover, each Assessor in the 
 thousand and over townships of the State differed, in judgment or design, from 
 almost every other Assessor as to what should be considered the fair valuation 
 of any given species of property. 
 
 One result of such "fair" valuation was that throughout the State property 
 was valued at from five or ten to ninety or over per cent of its real value — some 
 taxpayers thus bearing much less and some much more than their just and equal 
 share of the public burdens. 
 
 Another result was the continuing need of increasing the rate of taxation, in 
 a struggle to maintain a sufficient public revenue, based upon a constantly dimin- 
 ishing "fair tax valuation." 
 
 Where the courage of the officer or board making the levy was not equal 
 to the requirements of thus raising the tax rate, the treasuries failed to furnish 
 sufficient means for public expenditure. Loans were accordingly made neces- 
 sary to supply the deficiencies, and the interest burden grew heavier from year 
 to year. 
 
 The evil was particularly apparent in the condition of the State finances. The 
 debt of the Commonwealth had grown to be over eight millions and was 
 increasing rapidly. The members of the Legislature had little inclination to 
 increase the State levy. Indeed, so unequal was the valuation of property that 
 there was a seeming injustice in making the burden heavier on those who were 
 already bearing more than their just share. Resort was therefore had to further 
 loans, until large sums were actually borrowed to pay interest on borrowed 
 money, thus compounding the interest of the public debt. 
 
 From this condition it came to pass that the Legislature of 1891 found the 
 question of public revenue the one important problem for solution. The issue 
 was met frankly and boldly; not by any weak or temporary expedient, but by 
 a sweeping revision of the whole system of taxation. It was not difficult to 
 
86 THE NATIONAL CIVIC F£DERATI0N. 
 
 perceive that the source of evil was the unequal valuation of property, and 
 legislation was directed particularly to meet this defect. 
 
 Provided there should be uniformity of valuation, and provided all property, 
 of every kind and description, should be assessed, it was manifest that the rate 
 or standard of valuation might be arbitrarily fixed. Whether all property were 
 assessed at its true value, or at half its value, or at twice its value, the burden 
 of taxation would still be proportionate to the property. If a given levy, on the 
 true value, should afford the necessary revenue, then half such levy on twice 
 the value would bring in the same revenue; as would also twice the levy on 
 half the value. What seemed the essential thing to do was to assess all the 
 property at a fixed and uniform valuation. The public burden would thus be 
 equally borne by every dollar's worth of property in the State. 
 
 But to the Legislature of 1891 it seemed an idle thing to fix fifty per cent, 
 or eighty per cent, or any other per cent, of the real value of property as the 
 taxable value. If the real value must first be ascertained, why not let that stand 
 as the taxable value? The Assessor would thus be burdened with one less 
 calculation. The simplicity of the standard seemed its sufficient reason. The 
 market value, the selling price at free private sale, in a word, the true cash value, 
 appeared the rational standard valuation for taxation. 
 
 The words of Mr. Justice Brewer, since written, in the case of Express Com- 
 pany vs. Auditor, 166 U. S., 185, give concise statement to the conclusion thus 
 reached : "Whatever property is worth for the purposes of income and sale," he 
 says, "it is also worth for purposes of taxation." "Substance of right," he con- 
 tinues, "demands that whatever be the real value of any property, that value 
 may be accepted by the State for purpose of taxation, and this ought not to be 
 evaded by any mere confusion of words." 
 
 The Legislature of 1891 was not long, therefore, in coming to the conclusion 
 that the rational basis of valuation was the true market or cash value. If all 
 the property of the State should be listed, and if it should all be assessed at its 
 true value, it was plain that every item of property, of whatever kind or descrip- 
 tion, would be ratably, uniformly, and evenly presented for the action of the 
 officers making the tax levy. Then the amount of revenue necessary for public 
 purposes being known, the rate of the levy would be a matter of simple 
 computation; and every property owner of the State would be uniformly and 
 justly assessed in actual proportion to the property owned by him. 
 
 That is the end proposed by the Indiana system of taxation. The ideal is 
 presented, and every provision of the law is framed to aid in bringing about 
 the full and complete attainment of this ideal. If, owing to the imperfection 
 of human things, the perfect ideal cannot be attained, then, as Webster once said, 
 in relation to apportionment laws, the nearest approximation to such perfection 
 becomes itself an end to be sought. Hence to the people of Indiana the subject 
 of taxation is a practical, not a speculative, question. 
 
 The machinery of the law, if it may be so called, consists of assessing 
 officers and boards, beginning with the Township Assessor and closing with 
 State Board of Tax Commissioners — a closely knit chain from the first step to 
 the last. 
 
 Between the first day of April and the first day of June in each year, the first 
 step is taken by the property owner himself, who furnishes to the Township 
 Assessor a sworn statement and cash valuation of all his property.* The Assessor 
 is not at all bound by such statement, but from the statement so made, and from 
 all other available information, he makes the original assessment, assessing the 
 
NATIONAL CONFERENCE ON TAXATION. 87 
 
 property at its true cash or market value, "and if there is no market value, then 
 the actual value." 
 
 From the first day of June until the first Monday after the fourth day of 
 July, in each year, the returns of the Township Assessor are placed in the hands 
 of the County Assessor, whose duty it is to add to the lists all omitted property 
 which he may be able to discover, particularly notes, mortgages, judgments, and 
 other like credits, shown upon the County Records; all of which he will like- 
 wise assess at the true cash value. The County Assessor, as also the County 
 Auditor and County Treasurer, are further required, at any time during the 
 year, to place upon the Tax Records other property found to have been omitted 
 from the assessment lists. 
 
 The County Assessor, County Auditor, and County Treasurer, together with 
 two free-holders appointed by the Circuit Judge, constitute a County Board of 
 Review, whose duties are to review and equalize the assessments made by the 
 Township Assessors and the County Assessor. The session of the County Board 
 of Review is for twenty days, beginning on the third Monday of June, in each 
 year, except that every fourth year, when real estate is appraised, the session is 
 for thirty days. In case the Board desires to add and assess omitted property, 
 or to raise the assessment of any property, notice must be given the party to be 
 affected, if a resident of the County ; but in no case will the Board be authorized 
 to so change the assessment of any property as to make such assessment more 
 or less than the true cash value. 
 
 The Governor, Secretary of State, and Auditor of State, together with two 
 skilled and competent persons appointed by the Governor, constitute the State 
 Board of Tax Commissioners, whose duties are to supervise the whole taxing 
 system of the State. This Board is to review and equalize the assessments as 
 made by the County Boards of Review. Appeals lie to the State Board from 
 the County Board. The State Board also, in case of necessity, equalizes the 
 assessments as among the several counties. The State Board of Tax Commis- 
 sioners has sole original jurisdiction to assess that part of railroad property 
 denominated railroad track and rolling stock ; also all property belonging to 
 telegraph, telephone, palace car, sleeping car, drawing-room car, dining car, 
 express and fast freight, joint stock association companies, co-partnerships and 
 corporations, doing business in the State of Indiana, and also street railways 
 and other inter-county property. 
 
 The method of valuation in such cases is first to determine the true cash 
 value of all the property, within and without the State, or in the several counties, 
 and then take for the assessment of the part of the property in Indiana, or in 
 any county, that proportion of the whole value which the length of the line within 
 the State or the county, bears to the length of the whole line. The mileage 
 basis of taxation, so used, is adopted upon the assumption that, other things 
 being equal, each mile of railroad, telegraph, or other like property is of equal 
 value with every other mile of the same property, whether within or without 
 the State or the county. 
 
 The sessions of the State Board of Tax Commissioners begin on the second 
 Monday in July of each year. The assessments as made or modified by the 
 Board are certified to the several County Auditors, after which the tax duplicates 
 of the several counties of the State are made up. 
 
 The sole principle guiding each taxing officer and Board, and to the enforce- 
 ment of which he binds himself by his oath of office, is, that all the property 
 within the jurisdiction of the State, except that which is expressly exempted 
 
SS THE NATIONAL CIVIC FEDERATION. 
 
 by the Constitution, shall be listed for taxation, and that the property so Hsted 
 shall be assessed uniformly throughout the State, *'at its true cash value." 
 
 The opposition to the tax law of 1891 was at first vigorous and determined. 
 This opposition came chiefly from railroad, telegraph, banking and other like 
 companies. Those organizations seemed to be of opinion that, in some way, 
 they suffered great wrong by having their property assessed at the same rate as 
 other property of the State. The truth is that prior to the Act of 1891 the 
 assessment of such property was in many cases merely nominal, and the great 
 burdens of taxation fell upon the owners of real estate and the small property 
 holders of the State. The numerous suits brought to overthrow the law resulted, 
 however, in its complete vindication as a valid and constitutional enactment, 
 both by the Supreme Court of the State and by that of the United States. See 
 particularly, 133 Ind., 513, 609, 625; 141 Ind., 281; 144 Ind., 549; 154 U. S., 421; 
 163 U. S., I ; and 166 U. S., 185. Since those decisions, and after the admirable 
 results of the law became apparent, the measure has been fully acquiesced in by 
 all the property owners of the State; and from a very unpopular Act, the tax 
 law of 1891 has been approved by all the people as a piece of wise and beneficial 
 legislation. 
 
 During the ten years that the law has been in operation the people and the 
 taxing officers have become educated in matters relating to the public revenue. 
 There is a more economical administration of the finances of the State and of 
 the various municipaUties. Levies are made more nearly in accordance with 
 the needs of public expenditure, and altogether there is a more intelligent 
 appreciation of matters relating to the public revenues. Almost immediately 
 after the enactment of the law the State ceased to be a borrower, and year by 
 year since 1891, without any inconvenience to the State Treasury, the public 
 debt has been steadily diminished, until it has ceased to be a burden upon the 
 people. Indeed, a chief purpose on the part of the Legislature has been to so 
 reduce the State levy for taxes that the debt may not be paid off faster than 
 seems necessary. 
 
 Altogether the people of Indiana have good reason to be satisfied with their 
 system of revenue and taxation. There may still be improvement in tha law, and 
 such improvements have been made from session to session of the Legislature 
 as they have been suggested in the practical administration of the law. It is 
 doubtful, however, as we think, whether a better practical system of assessment 
 and taxation can be devised. If such better system can be devised, the people 
 of Indiana will be among the first to advocate its adoption. Until then we shall 
 continue to sustain, and improve, if we can, the Tax Law of 1891. 
 
 The Chairman : Gentlemen of the Conference, it has been suggestt-d by 
 reason of the fact that many of the delegates will be unable to be present to- 
 morrow and remain over for the papers of that time, that we attempt to complete 
 the reading of the papers to-day. Therefore, we will add to the papers to be 
 read this morning and will devote a longer time this afternoon than was antici- 
 pated. It is believed that by so doing we can complete the work of the Conference 
 this afternoon. Before going into any further discussion we will first hear the 
 paper of Prof. C. W. Tooke, of Illinois. 
 
 Mr. Davis : May I ask what per cent the law of 189 1 has added ? 
 
 Mr. Howard : The amount of revenue, do you mean ? 
 
 Mr. Davis: Yes, of course. 
 
NATIONAL CONFERENCE ON TAXATION. 89. 
 
 Mr. Howard: That has been regulated simply according to the needs of the 
 different municipalities and the levy has been diminished to correspond with the 
 increase of the valuation of the property. 
 
 Mr Davis : I wanted to know what per cent the revenue of the State has 
 been increased by the new law ? 
 
 Mr. Howard : About thirty, I am informed by a gentleman from Indiana, 
 but I did not know that myself. I will say, however, that Attorney- General 
 Taylor, if he is present still, can answer questions of that class better by reason 
 of his connection with the State Government. 
 
 Mr. Taylor: Thirty per cent. 
 
 Mr. Davis: What per cent of that is from banks and other corporations? 
 
 Mr. Taylor: About twenty-si.x or twenty-seven per cent. 
 
 Mr. Davis : The large amount of the increase falls upon corporations and but 
 little on land. 
 
 Mr. Taylor: And personal property; very little on land. 
 
 The Chairman: The Chair will now introduce Prof. Tooke, of Illinois 
 
 Mr. Tooke: I feel somewhat like apologizing after the very optimistic state- 
 ment of affairs in Indiana, for giving our experience in Illinois. We are depend- 
 ing upon a general property tax for nearly all our revenue. That is the system 
 which has prevailed in the State since its organization. I may say, further, that 
 prior to the present session of the Legislature the revenue law of our State 
 consisted of some three hundred and sixty-nine separate sections, of which 
 some fifty-nine constitute what is known as the new revenue law which was 
 passed in 1898. With regard to the operation of the general property tax 
 prior to 1898 our experience was similar to the experience of other States in 
 that personal property largely escaped taxation, and from 1872 to 1898 our assess- 
 ment had steadily decreased. We were then assessing as was supposed upon 
 a full cash valuation, so that it was shown that dishonesty had been invited by 
 our system of listing. It was shown on the face of the returns that every tax 
 officer of the State was a perjurer. It was also shown that the people of 
 Chicago escaped a large proportion of the State tax, not because that city was 
 unwilling to pay its proportion, but because of the overlapping of municipal 
 corporations on the same territory, it was felt necessary in the city of Chicago 
 to reduce the assessments, A very lively hope was entertained in 1898 that the 
 passage of a new revenue law would cure those defects. It is with that law 
 and its operation that I have to deal. 
 
 THE "NEW REVENUE LAW" OF ILLINOIS. 
 
 by CHARLES W. TOOKE. 
 
 Lntroductio.v. 
 
 the general property tax in illinois. 
 
 The State of Illinois is laboring under the traditions of the general prop- 
 erty tax, a system which, with unimportant modifications, has obtained since 
 the organization of the State government in 1818. The constitution of that 
 year required that taxes should be levied by "valuation," so that every person 
 should pay a tax "in proportion to the valuation" of his property. By the con- 
 stitution of 1848, some alterations were made, the General Assembly being 
 empowered to levy special taxes on certain enumerated lines of business, but 
 
90 THE NATIONAL CIVIC FEDERATION. 
 
 the principle was retained that all persons should be taxed according to the 
 value of the property in their possession. Section 2 of Article IX. of the con- 
 stitution of 1848 requires that "General Assembly shall provide for levying a 
 tax by valuation so that every person and corporation shall pay a tax in pro- 
 portion to the value of his or her property; such value to be ascertained by 
 some person or persons to be elected or appointed in such manner as the 
 General Assembly shall direct, and not otherwise." These words were also 
 incorporated in the constitution of 1870; and the Supreme Court of the State 
 has ruled that their effect is to make equality and uniformity controlling prin- 
 ciples in the formulation of laws for levying taxes, but that the practical require- 
 ments of taxation forbid the avoidance of a tax for administrative defects such 
 as a mistaken valuation, unless fraud in the assessment can be shown.^ 
 
 In carrying out the provisions of the constitution of 1870, the General 
 Assembly has placed upon the statute books many acts dating from 1872 to 
 1901. Prior to the minor amendments passed at the recent session, the revenue 
 law of the State consisted of various statutes enacted at eleven different ses- 
 sions, and containing no less than three hundred and ninety-seven sections. In 
 1898, at a special session called mainly for that purpose, the General Assembly 
 enacted a law containing some fifty-nine sections commonly known as the 
 "New Revenue Law," which was believed by many of its supporters to have 
 solved the difficulties of reaching all the property in the State by an equitable 
 and uniform assessment. 
 
 OPERATION OF GENERAL PROPERTY TAX PRIOR TO 1898. 
 
 The operation of the general property tax prior to 1898 has been set forth 
 in many papers. In brief, its failure in attaining uniformity and the equitable 
 apportionment of the State tax between the various counties of the State had 
 become so marked as to be notorious. Being an apportioned tax, even under 
 the requirement of the law that all property should be" assessed at fair cash 
 value, the temptation to undervaluations between counties and townships led 
 to gross injustice being done to individual taxpayers. The revenue commission 
 of 1886 reported that the range of assessments varied from 100 per cent, to 5 
 per cent, of fair cash value. In the County of Cook, with its multiplied taxing 
 agencies, many of them overlapping the same territory, to the incentive of avoid- 
 ing the county's proportion of the taxes of the State was added the necessity 
 of further reducing assessments to prevent an overwhelming burden of local 
 taxation. So that, while it was reported by the authorities of the city of Chi- 
 cago that the assessments were upon a ten per cent, basis, in fact it was shown 
 that in many cases the current figure was nearer one per cent. 
 
 In the second place, universality in taxation had not been attained. Per- 
 sonal property, which peculiarly owes its existence and protection to modern 
 governmental agencies, had been permitted to escape a larger and larger pro- 
 portion of its just burden. In 1882, personalty paid twenty-two per cent, of 
 the total tax of the State. Since 1894 it has been less than seventeen per cent. 
 If we add to these defects, the facts that have been again and again substan- 
 tiated, that the system had been found to invite dishonesty, that every tax 
 officer in the State upon the face of the returns zvas a perjurer, that the system 
 was regressive in throwing the heaviest burdens upon the agricultural classes, 
 
 ^Livingston County vs. Weider, 64 111. 427. Spencer vs. People, 6& 111. 510. 
 Republic Life Insurance Co. vs. Pollak. 75 111. 292. 
 
NATIONAL CONFERENXE ON TAXATION. ' 91 
 
 we can see how active was the hope of the people of the State that the new law 
 of 1898 would cure the existing defects in the assessment and collection of the 
 revenue of the State. 
 
 THE ACT OF 1898. 
 
 The act of 1898, of which so much was expected, did not purport to change 
 the general principles of the law of taxation, but only to secure a more thor- 
 ough listing of general property by the entire reorganization of the administra- 
 tion of assessment. It provided a special administrative organziation for counties 
 of a population over 125,000. In other counties, under the supervisor or town- 
 ship system of government, which applies to all but nineteen counties of the 
 State, the authority to equalize the county assessments was taken away from 
 the Board of Supervisors,. In these counties the County Treasurer was made 
 ex-officio Supervisor of Assessments and the charge imposed upon him of 
 instructing the Township Assessors and their deputies as to their duties. A 
 Board of Review was also created in each such county, to consist of the County 
 Clerk, the Chairman of the Board of Supervisors and some citizen resident of 
 the county, to be appointed by the County Judge. In counties under the com- 
 missioner system of government, the board of County Commissioners was made 
 the Board of Review. In counties of a population above 125,000, the Board was 
 made elective, with a tenure of six years, one member retiring every two years. 
 The Board of Review was given plenary power to review and equalize the 
 assessments returned by the Supervisors of Assessments and the Township 
 Assessors. Their power extended to the raising or lowering of any township 
 assessment; to the listing of any individual who had failed to return a sched- 
 ule, to the examination of any Assessor or other person under oath, under 
 penalty of a heavy fine for refusal to answer the questions propounded. The 
 State Board of Equalization was continued, but its power to increase or decrease 
 the total assessment of the State was limited to ten per cent. 
 
 CONSTITUTIONALITY OF THE LAW. 
 
 The question of the validity of the law, so far as it related to the reorgan- 
 ization of the administration of assessment, came before the Supreme Court 
 of the State in December, 1898, in the case of The People v. Commissioners 
 of Cook County.' The court therein held that the act did not in that respect 
 violate Section 22 of Article IV. of the constitution, forbidding the passage 
 of any special laws regulating county and township affairs. "It does not," said 
 the court, "purport or attempt to regulate county and township affairs, but the 
 sole object of the act is to provide means for the assessment of property, and 
 it cannot be said that by doing so the Legislature has attempted to regulate 
 the county and township affairs of any county or township by a special law. 
 as the act is applicable to the whole State; and for the purpose of facilitating 
 and regulating assessments, so that they shall be uniform and more satisfac- 
 tory than heretofore, has classified the counties of the State." Later, in Feb- 
 ruary, 1900, the court, in meeting the objection that the law was unconstitu- 
 tional as merely amendatory of the old law, held that the law was complete 
 in itself, even though it repealed by implication certain provisions of prior 
 laws. "The mere fact that portions of the old law are left in force, so that 
 the statutes present the aspect of what has been called patch-work legislation. 
 
 • 176 111. 576, 
 
92 THE NATIONAL CIVIC FEDERATION. 
 
 as they undeniably do," says the court, "should not render the act void, if it- 
 can be said that the act is reasonably complete and sufficient in itself upon 
 distinct branches of the general subject."^ The only section of the law which 
 was not sustained by the court was that which attempted to limit the aggregate 
 amount of the levies which might be certified to the County Clerk by munici- 
 palities in counties containing 125,000 or more inhabitants to five per cent.* 
 
 PRACTICAL OPERATION OF LAW OF 1898. 
 
 DIFFICULTY OF INTERPRETATION. 
 
 In practical operation, the effect of the new law has been to complicate 
 unnecessarily the administration of assessment and to add seriously to the 
 expenses attendant thereon, without bringing any compensatory benefits. What 
 the Supreme Court was pleased to call patch-work legislation has proven to be 
 of little advantage to the individual taxpayer or to the State at large. Th« 
 new law provided, that "all provisions of the general revenue law in force 
 prior to the taking effect of this act shall remain in force and be applicable to 
 the assessment of property and collection of taxes, except so far as by this 
 act it is otherwise expressly provided." The result is that even yet the revenue 
 law of the State is largely a matter of conjecture. While the court has passed 
 upon certain provisions of the law, in many instances it is still uncertain, 
 even to the Supervisors of Assessments, what powers the administrative offi- 
 cers can exercise. An illustration of this point is to be found in the provision 
 of Section 9, which requires the quadrennial assessment of real property. Sec- 
 tion 14, however, reads that "on or before the first day of June in each year, 
 other than the year of the general assessment, the Assessor shall determine 
 the amount, jn his opinion, of any change in the value of any tracts or lots or 
 lands, if any such change has taken place and is not already entered in the 
 assessment books, determining such change in value as on the first day of 
 April of that year, and add to or deduct from the assessment accordingly, set- 
 ting down the amount of such change in a proper column in the assessment 
 books." This clause practically nullifies the provisions of Section 9, and has 
 left the power of Assessors in this regard where they were before the enact- 
 ment of the law. So that it has been possible for the Board of Assessors of 
 Cook County, for example, to reduce the value of property returned many 
 millions of dollars in 1900 as compared with 1899, ostensibly for the reason 
 that the county would otherwise bear more than its just proportion of the 
 burdens of the State." 
 
 A serious attempt was made in the first year of the operation of the law 
 by the County Treasurers to secure uniformity through the organization of a 
 State association of County Assessors and Supervisors ot Assessments. This 
 organization now holds annual meetings, at which knotty problems of the inter- 
 pretation to be placed upon the law are discussed and their solution suggested. 
 I have before me the replies of the Treasurers of seventy-two counties of the 
 State to a series of thirty questions sent out by the President, E. M. Burr, in 
 preparation for the annual meeting of the association in 1899. I shall take 
 
 ' The People vs. Knoph. 183 111. 410. Knoph. vs. The People, 185, 111. 20. 
 
 *An amendment to the law to meet the objection of the Court was passed 
 by the recent session of the General Assembly. 
 
 •Attorney-General Akin held that the action of the local Board was illegal 
 (in an ooinion to Board of Education). 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 93 
 
 occasion to quote from these answers in support of some of my conclusions 
 upon the operation of the act. 
 
 OLD EVILS NOT REMEDIED. 
 
 In the second place, whatever radical defects were present under the old 
 law, still flourish under the new law. Nearly all the reports in question testify 
 to the impossibility of reaching bank credits, mortgages, trust deeds and prom- 
 issory notes by the new methods of inquisition. Among the difficulties encoun- 
 tered are the following, which the new law was supposed to remedy: 'Tai4- 
 ure of taxpayers to list real property fully" and "loss of memory in majority of 
 property owners;" "dishonesty on the part of the taxpayers;" 'incompetence 
 of ihe Assessors." One Treasurer writes that the law works well in reachmg 
 the "honest man of moderate means." Another says that the new law has 
 failed to make honest men of knaves. Among the remedies suggested are 
 amendments: "To make lawyers and bankers answer questions propounded 
 to them by the Board of Review ;" and "to keep taxpayers from swearing to 
 
 d n lies." One Treasurer suggests that the only method pj-acticable is the 
 
 confiscation of all property not listed and the prohibition of the sale of property 
 at higher price than listed. So that it is fair to say that the evidence of Illinois 
 bears out that in other States to the effect that the tax inquisitions of the most 
 stringent kind cannot produce universality in taxation under the general prop- 
 erty system. 
 
 EFFECTIVENESS OF ADMINISTRATION NOT INCREASED. 
 
 Again, it may be noted that it is the general opinion that the additional 
 machinery has not increased materially the effectiveness of administration. To 
 the inefficiency of the locally elected Township Assessors, the Supervisors in 
 large part attribute their failures. Most of them, it is true, are of the opinion 
 that the conditions could be improved by assuring themselves an adequate 
 salary and by intrusting to them the appointment of the local Assessors. 
 
 On the other hand, many Treasurers object to the law on the ground that 
 the expenses of administration have been already unduly increased and advise 
 the abolition of the Boards of Review. 
 
 INSUFFICIENT REVENUE OBTAINED. 
 
 But the strongest objection made by the rural counties and small cities has 
 "been in the fact that the new law has made it impossible to raise revenue suffi- 
 cient to their growing necessities.. The smaller cities have reached a stage 
 where pavements and waterworks, sewers and good lighting are considered as 
 essential. Even before the passage of the new law, the constitutional limita- 
 tion of five per cent, upon indebtedness, coupled with the under-assessment of 
 realty and the practical escape of personality, had brought the question of ade- 
 quate revenue prominently before the people of the smaller municipalities. Not 
 only were they in large part precluded from municipal ownership, but the 
 decreasing limitation had raised the rates of interest they were required to pay 
 and rendered municipal borrowing of any kind extremely expensive. 
 
 In the city of Chicago, on the other hand, owing to the existence of over- 
 lapping municipal corporations, each with extensive powers of taxation and 
 indebtedness, it had seemed expedient to the friends of good government to 
 protect the citizens from over-taxation for local purposes by striking at the 
 fountain-head, and through the County Board reducing the assessed valuation 
 •so as to lower the constitutional and statutory limitations upon taxation and 
 
94 THE NATIONAL CIVIC FEDERATION. 
 
 indebtedness. This method was one that appealed to the individual taxpayers^ 
 and the fact that the city was thus able to shift off a large part of its just bur- 
 den of State taxation was not considered by the people of the county to be a 
 very forceful argument against it. When the purpose of the proposed law of 
 1898 appeared to be to reach all property, it was deemed essential, out of def- 
 erence to the peculiar needs of the city of Chicago, to incorporate in the law 
 a provision that the assessed valuation for "all purposes of taxation, limitation 
 of taxation, and limitation of indebtedness prescribed in the constitution or any 
 statute" should be one-fifth of the fair cash value. So that by the act of 1898, 
 the five per cent, limitation upon indebtedness, based upon an assessed valua- 
 tion which might reach, and under the law should always have approximated, 
 the real valuation of all taxable property, was arbitrarily reduced to one per 
 cent, oi fair cash value. The representatives of the counties down the State 
 were led to believe that as property 'was already being assessed at about one- 
 fifth valuation, there would be no material change in the operation of the 
 constitutional and statutory limitations. 
 
 ASSESSMENTS UNDER THE LAW OF 1898. 
 
 As a matter of fact, the returns of the equalized assessments by the State 
 Board in 1899 showed an increase over 1898 of $105,194,083 in realty and 
 $69,430,475 in personalty. Of this increase, however, Cook County was responsible 
 for $88,057,199 in realty and $43,708,685 in personalty, or for all but about forty- 
 two millions of the increase. In the counties outside Cook, the increase in 
 personalty was $25,721,792, while the increase in realty was $17,136,884, The 
 equalized returns for 1900 are equally significant. The decrease in personalty 
 in Cook County was $13,450,343, and in the other counties of the State, $14,147,- 
 499, a result which indicates that the increase in personalty in the first year of 
 the operation of the law was in large part due to the fear engendered in the 
 minds of taxpayers on account of their uncertainty as to the provisions of the 
 law and the powers of its administrators. Bankers, grain buyers, and mortgage 
 and note brokers, however, have already learned to evade the law, and we may 
 look for an even greater falling off in the valuation of personalty the present 
 year. The assessment of realty in 1900 is likewise noteworthy. In Cook 
 County, for the local reasons already set forth, the equalized value of realty 
 after an increase by the State Board of no less than $40,924,167, was $61,140,888 
 less than in 1899, while in the other counties of the State the equalized returns 
 showed a decrease of $54,627,883 — practically the same as returned by the local 
 boards. So that in 1900, the equalized assessment of realty outside of Cook 
 County was over thirty-nine millions less than in 1898. As a result, we see that 
 the total equalized assessment in the rural counties was nearly twenty-six 
 millions less in 1900 than in 1898. These figures are significant and show the 
 validity of the complaint that has been made by the smaller cities that under the 
 new law it is impossible for them to raise revenue sufficient to their needs, 
 under their statutory limitation upon annual taxation of two per cent. The 
 conditions that confronted them in this direction prior to the enactment of the 
 law of 1898 have been aggravated not only by the decrease in the amount of 
 assessed property subject to taxation, but also by the fact that the amount of 
 revenue required for current expenses is annually increasing. How seriously 
 this condition has affected the rural counties of the State may be shown by the 
 fact that under the constitutional limitation upon their taxing power of 75 
 cents on the $100 annually, no less than thirty-nine of seventy-three counties 
 
NATIONAL CONFERENCE ON TAXATION. 95 
 
 which reported on this subject had deficits in 1899 ranging from $500 to 
 $50,000.* The annual convention of Supervisors, County Commissioners and 
 County Clerks which met at JoHet in February of the present year condemned 
 the system, manner and form of the execution and enforcement of the revenue 
 law of 1898 and passed resolutions urging the General Assembly to so revise 
 the law as to enable the counties to get sufficient revenue to meet their current 
 expenses. 
 
 UNIFORMITY IMPRACTICABLE 
 
 This incomplete summary of the operation of the act of 1898 simply goes 
 to verify the evidence of the Tax Commissions of Ohio, Wisconsin and other 
 States, to the effect that the general property tax must utterly fail in a com- 
 monwealth, where the industrial conditions are as advanced as in Illinois, 10 
 attain that uniformity which lies at its theoretical foundation. Experience tends 
 to confirm the impression that the revenue law of 1898 may be looked upon as 
 a last vain attempt to bring the city of Chicago and the rural districts of the 
 State under the same cast-iron regulations in the assessment and collection of 
 taxes. The tremendous differences existing in industrial, social and political 
 conditions, as well as in the organization of governmental agencies, render such 
 uniformity not only impracticable, but undesirable. The people of Cook County 
 are willing to pay their proportion of State taxation, but refuse to submit to 
 exorbitant local taxation for the mere purpose of paying their just debt to the 
 State. On the other hand, the people of the rural counties are appalled by the 
 unjust proportion of State taxes placed upon their shoulders, and disgusted to 
 find that all their efforts to attain a correct and scientific management of their 
 local finances are brought to naught by provisions inserted for no other pur- 
 pose than that of saving the people of Chicago from the extravagance of their 
 own officials. 
 
 THE REMEDY. 
 
 You ask the remedy. The problem is too serious to be solved hastily or 
 without due deliberation. What is needed first of all is a candid recognition 
 of the gravity of the situation. Some have proposed a readjustment upon the 
 basis of the Horton law of New York, but in all probability such a statute 
 would not conform to the constitutional requirements in Illinois. My own 
 opinion is that the sources of direct State revenue should be increased by the 
 further development of corporation and inheritance taxes, so as to provide 
 sufficient revenue for the State government, and that the principle of local 
 option should be applied to the various counties. What is needed at once is 
 a tax commission to investigate the conditions, to formulate the evidence, and 
 to make recommendations to the General Assembly. It was confidently hoped 
 in many quarters that provisions would be made for such a commission at the 
 late session of the General Assembly, and a resolution in favor of such action 
 was adopted by the convention of Supervisors, County Commissioners and 
 County Clerks at Joliet, in February of this year. Owing, however, to the 
 many other important items of business before the Legislature, little attention 
 was paid to the subject of taxation and only one or two minor amendments to 
 the previous law were passed. 
 
 • Report of Mr. Hubbard, of Green County, in "Proceedings of Convention 
 of Supervisors, County Commissioners and County Clerks," 1901, p. 32. 
 
.96 THE NATIONAL CIVIC FEDERATION. 
 
 Conclusion 
 
 A citizen of Illinois feels constrained to apologize for the crudity of our 
 •so-called system of general taxation. In support of this apology, I may say 
 that our apathy has in large part been due to our extraordinary resources and 
 increasing prosperity. Illinois is an imperial State and her citizens have been 
 Tiusy the past decade in developing her wealth and extending her influence. 
 But the time is fast approaching when we shall realize many of the defects in 
 our administrative system, and then we confidently hope to take the lead among 
 American commonwealths in bringing about justice and uniformity in taxation 
 and the highest efficiency in every department of State and local administration. 
 
 Mr. Crandon, of Illinois : Mr. Chairman, I want to invite the attention of 
 the Conference to a curiosity which will be bettter appreciated now than at any 
 other time. The system of revenue and revenue law of Indiana, as it was 
 brought to our attention by my friend is, except in unimportant particulars, 
 exceedingly unimportant particulars, the precise law that is in existence in 
 Illinois. In one case it works out a paradise, and in the other case — quite the 
 reverse. 
 
 Mr. Hubbard, of West Virginia : Mr. Chairman, there has been upon our 
 statute books partically the same system that our friend from Indiana so graph- 
 ically painted. I wish I had with me a sample of the assessment list Which the 
 laws requires the Assessor to hand to every citizen to be returned b}' him under 
 oath. I hope my reputation for veracity will not be very seriously impaired 
 when I tell you that every taxpayer in West Virginia is called upon by that 
 paper and by the law to state the number of wagons and carryalls he owns and 
 their value, the number of watches and clocks he owns and their value, and we 
 have the Boards of Revenue under another name, and we have State Boards 
 under another name, and the upshot of it all is, gentlemen, that five of us have 
 been appointed under the Legislature of the State by the Governor to come 
 here and be instructed as to some better method. The machine is worn out; 
 it had run down. I have no doubt the Indiana system works well for a time, 
 but as people become accustomed to it, as human nature resumes its sway, as 
 it will in Indiana, as the officers directed by law to do certain things fail to do 
 them, as the Assessors out of personal friendship excuse this, man and that 
 man from making the oath which the law requires the Assessors to exact, and 
 I need not go on with the catalogue, but as the whole system depends upon a 
 man carrying out and doing things which he is unwilling to do because it is 
 at the risk of his popularity, then we have another trouble. I would like to 
 ask our friend from Indiana whether the State and county under the law get 
 their revenue from the same sources? 
 
 Mr. Rogers: They do; yes, sir. 
 
 Mr. Hubbard: We find this in West Virginia, and it is the most crying 
 evil we have under a system which seems to us to be identical with the Indiana 
 system. In one county the Assessor may be disposed to return the real estate 
 of the county at a reasonable and fair valuation, but he knows, as a matter 
 of fact, it will not be done in other counties, and, as a matter of fact, it is 
 not done. The result is that he will not, that he cannot in justice, return 
 an assessment of the property of his county at a proper valuation, because 
 if he does, not only will the citizens of his county have to pay their full share 
 of the taxes, but they will have to pay the share that the citizens of other 
 counties ought to pay. The Assessor of every county is afraid that the Assessor 
 of every other county will do just that thing. Public sentiment, aye, more 
 
NATIONAL CONFERENCE ON TAXATION. 97 
 
 than that, a sentiment of justice compels him to put down the valuation of 
 the property, the real estate of his county, below what it ought to be. There 
 have been devised from time to time different methods of curing that. Boards 
 of Revenue, State Commissions, Boards of Public Works, sometimes citizens 
 selected for the purpose, men of capacity and integrity, men of high standing, 
 sometimes Boards. composed of State oflficers, but the result is always the same. 
 There is as much controversy, as much objection, as much grumbling about the 
 work when the Board of Revenue has passed upon it as when it came to the 
 Board of Revenue from the hands of the Assessors. I fear my time has expired. 
 
 The Chairman: The Chair regrets to say that the gentleman's time has 
 expired. 
 
 Mr. Hubbard: May I be permitted to ask one further question? 
 
 The Chairman: If there is no objection. 
 
 Mr. Hubbard: I would be glad to know from our Indiana friends 
 whether in their system there is any special provision for ascertaining the 
 value of oil or natural gas. I would be glad if some gentleman would be 
 given the time to explain that because the question before us is a practical one. 
 
 The Chairman : The Chair begs to make this one suggestion : We have 
 one other paper we desire to hear this morning. While it is almost the 
 ordinary adjourning time it seems wiser to hasten along with some of these 
 papers and get them before the assembly. The Chair will now introduce 
 Mr. Hines, of Kentucky, who will speak to us on the relation of railroadfi 
 and other public corporations to the question of taxation. 
 
 RAILROADS AND OTHER PUBLIC SERVICE CORPORATIONS IN 
 THEIR RELATION TO TAXATION. 
 
 BY WALKER I). HINKS. 
 
 Gentlemen, I will endeavor to be very brief and to make only a few general 
 suggestions which it has occurred to me might be of interest, in view of the 
 various comments on this subject. At the outset 1 want to admit that in my 
 opinion the title I have suggested for my talk is practically a misnomer in speak- 
 ing of railroads and "other public service corporations." 
 
 It is very difficult to get a definition which is accurate or comprehensive 
 in respect to what is a public service corporation. It is sometimes assumed 
 that it is a corporation which is performing some function of the government 
 and which in 4)ast times it has been the custom of the government to perform 
 for itself. This obviously, however, is not a correct definition, because many 
 corporations which are classed among these quasi-public corporations are per- 
 forming functions which no government has ever performed. Take the most 
 prominent of all these corporations, the railroad companies, and they are per- 
 forming a function which no government, with one or two exceptions, has 
 ever exclusively performed; that is, the function of transporting persons and 
 property from one place to another. It has always been a function of the 
 government to provide highways, but it has not been the function of the 
 government to provide the vehicles or the methods of transportation upon those 
 highways; at least, in England and America. In some of the Continental 
 countries a portion of transportation is performed by the government, but I 
 believe not all of it. We, however, look for our principle in these matters to 
 
98 THE NATIONAL CIVIC FEDERATION. 
 
 England, and it has never been the custom there. A great many of these other 
 so-called public service corporations may occur to your mind where the govern- 
 ment has never attempted at all to perform these functions, so that it will not 
 suffice to say that a public service corporation is one performing a function which 
 the government itself has customarily performed. 
 
 It has been suggested again that a quasi-public corporation is one that has a 
 legal monopoly ; that is, which has an exclusive right to do a thing granted to it 
 by the State. That, of course, is not a definition sufficiently broad. It would not 
 embrace any railroad company in the United States. It might be regarded as 
 embracing some gas companies and street railway companies, which have prac- 
 tically exclusive franchises, but they are comparatively very few. 
 
 The most generally accepted definition is a corporation whose business is 
 affected with a public use. When you consider the growth of that principle 
 you will find that in the end it may cover every business in the country, for 
 every business in the country is more or less affected with a public use, and 
 the public generally is interested in the manner in which it is performed. It 
 has always been a principle of the law of England that mills, inns and wharves 
 were characters of business affected with this public use, and therefore business 
 of a quasi-public nature, and as such subject to have their rates regulated by 
 law. On the same principle the courts have now settled that a warehouse for 
 grain is a public service business ; a tobacco warehouse is in the same class, 
 and by degrees other lines of business will likely be brought into this category. 
 The definition therefore is one that is not very helpful, and with respect to 
 taxation especially is wholly misleading. 
 
 Any theory of taxation which proceeds on the idea that corporations, 
 popularly known as quasi-pubHc corporations, are peculiarly subject to taxation 
 is an incorrect theory. These corporations which have been regarded as affected 
 with a public use are by reason of that fact subject to peculiar regulations 
 and restrictions for the protection of the public. So far as you can make an 
 accurate distinction between such corporations and other kinds of business, 
 that distinction serves its purpose and is exhausted when you make the additional 
 regulations to which such corporations are subject. When you do that there 
 still remains in those corporations a private element ; the owners of those 
 properties are private persons ; their interests in those corporations are private 
 interests, and when you tax those corporations you are taxing the private 
 interests of the persons who own them. So that, even if there were a well- 
 defined distinction between the so-called public service corporations and others, 
 it is not a distinction which would warrant a difference in taxation, although 
 in some States, and particularly in my State, the distinction has been made 
 the pretext for additional burdens upon the so-called public service corporations. 
 The idea that I wish to suggest, therefore, is that in any scheme of taxation 
 you should regard a railroad company, or a street railroad company, or any 
 such company as simply one form of business, and tax it on the same principle 
 that you tax every other form of business, for in the long run you are doing 
 exactly the same thing in each case, and that is, you are taxing the strictly 
 private interest which the owner of the property has in it. The public character 
 of the business has been recognized and utilized to its limit when you have 
 subjected its management to special regulations and restrictions. Indeed, if 
 there were to be a difference in the amount of taxation it ought apparently to 
 be in favor of these corporations subjected to these additional restrictions in the 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 99 
 
 interest of the public rather than against them, but I do not ask for that ; I 
 ask that that be treated exactly like other lines of business when it comes to 
 taxation. 
 
 As a matter of fact these so-called public service corporations are not, as 
 a rule, given this equal treatment. I know it is the case in some of the States, 
 with which I am more particularly acquainted, that when they come to assess 
 the property of a railroad corporation they do not look merely at the tangible 
 property, but they assess the value of the railroad company's business. When 
 they come to assess the "value of some other corporation or some individual 
 who is engaged in an extensive and profitable business they assess merely the 
 value of his tangible property and not the value of his business at all. My idea 
 is that in both instances it would probably be better to tax the value of the 
 business;. but do not tax the value of the business of the railroad company and 
 let off so-called private corporations, which make a great deal more money 
 on their investment, with a simple tax on their visible property. 
 
 As an illustration of how the discrimination works under the ordinary 
 system, I refer to the results in Indiana and Illinois about whose tax systems 
 you have just heard. They have a way of valuing railroad property by looking 
 to the value of its business when they do not do that in respect to other 
 lines of business. In recent years the railroad company with which I am 
 connected — the Louisville and Nashville Railroad Company — has paid in 
 taxes to the State of Indiana as much as ^3 1-3 per cent, of its net earnings 
 on the business in the State, including the mileage proportion of inter-State 
 commerce. At this time in both Illinois and Indiana it is paying twenty per 
 cent, of its net earnings in taxes. I use the term net earnings in its ordinary 
 traffic sense, without any deduction for taxes or extraordinary expenses, so 
 that, in fact, the tax is really a larger per cent, of the actual net income, even 
 counting interest on bonded debt as a part of net income. I venture to say 
 other lines of business do not begin in those States to pay a half or a fourth 
 as much in proportion to their net income. 
 
 This discrimination is simply the result of the fact that when they come 
 to value the property of the railroad company they look at its business and 
 assess according to the returns from the business, and fail to apply the same 
 principle to corporations and individuals engaged in lines of business which 
 are probably more profitable. 
 
 Now, just one other suggestion. Mr. Judson made the suggestion, in 
 response to a comment by me, that he did not think the capitalization of the 
 net income of a railroad at six per cent, would amount to an income tax, and 
 cited an instance of capitalizing the rental value of a piece of land and taking 
 that as its value. I wish to suggest this illustration which I think will show 
 what I had in mind. Take a farm of a hundred acres which will rent for 
 six dollars an acre, or six hundred dollars for the farm. Now, it may very 
 well be said you should capitalize that at six per cent., and the resulting value 
 of ten thousand dollars would be the value of the farm. But suppose that 
 farm is in the hands of an intelligent owner, and suppose he makes twelve or 
 even eighteen dollars an acre ; clearly you would not capitalize that income and 
 ly that the farm was worth twenty or thirty thousand dollars for the purpose 
 of taxation, and yet you do that in the case of the railroad company. You 
 do not take the rental value of the property, but you take its total net income, 
 resulting, not merely from that value, but from an intelligent management by 
 
loo THE NATIONAL CIVIC FEDERATION. 
 
 its owners and the agents they select, and you capitaUze their energy and their 
 ability and their foresight, and the prosperous conditions of the country, and 
 you call all that a part of the value of the corporation's property. Now, I say, 
 when you do capitalize the skill with which a business is conducted you are 
 imposing a tax upon the income from that business. If you tax the mere 
 rent value you are, perhaps, taxing only the value of the property. The effect 
 is that in most States now, in one way or the other, without anything on the 
 statute books to that effect, income taxes are laid on the railroad companies 
 and probably other so-called public service corporations. While it might be 
 idle to attempt to break down a system of that sort or to prevent its spreading 
 I insist that for purposes of taxation there is no distinction whatever between a 
 so-called public service corporation and any other line of business; that you 
 should treat them all alike, tax the business of all according to results, it may 
 be, but treat all according to the same rule. 
 
 I am very much obliged to you, gentlemen. 
 
 A Member: I was going to ask a question and perhaps say a word, but as 
 it is late the Conference may wish to adjourn. 
 
 The Chairman: The Chair will suggest that as it is our lunch time all 
 questions be propounded upon our reassembling. Before adjournment I would 
 say if any gentlemen have resolutions they desire to offer they should present 
 them to the Chairman of the Executive Committee, who already has certain 
 resolutions, and that committee will meet during the noon hour and see if 
 possibly they can make a report upon returning to the Conference later. 
 
 The report of the Committee on Publication will now be made. 
 
 Mr. Mather : Mr. Chairman, your committee has determined on the publi- 
 cation of the proceedings of this Conference in the form of a pamphlet, to be 
 published under the direction and supervision of the Secretary of the National 
 Civic Federation. The purpose is to supply ten thousand copies of the pamphlet 
 for distribution throughout the country, especially to the newspapers. Recog- 
 nizing the fact that this is purely a voluntary gathering, that it has no means 
 of defraying the cost of its publication, the committee has. . recommended and 
 has drawn up a subscription paper, and begs to suggest to the members of the 
 Conference that all who feel able to subscribe and are sufficiently interested to 
 subscribe toward defraying the cost of this publication will find that subscript 
 tion paper in the hands of Mr. Easley, the Secretary. It is the hope of the 
 committee that all who are interested in this subject will contribute to the 
 extent of their ability to pay, which, as I understand, is the accepted basis of 
 taxation, and that the amount estimated to be necessary will be raised here. 
 It is the estimate of the Secretary of the Federation that it will cost in the 
 neighborhood of twenty-five hundred dollars to print and distribute this publica- 
 tion. 
 
 Mr. Judson : Mr. Chairman, I move that the report of the committee be 
 accepted and adopted. 
 
 The motion was seconded, and the question being put, by the Chairman, 
 the motion was unanimously carried. 
 
 The Chairman : The discussions this afternoon will be primarily upon 
 the question of separation of local and State taxation. It is expected that those 
 papers will complete the meeting of the Conference by this afternoon's session, . 
 and if it is agreeable we will now adjourn until half-past two this afternoon. 
 
 The Conference then adjourned until half-past two. 
 
NATIONAL CONFERENCE ON TAXATION. loi 
 
 AFTERNOON PROCEEDINGS, MAY 24, 1901 
 
 Chairman Judson called the Conference to order at half-past two. 
 
 The Chairman : The Chair will have to ask the co-operation of those 
 present in regard to the program this afternoon. The discussion will be 
 taken up after the reading of the papers. The first subject now is the matter 
 of Local Option and Taxation, and the separation of State and Local Revenues, 
 and the first paper on the program will be by Mr. Westenhaver of West Vir- 
 ginia. 
 
 THE SEPARATION OF STATE AND LOCAL REVENUES. 
 
 BY D. C. WESTENHAVER. 
 
 The present system of State and local taxation in the United States, especially 
 in the southern part of them, is an attempt to carry into practical effect the 
 decree of Caesar Augustus, "that all the world should be taxed." 
 
 That system is the general property tax, or tax on capital, in all its unadorned 
 crudity. In legal theory, every article of property, with insignificant exceptions, 
 which a man can own should be listed and taxed at a uniform rate. In actual 
 practice, through evasion, undervaluation, and other forms of tax-dodging, and 
 through a want of regard to the incidence and shifting of taxes, it has produced 
 a system in which, to put it mildly, many grievious inequalities exist, and which 
 has broken down as a producer of revenue. 
 
 The principle on which the system is founded is that every one should 
 contribute to the support of the State in proportion to his ability, or, in other 
 words, make an equality of sacrifice. The mistake has been in assuming that 
 a simple tax on property or capital would produce the equality of contribution, 
 or of sacrifice, which natural justice requires. To the average man, that which 
 is unseen does not exist; therefore, such consequences as the shifting and the 
 incidence, or the' repercussion and the diffusion of taxes, is and has been beyond 
 the range of vision of the framers of tax laws. Disregarding or denying the 
 existence and effect of such economic laws, the legislatures kave allowed the 
 superior resisting power of wealth to secure many exemptions, none the less real 
 though unseen, while they have been vainly striving to secure a complete listing 
 and a fair valuation of all forms of property, or capital. 
 
 A suitable example of this archaic system is that of my own State of West 
 Virginia. As regards the machinery for assessing, and collecting taxes, its chief 
 features are nearly a century old, having been inherited from the mother State; 
 as regards the principle, it applies quite vigorously the ancient notion that a 
 uniform rate on all items of capital produces equality of contribution. 
 
 The State revenues are derived in the main from the general property 
 tax. Every form of real property, and every kind of personal property is 
 in legal theory subject to taxation. The exemptions are too insignificant to name, 
 except that indebtedness may be deducted from capital in the form of invest- 
 ments, not from tangible personalty, and that the usual exemptions are allowed 
 in favor of property owned by religious, charitable, and literary bodies. Railway 
 property — including parlor and sleeping cars — while valued by a State Board, 
 collected by State officers, and then apportioned to the counties, is assessed 
 not according to the unit rule, nor by a tax on gross receipts, nor as corporation 
 stock at the source, but as other property; that is to say, as so much rolling 
 
I02 THE NATIONAL CIVIC FEDERATION. 
 
 stock, so many miles of track, so many buildings, etc., without regard to its 
 franchise vakie. 
 
 The valuation as made for State purposes is the basis also on which the 
 local subdivisions, including municipalities, assess and collect their revenues. 
 The subordinate political units have no other source of revenue than a levy on 
 this basis, except the town, which may impose a license tax in all cases in which 
 the State does. The same set of officers value for all purposes, from the school 
 districts and towns in the counties, to the State itself, and the same agent collects 
 for all, except that the municipalities have a separate collector, and some have 
 also a separate assessor. But, on the other hand, no less than four separate 
 authorities have power to levy taxes, viz. : the Legislature, the Boards of County 
 Commissioners, the Boards of Education, and the Councils for the towns and 
 cities. The aggregate rate, therefore, is as infinite in variety as the varying needs 
 of perhaps a thousand political units with power to tax can make it. Thus, 
 the Legislature puts on two and a half mills for State and one mill for general 
 school purposes ; then the subordinate divisions, one after another, levy a rate, till 
 not infrequently the aggregate exceeds twenty mills^ and in some cities, where 
 the whole is cumulated, it has piled up as high as thirty-five mills on the dollar. 
 
 Assuming that the earning power of capital invested and not employed 
 in active business is only six per cent., this means a contribution from profits 
 of fifty per cent., a most serious problem for those who expect to live some 
 day on the earnings of their accumulations. The truth is that no such rate 
 is assessed and collected; indeed such an exaction could not be asked and got 
 without destroying the value of property and converting the community where it 
 is done into a desert. A system of under- valuation as to realty, and of tax- 
 dodging as to personalty, reduces the rate actually paid to something more 
 reasonable, thereby saving the community at the expense of conspicuously con- 
 scientious persons, who give in all they own, or helpless orphans, lunatics, and 
 others, whose property is a matter of record. 
 
 There ^re two aspects of taxation, about which all agree. One is that the 
 general property tax as it exists in West Virginia and in most States, cannot 
 be made to produce more revenue. The rate is so high and the skill in dodging 
 is so well developed that a small part only of the personalty gets on the tax 
 b(Ooks. It is generally agreed that the mass of personalty in most States 
 exceed nowadays the value of the realty, but it does not so appear in the assess- 
 ment. In West Virginia the assessed value of the personalty is only about 
 one-third of the realty, which, as compared with New York and some other 
 States, is a high proportion, and signifies that our people have not as yet fully 
 copied city methods. The aggregate resources of the banks in West Virginia 
 exceed the assessed value of the personalty, and in my county town the resources 
 of four banks alone exceed the assessed value of the personalty for the whole 
 county. Furthermore, a comparison of the percentage of increase in the respec- 
 tive valuations of real and personal property shows, contrary to the actual fact 
 and in spite of the enormous increase of the latter, only a slight increase in 
 the assessed value of personalty, while the former has rapidly increased. Thus 
 in New York from 1870 to 1895, the assessed value of realty increased from 
 $1,532,720,907 to $4,811,593,059, while in the same period the assessed value of 
 personalty increased only from $434,280,278 to $450,490,419. Mark the significance 
 of these figures ! There is as much personalty in New York doubtless as in any 
 State in the Union ; it has no doubt increased quite as rapidly there as in any 
 
NATIONAL CONFERENCE ON TAXATION. 103 
 
 section of the world ; yet in 1870 it is assessed at slightly more than one-fourth 
 the value of realty, and twenty years later at less than one-tenth. Moreover, 
 all the oaths and penalties prescribed by law are efficient to the extent of catching 
 only $215,429,415 of the increase of twenty-five years of unexampled production. 
 This apparent diversion makes plain the fact that tax-dodging has become a 
 skilled science ; and that any further increase of the tax rate under a system 
 based on the property tax will fall on real estate, which all will admit is already 
 overburdened. 
 
 The other aspect of the question in which all agree is that there has been 
 an increasing need of more revenue on the part of the State and of the local 
 political units, and that the tendency in this direction has not exhausted its force. 
 The rapid growth of the budgets of State, counties, municipalities, the increase 
 of their tax rates, and of the bonded indebtedness, especially of cities, has often 
 been commented on, and the causes of it are well understood. In a high-tension 
 civilization new duties have fallen to the State. The sphere of governmental 
 activity has been greatly and properly extended, and he is a bold prophet who 
 would undertake to tell when this phase of expansion will stop. But it must 
 stop shortly; indeed, it would have stopped already in some States, except that 
 the general property tax sy.stem has been greatly modified, and new sources of 
 indirect taxation developed. 
 
 It seems to be quite generally agreed that one of the first steps necessary 
 to produce more revenue, relieve the overburdened owners of real estate, and 
 redress the gross inequalities in taxation due to a slavish adherence to the general 
 property tax, is a separation, more or less complete, between the sources of the 
 State and the local revenues. The necessities of the situation, growing out of 
 the breakdown of the general property tax system as a producer of revenue, 
 quite as much as sound economic reasons, demand it. 
 
 Several States have brought about a very considerable separation. So long 
 ago as 1869 Pennsylvania abandoned all taxation of real estate, leaving it exclu- 
 sively to the local units, and since then has succeeded in making an almost 
 complete separation of the sources, for I understand that even the tax on 
 personalty, which is assessed and collected by county officials and paid into 
 the State Treasury is derived from items chiefly different from those the 
 counties and cities are allowed to tax for local purposes. Vermont and Delaware 
 have also both discarded real estate from the State system of taxation. The 
 Comptroller of the State of New York, in his special report on salaries, taxation, 
 and revenue in March, 1886, strongly urged the introduction of independent 
 State taxes, and even so early as 1879, a recommendation of the same nature was 
 made by the State Asses.sors, Advancing along the line of these reports, New 
 York has so far got a separate State system, that for the year ending September 
 30, 1900, $10,704,153.39 only was raised by the general property tax on realty and 
 personalty, whereas $13,013,100.06 was derived from indirect and independent 
 sources. The Maryland Tax Commission which made it report in 1888, and the 
 Revenue Committee of Illinois which made its report in 1886, both advanced 
 strong reasons in support of the policy of .separation. The Massachusetts Tax 
 Commission of 1897 so framed the schemcj recommended by it as to retain 
 only a small property tax as a part of the State system, thinking it good policy 
 to retain some direct taxes, lest the State Legislature should imitate the extrava- 
 gance of the Federal Congress and most other bodies which have abundant 
 revenues to dispose of. but the source of which is not plainly visible at all times. 
 
104 THE NATIONAL CIVIC FEDERATION. 
 
 Indeed, it may be set down as the final conclusion of experts that the State 
 should have an independent separate revenue. The main question, of course, 
 is where to draw the dividing line. 
 
 The central feature of the reform seems to consist in exempting real property 
 from State taxation. All, I think, will agree thus far, and many sound reasons 
 combine to make it indispensably necessary that it should be so relieved. The 
 administrative difficulties of valuing realty with any degree of uniformity over 
 so large an area as a State, are so great that no satisfactory method of doing 
 it has yet been devised. The law may and, indeed, usually does, require that 
 the appraisers shall assess it at its market or its fair cash value ; but in practical 
 effect this language 4ias never seemed to mean the same thing to any two 
 different Assessors. Some, we find, regard the fair cash value as the equivalent 
 of two-thirds of its market price sold on a reasonable credit ; others seem to 
 regard its market value as the minimum price that might be expected at a forced 
 sale for cash ; and in either event the doubts are resolved as may suit the whim 
 or the prejudice of the individual Assessor. Speaking from observation and after 
 some inquiry, respecting the operation of the law in my own State, I find that 
 the greatest conceivable variations exist between the different assessment units. 
 For example, an instance is reported in West Virginia where, it is said, a large 
 tract of land lying partly in three separate counties and apparently of equal 
 value in all, was assessed in one at $1.25 an acre, in another at $2.75, and in the 
 third at $7.50. The reasons controlling the different county Assessors in reaching 
 these grossly unequal valuations were past finding out. 
 
 Men are usually honest, but temptations should not be put in their way. 
 Under a State system of taxation, where the property tax is the basis, the 
 assessed value determines the contribution of each political subdivision to the 
 State Treasury; especially is this true nowadays, when the greater part of 
 personalty is invisible and does not figure in the total assessment. The tempta- 
 tion, though unexpressed, is nevertheless strong to reduce the size of this 
 contribution by the lowest respectable appraisement of real property, trusting to 
 a high tax rate to make up the deficiency for local purposes. 
 
 And whatever valuation is put on realty by the local appraisers must be 
 accepted as practically final, for it transcends human powers to construct a 
 State Board of Appraisers, or of Equalization, with sufficient information to 
 correct inequalities as between counties. In West Virginia we have the clumsy 
 device of a State Board of Equalization, which has power only to raise or to 
 reduce the valuation by a horizontal increase or reduction applicable to all 
 the property of a county. Like the rains from heaven, this relief falls on 
 the just and the unjust alike, but other States have not been able to do much, if 
 any, better. 
 
 Then, also, the inequalities in regard to the taxation of real estate are 
 greatly increased by the incidence of the tax. As regards some kinds of real 
 property, and under proper conditions, the tax may be wholly or in part shifted, 
 and the inequalities produced by the shifting process are likely to be less in a 
 small area than in a large one. Under the present conditions of holding or 
 farming agricultural lands, the tax sticks where it is first put, and when once 
 paid cannot be passed on. The tax, as regards city property, is generally 
 capitalized, or shifted to the tenant's shoulders. Those who buy city property 
 or construct houses on city lots allow for the tax in making the investment, and 
 aim to secure the usual rate of earnings on the capital invested. Wherever 
 
NATIONAL CONFERENCE ON TAXATION. 105 
 
 city property is in demand, the population growing, and the price rising, this 
 result can and is accomplished; it is only in decaying cities, where population 
 is decreasing, and values declining, that such a process does not take place; 
 but as the population and the wealth of the cities are growing at the expense of 
 the country it follows that the State tax tends to produce very different effects 
 as between classes or sections of the same State. 
 
 Real estate from its nature must and always will bear a full share of 
 taxation; there is no danger that it will ever bear a less share than any other 
 form of property. Releasing it from State taxation leaves it as the central 
 feature in the tax budgets of counties, districts, and municipalities. Some of 
 the inequalities produced by the incidence of the tax will probably be diminished 
 by confining the operation of the tax to a smaller area, but whether they will 
 or not, certainly the temptation to undervalue as between counties will be 
 removed, and the difficulties of securing a uniform valuation will be overcome. 
 Even under the existing system the greatest inequalities are between the different 
 assessment units, rather than between the different parts in any one. A man 
 reasonably honest and with a moderate sense of justice will adhere more or 
 less closely to a standard of official duty, which he once fixes for himself; if 
 there are two or more engaged at the work in different sections of the same 
 county they can and no doubt do familiarize themselves with one another's 
 views; and if they work in subjection to a central Board of Equalization frequent 
 conferences and comparison of projected valuations while the work is in progress 
 will secure substantial equality. An efficient Board of a few members can in 
 a small area readily be secured with expert knowledge, ample to effect this 
 purpose, especially if the Board, as well as the law, insists on a valuation 
 at its fair market value; for such a Board with its meeting place at the county 
 town could have access to the record books showing the actual selling price of 
 enough realty in all sections of the assessment district to secure a standard. 
 A prime condition, however, is that the value must be the actual market valuQ, 
 elsewise if abatement of a part is allowed confusion worse confounded follows. 
 For example, A owns a piece of real estate worth $1,000; B, a piece worth $10,000, 
 and C, a piece worth $30,000, which it is safe to assume are equally profitable, 
 for the value of real estate is determined in the end by the capitalization of 
 its net profits at the time of the purchase. If the Assessor adopts the arbitrary 
 rule of taking two-thirds of the selling price as the cash or market value, within 
 the meaning of the law, then A escapes taxation on $333.33 1-3, B on $3,333.33 1-3, 
 and C on $10,000.00 of his total property. The wealthier the man, the smaller 
 proportionately is his contribution. Instead of being progressive, it is regressive 
 taxation, and in favor of the large as against the small property owner. And 
 this, I believe, is the method usually prevailing in my State and in other Southern 
 States. Correcting this fatal defect in the administration, however, and making 
 due allowance for the different effects of the shifting process, substantial justice 
 as regards realty may be had in an assessment unit of moderate size. 
 
 Taxation, I think, should be thrown more on the active business of the 
 country, for there the money is being made, and the burden diffusing itself 
 with the cost of production is less felt. The tendency of indirect taxes, however, 
 is toward shifting to such an extent that they are quite apt to become taxes 
 on consumption, in which event they bear heavily on those the least able to 
 pay them; and in selecting articles for taxation this ultimate effect should be 
 -carefully considered. Still, direct taxes have become so heavy, and being 
 
io6 THE NATIONAL CIVIC FEDERATION. 
 
 demanded in a lump sum, at inconvenient times, they take on the appearance 
 of a forcible exaction of a part of what one regards as one's own, and are paid 
 most grudgingly ; while, on the other hand, indirect taxes, falling on the purchaser 
 only when he buys a taxed article, has the advantage, by no means slight to the 
 average person, of being paid in small sums, voluntarily, and when most con- 
 venient. The need of larger revenues, however, makes it necessary, 'if not 
 desirable, to adopt indirect taxation and to throw it on the active business 
 of the country where wealth is being created and accumulated, even at the risk 
 of having it in the end fall on the consumption of the people, but so far as 
 possible adopting such methods as to avoid that result. 
 
 An examination of the tax budgets of several States furnish valuable light in 
 this respect. 
 
 The largest item of independent State revenue in West Virginia, New 
 Jersey, and Delaware is perhaps the license tax on corporations. I do not wish 
 to be understood as commending the practice of these States in granting charters 
 to piratical corporations, which authorize them to prey on the people of Alaska, 
 Cuba, the Philippines, and our sister States, but the tax regarded merely as a 
 tax is wholly unobjectionable; it falls on wealth actively employed, and no 
 question regarding its apportionment to counties- or districts need be considered. 
 
 License taxes on general occupations are not in favor; but such taxes for 
 the privilege of selling malt, spiritous and fermented liquors is a favorite source 
 of revenue to the States, and in many is the chief independent source of State 
 revenue. Few, if any, of the States apportion them to the counties, although 
 in many, as in West Virginia, the cities may impose an additional tax for the 
 same privilege. To this we see no objection; for not only does it not seriously 
 militate against the policy of separating State and local revenues, but as the 
 privilege is profitable in proportion to the size of the city, it tends to produce 
 greater equality, if the cities are also allowed to collect a separate and additional 
 revenue from the same source. Some persons question the propriety of appro- 
 priating all the revenue from these licenses for State purposes; but, as I have 
 already said, the municipalities have their remedy by adding an extra license, 
 provided always the good people are strong enough to keep the saloon influences 
 within proper bounds. The difficulty of .so doing renders it unsafe to trust 
 the handling of this source of revenue to a less powerful body than the whole 
 State. And the moral aspect of the question which a wise system of taxation 
 should not disregard, also makes in favor of letting the State take to itself the 
 highest practical revenue from this source, as such a system is less apt to 
 discourage the local option sentiment than one which apportions the revenues 
 to the counties or cities on any basis. 
 
 As Pennsylvania, New York and Massachusetts have achieved the greatest 
 measure of separation, their experience furnishes the most valuable practicable 
 information at present attainable; from their tax laws, then, we shall draw 
 our illustrations. 
 
 For the year ending November 30, 1899, the total receipts of the Penn- 
 sylvania State Treasury were $15,458,316.97. Of these about one-seventh ($2,029,- 
 038.20) were from license taxes, to none of which any sound object lies, con- 
 sidering them from the view point of taxes or of apportionment to the local 
 units, except the mercantile licenses. These, however, make up only one- 
 fourth ($518,148.65) of the entire license taxes. 
 
NATIONAL CONFERENCE ON TAXATION. 107 
 
 . The chief item, however, of the budget is the corporation tax, which makes 
 up more than two-fifths of the total ($6,956,326.35). Under this head, how- 
 ever, are classed the tax on the premiums of insurance companies, on corpo- 
 rate, county and municipal loans, on the gross receipts of transportation com- 
 panies, telegraph, telephone and express companies, on capital stock and some 
 minor subjects. By far the greater part of the corporation tax is derived from 
 that on capital stock. Corporation stock is assessed at the source — that is, to 
 the corporation, and not to the owner — at its fair market value, and a uniform 
 rate of five mills on the dollar is levied thereon. The ease of assessment and 
 collection has made this species of taxation wonderfully profitable and, it seems, 
 reasonably satisfactory wherever tried. The gross receipts or tonnage tax 
 owing to the conditions of interstate commerce, is not, and could, perhaps, be 
 reformed to advantage. 
 
 Taxes on bank stock, both State and National, including trust companies, 
 on building and loan associations, both foreign and domestic, the taxes on 
 writs, wills, deeds, on inheritances, direct and collateral, in addition to those 
 items already enumerated, make up the bulk of the State taxes of Pennsylvania ; 
 and all of these are retained for State purposes, none being apportioned to the 
 counties; nothing, indeed, paid into the State Treasury is refunded except three- 
 fourths of the personal property tax, and except also in so far as the State 
 expenditure of more than six millions on the common schools throughout the 
 State may be so regarded. 
 
 On the $13,013,100.06 of revenue collected by the State of New York for 
 the year ending September 30, 1900, from independent and separate sources, 
 about one-fifth ($2,624,508.05) was from the tax on corporations; more than 
 a third ($4,235,870.25) from license fees for the sale of liquors; and about 
 one-third ($4,334,803.27) from the tax on transfers of property. The remain- 
 der is made up of small items from a considerable number of other sources. 
 None of these taxes are apportioned to the counties, but are used for State 
 purposes. 
 
 The tax on transfers, which is a direct and collateral inheritance tax. 
 requires a special mention. Whenever adopted in any State, it has been seized 
 for exclusive State uses. There seems to be no sound objection that can be 
 urged to this tax, or to its appropriation by the State, without apportionment 
 to the counties. 
 
 As real property is regarded as central feature in a system of local taxa- 
 tion, an income tax. now that it has been discarded by the Federal Government, 
 would in principle be an admirable feature of the State system. The objection, 
 however, is to the difficulty of assessing and collecting it. No State has ever 
 adopted an income tax ; indeed, it seems to be obnoxious to feelings of Amer- 
 ican citizens ; and owing to our inexperience and this hostility, an efficient 
 income tax system could be built up and put in force only after years of trial. 
 But an inheritance and succession tax is in effect an income tax; it differs 
 from the latter chiefly in that it claims the State's share in one lump, instead 
 of in annual contributions. Thus, while England has had for several genera- 
 tions an income tax, France has never adopted it, finding its succession and 
 inheritance taxes a sufficient and adequate substitute. 
 
 Such a tax is easy to collect ; and it has the further advantage that the 
 machinery already in existence may be readily adopted for its assessment and 
 collection. With a moderate exemption in favor of near relatives, even when 
 
io8 THE NATIONAL CIVIC FEDERATION. 
 
 direct, it imposes no burden which is seriously felt. All estates, sooner or later, 
 intangible as well as tangible, must pass through the probate court, and become 
 subject to the tax. If, before division, the State steps in and takes off a modest 
 slice, the sufferer accept the residue with good nature, when compared with 
 the complaints made against the direct property tax. It is an abatement in 
 most instances from that which the beneficiary did nothing to earn; he has 
 no legal claim, except what is given by law, for it is conventional law, not 
 natural right, which determines what a man shall do with a part of the earth's 
 surface after he can use it no longer; the relative has not even a moral or 
 ethical right except in the case of persons for whose existence or present sit- 
 uation the deceased is responsible; such as children, a widow, and dependent 
 parents. That the deceased has been able to accumulate at all, or that what 
 he gets around him has any value, is due to an. organized state of society, built 
 up by the toil and suffering of preceding generations of men; and in most 
 cases a large part of its value is due to social causes, not to the labor of the 
 owner; hence a demand for a moderate part, or even for all beyond a certain 
 degree of relationship, is not repugnant to natural justice. 
 
 But as effecting the question of the separation of State and local revenues, 
 no objection exists to allotting this sioi.i'ce exclusively to the State. In the 
 first place "it takes nothing from the local assessment units which they already 
 had. Furthermore, its tendency is to stay where it is first put, and not to shift 
 to the shoulders of others. And finally, not being properly double taxation of 
 any form of property, it does not reduce the assessment base of any locality, 
 and the apparent equity of some of the claims for apportionment to the counties 
 which are made against the exclusive use of other revenues do not apply to it. 
 
 In Massachusetts, as appears from the report of the Tax Commission of 
 1897, the taxes on corporations, on banks, savings, State and National, and on 
 insurance companies and other sources usually called independent, make up 
 the great bulk of the State revenue. For 1896 the State revenues were $7,293,- 
 880, of which less than a fourth ($1,745,340) was derived from the general 
 property tax. But in dealing with corporations the State also appraises and 
 collects for the cities and towns as well as itself and then apportions among 
 them what it does not retain for its own use. This practice as regards aggre- 
 gation^ of wealth, such as railroads, insurance, express, telephone, coal mining, 
 lumber companies, etc., is decidedly advisable, as the strength , and resisting 
 power of them is such that local units have difficulty in deaHng with them suc- 
 cessfully. For example, in West Virginia the people found, after an abundance 
 of experience, that taxes could not be collected at all from the railway com- 
 panies so long as the assessment and the collection were made by the counties, 
 cities and districts, but since these duties have been vested in a State Board, 
 which assesses, collects and certifies to the local authorities, there has been no 
 difficulty; that they do not pay so much as other forms of wealth may per- 
 haps be true, but what is assessed to them is paid with the utmost promptness. 
 
 This brings us to the question of whether or not the State shall retain all, 
 or apportion to the local units; and if so, how much and on what basis? 
 And this, it seems to me, presents the greatest difficulties of practical legisla- 
 tion, if not of equality, involved in an attempt to separate the State and local 
 revenues. It is easy to separate the sources after the Pennsylvania fashion; 
 but is it just to all parts of the State? If it is not just to retain all the rev- 
 enues from railway, general corporation, insurance, or like taxes, on what 
 
NATIONAL CONFERENCE ON TAXATION, 109" 
 
 bases can the excess be distributed, or the separating line in regard to their 
 property be drawn? 
 
 This aspect of the question does not seem to have been much considered. 
 Pennsylvania and New York, as a practical question, have solved it in favor 
 of the equity of keeping the whole, as if it were not open to question. Under 
 the Massachusetts system certain deductions are allowed in assessing at the 
 source, the capital or franchise value of the corporation; thus the real estate 
 and machinery are assessed separately by the local authorities, and the market 
 value of the stock, less the amount of this assessed value of real estate and 
 machinery, is taken as the value of the corporate stock or franchise. The tax 
 thus collected by the State is certified to the towns and cities in which the 
 holders of the stock reside, and the State retains that proportionate part which 
 is represented by non-resident shareholders. The commission of 1897 disap- 
 proves this basis of distribution and asserts that the benefits go largely to- 
 towns and cities in which the owners reside, but which as communities con- 
 tribute little or nothing to the production of the wealth. In their recommen- 
 dations they advise that this tax shall all be retained, and that as a compensation, 
 to the counties, certain charges and expenses hitherto borne by the latter shall 
 be paid from the State Treasury. And the Commission, in recommending a 
 distribution to the towns and cities of the inheritance and succession taxes 
 provided for in their report, makes no effort to return it to those from which 
 it was paid; indeed, even as to realty, this commission does not seem to have 
 thought there was any special equity demanding such return. The proposed, 
 distribution was to have been made one-half on the basis of population and 
 one-half on the basis of assessed valuation. 
 
 The Pennsylvania Tax Conference of 1895 gave careful consideration to- 
 many phases of the tax question. In regard to public service corporations,, 
 especially railways, it Recommended the abandonment, of the gross receipts, 
 tonnage and capital stock taxes, and the substitution instead of a franchise 
 valuation, based on what has been called the unit rule plan. Unlike the Mas- 
 sachusetts plan, all real esate and machinery are not deducted for separate 
 assessment in the cities and counties, but only such real estate as is not needed 
 for the excrices of the franchise. All of the revenue thus gotten, it was rec- 
 ommended, should be retained by the State. The right of a section netted with, 
 railroads to complain that it is harshly treated by a reduction of its assessment 
 basis, as compared with one sparsely settled, was ignored; the relinquishment 
 to the local subdivisions of real property freed from State taxes, it seems to- 
 have been assumed, is an adequate recompense. 
 
 The variation in the State and local rates, however, makes the serious dif- 
 ficulty, especially in those States which, like my own," have a constitutional 
 provision that all taxation shall be equal and uniform. The State rate on sub- 
 jects of taxation, like those we are considering, may be ten mills, but the local 
 rates will vary and may be eight in some subdivisions and twenty in others. 
 In giving to the State exclusively certain sources of revenue, legal rules, if 
 not substantial equality, requires that this difference in rates should be kept in 
 view. For instance, in assessing corporations, certainly those other than rail- 
 way corporations, the real estate and tangible personalty owned by them, and 
 of the same general nature as that owned by individuals and subject to local" 
 taxation should, as in Massachusetts, be deducted from the assessment valua- 
 
no THE NATIONAL CIVIC FEDERATION. 
 
 tion for State purposes; otherwise, inequality as between the same classes of 
 property may be produced and the assessment basis of the local bodies unduly 
 diminished. 
 
 Subject to this qualification, legislative practice and sound reason approve 
 the methods adopted for separating the sources of State and local revenue. 
 
 And finally, it may not be amiss to add that the welfare of the State as a 
 whole is the welfare of each individual. If taxation is not cumulated and piled 
 up against any special class of persons or form of property ; if the most profit- 
 able employments for capital do not escape a fair share of the burden, and 
 throw the whole on the fixed capital of others, or on the consumption of 
 the poor, minor inequalities may well be disregarded. The contribution from 
 each member to the common fund in the form of taxation, as has been well 
 said, is not merely an equivalent paid for protection either to person or to 
 property. The general public, through the organized agencies of society, is a 
 silent partner in all forms of production. How much property could be accu- 
 mulated if governments did not exist? How much would one's property be 
 worth except for the organized social state? The debt we all owe to it is 
 incalculable, and a cheerful contribution of a part of what it enables us to save 
 and control, and to which it gives the chief value, is a small return on our 
 part. That just taxation is not robbery, but only a proper division with the 
 other partner, was most aptly put by Professor Huxley in the following lan- 
 guage, and with it I shall conclude : "I cannot," says the professor, "speak of 
 my own knowledge, but I have reason to believe that I came into this world 
 a small, reddish person, certainly without a gold spoon in my mouth, and, 
 in fact, with no discernible abstract or concrete 'rights' or property of any 
 description. If a foot was not at once set upon me as a squalling nuisance, 
 it was either the natural affections of those about me, which I certainly 
 had done nothing to deserve, or the fear of the law, which, ages before 
 my birth, was painfully built up by the society into which I intruded, that 
 prevented that catastrophe. If I was nourished, cared for, taught, saved from 
 the vagabondage of a wastrel, I certainly am not aware that I did anything to 
 deserve those advantages. And, if I possess anything now, it strikes me that, 
 though I may have fairly earned by day's wages for my day's work, and may 
 justly call them my property, yet, without that organization of society, created 
 out of the toil and blood of long generations before my time, I should prob- 
 ably have had nothing but a flint axe and an indifferent hut to call my own ; 
 and even those would be mine only so long as no stronger savage came my 
 way. So, that if society having — quite gratuitously — done all these things for 
 me, asks me in turn to do something toward its preservation, * * * j really, 
 in spite of all my individualist leanings, feel rather ashamed to say no. And 
 if I were not ashamed, I cannot say that I think that society would be dealing 
 unjustly with me in converting the moral obligation into a legal one. There 
 is a manifest unfairness in letting all the burden be borne by the willing horse." 
 
 The Chairman: Gentlemen, the same general subject will be presented 
 by Hon, James W. ^ucklin, who will speak of the adoption of certain features 
 of the Australian tax system in Colorado. 
 
 Mr. Bucklin : I was much interested this morning in the bright antici- 
 pation which the Indiana law seems to have inspired in the breasts of the 
 delegates from that State, because for the past twenty-five years the State of 
 Colorado has had in operation substantially the same constitutional and statu- 
 
NATIONAL CONFERENCE ON TAXATION. ,ii 
 
 tory provisions as those of the Indiana law ; and so thoroughly and so abso- 
 lutely has the law broken down in our State that there are none so poor a;^ 
 to do it reverence. 
 
 THE AUSTRALASIAN TAX SYSTEM IN THE ANTIPODES AND 
 
 IN COLORADO. 
 
 BY HON. JAMES W, BUCKLIN. 
 
 Our present method of Stat-e and municipal taxation has no friends, at 
 least no friends who defend it upon equitable grounds. We agree that our 
 existing tax laws are bad, but when we consider how to cure such evils, 
 whether there be any rational or defensible tax system, then public sentiment 
 is utterly chaotic. 
 
 PASSAGE OF COLORADO AMENDMENT. 
 
 It was owing to such conditions, to an urgent need of more revenue, and 
 to the most persistent efforts for tax reform in two sessions of the Legisla- 
 ture, that the Senate of the State of Colorado in 1899 appointed a Revenue 
 Commission to investigate and report upon the tax laws of the several Amer- 
 ican States and of New Zealand and Australia, and, so far as possible, discover 
 a just, wise and complete remedy. As chairman of that committee it was my 
 fortune to visit the Australasian colonies and to prepare the report to the 
 Legislature. The report proposed a constitutional amendment, which was 
 endorsed by the two principal daily papers of Denver and by many of our 
 most prominent statesmen, lawyers and business men. Concerning such report 
 and the recommendations thereunder. Governor Thomas, one of the ablest 
 orators and statesmen of the West, in his biennial message to the Legislature 
 said: 
 
 "The Senate at its last session appointed a Revenue Commission, consist- 
 ing of three of its own members, to investigate and report upon the State and 
 local revenue laws, and also upon those of New Zealand and Australia, together 
 with recommendations for systematizing, revising and amending our system of 
 taxation, including the constitutional provisions relating to the subject. The 
 Chairman, in pursuance of his duties, visited the distant colonies included in 
 the resolution, and reported the results of his inquiry to the Commission, which, 
 together with that of the Commission itself, will be submitted to you. It is a 
 complete and exhaustive document, replete with information, argument and rec- 
 ommendations. It should receive the earnest and thoughtful consideration of 
 every member of this assembly, and its conclusions should be carefully weighed. 
 We must not forget that Australia has been a land of novel but successful experi- 
 ments in both economics and legislation, conducted under the intelligent con- 
 servatism of an Anglo-Saxon population, many of which have been adopted 
 in America. If it be true that the .system of taxation there in operation has 
 proven successful, then it has ceased to be an experiment and its recognition 
 here can be safely accomplished. To eflfectuate this, however, a change in our 
 organic act is essential, and that requires time. This the commission has rec- 
 ognized, and while its members differ as to some of the conclusions of the 
 majority, all unite in recommending the submission of the three proposed 
 
112 THE NATIONAL CIVIC FEDERATION. 
 
 amendments to Article X. of the constitution, to the vote of the people, in' 
 conformity with the terms of that instrument. I cordially endorse the rec- 
 ommendations. A perfect system of taxation has up to this time been a prob- 
 lem insoluble as the riddle of the Sphinx; let the people say by their suffrages 
 whether the change proposed may not be effective. If they want it, then you 
 as their servants should give them the opportunity to secure it; if they do not 
 want it, your action affords them the privilege of its rejection. In either 
 event, your duty will have been discharged." 
 
 Governor Orman also enunciated similar views in his inaugural address. 
 The constitutional amendment passed the Senate by a vote of 26 to 6, three 
 Senators not voting. It also passed the House by a vote of 50 to 11, four 
 members not voting, and thereupon it was signed by Governor Orman. At 
 the general election to be held in November, 1902, the amendment will be 
 adopted or rejected by a majority vote on that question; and it might be 
 remembered that in Colorado women have equal electoral rights, and equal 
 political responsibilities with men. The amendment will probably be carried. 
 
 WHAT IT IS. 
 
 The Australasian tax which Colorado proposes to adopt is a broad appli- 
 cation of the betterment principle of taxation, which is that private property 
 increased in value by the operation of the laws and institutions of organized- 
 society, should pay into the public treasury a portion of the benefits so received. 
 Stated in other words, it is a tax on social values — that is, on the values of 
 property not created by labor or industry, but which are created by, and wholly 
 dependent upon, the existence and growth of organized society. It is not a 
 tax on all property, but exempts from its burdens all products resulting from- 
 personal and individual effort. It does not prevent nor interfere with the 
 taxation of such products by any other tax laws, provided that such other 
 taxation is not inseparably confused with this. , 
 
 In all the colonies of Australasia railroads, telegraphs, telephones and some- 
 municipal utilities are generally owned and operated by government. For this- 
 reason the Australasian system does not tax rights of way nor franchises in 
 public ways, in the colonies. In this country, however, where public utilities- 
 are generally owned by private corporations, it is necessary, in order to carry 
 out the principle and do justice, that rights of way and franchises in public 
 ways be taxed with other social values. The taxation of franchises in public 
 ways will help to solve the public utility problem by encouraging private cor- 
 porations to improve and to sell such property. Under the Colorado proposi- 
 tion all such social values are to be taxed with land values. 
 
 In the colonies some of the Australasian tax laws are defective in various 
 details. While the Colorado amendment is very limited, yet so far as it goes 
 it is based on correct principles, without any exemptions, graduations or other 
 pretended favors. It is not compulsory or mandatory in any of its provisions, 
 but permissive or optional only, thus giving the utmost elasticity and freedom 
 of action. On each ballot the people will vote -"For Australasian Tax System" 
 or "Against Australasian Tax System," so that Colorado will meet the issue 
 squarely, without any equivocation or dodging. 
 
 REMEDY FOR TAX EVILS. 
 
 The Australasian tax system is a complete remedy for a large number of 
 the evils of our present tax laws. 
 
NATIONAL CONFERENCE ON TAXATION. 113 
 
 It abolishes all fraud in the listing and valuing of taxable property. In 
 fact, under the Australasian system, no personal returns of taxable property are 
 necessary, because the existence and whereabouts of all such property is known 
 to everybody, and its value is the most widely known and most easily and 
 accurately ascertained of any property values. Any person competent to be 
 an Assessor could prepare his plats from the Recorder's office, and list and 
 value the property according to its legal or other subdivisions, without hardly 
 leaving his office, and without knowing or caring who owned it. In fact, the 
 Assessor would be less hampered in his work by not knowing the owner of the 
 property assessed. 
 
 The Australasian tax is not inquisitorial. It would make no investigation 
 into the whereabouts or condition of any concealed property, for the reason 
 that it does not attempt to tax such property. It does not therefore interfere 
 with business relations nor with anyone's private affairs. It does not cause 
 evasion or perjury. 
 
 No personal returns being required, and it being impossible to conceal the 
 property taxed, of course no oaths are required from the taxpayer. It would 
 thus abolish a great strain on religion and conscience, to which the American 
 people are now annually subject. It eliminates from taxation all property difficult 
 to value or which can escape observation, and is not therefore complex nor con- 
 fusing, but simple and easily understood and operated. It prevents all duplica- 
 tion of taxation. 
 
 As all property to be assessed under the Australasian system should be 
 platted and only once assessed, duplication would be a mathematical error quickly 
 detected and corrected. Under the Australasian tax system all taxable property 
 can be assessed at full cash value. 
 
 This is not a mere theory, it is the actual result of the system in the colonies. 
 According to the United States Census of 1890, the per cent, of the total assessed 
 value of all property to the total true value varies in the several States from 
 12.29 per cent, to 80.91 per cent., and averages 39.29 per cent, in all the States, 
 In the colonies the assessed values are everywhere considered to be a reasonable 
 full cash value. It prevents all unequal valuations. 
 
 As property is assessed at full cash value and without the necessity of any 
 personal returns, inequalities are eliminated. Neither non-residents, nor corpora- 
 tions, nor the rich, nor any other class can escape from their just portion of its 
 equal burdens. With only one kind of property to value, the attention of 
 Assessors and taxpayers is concentrated, and easily detects and deters inequali- 
 ties. 
 
 The expense of assessing and collecting the tax is very small. In fact, 
 an additional tax, like that proposed for the. State of Colorado, can be levied 
 without additional cost, because the property is already assessed by the State. 
 The rate of the tax would make no difference in the cost of the listing and 
 levying, and but little in the cost of collecting. 
 
 The Australasian tax does not rest on labor or capital, nor on anything 
 which labor or capital produces. Neither does it burden nor destroy any indus- 
 try, but stimulates and encourages all. Wherever it has been put into opera- 
 tion, it has enormously encouraged and built up industries of all kinds. Its 
 whole tendency has been to largely increase immigation and to develop industry. 
 
 It is not a class tax, nor does it appeal to class prejudice. True, it rests on 
 the owners of social values only, and not on other people; but as all persons 
 contribute to the creation of social values, those who are the beneficiaries of 
 
114 THE NATIONAL CIVIC FEDERATION. 
 
 such values cannot complain of any class discrimination by being taxed thereon. 
 On the contrary to tax all property equally, or rather to attempt so to do, 
 without a special tax on social values, is class legislation, in that it requires 
 no adequate return for privileges conferred. The tax on social values is there- 
 fore based on a' quid pro quo, the absolute justice of which should prevail. 
 
 The proposed Colorado law is not a mere theory, but is in successful oper- 
 ation. In four out of the seven colonies of Australasia, viz., New Zealand, 
 South Australia, New South Wales and Queensland, it is a demonstrated actu- 
 ality. So successful is it, that in no colony or locality operating under it is 
 there any demand for its repeal, but a constant tendency to perfect and extend 
 it, all opposition to its retention being annihilated. 
 
 The Australasian tax is effective, but extremely conservative. It is effect- 
 ive as a fiscal measure because it produces an abundance of revenue at a min- 
 imum of expense and trouble. It is effective as an economic measure because 
 both in theory and in operation it has bettered the condition of the people 
 affected. It is conservative because it may be tested on as limited a scale as 
 desired. If, for instance, the people wish to encourage the establishment or 
 development of manufacturing industries only, they can do so under the pro- 
 visions of the Colorado amendment by exempting the buildings and machin- 
 ery, the raw materials and finished products, and all other personal property 
 and improvements of such establishments from all local taxes; by this method 
 giving such plants an enormous advantage over all competition in other States 
 and localities. This tax may be adopted for either State or local purposes, or 
 for both. It is only a small tax, operated in conjunction with any or all other 
 kinds of taxes. It can be put into operation in any State or locality without 
 regard to other States or localities. 
 
 LOCAL TAXATION. 
 
 Our present system denies to the people the power of self-government in 
 local taxation, or any option in determining the source of local revenue, and 
 assumes that legislators and those who draft constitutions know more about 
 the revenue affairs of each municipality or quasi-municipality, and can attend 
 to those affairs better than the people of such localities. Our present system 
 of local taxation is therefore in conflict with the American idea of self-gov- 
 ernment, is inflexible and fixed beyond the power of the people of any locality 
 to change, and stands as an absolute barrier to any progress in tax reform. 
 
 This unfortunate condition the Colorado amendment changes. It gives 
 to the people of any county the power of initiating and of determining their 
 own tax system — that is, of choosing between the present and the Australasian 
 system or any part thereof, for local needs. The proposed system is elastic and 
 does not compel the adoption or the permanent retention of any particular 
 system, but after testing the new tax in any locality, should it not prove sat- 
 isfactory, it could in turn be rejected and the former system re-established. 
 It allows the people interested to act as a jury in determining the respective 
 merits of different local taxes, and to adopt the system that experience may 
 show to be the superior. The Colorado proposition affecting local taxation is 
 short and is as follows: 
 
 "Sec. 9. Once in four years, but not oftener, the voters of any county in 
 the State may, by vote, at any general election, exempt or refuse to exempt 
 from all taxation for county, city, town, school, road and other local purposes, 
 any or all personal property and improvements on land ; but neither the whole 
 
 I 
 
NATIONAL CONFERENCE ON TAXATION. 115 
 
 nor any part of the full cash value of any rights of way, franchises in public 
 ways, or land, exclusive of the improvements thereon, shall be so exempted; 
 Provided, however, that such question be submitted to the voters by virtue of 
 a petition therefor, signed and sworn to by not less than one hundred resident 
 taxpayers of such county, and filed with the County Clerk and Recorder, not 
 less than thirty nor more than ninety days before the day of election." 
 
 This system of home rule in taxation is in most complete and perfect 
 operation in New Zealand, and is constantly being extended to new localities, 
 although it is also in operation in South Australia. New Zealand adopted the 
 law in 1896, and the borough of Palmerston North was the first locality to put 
 it into operation. I visited the place in 1900 and found every indication of 
 success and prosperity. I found no opposition to the operation of the law, 
 and absolutely no intention to return to the system of taxing any of the prod- 
 ucts of industry. As I was walking through the thriving little city, I involun- 
 tarily took off my hat, feeling, as expressed in the good book, that I was on 
 sacred ground, where industry, thrift and frugality were not directly taxed, 
 and where all direct taxes for both State and local purposes rested on social 
 values only. 
 
 All municipalities in Queensland and many in New Zealand are supported 
 by the Australasian tax system. As a system of local revenue it is absolutely 
 unsurpassed, if we are to give credence to the conditions of such localities, and 
 to the claims of those best qualified to know. 
 
 FOR STATE PURPOSES. 
 
 The Colorado amendment also liberalizes our State constitution so as to 
 authorize our Legislature to adopt for State purposes a tax on social values 
 only, not exceeding two mills on each dollar of assessed valuation. In this 
 l)articular also we followed the Australasian system, for in each colony which 
 has adopted it for State purposes, the rate, amount and per cent, of the total 
 State taxes collected by it are very small. The rate varies from two and one- 
 twelfth mills to fifteen mills on each dollar of assessed valuation, averaging 
 about one penny in the pound or four and one-sixth mills on the dollar, so 
 that the amount of the tax authorized by the Colorado amendment is at a 
 smaller rate for State purposes than that of any of the Australasian colonics 
 A\'hich have adopted the system. We wished to be conservative, and knew that 
 the rate could afterwards be increased by another amendment should the sys- 
 tem work as well with us as it does in the colonies. 
 
 RESULTS. 
 
 Some of the results (of the Autstralasian tax system) have been the 
 avoidance of panics or financial crises, an increase of immigration over emi- 
 gration, the developing of manufacturing and all other industries, a decrease 
 of the unemployed, an enormous benefit to the agricultural interests resulting 
 in a large increase of agricultural cultivation, an enormous increase of build- 
 ing operations, increase in all kinds of wealth, increase of wages, shortening 
 of the hours of labor and greatly improved conditions for working people, the 
 improving or breaking up of large landed estates into smaller ones, the bring- 
 ing of idle land into use, the decrease of crime, complete general satisfaction 
 with the new system and with the political parties and persons establishing 
 it, a constant tendency to extend and enlarge the field of its operations, and 
 in general a higher civilization. No other moderate and conservative law ever 
 
ii6 THE NATIONAL CIVIC FEDERATION. 
 
 adopted can show such a long list of resulting benefits as does the Australasian 
 tax system. 
 
 CONCLUSION. 
 
 If the constitutional amendment is carried at the polls and afterward put 
 into operation, Colorado will not only have a better revenue system, but also 
 an era of prosperity unprecedented in the West; a permanent era, that will 
 compel the Empire State and all other States in America to adopt the same 
 system as a matter of self-defense. 
 
 This is not a fanciful picture. It is the actual working results of the new 
 system wherever adopted. Everywhere general prosperity, like daylight on the 
 sun, has waited upon the adoption of the Australasian tax system. It has been 
 tested in scattered agricultural communities and in large cities. Those wha 
 predicted evil from its operations have been silenced. In all the varied indus- 
 tries of millions of Anglo-Saxons, it has proven to be a complete success. 
 
 If these results were confined to one colony or community they might be 
 open to attack. But as these are the general results in numerous States and 
 localities, and under the most varied circumstances and conditions, the prac- 
 tical success of the law can no longer be questioned. Its advantages having 
 been demonstrated, Colorado is determined to have a change in its revenue 
 laws, and to adopt a conservative, rational, business system, viz., the Aus- 
 tralasian tax system. 
 
 Mr. Seligman : Mr. Chairman, in view of the great interest of the last 
 two papers, and also in view of the fact that we have a number of additional 
 papers to-day, I would suggest that the following programme be carried out, 
 namely that we hear from Mr. Seward and " Mr. Purdy next ; that the papers 
 stop at four o'clock or a few minutes after four, and that the next hour, from 
 four to five,' be devoted to a discussion of these papers in not more than five- 
 minute speeches. That will leave but half or three-quarters of an hour for 
 'the remaining papers of to-day and the last few minutes of the session for 
 the presentation and consideration of the reports of the committees. I move, 
 therefore, that this programme be adopted. 
 
 The motion was seconded. 
 
 The Chairman put the question on Mr. Seligman's motion and the same 
 was duly carried. 
 
 The Chairman : We will now hear a paper prepared by the Hon. George 
 F. Seward, United States Minister to China, and Chairman Committee on Taxa- 
 tion of the New York Chamber of Commerce, on the recent experiences of New 
 York State in taxation, 
 
 Mr. Seward's paper was here read, and was as follows : 
 
 TAXATION IN NEW YORK. 
 By George F. Seward. 
 
 During the last forty years the State of New York has appointed many 
 commissions to consider its system of taxation and to recommend desirable 
 changes. 
 
 These several commissions, notably that of which Mr. Welles was Chair- 
 man, reported much interesting information and made many valuable sugges- 
 tions. It is hardly conceivable, yet true, that one cannot find by study of the 
 statutes any indication that the work of any of these commissions or of all 
 of them combined made any impression upon the Legislature. Much less did 
 
NATIONAL CONFERENCE ON TAXATION. 117 
 
 that work result in any comprehensive treatment of the problems in taxation 
 which have developed as the result of the great growth of the State in wealth, 
 in the extent of its industries and in all that goes to make up the complex 
 life and necessities of modern communities. 
 
 The State until lately has always followed the principles of what is called 
 the general property tax law. In doing so it adhered to the colonial practice. 
 All property, real and personal, not exempt by law, was subject to uniform 
 levies for State and local purposes respectively. All taxes were collected by 
 the local authorities, the State receiving from them its share. This law devel- 
 oped gradually the results which any person experienced in matters of taxa- 
 tion would have anticipated. From year to year representatives of this and 
 that interest went before the Legislature urging the claims of the given inter- 
 ests to be exempted from taxation more or less. The claims so advanced 
 were often sound. When real property and personal property are taxed simul- 
 taneously double taxation results inevitably. The taxation of personal prop- 
 erty is subject to the same evil. Largely to avoid double taxation the Legis- 
 lature made exemption after exemption, but in doing so fell into many 
 inconsistencies. It exempted mortgages owned by certain great interests that 
 had the capacity to present their claims forcibly and continued to tax those 
 owned by widows and orphans. Its exemptions left some corporations free 
 from taxation, while other corporations were burdened to a serious degree. 
 Down to the session of the Legislature just closed nothing whatever was 
 done comprehensively. Each Legislature tinkered with the system more or 
 less and passed away, apparently unconscious that the situation called for 
 quite another kind of work. The general result was a very high tax rate on 
 real estate, and conditions under which any capitalist could invest at a moment's 
 notice one million of dollars or twenty milhons free by law of all taxation, 
 while another investor, ignorant of the law, might be caught for two per cent. 
 or more upon each of his holdings. 
 
 The lack of comprehensive treatment of questions of taxation has been 
 attended by lack of care as respects the details of legislation actually effected. 
 
 An instance of this is afforded in the case of the transfer or inheritance 
 tax. It has been estimated that it cost in 1899 an average of twelve per cent. 
 to collect this tax. In Ulster County the sum of $3,432 was collected, and to 
 get that $2,184 was expended. In Clinton County $508 received by the State 
 cost for collection $565. In Chenango $3,740 cost $1,196. In Queens $28,030 
 cost $7,854. In Kings $237,575 cost $41,763. In New York $1,141,127 cost 
 $128,423. Some of the money expended to make collections found its way 
 into the pockets of members of the Legislature, who secured, for professional 
 services rendered under the law, fees of magnitude which nobody at all could 
 have earned if the law had been properly drafted. 
 
 Another instance of careless legislation was that by which the tax on 
 special franchises (street railways and the like) was imposed. The law was 
 passed and at once the Legislature was obliged to change Ihe methods of 
 making assessments and collections, and the whole subject is still in so vexed 
 and uncertain a state that the courts have been invoked to construe the law. 
 
 The last session of the Legislature was conspicuous for efforts to pass 
 radical tax laws. Among the bills introduced was one which provided for a 
 tax of one per cent, on the capital, reserve funds, undivided profits and sur- 
 plus of every domestic insurance company in addition to the existing tax 
 
ii8 THE NATIONAL CIVIC FEDERATION. > 
 
 under the general property tax law on its personal property for local pur- 
 poses and on its real estate for local and State purposes. 
 
 One not acquainted with insurance might well be astonished that such 
 proposals should be advanced, and solemn hearings upon them given by leg- 
 islative committees, when he learns that the meagre result was a tax of one 
 per cent, on premiums derived from business in the State. And one knowing 
 the business might be even more astonished upon considering the catastro- 
 phies which such legislation would have wrought. Two millions of dollars 
 would have been taken from each of three life companies and equivalent bur- 
 dens would have been laid upon all other companies, life, fire and niiscella- 
 neous. This would have meant the ruin of those great interests and an enormous 
 resultant loss to property value in the State. 
 
 Bad as was this proposed legislation, it was matched by that brought for- 
 ward for banks and trust companies. Banks have long suffered in our State 
 from excessive taxation. The condition was a scandal of the worst kind. 
 The proposed legislation added to the old extreme levies a franchise tax of 
 one per cent, on the value of the stock based on capital, undivided profits and 
 surplus. This was piling Pelion on Ossa. It was not taxation, but confiscation. 
 Trust companies were to be made subject to the same taxation as the banks, 
 the old and the new. Both bills failed. Those actually passed impose taxes 
 which are 250 per cent, higher than those upon similar institutions in the State 
 of Pennsylvania. 
 
 The persons who introduced the bills affecting banks and trust companies 
 and insurance companies of all kinds were the Chairman of the Committees on 
 Taxation of the Senate and House. It was understood that they met the 
 approval of the respective committees and of the Governor. They were intro- 
 duced simultaneously in the two Houses. The hearings given were in some 
 cases before the respective committees of the two Houses in joint session. 
 The whole situation indicated that they were to be rushed to enactment. 
 
 The bills in question were introduced as separate measures, not as parts 
 of a budget for taxation. Their introduction in this way was perhaps the 
 result of knowledge that if the provisions for new taxation should be grouped 
 together in one bill they would encounter the united opposition of the inter- 
 ests affected and stand less" chance of enactment. 
 
 So it happened that during the pendency of the bills there could be seen 
 in the corridors of the two Houses and in the reception room of the Governor 
 and in his ante-chamber the representatives and paid agents of the financial 
 interests affected. To these the Governor gave respectful hearings, although 
 he could not possibly know the motives by which those who approached him, 
 or at least lome ol them, were affected. The Governor was not the only 
 person approached. People who came to head off the legislation sought out 
 friends in the Legislature and persons who were influential upon the com- 
 mittees, or employed professional lobbyists. 
 
 We are used in our land to irregular methods of legislation. Our legis- 
 lative bodies do many good things and they do many bad things. They do 
 some outrageous things, things so outrageous that we are all put on guard as 
 to what may happen in our legislative halls. There are jokers in charter 
 amendment bills, and there are attempts to promote steals on a large scale, 
 a la Ramapo and the bridge approach schemes. 
 
 When in matters of taxation a plan of legislation is adopted which com- 
 pletely casts aside the old idea of uniform levies, and the scheme becomes 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 1191 
 
 one ol dealing with individual interests, a foundation is well laid for intrigues 
 to influence legislation, for the setting up of jobs, for the calling in of political 
 managers, for the corruption of members. 
 
 There are persons who go to the Legislature for revenue. They are tv> 
 be found in every State. There are managers of great interests who have 
 grasped the idea that there are venal men in the Legislature. There are 
 intermediaries, often men of respectable status, at the bar or in politics. There 
 are individual corporations which may be taxed thousands of dollars, tens of 
 thousands, hundreds of thousands, millions of dollars. There is the situation 
 and there the machinery. 
 
 Surely the case is one where the red signal of danger should be run up. 
 
 One might suppose from the urgency with which these bills were pressed, 
 and it would be difficult not to suppose, that the great State of New York 
 had come to a dire extremity in the matter of revenue. Such was not the 
 case. It was a time of profund peace. No unusual public works were being 
 constructed. The revenue had been greatly increased already by the inherit- 
 ance tax, the special franchises tax and the Raines law fees. The treasury 
 was full to redundancy. The actual balance at the end of the fiscal year which 
 ended September 30, 1900, was $7,289,802.55. That for the fiscal year ended 
 September 30, 1899, was $4,504,814.74. 
 
 The fact that the treasury was full at the end of the fiscal year must not 
 be taken to indicate that economies had been practiced. As a matter of fact 
 the treasury was full notwithstanding new and large expenditures. In the 
 year 1889-90 the outgoes of the State were $14,822,180; in the year 1894-95, 
 $16,256,779; in 1899-90, $22,908,319. 
 
 One might suppose again that this large growth of expenses would call 
 for a searching examination of items with a view to economy, and that between 
 economies and the reduction of revenue made possible by an overflowing treas- 
 ury, it would have been in order to reduce taxation in large measure instead 
 of providing for new revenue. 
 
 This brings us to a point where we have to consider a theory which is 
 being urged with persistency in our State and which had much to do with the 
 extraordinary work of our last Legislature. This theory is that the revenue 
 needed for the expenses of the State, as distinguished from the local divisions 
 of the State, should be derived from subjects of taxation set apart for the 
 benefit of the State exclusively. It is urged by men of accepted authority on 
 economical questions. 
 
 And yet I venture to say that the theory is illogical ; that it has bred and 
 will breed injustice; that it has caused and will cause extravagance in State 
 and local expenditures, and that it is an error of a far-reaching kind destined 
 to bring in many deplorable evils. 
 
 It is illogical because it makes the lesser thing the greater. It stands the 
 pyramid of taxation, so to speak, not on its proper base, but on its apex. 
 Each local division needs for its administration ten dollars for one which the 
 State needs from its people. It is absolutely illogical then for the State to invade 
 the political divisions, select its own subjects of taxation and set them free 
 from local taxation. This is what the State has been doing. 
 
 It has already worked injustice. Out of a number of instances I give 
 a few: 
 
 Under the Raines law nearly $12,500,000 is collected in the various political 
 divisions of the State. One-third of 'all this, not one-tenth, is sequestrated by 
 
120 THE NATIONAL CIVIC FEDERATION. 
 
 the State. Greater New York alone pays the State about $3,000,000 a year. 
 The interest is absolutely local and the expenses of administration made nec- 
 essary by the presence of saloons fall upon the locality. Could anything be 
 more illogical and unjust? 
 
 Under the legislation of last winter the entire tax of one per centum on 
 premiums levied by all kinds of insurance companies will go to the State. 
 Some, but not all, of these companies are free from all local taxation except- 
 ing upon the real estate which they may own. 
 
 Trust companies are to be taxed one per cent, on their capital, undivided 
 profits and surplus for the benefit of the State and are to be subject to no 
 local taxes excepting on their real estate. 
 
 Some title guarantee companies are put in the same category ; not all of 
 them. 
 
 Savings banks are to be taxed one per cent, on their surplus funds for 
 the benefit of the State, and not at all locally excepting upon their real estate. 
 
 It was sought to tax banks in the same way as trust companies for the 
 benefit of the State, and exempt them from local taxation, excepting upon real 
 estate. The country members have banks in their local divisions. They were 
 quick to see the loss of revenue and the Legislature made the new tax inure 
 to the benefit of the localities. If my argument needed the bolster of a signifi- 
 cant fact these country members afforded it. They were willing to let the 
 State take from the cities the largest and most valuable subjects of personal 
 taxation. Their little banks must remain with them. 
 
 In"i88i the aggregate of the appropriations for State expenses was $9,878,- 
 214.59. In 1900 this had risen to $23,936,377.84. 
 
 In the meanwhile the general property tax rate remained fairly constant. 
 It was 2.25 mills on each dollar in 1881 and in 1899 was 2.49 mills. The val- 
 uation of property in 1881 was $2,681,257,606. In 1890 it was $5,461,302,752. 
 The excess of expenditures was provided for meanwhile by the levy of indi- 
 rect taxes. These were inconsiderable in 1881, but in 1900 amounted to 
 $13,013,100.06. 
 
 The tax on the organization of corporations yielded, in 1900, $356,778; 
 on corporations, $2,624,508; inheritance tax, $4,334,803; license fees, $4,235,- 
 870; insurance fees, $283,578. 
 
 These items, amounting to about $12,000,000, are drawn almost exclusively 
 from the cities. 
 
 Since 1880 the State has taken over the care of the insane at a cost in 
 1899-1900 of $4,761,043; of reformatory and charitable institutions at a cost 
 of $2,047,830; of prisons and penitentiaries at a cost of $783,112. It expended 
 in the same year $4,771,658 on school grants; $600,977 on parks, monuments 
 and historic buildings; $189,113 on rivers, highways and bridges; $456,491 on 
 agriculture and grants to agricultural societies; on game, fisheries and for- 
 ests, $154,790. 
 
 A mere reading of these items will indicate that the benefits go largely 
 to the districts outside of the cities. The actual figures show that in 1898 the 
 actual cost per capita of the State government to each resident of Greater 
 New York, property taxes alone considered, was $1.70, while to each resident 
 of twenty-nine rural counties it was .023-10. If the indirect taxes were con- 
 sidered, the cost per capita in New York would be $3.54- The figure for the 
 rural counties is not easv to calculate, but it would be inconsiderable. 
 
NATIONAL CONFERENCE ON 
 
 These per capita figures do not include any expenditures of the State in 
 the rural counties excepting for schools. If the benefits received by these 
 counties from the State in other ways were brought into estimate the fact 
 would be established that the rural districts for years have paid nothing to 
 the State, in fact have received considerable contributions from the State 
 directly in money and indirectly in the assumption by the State of local bur- 
 dens. In other zvords, the rural counties have long been stipendiaries of the 
 cities. 
 
 The object in view last winter at Albany was declared to be the relief of 
 real estate from excessive taxation. One does not doubt that real estate is 
 over-taxed in New York. The relief obtained for real estate under the lower 
 tax rate now impending will operate as follows. The per capita of Greater 
 New York for State expenses will rise sensibly above the present high mark. 
 The per capita of the rural counties will fall sensibly. In other words the 
 rural counties will draw still more heavily from the cities. The insane, the 
 decrepit, the paupers, the criminals, all these are now largely cared for by the 
 State. Schools may be supported hereafter by the State in larger measure. 
 Roads may be turned over. Already the State pays a large sum for them. 
 The system is such that the drain on this account will inevitably increase year 
 by year. The cities will care for their own streets, and will pay to the State 
 more or less of the moneys needed to develop better country roads. The 
 country members almost always control the Legislature. They want to please 
 their constituents. Nothing will please them more than the constant enlarge- 
 ment of State grants in payment of outgoes formerly discharged by the localities. 
 
 Nor can it be said that the country members are in ignorance of the facts. 
 The country people think more about taxes and expenditures than those in the 
 cities. Their contant cry is that personal property in the cities escapes taxa- 
 tion, while country real estate cannot. They claim that the benefits they get 
 from the State all comes in a process of balancing up. And they balance up 
 by throwing more of the local expenses over upon the State, to be paid for. by 
 the taxation of city interests. 
 
 In this matter of selecting special subjects for taxation for the sole bene- 
 fit of the State, evils result again by reason of the fact that the selection is 
 made in a haphazard way; also by reason of the fact that no serious attempts 
 are made to equalize burdens between interests. My paper is already so long 
 that I must content myself with the statement without adding instances. 
 
 The facts I have adduced indicate that the system of selecting subjects of 
 taxation for the sole use of the State introduces conditions which lead to new 
 demands upon the State treasury. They indicate also that in the search for such 
 special subjects justice is lost sight of. For, what can country members of the 
 Legislature, what can city members, know of the capacity of this or that great 
 financial or industrial interest to bear taxation and live? What defense have 
 these great interests? Their stockholders number a few thousand people. The 
 voters of the State run into millions. Many of the voters are not only ignorant 
 of financial conditions, but are full of prejudices against the men and the insti- 
 tutions which control money. If taxation without representation is an evil, 
 surely taxation when representation is infinitesmal must be so when no yard- 
 stick is used. 
 
 The scheme of selecting special subjects of taxation for the State contrib- 
 uted to the failure of the last Legislature to do a simple thing, to relieve mort- 
 
122 THE NATIONAL CIVIC FEDERATION. 
 
 gages from taxation. The mortgages held by life insurance companies, sav- 
 ings banks and building and loan associations are exempt from taxation. 
 Mortgages held by individuals generally escape the notice of assessors. Those 
 held by estates cannot escape. If the Legislature had relieved mortgages from 
 taxation no considerable revenue would have been lost to the State nor to the 
 local authorities. .But the threat of taxation increases the interest rate on 
 mortgages probably to the extent of one per cent, in the country and one-half 
 of one per cent, in the cities. The abolition of the mortgage tax would have 
 given that much relief to mortgaged property, and I need not say that the 
 proportion of mortgaged to unmortgaged property is large. The actual relief 
 to real estate this year from the imposition of the new indirect taxes will not 
 exceed one-eighth of one per cent. 
 
 Returning to the so-called balance of taxation, one may be permitted to 
 say that it would be difficult to refuse assent to the proposition that the several 
 political divisions should bear all the burdens of local government and should 
 contribute to defray State expenses in equitable measure. 
 
 Is this a possible thing to bring about? I certainly think so. Every piece 
 of real estate may be reached locally. Every insurance company, bank, trust 
 company or other corporation may be reached locally. Why is it necessary to 
 set up separate tax offices? But if there are any interests which can best be 
 dealt with by tax offices operated by the State why cannot the part of the tax 
 received which belongs properly to this or that political division be credited 
 back to the division? 
 
 A plan proposed last winter by the Chamber of Commerce of New York 
 offered much that seemed valuable. Its main feature was a provision that each 
 political division should contribute to the State on an apportionment based on 
 its local expenditures, relatively to those of all the other political divisions in 
 the State. The details of this plan will be presented by another speaker. If 
 it is to be made effective in a reasonable way the State should begin by releasing 
 to the political divisions the subjects of taxation which it has stolen from 
 them. On the basis of its relative expenditure Greater New York would pay 
 probably 75 per cent, of the expenses of the State. It should be able to keep 
 down its tax rate by the ability to take taxes on all proper subjects. 
 
 One knows that under the older governments of the world taxation is 
 well studied and carefully levied. The system of ministerial responsibility which 
 prevails now in greater or less degree in all European States tends to produce 
 good results. The disorderly procedure of the Legislature which I have 
 described could not possibly occur when a ministry stakes its existence on the 
 merits of a tax measure. In America we must get our results by advocating 
 broad lines and insisting upon them. Special legislation in any direction is 
 condemned by the universal experience of the American States. We ought 
 not to consent to the Legislature laying down one rule for trust companies, 
 another for banks, another for insurance companies, and still other rules for 
 other great interests. If any corporation is established for profit there should 
 be no difference in its taxation from that of any other corporation established 
 for profit, excepting those which hold special franchises, monopolistic in charac- 
 ter. And the taxation of corporate capital should not be different from that 
 of private capital. At the risk of some injustice we must have a general rule. 
 
 TJhese to-day will seem radical ideas. They are only the restatement of 
 the fundamental axioms of taxation held by our State prior to 1880. The 
 trouble then wa? that people knew the principle but did not know how to put 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 123 
 
 it into practice. We could do so now with ease if our legislative bodies would 
 make such studies as they should and act upon them in an unselfish and 
 courageous spirit. 
 
 The Chairman: We now have the same subject concluded by a paper 
 from Mr. Purdy, of New York, Local Option in Taxation. 
 
 Mr. Purdy here read his paper, which was as follows: 
 
 LOCAL OPTION. 
 
 Address by Lawson Purpv, Secretary New York Tax Reform Association. 
 
 As actually administered the general property tax no longer has a friend. 
 The theory of it is condemned by every student of taxation. The problem 
 before us is how the superstitious reverence with which it is still regarded in 
 rural districts can be most effectively assailed. 
 
 Our experience in the enforcement of the general property tax and of 
 every inquisitorial and coercive law points out clearjy the attack which is on 
 the line of least resistance. Whenever any law is inquisitorial or subversive of 
 personal liberty and fails to have the support of the moral sense of the com- 
 munity its enforcement is never effective and often impossible. By a local 
 option unsanctioned by law the evils of such laws are tempered in accordance 
 with the sentiment of the community. Local option should be exercised within 
 the law, not in spite of it. It should be the rule, not the exception. 
 
 We may think that we could devise a tax system which would suit every 
 community, but they will not let us do it, and if we could impose it upon them 
 by force they would apply it in such diverse fashion that we would not recognize 
 our own work. We are bound to have local option of some sort, either with or 
 without the sanction of law, whatever we do. Local option in the liquor traffic 
 has the sanction of law in this and many States, and where they do not have 
 lawful local option they exercise it unlawfully. A few months ago I visited 
 Charleston, S. C, and was much interested in the working of the State dispensary 
 law. This law was enacted by the votes of rural members, and it is not approved 
 by the city of Charleston. The result is that liquor is sold openly all over 
 Charleston, and the State authorities are powerless to prevent it. I was told 
 by a man in charge of a State dispensary that no Charleston jury would convict 
 in a case of unlawful liquor selling, no matter what the evidence. State agents 
 frequently raid illegal places and seize what liquor is on the premises, but no 
 longer make any arrests. The bar of the Charleston Hotel was raided twice 
 while I was at the hotel, but business was disturbed for but a short time, and 
 only a few dollars' worth of liquor was seized. This is local option without the 
 sanction of law. The same sort of thing is going on in Kansas, and in every 
 State where personal liberty is invaded. 
 
 An examination of the statistics of assessment will disclose a similar state 
 of things in every State of the Union where they have the general property tax. 
 A somewhat exaggerated instance of it happened in the State of New York 
 a few years ago. A law was passed in 1896 conferring larger powers on the 
 State Board of Tax Commissioners, and new Commissioners were appointed. 
 They made great efforts to secure the better assessment of personal property, 
 and procured the indictment of some Assessors and scared the rest. 
 
124 THE NATIONAL CIVIC FEDERATION. 
 
 In the town of Volney there were three Assessors and they apportioned the 
 work so that one Assessor assessed the property in the large village of Fulton 
 within the town, and the other two assessed the property outside the village. 
 The town Assessors increased the assessment outside the village from about 
 twenty-five thousand dollars to over four hundred thousand dollars, and most 
 of the increase was on the cattle, horses, sheep, hogs and implements of the 
 farmers. The village Assessor absolutely refused to follow the example of the 
 other town Assessors, and did not add to his usual assessment of personal 
 property. The town Assessors said they rated everything, pianos, guns, and even 
 fish poles, and in one case they assessed a cow $20, the property of a widow 
 who owned a few acres of land. They assessed a young man's gun $10. In 
 telling the story the village Assessor said: "When they got through with that 
 raid on personal property they made a great row because there were no pianos 
 or guns in the village, which has six thousand inhabitants." 
 
 When the Board of Supervisors of the county met it was found that 
 no other town in the county had followed this example, and as this town had not 
 voted with the majority of the Board they received no favors. As a matter of 
 fact, the Board had no authority to do anything for them, for our law does 
 not provide for any equalization of personal assessments. The village Assessor 
 said that the town Assessors would never again be induced to assess the live 
 stock, pianos, guns and fish poles of the farmers until every other town in the 
 State had done it for one year. 
 
 The assessment for 1898 fully testifies to the truthfulness of this assertion, 
 as the assessment of personal property to the farmers was only about $25,000 
 instead of over $300,000 as the year before, and the number of persons assessed 
 was loi instead of 352. This is local option in taxation without the sanction 
 of law. 
 
 To make any real improvement in the system of taxation of three-fourths of 
 the States the constitutions must be amended by striking out the provisions 
 for uniformity and equal taxation of all property. The next step must' be to 
 devise a system of State revenue which will dispense with the taxation of prop- 
 erty for State purposes, assessed by local officials. So long as State revenue is 
 obtained by taxing all property assessed locally local option is almost imprac- 
 ticable, but this is by no means the only reason for the change. The general 
 property tax for State purposes is a source of great evils wherever it is employed, 
 and has been condemned by Tax Commissioners in many States. In their last 
 report the Tax Commissioners of Michigan say : "No feature of our tax system 
 should receive more careful attention by the Legislature-elect than that of 
 State and county equalization. There are few States having similar methods 
 for the equalization of property but ascribe their gravest ills to the baneful 
 effects resulting from such apportionments. The evils of undervaluation of 
 property in Michigan may be traced almost invariably to apportionments for 
 State and county taxes." 
 
 "The occasion for State equalization is generally one of days filled with 
 woe and gloom. Messengers who are sent from the counties are those who can 
 best picture the swamps, barren and unfruitful fields, and who can leave the 
 deepest impression of great desolation." 
 
 The Michigan Tax Commission shares the prevailing opinion that the 
 only way to avoid State equalization is to raise sufficient revenue for State 
 purposes by specific taxes as is done in New Jersey, Pennsylvania, Connecticut 
 and some other States. There are many and grave objections to following the 
 
NATIONAL CONFERENCE ON TAXATION. ,25 
 
 examples of these States. They rely for revenue upon specific taxes levied upon 
 certain selected forms of property. These taxes being imposed at an unvarying 
 rate sometimes produce too much revenue, which the Legislatures promptly 
 squander, or produce too little, and proper expenditures have to be curtailed, 
 or the State is forced to borrow. All three of these difficulties have been met 
 in recent years by the States enumerated. In times of excessive revenue the 
 Legislatures acquire habits of extravagance, and in times of deficit the business 
 community, especially in the cities, lives in daily dread that some new and 
 oppressive tax will be laid to fill the coffers of the State. The system is utterly 
 without flexibility and does more damage than the mischief which it was designed 
 to remedy. 
 
 Speaking of Governor Odell's plan to do away with direct taxation in 
 New York, the Hartford Courant says: "We respectfully invite the leaders of 
 this reform scheme to call in Connecticut and make inquiry as to how the 
 removal of the State tax has worked here. Every thoughtful man wishes it 
 had not been removed. Its presence, with the accountability that it enforces, 
 is a mighty safeguard against extravagance. If New York drops that tax she 
 will be sorry some day and probably find herself unable to put it on again." 
 
 Whatever may be thought of this remedy for equalization from an academic 
 standpoint, it is often exceedingly difficult to carry it into effect, as is shown by 
 the experience of New York. For twenty years the Legislature has been 
 endeavoring to provide revenue for the State by specific taxes. It has succeeded 
 in raising about fourteen million dollars annually, and yet, at the end of twenty 
 years, we still have to raise a sum by the general property tax nearly as great 
 as the total expenses of the State when the movement began in 1881. 
 
 Two obstacles will always be encountered; either large and important 
 interests must be burdened with additional taxes, which they will vigorously 
 resist, or the local governments of the State must reliquish subjects of taxation 
 from which they now derive a considerable revenue, and it is always difficult to 
 convince them that they will gain as much by the remission of State taxes as 
 they lose by abandoning these sources of revenue. 
 
 The plan of apportioning State taxes, endorsed by the New York Chamber 
 of Commerce, and by the last Convention of the League of American Munici- 
 palities, has all of the merit and none of the vices of the plan of raising revenue 
 by specific taxes. It is simple, flexible and has a tendency to fix responsibility 
 and check extravagance. It is really the application to political divisions of 
 the principle of income taxation without the inquisitorial features of the tax 
 upon private incomes, which renders it obnoxious to many. This method is 
 simply to apportion the State tax to the several counties of the State in propor- 
 tion to local revenue. For example, if the State requires one million dollars and 
 the total local revenue is ten million dollars, each county will be required to 
 pay to the State 10 per cent, as much as its own local revenue; if a county 
 and the towns and cities within it are extravagant, it will pay more State 
 tax than if it is economical. The amount of the State tax will be definitely 
 known, and any State extravagance will be immediately felt, and the legislators 
 called to account. The Board which apportions the State tax will have merely 
 ministerial functions, and the apportionment will be based upon a sum in 
 proportion. There is no more opportunity for friction, and, to a certain extent, 
 any locality can determine whether its share of State taxes shall be large or 
 small. The same system of apportionment should be followed for raising county 
 revenue. 
 
126 THE NATIONAL CIVIC FEDERATION. 
 
 There are no statistics available to show the precise effect of this change in 
 the apportionment of State taxes upon all the counties of this State or of any 
 State in the Union, but in 1899 a legislative committee was appointed in New 
 York to investigate the subject of taxation and compiled some useful statistics. 
 The committee made a very careful investigation of the amount of money raised 
 for all public purposes by the three counties of Oswego, Chenango and Cattarau- 
 gus, and by all the taxing districts within these counties. The amount raised 
 for all public purposes in the city of New York, which comprises four counties, 
 is also known, and as the city of New York represents over two-thirds of the 
 taxable property of the State and pays over two-thirds of the taxes, we are 
 able to determine the effect of the change upon the city of New York and the 
 three counties investigated by the committee with substantial accuracy. For 
 the year in which these statistics were compiled the city of New York paid 
 $8.20 to the State for every $100 it raised; Oswego County paid $10.42; 
 Chenango, $12.82, and Cattaraugus, $10.13. If the apportionment had been made 
 on the basis of revenue it appears, therefore, that the city of New York would 
 have paid slightly more and the other three counties considerably less. 
 
 These three counties are all distinctly rural counties, there being only one 
 city in the three, and the combined population is only 170,000. Chenango has 
 the smallest population, and Chenango would save most in State taxes by an ap- 
 portionment on the basis of revenue. If the same .system were applied to the rais- 
 ing of county revenues the saving which would be effected by the smallest rural 
 places becomes still more apparent. There are some towns in the county of Che- 
 nango which paid more than one-fifth of their total revenue to the State, whereas, 
 the large village of Norwich paid only a little more than the city of New York, 
 the amount being $8.35 in every hundred. 
 
 A little reflection will convince any one that this plan of apportionment 
 must always work to the advantage of thinly settled rural districts, just as 
 it would in the State of New York. From the standpoint of expediency and 
 justice this is as it should be, and from a political standpoint it renders the 
 adoption of this system comparatively easy. The cities would be very great 
 gainers by being allowed to exempt certain classes of property from taxation, 
 and could well afford to pay a little more to the State for the privilege. The 
 rural districts are not generally so anxious for changes in the system of local 
 taxation, but would be compensated for the privilege granted the cities by a 
 very considerable saving of State and county taxes. 
 
 An incidental advantage of this system will be the necessity for an annual 
 publication of accurate statistics showing the amount of revenue raised in 
 each political division of the State and the sources of such revenue. At the 
 present time we have no such system, and we are trying to carry on the business 
 of the State in ignorance of our income and the manner in which we obtain 
 it. No private business could be run in this fashion for a year. Whether we 
 adopt apportionment in proportion to revenue or not, we ought to have such 
 knowledge of our governmental affairs as these statistics will give us. 
 
 With the adoption of this plan, the way is clear for any county or city to 
 adopt its own system of raising revenue without disturbing the system of the 
 State. This local option should not be an option to devise new methods of 
 taxing; it should be exercised within the general statutes of the State, and 
 should be confined tO/ the right to exempt any class or classes of property from 
 taxation. If the power were granted to independent divisions of the State to 
 inaugurate new systems, it would lead to serious confusion. The courts would 
 
THE NATIONAL CIVIC FEDERATION. 127 
 
 liave many laws to interpret, and uncertainty and costly litigation would result. 
 As nearly everything is now subject to taxation, the power to exempt is all 
 that we require. 
 
 The power to exempt will certainly be exercised, for the sentiment is 
 strong in many cities for the exemption of mortgages and other securities, and 
 the labor unions and business men are practically a unit in favor of exempting 
 merchandise and capital engaged in manufacturing. In the States of New 
 Hampshire and Vermont and in several Southern States towns are permitted 
 to exempt new industries for a term of years. This local option is generally 
 popular and much exercised. In the States of New York and Michigan, where 
 this practice is not allowed by law, it has nevertheless been common for towns 
 by vote to exempt new manufacturing plants. They have done this in spite of 
 the fact that to exempt a new industry is the worst kind of discrimination, for 
 it gives special advantages to favored persons, while the exemption of a class 
 is not a special favor, as competition reduces prices and the benefits are dis- 
 tributed. At the same time these experiments show that the people in a blunder- 
 ing way have been trying to go in the right direction, and that with the legal 
 right to exempt classes of property exemptions would be generally and promptly 
 made. 
 
 Mortgages remain taxable in many States, although the members of the 
 Legislature are generally fully aware of the injustice of such taxation, because 
 they are afraid of the supposed sentiment of their constituents. With the power 
 to exempt mortgages, mortgage taxation in the cities would be abolished at once, 
 and would speedily be a thing of the past in every State that had local option. 
 
 Local option is expedient because it is the quickest and surest way toward 
 progress, but it is not only expedient, it is right ; it is that system of government 
 under which questions are decided by those who have the fullest information, 
 who have the best opportunity to know, and who have the greatest interest in a 
 wise and just decision. 
 
 The Chairman : Before taking up any other subject, if any gentlemen 
 have questions to ask about any of t*he papers read this afternoon an opportunity 
 will be given. 
 
 Mr. Bemis, of Illinois : Mr. Chairman, I was going to ask a question of the 
 last speaker. I was very much impressed with his paper. I want to ask how 
 he would meet the popular feeling that railroads, telegraph, express and sleeping 
 car companies ought to pay taxes, as they would not be reached under his 
 scheme of local taxation. I would like to ask how he has arranged to meet 
 that difficulty? 
 
 Mr. Purdy : Mr. Chairman, I see no reason why there should not be a 
 State Board of Assessors, just as in New York we have a State Board of Tax 
 Commissioners performing certain functions in the assessing of certain property, 
 the assessment being certified by certain officials and then the local rate levied 
 in the locality. It ^eems to me that that general idea could be applied with 
 perfect ease and success to the situation I have outlined. 
 
 Mr. Wright, of Michigan : Do I understand that the dicussions must be 
 confined entirely to inquires of the gentleman? 
 
 The Chairman : I say we will pass from that in a moment. I would 
 like to dispose of this feature. Are there any questions to be asked of Mr. 
 Bucklin? 
 
 Mr. Howard, of Indiana: Mr. Chairman, I did not gather from Mr. 
 Bucklin's very interesting paper the precise method of determining the social 
 
128 THE NATIONAL CIVIC FEDERATION. 
 
 tax, as it may be called, or the tax on the social increment of property. The- 
 machinery or method of fixing is what I would like to know. I did not gather 
 it from the paper myself. 
 
 Mr. Bucklin : Mr. Chairman, it is simply the general property tax ; that is 
 all. Instead of trying to find out the value of everything in this world, going 
 into a jewelry shop and then a hardware shop and then into a drug store and 
 then some other kind of a store and so on into' all these different ramifications 
 of property, all that the Assessor would have to do would be to estimate the 
 value of the lot upon which the building stood and upon' which the business 
 was done, so far as that particular piece of property was concerned. 
 
 The Chairman: It is a tax then on land value, is it not? 
 
 Mr. Bucklin : On land value, on franchise values and on rights of way. 
 
 The Chairman: Are improvements taxed under it, buildings? 
 
 Mr. Bucklin: Improvements are absolutely untaxed. Everything that is 
 the product of industry, everything that man creates is exempt from taxation- 
 under it. Some one says it is a single tax. It is not a single tax. It is simply 
 a system of land value taxation which may be in operation with the inheritance 
 tax, the income tax or any other kind of taxes. It is simply a small land 
 value tax which is put in operation. It collects a certain given amount of 
 revenue. For instance, in the localities that have adopted it they may have 
 adopted it for all or part of their local needs; so with the State. They may 
 adopt it for such portion of their State needs as may be desired. Instead of the 
 general property tax, for instance, you may collect it upon social values. That 
 is, there is this difference between social values and products of industry. 
 Every product of industry has its cost value. It may fluctuate above and below 
 the cost of production, but it constantly tends toward the point of production 
 unless there is some legislative act which prevents its return to that point. But 
 social values are not produced by toil, not produced by industry of any kind, 
 either by capital or labor. They are produced by legislation and the growth 
 and prosperity of communities. For instance, land values, the value of franchises^ 
 the values of rights of way across a State or through a nation. So that there 
 are two distinct classes of values. This is a tax on social values as distinguished 
 from taxation on the products of industry. 
 
 Mr. Taylor: Here is a jewelry shop located on a 40-foot lot. The adjoin- 
 ing piece of property has on it a bank which has no franchise. The land values 
 are precisely the same, but the bank undoubtedly does a vastly more profitable 
 business than the jewelry store. How would you assess the land values as 
 between the land of the jewelry shop and the land on which the bank is situated? 
 
 Mr. Bucklin : Well, the social value of those lands is precisely the same. 
 The fact that a man may not properly utilize it is no reason for punishing the 
 man who uses it to a greater extent. That the location may be put to a higher 
 use is no reason that the person should be punished by a greater tax than the 
 person who puts it to a lower use. He pays a tax upon the land value, regardless 
 of the business done upon it. It is the social value of the land, not the business. 
 It is the site value. The business is not a social value. It is produced by the 
 industry of the man who carries on the business. I do not care whether it is 
 a store, a bank, a railroad business or any other business. That is an industry, 
 and is produced by human effort. That is entirely different in its character 
 from the social value that is created by the demand of the community for a 
 certain site which is dependent, not at all, upon whether or not any labor 
 
NATIONAL CONFERENCE ON TAXATION. 129 
 
 is produced upon that particular site. It may be wholly idle and still have 
 identically the same value. 
 
 Mr. Taylor: Then the social value would be regulated by the yard stick 
 and the peculiar notion of the man who made the assessment. 
 
 Mr. Bucklin: No, sir; it is regulated by the demand of society upon that 
 particular site for that particular use. 
 
 Mr, Taylor: As the Assessor saw society. 
 
 Mr. Bucklin : Well, that is the most easily ascertained of any known 
 value. No good real estate man, I will venture to assert, who is well informed 
 cannot practically tell you the value of any site of any portion of the city 
 of Buffalo. But when it comes to telling the value of your jewelry store, your 
 bank, or numerous other enterprises, he cannot do it without going and investi- 
 gating, unless he has the intelligence of the Almighty Himself. He cannot know 
 what the value was. 
 
 The Chairman : What you mean by the social value of land is the rental 
 value of the land without improvement? 
 
 Mr. Bucklin: It is the selling value, the market value of the land, the 
 value that the land has in the market. 
 
 Mr. Howard : A question I would like to put is perhaps entirely answered, 
 but I am entirely unable to distinguish between this method of taxation and 
 a single land ta.x. myself. I would like to ask a question of the gentleman from 
 New York, and that is : Whether the local option ta.x has been put in practice 
 anywhere? 
 
 Mr. Purdy : As Mr. Bucklin has described, local option has been in force 
 in New Zealand for five years, also in British Columbia for fifteen years. To a 
 greater or less e.xtent it has been in force in the United States for a great many 
 years. The towns in New Hampshire and Vermont have certain powers. They 
 may exempt new industries for several years, and they make certain other 
 limited exemptions. That is also the case in Delaware and in some of the 
 Southern States. 
 
 A Member from Delaware: I would like to ask in case a bank building 
 should be erected right alongside of a workingman, would the social value 
 affect the workingman detrimentally or the workingman beneficially? 
 
 Mr. Bucklin : That would be a very rare occurrence. I suppose you have 
 a number of such in the city of Buffalo, and New York, and other large cities of 
 the East. I have never come across such a case; but I will say this, that if 
 any person sees fit to use a site which ought to be used for business purposes 
 for some minor purpose, or puts it to a lesser use, for instance, that of a 
 residence, he ought to pay just as much for holding that site in that kind of 
 way; he ought to pay just as much taxes as he would if he put it to a higher 
 use and to the natural use to which that lot should be put, and as far as benefiting 
 the people is concerned, the people that will be most benefited will be all the 
 people, by the most just and wise system of taxation. You adopt a system of 
 taxation that is in harmony, that can be defended as a rational system of taxation, 
 and you will do more good to the masses, and for the common people of this 
 country, than you will if you attempt simply to adopt a system which is supposed 
 to help the poor at the expense of the rich. 
 
 The Chairman : If there are no more questions the Chair will now 
 recognize Mr. Wingate. 
 
 Mr. Wingate, of Indiana: Mr. Chairman, it is very gratifying that in this 
 Convention, as in most Conventions of national interest that have been held 
 
I30 THE NATIONAL CIVIC FEDERATION. 
 
 in late years, Indiana seems to be in evidence. A long time ago I was taught 
 that if you want to get a good apple you must look in a tree that has clubs 
 in it. The gentleman who allows trees in his orchard to be torn down and 
 stock to come in and tramp and loaf around in the shade of the old tree until 
 they have tramped it out of existence, I submit to you will not have, nor 
 would he deserve much sympathy if in the long winter evening he had no 
 good big ripe apple to take the bad taste out of his mouth before he retired for 
 the night. I want to say a word in regard to the way that we try to take 
 care of this old tree in Indiana, and how we try to go about executing this 
 law. We have our system as has been defined by Judge Ploward very ably this 
 forenoon. To begin with, about thirty days before the listing of property, which 
 occurs on the ist of April, and from the ist of April until the ist of June, 
 we call a meeting of the County Assessors, of which every county has one, in 
 Indianapolis, and we have a two days' meeting at that place. There, with 
 the State Board of Tax Commissioners, the Governor, the Auditor, the Secretary 
 of State, we discuss the law, we discuss values, we discuss everything that 
 pertains to the taxation of property, and we instruct these County Assessors in 
 such a way that they can go home and call meetings of their Township Asessors, 
 and in like manner discuss the mode of listing property, and the values to be 
 placed on that property, as we have done in our State meeting. When the 
 listing of this property is about half over the Tax Commissioners, of which 
 there are two, the territory of the State being divided, and we each take our 
 own territory, we call what we denominate district meetings of the County 
 Assessors, and we sit down in these Congressional District meetings and compare 
 the assessments which Up to that time have been the listing of property, and 
 compare the assessments that are being made, and ask what property is listed 
 at in this county and that county and all around in the year that we appraise 
 real estate. In other words, we say: "What are you listing corn at; and you, 
 and you, and you." And when we find five or six men are listing it at the 
 proper price, say, thirty cents a bushel, that is our valuation in Indiana. At 
 a meeting in Indianapolis, to illustrate, ten County Assessors are present and 
 eight of them are listing corn at thirty cents a bushel, one of them at twenty- 
 five cents a bushel and one at thirty-five cents. The one that was listing corn at 
 thirty-five cents it was determined should lower his assessment, and the other, it 
 was determined, should raise his. So we get a uniform method of taxation. 
 Next year we propose that the Tax Commissioners hold meetings in the several 
 counties with the County Assessor and with the Town Assessors for the purpose 
 of more equitably listing this property and continuing to get more and more 
 toward a uniform appraisement. 
 
 I wanted to say just these words as to the manner in which we try to 
 execute this law; and from our experience, gentlemen, in all seriousness, from 
 the effect and the results that we have had from our law I am sure I 
 would not be warranted in inviting any gentleman here to come to our State 
 with the assurance that he would escape taxation. He would be listed under 
 the Indiana State law as it now exists, and in which law we shall have confidence 
 until somebody shows us a better law by having it put in actual use as contra- 
 distinguished from mere theory. 
 
 Mr. McMullen, of Illinois: Mr. Chairman, I desire to make one remark 
 along the line of the paper of Mr. Tooke which was read this morning. We 
 have found, in the city of Chicago particularly, that one of the best discoveries, 
 one of the best assistant Assessors, has been the publication of the tax list. 
 
NATIONAL CONFERENCE ON TAXATION. 131 
 
 Mr. Chase, of Iowa: Mr. Chairman and Gentlemen, it is not with the 
 intention of discussing any papers that have been read to-day that I arise, 
 but it is to put Iowa on record in saying that we are heartily in sympathy with 
 the State of Indiana. Our tax laws in Iowa, and I have lived there for thirty- 
 three years, do not vary but a very little from those of Indiana. I shall not go 
 into any detail as to how we make our assessment, but I can say that a watch 
 presented to me by my father when I left New York years ago I pay taxes 
 on every year in Iowa, and am not ashamed of it. I have been observing these 
 papers, and I did not intend to say anything at all about it, but I notice that 
 there is a difference in the way you write a paper. One man has a theory, 
 but I notice that his theory is, not how are we going to assess property, but 
 how are we going to escape taxation. I do not want to discuss this, but as I say 
 I want to go on record hand in hand with Indiana. The West Virginia law 
 is nearly like our Iowa law. In closing, I just want to accept a challenge that 
 was made here this morning by a gentleman from Ohio. I will give him a 
 patent he can get rich on. He says it is utterly impossible to assess mortgages. 
 I say you can assess mortgages easier than you can assess a horse or a cow, and 
 I will tell you how. A mortgage is on record in your court house. No man 
 will take a mortgage without recording it. Now, this is the way we assess it 
 in Iowa. If you send your Tax Assessor or the Assessor of Property to your 
 court house let him go through your records; he will assess every mortgage 
 that has been recorded in the last year. Will not that assess your mortgages? 
 Now, what is the effect, gentlemen? I just want to express one more idea 
 here. When I left New York to go West our farming property in this country 
 was worth frorA fifty to seventy-five dollars an acre. I come back here to-day 
 and go over these hills and I find that from five to ten per cent, of the houses 
 are nailed up. I go into the Western country, where we assess everything, the 
 farmer equal with the banker, the loan and trust man. Our taxes are uniform. 
 We all pay. In this country, you see, the man with the real estate pays, but the 
 map with the dollars in the bank does not pay a cent. I would like to ask one 
 question here, and that is: Whether in Indiana you assess deposits in savings 
 banks ? 
 
 Mr. Taylor: We do. 
 
 Mr. Chase: That is all. I thank you, gentlemen, for your attention. 
 
 Mr. West: Mr. Chairman, in discussing the Australian system of taxation, 
 so called, I suppose that the land tax was introduced in New Zealand before the 
 appearance of "Progress and Poverty." May I ask whether that original, and I 
 believe temporary, land tax introduced by Sir George Gray was a tax on the 
 unimproved value of land only? 
 
 Mr. Bucklin : Yes, it was a tax on unimproved values. It was adopted 
 in 1878, repealed in 1879, and re-enacted in 1891. 
 
 Mr. West: But at that time in 1891 and for some years after that the 
 improvements were not entirely exempted. 
 
 Mr. Bucklin : The original law entirely exempted them. The law adopted 
 in 1891 made a distinction as to improvements of the value of fifteen thousand 
 dollars. That, however, was repealed in 1892 or 1893. 
 
 Mr. West: Mr. Chairman, I am inclined to think that the gentleman from 
 Iowa lost the point of the discussion of the taxation of mortgages. It is easy 
 enough, and I think it is so recognized now, to put a tax upon mortgages, or 
 upon mortgaged real estate. The difficulty is to make it stick there. With 
 reference to the supposed necessity of taxing personal property in order to 
 
132 THE NATIONAL CIVIC FEDERATION. 
 
 reach the millionaries who live in hotels, that was referred to this morning, I 
 should like to hear from the same expert as to who is paying the taxes on the 
 Iroquois Hotel this week. 
 
 The Chairman : At the adjournment this morning a paper was read 
 by Mr, Hines, of Louisville, on the taxation of railway and other public 
 service corporations. A suggestion has been made to the Chair that no oppor- 
 tunity was given to ask any questions of Mr. Hines, or to discuss his paper. 
 An opportunity will now be given for such discussion. 
 
 Mr. Godard : Mr. Chairman, I am sorry to say I was called out this 
 morning and did not hear Mr. Hines' paper. In our State we have a Commission 
 engaged in the work of revising our tax laws, and they expect to make a report 
 at the next session of our Legislature. One of the questions perplexing us 
 in regard to the assessment and taxation of railroads is the assessment of the 
 terminal properties of these roads. I might say that we expect to present a plan 
 for the taxation of all this property, and the question is arising with us whether 
 the terminals should be assessed to the entire length of the line or whether 
 they should be assessed locally in the county or municipality where they belong. 
 The Chairman, I believe, reverted to this matter yesterday in referring to the 
 way in which they were taxed in Missouri. I believe he said that the terminals 
 in St. Louis were taxed to the entire lines to which they belonged throughout 
 the existence of the State. It strikes me if it is proper to assess those terminals 
 through that line, it is then proper to assess part of them over in our State, 
 for at least three lines of road having terminals in the city of St. Louis extend 
 into our State, and yet I suppose it would hardly be conceded that we have 
 the right to tax any property in the State of Missouri. I would like to inquire 
 how this is done in Indiana, for I must say I am very much interested in this 
 subject as it has been discussed by the gentleman from Indiana, and also by the 
 gentleman from Ohio, who read his paper yesterday, and by the gentleman 
 from Iowa. I think that we people from the West are in sympathy with those 
 lines of taxation. It has occurred to me with regard to these terminals that 
 they belong to the locality in which they are situated. The buildings and the 
 side tracks, all the structures are upon very valuable land, and it seems to me 
 that that value belongs to the locality; and yet I arise to ask this question for 
 the purpose of getting more information upon this subject. It is possible 
 that I am mistaken in that respect and I would like to know the experience in 
 'Other States, if there are gentlemen here who can make a statement in that 
 regard. I would like also to ask another question, and that is: How best to 
 Teach the property of these companies who own and operate independent cars ; 
 that is, the independent car line companies. I believe those cars are usually 
 owned by corporations. They run through the various States. Most of their 
 cars are scattered all over the country all the time. It has been suggested 
 here that that can be done by regulation of foreign corporations. That is a 
 somewhat difficult matter when the foreign corporations have no litigations and 
 have no property in the State except the cars themselves. We can refuse them 
 the rights of the courts, but that will not compel them to return their property 
 if they have no litigation in that State, and they are not liable to have any. 
 I would lilce to know the experience of the other gentlemen. As I said in 
 regard to the taxation of terminals, I was not satisfied with the theory put 
 forth by Mr. Judson. I know that our learned Chairman is well posted in these 
 matters, and yet we in Kansas are not always satisfied to follow the benighted 
 
NATIONAL CONFERENCE ON TAXATION. 133 
 
 State from which he comes. We remember that there was a time when the 
 taxes in that State were collected by Jesse James. 
 
 Mr. Bemis, of New York: Mr. Chairman, I would not attempt to answer 
 the last gentleman's question altogether, for I know that the gentlemen from 
 the other State, who are practical Assessors, will take that up. I rose chiefly for 
 another purpose, but I will say, as I understand it, the Supreme Court of the 
 United States in many decisions has held that about the most practical way of 
 apportioning a railroad between several States, when it runs through several, is 
 on the basis of the miles of main track, and then remains the question of the 
 apportionment of the part within the single State. I think justice would seem 
 to require that terminals should be given special weight, and it can be done 
 inside of the State ; but as between several States 1 question whether decisions 
 of the Supreme Court will permit of that. Having got an apportionment of the 
 amount of value in the State by the ratio of the mileage of the State it would 
 seem, I should think, entirely practicable to apportion that mileage on some such 
 basis as this: Let there be a careful inventory of the physical value of all the 
 property of the road in the State. That would in the case of a city take 
 up the special value of the land occupied by the terminals at the value that 
 such land adjoining will sell for in the city. Having thus gotten an inventory 
 of the structural value of the road, if it be found that the true value of that 
 road as an earning concern, or based on its selling value, is seventy-five per 
 cent, more than its structural value then that additional seventy-five per cent, 
 which I would call the franchise value could be apportioned between the various 
 counties of the State by simply adding seventy-five per cent, to the structural 
 value in each county of the State, and in that way the localities that had the 
 largest structural values would also get the most of the franchise value. I think 
 in marty States the custom is being followed of apportioning in the counties 
 and cities on the same basis that the Supreme Court seems to require between 
 the States on the transfer, the mileage of the main track only, and they thus 
 seem to make hardly a just proportion. In regard to car lines, I had the idea 
 that those were assessed as sleeping car companies and express companies on 
 the basis of the proportion of the gross receipts or the basis of mileage. 
 
 A Member: Mileage. 
 
 Mr. Bemis : Mileage is usual. I think. Other companies, like telegraph 
 companies, on the miles of wire. I rose chiefly to speak a word on the question 
 of Mr. Hines' paper this morning, which called forth this other discussion. He 
 spoke of the railroads as hardly affected by a public use, as he expressed it, 
 over and above most corporations, because, in the first place, railroads did not 
 provide the advantages which the public desire. He spoke of only two or three 
 companies where roads are owned and operated by the public. I suppose this 
 was a slip of the pen, as he was aware that the majority of all the mileage 
 of the world is in the hands of public States of the world, that outside of England 
 and this country probably four-fifths of the railroad mileage of the world is 
 owned and operated by government. It is true even in Australia, South Africa, 
 Russia and New Zealand. But passing on to the particular reason why we may 
 put a special tax upon railroads it, of course, is evident that the government 
 has reserved the right and does regulate their charges. It does that and can 
 do it in certain other cases as was referred to by Mr. Hines. The government 
 reserves the right to regulate fares because the business is not subject to the 
 ordinary regulation of competition. If all business should get into that condition 
 then we should have ground for treating all as of a quasi-public character. 
 
134 THE NATIONAL CIVIC FEDERATION. 
 
 requiring regulation of rates, and special rates, perhaps of taxation, but unless 
 we are sufficiently socialistic to believe that all business will disappear from 
 the competitive States, which I am not, then there will remain a large element 
 of business which does not come under the category which the railroads do. Of 
 course, they have the right of eminent domain and other things that I shall not 
 refer to now. 
 
 The gentleman maintained that assessing railroads on the basis of the value 
 of their securities or on the capitalization of their net earnings assessed them 
 unfairly as compared with other corporations. He instanced Indiana, where he 
 said the Louisville and Nashville paid twenty per cent, of its income in that 
 State in taxes. I wish we had more data to determine what percentage of 
 net income was paid by other classes of property, but I venture to say that the 
 farmer does pay to-day fully twenty per cent, of his net income in taxes. He 
 would probably answer that that was not true of a manufacturing corporation. 
 Whether it is or not is a matter that we have not enough information to be sure 
 about. But even if it be true that a manufacturing corporation does not pay as 
 much as a railroad in some States, let us see what can be said as to that. 
 
 The Chairman : I am obliged to remind the gentleman that he is over his 
 five minutes. 
 
 Mr. Taylor: Mr. Chairman, I think the suggestion of Prof. Bemis is a 
 valuable one. Value to-day of unhazarded money is fixed by the value of 
 government bonds, and that is about 1.92 per cent. That is the gross total 
 value of unhazarded money in America. The State of Illinois through which 
 a railroad with which I am connected runs pays eight per cent, on the value 
 of its property. In many counties in the State of Illinois and in the city of 
 Chicago two years ago my railroad paid thirteen and five-tenths on the valuation 
 placed upon it in that State, or six times the total gross earning power of 
 unhazarded money in this country. Therefore, if the Illinois road pays thirty 
 per cent, of its net earnings in Indiana it is away below the gross value we pay 
 in some other States. I have a train on my road that runs through four States. 
 The conductor has a punch in his pocket. On that he pays in Kentucky, as we 
 leave the State of Illinois four per cent, on the value of the punch. He goes 
 into Indiana and he pays 1.15 per cent. He goes into Illinois and he pays from 
 four to nine per cent, on the value of the punch. He goes into St. Louis where 
 3'ou live and pays from two to three and a half per cent, on the value of the 
 punch. In the State of Ohio I have a road that pays two per cent. In 
 New York State I understand the taxes are two per cent. Shall we in Indiana, 
 that have the lowest tax rate of any State in the nation that I know of, surrender 
 our tax system for your tax system, when you, yourselves, admit that you 
 have a system that is not worth a fig? This is a practical age, with practical 
 men dealing with practical things. The fourteen hundred million dollars of 
 property in Indiana is assessed by the four State officers and the Governor. There 
 is no final assessment in Indiana by anybody until the Governor and the four 
 State officers make the assessment. Local assessment is tentative. The county 
 officers harrow over the local assessment. They harrow over the whole territory 
 of their county again and again, crosswise, in order to level up; then the State 
 Board takes it up. Not nondescripts elected from here and there or men 
 appointed and coming from all sorts of sources, but State officers elected by 
 all the people; and the four great classes of property, real estate, town lots, and 
 city lots, railroads and personal property are then, in each county, all again 
 harrowed over by the State Board, and until they have harrowed and cross- 
 
NATIONAL CONFERENCE ON TAXATION. 135 
 
 harrowed and reharrowed there is no assessment at all in Indiana. So that 
 we have the ten years from 1891 until now hanging on the wall; every county 
 in Indiana by the side of every, other county, and every assessment for each 
 of the ten years of all the counties rests upon the walls and the State Board 
 can go over it and see where errors have been made and correct them, and 
 this is the practice after ten years of the best kind of legislation as we believe. 
 We like our law better, and better, and better every year. You say personal 
 property is not assessed. Of the thirteen hundred million dollars of our property 
 real estate pays eight hundred millions and personal property five hundred 
 millions of our taxes. So that we do get at personal property and we do have a 
 system that we like, and until somebody either from New Zealand or Chicago 
 brings us a better system we are going to stand by ours. 
 
 Mr. Wright, of Michigan: Mr. Chairman, there are two or three respects 
 in which Michigan has been referred to, and in a way the gentlemen are 
 entirely correct as far as they went. The Chairman in his very able paper this 
 morning referred to the change in Michigan regarding mortgage taxation. In 
 1891 we had the division of the interest between the owner and the mortgagee. 
 In 1893. because of the unsatisfactory working of that system, not from the 
 theoretical standpoint, but from its unsatisfactory practical working, we went 
 back to the system of assessing the full value of the property, and the mortgage 
 was also assessed, the theory being that which was expressed by a gentleman 
 the other day that each has the property, and we are not assessing equities, but 
 the actual property which the party has. One has the lien, the other has the land. 
 One of the practical disadvantages of that was, under our system of statutory 
 forfeiture, the owner would not pay his tax very frequently, and instead of 
 asking to pay the tax on lot 7 in block 19, or on the southeast or northwest 
 corner, he says: "My names is Jones, and I will not pay my tax." He never 
 knew till it came to sale that all the tax on that land was not paid. You 
 may say that was due to his personal ignorance. I submit that all of us are 
 grossly ignorant on any subject we have not given special study, very often. 
 I have here the very Mast enactment of that State which has not yet, or had 
 not when I left, been signed by the Governor, but which there was no question, 
 or, at least, very little doubt would be signed. That comes from certain 
 agitation which I need not refer to here, and the section as amended reads: 
 "Section 24a. A mortgage, deed of trust, land contract, or any other contract 
 or obligation by which land is pledged or a debt is secured by a lien upon real 
 property within this State, shall, for the purpose of assessment and taxation, be 
 deemed and treated as an interest in such real property, unless the same shall 
 contain such a contract as to the payment of taxes as is mentioned in section 
 24 of this act, except as to the property of such companies and quasi-public 
 corporations as may otherwise be required by law to pay a specific tax to 
 the State in lieu of all other taxes. In such case the value of the property 
 affected by such mortgage, deed of trust, land contract, or other obligation, less 
 the value of such security, shall be assessed and taxed to the owner of the 
 property, and the value of such security shall be assessed and taxed to the 
 owner thereof, in the county and assessing district in which the real property 
 so affected is located. The taxes so levied upon the property affected by such 
 mortgage or other security shall be a lien upon the property. The taxes upon 
 .such security shall constitute a lien upon said security, and also upon the real 
 property covered thereby, and may be paid by either party to such security. If 
 paid by the mortgagor or holder of the real property, and such portion as was 
 
136 THE NATIONAL CIVIC FEDERATION. 
 
 assessed to the mortgagee shall, unless otherwise especially provided by contract, 
 be considered and treated as a payment on any interest that may be due, or if 
 there is no interest due, then as a payment of so much principal. If paid by 
 the mortgagor or holder of the security, such portion as was assessed to the 
 mortgagor or owner of the fee shall become a lien upon the land or real property, 
 and be added to all other obligations and become subject to the same terms and 
 conditions as such mortgage or other security: Provided, That it shall be 
 unlawful for either party to pay the portion of the tax assessed to the other 
 until after the expiration of thirty days from the time the warrant for the 
 collection of taxes has been placed in the hands of the Treasurer: Provided 
 further, That if the said mortgagee shall neglect or refuse to pay the tax assessed 
 to him as the holder of any such mortgage, deed of trust, land contract, or 
 other obligation, the Treasurer shall proceed to collect the same from the mort- 
 gagor or holder of said real property, in the same manner as is provided by 
 law for collecting other taxes, and any Selinquent tax accruing by reason of 
 the failure to collect the tax assessed upon any such mortgage, deed of trust, land 
 contract, or other obligation, may be returned against the said land in the same 
 manner as other delinquent taxes. If any security or indebtedness shall be 
 paid by any such debtor or debtors after the tax shall have become a lien upon 
 the real property affected thereby, the amount of the tax levied shall become 
 an offset against said indebtedness." 
 
 Section 24 is as to the manner of assessing. 
 
 Mr. Purdy in his paper refers to the report of the Michigan Tax Com- 
 mission. That is something we have not any of us in Michigan been able to 
 see. We have seen a great many things that have been uttered by members 
 of the Commission, or somebody in their behalf, but the report of the Com- 
 mission has not as yet been issued. The Tax Commission, it must be remembered, 
 is a new body, and as every one of those men is a personal friend of mine I 
 think I shall not be misunderstood when I say that but one of them ever, before 
 his appointment, something over a year ago, had anything to do with the 
 question of taxation. As to the question of the taxation of railroad property 
 specifically, or by valuation, I am in favor of the ad valorem taxation of property, 
 but it must be remembered that my own State has just gone to the ad valorem 
 taxation of railroad property, dropping the specific tax, which has been eminently 
 satisfactory, except as to the rate, which might have been amended. I Sjay 
 satisfactory, except for agitation purposes; and an unhealthy sentiment, as some 
 of us believe, has aroused the Legislature to pass an ad valorem tax law and to 
 assess those taxes on the railroads. It must be remembered that those taxes 
 go into the Primary School Fund. The Tax Commission has been increased by 
 two members because the Legislature, by reason of some utterances that had 
 been made, was not satisfied that the corporation would have altogether 
 fair treatment from the Board as it was then constituted. 
 
 Mr. Hines : I wish to answer very briefly Mr. Bemis' suggestion. I would 
 say in the first place as I said this morning, or intended to say, that in none 
 of the countries of" the continent of Europe, so far as I knew, were all the rail- 
 roads operated by the government. Of course, we all know a great many are. 
 I saw a careful analysis made a few years ago as to the State and government 
 ownership of railroads made by a responsible gentleman, in which he made the 
 statement that the only two countries in the world in which all the railroads 
 were operated by the government were Nicaraugua and Egypt. Of course, many 
 in Europe are operated by the government. The point I suggested was that the 
 
NATIONAL CONFERENCE ON TAXATION. 137 
 
 country from which we drew our legal principles had never operated the 
 railroads. 
 
 Referring to his suggestion as to the exercise of the power of eminent 
 domain, we all admit that that entitles the public to control the railroads 
 to a certain extent. But that is not the sole basis on which the regulation rests. 
 It is the fact that it is affected with the public use. We are bound to admit 
 it is affected with the public use within the meaning of that term. It is not 
 true that there is no competition in the railroad business, nor is it true that 
 there is unlimited competition in any other business. It is simply a question 
 of degree, and it depends on the development of combinations as to how far 
 other lines of business will come into the class now occupied by railroads 
 as so affected with the public use as to admit of regulation in the matter of 
 their prices. But the point I make notwithstanding that, is that when you 
 regulate railroads in the matter of their prices, in the matter of their attiude 
 toward the public, you have exhausted the rights that come to the public out 
 of the fact that their business is affected by public use, and what is then left 
 is the private interest of the individuals who own the property. When' you 
 come to tax the railroads, you tax that interest, and the point I made was 
 that it should be taxed like other private interests of other individuals. I 
 have not the figures as to the present income the farmer or the manufacturer 
 pays, but I wish to suggest that if the farmer or manufacturer, or people 
 generally paid in taxes to the State and subdivisions of the State twenty per 
 cent, of the difference between their gross receipts and their operating expenses 
 that there would not be any ti-ouble about the tax question, nor would there be 
 if it were ten per cent, or five per cent. When a railroad pays twenty per 
 cent, of the difference between its gross receipts and operating expenses, that does 
 not take out the interest on the bonded debt or anything of the sort. I say it is 
 grossly and palpably overtaxed. 
 
 The Chairman recognized Mr. Samuel B. Clark, of New York. 
 
 Mr. Bemis : I want to say a word in introducing Mr. Clark. He does 
 not know I am going to say this. A few months ago Prof. Seligman, quite 
 .innocently, I think, in a review of the mortgage tax law in New York State, 
 which failed lately, had occasion to say that it failed because it was evidently 
 drawn by such an astute attorney that it would reach the object for which 
 it was designed as no other law had yet been able to do. I happened to know 
 that this law which would have done that, and which was defeated, was drafted 
 by Mr. Clark, and it occurred to me that we would all like to hear from him. 
 He was not aware that I was going to say this. 
 
 Mr. Clark: Mr. Chairman, there have been so many questions discussed 
 here that I feel a little dizzy and hardly know what to speak about. Perhaps 
 the reason I supported the mortgage tax law it may not be out of place to 
 mention. I did it not because I believe in mortgage taxation, certainly not. 
 I believe it would be better for all classes of community, the landowner and the 
 borrower, if mortgages were exempt from taxation. But in New York we 
 have under the general property tax a tax on mortgages, and it is not a question 
 of whether we should tax mortgages, but how we shall ta.x them best. Under 
 the general property tax law, mortgages largely escape taxation. They are not 
 revenue producers to any great extent. In the few cases where they are caught 
 the owner of the mortgage suffers most cruelly. It is an outrage and an 
 abomination, ancj I can think of no effort of vituperation that is sufficient to 
 describe what the mortgage tax of New York is when it has actually been 
 
138 THE NATIONAL CIVIC FEDERATION. 
 
 enforced. In those cases where the tax has to be paid, it is a tax of from one- 
 third to over a half of the interest, faUing upon those who can least afford to 
 pay. The tax in this State has another bad effect. Under the general property 
 tax there are enormous exemptions. The personal property of life insurance 
 companies and of savings banks, until this year, when there has been some slight 
 burden put upon them, has been exempted from taxation in this State. They 
 control a loan fund amounting to two thousand million dollars, a very large 
 part oi the loan fund of this State. All other owners of capital that would 
 naturally go into such loans have to come into competition with them. They 
 are taxed unless they adopt roundabout, circuitous, and, as many think, improper 
 modes of escaping. The result of that is that they are kept out of the competi- 
 tion, and the life insurance companies and the savings banks have had in a very 
 real sense a monopoly of the loan market of the State. How have they used 
 it? These great funds, this two thousand millions of money which they have 
 for loaning purposes, is in the hands of comparatively few men who meet 
 together, who know each other, who consider what is the best policy for their 
 institutions, and without any combination in the sense of a contract, but yet, 
 from the community of interest, from understanding each other, they have largely 
 adopted this policy that they will loan these funds only on improved urban 
 properties, except in special cases where special proof and evidence of the 
 security is given. The result of that is in this State, and has been, that the 
 rural communities have not had the advantages, to a very large degree, that 
 comes from ability to borrow for the sake of improvement. There has been 
 a tendency from this control of the loan capital of the State to concentrate 
 improvement in the cities and to leave country districts unimproved and 
 undeveloped. Those were the conditions which we had to face, which the 
 Tax Committee of which I was counsel had to face. It was to meet those 
 conditions as far as we could, with this other that it was impossible in this 
 State to abolish the tax on mortgages owing to the prevailing sentiment, that 
 we did devise a scheme of mortgage taxation which as being better than 
 the present system I approved. At the same time, if I could, I would abolish all 
 such taxation. 
 
 The Chairman : The gentleman's time has expired. 
 
 Mr. Bemis : I move that he be allowed to continue. 
 
 A Member: I second the motion. I would like to get an outline of this 
 law. 
 
 The Chairman put the question on Mr. Bemis' motion, and the same was 
 unanimously carried. 
 
 Mr. Clark : The fundamental principle was to take mortgages out of what 
 we mistakenly call property tax in this State, personal property tax, which, 
 by the way, is not a property tax at all, but a pure personal tax, and make it 
 a real property tax as in the case of land, and then to levy a rate upon it 
 that was comparatively low, five mills on the dollar of the principal of the debt. 
 That tax was to be enforced, not by putting any obligation on anybody in 
 the world to pay it, not on the lender, not on the borrower, but the State 
 laid its hand on the property, on the evidence of it as found in the recording 
 offices, and said: "Unless this is paid at a certain time that property will be 
 sold, and the purchaser will get the same title that he would have if the owner 
 of the bond and mortgage made a voluntary assignment." That was the theory. 
 It required in order to work it out quite an elaborate bill to cover all the 
 contingencies, and to bring them within those categories, but it is a bill that 
 
NATIONAL CONFERENCE ON TAXATION. 139 
 
 if enacted I have no doubt would produce ten millions of revenue to the State, 
 and would have resulted in the abolition of the general property tax for State 
 purposes, and would have relieved the land owners in general from so much 
 of the taxes that they have been paying, and would have left the door open 
 for what so many of us want to see the opportunity and power in the localities 
 to determine and work out for themselves their own salvation in the matter 
 of taxation. 
 
 Mr. Gabfield: Mr. Chairman, I do not care to take but a few moments' 
 time, but I desire to say a word in connection with the personal property tax and 
 especially the intangible feature of it. I think all who have looked into the 
 Indiana and Ohio systems agree that so far as tangible property is concerned 
 there is little difficulty in getting that on a tax duplicate, but I have, as yet, been 
 unable to learn the success of the Indiana system in reaching the intangible 
 personal property which is not the property of the domestic corporations. The 
 system as suggested in Indiana is in vogue in Ohio relative to certain classes of 
 corporations. The corporation makes the return to the State officers. They 
 can readily fix the whole value of the corporation and can include the franchise 
 value. That then may be assessed against the corporation, and, of course, 
 the evidence of ownership, namely, the stock of that corporation, is no longer 
 sought, and hence is not a subject of taxation. But the question that presents 
 itself to my mind is how, under the Indiana system, and to what amount under 
 the Indiana system, are the Assessors able to obtain a return of intangible 
 personal property which is not the evidence of ownership, or the bonds of 
 foreign corporations. As to that point I beg leave to offer a suggestion, and it 
 comes in line, also, with the question of mortgage taxation. There is no doubt 
 that the system suggested by the gentleman from Iowa and others does give 
 us a method by which the mortgage may be made the subject of taxation, but 
 it does not afford a remedy for imposing upon the owner of the land the addi- 
 tional burden of the tax upon the mortgage. By whatever device you may tax 
 the mortgage, you may rest assured that the loaner of the money is going to 
 take that tax out of the borrower of the money by some indirect method. The 
 interest rate may not on the surface be added or increased, but in every case it 
 has developed that the borrower, himself, ultimately pays the tax. 
 
 Before taking my seat, Mr. Chairman. I wish to ask the gentleman from 
 Indiana how much intangible personal property appears upon the grand duplicate 
 of the State of Indiana. I mean by that, bonds of domestic corporations, notes 
 which are secured by mortgages, and the stocks of foreign corporations. Can 
 you tell me how much, in gross, appears? 
 
 Mr. Taylor: We have not made any separation. 
 
 Mr. Garfield: So you cannot give me that? 
 
 Mr. Taylor: No. 
 
 Mr. Garfield: As I understand it, the total personal property duplicate is 
 four hundred million dollars. I find by reference to the census reports of 1890, 
 which figures arc nine years old, that the total personal property, that is, the 
 tangible personal property, as given by the census report as the wealth of Indiana 
 in 1890 was eight hundred and seven million dollars. That did not include 
 intangible personal property. It did not include mortgages. On that showing 
 of 1890 you have fifty per cent, of the tangible personal property upon your tax 
 duplicate. 
 
 Mr. Taylor: That is a larger per cent, than our real estate. 
 
 Mr. Garfield : Just a moment. That is the tangible personal property. 
 
I40 THE NATIONAL CIVIC FEDERATION. 
 
 You had in 1890 a hundred- and ten miUion dollars of mortgages by the census 
 report. I would like to know what portion of that hundred and ten millions 
 appears on the tax dupHcate. Then another question. In determining the 
 value of the personal property as given by the census of 1890, the value of the 
 franchises of all street railroad corporations and the value of the franchises 
 of all public service corporations, are not included in the census report as to 
 the value of the property. In that eight hundred and ten million dollars none 
 of the things other than the actual tangible personal property appears. What we 
 maintain is simply this, Mr. Chairman. It is not an assault upon the principle 
 of taxing personal property, it is an assault upon the methods by which we 
 have been absolutely unable throughout this whole country to bring the intangible 
 personal property upon the tax duplicate. That is the question ; not as to 
 tangible personal property. I would ask the gentlemen from Indiana if they 
 can explain to me where the intangible personal property appears on their 
 duplicate. 
 
 The Chairman : Further discussion will have to be postponed, as we have 
 other matters on the programme, and we can refer to it again later. 
 
 Before we go to the remaining papers I would ask the Chairman of the 
 Committee appointed upon Programme and Organization if it is prepared to 
 present its report? 
 
 Mr. Seligman : Mr. Chairman, in presenting this report I should say that 
 the report is now presented simply for the information of the members, and I 
 would suggest that action on the report be deferred until after the next two 
 papers have been read, so that we can close with some action on the report. 
 
 Mr. Seligman here read the report of the committee as follows : 
 
 Resolved, That it is the sense of this Conference that a permanent organiza- 
 tion be effected for the promotion of interstate comity in taxation, and of tax 
 reform in general, and to that end a committee of fifteen be appointed by the 
 Chair to act as an Executive Committee until another meeting of this Conference, 
 artd that the Executive Committee be authorized to select a general committee of 
 one hundred with at least one member from each State. 
 
 Resolved, That the Executive Committee be authorized to take proper steps 
 for the collection and dissemination of information in regard to State and 
 local taxation, and for the attainment of the other objects of the Conference. 
 
 Mr. Seligman : The Committee would like to add in conclusion some 
 definite resolutions as art outcome of the labors of this Conference. We prob- 
 ably should all be prepared to agree and disagree on a great many points. It 
 is impossible that it should be otherwise. I think, however, that from all the 
 discussions that have taken place in the last two days, one thing is evident, 
 that we are all agreed upon some fundamental points. I think those funda- 
 mental points are embodied in these propositions: 
 
 Whereas, Modern industry has overstepped the bounds of any one State, 
 and commercial interests arc no longer confined to merely local interests ; and, 
 
 Whereas, The problem of just taxation cannot be solved without con- 
 sidering the mutual relations of contiguous States; be it 
 
 Resolved, That this Conference recommend to the States the recognition 
 and enforcement of the principles of interstate comity in taxation. These 
 principles require that the same property should not be taxed at the same 
 time by two State jurisdictions, and to this end that if the title deeds or 
 other paper evidences of the ownership of property, or of an interest in 
 property are taxed, they shall be taxed at the situs of the property, and not 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 41 
 
 elsewhere. These principles should also be applied to any tax upon the 
 transfer of property in expectation of death, or by will, or under the laws 
 regulating the distribution of property in case of intestacy. And, finally 
 
 Resolved, That State and local revenues should be so separated as to 
 methods and subjects of taxations as to give to the counties and municipali- 
 ties the largest powers of local option in taxation. 
 
 The Chairman : Gentlemen, those matters will be laid over until after the 
 other papers. 
 
 Mr. William T. Creasy, of Pennsylvania, will present briefly some features 
 of the tax laws of Pennsylvania which have been referred to. 
 
 Mr. Creasy here read his paper, which was received with applause, as 
 follows : 
 
 A FARMER'S VIEW OF THE TAX SYSTEM OF PENNSYLVANIA' 
 
 BY WILLIAM T. CRKASV. 
 
 Secretary of Legislative Committee of Pennsylvania State Grange. 
 
 Gentlemen, there should be but one tax levied for all general purposes, 
 and it should not be in any way connected with the United States Internal 
 Revenue System. It would in effect be an income tax. It should be levied 
 under a law sufficiently comprehensive to reach every taxpaying interest, and 
 make all persons, corporations, trusts, joint-stock associations, co-partnerships, 
 limited partnerships or any nondescript interests contribute to the support 
 of government according to their ability to do so. The common laborer 
 should be a contributor to the tax fund as well as the large trust representing 
 millions of dollars of capital. 
 
 A tax thus levied should be apportioned for State, county, city, borough, 
 school, road, poor or other general purpose according to the wants of the 
 State, county, city, borough, township, school and poor district entitled to 
 receive its portion. 
 
 If it is not deemed advisable or feasible to have but one tax, as aforesaid, 
 then there should be some revision of the Pennsylvania system so as to make 
 the burdens of taxation bear more equally than they now do on the different 
 subjects of taxation. Some interests are not bearing their proper proportion 
 of tax, others escape entirely and then again others are too heavily taxed. 
 No general Pennsylvania tax law has been passed in many years unless it 
 was O. K.'d by the great corporations of the State. 
 
 Perhaps the most practical way of appraising transportation and trans- 
 mission companies and such other companies that have stocks and bonds, 
 would be to appraise the capital stock for what it would bring in the market 
 and add to this the value of the bonds, as representing the true value of the 
 property, and apportion it to the several divisions of the government according 
 to the mileage within its territory as a basis for the authorities of the different 
 divisions of government for levying their taxes. 
 
 While real estate could be more equitably appraised by the local author- 
 ities, under the direction of the County Commissioners, as at present in 
 Pennsylvania. 
 
 In our State, personal and corporate property are taxed only for State 
 purposes and real estate for county and" local purposes. 
 
142 THE NATIONAL CIVIC FEDERATION. 
 
 All corporations possessing the right of eminent domain are exempt under 
 existing laws from taxation on so much of their property as is necessary to 
 the exercise of their corporate franchises. It is true they pay tax on their 
 capital stock and gross receipts in some instances, but in addition thereto they 
 should pay tax for local purposes on the property representing their capital 
 stock the same as other corporations. The road-bed, rolling stock, depots, 
 warehouses, water stations, roundhouses and repair shops of railroad com- 
 panies and the reservoirs and lines of pipe of water and gas companies in 
 Pennsylvania are worth millions of dollars, but they are now exempt from 
 taxation for local purposes. The privileges they enjoy are greater than those 
 of the ordinary corporation, and for that reason all their property of every 
 kind and description should be taxed for local purposes. Take, for instance, 
 the Standard Oil Company, which operates extensively in Pennsylvania, and 
 has lines of pipe for the transportation of oil extending from our oil regions 
 to the seaboard. Its principal charter is the National Transit Company, a 
 duplicate of the charter of the Pennsylvania Company to be found in the 
 Pamphlet Laws of Pennsylvania of 1870, page 1025, and of 1871, page 92. It 
 has authority to do anything except carry on the business of banking, and it 
 also enjoys the right of eminent domain. For the year 1892, said National 
 Transit Company and other associate interests of the Standard Oil Company 
 in Pennsylvania, to wit, the Atlantic Refining Company, Forest Oil Company 
 and Southern Pipe Lines, paid into the State treasury for taxes of all kinds 
 $192,809.65, when $1,000,000 would have been a moderate sum for them to pay, 
 taking into consideration their large earnings and dividends and the fact that 
 they pay nothing locally on their lines of pipe or any property of the Transit 
 Company necessary to the operation of its works. Other corporations sim- 
 ilarly situated do not pay the tax they are able to pay and should with a full 
 measure of justice pay. 
 
 Manufacturing companies are relieved entirely from the payment of taxes 
 on their capital stock. This is not fair or just, and there is no more reasop 
 for exempting their capital stock from taxation than there is for exemptmg 
 from taxation the capital stock of a coal company that pays heavy local tax 
 on the property which its capital stock represents, as well as State tax, nor 
 the property of an incorporated mercantile company that pays a capital stock 
 tax and a mercantile license. There may be reasons for grading a tax on some 
 broad lines so as to make a light or nominal tax on the capital stock of man- 
 ufacturing companies that are struggling under a load of debt for an exist- 
 ence; but to say that large concerns like the Bethlehem Steel Company, the 
 Pennsylvania Steel Company, the Cambria Steel Company and the Carnegie 
 interests, that earn and pay large dividends, should go scot free from the 
 payment of tax on their capital stock is equal to saying that one man should 
 pay the tax of another. What is true as to manufacturing companies is also 
 true as to building and loan associations.. There is no reason either why 
 insurance companies should get off with a three-mill tax on their capital stock 
 when other corporations have to pay five mills. Our great financial institu- 
 tions are paying, as will be seen by the statistics presented in this paper, a 
 very small tax rate. This is also a break in the rule of uniformity required 
 by our State constitution. 
 
 Real estate now bears more than its just share of tax, and this can be 
 remedied by the commonwealth assuming some of its burdens, if local tax 
 
NATIONAL CONFERENCE ON TAXATION. ,43 
 
 is continued to be forbidden on corporate property worth many millions of 
 dollars. 
 
 Under our system the farmers of Pennsylvania are being grossly discrim- 
 inated against and driven out of business, as shown by the census report of 
 1900, there being a decrease in the rural population in twenty-two counties of 
 over a hundred thousand in the last decade. And as an illustration as to 
 how this system works take two men: The one investing $5,000 in a farm is 
 taxed from $60 to $90, while the other, investing $5,000 in bonds and mort- 
 gages, is taxed $20, making a gross discrimination of from $40 to $70 between 
 the two citizens. Apply this same comparison with mercantile business or 
 transportation and transmission companies, and we find still greater dis- 
 crimination. 
 
 This discrimination does not only apply to real estate, but it is equally as 
 great between the corporations themselves, as shown by the following Penn- 
 sylvania Official State reports embracing twelve of the leading industries of 
 the commonwealth, as follows : 
 
 Real Estate. 
 
 Per Report Secretary Internal Affairs, 1899. Part I and II, Page 4 B. 
 
 Value of real estate taxable $2,728,163,336.00 
 
 Total taxes paid 44,210,043.03 
 
 Average rate of taxation 16^ mills. 
 
 Personal Property. (Money at Interest.) 
 
 Report Secretary of Internal Affairs, 1899. Page B 253. 
 
 Personal property (money at interest) $697,307,883.00 
 
 Taxes paid. See Aud. Gen. Report — 1899 — page 2 2,764,258.48 
 
 Average rate of taxation 4 mills. 
 
 Mercantile Property. 
 
 Merchandise in stores, estimated (tax conference) $300,000,000.00 
 
 Mercantile license tax 1899. Report Aud. Gen., page 2. 518,148.65 
 
 Average rate of tax 1.7 mills. 
 
 Steam Railroads. 
 
 Per Report Secretary Internal Affairs — 1899 — page 705. 
 
 Capital stock $1,1 18,267,610.00 
 
 Funded debt 1,007,01 1,038.00 
 
 Amount of other liabilities 185,689,468.00 
 
 Total steam railroad capital $2,310,968,116.00 
 
 Of the above amount of capital reported 45 per cent. 
 
 represents the property within the State, or a 
 
 total value of railroad property in Pennsylvania... $1,039,935,652.00 
 Total taxes paid 1899 — Aud. Gen. Report— page 144... 2,839,385.41 
 
 Average rate of taxation 2^4 mills. 
 
144 THE NATIONAL CIVIC FEDERATION. 
 
 Passenger Street Railways. 
 
 Report Secretary Internal Aflfairs— Railroads, Railways, etc.— page 812. 
 
 Capital stock $103,122,319.00 
 
 Funded debt 31,309,425.00 
 
 Current liabilities 13,139,149.00 
 
 $147,570,893.00 
 
 Street Railways Operated by Other Companies. 
 Pages 32 and 829— Report Secretary Internal Affairs. 
 
 Capital stock • $53,407,639.00 
 
 Funded and unfunded debt 41,649,487.00 
 
 $95,057,126.00 
 
 Total passenger street railway capital $242,628,019.00 
 
 Total taxes paid in 1899 — Aud. Gen. Report — page 154. 1,171,090.31' 
 
 Average rate of taxation 4^ mills. 
 
 National Banks. 
 U. S. Treasury Report Comptroller, Jan. 1901 — No. 21. 
 
 Capital stock $76,648,670.00 
 
 Surplus 53,492,128.76 
 
 Undivided profits 15,266,533.62 
 
 • $145,407,334.38 
 
 Total taxes paid 1899 $431,582.25 
 
 Average rate of taxation 3 1-3 mills. 
 
 Incorporated State Banks. 
 
 Banking Report 1899 — Part I, page 248. 
 
 Capital stock $8,152,920.00 
 
 Surplus $5,955,41978 
 
 Undivided profits 1,972,629.16 
 
 $16,080,969.16 
 
 Amount of tax paid State 71,412.51 
 
 Mill rate a little less than 4^. 
 
 Incorporated Savings Institutions. 
 
 Banking Report 1899 — Part I, page 303. 
 
 Capital $1 10,200.00 
 
 Deposits 7,515,626.59 
 
 Undivided profits 2,956,860.27 
 
 $10,582,686.86 
 
 Amount of taxes paid •. 33,529.89 
 
 Average rate of taxation 3 mills. 
 
 Domestic and Foreign Building & Loan Associations and Homestead 
 
 Companies. 
 
 Capital $112,120,436.61 
 
 Total taxes paid 1899 33,203.18 
 
 Average rate of taxation 0.3 mill. 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 145 
 
 Telegraph and Telephone Companies. 
 
 Per Report Secretary Internal Affairs, 1899 — page 687 — Telegraph and Tele- 
 phone Companies. 
 
 Capital stock, funded debt, current liabilities $150,644,47545 
 
 Proportion in Pennsylvania, 20 per cent, estunated within 
 
 the State 30,128,895.09 
 
 Taxes paid — Report Aud. Gen. 1899 — page 161 95,432.76 
 
 Average rate of taxation 3 1-5 mills. 
 
 Canals and Navigation Companies. 
 Per Report Sec. Int. Affairs, Railroads, Canals, etc. — page 689. 
 
 Capital stock $24,463,462.00 
 
 Funded debt 29,347,955.86 
 
 Total value canals and navigation companies re- 
 ported $53,811,417.86 
 
 Amount of taxes paid — Aud. Gen. Report 1899 — pages 55, 
 
 142, 155 and 166 143,192.92 
 
 Average rate of taxation 23-5 mills. 
 
 I quote from an address issued by the Legislative Committee of the State 
 Grange in an address to the Pennsylvania Legislature of 1901 showing the 
 amount of tax of all kinds collected for the year 1899: 
 
 Aggregate Taxes Collected for State Purposes, $15,458,316.97. 
 
 State revenues collected from licenses, fees, escheats, 
 direct collateral inheritance, interest on public moneys, 
 bonds, etc $6,611,384.18 
 
 Balance collected from taxes on personal and corporate 
 
 property for State purposes 8,846,932.79 
 
 Average rate of taxation on personal and corporate property 3 mills. 
 
 Entire Amount of Taxes Collected for all Governmental Purposes 
 
 Within the State. 
 
 Taxes collected for State purposes $15,804,570.51 
 
 Taxes collected for county, city and borough purposes. . . . 19,854,226.70 
 
 Licenses of all kinds collected 6,067,833.51 
 
 Taxes collected for support of poor 2,603,482.18 
 
 Taxes collected for school purposes 13,612,622.76 
 
 Taxes collected for construction and repair of streets, 
 
 roads and bridges 11,312,528.50 
 
 Total $69,255,264.16 
 
 Showing an increase over the previous year of $5,492,714.51. 
 
 The taxes on real estate increased in eight years from $30,000,000 to 
 $44,000,000, or over 46 per cent., while the taxes on corporations have not 
 materially increased under the Pennsylvania system of taxing personal and 
 corporate property for State purposes only, and real estate for local purposes 
 alone ; the burdens of taxation have grown more onerous on reax estate until 
 the rate has reached si.xteen and a half mills as compared with three mu7s on 
 personal and corporate property. 
 
146 THE NATIONAL CIVIC FEDERATION. 
 
 The taxes paid by corporations, insurance companies and financial insti- 
 tutions for the last seven years amounted in round numbers to $49,000,000, or 
 a yearly average of $7,000,000. This includes the bonuses paid for charters. 
 Comparing the year 1893 with 1899, it will be noticed that after deducting the 
 delinquent taxes paid in 1899 which were due from former years, there is but 
 little increase over 1893. 
 
 Nothing can aid more in educating those interested in taxation, as well 
 as others, than the theories and discussion of this and similar conventions. 
 
 With tax reform must come a careful and economical expenditure of 
 the public money. 
 
 The Chairman : The next on the programme is a paper by Mr. Hoffman,, 
 of the Prudential Insurance Company. 
 
 Mr. Hoffman here read the paper referred to. 
 
 THE TAXATION OF LIFE INSURANCE INTERESTS. 
 
 By Frederick L. Hoffman. 
 Statistician of the Prudential Ins. Co. of America. 
 
 This paper has been prepared for the purpose of suggesting to experts 
 on the subject of taxation a branch of inquiry which has thus far received but 
 very little consideration, and which yet is full of promise of most practical 
 and far-reaching results. The theory and practice of insurance taxation is 
 usually ignored in the text-books on taxation and the reports of Tax Com- 
 missioners, yet the taxation of insurance interests increases from year to year 
 until a point has been reached where additional burdens are likely to imperil 
 the very existence of the business. 
 
 To a large extent this indift'erence to a scientific study of the problem of 
 life insurance taxation is due to the fact that life insurance in itself is a most 
 complex business, and taxes have been imposed rather in ignorance of the 
 real nature of the insurance contract than because of any well-defined con- 
 ception of the ability of companies to pay the burdens levied upon the policy- 
 holders. The discussions before Tax Commissions or ni State Legislatures 
 and Congress are proof that to the average legislator there is but one view- 
 point of the matter, and that is the vast accumulation of assets held by com- 
 panies for the future discharge of incurred liabilities. What is seen is the 
 millions of dollars of funds; what is not seen is the immense liability charged 
 again.st these funds, and because of the indifference to the second point taxes 
 are recklessly imposed and funds are diverted from their proper purpose until 
 a point has been reached where the returns to policy-holder have diminished, 
 where the cost of insurance has been increased, where the extension of the 
 business has been made more difficult, and where* the very existence of the busi- 
 ness is threatened unless a radical change in opinion is brought about in the 
 near future as to the proper scope and limits of the taxation of life insurance 
 interests. 
 
 The taxation of life insurance interests involves the present and future 
 welfare of a large and increasing proportion of our population, representing 
 the most intelligent, industrious and thrifty of our nation. Briefly stated there 
 are to-day in this country 13,000,000 insured in ordinary and indu.strial level 
 
NATIONAL CONFERENCE ON TAXATION. 147 
 
 premium companies, who pay annually in ihe aggregate more than $300,000,000 
 in premiums. Of this vast sum, representing an almost inconceivable amount 
 of prudence and self-denial, $6,500,000 is paid to the National Government, 
 the State or the municipaHty in taxes or license fees of one form or another. 
 In other words, out of every $100 collected in life insurance premiums, $2.22 
 is paid to the State in taxes; or, if we consider the payments made to policy- 
 holders, which now exceed $160,000,000 per annum, $4.10 is paid to the State 
 in taxes for every $100 paid to the beneficiaries of life insurance policy-holders. 
 
 If it is true of the general theory and practice of taxation in this and 
 other countries that *it will be difficult to find in the whole realm of political 
 economy a subject more generally misconceived, more disfigured by false 
 views, more degraded by a partial study."' this is especially true of that branch 
 of the subject which relates to the taxation of life insurance interests. It is 
 not going too far when it is maintained by those who have given some thought 
 to the subject, that life insurance in this country is to-day one of the most 
 heavily taxed institutions making directly for the welfare of the population 
 and for the diminution of public burdens which otherwise would have to be 
 provided for by taxes upon other interests. While erroneous views on this 
 subject are due in a large measure to the intricate nature of the life insur- 
 ance business, they are more largely due to the fact that the vast accumula- 
 tions of life insurance companies represent an exceptional opportunity for the 
 imposition of taxes and the certainty of their collection. The utmost publicity 
 is given to all the essential facts pertaining to the business; the amounts of 
 premiums collected, the amounts of dividends paid, the amounts of assets and 
 of surplus accumulated are given in fujl in the annual statement of the com- 
 panies to the different Insurance Departments. Nothing is of more common 
 occurrence than, on occasion of local need for additional revenue, to place an 
 additional tax upon life insurance interests, and yet it requires but a brief 
 consideration of the real interest involved, of the real naturfc of the business, 
 to make it clear to those free from bias or prejudice that taxes upon life insur- 
 ance are a tax upon prudence, a tax upon thrift, a tax upon a business which 
 should be free from all burdensome restrictions to enable it to develop and 
 to expand to the highest degree of possible usefulness. 
 
 It is one of the most common errors in the theory of life insurance taxation 
 to assume that life insurance itself represents capital. Now, capital as I under* 
 stand it, is realized wealth, while life insurance is merely a promise to pay a 
 certain sum in the event of the occurrence of a contingency provided for in the 
 policy. Life insurance is a present means of obtaining a certain advantage over 
 an uncertain event, and it is on this ground, though not on this ground alone, 
 that life insurance or the premiums paid for insurance protection, shouW not be 
 considered a subject of taxation. If we inquire into the objects and nature of life 
 insurance and the relation of life insurance to the State, we find that the primary 
 object of this form of thrift is to provide for dependents, for widows and 
 orphans, which but for such provision, in the majority of instances, would 
 become charges or wards of the State. By just so much as this is avoided, by 
 just so much as women and children are made independent of such assistance, 
 the revenue of the Nation, or of the State, is relieved and can, therefore, be 
 devoted, and is devoted, to the development of other interests affecting public 
 welfare. In view of this point it is clear that life insurance should not be a 
 subject of taxation, but rather to the contrary, as a means of diminishing public 
 
mS the national civic federation. 
 
 burdens, it should in all respects receive the generous consideration of the 
 State. 
 
 The political or economic justification for a tax on life insurance is in 
 harmony with the theory advanced by McCulloch that "it is easily assessed and 
 collected," but it is contrary to his conception of an equitable tax, in that it is 
 not "at the same time conducive to public interests." More than a century 
 ago the subject matter of life insurance taxation was carefully considered by 
 Mr- Pitt in the framing of the English Income Tax Bill in 1798, and it may not 
 be out of place for me to repeat the language then used and which is as applicable 
 to the point at issue as if it had been advanced to-day. Under the English 
 Income Tax Law of 1798 incomes were exempted from the payment of the tax 
 to the fxtent of the premiums paid on their life insurance. In defending this 
 clause Mr. Pitt said as follows : "There is one case which, with a view to that 
 class who are really willing to save for the benefit of others for whom they are 
 bound to provide, makes some modification. It is in favor of those who have 
 recourse to that easy, certain and advantageous mode of providing for their 
 families by assuring their lives. In this Bill, as in the assessed taxes, a deduction 
 is allowed for what is paid on this account." This early recognition of the inti- 
 mate relation between life insurance and public welfare is of more than passing 
 significance. Life insurance in England was then in its very infancy, but even 
 at that stage the good results likely to follow its universal extension had become 
 manifest. It was brought out in the evidence submitted to a special Committee 
 on Assurance Associations in 1853 that in consequence of this exemption from 
 taxation, life insurance in England had made material advances, a portion of 
 which at least was directly attributed to the relief from taxation. Of one office, 
 the Equitable (London), it was stated in the evidence that, while during the 
 ten years preceding the passage of that Act the increase in business had been 
 but $4,500,000, the increase during the decade following the passage of the 
 Income Tax Law, relieving assurance associations from the payment of that tax, 
 had been $20,000,000. The principle laid down in 1798 has remained the law of 
 England to the present time, and there is no tax upon life insurance in any form, 
 except a small stamp tax upon policies, which has practically no financial impor- 
 tance, the amounts annually paid on this account being so small that the same 
 are included in the companies' expense account under postage expeditures. 
 
 The principle of non-taxation of life insurance in England as laid down by 
 Mr. Pitt in 1798 has been frequently reaffirmed in the works of recognized 
 authorities on economics and finance. A tax on insurance, according to Mill, as 
 staled in his Principles of Political Economy, "is a direct discouragement of 
 prudence and forethought," and this view is practically accepted by McCulloch 
 who even more forcibly expressed himself to the point that a tax on insurance 
 "discourages that providence and foresight, the encouragement of which ought 
 to be an object with all prudent governments;" and "seeing the vast importance 
 of insurance, it may well be doubted whether it ought to be charged with any 
 duty, however slight." With particular reference to taxation of insurance inter- 
 ests in this country, the subject was discussed in an able treatise thirty-four 
 years ago by S. Morton Peto, according to whom "a tax on insurance is a ta:^ 
 not only upon industry, but upon prudence and frugality, and the American sys- 
 tem seems to be far worse than that of which we have been so long complaining 
 in Great Britain," and yet the conditions confronting insurance companies to-day 
 are vastly more serious than they were under the war conditions of the early 
 sixties. 
 
NATIONAL CONFERENCE ON TAXATION. 149 
 
 THE PRACTICE OF LIFE INSURANCE TAXATION. 
 
 The practice of life insurance taxation is a matter so involved and com- 
 plicated by local conditions, varying with the different States and even with the 
 municipalities in which the companies operate, that it would consume most of my 
 time to touch upon even the most general facts as they pertain to this branch 
 of my inquiry. It is the general practice of States to impose first the general 
 property tax upon the real estate and personal property of the companies within 
 the reach of the Tax Assessor. This tax in 1899 formed about 15 per cent, of 
 the total amount paid in taxes by the company with which I am connected. To 
 this tax there has never been any serious objection on the part of life insurance 
 companies, the burden being considered a proper one as a just contribution 
 toward the general cost of State government. By far the most important tax 
 item is the tax on premium income, which may vary from one to three per cent., 
 according to the State in which the company transacts business. In 1899 the 
 company with which I am connected paid about 44 per cent, of its taxes on this 
 account. This tax on premiums is an unjust burden upon the business, and 
 both inexcusable and unscientific. The tax falls alike upon new premiums for 
 risks just incurred, and upon renewal premiums on risks assumed years ago. 
 You can readily see that risks assumed years ago were calculated to produce 
 a certain result on the assumption of a known mortality and four per cent 
 interest. The imposition of taxes upon such payments must needs decrease the 
 return to policy-holders and increase, in consequence, the cost of insurance. 
 If carried to the extreme, especially in the case of companies which issue only 
 non-participating policies, it is possible that the companies may ultimately be 
 unable to meet their obligations in consequence of a policy on the part of the 
 State which is both as unwise as it is unnecessary. 
 
 The practice of taxing premium receipts was ably referred to in a recent 
 article in the New York Evening Post, as follows : 
 
 "It is a fundamental principle of social science that the insurance contract 
 itself ought to be free from taxation. Taxation ought to be on property, on 
 production. Insurance contracts produce nothing. If any tax is imposed on 
 insurance companies or insured persons as such, it should be imposed on their 
 property and not on their contract. The taxation of premium receipts is utterly 
 unscientific. It has no basis of credit in the ultimate distribution of the tax. 
 The practical effect of it is seen by a calculation of what a policy of life insurance, 
 running thirty or forty years, will amount to at the end of the term if the 
 premiums actually paid are accumulated at compound interest, and what it will 
 amount to in case the premiums before accumulation are diminished by, say a 
 3 per cent. tax. Any one making such a calculation would be startled by the 
 result. A tax of 3 per cent, on a premium, when it comes to a final settlement in 
 the payment of policies, amounts to an enormous burden on the widows and 
 orphans of deceased policy-holders, far beyond the tax levied on any other species 
 of property in the community." 
 
 The third item of most importance is the tax on surplus, which forms about 
 13 per cent, of the total taxes paid at the present time. This tax is subject to 
 the same criticism as the tax on premiums in that it is both unscientific and 
 unjust, being in fact in the direction of an impairment of the contract obligations 
 of the companies which have agreed to pay a sum certain under conditions 
 which did not presuppose the subsequent imposition of heavy, taxes. As you 
 know, a company depends for the fulfilment of its obligations, first, upon a normal 
 
15° 
 
 THE NATIONAL CIVIC FEDERATION. 
 
 mortality, second, upon the realization of 4 per cent, interest on its investments. 
 The gradual decline in interest rates has made it necessary for most of the 
 American companies to henceforth calculate their premiums on a 3 per cent, basis, 
 and there has been in consequence an increase in rates during recent years. I 
 doubt if this change in rates would have been necessary if the matter of State 
 taxation had remained the comparatively unimportant item it was even as recent 
 as ten years ago. This point was recognized as early as in 1855, when in an 
 article entitled "Should Life Insurance Companies be Taxed?" the Insurance 
 Monitor (p. 18) said: 
 
 "The principle of insurance on lives supposes the average duration of life 
 to be an ascertained fact, and that a given premium annually invested and com- 
 pounded at a given rate of interest will produce the amount called for by the 
 policy." 
 
 "Whatever, therefore, disturbs the rate of accumulation must affect the result, 
 and a company whose engagements require $100,000 to be annually invested at 
 6 per cent., will at the end of thirty-one years (the average duration of policies) 
 show a deficiency of $1,000,000, in case its accumulations be taxed i per cent. 
 Taxation is therefore fatal to the business of life insurance in this State." 
 
 The fourth item in direct taxation is now happily a matter of history only, 
 that is, the Internal Revenue Tax on new insurance contracts, imposed under 
 the War Revenue Act of 1898. Under this law ordinary insurance contracts were 
 charged a stamp tax of 80 cents per $1,000 of insurance, while industrial contracts 
 were charged 40 per cent, of the first weekly premium. This tax formed 21 
 per cent, of the total taxes paid by our company during the year 1899, and in 
 the aggregate amounted to almost $100,000. 
 
 A more unscientific and inequitable as well as unnecessary tax was never 
 devised than this additional burden upon an interest already taxed beyond the 
 point of sufferance. It was imposed upon the companies under the enormous 
 stress of war conditions, but even under conditions of peace the Senate sub- 
 mitted to its repeal only in conference committee. Those who are interested in 
 the subject and who may wish to trace the error which underlies nearly all the 
 insurance taxation in this country, namely, complete ignorance of the nature 
 of the business and the effect of taxes upon vested rights and obligations, should 
 read the debates of Congress on the Reduction of the War Revenue Tax, 
 February 6, 1901, Cong. Rcc., Vol. xxxiv., No. 47, p. 2194 et seq. 
 
 We now come to taxes upon the companies which are in the nature of 
 expenses for State supervision and license fees. I have called these expenses 
 taxes, since as a matter of fact they are a tax upon the interests of life insurance 
 companies, but opinions may differ as to whether these items should properly 
 be considered taxes in the true sense of the word. For State supervision and 
 license fees the Prudential Company paid about 8 per cent, of all its taxes during 
 the year 1899, or in round figures, $34,000. The direct burden of this tax is less 
 than the indirect burden, since in consequence of this system of State super- 
 vision the general expense account of the companies has been materially increased 
 on account of increased clerical expense for the compilation of data not required 
 for office purposes and of practically no value or interest to the general public. 
 Few State Commissioners remain long enough in office to gain personal experi- 
 ence to be of value to the insuring public, while rarely have the Commissioners 
 the advantage of trained actuarial advice. Hence the cost of State supervision 
 and the implied office expense is in itself an item of considerable magnitude 
 imposed upon the companies in addition to the taxes already referred to. 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 51 
 
 Let me illustrate this point in a little more detail. In the State of New 
 Jersey life insurance companies pay first a tax of 0.35 per cent, on their total 
 premium income and in addition a tax of i per cent, on surplus. Now in States 
 which collect a local tax on premiums collected within the State an additional 
 tax of from i to 3 per cent, may be collected, as, for instance, in the case of 
 Kentucky, where the local State tax is 2 per cent, on premiums collected within 
 the State. Thus the same premium income, already taxed once in New Jersey, 
 is made subject to a second tax in the State of Kentucky, but in addition there 
 is in force in that particular State a law under which the city of Louisville 
 collects a further tax from life insurance companies equal to two and one-half 
 per cent, of the premiums on business collected in the city, imposing thus a 
 third tax upon the same item of premium income. But this is not all, there has 
 been paid in addition fees for State supervision, valuation, filing of certificates, 
 etc., and license fees for agents, all of which, of course, must come out of the 
 premium income derived from local business and all of which will be charged 
 against the business transacted in the State of Kentucky as an expense. Even 
 this is not all. After all the various charges have been met and have been 
 deducted from the premiums received there would be an additional tax on the 
 remainder, if invested in local real estate, and under the recently repealed War 
 Revenue Act there would have been an Internal Revenue tax of $0.80 per $1,000 
 of new insurance. Thus we have it that in this State on a premium of say. $32.68 
 at age forty for a whole life policy of $1,000 the company would have to pay, 
 first, 0.80 as the Internal Revenue tax; second, o.ii as a local State tax in New 
 Jersey; third. 0.65 as a local State tax in Kentucky; fourth, 0.82 as local 
 municipal tax in Louisville. Ky., a total of 2.38, or equal to y.^ per cent, of the 
 premium paid. 
 
 THE BURDEN OF LIFE INSURANCE TAXATION. 
 
 I have already stated that at the present time the life insurance companies 
 of this country pay annually in excess of six and a half million dollars for taxes, 
 licenses and fees, a vast sum which under normal conditions would go toward a 
 material reduction in the cost of insurance or reduction in premium rates, but 
 which, to the contrary, have been 'increased in consequence of an unwise and 
 imwarrantcd policy on the part of States ever ready to impose additional 
 taxes upon an interest already overtaxed. On the basis of the annual premium 
 income of all the companies in 1899, the taxes paid were equal to 2.22 per cent. 
 If a comparison is made with the year 1890 it appears that there has been a 
 material increase, actual as well as relative in the amount and proportion of 
 taxes paid by the companies. In 1890 the companies paid $1,754,000 in taxes, 
 equal to 1.42 per cent, of the premium income, against $6,500,000 in 1899, equal to 
 2.22 per cent, of the premium income. In other words, the companies in 1899 
 paid $2,338,000 in excess of what they would have paid had the tax rate of 1890 
 prevailed during the year 1899. 
 
 A still more pertinent illustration of the burden of life .insurance taxa- 
 tion is found in a comparison of the sums paid out in taxes, with the sums paid 
 out in dividends to the policy-holders. The term "dividends" in life insurance 
 is misleading, but common usage has so adapted the term to the business that 
 it is now difficult to invent a new one. As a rule, where the term "dividend" is 
 used in life insurance transactions, the reference pertains to a sum of money which 
 has originally been paid as a premium but which subsequent experience proved 
 
152 THE NATIONAL CIVIC FEDERATION. 
 
 not to be required. Such dividends accrue in consequence of a favorable mor- 
 tality experience, of a lower expense rate than was originally assumed necessary, 
 and occasionally in consequence of a higher rate of interest earned than the 
 expected rate. Such dividends then are not profits in the ordinary sense of the 
 word, and this fact was early recognized by Mr. John T. Lewis, Internal Revenue 
 Commissioner, in 1863, who in his report for that year to the Secretary of the 
 Treasury made a strong plea for the repeal of the law taxing the dividends of 
 life insurance companies. How far the taxes paid by life insurance companies 
 affect the dividend-paying ability of the companies is made clear by the fact 
 that to every $100 paid in dividends in 1899 there were $30.70 paid in taxes. In 
 other words, had there been no taxes the decrease in the cost of life insurance 
 would have been increased by more than 30 per cent., and policy-holders receiving 
 $100 in dividends usually applied to a reduction of the premium or for the pur- 
 chase of additional insurance, would have received $130 had there been no tax 
 upon the interests of life insurance companies. 
 
 Briefly summarized, the facts pertaining to the taxation of life insurance 
 companies may be stated as follows : 
 
 Out of every $100 received in premiums in 1899, $2.22 was paid out in 
 taxes. 
 
 To every $100 paid to policy-holders in 1899, $4.10 was paid in taxation or 
 license fees. 
 
 To every $100 paid in death claims in 1899, $6.70 was paid in taxation or 
 license fees. 
 
 To every $100 paid in dividends to policy-holders, largely for the purpose 
 of reducing the cost of insurance, $30.70 was paid in taxation or license fees. 
 
 The percentage of taxation to premium income has increased from $1.42 in 
 1890 to $2.22 in 1899. 
 
 The ratio of taxation to dividends to policy-holders has increased from 15.5. 
 in 1890 to 30.7 in 1899. 
 
 It is clearly indicated by these facts that the burden of taxation weighs 
 indeed most heavily upon life insurance companies in the specific direction of 
 efforts tending by economical management and careful selection to reduce the 
 cost of insurance by dividends to policy-holders. Practically every dollar paid 
 in taxation or license fees would naturally be returned to policy-holders as 
 dividends, mostly used for the purpose of reducing the premiums, and in the 
 experience of the Prudential this would have more than doubled the amounts 
 returned to policy-holders in this manner. 
 
 The increase which has taken place during the last decade in the ratio of 
 taxes to premium income is still more clearly brought out if we compare, or 
 rather contrast, the increase made by the companies in premium income with 
 the increase in the total amount paid in taxation or license fees. During the 
 ten years 1890-99 the premium income of American insurance companies 
 increased 85 per cent., while the amounts paid in taxation or license fees 
 increased at the rate of 188 per cent. In other words, to every i per cent, of gain 
 in premium income or growth of the insurance business, there has been an 
 increase of 2.2 per cent, in taxation, or burdens tending to materially hinder the 
 greatest possible development of life insurance in this country. 
 
 But perhaps the most serious aspect of the tax question is indicated in the 
 direction of tax payments to the interest earnings of the companies. With com- 
 panies established for many years this item is not of quite so much importance 
 as it is to companies recently organized, or which are comparatively new in the 
 
NATIONAL CONFERENCE ON TAXATION. ,53 
 
 business of writing ordinary insurance. While the total income of all the 
 American life insurance companies from interest and rents was $73,500,000, the 
 taxes paid during 1899 were $6,500,000, representing 8.8 per cent. But for the 
 Prudential this percentage of taxes to interest income was much higher and out 
 oi $1,557,000 received in interest and rents $449,000, or 29 per cent., was paid out 
 in taxes or license fees. It has already become necessary for many companies 
 to calculate their premiums on a 3 per cent, basis, and an increase in premium 
 rates has been made necessary because it is at present, and will probably be for 
 many years, impossible to realize the high rates of interest obtainable in the 
 past. 
 
 THE INCIDENCE OF LIFE INSURANCE TAXATION. 
 
 The incidence in general taxation has probably been called "the vexed ques- 
 tion in finance," and in the words of Mr. Mayo Smith: "Who really pays the tax?" 
 The person on whom it is levied, or some other person upon whom the original 
 sufferer can roll off the burden? The answer to this question, with particular 
 reference to life insurance, is that the incidence of life insurance taxation 
 unquestionably falls upon the policy-holder, even though the company, as the 
 representative or trustee of the policy-holders, pays the tax in the first instance. 
 More than once in these remarks I have called attention to the fact that the 
 progress of the business has been hindered and that the cost of life insurance 
 has been materially increased because of a system of taxation which is both 
 faulty in theory and vicious in practice. I cannot do better, however, than 
 incorporate in these remarks a few words from an able article on the subject, 
 which appeared in the Insurance Critic under date of December, 1900: 
 
 "A tax on the company is really a tax on the policy-holders, who form the 
 company, and is paid only by them. This is obvious, if it is considered that a 
 company has no other fund than the proceeds of the premiums paid in by 
 its policy-holders, and as the tax must be paid out of this sole fund the conse- 
 quence is that the cost of the insurance to the policy-holders is correspondingly 
 increased. This may be demonstrated as follows: The premium paid by the 
 policy-holder is based on two things — the assumption of a rate of probable 
 mortality, and the assumption of a probable rate of interest on that part of the 
 premium which is the reserve, or laid aside, for the payment of future losses. 
 To this something is added as a provision for expenses in conducting the 
 business. These things cover the normal cost of the insurance to the policy- 
 holder. If the actual experience as to mortality, rate of interest or expense is 
 more favorable than the assumption, whatever is left is surplus and is returned 
 to the policy-holder as an over-payment, unless insured on the non-participating 
 plan. Any tax paid by the company comes out of that surplus, if there is any. 
 It makes the return to the policy-holder just so much less, and, consequently, 
 makes the cost of his insurance just so much more." 
 
 In a similar manner the A^^c; York Evening Post of December 7, 1900, 
 referred to the fact that the War Tax on life insurance was paid by the policy- 
 holders of the company. 
 
 "Although this tax was nominally paid by the insurance companies, it was 
 in fact paid by the policy-holders. This is an enormous tax on the frugal and 
 provident men who wish to invest their savings in insurance policies for the 
 benefit of their families, when death shall deprive them of husband and father. 
 It operates as a penally on the prudence and thrift which alone wreck this form 
 
154 THE NATIONAL CIVIC FEDERATION. 
 
 of trust investment, and which instead of being taxed with this oppressive burden 
 should be as far as possible fostered and encouraged." 
 
 The same point was brought out in the Congressional debates on the 
 repeal of the War Revenue Act of 1898, when the Chairman of the Committee in 
 charge of the bill said : "Then we go a step further and take the stamp tax off 
 insurance policies. This latter tax is paid almost entirely by the man who 
 receives the insurance. The man zuJio provides for the future of his fainily^ 
 in the event of his death by securing a life insurance or in providing an indemnity 
 for the family in case the home should burn down, was forced to pay this tax." 
 Hence the repeal of a law which in the first instance should never have been 
 placed in the statute book, in plain recognition of the plea for simple justice 
 that those who voluntarily undergo privation and self-denial for the purpose 
 of obtaining economic freedom or otherwise dependent survivors should not be 
 taxed a second or a third time for the ulterior purposes of the State, A tax on 
 life insurance, as thus paid by the policy-holder, is not a tax on their property, 
 but on their losses, and no more justifiable than a tax on a house after it has 
 burned to the ground. To my way of thinking the hope for reform in life 
 insurance taxation lies in the direction of a true appreciation and clear com- 
 prehension of the incidents of the tax and the general recognition that this 
 incidence cannot and is not shifted from the policy-holder upon the shoulders 
 of anyone else more able to bear the burden. 
 
 Hence my urgent plea that this subject of life insurance taxation receive 
 your most serious consideration to the end that the present tendency to increase 
 the already heavy tax burden of the companies be checked and the gradual 
 decrease in the present tax rate be brought about. This plea is based on the 
 fact that the annual taxes now exceeding six and a half million dollars fall 
 with undue severity upon a class of people than whom none are more deserving 
 of the most careful consideration on the part of the State, a class of people 
 who in the large majority of individual cases have undergone an almost incon- 
 ceivable amount of self-denial for the sole purpose that those near and dear 
 who are to after them may live lives free from the taint of State aid or private 
 charity. To tax this class of people, the policy-holders of life insurance com- 
 panies, is, in the words of Charles Sumner, "A tax upon a tax," and in his 
 emphatic language, ''consequently barbarism." "Increased taxation," he said, 
 "comes out of the thousands of policy-holders and not from the companies' 
 officers, as is often ignorantly assumed." 
 
 As I have stated on the outset, it has been my object in addressing to you 
 these remarks to call your attention to a neglected, yet most important, phase of 
 the general problem of taxation of this country. I have refrained from making 
 specific recommendations, being more anxious to have the subject fully considered 
 by competent and disinterested experts in the same manner as expert attention 
 has been given to the inheritance and other special tax features of modern fiscal 
 systems. The field is a most inviting, and I need hardly assure you, a most 
 promising one ; but it is necessary that those who may take up this question 
 should at the same time take into account the general subject of life insurance 
 in its relation to public welfare. To consider the one subject without considering 
 the other would produce results of little value. Complex as the question of life 
 insurance taxation is and equally complex as is the general subject of life 
 insurance finance the task is by no means as difficult and hopeless as appears at 
 first impression, and every contribution toward a more intelligent comprehension 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 ^55 
 
 of the problem and its ultimate solution will be welcomed by those who have the 
 best interests of the policy-holders at their heart. 
 
 The Chairman: This very valuable paper will be published in full in the 
 proceedings, and we will all have an opportunity of reading it carefully. The 
 only remaining paper is one by Senator Rodenback, of New York, on the codifi- 
 cation of tax laws. 
 
 Mr. Rodenback here read the paper referred to, which was received with 
 applause, as follows : 
 
 THE 
 COMPILATION AND CLASSIFICATION 
 
 OF THE 
 
 Tax Laws of the Various States as the Necessary Basis for a Practical 
 
 Uniform Tax Law. 
 By A. J. Rodenback. 
 
 Taxes are contributions for the support of government. No perfect solution 
 for the perplexing problems of taxation has been presented to this Conference 
 The discussions show that there is by no means a uniformity of sentiment upon 
 this most important subject. While we are all pretty much agreed that no 
 property should escape taxation, sorne of us differ very radically as to how 
 equality of taxation should be accomplished. There are those present who would 
 tax mortgages directly and those who would tax them indirectly. 
 
 Some of you claim that a mortgage is a mere chose in action and not taxable 
 property, while others maintain that it is as much property as a piece of real 
 estate and should be taxed accordingly. Those who would tax mortgages indi- 
 rectly on the ground that a direct tax can be shifted and that the borrower in 
 reality pays the tax are met by the reply that it would be just as reasonable to 
 exempt real estate from taxation upon that ground wherever the owner shifts 
 the tax. 
 
 Some argue for the taxation of corporations and the exemption of their 
 stock in the hands of the holders, while others insist that high taxes mean high 
 prices and that by charging higher prices corporations shift the tax upon their 
 patrons. Corporations secure a higher price for their stock by reason of its 
 exemption from taxation and indirectly they are thus compensated for the tax 
 which they pay upon the stock. Where the corporation is taxable upon its capital 
 stock, the taxable value is not always ascertained by reference to the value of the 
 stock, but sometimes by reference to the tangible assets of the corporation, and 
 so it frequently happens that the corporation as well as its stock escapes taxa- 
 tion. 
 
 The chief argument made in this Conference again.st a personal property 
 tax has been the difficulty of reaching this class of property on account of the 
 ease with which it can be concealed, but in reply to this argument it has been 
 said that there is some difficuhy of securing as between tax districts an equitable 
 and fair assessment of real estate. It is claimed that personal property should 
 be exempt from taxation because assessors either do not make an effort to find 
 this class of property or are unable to do so, and that it not fairly assessed, but 
 this argument immediately suggests that some assessors do not assess real prop- 
 erty at its full value as required by law, and that thereby a portion of the real 
 estate escapes taxation. 
 
 Some have argued for the Australian system of taxation, which taxes the 
 land according to its social value, as it is called, and exempts the improvements 
 
156 THE NATIONAL CIVIC FEDERATION. 
 
 thereon. Some have contended for local option in taxation, which would per- 
 mit each political division to determine for itself what property it will tax for 
 local purposes. , 
 
 With such a difference of opinion among us as to how and what property- 
 should be taxed, it is not surprising that we should find such a lack of uni- 
 formity in the tax laws of the different States. This want of uniformity is 
 very striking. It is shown by the difference in the definitions of real and 
 personal property. There is no certain rule with reference to exemptions. 
 Some classes of property are taxable in one State and exempt in another. In 
 some States railroads are assessed by the State government and in others by 
 the Assessors of each tax district. In one State public franchises are treated 
 as real property and in another as personalty. The taxation of State and 
 National banks, the incorporation and annual taxes of business corporations 
 vary with each State. 
 
 But not only is there want of uniformity among the tax laws of the differ- 
 ent States, but there is no consistency in the provisions of State tax laws. 
 Numerous illustrations might be cited of this inconsistency. In New York. 
 State there are three rules with reference to the taxation of public property; 
 one applicable to the city of New York, another to the other municipal corpo- 
 rations of the State, and a third to the wild and forest lands in the Adirondack; 
 preserve. 
 
 A mortgage is taxable for its full value. A stock certificate of a corpora- 
 tion taxable by law upon its capital stock is exempt. The mortgage is taxa-^ 
 ble upon the theory that it is property. A stock certificate is also property^ 
 but it is exempt upon the theory that the corporation pays the tax. There is 
 no consistency in the taxation of franchises. Many other illustrations might 
 be given. 
 
 With such divers views as to what constitutes the best system of taxation 
 and the practical reforms that are necessary, and with such lack of uniformity 
 in the tax laws of the different States and such inconsistencies in the tax 
 laws of the separate States, may we not pause for further study of the subject 
 before recommending any sweeping changes? 
 
 1 suggest that the tax laws of the various States should be investigated/ 
 compiled, classified and reduced to a convenient form so that not only the 
 legal profession, but the people themselves, may learn something of the actual 
 state of affairs. ' Nowhere is there to be found a compilation or summary of 
 the tax laws of the various States. A knowledge of the tax laws should be 
 within the reach of everyone. 
 
 This compilation and classification could be worked out by a national com- 
 mission to be appointed by this Federation, whose duty it should be to inves- 
 tigate, compile and classify the laws, decisions, statistics and literature relat- 
 ing to taxation. If this Conference resulted in nothing more than the appoint- 
 ment of such a commission it will not have been called in vain. 
 
 Without intending to outline all the work that this commission might do^ 
 it might be suggested that it issue semi-annually a publication which would 
 bring down to date the compilation and classification of the tax laws from 
 year to year, and which would contain a review of the tax laws and court 
 decisions upon that subject, a detailed classified summary of each tax law, the 
 text of the most important and distinct tax laws, and a classified summary of 
 books and periodical literature on taxation, including annual reports of State 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 or TH£ 
 
 UNIVERSITY 
 
 157 
 
 Tax Departments and reports of special tax commissions and also compara- 
 tive tax statistics. 
 
 As a further work the commission might endeavor to secure more intel- 
 ligibility and uniformity in State finance statistics. Under present conditions 
 it is impossible in some States to ascertain the exact receipts from each State 
 tax, and in only a few States is it possible to secure statistics as to local taxa- 
 tion. The present reports by State officers are rendered worthless by includ- 
 ing in them receipts from other sources than taxes. This commission would 
 accomplish a great work if it could promote uniformity in State finance stat- 
 istics, and bring about the collection and uniform presentation of statistics of 
 local taxation. 
 
 In conclusion I would say that when the laws, decisions, statistics and lit- 
 erature of the various States upon the subject of taxation have been compiled, 
 classified and summarized so that the information is easily available, we are 
 then prepared, and not until then, to secure greater uniformity, consistency 
 and equality in our tax laws through awakened public sentiment, through 
 which alone all important reforms in taxation must come. 
 
 The Chairman : Gentlemen, a paper has been sent by Mr. Davies, of 
 New York, on the subject of certiorari proceedings for the redress of inequal- 
 ities in taxation, peculiarly adapted to New York procedure, and is, of course, 
 somewhat technical, and if there is no objection it will be received and printed 
 and considered as read. 
 
 Following is Mr. Davies' paper: 
 
 THE REMEDY BY CERTIORARI IN THE STATE OF NEW YORK 
 FOR ILLEGAL, ERRONEOUS OR UNEQUAL ASSESSMENTS. 
 
 By Julien T. Davies. 
 
 The subject of this paper relates only to assessments of real and personal 
 property for local taxation, and does not embrace assessments of real property 
 for local improvements. 
 
 The remedy furnished by the writ of certiorari was adopted in this State 
 "by the Supreme Court early in its history, and was modeled largely, if not 
 entirely, from the writ as administered in England under the common law. 
 The wri>, both in England and in this State, at first only brought into question 
 the jurisdiction of the lower court or tribunal, and did not present to the upper 
 court any question of law or fact upon the merits of the case. In New York 
 State, during the early part of the nineteenth century, the common law writ 
 was the only means of reviewing decisions of Tax Assessors, although by 
 various acts of the Legislature the writ of certiorari was extended or appHed 
 to many proceedings of a criminal or quasi-criminal nature. 
 
 Until about the year 1840 the decisions appear to have been fairly con- 
 sistent in applying the old rule that a certiorari could not review anything but 
 the jurisdiction of the lower court or tribunal; but about this year doubt 
 began to be entertained in the minds of the judges whether questions of law 
 upon the merits might not also be considered by the courts. Accordingly, as 
 time went on, by small degrees a departure was made from the old English 
 rule by some of the judges, although others in turn refused to enlarge the 
 functions of the writ. This conflict became so apparent about the year 1865, 
 
158 THE NATIONAL CIVIC FEDERATION. 
 
 that Morgan, J., in the case of Baldwin against the City of Buffalo, 35 New 
 York, 380, said that the decisions of the courts in relation to the office of a 
 common law certiorari were so conflicting that it was quite impossible to say 
 that any settled rule had ever been established in this State from which the 
 courts had not subsequently departed. The opinion in that case, however, 
 laid it down as established by the decisions of the Court of Appeals, that a 
 writ of certiorari would bring up so much of the evidence as was necessary 
 to present the questions of law upon which the relator relied to avoid the 
 determination of the inferior tribunal. Following this decision, there were a 
 number of cases in the Court of Appeals, which substantially settled the law 
 to be, that the writ would take up questions of law as well as the jurisdiction 
 of the lower tribunal, but that questions of fact could not be considered. 
 
 This continued to be the state of affairs throughout the State (exclusive of 
 the city of New York) until Chapter 269 of the Laws of 1880 was passed, 
 which provided for a certiorari to be issued by the Supreme Court upon the 
 petition of a person assessed, which might allege that the assessment was 
 illegal, or erroneous by reason of over-valuation, or was unequal by reason of 
 the fact that the assessment had been made at a higher proportionate valuation 
 than other real or pergonal property had been assessed on the same assessment 
 roll by the same officers. Section i of this act provided specifically what must 
 be shown in order to obtain the writ and under what conditions it could be 
 granted. This act is preserved at the present day as Section 250 of the Tax 
 Law of 1896 (Chapter 908 of the laws of that year). Under this act assess- 
 ments outside of the city of New York, for both real and personal property, 
 may be reviewed for (i) illegality, including jurisdictional questions, (2) for 
 over- valuation, both as matter of law and as matter of fact, and also (3) for 
 inequality, which may be alleged as a reason for reduction or cancellation of 
 the assessment. 
 
 There is, however, one feature of the proceedings by certiorari under this 
 act of 1880, which, previous to the passage of that statute, was wholly unknown. 
 The writ of certiorari, in its original function, gave essentially merely a right 
 of review. Previous to the act of 1880 the only function of the writ was to 
 give a right of appeal from the inferior tribunal. The act of 1880, however, 
 provides that if, upon the hearing, it shall appear to the court that testimony 
 is necessary for the proper disposition of the matter, the court may take evi- 
 dence, or may appoint a referee to take such evidence as the court may direct, 
 and such testimony shall constitute a part of the proceedings upon ^hich the 
 determination of the court shall be made. The effect of this provision in the statute 
 has been held in the case of People ex rel. Manhattan Railway Company v. 
 Barker, 152 New York, 417, to bring about the result that in cases where the 
 testimony is taken, the writ operates as a venire de novo, and, really, brings 
 about a new trial of the same questions that were submitted to the inferior tri- 
 bunal. Both at common law and under the Code, the return to the writ is 
 conclusive. Not so in the case of the certiorari taken out under the act of 1880. 
 The petition is regarded in the nature of a complaint, and the writ and the 
 return to the writ as an answer. An issue thus being joined, and testimony 
 taken at Special Term, the issues are retried, and the court proceeds to deter- 
 mination anew of the precise questions that had previously been disposed of 
 by the assessing officers. There is still some debatable ground with respect to 
 the right of the relator to insist upon the introduction of testimony at Special 
 Term and upon the hearing. The better view, however, .seems to be that where 
 
NATIONAL CONFERENCE ON TAXATION. 
 
 '59 
 
 there is an issue of fact joined by the petition and the return, and where the 
 cause is not to be disposed of merely on questions of law, the relator has a 
 positive right to insist upon putting in further testimony at the hearing, and 
 to obtain a new trial of the issues of fact. It is obvious that such issues of 
 fact would most generally arise in cases of over-valuation or inequality of val- 
 uation, or non-residence. 
 
 In regard to the city of New York the legislation has not been so simple. 
 In the 'year 1857, by Chapter d-jj of the acts of that year, Section 24, it was 
 provided that in the city of New York a certiorari to review and correct upon 
 the merits any decision or action of the Commissioners of Taxes would be 
 allowed by the Supreme Court or by any judge of that court, directed to the 
 Commissioners upon the petition of the party aggrieved, and should with the 
 return be heard and decision rendered by the court in preference to other 
 matters. Subsequently, in the year 1859, a further revision of the tax laws as 
 regards the city of New York was made, and Section 24 of the act of 1857 was 
 re-enacted as Section 20 of Chapter 302 of the act of 1859. Under this act the 
 evidence was considered by the court and the question of over-valuation was 
 deemed to be taken up by the writ. 
 
 In the year 1882 an act, Chapter 410, was passed to consolidate all existing 
 legislation in regard to the city of New York, and the act of 1859 was re-enacted 
 in such act as Section 821. In 1885 the Legislature, evident fearing that the 
 general tax act of 1880 might be deemed to apply to the city of New York, 
 passed an amendment to Section 821 of the Consolidation Act, by which the 
 writ of certiorari in New York city was confined to questions of illegality and 
 over-valuation, and the Supreme Court was precluded from exercising by this 
 writ the power to review assessments which were unequal, or made at an 
 excessive rate of valuation as compared with that adopted for other property 
 on the same assessment roll. 
 
 This legislation being deemed unjust to the city of New York in granting 
 to the Assessors great powers for oppression and favoritism, a strong effort 
 was made upon the enactment of the Charter for Greater New York to change 
 the rule, and accordingly when that Charter was passed (Laws of 1897, Chap- 
 ter 378) the act of 1880 was closely adhered to, and by Section 906 real estate 
 assessments were allowed to be questioned by writ of certiorari on the ground 
 of inequality, although the right to attack assessments on personal property 
 on this ground was withheld. 
 
 The only statutory difference now existing between the right of a tax- 
 payer to pursue a remedy by certiorari outside of the city of New York and 
 within its limits consists in the rule that in New York city assessments upon 
 personal property may not be questioned by reason of any alleged inequality 
 between the particular assessment complained of and other assessments for 
 personal property upon the same assessment roll, nor can assessments of per- 
 sonal property be contrasted with those of real estate. 
 
 The decisions affecting the writ of certiorari as applicable to cases of ine- 
 quality of assessment have been hardly homogeneous, and it is somewhat diffi- 
 cult to extract from the mass of authorities what is the true rule. In looking 
 the cases over a great distinction is at once apparent between the remedy for 
 inequality in New York city and that for inequality elsewhere. Outside of 
 the greater city the proceeding is governed by the act of 1880, and it has been 
 held in one decision (Matter of Nisbit, 3 Appellate Division, 171) that the petition 
 for the writ need not state in detail wherein the inequality existed, but that it 
 
i6o THE NATIONAL CIVIC FEDERATION. 
 
 might allege that the assessment was unequal in the language of the statute 
 and that the petition was in the nature of a pleading, and conclusions of facts 
 were alone required to be stated and not the facts themselves. 
 
 Somewhat later, in the case of People ex rel. New York Central & Hudson 
 River Railroad Company v. Budlong, 25 Appellate Division, ^7^, it was decided 
 that when relief was sought on the ground that the valuation placed upon 
 the relator's property was higher than that placed on the property of various 
 other persons or corporations in the town, instances of such inequality' should 
 be stated, but in that case it was held that where a petition alleged that the 
 relator's property was assessed at 95 per cent, of its value and all other prop- 
 erty at 50 per cent, of its value, the petition was sufficient without going fur- 
 ther into details and specifying any instances wherein such valuation was 
 adhered to. Later cases outside of New York city, such as People ex rel. Erie 
 Railroad Company v. Webster, 49 Appellate Division, 556, seem to have fol- 
 lowed this rule, and problems such as confront the Assessors and taxpayers in 
 the city of Greater New York are avoided elsewhere. 
 
 In New York city, complications arise in applying the remedy of certiorari 
 to cases of inequality in that the Greater New York Charter, which first per- 
 mitted this remedy, required instances of the inequality to be set forth in the 
 petition. The question immediately arose whether every instance of such ine- 
 quality should be stated or whether one or two were sufficient. 
 
 It was contended by counsel in the case of the People ex rel. People's 
 Trust Company v. Feitner, 51 Appellate Division, 176, that the Charter was 
 not supreme, but it was held that as the Charter was passed in 1897 and the 
 General Tax Law in 1896, the Charter as the later expression of the legislative 
 will should control in every case where the provisions of the two acts were in 
 conflict. In that case also the Charter provision that inequality might only 
 be raised in New York city with respect to real estate assessments was applied, 
 and the relator who sought to review the assessment upon mortgage bonds on 
 the ground that the assessment on such bonds was higher than upon real 
 estate generally was held not entitled to the writ. 
 
 Approaching now more closely the difficulties which it was intimated existed 
 in New York city in applying the remedy as regards inequality, we find that 
 in the case of People ex rel. Bronx Gas Light Company v. Feitner, 43 Appellate 
 Division, ,198, the Appellate Division, First Department, decided that where 
 inequality was sufficiently alleged in the petition for the writ and a sufficient 
 number of instances of it were alleged, the court at Special Term was obliged, 
 upon application of the relator, to either order a reference to take the testi- 
 mony with regard to the allegations of the petition or hear it itself. It was 
 decided that Section 253 of the Tax Law, which provides that testimony may 
 be taken if it was necessary, for the proper disposition of the matter was 
 really not permissive, but mandatory, and that the court had no discretion, 
 but upon due demand by the relator, showing a prima facie case, was compelled 
 to order that testimony be had. In that case, however, the petition was regular 
 and complied with the Charter provisions in stating a number of instances of 
 inequality. It does not appear from the opinion in the case, however, whether 
 all these grounds and facts contained in the petition for the writ were or were 
 not presented before the Commissioners. 
 
 In the later case of People ex rel. Sutphen v. Feitner, 45 Appellate Division, 
 542, the relator owned property on Riverside Drive whose assessment had been 
 largely increased jn the year 1898, and he accordingly applied to the Commis- 
 
NATIONAL CONFERENCE ON TAXATION. ,6i 
 
 sioners for a reduction of the assessment, alleging that the assessment was 
 larger than the assessed value of adjacent property in accordance with the 
 market value of the same. The petition, however, stated no instance of ine- 
 quality, but simply alleged that the assessment upon the relator's property had 
 been raised from what it had been previously, and contained the general aver- 
 ment that it was greater than the property adjacent. The Commissioners 
 re-assessed the property, and upon the further report of the Deputy Assessor 
 ordered the assessment to stand. At the Special Term, when the relator 
 moved for judgment upon the papers the motion was denied. The relator 
 then moved that further testimony be taken to support his allegations. This 
 the court denied on the ground that further testimony was not necessary. 
 The Appellate Division said that although the rule of the Bronx case that 
 Section 253 of the Tax Law must be considered as mandatory and not as per- 
 missive was applicable upon the facts of that case, yet that where no facts were 
 presented before the Commissioners and the petition for the writ contained no 
 allegations of instances of inequality and merely stated general conclusions, 
 the courts should not be burdened with the entire duty of taking evidence upon 
 the issue of inequality, and that it was never intended that the entire burden 
 of reviewing assessments should be placed upon the courts and not upon the 
 Assessors. It was accordingly held that Section 253 of the Tax Law would 
 not be construed as mandatory, except in cases where facts had been presented 
 before the Commissioners and in the petition for the writ. 
 
 Considering this case and the Bronx case together, the true rule seems to 
 be that in cases where the relator desires to have evidence taken by the court 
 or by a referee to be appointed by the court, the court must make such an 
 order where the relator has complied with the Charter requirements and stated 
 instances of inequality, but that where he has neglected to state such instances 
 he will not be assisted by the courts in ordering a reference or taking testi- 
 mony. A still later" case, People ex rel. The Broadway Realty Company v. 
 Feitner, decided by the Appellate Division, First Department, in April, 1901, 
 fully confirms this statement of the rule. This doctrine would seem to put 
 upon a relator the burden of extreme care from the very start of the proceed- 
 ing; but it has been held in a number of cases that at any time the relator 
 may apply to the court to be allowed to amend his petition, and the courts 
 have frequently in the decided cases stated that such amendments are within 
 the discretion of the court and might be allowed at any time before final deter- 
 mination of the issues presented by the writ and return. 
 
 In the recent case decided by Judge Andrews, People ex rel. Marlborough 
 Hotel Company v. Feitner, 33 Miscellaneous, 293, these problems are presented, 
 and it is suggested that it must shortly be decided, whether the Greater New 
 York Charter can be construed to have totally changed the rule laid down by 
 the Court of Appeals as to the remedy furnished a taxpayer by the act of 1880. 
 
 Considering the writ of certiorari, as applied to questions of over-valuation 
 of property by assessing officers, it is only necessary to show in the petition for 
 the writ that the property has been assessed at a sum in excess of an amount 
 at which, under ordinary circumstances, it would sell, and it is not necessary 
 that these very words be used, but any language that is equivalent may be 
 employed. In the case of People ex rel. Broadway Improvement Company v. 
 Barker, 14 Appellate Division, 412, the relator stated that the property was 
 assessed at $210,000 more than its market value, and it was held that this was 
 sufficient compliance with the provisions of the statute, as it was equivalent 
 
1 62 THE NATIONAL CIVIC FEDERATION. 
 
 to stating that the property was assessed $210,000 more than the sum it would 
 bring at a sale. 
 
 Where the assessment is illegal, either from want of jurisdiction of the 
 Assessors or for other causes, the writ of certiorari is the proper remedy, 
 although in cases where there is absolute want of jurisdiction in the Assessors, 
 cither because of non-residence or other cause, a mandamus can also be 
 employed. 
 
 The decisions in the Appellate Division have threshed out these principles 
 quite fully, and the Court of Appeals, in a recent case, has refused to interfere 
 with the discretion of the Appellate Division, in refusing a mandamus, so the 
 law upon this subject can practically be deemed settled. One of the most 
 important of these authorities is the case of People ex rel. Powder Company 
 v. Feitner, 41 Appellate Division, 544, where the corporation had its office in 
 Tarrytown, Westchester County, but was assessed in New York city for the 
 year 1898. On July 18th a petition for a writ of certiorari was presented to the 
 court, and it was alleged that the Assessors had no jurisdiction and that the 
 assessment was illegal. It was objected that certiorari was not the proper rem- 
 edy, but the court held that under Section 250 of the Tax Law the writ could 
 be employed to review assessments void for want of jurisdiction, as well as any 
 other illegal assessments, and when Assessors acted without jurisdiction their 
 action was illegal within the meaning of this section of the Tax Law. 
 
 In People ex rel. Cochran v. Feitner, 44 Appellate Division, 239, the court 
 had a state of facts almost the converse of those considered in the Powder 
 Company case, and it was there held that where an assessment for personalty 
 was made against the executors, administrators and trustees of the estate of 
 H. P. DeGraff, a mandamus could not be employed to strike the assessment 
 off the roll; that the assessment was illegal in form, but that as long as the 
 Assessors had jurisdiction over the property, the writ of certiorari was the 
 only remedy, and that mandamus would not lie. The court, in considering 
 the question, stated that either the Tax Law or the Code certiorari might be 
 employed at the option of the relator, as the assessment was illegal and could 
 have been remedied by the writ at the common law. A somewhat similar ques- 
 tion arose in the case of the People ex rel. New York Central & Hudson River 
 Railroad Company v. Feitner, 55 Appellate Division, 544, where the local Tax 
 Commissioners assessed the relator for real estate and included the tunnel 
 property from Forty-second Street to the city limits. This had already been 
 assessed under the provisions of the Special Franchise Tax Act by the State 
 Board, and under that act local Tax Commissioners were forbidden to tax 
 property that had already been taxed by the State Board. Mandamus proceed- 
 ings having been brought to cancel this assessment, the court refused to remove 
 the assessment from the rolls. It was held that the relator's proper remedy 
 was certiorari and that mandamus would not lie. Upon a mandamus the court 
 had only the right to strike off the entire assessment or permit it to stand, and 
 upon the writ of certiorari correctionary powers were granted to the court as 
 well as the power to strike out the assessment. The court said that the Tax 
 Commissioners had general jurisdiction over the property, and therefore the 
 remedies were not concurrent, and that mandamus could not be used. This 
 case was appealed to the Court of Appeals and is reported in 166 New York, 
 154, where the appeal was dismissed, the court refusing to review the discretion 
 of the Appellate Division in dismissing the writ of mandamus. These cases 
 support the conclusion that mandamus is a proper remedy only in a case of 
 
NATIONAL CONFERENCE ON TAXATION. 163 
 
 total want of jurisdiction on the part of Assessors, and that even then it is a 
 concurrent remedy only, and that certiorari can also be used. Certiorari is, 
 as the court declare, a proper remedy in all cases to review tax assessments. 
 
 Let us now consider somewhat in detail the cases which have regulated 
 the procedure in applying for and obtaining the writ. 
 
 A number of cases have arisen in the last three or four years in this State 
 as to who can apply for a writ of certiorari, and who is entiled to verify the 
 petition, and it has been held that in a proper case the petition for the writ 
 may be verified upon information and belief (People ex rel. West Shore RaiU 
 road Company v. Johnson, 29 Appellate Division, 75), and that a tax agent of 
 a large railroad was quaHfied to sign and verify the petition on behalf of the 
 company (People ex rel. Erie Railroad Company v. Webster, 49 Appellate 
 Division, 556). 
 
 In making application for writs of certiorari it has been decided that the 
 writ must be addressed to the entire Board of Assessors, and not to the indi- 
 vidual members or to a majority of them by name (People ex rel, Benedict v. 
 Roe, 25 Appellate Division, 107). A relator who addressed^ his writ in this 
 fashion was held to have committed an error in practice, and he was directed 
 by the Appellate Division to apply to the Special Term for leave to amend 
 his writ. 
 
 Another interesting point as to parties to the petition arose in the case of 
 the People ex rel. Washington Building Company v. Feitner, which is reported 
 in 30 Miscellaneous, 247, and in the Court of Appeals, 163 New York, 384. In 
 that case twenty-two relators joined in the same petition for a writ, alleging 
 that they had each been assessed too high for their respective pieces of real 
 estate. The parcels of real estate owned by the separate relators were not 
 contiguous, although in the same general neighborhood. It was held that 
 Section 250 of the Tax Law did not contemplate uniting of taxpayers to 
 question assessments unless they complained of the assessments for the same 
 reason and upon the same or identical facts, and the court considered the sit- 
 uations of the various pieces of property and concluded that obviously differ- 
 ent reasons would apply to the assessment of each of the different parcels and 
 therefore superseded the writ. In the Court of Appeals this point was affirmed 
 by a majority of the court, holding substantially that only persons might joint 
 in a petition for a writ whose interests were largely identical, but a strong dis- 
 senting opinion was written, concurred in by Landon, O'Brien and Martin, 
 Justices, who considered that the statute was intended to allow two or more 
 persons to share the expense, where the conditions were substantially alike, 
 and that the remedy should be construed liberally by the courts, to avoid oppres- 
 sion and favoritism. However much we sympathize with the dissenting opin- 
 ion in this case, the law stands that practical identity of interest is necessary 
 for two or more property owners to joint in the same petition for a writ. 
 
 With regard to the time within which the petition for the writ must be 
 filed, more decisions have been rendered than on almost any other part of the 
 practice connected with this remedj'. 
 
 In approaching this question, we find a difference in the authorities between 
 New York State in general and New York city. In New York State gener- 
 ally the Tax Law governs and the writ must be taken out within fifteen days 
 after the filing of the assessment roll with the Town Clerk. Cases have arisen 
 as to when the writ shall be deemed filed and in what cases a relator may be 
 excused from a literal compliance with the statute. In People ex rel. Cornell 
 
1 64 THE NATIONAL CIVIC FEDERATION. 
 
 Steamboat Company v. Hornbeck, 30 Miscellaneous, 212, the relator appeared 
 before the Tax Commissioners on the third Tuesday in August, and they reduced 
 the assessment, completed the tax roll, verified and filed it upon that day, as 
 required by Section 35 of the Tax Law. The statute states that a copy of the 
 roll must be left with one of the Assessors, where it may be seen and examined 
 by any person until the third Tuesday in August, the date on which these Asses- 
 sors took action. The relator did not seek by petition to obtain the writ within 
 fifteen days from the third Tuesday in August, but if the word "until" could 
 be construed as excluding the third Tuesday and requiring the Assessors to 
 keep the writ until the next day — ^Wednesday — the writ would have been in 
 time. It was held, however, that the word "until" meant that that day was 
 to be excluded from the time the Assessors were required to keep the books, 
 and that their action in completing and filing the rolls on that day was per- 
 fectly regular; that they were not required to wait until the next day, and 
 that the relator's writ, not being in time, should be dismissed. In People ex 
 rel. New York Central & Hudson River Railroad Company v. Sheppard, 33 
 Miscellaneous, 453, a motion was made to quash a writ of certiorari on the 
 ground that it had not been taken up within the fifteen days. On August 22d 
 — the last day to file the assessment roll — it was left with the mail at the 
 Town Clerk's oflice. His wife, in his absence, took it in, and as it was wrapped 
 up in a paper the package did not reach the Town Clerk's hands until the 
 24th, when he marked it filed as of that day. The relator's writ was taken out 
 within fifteen days from the 24th, and it was held that it was in time, as the 
 roll was not left originally with the Clerk with the clear and unmistakable 
 purpose of having it filed upon that day, so that the real filing day must be 
 considered to be the 24th. Although the courts have construed this time pro- 
 vision quite strictly, yet in Matter of Stow, 25 Miscellaneous, 580, the relator was 
 held excused for not applying for the writ within the fifteen days, by reason 
 of the fact that no Special Term sat at that time, and the writ applied for and 
 obtained at the earliest Special Term after the rolls were completed was held 
 to have been properly granted. 
 
 In New York city these cases we have considered do not apply, as for- 
 merly under the Consolidation Act and now under the Charter, the assess- 
 ments become final on the first day of May and the petition for the writ may 
 be presented within four months from the time they are final, as authorized 
 by Section 2125, of the Code, or may be taken out within fifteen days from the 
 time the assessment rolls, called "Books of the Annual Record," are filed with 
 the Municipal Assembly on the first day of July. In People ex rel. Bronx Gas 
 Light Company v. Barker, 22 Appellate Division, 161, a certiorari was obtained 
 on June 29th, and it was construed to have been properly obtained, on the 
 ground that the assessment became final on May ist and that after that time 
 the Commissioners could only hear complaints which had been made before 
 May 1st, and that a writ taken out within four months from May ist was 
 perfectly valid. This decision was followed by a number of other cases, and 
 in People ex rel. Brewing Company v. Feitner, 41 Appellate Divison, 496, the 
 rule of the Bronx case was applied, and a petition for a writ presented on 
 November ist was considered too late, not being within the four months men- 
 tioned in Section 2125 of the Code. 
 
 Another requisite to obtain a writ is that, except in a case of want of 
 jurisdiction, it should be stated that proof has been offered before the Tax 
 Commissioners. The cases we have considered upon the question of inequal- 
 
NATIONAL CONFERENCE ON TAXATION. 165 
 
 ity, the Bronx, Gas Light Company case and the Sutphen case, largely decide 
 the questions that have been raised as to this point. In People ex rel. Speir v. 
 The Tax Commissioners, 28 Miscellaneous, 591, the writ was dismissed upon 
 the ground that when the (Consolidation Act took effect a person who desired 
 to obtain a reduction of assessments by certiorari was required to do more 
 than make a statement of claim before the Commissioners that all personal 
 property was exempt. The examination upon oath of the applicant was made 
 necessary by Section 820 of the Consolidation Act, and by Section 36 of the 
 Tax Law, a statement must bd filed with the Assessors, under oath, specifying 
 the respect in which the assessment complained of is incorrect. It seems that 
 in that case the relator had filed a statement showing that his personal prop- 
 erty (excluding all bank shares) which was subject to taxation, did not exceed 
 six thousand dollars. The relator had included in his statement both property 
 of his own and certain property as executor, belonging to an estate which had 
 been willed to the city of New York for a free fountain. It was held that 
 this general statement by the relator to the Commissioner about both his own 
 property and the property represented by the legacy was not sufficient; that 
 a specific claim for the exemption for the property devised to the city should 
 have been made before the Tax Commissioners. 
 
 Not only must a statement be made before the Commissioners, but the 
 relator must himself appear before them to be examined under oath respecting 
 his statements, or appear by an attorney capable of presenting proof as to 
 relator's claim for reduction or vacation of the assessment. In People ex rel. 
 Brown v. O'Rourke, 31 Appellate Division, 583, the relator was assessed as an 
 executor of an estate, and put in an affidavit that the estate, with one excep- 
 tion, consisted of shares of corporations that were already taxed. The Asses- 
 sors were dissatisfied with the affidavit and called upon relator to appear; but 
 he had gone West, and his agent responded to their call, but the agent knew 
 nothing of the facts. It was held that the affidavit could be disregarded by 
 the Assessors, and that their refusal to reduce the assessment was justified, on 
 the ground of non-appearance of the relator. The court, in holding this doc- 
 trine, assumed that the relator would have been entitled to a reduction of his 
 assessments if the facts stated in his affidavit had been true and had been 
 testified to by him in person. 
 
 A curious point that has presented itself in reviewing assessments com- 
 plained of in the city of New York is: Where should the writ of certiorari be 
 made returnable it the person or corporation resides outside of the Borough 
 of Manhattan? This question was considered in the case of The Matter of 
 Tilyou, 57 Appellate Division, loi, and People ex rel. Long Island Railroad 
 Company v. Feitner, 53 Appellate Division, 181, and the rule reducible from 
 those decisions is that in case of a corporation outside of Manhattan Borough 
 the writ should be made returnable in New York County, as final determina- 
 tions in cases of corporations are made by the Commissioners in New York 
 County by the Charter; but that in cases of individuals the writ should be 
 made returnable in the borough in which the taxpayer resides. In cases of 
 individuals the figures are kept in the Borough Tax Offices and the assess- 
 ments made by the deputies in the different boroughs. All assessments in 
 cases of persons and corporations in New York city are considered as made 
 tentatively on the second Monday in January, and up to that time the main 
 tax office has nothing to do with the assessments of individuals, although it has 
 
i66 THE NATIONAL CIVIC FEDERATION. 
 
 with the assessments of corporations. These cases clearly set forth the proper 
 doctrine upon this point. 
 
 The question remains to be considered as to what is the effect of an assess- 
 ment upon non-residents, how the question may be raised, and if the Assessors 
 persist in making such an assessment, are they entitled to collect the tax by 
 using personal remedies? It has always been held that the Tax Assessors have 
 no jurisdiction to impose a tax for personal property upon non-residents, and 
 that their action (if they persist in placing such a tax upon the rolls) is an 
 illegal act which can be remedied by a common law writ of certiorari or by a 
 writ of mandamus, or the non-resident may consider the tax a nullity, and if 
 it should be collected, sue to recover it back. All these propositions are so 
 well settled that they have not been raised among the recent cases. In the 
 case of City of New York v. McLean; 57 Appellate Division, 601, the defendant 
 was a citizen of the Slate of New Jersey, who had never lived in New York, 
 but he owned share of stock in the Standard National Bank, and was assessed 
 in respect to those shares by the Tax Commissioners in New York city. For 
 some reason the bank did not pay the assessment against those shares, and 
 several years after the assessment was levied, action was brought by the City 
 of New York against McLean to recover the amount of the tax. The sole 
 question that arose was as to whether the defendant could be deemed person- 
 ally liable on account of his being a non-resident. It was held, that in so far 
 as a resident was concerned, the Legislature had not only the power to tax 
 their personal property without regard to the domicile, but also had the power 
 to subject such residents to a personal liability with respect to that tax as 
 well as to any other tax. It was held that a foreign corporation, owning stocks 
 in National Banks in New York city, was required to appear before the 
 Assessors, precisely as a resident, if it wished to raise the question that the 
 Assessors had erroneously over-valued stock, but the court stated that it had 
 never been decided in this State that a non-resident individual could be held 
 personally liable for the tax. The court considered with care a number of 
 decisions of the L^nited States Supreme Court bearing upon the question, and 
 adduced the rule that although the State has the power to levy a tax upon 
 personal property of a non-resident, situated within its boundaries and subject 
 to its jurisdiction (and for that purpose could separate the situs of the owner 
 from the actual situs of the property within the State and subject it to taxa- 
 tion because it was within the State), yet it could only enforce payment of the 
 tax by virtue of its jurisdiction over the property and that it had not by virtue 
 of that jurisdicition any power to subject the owner of it to a personal liability 
 for the tax. From this decision Van Brunt and O'Brien, JJ., dissented on the 
 ground that it was against public policy to permit such taxes to be evaded, as 
 they would never be collectable from non-resident if the doctrine of the 
 majority of the court was to prevail; because the certificates of the shares were 
 in a sense negotiable instruments and could easily be transferred to other 
 parties, so that the personal liability alone could be resorted to. 
 
 A curious question might arise in the event that a citizen was assessed in 
 his place of residence for a piece of real estate situated outside of the assessing 
 district. It might be argued that the tax could not be enforced against the citi- 
 zen by personal remedies in the' event that he failed to get the assessment set 
 aside by certiorari. Under the dictum in the case of the City of New York 
 against McLean, 57 Appellate Division, 601, there would seeem to be no ques- 
 tion of the right of the State to collect the tax from the individual taxpayer, 
 
NATIONAL CONFERENCE ON TAXATION. 167 
 
 as it is within the State's power to provide for the collection by personal rem- 
 edy of all taxes assessed against its citizens. As the Assessors of the district 
 where the citizen resided would have no jurisdiction to assess him for the 
 real estate, their acts would be void, and a sale of the real estate under proceed- 
 ings taken to collect the tax would probably not give good title. However, 
 this could hardly arise in practice, as no doubt all Assessors would know the 
 boundaries of their assessing districts, and it would hardly be assumed that 
 they would attempt in the face of the Tax Law to assess a resident of their 
 district for lands which they knew to be outside of their jurisdiction. 
 
 We have thus followed the development of the writ of certiorari through 
 the decisions, and have noticed the important points in the practice that has 
 grown up within recent years upon this comparatively novel form of remedy, 
 for we must remember that it is only since the year 1880 that the writ has 
 assumed such wide functions and been used to correct the ordinary errors 
 made by Tax Assessors. In many instances it would seem as if the Tax Law, 
 outside of New York city, was simpler and more logical, both in its theory 
 and practice, than the modifications of the remedy that the Charter has brought 
 forth ; but it can be safely said on the whole that most of the disputed terri- 
 tory regarding this writ has either been covered or been entered into, and that 
 there are now few pits into which the practitioner need fall, if he has consulted 
 the body of decisions upon this remedy. 
 
 Mr. Seligman : Mr. Chairman, I should like to move in this connection 
 that the Conference authorize the Committee on Publication or the Executive 
 Committee which is to be appointed, to include in the report of the proceed- 
 ings all papers, including that of Mr. Davies, and others who are unable to 
 present them in person, so that the finished volume will include all papers. 
 
 The Chairman: If the gentlemen will remember, there has been a sten- 
 ographic report made of the proceedings so that your remarks made at the 
 session will also be included in the report of the proceedings, and gentlemen 
 who have read papers will remember to hand them in corrected to the Secretary. 
 
 The next business will be the consideration of the report of the Committee. 
 
 Mr. Wright: Mr. Chairman, there has been great fairness in the expres- 
 sion of opinion here, and I am sure that everyone is satisfied along certain 
 lines. I feel certain that the greatest good can come from this Conference by a 
 unanimous expression along the lines we can all agree upon. I therefore, in 
 that view, mov that the report of the Committee be accepted and adopted, and 
 its recommendations, including the resolutions, be adopted except as to the 
 last resolution relating to the separation of State and county taxes and local 
 option, and that that be referred back to the Executive Committee for further 
 consideration. 
 
 Mr. Taylor: I second the motion. 
 
 A Member: I suggest that there be a division of the question. 
 
 The Chairman: The question the Chair will entertain and consider is 
 that all the report be adopted except that part relating to local option. That 
 we will take up later. 
 
 Mr. Niles, of Maryland : Mr. Chairman, if there is a difference of opinion 
 here it does not seem to me quite fair to the other members of the Conference 
 that we vote upon it now. As we look around on the deserted seats and see 
 only Indiana practically in evidence, and know that those gentlemen from 
 Indiana are really office-holders, and enforcers of their own law to a large 
 extent, it seems hardly right— and I do not say it in any spirit except of good 
 
1 68 THE NATIONAL CIVIC FEDERATION. 
 
 humor — it seems hardly right, if there is any difference of opinion, to vote on 
 such a subject now. In deference to the absent members I would move that 
 the matter be postponed. 
 
 The Chairman : This is the last session of the Conference. ' 
 
 Mr. Niles : I thought we were to continue to-morrow. 
 
 The Chairman: No; notice was given this morning that we would try 
 and finish the business this afternoon. Gentlemen had full notice that the 
 business was to be completed. 
 
 Mr. Garfield: I think the motion made by Mr. Wright, of Michigan, is 
 the one that should prevail, and while many of us would be glad to have the 
 second resolution adopted, we are not here in full numbers at present, and any 
 expression at this time ought to be practically the unanimous expression of this 
 Conference. As there is serious opposition, or, at least, as there is opposition 
 to the second clause of those resolutions, I think we should unanimously agree 
 on the first and also upon the second proposition, namely, that the second reso- 
 lution should be re-referred to the Committee. 
 
 The Chairman : The question is on the motion of Mr. Wright for the 
 adoption of the report with that exception. That will come up later. 
 
 Mr. Howard: Mr. Chairman, I would like to say that I do not think the 
 resolution is in opposition to anything Indiana contends for here. 
 
 The Chairman : The local option matter will come up later. 
 
 The Chairman put the question on Mr. Wright's motion and the same 
 was unanimously carried. 
 
 The Chairman : This leaves before the house the clause of the report 
 relating to the separation of State and local revenues. 
 
 Mr. Howard: Mr. Chairman, I call for the reading of that clause, and I 
 think it will satisfy this Conference that it should be adopted as drawn. 
 
 The resolution referred to was read by the Chairman of the Committee. 
 
 Mr. Taylor: Mr. Chairman, by the adoption of this motion that resolu- 
 tion has been referred back to the Committee. 
 
 The Chairman : No, the gentleman is mistaken. That part of the report 
 was left open for action and is now before the house. 
 
 Mr. Taylor: I would like to have an explanation of what this resolution 
 means. 
 
 Mr. Seligman : It simply means that the State should be empowered to 
 select sources of revenue for its purposes, which sources might be different 
 from those of the local bodies. For instance, it means that if a State decided 
 to draw its entire revenues from corporation taxes, from inheritance taxes and 
 sources of that kind, it might be desirable to relegate the general property tax 
 to the localities. It also means, as far as local option is concerned, practically 
 the proposition that was hinted at in the paper this morning, that even though 
 we retain — as, of course, many States for a long time will retain — the system 
 of general property tax, each locality should be empowered to relieve from 
 purposes of taxation such property as the particular local bqdy might desire. 
 In other words it would mean that the State tax would still be assessed, as at 
 present, upon all the local divisions, but insead of being assessed upon all the 
 property in the local divisions, it would be assessed only upon the property in 
 each local division that the local division desires to have taxed. It means that 
 each separate locality would be given a wider choice of option than it now 
 possesses. 
 
NATIONAL CONFERENCE ON TAXATION. 169 
 
 Mr. Wright : The purpose of my motion to refer back, as I stated, was, 
 that what we should adopt might go out as the unanimous conclusion of this 
 Conference. There are reasons for opposing the adoption of this at this time, 
 and I think it should not be acted upon at present. 
 
 The Chairma.v: The Chair understand Mr. Wright as moving that the 
 resolution be referred to the Executive Committee to be hereafter appointed, 
 for further investigation. 
 
 Mr. Godard: I second the motion that it be referred to the Committee 
 for further investigation. 
 
 Mr. Seligman : I should like to say, Mr. Chairman, that the Committee 
 is perfectly prepared to accept that solution of the problem, because after all 
 the most important thing is, that whatever we adopt should be adopted unani- 
 mously. Neither the Committee nor any member of the Committee desires to 
 force anything down the throats of any State or organization. We want to 
 present a united front. 
 
 The Chairman put the question upon Mr. Wright's motion, and the same 
 was duly carried. 
 
 Mr. Wright: Mr. Chairman, the harmony of this Convention has been a 
 notable feature, and it is due, not only to the spirit of fairness of those on 
 the floor, but very largely to the able and impartial manner in which this 
 Conference has been conducted b> its officers. I desire to move that this Con- 
 ference extends its thanks to its officers for their able and eminently fair con- 
 duct, and to include in that motion a vote of thanks to the press of the city 
 for their very full report. 
 
 Mr. Gouard: I desire most heartily to second that motion of Mr, Wright, 
 iind that this Conference should extend its thanks to the officers, and particu- 
 larly to Mr. Easley, through whose untiring efforts this Conference has been 
 made the success it has. 
 
 Mr. Wright: I wish to add to that motion a vote of thank to the Historical 
 Society for the use of this hall. 
 
 Mr. Wright put the question upon his own motion and by a rising vote 
 the same was unanimously carried, 
 
 Mr. Taylor: Mr. Chairman, before adjourning I take it that this Conference 
 in some form will have another meeting. I take it that one of the necessities for 
 the accomplishment of the work of this Conference is education, and I do not 
 know of any better method or means to extend the work of investigation than to 
 have this Conference meet in the State of Indiana at its next meeting, and meet in 
 the city of Indianapolis. Without any conference with my colleagues, but know- 
 ing the hospitable spirit of the people of the State of Indiana, and knowing the 
 practical workings of the very best tax law as I believe, that has ever been upon 
 any statute book in Christendom, I know it will be to the advantage of reform 
 in taxation for this Conference, enlarged in membership, to come to Indianapolis 
 next year. On behalf of the delegates from Indiana we invite this Conference 
 to come to the city of Indianapolis next year for its meeting. 
 
 The Chairman : Allow me to say, gentlemen, before putting a motion to 
 adjourn, that I have appreciated very highly the honor of presiding over such a 
 distinguished and representative body of American citizens, assembled to assist 
 in solving such a tremendous problem as is before our people. I want to con- 
 gratulate you, not only on the ability that has characterized the discussion, but on 
 the' candor and the spirit of fairness that has prevailed. I deem myself fortunate 
 
I70 THE NATIONAL CIVIC FEDERATION. 
 
 to have had the opportunity of making these pleasant associations, and trusting 
 that we may meet from time to time hereafter, I now declare the Conference 
 adjourned. 
 
 The Conference then adjourned, subject to call of Exective Committee, 
 
 THE EXCESSIVE TAXATION OF INSURANCE COMPANIES. 
 
 Contributed by Greville E. Fryer, Treasurer of the Insurance Company of 
 
 North America, Philadelphia, Pa., and Included in Proceedings 
 
 by Vote of Conference. 
 
 Measures are frequently passed by Legislative assembhes which would never 
 have become law had their tendency been realized by the majority affected by 
 them, especially measures to increase rather than to reduce the taxation of 
 incorporated companies. 
 
 One's natural inclination is to look upon such a measure as not in the 
 least concerning one's self, unless directly connected with such a company — in 
 fact, most men would say, "a very good thing to do; presumably the State 
 requires the money; railroads, express, telegraph, and insurance companies are 
 wealthy ; they declare good dividends, let them be taxed ; it will not affect me." 
 Thus the question is lightly passed over, the measure is adopted and becomes law, 
 and its disastrous results are unforeseen until gradually the consequences become 
 painfully experienced. 
 
 As a matter of fact these companies are already heavily taxed, and especially 
 is this the case with insurance companies, a fact of vital import to everyone. We 
 should recollect that merchants' credit depends to a very great extent upon insur- 
 ance; consequently, in order that they may conduct their business satisfactorily, 
 they are compelled to be insured. If, therefore, insurance companies are so 
 heavily taxed already, that an increase of taxation would necessitate an increase 
 of premium rates with which to pay that tax, our legislators should hesitate before 
 passing any such law. For that premium will be paid by the merchants, and the 
 merchants will recover it by charging customers an increased price for commo- 
 dities, and thus such a tax will fall ultimately, not upon the companies, but upon 
 the consumer. 
 
 The alternative course for insurance companies would be the assuming of 
 greater risks than experience dictates to be safe, a policy equally disastrous in its 
 effects upon commerce and hence upon consumers. For insurance companies that 
 are not responsible are of but little use to a merchant's credit. 
 
 It is no exaggeration to say that insurance companies are already taxed 
 heavily; besides which, the very method of their taxation is unjust. They are 
 taxed not upon profits but upon receipts. Thus, out of their receipts, taxes, 
 expenses and losses have to be paid ; besides which, an additional tax is charged 
 in some States, formerly upon dividends, but now upon capital stock at market 
 value. 
 
 Let us briefly examine the effect of such a system. There is no need to 
 mention the various companies. We will simply take as an instance one of the 
 largest companies in the State of Pennsylvania, 
 
 During 1900 this company paid $128,400.68 in taxes, being $109,482.38 on its 
 premium receipts and $18,918.30 on its capital stock, the latter in lieu of tax 
 formerly assessed on dividends. The percentage of the whole of this tax would 
 
NATIONAL CONFERENCE ON TAXATION. 17, 
 
 be equal to $35.67 upon every $100 of dividend declared. Such taxation works 
 strangely, too, for had this dividend been one-half what it was, then say, 
 $10,406.25 less tax would have been paid on the capital stock, but then the total 
 tax paid would be equal to a tax on its dividend of $65.55 upon every $100 of 
 dividend declared, and so on ad infinitum. The less the dividend the greater 
 proportion of taxation. 
 
 I have not included, in stating the amount of taxes paid to the various States, 
 the fees collected by the Insurance Departments, which, had I done so, would add 
 at least 10 per cent, to the amount. Nor have I included the tax paid to the 
 United States Government, which would amount to at least 20 per cent. more. 
 This United States tax has now happily been done away with by a recent act, and 
 will cease on the first of July of the current year. 
 
 The European governments levy no such tax, but, on the contrary, foster 
 these interests as much as possible, recognizing how important are the insurance 
 companies to the mercantile and banking interests. 
 
 In Great Britain the tax of a fraction over 2 per cent, is levied upon divi- 
 dends declared, there called an "income tax." 
 
 If additional confirmation were needed, I would state, as an illustration, that 
 the annual statement of a large English steamship company (and all their incor- 
 porated companies are taxed alike), with a capital of $40,000,000, and with a 
 profit for the year of over $1,000,000, shows $22,500 only was paid in taxes to 
 the Government of Great Britain, whereas the insurance company to which I 
 referred, with a capital stock of only $3,000,000, paid in the same year that 
 amount upon its dividends alone, beside $93,500 upon its premium receipts. The 
 insurance company in question, in seventeen years, paid in taxes to the various 
 States the enormous sum of $1,694,000. 
 
 In Great Britain a company would have paid during the same period only 
 $169,000. No tax is paid in Europe when nothing is earned, as the tax is levied 
 upon the actual profits only, and where $10 is collected here, $1 is collected there. 
 Does not the fact that the taxes levied upon insurance companies, annually, in the 
 United States amount at least to 50 per cent, of their profits (often largely in 
 excess of this percentage) conclusively prove that American companies are being 
 legislated out of existence? 
 
 This tax in the various States is about 2 per cent, upon gross premiums of 
 say $160,000,000. This does not include Marine premiums, which amount to many 
 millions more, nor to those of the Life companies. 
 
 Insurance companies have in the past been much too ready to pay taxes 
 levied upon them without a murmur, but that day, I hope, is passing away, and 
 that the subject will be agitated until our legislators recognize the equity of 
 levying taxes upon profits only, as it should be. 
 
 The tax upon gross premiums is wrong in principle, because levied upon a 
 fund the greater part of which must be disbursed by the companies receiving it — 
 a tax upon losses and expenses, for out of this fund these liabilities must 
 be met. 
 
 The average percentage of taxation to net premiums, after paying losses 
 and expenses, for seventeen years from 1884 to 1900, inclusive, was 30.55 per cent. 
 (See Appendix.) 
 
 As is well known, the larger part of the profit nowadays is derived from 
 interest upon investments. This resource is, however, diminishing, for where 
 in former times six, seven, and even eight per cent, could be obtained from such 
 investments, a company is fortunate to-day if it is able to similarly realize 4 per 
 
172 THE NATIONAL CIVIC FEDERATION. 
 
 cent. No argument is needed to show that the whole system of taxation as now 
 levied is based on wrong principles; and, besides, many escape their share of 
 taxation who should justly bear it. 
 
 Then in many States there is a discriminating tax against companies from 
 other States; then these States affected (now twenty-nine in number) pass 
 retaliatory laws, thus taking out of those States that discriminate more money 
 than the States would receive, all at the expense of the companies. In confirma- 
 tion of which I beg to submit the following figures, taken from the books of the 
 insurance company above referred to : 
 
 Taxes on fire and marine business, paid various States 
 
 in twenty-five years ?2,i 1 1,635 
 
 What the taxes would have been had there been no 
 
 discriminating law in Pennsylvania 732,069 
 
 Difference paid to other States in consequence of their 
 
 retaliatory laws $1,379,566 
 
 Taxes on fire and marine business, paid to States with- 
 out reciprocal laws $ 732,069 
 
 Paid State of Pennsylvania taxes on capital stock 520,186 
 
 i 
 
 Total taxes paid to State of Pennsylvania and to 
 
 States without reciprocal laws $1,252,255 
 
 Total taxes paid other States, in consequence of 
 
 reciprocal laws 1,379,566 
 
 Is it not amazing that our Legislators, who should foster and protect an 
 industry so beneficent as insurance, without which many a merchant would be 
 ruined, and many a family left destitute, and without which no business could 
 be carried on, legislate in a manner so antagonistic to all principles of right and 
 justice? 
 
 But all this aside, the overwhelming fact remains that taking the tax condi- 
 tions of the various States collectively, the net average burden imposed on the 
 companies is something appalling. This was impressively demonstrated by a 
 tabular exhibit prepared a few years ago by Mr. Robert Beath, Secretary of the 
 National Board of Fire Underwriters, which showed that the experience of the 
 companies in general, both native and foreign, then operating in the United 
 States, realized an "actual percentage of taxation to net premiums after paying 
 losses and expenses" amounting to 21.49 per cent., while in a number of the 
 States a tax was demanded even where an actual loss was shown by the com- 
 bined experience of the companies ! Several instances were given by Col. Beath 
 in support of this declaration, one of which was Vermont, where a tax of 
 $77,879 was levied on an aggregate business which showed an absolute loss to 
 the companies of $76,715 ! 
 
NATIONAL CONFERENCE ON TAXATION. 17^ 
 
 Similarly, it was shown some years ago by the Committee on Legislation of 
 the National Board, that during 1884, 1887, 1891, and 1892 the companies operating 
 in Ohio paid to that State in taxes the large total of $567,781 upon a total business 
 which showed an actual loss, exclusive of taxes, of $1,111,207! 
 
 Insurance companies need protection, not increase of burdens. 
 
 Many companies of long standing and good repute have recently collapsed, 
 apd more will be compelled to draw upon their reserves, and finally experience 
 similar misfortune unless remedial measures are granted, and United States com- 
 panies will be legislated out of existence if we increase their taxation. 
 
 I suggest that the matter should be frequently and persistently brought 
 before the Legislatures of the diflferent States, presenting facts and figures; let 
 a suitable person be engaged, one if possible already familiar with the situation 
 or capable of acquiring the necessary information, to devote his entire time 
 to the remedying of the evil. 
 
 The Marine and Life companies should unite with the fire companies in this 
 work, and the aid of the daily press and insurance periodicals should be judic- 
 iously solicited. 
 
 I cannot do better than to quote a very great authority on this subject, the 
 late Mr. John A. Finch, of Indianapolis. He says : 
 
 "From my knowledge of the legislation of this country affecting insurance 
 companies and the decisions of our courts upon their contracts, 'the insurance 
 company and its contracts have a place in the statutes and in the courts unknown 
 to any other company and to any other contract ; the company has been the sport 
 of the legislatures and its contracts the football of the courts.' This is true, 
 and it is not to our credit as a people that such a saying can be true. 
 
 "The statutes of all the States affecting insurance companies are largely for 
 'revenue only.* No other business is taxed as is the insurance business, and 
 of no other tax can so little be said in its favor and so much in condemnation. 
 A tax on an insurance premium has been called a 'tax on a tax.* Insurance 
 on property is as essential to the business world as are houses in which business 
 may be transacted. The stockholders of the insurance companies are not in the 
 business from philanthropic motives. They seek a profit as do stockholders in 
 other corporations. In so far as they can forecast probabilities of losses, the 
 officers are masters of the situation. They must collect a premium sufficient to 
 pay losses and agency and management expenses, and, in addition, whatever 
 taxes are imposed. The tax is a part of the cost — not a diminution of the 
 profit. As a tax on the profit of the company, the assessment is far beyond any 
 rate ever considered allowable on profits of any other business or on any kind of 
 property. Taking an average year, the percentage of taxes to net premiums ranges 
 from thirteen and a fraction in New York to thirty-four and a fraction in 
 Tennessee. 
 
 "The taxation of insurance companies as at present imposed has nothing in 
 its favor as a protection to the policy-holder; its only justification is the resulting 
 revenue. No legislature would ever impose such a rate on any other business, and 
 it may be fairly assumed that in fixing the tax on premium receipts it was never 
 supposed that the rate was equal to an average of twenty-five per cent. of. the 
 profits. 
 
 "The tax is generally on the basis of premium received, without regard to 
 losses and expenses, and is as unjust as it is excessive. 
 
174 THE NATIONAL CIVIC FEDERATION. 
 
 "If the same rule should be applied to any other business, the outcry would 
 be universal. If a merchant should be required to pay a tax of 2 per cent, on 
 his sales, or a railroad company a tax of a like amount on its gross receipts, 
 there would come a remonstrance compared to which the objection to the tax 
 on tea, which incited our fathers to revolution, would be as a zephyr to a 
 simoon." 
 
 Therefore, with these simple and undeniable facts before us, we should 
 all earnestly urge upon our representatives to consider well whether a reduction 
 rather an increase of taxation on corporations would not be of more benefit to 
 the community at large and conductive to the general welfare of the Common- 
 wealth. 
 
 Philadelphia, Pa., June 15, 1901. 
 
 THE VALUATION OF FRANCHISES. 
 
 By Henry C. Adams, 
 
 Professor of Political Science, University of Michigan, and Special Expert on 
 
 Franchise V^aluations for Michigan Tax Commission. 
 
 In approaching the question of the valuation of franchises for the purpose 
 of taxation one is impressed at the outset with the fact that there exists no 
 accepted or uniform definition of the word franchise. The history of the word 
 is of slight assistance because it has changed its interpretation with every change 
 of industrial organization. Without undertaking a classification of these various 
 definitions, which an exhaustive consideration of the subject would render neces- 
 sary, I venture the statement that the essential element in all franchises under 
 modern industrial conditions is the value which inheres in a business in excess 
 of the value of its tangible property on the one hand, and of so much of its 
 success as is traceable to the peculiar talent with which the business is directed, on 
 the other. This means that the commercial value of an industry is traceable to 
 one of three sources. First, the cost of the physical plant; second, the skill 
 of the present management ; and, third, the organization of the industry and its 
 relation to consumers and competitors. It is this third element that must be 
 considered when one undertakes the valuation of a business franchise. 
 
 Assuming, for the purpose of discussion, that you agree with the above 
 delineation, — How may franchise value be determined ? The laws of the various 
 States are no guide in answering this question, for they seem to have been 
 drawn without adequate appreciation of either the nature of the thing to be 
 assessed, or of the administrative necessity of a clearly expressed statutory 
 rule for the guidance of the Assessor. It will meet the demands of the present 
 occasion if we consider the relative merits of two familiar methods. 
 
 The first of the methods assumes that the business to be valued is organized 
 as a corporation or as a joint stock association, and accepts the market value of 
 shares, stocks or bonds as the true measure of the value of the entire property. 
 Deducting from this amount the value of the physical plant, and making allowance 
 for exceptional talent in administration, it finds in the remainder the value of 
 the franchise. The second of the two methods of appraisal assets that assured 
 earnings are the only true basis of valuation. 
 
 There are three reasons, as it appears to me, why the valuation of corporate 
 property according to the market value of its stocks and bonds fails to meet the 
 requirements of a valid assessment. 
 
NATIONAL CONFERENCE ON TAXATION. 175 
 
 First. In the first place, it must be recognized that the market value of 
 stocks and bonds is influenced by considerations quite independent of the earning 
 capacity of a property, and, to the extent that this is true, a tax on the basis 
 of such valuation would fail to conform to the generally accepted rule of equity 
 in assessment. The value of a particular series of stocks, for example, is fre- 
 quently influenced by the desire of the promoter of a new organization to gain 
 control of the property which they represent, in which case the price he is willing 
 to bid is influenced more by his estimate of the ultimate advantage to be gained 
 from the contemplated organization than by the earning capacity of the particular 
 property purchased. The seller, on the other hand, demands whatever he thinks 
 he can get. His reasoning is no longer that of an investor but of a strategist. 
 He is in a position to block the organization and values his property accordingly. 
 This fact is so familiar as to require no illustration. The market quotation 
 of stocks and bonds also is frequently influenced by speculation even more than 
 by considerations of investment. How, for example, could one arrive at the 
 industrial worth of the Burlington, the Northern Pacific, the Great Northern, or 
 the Union Pacific by considering the market quotations of the securities of these 
 properties during the last three months? It is evident that the stock quotations 
 of securities do not, and from the nature of the influence to which they are 
 exposed, can not be accepted as a test of the commercial worth of the properties 
 which such securities represent. Were corporations to be taxed on the basis 
 of assessment determined by the market value of stocks and bonds, it is likely 
 that those which are industrially weak, but strategically strong, would pay 
 relatively more in taxes than those which are industrially strong but strategically 
 weak. 
 
 The tax ought not in equity to be assessed to corporations on the basis of 
 the market quotations. It is the investor's valuation and not the valuation of the 
 promoter or the speculator which should be accepted by the Assessor as a guide 
 in the valuation of corporate franchises. 
 
 Second. The second reason why market value of stocks and bonds cannot be 
 accepted as a safe basis of appraisal rests upon the claim that the franchise 
 value of a business is not a simple or homogeneous fact. Its analysis shows 
 it to be made up of several elements, each of which, in equity, may be imposed 
 with a different rate of taxation. This suggestion opens up a broad field of specu- 
 lation which we can now enter, but I desire to make clear the meaning of this 
 theoretical criticism, and shall try to do so by a simple illustration. The Presi- 
 dent of the American Steel Company in his testimony recently given before the 
 Industrial Commission, explained the basis of the company's capitalization. 
 The capital of the new company, it will be remembered, exceeds the aggregate 
 capital of the companies organized by many millions of dollars, and this increase 
 in capitalization was defended on the ground that the new company controlled not 
 only the process of manufacture but the source of material to be manufactured ; 
 that this control covered 80 per cent, of the visible supply, and that, in the 
 case of ore, this visible supply, at the estimated rate of consumption, would last 
 for sixty years. All this, he claimed, was a sound asset to the company and 
 should be represented by its capital. 
 
 Admitting for the moment the accuracy of this presentation, and there is 
 no reason to believe that it fails to represent truly the situation, it is evident 
 that the value of so much of the capital of this organization as represents its beds 
 of iron and of coal depends upon the fact that the organization has monopolized 
 the situation. Ordinarily an iron mine which cannot be used for sixty years 
 
176 THE NATIONAL CIVIC FEDERATION. 
 
 would have little present value, but this steel company, it v^^ill be observed, 
 regards this future output as having a present worth. It has placed upon the 
 market a security which cannot be supported by sale of product for sixty years, 
 and the only means by which it can tloat such a security is to charge a price for 
 the current output adequate to pay a dividend upon a property which represents 
 a process of manufacture that from the nature of the case cannot be performed 
 for two generations. 
 
 It seems to me evident that the ability of this organization to float these 
 excess securities is due to its monopoly and not to its assets, and the point I wish 
 to make is that such a form of property ought to pay a higher rate of taxation 
 than property which represents a current process of industry under conditions 
 which guarantee a fair price for service rendered. If, now, the franchise of such 
 a corporation is determined by the market value of stocks and bonds, the 
 Assessor is not able to distinguish between these two classes of value, and the 
 Legislature is not able to assign a higher rate of taxation upon the present 
 worth of capital to a future product than it assigns to the present worth of the 
 current product. I cannot escape the conclusion that, in so far as the commercial 
 success of the so-called industrials depends upon their ability to control the price 
 to the consumer, the franchise value thus created should be made the basis of 
 special taxation, and this cannot be done under the rule of valuing a franchise 
 by the market quotations of stocks and bonds. To express this in another way, 
 it seems essential for the realization of that equity which all admit should char- 
 acterize the administration of the taxing system, that the physical element in an 
 industry, by which I mean its machinery and its plant, should be valued 
 separately from the non-physical element, that the non-physical element itself 
 should be analyzed, and a rate of taxation imposed upon it in harmony with its 
 commercial basis and its social significance. Should this suggestion be admitted 
 as sound, there is no escape from the conclusion that the appraisal of franchise 
 valuation on the basis of the market quotations of stocks and bonds fails to 
 conform to the most recent phase of industrial organization. 
 
 Third. It should be noted in the third place that the rule for appraising the 
 franchise value of the corporation under consideration presents great administra- 
 tive difficulties. The best securities are not quoted, they are held as investments 
 and are not bought and sold with sufficient frequency, or in adequate quantities, 
 to establish a current price. In the place of argument I give you a fact. Out 
 of the seventy-five railroads which the Board of State Tax Commissioners of 
 Michigan was called upon to appraise there were but seven respecting which the 
 information was adequate to make an appraisal on the basis of market quotations. 
 It is possible that other States have been more fortunate in the application of 
 this rule, but when one acquaints himself with the great variety of securities 
 that are outstanding in the case of a corporation that has existed for fifty or 
 seventy-five years, and of the great variety of uses to which these securities are 
 put, the difficulties appear to be almost insurmountable. 
 
 Another consideration against the appraisal of franchise value on the basis 
 of market quotations of securities presents itself when we consider the use to 
 which such an appraisal is put. My illustration pertains to railway taxation. 
 In the great majority of cases the tax contributed by railways is divided between 
 the State Government and the minor civil divisions, and the Assessor is obliged 
 not only to discover the aggregate value of a railway for the purpose of taxa- 
 tion, but to assign this value between the several grades of government that 
 participate in the taxes which are paid. It is well known that great railway 
 
NATIONAL CONFERENCE ON TAXATION. 177 
 
 systems have been built up by assimilation or consolidation. The main line 
 is perhaps represented by well-known stocks and bonds outstanding and in the 
 hands of the public, but the securities of assimilated lines are frequently held 
 in the treasury of the parent company as collateral for a portion of the securi- 
 ties which the parent company has issued. It is not necessary to enter upon an 
 extended description of the complex conditions that exist in the matter of 
 railway securities. The fact is one with which all are familiar and the conclusion 
 to which this points seems to be equally apparent. Admitting, for the moment, 
 that the franchise value of a system could be obtained from the market quotations 
 of the live stocks and bonds, the conditions under which these are issued do not 
 permit the localization of this value. One of the essential requisites therefore, 
 of a rule for the valuation of franchises for the purpose of taxation under the 
 system of taxation in many of our States fails to be realized by the appraisal of 
 stocks and bonds at their market value. 
 
 It is easier to criticize an established rule than to frame a new one. I 
 shall venture, however, a few suggestions with this end in view. That which 
 gives value to an industrial organization or to a business is its present 
 earning capacity. The valuation for the purpose of taxation ought to proceed 
 along the same lines as the valuation of the investor. This is a fundamental 
 consideration, and it follows that the income account and not the balance sheet 
 is the account to which the Assessor should address himself for the facts 
 necessary for a conservative appraisal of franchise values. The obligations which 
 a corporation may have issued, the debts which it may have incurred, the capital 
 which it may have spent in the past, whether wisely or foolishly is of no 
 importance, are of less significance in the appraisal of present value than the 
 amount of income which a corporation enjoys from an assured business and the 
 amount of expenditures incident to its operations. 
 
 It must also be recognized that the franchise value is of a value in excess 
 of the value represented by the plant. Its valuation pertains to the intangible 
 and not to the tangible elements of an industry, and any successful rule of 
 appraisal must admit of the separation of these two quite distinct elements of 
 value. Not only is this required by the analysis of an industry, but it becomes 
 imperative if one recognizes that the commercial and social significance of the 
 tangible elements in an industry differ from those of the intangible element and on 
 this account may be differently treated in the levy of taxes. Starting with these 
 two suggestions, that the income account presents the data and that the franchise 
 value differs from ihe value of physical elements, the rule for arriving at the 
 valuation of franchises for the purpose of taxation is not far to seek. It con- 
 sists in the capitalization of what remains out of the income after operating 
 expenses and a normal return upon a just appraisal of the physical capital have 
 been satisfied. I would not be understood as saying that this rule is simple in 
 its application. It relies for its success upon the character of the returns which 
 corporations make to the appraisers, but there is no good reason why corpora- 
 tions cannot be required to make returns of heir business in such a manner as 
 will permit the successful application of the rule. 
 
 As perhaps some of you are aware, the rule thus curiously suggested was 
 adopted by the Board of State Tax Commissioners of Michigan in their recent 
 valuation of railways. The first step in this task was the valuation of the physical 
 elements. This was accomplished on the theory of reproduction and deteriora- 
 tion and has commended itself to all who have studied the steps by which it was 
 accomplished. The physical valuation of each railroad within the State having 
 
178 THE NATIONAL CIVIC FEDERATION. 
 
 been determmed, the second step in this process consisted in a study of the 
 income account of these railways for the ten years preceding the date of appraisal. 
 This seemed necessary in order to obviate the market fluctuations in valuation 
 •which the fluctuation of earnings year after year would occasion. Both the gross 
 and the net income accepted as the basis of computation stood for the average 
 income of a series of years. From this amount there was first deducted 5 per 
 •cent, of the physical valuation, this being accepted as a fair allowance for profit 
 and for taxes. The surplus, in case the earnings of the road showed a surplus 
 over and above the 5 per cent, allowance on physical valuation, was capitalized 
 at 7 per cent. ; and this capitalization was accepted as representing the current 
 value of the intangible elements in the property. 
 
 I do not refer to the difficulties which were experienced in the application 
 of this rule. They were due to the condition of the accounts of the railways and 
 not to the principle involved in the rule. There is one point, however, in closing, 
 to which I should like to call especial attention. Any scheme of valuation for 
 the purpose of taxation must be, to a greater or less degree, arbitrary in its apph- 
 cation. One of the chief merits of the method of valuation here suggested lies 
 in the fact that the arbitrary element is reduced to a single quantity. All 
 depends, of course, upon the rate of interest allowed upon the physical capital 
 and the rate allowed for the capitalization of the final surplus. It is no slight 
 advantage, in the practical process of appraisal, that the only point to be deter- 
 mined by arbitrary adjustment should be the choice of the rate per cent. I would 
 not, of course, urge that there are no theoretical or practical objections to the rule 
 of appraising franchise values for the purpose of taxation on the basis of the 
 -data contained in the income account, but the time placed at my disposal does not 
 permit me to consider these difficulties; and, in closing, I desire merely to 
 express my appreciation of this opportunity of submitting to a body of men 
 gathered together for the serious discussion of local taxation a rule which seems 
 to me to indicate a feasible plan for solving one of the most vexed questions in 
 ,i:he taxation of corporate properties. 
 
APPENDIX. 
 
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DELEGATES APPOINTED TO ATTEND NATIONAL CONFERENCE 
 ON TAXATION AT BUFFALO, MAY 23-24, 1901. 
 
 Appointed by Gov. W. E. Stanley, of Kansas. 
 
 Hon. C. F. Biddle, Coldwater. 
 Hon. F. Dumont Smith, Kinsley. 
 Hon. E. Grosser, Enterprise. 
 Tlon. Frank E. Grimes, State Treas- 
 urer, Topeka. 
 
 Hon. C. F. Hurrell, Holton. 
 
 Hon. George E. Cole, State Auditor, 
 Topeka. 
 
 Hon. A. A. Goddard, Attorney Gen- 
 eral, Topeka. 
 
 Hon. John Francis. Colony, 
 
 Appointed by Gov. George W. Atkinson, of West Virginia. 
 
 Hon. Wm. P. Hubbard, Wheeling. 
 Hon. John H. Holt, Huntington. 
 Hon. Henry G. Davis, Elkins. 
 Hon. L. J. Williams, Lewisburg. 
 Hon. Geo. C. Bowyer, Winfield. 
 Hon. T. A. Brown, Elizabeth. 
 Hon. S. B. Elkins, Elkins. 
 D. C. Westenhaver, Esq., Martins- 
 burg. 
 
 Hon. G. W. Atkinson, Charleston. 
 Hon. F. M. Reynolds, Keyser. 
 Hon. P. C. Eastham, Pt. Pleasant. 
 Chas. M. Hart, Esq., Clarksburg. 
 J. L. Caldwell, Esq., Huntington. 
 B. M. Ambler, Esq., Parkersburg. 
 Hon. John K. Thompson, Raymond 
 
 City. 
 Hon. W. L. Dunnington, Weston. 
 
 Appointed by Gov. Wm. 
 
 Hon. Henry K. Boyer, U. S. Mint, 
 Philadelphia. 
 
 Col. John A. Glenn, Aud. General's 
 Department, Harrisburg. 
 
 Hon. W. T. Creasy, House of Rep- 
 resentatives, Harrisburg. 
 
 Hon. James S. Beacon, Greensburg. 
 
 A. Stone, of Pennsylvania. 
 
 Hon. George R. Dixon, House of 
 Representatives, Harrisburg. 
 
 Hon. G. von Phul Jones, House of 
 Representatives, Harrisburg. 
 
 Hon. George J. Hartman, House of 
 Representatives, Harrisburg. 
 
 Frank M. Eastman, Harrisburg. 
 
 Appointed by Gov. M. B. McSweeney, of South Carohna. 
 
 Major Storen, Charlestown. 
 Hon. J. D. Capplemann, Charlestown. 
 Col. W. A. Clark, Columbia. 
 Prof. R. Means Davis, Columbia. 
 Hon. George S. Mower, Newberry. 
 
 Hon. W. L. Mauldin, Greenville. 
 Hon. D. E. Hydrick, Spartanburg. 
 Col. LeRoy Springs, Lancaster. 
 Hon. W. J. Montgomery, Marion. 
 Mr. T. W. Bouchier, Bennettsville. 
 
 Appointed by Gov. William W. Stickney, of Vermont. 
 
 Hon. John L. Barstow, Shelburne. 
 
 Hon. Judson E. Cushman, Burling- 
 ton. 
 
 Prof. Walter E. Howard, Middle- 
 bury. 
 
 Hon. Frederick W. Baldwin, Barton. 
 
 Judge Chas. H. Darling, Bennington. 
 
 Mr. F. N. Whitney, Northfield. 
 
 Hon. Victor I. Spear, Randolph. 
 
 Mr. Chas. H. Davenport, Brattle- 
 boro. 
 
 Mr. Guy B. Horton, A.B., Middle- 
 bury College, Middlebury. 
 
 Mr. Saml. B. Botesford, Vergennes. 
 
 180 
 
APPENDIX, 18 1 
 
 Appointed by Gov. J. C. W. Beckham, of Kentucky. 
 
 Hon. Bennet H. Young, Louisville. Hon. J. Campbell Cantrill, George- 
 
 Hon. J. Proctor Knott, Danville. town. 
 
 Hon. D. A. Yeiser, Paducah. Hon. N. W. Utley, Eddyville. 
 
 Hon. Reuben A. Miller, Owensboro. Mr. W. J. Harahan, Louisville. 
 
 Hon. Charles J. Bronston, Lexington. Mr. Arthur Goebel, Covington. 
 
 Mr. Walker D. Hines, Louisville. 
 
 Appointed by Gov. J. Hoge Tyler, of Virginia. 
 
 Hon. Howard Hathaway, White- Col. A. C. Bowman, Salem. 
 
 stone. Hon. John B. Moon, Charlottesville. 
 
 Hon. J. C. Parker, Franklin. Mr. J. Brad Beverly, The Plains. 
 
 Judge Rogers Gregory, Richmond. Mr. W. H. Aston, Meadow View. 
 
 Mr. E. C. Tredway, Emporia. Dr. J. C. Barker, Buchanan, Bote- 
 Mr. D. W. Spencer, Spencer. tourt Co. 
 
 Appointed by Gov. Alex M. Dockery, of Missouri. 
 
 Hon. F. N. Judson, St. Louis. Judge W. M. Williams, Boonville. 
 
 Hon. C. P. Walbridge, St. Louis. Hon. E. P. Mann, Springfield. 
 
 Hon. Harry Howard, Macon. Hon. R. B. Olivar, Cape Girardeau. 
 
 Hon. E. C. Hall, Plattsburg. Hon. W. H. Kennan. Mexico. 
 
 Hon. R. E. Ball, Kansas City. Hon. E. P. Caruthers, Kennett. 
 
 Appointed by Gov. John F. Hill, of Maine. 
 
 Hon. F. E. Boothby, Portland. Hon. Milton Morrill, St. Albans. 
 
 Hon. Sidney T. Fuller, Kennebunk. Dr. George M. Twitchell, Augusta. 
 
 Hon. Rutillus Alden, Winthrop. Hon Addison E. Herrick, Bethel. 
 
 Hon. Henry Lord, Bangor. Hon. Wainwright Gushing, Fixcroft. 
 
 Obadiah Gardner, Rockland. Hon. Wm. N. Nash, Cherryfield. 
 
 Appointed by Gov. A. H. Longing, of Mississippi. 
 
 Hon. H. M. Street, Meridian. Hon. E. F. Noel, Lexington. 
 
 Col. D. B. Seal, Bay St. Louis. Hon. W. T. Rush, Greenwood. 
 
 Hon. W. M. Cox, Baldwin. Hon L. T. Taylor, Verona. 
 
 Hon. J. A. Clinton, Natchez. Hon. E. H. Woods, Rosedale. 
 
 Hon. R. C. Lee, Madison. Hon. B. C. Adams, Grenada. 
 
 Appointed by Gov. Joseph K. Toole, of Montana. 
 
 C. W. Conger, Dillon. Donald Fowler, Lewiston. 
 
 Nat. McGiffin, Great Falls. Andrew Dunsire, Kalispel. 
 
 Z. H. Daniels, Livingston. Judson A. Ferguson, Helena. 
 
 Josehh Sullivan, Fort Benton. P. B. Gallagher, Great Falls. 
 
 Daniel G. Brown, Butte. James Moore, Townsend. 
 
 Appointed by Gov. William S. Jennings, of Florida. 
 Hon. A. H. D'Alemberte, Collector of Revenue, Pensacola. 
 
l82 
 
 APPENDIX. 
 
 Appointed by Gov. George K. Nash, of Ohio. 
 
 Hon. Chas, Foster, Fostoria. 
 Hon. A. S. Bushnell, Springfield. 
 Hon. M. E. Ingalls, Cincinnati. 
 Col. Myron T. Herrick, Cleveland. 
 Col. W. W. Miller, Erie Co. 
 Mr. J. S. Stickey, Van Wert. 
 Hon. W. D. Guilbert, Columbus. 
 Hon. S. B. Rankin, South Charles- 
 ton. 
 
 Appointed by Gov. Benj. B. 
 George Hall, Ogdensburg. 
 Frederick P. Hall, Jamestown. 
 C. F. Moulton, Cuba. 
 George B. Sloan, Oswego. 
 Lester F. Stearns, Dunkirk. 
 Martin Heermance, Poughkeepsie. 
 Wm. S. Rann, Buffalo. 
 Grant Sard, Albany. 
 Samuel D. Coykendal, Kingston. 
 Samuel B. Clark, lOO Broadway, N. 
 
 Y. City. 
 Gustav H. Schwab, 5 Broadway, N. 
 
 Y. City. 
 Pascal P. Pratt, Buffalo. 
 Adolph J. Rodenbeck, Rochester. 
 George F. Seward, N. Y. City 
 
 (Chamber of Commerce). 
 Jotham P. Allds, Norwich. 
 
 Charlton T. Lewis, 
 
 Appointed by Gov. Robt. M. 
 
 N. S. Glison, Member Wisconsin 
 State Tax Commission, Madison. 
 
 Nils P. Haugen, Member Wisconsin 
 State Tax Commission, Madison. 
 
 George Curtis, Jr., Member Wisco- 
 sin State Tax Commission, Mad- 
 ison. 
 
 Hon. W. T. Lewis, Racine. 
 
 A. S. Dudley, 
 
 Hon. Gilbert H. Stewart, Columbus. 
 Mr. M. E. Thresher, Dayton. 
 Hon. James Rudolph Garfield, Cleve- 
 land. 
 Mr. A. F. Bromhall, Troy. 
 Mr. F. C. Howe, Cleveland. 
 Mr. Robert H. Jeffrey, Columbus. 
 Mr. Theodore M. Bates, Cleveland. 
 Mr. Joseph W. Leman, Cleveland. 
 
 Odell, Jr., of New York. 
 Nevada N. Stranahan, Fulton, 
 flobert H. Whitten, Albany. 
 A. M. Hootman, Tonawanda. 
 W. F. Thummel, New York. 
 Geo. Stehler, Rochester. 
 Geo. B. Rounsevell, Haskell Flats. 
 Lawson Purdy, New York. 
 Jacob Spahn, Rochester. 
 Peter Rapp, Rochester. 
 Frank W. Richardson, Auburn. 
 E. Crosby Kindelberger, New York. 
 A. B. Potter, Syracuse. 
 Edwin R. A. Seligman, N. Y. City. 
 L. Carrol Root, N. Y. City. 
 Mr. Wyhe, New York. 
 L. P. Herzberger, Rochester. 
 Martin F. Murphy, Buffalo. 
 Newell Martin, New York City. 
 N. Y. City, N. Y. 
 
 Lafollette, of Wisconsin. 
 
 Thomas H. Brown, Tax Commis- 
 sioner of Milwaukee. 
 
 Hon. O. H. Ingram, Eau Claire. 
 
 Hon. A. R. Hall, Knapp. ' 
 
 Hon. Jefferson Rewey, Rewey. 
 
 Hon. H. O. Fairchild, Green Bay. 
 
 Chas. AlHs, head of Allis Mfg. Co., 
 Milwaukee. 
 Milwaukee. 
 
 Appointed by Gov. W. J. Sanford, of Alabama. 
 
 Hon. Harvey E. Jones, Montgomery. 
 Hon. W. J. Wood, Florence. 
 Hon. T. L. Sowell, Montgomery. 
 Hon. W. S. White, Sheffield. 
 Hon. John Purifoy, Montgomery. 
 Hon. D. J. Meador, Myrtlewood. 
 
 Judge J. E. Horton, Athens. 
 Hon. J. B. Butler, Opelika. 
 Hon. Frank P. O'Brien, Birming- 
 ham. 
 Judge J. E. Camp, Talladega. 
 Chas. B. Teasby, Montgomery. 
 
 W. J. Wood, Florence. 
 
APPENDIX. 
 
 '83 
 
 Appointed by Gov. Joseph D. Savers, of Texas. 
 Hon. Dudley G. Wooten, Dallas. Hon. D. C. Giddings, Jr., Brenham. 
 
 Hon. O. B. Colquitt, Terrell. 
 Hon. R. E. Prince, Corsicana. 
 Hon. Cone Johnson, Tyler. 
 Hon. Jonathan Lane, La Grange. 
 
 L. W. Lloyd, Esq., Marshall. 
 
 Hon. James. H. Dinsmore, Sulphur 
 
 Springs. 
 •Hon. W. J. Bailey, Fort Worth. 
 
 Presley K. Ewing, Esq., Houston. 
 Appointed by Gov. Richard Yates, of Illinois. 
 
 John W. Bunn, Chicago. 
 
 E. G. Keith, Chicago. 
 
 J. V. Farwell, Chicago. 
 
 T. C. MacMillan, Chicago. 
 
 Col. E. R. Bliss, Chicago. 
 
 Allen R. Foote, Editor Public Policy, 
 
 Chicago. 
 Adolph F. Gartz, Chicago. 
 Lyman B. Ray, Morris. 
 Hon. Chas H. Deere, Moline. 
 Wm. Cannon, Danville. 
 Chas. W. Tooke, Champaign. 
 C. L. V. Mulkey, Metropolis. 
 
 Lewis H. Frazell, Viemia. 
 F. M. Youngblood, Carbondale. 
 C. G. Cloud, McLeansbour. 
 W. K. Murphy, Pinckneyville. 
 John M. Laudson, Cairo. 
 Judge A. G. Olney, Harrisburg. 
 Frank P. Crandon, Evanston. 
 H. H. C Miller, Chicago. 
 Will H. Lyford, Chicago. 
 Frederick W. Upham, Chicago. 
 Robert Mather, Chicago. 
 Prof. G. Tooke, University of Illi- 
 nois. 
 
 Appointed by Gov. Benton McMillan, of Tennessee. 
 Hon. E. C. Reeves, Johnson City. Hon. A. B. Woodard, Fayetteville. 
 
 Hon. Joshua • Caldwell, Knoxville. 
 Hon. John W. Faxon, Chattanooga. 
 Hon. E. Jarvis, Sparta. 
 Hon. W. L. Givens, Dayton. 
 
 Hon. W. C. Collier, Nashville. 
 Hon. C. R. Berry, Franklin. 
 Hon. E. L. Bullock, Jackson. 
 Hon. H. J. Livingston, Brownsville. 
 
 Hon. P. P. Van Vleet, Memphis. 
 Appointed by Gov. James B. Orman, of Colorado. 
 
 Senator H. H. Seldomridge, Colo- 
 rado Springs. 
 
 Hon. Wolfe Londoner, Denver. 
 
 Senator Jas. W . Bucklin, Grand 
 Junction. 
 
 Hon. Andrew Park, Pueblo. 
 
 Senator John A. Rush, Denver, 
 
 Hon. George B. Weir, Holyoke. 
 Hon. Peter Gorman, Denver. 
 Senator W. A. Hill, Fort Morgan. 
 Prof. Walter H. Nichols (Present 
 
 address Columbia University, N. 
 
 v.), Boulder. 
 Dr. Charles S. Elder, Denver. 
 
 Appointed by Gov. 
 
 Hon. Clark Howell, Atlanta. 
 Hon. John D. Little, Columbus. 
 Hon. A. O. Blalock, Fayetteville. 
 Hon. R. T. Fouche, Rome. 
 Hon. P. W. Meldrim, Savannah. 
 Hon. W. F. Eve, Augusta. 
 Hon. Ed. L. Wight, Albany. 
 
 Allen D. Candler, of Georgia. 
 
 Hon. Seaton Grantland, Griffin. 
 Hon. W. B. Burnett, Athens. 
 Hon. J. B. Park, Greensboro. 
 Hon. Roland Ellis, Macon. 
 Hon. W. A. Dodson, Americus. 
 Hon. E. H. George, Madison. 
 Hon. R. A. Freeman, Newnan. 
 
i84 , APPENDIX. 
 
 Appointed by Gov. Chas. H. Dietrich, of Nebraska. 
 
 Hon. G. M. Lamberton, Lincobi. E. A. Cudahy, Omaha. 
 
 Hon. John C. Wharton, Omaha. Wm. A. Paxton, Omaha. 
 
 Hon. Fred Hoye, Omaha. E. M. Pollard, Nehawka. 
 
 Herman Kountze, Omaha. Victor Rosewater, Omaha. 
 
 N. W. Wells, Schuyler. C. H. Gere, Lincoln. 
 
 Appointed by Gov. Winfield T. Durban, of Indiana. 
 
 T. E. Howard, South Bend. W. L. Taylor, Indianapolis. 
 
 John H. Stotsenburg, New Albany. Marion Eaton, Indianapolis. 
 
 A. G. Compton,, Richmond. H. B. Brown, Valparaiso. 
 
 Strafford Maxon, Elkhart. A. H. Koerner, Jasper. 
 
 W. E. Stone, LaFayette. J. D. Oliver, South Bend. 
 
 Union B. Hunt, Indianapolis. John C. Wingate, Wingate. 
 
 Parks M. Martin, Spencer. Lewis B. Howland, Indianapolis. 
 
 Will S. Stewart, Muncie. Lewis Legler, Evansville. 
 
 Eli Marvin, Frankfort. M. V. Walch, Ft. Wayne. 
 
 Geo. Jamison, LaFayette. W. P. Rogers, Bloomington. 
 
 Appointed by Gov. Leslie M. Shaw, of Iowa. 
 
 Hon. John Herriott, Des Moines. Wm. W. Baldwin, Burlington. 
 
 Hon. John Cownie, Des Moines. Rufus L. Chase, Des Moines. 
 
 Hon. Washington I. Babb, Mt. Pleas- Hon. S. T. Meservey, Ft. Dodge. 
 
 ant. Hon. Wm. E. Fuller, West Union. 
 
 Wm. W. Witmer, Des Moines. Hon. James B. Harsh, Creston. 
 
 Appointed by Gov. John W. Smith, of Maryland. 
 
 H. P. Williams, Baltimore. Edw. W. Mealey, Hagerstown. 
 
 Alfred F. Niles, Baltimore, 
 
 Appointed by Gov. Aaron T. Bliss, of Michigan. 
 Edw. J. Wright, Lansing. 
 
 Appointed by Gov. John Hunn, of Delaware. 
 
 Saml. H. Baynard, Wilmington. William Lawton, Wilmington. 
 
 John S. Rossell, Wilmington. 
 
 Appointed by Gov. Foster M. Voorhees, of New Jersey. 
 Henry J. West. Major Carl Lenz. 
 
 Thomas B. Usher. Lewis R. Williams, Trenton. 
 
 Appointed by Gov. W. W. Heard, of Louisiana. 
 William Wirt Howe, New Orleans. 
 
 Appointed by Associated Board of Trade, Boston. 
 John Mason Little, Boston, Mass. Max West, Washington, D. C. 
 
 Victor S. Clark, Washington, D. C. 
 
APPENDIX 
 
 >85 
 
 After adjournment of Conference, Chairman Seligman appointed the follow- 
 ing Executive Committee : 
 
 Edwin R. A. Seligman (Chairman Colum- 
 bia University), New York City. 
 
 John A. McCall (President New York 
 Life Insurance Co.), New York City. 
 
 Charles S. Fairchild (President New 
 York Security and Trust Co.), New 
 York City. 
 
 Lawson Purdy (Secretary New York Tax 
 Reform Association, New York City. 
 
 Charles S. Hamlin (President Massa- 
 chusetts Anti-Double Taxation Lea- 
 gue), Boston, Mass. 
 
 F. W, Taussig (Harvard University), 
 Cambridge, Mass. 
 
 M. E. Ingalls (President the Cleveland, 
 Cincinnati, Chicago & St. Louis Rail- 
 road Co.), Cincinnati, Ohio. 
 
 James R. Garfield (Chairman Ohio Sen- 
 ate Committee on Taxation), Cleve- 
 land, Ohio. 
 
 Henry C. Adams, Ann Arbor, Mich. 
 
 Frederick U. Upham (Board of Tax 
 Review), Chicago, 111. 
 
 T. E. Howard, South Bend, Ind. 
 
 N. P. Gilson (Chairman Wisconsin State 
 Tax Commission), Madison, Wis. 
 
 Wiiliam Wirt Howe (Former President 
 American Bar Association), New Or- 
 leans, La. 
 
 John Francis (Chairman Kansas Tax 
 Commission), Colony, Kans. 
 
 J. W. Bucklin (Chairman Colorado Sen- 
 ate Committee on Taxation), Grand 
 Junction, Colo, 
 
 Ex-Officio. 
 Frederick N. Judson, St. Louis. Mo. Ralpn M. Easley, Chicago, 111. 
 
INDEX. 
 
 PAGE 
 
 Adams, Henry C. — "The Valuation of Franchises" 174 
 
 Appendix 180 
 
 Bates, Theodore M 27, 72 
 
 Bemis, E. W , 133 
 
 Bromhall, A. F 20, 74 
 
 Bucklin, James W. — "The Australasian Tax System in the Antipodes and 
 
 in Colorado in, 128, 129 
 
 Call for Conference i 
 
 Chase, Rufus L 131 
 
 Clark, Samuel B 137, 138 
 
 Crandon, F. P 25 
 
 Creasy, William T. — "A Farmer's View of the Tax System of Pennsyl- 
 vania" 141 
 
 Davies, Julien T. — "The Remedy by Certiorari in the State of New York 
 
 for Illegal, Erroneous or Unequal Assessments" 157 
 
 Diehl, Mayor Conrad 5 
 
 Dudley. A. S 43, 45 
 
 Fairchild, Chas. S. — "Taxation of Banks and Trust Companies" 52 
 
 Foote, Allen Ripley — "Taxation of Public Service Corporations" 55 
 
 Fryer, Greville E. — "The Excessive Taxation of Insurance Companies" 170 
 
 Garfield, James Rudolph — "Listing and Valuation" 11, 16, 139 
 
 Godard, A. A 132 
 
 Grosser, E 28 
 
 Hall, E. C 30 
 
 Heermance, Martin 30 
 
 Hines, Walker D. — "Railroads and Other Public Service Corporations in 
 
 Their Relation to Taxation" '97, 136 
 
 Hoffman, Frederick L. — "The Taxation of Life Insurance Interests" 146 
 
 Howard, Judge T. E. — "The Indiana General Property Tax Law" 29, 43, 84 
 
 Howe, Frederic C. — "Federal Restraints on the Taxation of Public Service 
 
 Corporations" 34 
 
 Hubbard, Wm. P 96 
 
 Judson, Frederick N. — "Taxation of Mortgages" 47, 63, 83 
 
 Mather, Robert 45, 100 
 
 McMillan, Thomas C 130 
 
 Niles, Alfred F 50, 167 
 
 Purdy, Lawson — "Local Option" 26, 27, 123 
 
 Resolutions, Debate on 140, 167 
 
 Rodenbeck, A. J. — "The Compilation and Classification of the Tax Laws 
 of the Various States as the Necessary Basis for a Practical Uni- 
 form Tax Law" 17, 155 
 
 Rossell, John S 51, 75 
 
 Rogers, W. P 75 
 
INDEX. 
 
 PAGE 
 
 Spahn, Jacob 19 
 
 Seligman, Edwin R. A 6, 18, 78, 140, 168 
 
 Seward, George F. — "Taxation in New York" 116 
 
 Sloan, George B 49 
 
 Stotsenbiirg, John H 62 
 
 Taylor, W. L 72, 12S. 134. 169 
 
 Tooke, Charles W. — "The 'New Revenue Law' of Illinois" 89 
 
 West, Max — "The Taxation of the Farmer" 21, 71 
 
 Westenhaver, D. C. — "The Separation of State and Local Revenues" loi 
 
 Wright, Edw, J 135 
 
 Whitten, Robert H. — "The Inheritance Tax'" 79 
 
 Williams, H. P 19, -j-] 
 
 Williams, L. J 27, 28 
 
 Wingate, John C 129 
 
A 
 
 
 Hsi