LIBRARY 
 
 UNIVERSITY OF CALIFORNIA. 
 
 GIFT OF 
 
 Class 
 
LIFE INSURANCE 
 TAXATION 
 
 Address of HON. GEO. CURTIS, JR., 
 
 OF THE 
 
 WISCONSIN TAX COMMISSION 
 
 
 General Public Hearing on Report and Bill 
 of Wisconsin Tax Commission Relating to 
 the Taxation of Life Insurance Companies, 
 in Assembly Chamber, Tuesday Evening, 
 March 21, 1911. 
 
 P790 
 
Life Insurance Taxation. 
 
 ADDRESS OF HON. GEO. CURTIS, JR., A MEMBER OF 
 THE WISCONSIN TAX COMMISSION AT A GENERAL 
 PUBLIC HEARING ON THE REPORT AND BILL OF 
 THE WISCONSIN TAX COMMISSION RELATING TO 
 THE TAXATION OF LIFE INSURANCE COMPANIES, 
 DELIVERED IN THE ASSEMBLY CHAMBER, MADI- 
 SON, WISCONSIN, TUESDAY EVENING, MARCH 21, 
 1911. 
 
 Bill No. 836A 3388. 
 
 Mr. Chairman iind Gentlemen of the Committee 
 and Members of the Legislature: My appearance 
 here tonight on behalf of the Tax Commission is 
 pursuant to a request of the chairman of one of the 
 committees having the bill in charge. 
 
 This subject was considered by the Legislature 
 of 1899, prior to the organization of the Tax Com- 
 mission. At that session, after extended debate, 
 radical changes were made in the law, and thereby 
 the amount of revenue to be paid annually by insur- 
 ance companies was greatly increased over the 
 amount required under the law which had there- 
 tofore been in force, without change, for some twen- 
 ty years. 
 
 1 
 
 224660 
 
The Act of 1899, known as the Orton law (Chap- 
 ter 326), was amended by Chapter 21, Laws of 1901. 
 The chief purpose of such amendment was to re- 
 lieve domestic companies (those organized under 
 Wisconsin laws) from the effect of retaliatory laws 
 in other states without reducing the aggregate rev- 
 enue to accrue from taxation of life companies. 
 
 This legislation, unchanged since 1901, was tak- 
 en to be a legislative declaration of a settled policy 
 to the extent that the Commission deemed it a duty 
 to defer extended study of the subject until some of 
 the many other tax problems requiring considera- 
 tion could be investigated. Progress in all investi- 
 gation work has been materially retarded by the 
 large amount of administrative duties laid upon 
 the Commission. 
 
 The life companies of the state have earnestly 
 protested that the present law, though less onerous 
 than the Act of 1899, is unjustly burdensome. Such 
 protest and a growing doubt of the justice of the 
 present law presumably induced the Legislature of 
 1909 to adopt a joint resolution by which the Com- 
 mission is requested to make an investigation of 
 the subject of life insurance taxation and report 
 thereon. In view of the delay in the completion of 
 the Commission's regular biennial report for 1911, 
 it was deemed advisable to present an outline of 
 the views of the Commission on the subject in a 
 special report in advance of the compilation of the 
 regular report. 
 
 Such special report was presented to the Legis- 
 lature February 10, 1911, and I will read that spe- 
 
 2 
 
cial report, although I believe it has been printed. 
 It is said that a good many legislators have not 
 found time to peruse it, and perhaps its reading 
 at this time will therefore be justified. The special 
 report just mentioned is as follows : 
 
 REPORT OF TAX COMMISSION. 
 
 To the Honorable, the Governor and the Legislature 
 
 of the State of Wisconsin : 
 
 Pursuant to joint resolution No. 49 of the Legis- 
 lature of 1909, the Tax Commission has had under 
 consideration the subject of taxation of life insur- 
 ance companies and has reached conclusions as to 
 the amount of revenue which should be derived 
 from that source and the method which should be 
 employed for its ascertainment and collection. It 
 is expected that a statement of the grounds upon 
 which such conclusions rest will appear in the 
 regular biennial report of the Commission; but it 
 is impracticable to present in this communication 
 more than an outline of the conclusions reached. 
 Such outline follows: 
 
 1. Accumulated assets held by life insurance 
 companies in trust for their policyholders may 
 justly be made a source of revenue to the state. 
 
 2. The assets, other than real estate, from 
 which contributions to such revenue may be re- 
 quired should be limited to such as equitably belong 
 to policyholders resident in the state. 
 
 3. So far as such assets are invested in real 
 estate, the real estate should be taxed in the dis- 
 trict where located under the general tax laws ap- 
 plicable to other real estate. 
 
 4. The residue of such assets, consisting mainly 
 of various forms of credits, and other interest or 
 dividend bearing securities, in view of the purpose 
 for which they are held and the low rate of income 
 produced therefrom, should not be taxed at the 
 rates usually imposed upon property or capital em- 
 
 3 
 
ployed in productive enterprises carried on for the 
 pecuniary profit which may be gained therein. 
 
 5. The amount of tax to be imposed upon or 
 on account of such assets should not be greater than 
 would be produced by a moderate income tax rate. 
 Five per cent of the income from such assets is con- 
 sidered a reasonable and moderate rate. 
 
 6. Such amount could not be imposed as a flat 
 or uniform rate upon premium receipts without pro- 
 ducing great inequality of tax burden as between 
 different companies, premium receipts having no 
 uniform relation to assets held in trust for policy- 
 holders. 
 
 7. In order to reach and tax foreign and domes- 
 tic companies alike the tax should be imposed as 
 an excise or privilege tax. It would be impractic- 
 able and inexpedient to impose the tax directly up- 
 on policyholders resident in the state. 
 
 Five Per Cent Income Tax. 
 
 8. A tax equal to 5 per cent of the income on 
 assets held in trust for Wisconsin policyholders 
 would be a higher tax than is imposed on life com- 
 panies in some of the other states. The imposition 
 of such tax on foreign companies would therefore 
 subject Wisconsin companies doing business in 
 other states to the payment of large amounts to such 
 other states, under the so-called reciprocal or retal- 
 iatory laws of such states, in excess of the amounts 
 which Wisconsin companies would otherwise be 
 obliged to pay in such states. 
 
 9. The amount of such excess which Wisconsin 
 companies would pay in 1911 under retaliatory 
 laws now in force would be about $174,000. 
 
 10. To avoid such effect upon Wisconsin com- 
 panies it would be necessary to reduce the Wiscon- 
 sin taxes upon foreign companies to amounts not 
 greater than would be required of such companies 
 according to the laws of their respective states. 
 
 11. A tax upon domestic and foreign life com- 
 
panies now doing business in Wisconsin equal to 
 5 per cent of their income from assets (other than 
 real estate) equitably belonging to their Wisconsin 
 policy holders would produce an aggregate revenue 
 for 1910 of about f 87,000. Such aggregate would 
 increase with the increase of such assets. 
 
 12. If the companies which have withdrawn 
 from Wisconsin since 1907 should resume business 
 in this state, then the aggregate revenue for 1910 
 from the tax described in the preceding paragraph 
 would be materially larger. 
 
 13. A reduction of the proposed tax on foreign 
 companies as suggested above would reduce the 
 total revenue, estimated in paragraph 11 at $87,000, 
 to about $75,000. 
 
 Provisions in Proposed Bill. 
 
 14. Such reduction if made would be a mere 
 expedient to save Wisconsin companies from puni- 
 tive taxation in other states in amounts aggregating 
 about $174,000, at a loss to the revenue of the state 
 of about $12,000, as indicated above. Such loss 
 to the state could be made up and a large net gain 
 to Wisconsin companies could be secured by grant- 
 ing the suggested reduction to foreign companies 
 and increasing the license fees for Wisconsin com- 
 panies sufficiently to make up the loss. 
 
 15. While it is illogical thus to place Wiscon- 
 sin companies on a less favorable footing than for- 
 eign companies, it seems unavoidable unless the 
 state shall elect to collect less revenue from life 
 companies than it ought to receive according to the 
 foregoing conclusions. 
 
 A legislative bill has been drawn, and is pre- 
 sented herewith, providing for the taxation of life 
 companies upon the plan and at the rate recom- 
 mended above. It provides for the suggested re- 
 ductions in the taxes upon foreign companies. If 
 such reductions are deemed inadvisable the provi- 
 sion therefor can be stricken out. If retained, there 
 
should also be provisions increasing the license fee 
 for Wisconsin companies sufficiently to cover the 
 loss in revenue resulting from reduction in the tax 
 on foreign companies. As such loss would or might 
 vary from year to year with changes in the condi- 
 tions producing it, it is considered better to have 
 the exact loss computed and made good by the Wis- 
 consin companies, each year, than to provide there- 
 for by an inflexible increased license fee rate on 
 Wisconsin companies. The provisions just sug- 
 gested are incorporated in the accompanying bill. 
 They place the work of making the required compu- 
 tations upon the Insurance Commissioner, whose 
 office contains the requisite data. He is given au- 
 thority to call for such further data as may be 
 needful, if any. 
 
 February 9, 1911. 
 
 Respectfully submitted, 
 
 NORMAN S. GILSON, 
 GEORGE CURTIS, JR., 
 NILS P. HAUGEN, 
 
 Commissioners. 
 
 HISTORY OF WISCONSIN LEGISLATION. 
 
 As preliminary to a general discussion of the 
 subject, a brief outline of the legislation in this 
 state imposing taxes upon life companies and some- 
 thing of the results under it will now be presented. 
 
 The first act for the regulation and taxation 
 of domestic life insurance companies in this state 
 was Chapter 158, Laws of 1867, which by its pro- 
 visions included "all companies transacting the 
 business of life insurance in this state at the date 
 of the passage of this act, whether such companies 
 are organized under special charters granted for 
 
that purpose by the state or under the general laws 
 thereof." 
 
 By Section 5 of the act each insurance company 
 so organized was required to pay into the state 
 treasury 1 per cent of its cash receipts for the year 
 preceding the making of its annual report. Section 
 6 provided that such payment should be in lieu of 
 all taxes for any purpose authorized by the laws of 
 the state. 
 
 Chapter 179, Laws of 1867, was an act to regu- 
 late and tax insurance companies not incorporated 
 by the state of Wisconsin. By this act a sum equal 
 to 3 per cent of the gross amount received in the 
 state of Wisconsin for premiums and interest in 
 each year was required to be paid by each company 
 as an annual license fee for the privilege of trans- 
 acting the business of insurance in this state. The 
 act also provided that when application for a license 
 was made by any company that had not previously 
 transacted business within the state the license for 
 the first year should be $500. 
 
 The two acts above mentioned were approved on 
 the same day although Chapter 179 was published 
 four days earlier than Chapter 158. Thus, at prac- 
 tically the same time, the Legislature provided for 
 the regulation and taxation of domestic as well as 
 foreign insurance companies but by two acts in- 
 stead of one. 
 
 The foregoing Laws of 1867 were repealed by 
 Chapter 59, Laws of 1870, so far as they related to 
 life insurance companies or the business of life in- 
 surance. 
 
 7 
 
The Act of 1870 provided for the regulation and 
 taxation of both domestic and foreign life com- 
 panies. 
 
 Section 24 prescribed the following fees to be 
 paid to the Secretary of State: For filing the an- 
 nual statement required in the office of the Secre- 
 tary of State, twenty-five dollars; for each agent's 
 certificate of authority, one dollar ; for every copy 
 of paper filed in the Secretary of State's office, twen- 
 ty-five cents per folio; for affixing the seal of said 
 office to such copy and certifying the same, one dol- 
 lar ; for examining the affairs of any company when 
 deemed necessary, the expense incurred therein. 
 
 Section 27 of said Chapter 59 prohibited life 
 insurance companies from transacting business in 
 the state without first obtaining a license therefor, 
 and further provided that no such license should 
 be issued to any such company until it had filed 
 in the office of the Secretary of State the reports and 
 statements required in such act and made payment 
 to the State Treasurer in addition to the fees above 
 mentioned an annual license fee of |300, and fur- 
 ther that each life insurance company organized in 
 this state under special charter or under general 
 laws should pay 1 per cent on the cash receipts for 
 premiums received by such company in Wisconsin 
 for the year preceding the making of its annual re- 
 port. Such license fees were declared to be in lieu 
 of all taxes except taxes upon real estate. 
 
 It will be observed that the law of 1870 did 
 not require foreign insurance companies to pay li- 
 cense fees on premium receipts, but imposed only 
 
 8 
 
an annual license fee of |300 in addition to the spe- 
 cial charges for filing papers, examinations, etc., 
 imposed upon all companies. The exemption of 
 foreign companies from a tax on premiums was no 
 doubt brought about by the retaliatory laws of New 
 York and two or three other eastern states having 
 insurance companies domiciled in their respective 
 jurisdictions, transacting business in this state. 
 
 While Chapter 158, Laws of 1867, prescribed a 
 license tax of 1 per cent on premium receipts of 
 domestic companies in the state, Chapter 179, Laws 
 of 1867, imposed upon foreign companies trans- 
 acting business here a sum equal to 3 per cent upon 
 the gross amount received in the state of Wiscon- 
 sin from premiums and interest in each year. The 
 taxes thus imposed upon foreign companies was 
 more than three times the amount required from the 
 domestic companies. 
 
 The first retaliatory law enacted in New York 
 was Chapter 694, Laws of 1865, and being in force 
 when Chapter 179, Laws of 1867, was enacted, re- 
 quired Wisconsin companies doing business in New 
 York to pay the same tax in that state that this state 
 imposed upon New York companies. This presum- 
 ably contributed to the repeal of Wisconsin's gross- 
 ly discriminatory tax on foreign companies. 
 
 Chapter 256, Laws of 1878, amended Section 27 
 of Chapter 59, Laws of 1870, by increasing the tax 
 on premium receipts of domestic companies in the 
 state from 1 to 2 per cent. This premium tax of 
 2 per cent remained in force until the passage of 
 
 9 
 
Chapter 326, Laws of 1899, already mentioned as 
 the Orton law. 
 
 Under said Chapter 326 each domestic life in- 
 surance company transacting business within the 
 state was required to pay annually 1 per cent of 
 its gross income from all sources except income 
 from rents of real estate upon which it paid taxes 
 in the same manner as other real estate, and ex- 
 cepting also income from interest on United States 
 bonds. Stated more explicitly, this license fee tax 
 of 1 per cent was to be computed upon the entire 
 premium receipts of the domestic company from all 
 its policy holders wherever resident and upon the 
 income from the entire ledger assets of the company, 
 except rents from real estate and interest on United 
 States bonds. 
 
 By the same act a life insurance company organ- 
 ized without the state of Wisconsin, transacting 
 the business of life insurance within the state, was 
 required to pay an annual license fee of 1 per cent 
 upon all premiums collected and premium notes 
 taken or received by it from residents of this state. 
 In all cases the entire premium paid to the com- 
 pany, whether in cash or in premium notes, was to 
 be deemed income, without any deduction there- 
 from on account of dividends paid or credited to 
 the insured. 
 
 Under this act The Northwestern Mutual Life 
 Insurance Company, the principal domestic com- 
 pany transacting the business of life insurance in 
 the state, paid to the state in taxes the sum of f 186,- 
 396 in 1899 instead of f 33,357, the latter figure 
 
 10 
 
being the amount of the license fee of 2 per cent on 
 premium receipts imposed by the law of 1878. In 
 1900 the tax of 1 per cent on the gross income of 
 this company in 1899 amounted to $241,636. 
 
 This act of 1899 also brought into operation the 
 retaliatory laws of at least four states and in 1900 
 the Northwestern Company paid retaliatory taxes 
 on account of the income of 1899 as follows : 
 
 To New York $25,220.20 
 
 To Illinois 17,694.63 
 
 To Connecticut 3,877.45 
 
 To New Jersey 3,560.51 
 
 Total $50,352.79 
 
 The license fees from life insurance companies 
 of those states transacting business in Wisconsin, 
 paid to this state, for the corresponding period are 
 as follows: 
 
 New York $19,684.51 
 
 Illinois 8.52 
 
 Connecticut 4,144.03 
 
 New Jersey 3,770.88 
 
 Total $27,607.94 
 
 Chapter 21, Laws of 1901, amended Chapter 326, 
 Laws of 1899, so as to require domestic companies 
 to pay an annual license fee of 3 per cent of their 
 gross income from all sources, excepting income 
 from rents of real estate and also excepting pre- 
 miums collected outside the state of Wisconsin on 
 policies held by non-residents of Wisconsin. In 
 ascertaining the amount of premium receipts as the 
 basis for computing such license fee, no deduction 
 
 11 
 
is allowed on account of dividends paid or credited 
 to the insured. 
 
 By the same act foreign companies transacting 
 the business of life insurance in the state are re- 
 quired to pay an annual license fee of f 300, except 
 that whenever the taxes and fees imposed upon a 
 company of another state under the retaliatory 
 laws of this state (Section 1221, Statutes of 1898) 
 shall exceed $300, the amount of the annual license 
 fee, such license fee shall be deducted. This pro- 
 vision relieves domestic companies from the opera- 
 tion of the retaliatory laws of other states. 
 
 The amount of revenue accruing from the license 
 fees imposed upon domestic companies by Chapter 
 21, Laws of 1901, was slightly, more than the 
 amount secured under Chapter 326, Laws of 1899. 
 The purpose of the act was to produce about the 
 same amount of revenue to the state from life in- 
 surance taxation and to relieve domestic companies 
 from retaliatory taxes in other states. 
 
 The license fees paid by The Northwestern Mu- 
 tual Life Insurance Company, on premium receipts 
 in the state, from 1868 to 1898, a period of thirty- 
 one years, amounted in the aggregate to $342,637.65. 
 The license fees paid by that company under the 
 acts of 1899 and 1901 are as follows, by years : 
 
 1899 $ 186,386.54 
 
 1900 241,636.16 
 
 1901 243.185.27 
 
 1902 253,171.01 
 
 1903 261.517.12 
 
 1904 276,815.86 
 
 1905 308,566.62 
 
 12 
 
1906 331,964.83 
 
 1907 358,980.48 
 
 1908 365,303.61 
 
 1909 403,238.68 
 
 1910 433,755.45 
 
 1911 450,704.78 
 
 Total, 13 years. .|4,115,226.41 
 
 SHALL ANY TAX BE IMPOSED? 
 
 In dealing with the vital questions entering 
 into the problem of life insurance taxation, the in- 
 vestigator is confronted with the proposition often 
 urged on behalf of life companies that, aside from 
 the capital of stock companies, they should not be 
 taxed at all except in respect to real estate owned 
 and such exactions as may be necessary to defray 
 the public expense of official inspection and regu- 
 lation through a state insurance department or 
 otherwise. 
 
 It is represented in support of this contention 
 that life insurance is a beneficent thing and should 
 be encouraged and fostered by exemption instead 
 of being burdened with a tax; that the assets of 
 such companies held in trust for policy holders are 
 accumulated savings the taxation of which would 
 be a burden upon and a discouragement of provi- 
 dence and thrift; that such assets, other than real 
 estate, consist mainly of interest or dividend 
 bearing securities which are merely representative 
 of interests in tangible property usually fully taxed 
 in the jurisdiction where located, and to tax both 
 would be double taxation in economic effect. 
 
 13 
 
These arguments are not without merit and are 
 deemed a sufficient answer to the proposal to impose 
 anything more than a very moderate tax. 
 
 It must be borne in mind, however, that a very 
 large part of the taxes collected in the various 
 states, beyond that placed upon the "socially made 
 value" of land, is imposed primarily upon savings 
 of some sort or the product of industry and thrift, 
 and must continue to be so placed until the entire 
 scheme is radically changed. 
 
 Frugality, thrift and industry are indispensable 
 to economic progress, but it is mainly by the exer- 
 cise of these virtues that people come to have ability 
 to contribute to public revenues. Of necessity such 
 revenues must come from those who possess such 
 ability. All institutions for encouragement of 
 thrift, for protection and safe investment of savings, 
 are in some degree beneficent; but it is not perceived 
 that the institution of life insurance is so far dif- 
 ferent from others in this respect as to warrant its 
 total exemption. 
 
 On this point the late Dr. Zartman, of Yale, 
 says : 
 
 "All capital is a provision for the future, and 
 in attempting to differentiate insurance savings 
 from other savings the opponents of (insurance) 
 taxation have failed to establish their point."* 
 
 In a very recent address Prof. T. S. Adams says : 
 
 "It is perfectly true that a tax on insurance 
 paid by the policyholder tends to discourage thrift. 
 But that is not in itself sufficient reason for abolish- 
 
 *Investments of Life Ins. Companies, p. 220; H. Holt & 
 Co., 1906. 
 
 14 
 
ing such taxes. In the first place, our tax system 
 similarly discourages thrift at many points ; savings 
 banks are taxed in most states ; and the small home- 
 steads in which wage-earners and salaried clerks 
 invest their savings are more heavily taxed, in all 
 probability, than any other class of property except 
 the estates of widows and orphaned children in the 
 process of administration and settlement. In fact, 
 our whole system of state taxation, falling princi- 
 pally on realized or accumulated wealth, is a huge 
 engine for the taxation of savings and capital the 
 two principal means by which thrifty people provide 
 against future emergencies. Insurance is merely a 
 method of co-operative saving with an ingenious 
 provision that if any co-operator is prevented by 
 death from continuing his savings, the more for- 
 tunate survivors shall do a stipulated amount of 
 saving for him. 
 
 "Furthermore, this system of taxing savings and 
 accumulated wealth has been deliberately adopted 
 and will not be abandoned. The civilized nations of 
 the world have committed themselves to the general 
 policy of levying taxes, so far as possible, in propor- 
 tion to ability, not disability ; according to strength, 
 not weakness; and as the thrifty man is usually 
 the able and the strong man, he will continue to 
 pay most of the taxes. One of the incidental dis- 
 advantages of this ability principle is the fact that 
 it does to a degree tend to discourage thrift. But 
 you cannot build a tax system on incidentals. The 
 proposal to build a system of taxation on sumptuary 
 principles penalizing waste and thriftlessness, re- 
 warding thrift and industry has been repeatedly 
 made in the past and deliberately rejected. It is 
 impracticable, for one thing, because the more it 
 succeeds, the less revenue it yields."* 
 
 * Adams, Address at Fourth Annual Meeting of Life Ins. 
 Presidents, 1910, p. 62; Zartman, Investments of Life Ins. 
 Cos., pp. 221-224. 
 
 15 
 
DOUBLE TAXATION. 
 
 The double taxation argument is entitled to 
 thoughtful consideration. It and the contra argu- 
 ment are so nearly balanced that the two economists 
 just cited reach apparently opposite conclusions, as 
 to whether assets held in trust for policy holders 
 should or should not be taxed. 
 
 In Professor Adams' argument, mainly pre- 
 sented, in form, as that of an impersonal doubter, 
 he declares that "double taxation is not necessarily, 
 but is actually as practiced in this country an 
 abomination ;" that "the proposal to exempt credits 
 is largely but not wholly sound, and its unsound 
 point leaves room for some taxation of the policy- 
 holders of insurance companies by the several states 
 in which they reside." 
 
 This conclusion seems to be reached mainly upon 
 two considerations : ( 1 ) That in most of the states 
 credits are still legally taxable and some amount 
 of tax, though relatively small, is actually collected 
 therefrom, and that credits held as life insurance 
 assets are not entitled to exemption if other credits 
 are to remain taxable. (2) That "there is a prac- 
 tical and a theoretical flaw in the demand for credit 
 exemption. People owe some obligation to pay 
 taxes at the place where they reside." The latter 
 consideration seems to have much greater weight 
 with Professor Adams than the former. He says : 
 "Here's John Smith, who lives in Indiana and has 
 all his money invested in a street railway in Illinois. 
 The defendants of credit exemption would give 
 
 16 
 
Illinois all the tax and Indiana none. They say 
 to Indiana: 'Remit all taxes on John Smith be- 
 cause the only property he owns in Indiana is a 
 paper evidence of ownership of property situated 
 wholly in Illinois, where it is fully taxed.' This 
 advice is at best a counsel of perfection. Indiana 
 never will resign her claim, and really ought not 
 resign all her claim." 
 
 There is no disposition to belittle this argument ; 
 indeed, it is proposed to adopt all there is in it of 
 merit. But it must be conceded that it loses some 
 of its force when due consideration is given to the 
 fact that the case of the individual resident in one 
 district having his tangible property in another is 
 offset to some extent by the cases of tangible prop- 
 erty in his district held by residents of others. The 
 multiplicity of such offsetting cases goes far toward 
 establishing an economic equilibrium between tax- 
 ing jurisdictions and modifies to some extent the 
 seeming injustice of the single case so strongly 
 put by Professor Adams. 
 
 But perfect equilibrium is not secured. The 
 holders of credits and other "paper evidences" of 
 rights in tangible property located elsewhere reside 
 in greater numbers in urban than in rural com- 
 munities ; in the former there is less value of tangi- 
 ble property in proportion to revenue necessities 
 than in the latter, and herein is found seeming 
 justification for some tax upon the holder of credits 
 in the community in which he resides, notwith- 
 standing the full taxation of the tangible property 
 represented by such credits. 
 
 17 
 
Of perhaps greater importance is the fact that, 
 in the growing complexity of society, its higher 
 standards of living, and of service through public 
 agencies, with its corresponding increase in public 
 expenditures, the increasing burden of taxation 
 becomes less and less equitably distributed by the 
 crude plan of the general property tax, whereby, 
 in theory, tax burdens are apportioned by uniform 
 rates according to the capital value of every kind 
 of property, including that which, according to 
 some views, is property merely by legal fiction. 
 
 Neither in theory nor in practical administra- 
 tion does it accomplish the highest degree of 
 equality. In theory it fails to accomplish that 
 equality of sacrifice which differentiates between 
 the individual of small means and the one of large, 
 and in practical administration it usually fails to 
 secure in the assessment of the larger and more com- 
 plex properties a valuation relatively equal to that 
 placed on the smaller, simpler ones. It assumes, 
 too, an economic untruth, that all kinds of prop- 
 erty will bear the same degree of tax burden, 
 measured by capital value. 
 
 The constantly increasing burden of taxation 
 tends to accentuate such inequalities and to in- 
 tensify the demand for some measure of relief 
 some plan whereby a portion of the burden will 
 be placed on those better able to bear it than those 
 who suffer greatest from the regressive workings 
 of the general property tax. 
 
 It is upon these imperfectly outlined considera- 
 tions that justification is found for taxation of 
 
 18 
 
inheritances and also taxes upon incomes beyond 
 a reasonable minimum of subsistence. To the 
 extent that such taxes may be reasonably imposed 
 they may be justly placed upon credits or the in- 
 come therefrom notwithstanding the taxation also 
 of the actual property represented by such credits.* 
 
 SHALL REAL ESTATE BE TAXED? 
 
 There is general agreement that real estate 
 owned by life insurance companies should be taxed 
 in the district where located in the same manner 
 and for the same purposes that other real estate 
 in the same district is taxed. Ownership of real 
 estate is not essential to the business of such com- 
 panies. When they become such owners, the use to 
 which the real estate is devoted does not differ in 
 character from the use of other real estate in the 
 same district so as to warrant any different treat- 
 ment for purposes of taxation. 
 
 *In a former report of the Tax Commission the taxation 
 of credits was discussed at some length and the position then 
 taken, rather broadly, was that such taxation was not only 
 inexpedient but unsound in theory and tended to inequality 
 of burden as between debtors and their creditors treated as 
 one class and non-indebted property owners as another class 
 one member of the Commission dissenting. It should be 
 borne in mind that that discussion was directed primarily 
 to the question of retaining or discarding that feature of 
 Wisconsin's general property tax which required credits 
 to be taxed upon a valuation basis at the rates imposed upon 
 property generally. To that question the same answer would 
 now be returned that was then given by those who declared 
 the view just stated. The proposal of a low tax on credits 
 as compared with general property was not then considered, 
 or not as fully as it should have been, and some of the 
 grounds now offered in justification of such low tax were 
 not then suggested. At that time an income tax seemed 
 far away, if not an impossibility, and the constitution for- 
 bade the taxation of credits as property at any lower rate 
 than that imposed on other property. 
 
 19 
 
In its use it is in practical competition with 
 all other real estate and presumably is equally 
 remunerative to its owners. The great bulk of 
 local tax burdens now rests upon real estate and 
 must continue to do so for years to come. These 
 burdens are heavy in most jurisdictions and no 
 part should be exempted, wholly or partially, un- 
 less clear and strong reasons demand it. Such 
 reasons do not appear in respect to the real estate 
 acquired by life companies. 
 
 In prescribing special methods for taxation of 
 various financial institutions and some other special 
 interests, legislatures generally require the real 
 estate owned by them to be taxed as other real 
 estate. There seems to be no good reason why an 
 exception should be made in respect to realty held 
 by life companies. 
 
 AS TO TAXATION OF OTHER ASSETS. 
 
 While the state is not restricted in any legal 
 sense to the assets of life insurance companies as 
 the basis or justification for their taxation, it has 
 been the purpose of some of the foregoing discus- 
 sion to indicate that the existence of such assets 
 constitutes the chief ground upon which the right 
 to secure general revenue from such companies can 
 be maintained. 
 
 The ability of each company to contribute to 
 the public revenue rests upon such assets or the 
 income it receives therefrom, and the amount to 
 be required from each should be measured accord- 
 
 20 
 
ing to such ability rather than by a more arbitrary 
 standard. 
 
 This suggests at once the question whether the 
 state shall impose taxes upon or with reference to 
 all such assets as are held by its home companies 
 and also subject foreign companies doing business 
 here to such taxation as may be found expedient, 
 or shall it measure its exaction of both domestic 
 and foreign companies, as near as may be, by the 
 amount of such assets equitably belonging to resi- 
 dents of this state? 
 
 The power of the state to pursue the former 
 course is undoubted, for in legal contemplation 
 the company is the owner of such assets, and such 
 as consist of credits or other intangible securities 
 have a legal situs for purposes of taxation in the 
 jurisdiction in which the corporation has its loca- 
 tion or legal domicile. 
 
 But such assets, aside from the portion repre- 
 senting the capital of stock companies, are virtually 
 held in trust for the policyholders and equitably 
 belong to them, and these policyholders, especially 
 those of the larger companies, reside in all parts 
 of the country. 
 
 It is true that under the general property tax 
 laws of the state, similar in this respect to the 
 laws of other states, property belonging to trust 
 estates is usually taxed to the trustee, be he guar- 
 dian, executor or what not, precisely as if he were 
 the absolute owner, and such of it as has its legal 
 situs at the domicile of the owner is taxed to such 
 trustee in the jurisdiction in which he resides with- 
 
 21 
 
out regard to the place of residence of the persons 
 for whose benefit the trustee holds it. 
 
 This does not produce important inequalities 
 between different taxing jurisdictions as applied 
 to cases of relatively small estates, for they are 
 sufficiently numerous in the course of years to 
 offset one another so as to produce an approximate 
 equilibrium. But the large accumulations of life 
 insurance assets, consisting mainly of forms of 
 property, which can hardly have a situs except at 
 the domicile of the company, present a case which 
 is exceptional, one calling for different treatment. 
 
 As the tax on or on account of such assets falls 
 ultimately upon the policy holders, simple justice 
 seems to demand that each taxing jurisdiction, at 
 least each state jurisdiction, should have such pro- 
 portion of the total tax revenue as is borne, theoret- 
 ically at least, by policyholders resident therein, 
 and no more. Each state can secure, and in most 
 instances does secure, that much from every foreign 
 company doing business within its borders, and no 
 satisfactory reason exists, it is believed, why any 
 state should exact more from its home companies. 
 
 Few, if any, of the several American states will 
 relinquish the right to tax foreign companies, and 
 such taxes when imposed will be somewhat in pro- 
 portion to the assets of such companies equitably 
 belonging to policyholders resident in the state 
 which makes the exaction. 
 
 If each state also taxes to the full all the assets 
 of its home companies there will clearly be double 
 taxation in one of its abominable forms. 
 
 99 
 
On this point, in an addess delivered in 1908 
 before the annual meeting of life insurance presi- 
 dents, Professor Zartman said in part : 
 
 "The state in which a company is located does 
 not have the moral right to levy a general property 
 tax upon all the assets of such companies as happen 
 to have their home offices in that state. No success- 
 ful insurance company has gathered its assets, even 
 for the most part, from the savings of citizens 
 within the state where it is located. Its assets are 
 the result of premiums that it has collected from 
 very part of the country. These assets belong in 
 large part to citizens of other states. 
 Whatever rights the state may have in regard to 
 the share of the assets belonging to its own citizens, 
 it does not have the same right over assets belonging 
 to citizens of other states." 
 
 WHAT SHOULD BE THE TAX RATE? 
 
 This is at once the most important and the most 
 difficult feature of the problem. Upon the rate 
 mainly depends the justice of the tax and the 
 amount of revenue which the state may properly 
 exact from life companies. 
 
 By what test or standard shall the rate be 
 ascertained? 
 
 On this question very little help is obtainable 
 from the legislation of the past. On no subject 
 in the whole domain of taxation does there appear 
 a wider variation in method of treatment or weight 
 of burden than in the life insurance tax laws of 
 civilized states the tax ranging from a nominal 
 tax or none at all to one "as great as the traffic 
 will bear," or greater; and in published discussion 
 
 23 
 
of the subject there seems to be, so far as noted, 
 very little to serve as a guide. 
 
 At the fourth annual conference of the Inter- 
 national Tax Association there was submitted the 
 report of a committee previously appointed "to in- 
 vestigate the question of life insurance taxation." 
 
 The report was signed by Lawson Purdy, one 
 of the ablest tax administrators and tax students 
 in the country, president of the department of taxes 
 and assessments, New York City ; George H. Noyes, 
 general counsel of The Northwestern Mutual Life 
 Insurance Company, and W. H. Daniels, professor 
 of political economy, Princeton University. 
 
 In reading the following excerpts from that 
 report it should be borne in mind that the reso- 
 lution under which the committee was appointed 
 in effect required consideration to be given to the 
 matter of uniformity in insurance tax laws as well 
 as the general subject of taxation of life companies. 
 In its effort to find a basis for uniformity the com- 
 mittee was presumably influenced by the prevailing 
 practice in this country of basing the tax upon 
 premium receipts. 
 
 Extracts From Report of Committee of Interna- 
 tional Tax Conference. 
 
 It is not the purpose of this committee to dis- 
 cuss fundamental principles, but to confine con- 
 sideration to the relationship between taxation and 
 life insurance. 
 
 Your committee is of the opinion that life 
 insurance companies should contribute the expenses 
 incident to their supervision by the state. 
 
Your committee has carefully considered many 
 good reasons why life insurance should be exempt 
 from taxation entirely except on the real estate 
 owned by the insurance companies, especially be- 
 cause life insurance enjoys no special privilege and 
 is primarily a means of co-operating to distribute 
 the cost of providing for dependent widows and 
 children, and secondarily of saving a fund for old 
 age. Nevertheless, the committee believes that the 
 states will for the present demand considerable 
 revenue from life insurance companies. Owing to 
 the varied character of their business, there can 
 be no one theoretically correct method of taxing 
 them, but a common ground should be found upon 
 which both the state and insurance companies can 
 harmoniously stand. 
 
 ***** 
 
 Life insurance companies occupy a unique posi- 
 tion in the business world. While properly classi- 
 fied as private corporations, they are not among 
 the productive or industrial corporations, nor, with 
 a few exceptions, those organized for profit. They 
 act merely as receivers, investors and distributors 
 of funds placed in their hands for administration. 
 Their assets, which consist mainly of credits, are 
 held solely to pay policyholders, and their con- 
 tracts of insurance are not instrumentalities of 
 commerce. In their connection with the state they 
 are subject to more supervision than individuals and 
 less than public service corporations. They may 
 naturally be placed in a separate and distinct class, 
 and are entitled to a method of taxation adapted to 
 
 the character and extent of their operations. 
 
 * * * * * 
 
 Your committee has considered many theories 
 in connection with the subject, including plans for 
 the taxation of income, reserve, assets, surplus, and 
 so-called "investment features," but finds them all 
 more or less subject to grave objections. 
 
 It thinks the most convenient and practicable 
 
 25 
 
tax for the present is in the nature of a license fee 
 for the privilege of doing business. 
 
 A reasonable tax would be one just sufficient 
 to cover the necessary cost of supervision, but your 
 committee reluctantly yields to the practical de- 
 mands of the state that life insurance companies 
 should contribute a larger amount to its revenue. 
 
 Life insurance companies operate in the several 
 states of the Union by courtesy, since they are not 
 engaged in interstate commerce. They contribute 
 to the revenue according to legislative enactments, 
 the amount of their contribution being measured 
 by the amount of business done with the policy- 
 holders in each state. This amount is represented 
 by annual domestic premium receipts. 
 
 That this plan has met with favor is shown by 
 the fact that of all states of the Union taxing 
 domestic life insurance companies (twelve practi- 
 cally do not tax them at all), twenty-seven base 
 their license fee or "tax" on a percentage of do- 
 mestic premium receipts, while forty-one adopt the 
 domestic premium receipt basis in "taxing-' for- 
 eign life insurance companies operating within 
 their borders. 
 
 Your committee approves of this prevailing 
 method as the most convenient means now prac- 
 ticable for the adjustment of existing tax inequali- 
 ties and discriminations. 
 
 ***** 
 
 It must be admitted that there is no one sci- 
 entific system of taxing life insurance companies; 
 whatever is adopted must be simple and easy and 
 certain of calculation. The legislative mind must 
 not be confused by technical side issues. 
 
 A license fee or tax measured by premium re- 
 ceipts received in the state meets this desired re- 
 quirement and bases the contributions of life 
 insurance companies to governmental support on 
 the amount of business transacted with policy- 
 holders in the several taxing jurisdictions. 
 
 26 
 
Concerning the rate your committee is of the 
 opinion that the imposition of a tax of 1 per 
 centum of domestic premium receipts upon all com- 
 panies engaged in the business of life insurance 
 would result in substantial and sufficient revenue 
 to the several states and be an ample requirement 
 from the companies. 
 
 The fee should be uniform, and apply alike to 
 domestic and foreign companies. 
 
 Under existing laws the basis of domestic pre- 
 mium receipts is generally recognized, but the rates 
 vary materially, resulting in manifest discrimina- 
 tion and injustice, and provoking retaliation. 
 
 The revenue thus paid by way of license fee 
 should be in lieu of all charges for supervision and 
 all taxes except those locally levied on real estate. 
 
 Resolutions Adopted by Conference. 
 
 After receiving the foregoing report the Confer- 
 ence adopted the following preamble and resolu- 
 tions : 
 
 Whereas, A tax measured by domestic premium 
 receipts of companies engaged in the business of 
 insuring lives in the several states is easily and 
 accurately calculated, and accords with the amount 
 of business transacted with the policyholders in the 
 several states; therefore, be it 
 
 Resolved, That it is the sense of the Conference 
 that a uniform method of taxing the domestic pre- 
 mium receipts of all companies, foreign and do- 
 mestic, engaged in the business of insuring lives 
 should be adopted in the several states of the Union. 
 
 Resolved, That the Conference make no recom- 
 mendation as to the amount of the rate. 
 
 Thus, in the latest deliberations on the subject, 
 the rate, the vital thing, is left "in the air," while 
 in connection with the committee's suggestion of 
 the rate of 1 per cent on domestic premium receipts 
 
 27 
 
little is found to serve as a reason why that rate is 
 selected rather than one higher or lower. 
 
 From general knowledge of prevailing rates it 
 may be seen that the adoption of the proposed 
 1 per cent rate would render the retaliatory laws 
 of some other states inoperative, but this could not 
 be accomplished in all states without removing all 
 taxes upon foreign companies. 
 
 It will be noted that the members of the com- 
 mittee just mentioned are inclined to the view that 
 life companies should be taxed, except in respect to 
 real estate, only enough to defray the state's ex- 
 pense for supervision and regulation, and that the 
 tax itself should be by way of compensation for the 
 privilege of conducting life insurance business, 
 though the committee "reluctantly yields to the 
 practical demands of the state" for a larger revenue. 
 
 But as already indicated, the Commission vir- 
 tually rejects this view in reaching its conclusion 
 that life companies may legitimately be required 
 to make reasonable contributions to general public 
 revenues. 
 
 It does not adopt the commonly entertained 
 idea that tax contributions are merely payments 
 by the citizen for privileges, protection and other 
 benefits conferred by government, but takes the 
 broader ground that revenue is an absolute necessity 
 of government, and must be obtained, not in pro- 
 portion to benefits received, but in proportion to the 
 ability of citizens to pay. Consequently the Com- 
 mission is not aided in its effort to discover the 
 proper tax rate to be imposed, or the amount of 
 
 28 
 
revenue the state may justly demand, by any study 
 of the value of the privilege of conducting the busi- 
 ness of life insurance, or of the expense incurred by 
 the public for supervision and regulation of such 
 companies. 
 
 Nor is the Commission able to get much working 
 knowledge of taxpaying ability from the premium 
 receipts of the various companies. If such receipts 
 were a serviceable index of ability, the assessment 
 companies and fraternals would be found to possess 
 ability hitherto unsuspected, and the companies 
 writing "industrial" policies and those whose poli- 
 cies are largely recent contracts would be classed 
 as possessing ability of equal degree with those 
 whose policies are largely paid up or well advanced 
 toward maturity and have great reserve accumu- 
 lations behind them. 
 
 Hence the conclusion that ability must be de- 
 termined by the accumulated assets of the com- 
 panies and that the rate must be determined largely 
 with reference to what such assets can reasonably 
 and justly bear, having reference so far as prac- 
 ticable to experience with similar assets otherwise 
 employed in other enterprises. 
 
 As already observed, the assets of life com- 
 panies, other than real estate, consist mainly of 
 credits and other interest or dividend bearing 
 securities. 
 
 The necessity for safety and reliability of life 
 insurance contracts compels the companies to invest 
 in securities of the highest grade, and these, of 
 course, yield only low interest rates. The tax which 
 
 29 
 
life companies should pay on account of such assets 
 may be determined by the rate which can be justly 
 and reasonably imposed generally upon securities 
 of that character, assuming, as before indicated, 
 that no sufficient reason exists for giving life com- 
 panies preferential consideration. 
 
 TAX KATE MUST BE LOW. 
 
 Keasons have already been presented for the 
 conclusion that such rate must be low. 
 
 Taxation of such assets at the rates ordinarily 
 imposed upon general property presents not only 
 the case of full double taxation, but a rate which is 
 in large degree confiscatory. 
 
 The average rate of taxation on general prop- 
 erty in cities is estimated to be not far from 1% per 
 cent on true value of property assessed. The 
 highest grade of securities do not average to yield 
 much, if any, in excess of 4% per cent. A tax rate 
 of 1% per cent upon face value of such securities 
 would take one-third of the income. 
 
 Such burden amounts to partial confiscation, 
 when it is considered that the security is but rep- 
 resentative of an interest in property already taxed 
 at or near the rates imposed upon general property. 
 
 The situation as affecting life companies may be 
 illustrated by taking a concrete instance : 
 
 The assets of The Northwestern Mutual Life 
 Insurance Company, of Wisconsin, excluding real 
 estate, amounted on January 1, 1911, to $271,595,- 
 259.87. 
 
 30 
 
The proportion of such assets equitably belong- 
 ing to Wisconsin policyholders is about 7 1/3 per 
 cent, or |19,918,796.35* 
 
 The company's annual income on this amount 
 at the average rate of its income on all its assets 
 for 1910 (4.557 per cent) is $907,699.55. 
 
 An ad valorem tax on the Wisconsin portion of 
 such assets at the average tax rate in Wisconsin 
 for the year 1910 as computed on estimated true 
 value of taxable general property such rate being 
 .01117968554 (nearly 11.18 mills) would amount 
 to $222,685.88. This would equal 24.53 + per cent 
 of the annual income from such assets. It will per- 
 haps be serviceable to note in this connection that 
 the amount of taxes required of the same company 
 for the year 1910 (paid February 28, 1911) under 
 existing Wisconsin law was $450,704.78, which is 
 49.65 + per cent of such income. 
 
 The unjustifiable excessiveness of such rate of 
 taxation on assets of this character seems manifest. 
 
 The practically universal failure of the attempt 
 to impose ordinary general property tax rates upon 
 credits is due largely, it is believed, to the excessive 
 weight of the burden. The average individual feels 
 the injustice and will evade if possible ; the average 
 assessor realizes it and makes little effort to prevent 
 the evasion. 
 
 This is shown in the results of efforts in this 
 country to secure revenue from credits and kindred 
 
 *Ascertained by proportion of insurance in force on 
 lives of Wisconsin residents ($79,227,755) to the company's 
 total insurance in force January 1, 1911 ($1,080,139,708). 
 
 31 
 
intangible assets evidences of interests in tangible 
 property otherwise taxed by reducing the rate to 
 so low a figure as to take away any substantial 
 justification for evasion. Such results are highly 
 instructive. 
 
 In the city of Baltimore, about 1896, the local 
 rate on credits was reduced to three mills on the 
 dollar. To this was added a varying state rate 
 sometimes as great as 1.7 mills, making a total 
 rate of between four and five mills a fairly stiff 
 rate for that sort of assets. The result was that 
 the amount of such assets listed for taxation in- 
 creased from about $6,000,000 under the old regime 
 of attempted full rate taxation to above $150,- 
 000,000 some twelve years later. 
 
 In Connecticut the rate is reduced to four mills 
 and in Pennsylvania it is also four mills on the 
 dollar. In both instances substantial revenue is 
 produced, although it is not doubted that some 
 evasion is still practiced, accurate information on 
 that point being, of course, impossible. 
 
 PEOPER TAX KATE. 
 
 The low rates just referred to afford very strong 
 light on the question of what is the proper rate to 
 be imposed upon such assets, whether in the hands 
 of life insurance companies or others. 
 
 Additional light is gained from the practice pre- 
 vailing in those states which undertake to tax 
 savings banks and the deposits therein by a different 
 rate than that imposed under the general property 
 tax. 
 
 32 
 
It has been impracticable to ascertain such rates 
 so as to state them precisely by averages or other- 
 wise owing, in part, to the great number and 
 variety of exemptions and exceptions; but enough 
 has been learned to render it fairly safe to say that 
 such rates average not higher, probably lower, than 
 the rates imposed upon general credits in Baltimore, 
 Connecticut and Pennsylvania. In Connecticut the 
 rate on savings deposits is 2% mills, and this is 
 probably not far from the prevailing rate elsewhere. 
 
 More instructive, perhaps, are the rates imposed 
 where substantial income taxes prevail. Income 
 taxes are not generally relied upon as the sole or 
 chief source of state and local municipal revenues, 
 but are ordinarily supplemental to other forms of 
 taxation. Speaking broadly, they are imposed in 
 part upon incomes derived from property otherwise 
 taxed, much as a tax upon credits is a super tax 
 with reference to the tax upon the tangible property 
 which the credits represent. Indeed, income taxes 
 are precisely that in so far as income from credits 
 is subjected to the tax. Being in effect a super tax 
 so far as relates to credits, and also in respect to 
 some other forms of property, and being also sup- 
 plemental to other methods of taxation, the rates in 
 general are low as compared with ordinary rates 
 on general property. 
 
 The British income tax rate is perhaps as typical 
 as any except when income taxes are the main 
 reliance for general revenue. That rate in recent 
 years has been usually one shilling in the pound, or 
 5 per cent of the income above a moderate exemp- 
 
 33 
 
tion for the "minimum of subsistence." Prior to 
 the Boer war it was materially less than that, but 
 during that war it was somewhat more. 
 
 While precise calculations are impracticable, it 
 is believed that a 5 per cent income rate is not far 
 from the average prevailing in most income tax 
 countries except, as before indicated, where the 
 income tax is a chief source of revenue. 
 
 KATE AS PROPOSED IN GENERAL INCOME 
 TAX BILL. 
 
 The Commission has also given consideration to 
 the pending bill for an income tax in Wisconsin 
 reported by a special committee of the Legislature 
 of 1909. The tax proposed in that bill will be 
 mainly supplementary to other taxes and in the 
 nature of a surtax as to some forms of property, 
 but is intended, however, to afford an apportion- 
 ment of tax burdens more nearly in proportion to 
 ability than seems possible under present laws. But 
 in respect to credits the tax proposed in this bill- 
 that is, the income tax bill will be in lieu of all 
 other taxes, as indeed it should be. Now, the rates 
 proposed in that bill, graduated from 1 per cent 
 up to 6 per cent, would not average above 5 per cent 
 except in the case of very large incomes, and then 
 only in respect to the excess above the exemptions 
 allowed. In the case of the average moderate in- 
 come the average rate would be materially less than 
 5 per cent. 
 
 In this connection it seems proper to note that 
 the assets of life companies, being held in trust 
 
 34 
 
for a multitude of policy holders, may justly be 
 considered as representing a great number of indi- 
 vidual estates, mostly small or only moderate, 
 rather than a single great accumulation belonging 
 to one person or corporation. 
 
 In the recent address of Professor Adams, al- 
 ready mentioned, it is suggested, indirectly and 
 tentatively rather than otherwise, that a rate sub- 
 stantially equal to the average rate which may be 
 roughly estimated from the amount of revenue now 
 secured from credits under the general property tax 
 laws may be taken as approximately the rate to be 
 imposed on the credit assets of life companies ; and 
 in that connection he roughly estimates, on data 
 partly assumed, that assets of this character in the 
 hands of private individuals "on the average are 
 taxed at the rate of from six to seven hundreths of 
 1 per cent, about one-fourth or one-fifth as much as 
 the similar property of insurance companies is pay- 
 ing," the country over. 
 
 The Commission has not felt warranted, how- 
 ever, in taking as a guide or standard the results, 
 or want of results, of the attempt to tax credits 
 under the general property laws in order to deter- 
 mine what life companies should pay on that sort 
 of assets. If the attempted taxation of credits 
 under the general property law is a farce, as is 
 generally admitted, with' occasional tragedy to 
 emphasize the farce, would it not be equally farcical 
 to employ the average results of such taxation in an 
 effort to establish a real and a logically defensible 
 tax for life insurance companies? 
 
 35 
 
FIVE PER CENT A PROPER RATE. 
 
 As stated in its special report, the Commission 
 concludes that 5 per cent of the income from assets, 
 other than real estate of life companies, is the 
 proper standard or measure for determining the 
 amount such companies should contribute to the 
 public revenues, in addition to taxes upon real 
 estate, applying such rate to the income from assets 
 equitably belonging to policyholders resident in the 
 state. 
 
 There is, perhaps, room for contention that, 
 in respect to stock companies, such rate should not 
 be computed upon the assets which represent cap- 
 ital stock, assuming that the stock itself is taxed 
 or some tax is imposed upon stock companies on 
 account of capital. But the capital invested in 
 such companies is employed for profit much the 
 same as capital employed in other financial insti- 
 tutions. 
 
 If business enterprises in general are to be sub- 
 jected to a supplementary burden in the form of a 
 moderate income tax, it would appear equally justi- 
 fiable to subject the income from assets representing 
 the capital of stock life companies to the corre- 
 sponding burden of the low tax now proposed. 
 
 The legislative bill submitted with the Com- 
 mission's special report does not allow any deduc- 
 tions of assets representing capital stock in com- 
 puting the tax. 
 
 If such tax should be made in lieu of taxes upon 
 the capital of stock companies it would afford 
 
 36 
 
such companies some degree of immunity and 
 advantage over mutual companies and a much 
 lighter burden of taxation than is borne by banks, 
 trust companies and like financial institutions in 
 this state, so far as relates to the moneyed capital 
 invested therein.* 
 
 Of course, the 5 per cent income rate suggested 
 is not ascertained by definite statistical or other 
 precise calculation. It is not perceived that any 
 rate may be calculated arithmetically from any data 
 known to be available. 
 
 If it were sought to secure an assumed total of 
 revenue from life companies, the ascertainment of a 
 rate or rates to produce it would be a simple and 
 definite matter of computation, but the problem, 
 as understood by the Commission, is to ascertain 
 not what such companies shall or can be forced to 
 pay, but what amount of tax can be reasonably and 
 justly imposed. This involves a study of ability, 
 of the character and functions of the assets out of 
 which ability grows and the rates by which ability 
 may be measured in practical administration. 
 
 The nature of the inquiry is such that the 
 answer to be returned must be quite largely a 
 matter of human judgment. 
 
 It is not claimed that the judgment exercised 
 in this instance is infallible, but there has been 
 
 *Where, by charter provisions or otherwise, there are 
 limitations upon the amount of profits which the share 
 holders of stock companies may receive on account of the 
 capital employed, the case would be different from that 
 of other financial institutions where no limitation is im- 
 posed, and such difference might be sufficient to warrant 
 some difference in treatment in tax legislation. 
 
 37 
 
earnest effort to acquire as much of the knowledge 
 requisite to intelligent judgment as possible within 
 the time thus far available. 
 
 AS TO PREMIUM RECEIPT BASIS OF 
 TAXATION. 
 
 As is well known, the prevailing practice in the 
 American states is to use premium receipts as the 
 basis for determining the amount of tax which life 
 companies shall be required to pay, though there 
 is great variation in respect to the rate imposed on 
 such receipts. 
 
 This prevailing practice is largely due to the 
 fact that such method is simple, certain and inex- 
 pensive in administration. 
 
 This fact, and the prevalence of the method, 
 doubtless had much weight with the committee of 
 the International Tax Association in making its 
 recommendation of that method to the Conference 
 of the Association in 1910, already mentioned. 
 
 In deference to that practice and to such recom- 
 mendation the Commission was at first disposed to 
 approve such method after first ascertaining the 
 amount of revenue which should accrue from a 
 tax worked out by the test and standard of a mod- 
 erate rate upon income. 
 
 It was soon observed, however, that premium 
 receipts of the various companies doing business in 
 Wisconsin bear no uniform relation to the assets 
 of those companies respectively. The companies 
 carrying large amounts of so-called industrial insur- 
 ance collect much larger amounts in premiums in 
 
 38 
 
proportion to reserve assets required to meet the 
 obligations of those contracts than the premium 
 receipts needful for the ordinary type of policy; 
 and the companies which have a large proportion 
 of paid up or well matured policies in force collect, 
 of course, a smaller amount of premium receipts 
 in proportion to reserve assets than those having a 
 less proportion of such policies. 
 
 This want of uniform relation between premium 
 receipts and assets will be shown more fully in 
 statistical tables to accompany the general report 
 of the Tax Commission; and a well settled convic- 
 tion that income producing assets constitute a far 
 more just and accurate test or measure of ability 
 to pay than premium receipts has led the Commis- 
 sion to abandon the idea of premium receipts as the 
 basis for the tax on life companies, and to recom- 
 mend, as indicated in the report and accompanying 
 bill, that the tax be determined by direct application 
 of the proposed 5 per cent rate to income from 
 assets. 
 
 This would be an income tax in effect, but in 
 order to reach and tax foreign companies the tax 
 should be in form an excise or charge for the privi- 
 lege of conducting life insurance in the state, and 
 it is so made in the bill mentioned. 
 
 RECIPKOCAL OR RETALIATORY LAWS. 
 
 The proposition stated in paragraphs 8 to 15, 
 inclusive, of the Commission's special report deal 
 primarily with the situation resulting from the re- 
 taliatory laws of other states. It is not believed 
 
 39 
 
that these require very much elucidation or ampli- 
 fication. The general purpose and tenor of such 
 laws may be briefly stated. 
 
 New York, for example, enacts that companies 
 of that state and of other states shall pay a tax of 
 1 per cent on premium receipts in that state. This 
 is the regular tax. It enacts further that if any 
 other state shall impose a higher tax on New York 
 companies than the regular tax in New York, the 
 companies of such other state shall pay the same 
 higher tax in New York. This is the retaliatory 
 feature. Its purpose is to prevent as much as pos- 
 sible the excessive taxation in other states of the 
 companies of the state enacting such law. In some 
 states no "regular" tax is imposed, but by a "recip- 
 rocal" law each company of another state is re- 
 quired to pay a tax proportionately equal to that 
 required in its home state. 
 
 Ketaliatory and reciprocal laws of the char- 
 acter just mentioned are often deprecated and 
 their abolition advocated. They have legitimately 
 served their purpose in some instances, however, as 
 in the case of excessive taxation of foreign com- 
 panies in Wisconsin under the act of 1867, men- 
 tioned in an earlier part of this discussion. The 
 possibility of the repetition of such legislation is 
 probably sufficient to keep such retaliatory laws in 
 force, and there is little reason to expect their 
 repeal so long as there is such wide variance be- 
 tween the laws of the several states in respect to 
 the amount of taxes to be paid by life companies. 
 
 When, if ever, such laws become substantially 
 
 40 
 
uniform, the retaliatory laws will become corre- 
 spondingly inoperative. If their existence and 
 enforcement will tend to secure such uniformity 
 that fact would furnish an additional reason for 
 their retention. 
 
 A PLAIN QUESTION OP EIGHT AND WRONG. 
 
 While fiscal legislation is a dry subject, it often 
 involves questions of right and wrong, calling upon 
 the legislator for the exercise of statesmanship and 
 courage of the highest order. 
 
 In the opinion of many citizens of the state, and 
 of many people of other states, Wisconsin has 
 achieved enviable distinction in the enactment of 
 laws designed to correct abuses and secure equality 
 of right and obligation among her citizens. 
 
 The credit for such achievement is due largely 
 to the moral fibre and manly courage of the rep- 
 resentatives of the people who have sat in her leg- 
 islative halls. 
 
 Within recent years they have dealt with the 
 taxation of various forms of accumulated capital 
 with a view to establishing equality and justice, 
 and in the laws enacted great advancement was 
 made, it is believed, toward the object sought. 
 
 While these enactments called for courage and 
 fidelity to duty, they made no call upon legislators 
 to relinquish accustomed revenues. 
 
 A greater test is now before you. 
 
 If the conclusions reached by the Commission 
 on the subject now under consideration are approx- 
 imately correct, it becomes a plain question of 
 
 41 
 
right and wrong whether Wisconsin shall continue 
 to exact from life companies and the holders of 
 life insurance policies the amounts demanded under 
 present laws. 
 
 Can Wisconsin afford to lower her standard of 
 righteousness in legislation? 
 
 Will her legislators fail to uphold that standard 
 merely because it will cost the loss of a substantial 
 amount of revenue from a source from which too 
 much has heretofore been exacted? 
 
UNIVERSITY OF CALIFORNIA LIBRARY 
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 Return to desk from which borrowed. 
 This book is DUE on the last date stamped below. 
 
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 JUL241957 
 
 AUG 20 
 
 LD 21-100m-ll,'49(B7146sl6)476