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2015AN ABSTRACT

OF

I

DAYID A. WELLS'S PROPOSED SYSTEM OF TAXA-
TION FOE THE STATE OF NEW YORK.

To Hon. Daniel G. Fokt,

Chairman Com. Ways and Means :

The theory which constitutes the basis of the system of taxa-
tion at present recognized in New York, and most of the other
States, assumes that, in order to t&x equitably,^it is Necessary
to assess every item and description of property, real and per-
sonal.

In the early history of the country, when there was little
competition among nations or sister States for ascendancy in
commercial and financial affairs; when negotiable instruments
in the form of bonds (which can be conveniently owned, held,
and transferred in any State or country, where they are un-
taxed) were almost unknown; and when property consisted
mainly of things visible and tangible—lands, houses, cattle,
slaves, ships, &c., and the rate of taxation insignificant—the
practical application of this theory involved little of difficulty
or inequality ; but, at the present time, the condition of prop-
erty having greatly changed, the results of taxation are
altogether different. Thus, for example, fully one-fifth of the
personal property of the country is represented by United
States instrumentalities, bonds, legal tenders, notes, or money,
which, by the decisions of the United States Supreme Court,
are entirely beyond the reach of State authorities for the pur-2

pose of taxation. In the same category come also all imported
goods in original packages in tlie possession of the importers .
and all property in transitu which, by the decision of the
Court of Appeals, has been held exempt from taxation
when owned by persons, firms, and corporations established
and doing business in other States, but only selling their own
goods in New York through permanently located agents.

The property comprised under these two heads alone in the
State of New York aggregates hundreds of millions, but of
which every dollar is beyond the reach of taxation.

The laws of New York also exempt from taxation the de-
posits and surplus of savings banks, now amounting to over
$800,000,000, and, in accordance with the most obvious prin-
ciples of justice and constitutional law, all visible, tangible
property of its citizens, situated without the territory of the
State, and under the jurisdiction and protection of some other
sovereignty.

Another large proportion of the personal property owned by
the citizens of the State is of the most intangible character,
and in great part invisible and incorporeal; such, for instance,
as negotiable instruments in the form of bills of exchange,
State, municipal, and corporate bonds, and, if actually situated
in other States, exempt from taxation here; acknowledgments
of individual indebtedness, &c., &c. All property of this
character is, through a great variety of circumstances, con-
stantly fluctuating in value; is offset by indebtedness which
may never be the same one hour with another; is easy of
transfer, and by simple delivery is, in fact, transferred contin-
ually from one locality to another, and from the protection and
laws of one State to the sovereignty and jurisdiction of some
other. It is not to be wondered, therefore, that all attempts
to value and assess this description of property have proved
exceedingly unsatisfactory, and that nearly every civilized
community, with the exception of the States of the Federal
Union, have long ago abandoned the project as something
wholly inexpedient and impracticable.

And, finally, in respect of taxation by the arbitrary, unjust,
unequal and piratical rule of residence, exempting the non-
resident having the same class of evidences of debt and3

cj secured on property in this State, or having the same class of
—; visible and tangible property within the taxing district as a
(t-> resident; and as to so much of personal property as is visible,
tangible, and clearly within the territory and jurisdiction of
the State, but being instruments or subjects of commerce be-
tween States and nations, such as railroad cars, ships, steam-
boats, immense stocks of raw material and manufactured goods
in store, owned or held in our great cities, which are the entre-
pots for the commerce of foreign countries, and, still more im-
portant, for the immense commerce and trade of thirty-seven
sister States—all foreign nations with which New York is
brought into close commercial, financial, and industrial contact,
and also the contiguous and competing State of Pennsylvaniaj
exempt such persons and property from taxation. Can New
York afford to put her citizens at a comparative disadvantage
in this respect ? Can any one point to any disadvantage that
• has ever resulted anywhere from a policy of liberal legislation
of the character indicated ? But, on the other hand, do we
not see Pennsylvania under her system of taxation advancing
with giant strides in wealth and population, while New York,
under the influence of old and exploded ideas, moves onward
in development comparatively at a snail's pace ? Is there not
an inducement and a present tendency on the part of capitalists
^ to leave a State where a discriminating tax is levied on its
resident citizens ? The full force of violated economic laws
will sooner or later be felt, and we must bear the burden of
h transgression.

-2 With at present fully two-thirds of the personal property of
^ the State therefore exempted from taxation by law, or by cir-
cumstances growing out of its condition, or the natural deprav-
ity and selfishness of the average tax-payer, and with a large
^ part of the other one-fourth exempted by competing nations
t or neighboring States, what becomes of the theory so generally
£ accepted in the United States that in order to tax equitably it
^ is necessary to tax everything ? If we turn to the experience
of New York herself for an answer, we find that, while it can
be demonstrated that the aggregate of personal property in the
State nearly or fully equals in value the aggregate of real
property, the proportion of the former returned for taxation is

F 237384

not in excess of one-fifth, of the total assessed valuation ; that
while the State has been increasing in wealth and population,
the ratio of personal to real property assessed in 1872 was less
than it was in 1869 : that the whole amount of personal prop-
erty assessed in the State is not equal to the capital and sur-
plus of the banks of the State and the deposits of the sayings
banks; and, finally, that in the great city of New York, with a
population of over a million, not 2 per cent, of her citizens
(19,382) stand upon the books of the assessors as possessing
any personal property subject to taxation. In short, there is
not a citizen of the State who has given the subject the slight-
est attention, who does not know that the present system of
taxation of personal property in New York—State, county, and
municipal—is the most imperfect that ever existed; that, with
the exception of moneyed corporations, it is a mere voluntary
assessment which may be diminished at any time by an offset
of indebtedness which the law invites the tax-payers to increase
ad infinitum, borrowing on pledge of corporate stocks, United
States bonds, legal-tender notes, &c., all exempt from taxation;
that its administration in respect to justice and equity is a
farce, and more uncertain and hazardous than the chances of
the gaming table, and that its continuance is more provocative
of immorality and more obstructive of material development
than any one agency that can possibly be mentioned.

If it be, however, replied that the existing state of affairs is
the fault of the law and its defective execution, and that with
a more stringent law and better administration results would
be far different, the answer is that in Massachusetts, where the
law admits of no offsets of debts against visible and tangible
property, and is regarded as complete, and where its execution
is acknowledged to be most arbitrary and inquisitorial—some
towns publishing each year every known item of each man's
personal property, even down to the family pig and a string of
sleigh-bells—the most intelligent officials admit that their sys-
tem is a comparative failure, and almost a complete failure, as to
reaching evidences of debt, and if they did not admit it, the evi-
dence is to be found in the circumstance that securities of vari-
ous descriptions are sold publicly every day to citizens of Massa-
chusetts, for investment, at prices which it is notorious never5

could or would be given provided that the property in question
was practically subjected to taxation and assessment.

It is under such circumstances now that the Commissioners
appointed under the Act of 1870 come forward with a new sys-
tem of taxation and urge its consideration and acceptance upon
the Legislature and the people. They start with the funda-
mental proposition that it is not possible to tax everything pri-
marily or directly, and that it is not necessary to attempt it in
order to tax equitably ; but, on the contrary, that if taxes are
levied on a comparatively broad basis—like real estate—with cer-
tainty, proportionality, and uniformity, on a few items of property,
like the franchises of all moneyed corporations enjoying the same
privileges within the State, and on fixed and unvarying signs of
property—like rental values of buildings—they will diffuse them-
selves with unerring certainty and equality.

To carry out this idea they propose :

First—That real estate, lands, and buildings shall be taxed
on a full and fair market valuation.

Second—That moneyed corporations and unincorporated de-
posit bankers shall be taxed.

Third—A little examination will show that under the two
heads above specified are included almost all the property of
the State now returned for assessment, and that what is not
thus included is very difficult, if not wholly impossible, to fairly
value and assess by any recognized rules of evidence or ap-
praisement. In substitution, therefore, of all such defective
.and arbitrary taxation the Commissioners next propose the
following (quoted from the code by them submitted) :

Sec. 4. All real estate subject to taxation shall be liable to
an additional or supplemental assessment of a sum equal to
three times the rent or rental value of all buildings thereon,
for the length of time actually occupied during the year ter-
minating April 30th previous to making the assessment, or for
the apartments of said buildings occupied as aforesaid; but no
assessment shall be made under the provisions of this section6

in reference to buildings or apartments of buildings occupied
by the unincorporated deposit bankers, or by tlie corporations
enumerated and made subject to taxation, on their shares or
corporate franchises and privileges, in section 3 of this title.
The building shall be considered as occupied, and occupied
for the entire previous year, unless the assessors or board of
review shall receive reliable information or evidence to the
contrary from the owner or from some other reliable source;
and any one of the assessors shall have power to administer
an oath and take the testimony of the owner or occupier of
buildings, or of other persons, as to the rental value thereof.
The tax imposed according to the provisions of this section,
shall be known as the "building occupancy" tax, and shall be a
charge and a lien, the same as other real estate taxes, on the
lots or parcel of land on which the occupied buildings are
situated, and may be collected by distraint on the personal
property of the person to whom said tax may be assessed, or
by sale of the premises, or otherwise, and in the same manner
as other taxes upon real estate are collected.

Sec. 5. The building occupancy assessment is deemed to be
the best attainable and most uniform equivalent or estimate of
the value of the personal property owned, in the possession or
under the control of the occupiers as owners or tenants of build-
ings or apartments of buildings, or the index of said occupiers'
expense or consumption, and made subject secondarily to the
burden of taxation through the medium of primary taxation of
occupied buildings.

Sec. 6. The owner of any real estate which is subject to a
lease made previous to January 1, 1874, may add the building
occupancy tax or the pro rata portion thereof to the rent,
and when the landlord shall have paid said tax he shall be
deemed to be subrogated to the rights of the State or the lo-
cality where the tax may be levied, and he may recover the
amount of said tax from the tenant by distraint or by suit at
law; but in all leases or contracts made after January 1, 1874,
for the rent of real estate, the landlord shall be deemed to
have added the building occupancy taxes to the amount of the7

stipulated rent, and thereby to have waived and released all
claims upon the tenant for said taxes, unless there shall be a
special contract to the contrary between the parties.

It will be noticed that reflection has satisfied the commis-
sioners that, for the purpose of uniformity and economy in
assessment and collection, equitable and labor-saving elements
in taxation, it is necessary in a " building occupancy " tax to
deal primarily only with the real estate, leaving the tax to be
adjusted, as between landlord and tenant, according to the
natural and immutable laws of supply and demand.

All property not embraced under one of these provisions, as
above stated, to be exempt from taxation.

Fourth.—To provide for the appointment of a State officer
whose business it shall be to see that the tax laivs, whatever they
may be, are lived up to and enforced.

As the objections urged against this new system are restricted
mainly to the third provision, which provides a substitute
for the existing assessments on personal property, attention is
asked to the following considerations :

First.—No person can pay rent in any amount, or own or
occupy any building, who does not necessarily have three times
the value of such rent or rental value in personal property;
civilized life cannot be carried on with any less amount of such
property.

Second.—A tax on rentals or rental values of buildings is espe-
cially a tax on income or expenditure without the machinery of
personal inquisition and annoyance, and rent is more than any
one thing the sign of personal property, expense or consump-
tion, and the individual's own measure of his ability to expend.
A man paying $1,000 annual rent must have an income of, at
least, $3,000, which pre-supposes a capital in some form—
property or brains—worth at least $40,000. Is it unjust or a
hardship that such a person should pay one or two per cent,
taxes per annum on three times his rental—$3,000, as the rep-
resentative of his personal property; considering especially8

that these taxes, if disproportioned to the tax-payer's expense
and consumption, will be diffused over other persons and
property ?

Third.—The proposed system of taxing "building occu-
pancy " constitutes in itself a correct standard of measurement
of personal property, or of expenditure and consumption, both
for the city and country, and establishes also just and equitable
taxation between city and agricultural property. Thus, to
illustrate, let us suppose a piece of occupied real estate, worth
$10,000, to be presented for taxation in the country and in the
city respectively. In the country the assessment under the
proposed system world be as follows :

Farm and farm buildings, valued at................ $10,000

Yalue of buildings and lands whereon, $2,000

Rental of buildings, at 10 per cent. $200.

Three times rental as equivalent to personal property. 600

Total valuation for assessment..................... $10,600

On the other hand, in the city the assessment would be as
follows :

City store and land whereon, valued at............... $10,000

Yalue of building, land whereon, $10,000.

Rental of building, at 10 per cent., $1,000.

Three times rental as equivalent of personal property. 3,000

Total valuation for assessment..................... $13,000

Under the new system, therefore, the city store and lot
would be regarded as a measure of $2,400 more of personal
property, expenditure, or consumption than the country farm
or property of the same value, a measure which the Commis-
sioners hold will prove to be entirely correct and equitable,
both in theory and practice. But if the tax-payer in the country
and the tax-payer in the city hold other personal property
a part from their lands and buildings, as stocks in banks, or
other moneyed corporations, they will both be put on exactly9

the same footing as regards taxation or expenditure, and that,
too, without the possibility of either assessing the other by
fraud or evasions.

The theory of infinitesimal taxation, if fully and completely
executed, must logically lead not only to the taxation of every
cent in value of personal property within the borders of every
State, county, township, or municipality, but it wrould require a
regular system of Custom-House espionage and an army of
Custom-House officers to levy and collect taxes, by a multipli-
city of rates, upon all goods or property introduced into each
township or municipality ; this would produce the stagnation
of the middle ages, and confine commerce to the limits of a
single township. If, however, this is not done, what becomes
of the vaunted idea that equality of taxation requires that every
particle of property should be subject to a direct burden ? But
fortunately for the prosperity of communities this idea of what
is necessary to produce equality of taxation is fallacious, and it
is likewise fortunate that it can be demonstrated that this false
theory, when partially or fully developed, produces unmitigated
evil and inequality. Merchants, and others occupying buildings,
or other real estate, will equate and diffuse the taxes levied
primarily on the same over on personal property produced, sold
or handled, in proportion to the hours and minutes in possess-
ion, down lower than the fraction of one-hundreth part of 1 per
cent.; but assessors and other officials have no measure or
weights by which such small parts can be gauged or weighed. The
great laws of supply and demand are alike the forces of nature,
unseen, but always efficient and reliable, and if left to their own
action will diffuse taxes, uniformly levied on the same class of
property, according to the amount of each person's use or con-^
sumption. Taxation, by an arbitrary rule, or by a rule want-
ing uniformity, on the same class of property, cannot be diffused
or repercussed by natural laws, because it is not levied by nat-
ural and uniform laws, and it therefore becomes a mere confis-.
cation act; and hence, any imposition which cannot be finally
diffused by the natural laws of trade and dealings in proportion;
to expense and consumption, partakes of the odious character
of tax spoliation or confiscation.

Let us for a moment consider some of the effects of the pro-,
posed new system.10

If loans of money are free from taxation, the purchasing
power of money in the same degree must diminish, which
simply means that the purchasing power of farms and products
of farms for money, must to the same extent increase ; hence,
the borrower on bond and mortgage will not be subject to
double taxation—first in the form of increased rate of interest,
and then in taxation of his real estate; and hence, the farmer
or landowner who is not in the habit of either lending or bor-
rowing money will find his ability to meet additional taxation
on his land increased in additional value of land and products
of land in proportion as the tax is removed from money at in-
terest. Also, the exemption of the products of farms and things
consumed on farms from taxation will give a corresponding in-
creased value to compensate for the " building occupancy tax."
Tenants controlled by all-pervading natural laws can and will
give increased rents, if their personal property is exempt prima-
rily from taxation. The average profits of money at interest,
or of dealings in visible personal property, free from taxation,
cannot exceed, lor any considerable length of time, the average
profits of real estate—risk of investment and skill in manage-
ment taken into consideration ; and, therefore, the real pressure
of taxation under the proposed system will finally be, like
atmospheric pressure or pressure of water, on all sides, and by
a natural, uniform law, executed upon all property in every
form used and consumed in the State. Persons must occupy
buildings, and business must be done in buildings, and through
these visible instrumentalities, capital can be reached by a rule
of practical uniformity, and by a simple, plain, and economical
method of assessment and collection.

In conclusion, the Commissioners will say that, while they
have entire confidence in the system presented, they will not
assert that a system of exclusive real estate taxation, removing
all the rubbish of personal taxation, or a system of taxation of
real estate and the occupiers of premises for business purposes
for personal tax on the basis of the rental value of premises
used exclusively for business, as is now done in the city of
Montreal, may not meet the objections to the present unjust,
odious and vexatious system, produce advantageous results to
the agriculture, commerce and manufactures of the State, and11

attract population and capital to our borders; but they have
no confidence in any system of inquisition, or system which
requires assessors to be clairvoyants; to ascertain things im-
possible to be ascertained by the agencies provided in the law;
to ascertain the indebtedness of the tax-payer; to ascertain or
know who is the owner of property at a given time that can be
and is transferred hourly from owner to owner by telegraph or
lightning, and that may be transported into or out of the juris-
tion of the assessor, with the rapidity of steam, or that requires
assessors or tax-payers to make assessments on evidence not
admissible in any court, civil or criminal, in any civilized
country where witches are not tried and condemned by caprice
or malice on village or neighborhood gossip.

The Commissioners will add that, in their opinion, the adop-
tion of the proposed new system would give to the State a
aniform and equitable valuation and administration; would
greatly reduce the rate of taxation, promote a development
and degree of material prosperity greater than could be
obtained through any other one agency, and make the State
ruly the Empire State, and the city of New York an
ttractive metropolitan residence for citizens from other States
,nd nations—the financial centre and commercial entrepot of
continent of important, wealthy and flourishing States and
ations.

For a fuller illustration of the views of the Commissioners,
reference is made to their extended report to the Legislature
t its last session.

I am, yours most respectfully,

D. A. Wells,

[	Chairman Tax Commission.

February, 1873.This book is a preservation facsimile produced for
the University of Illinois, Urbana-Champaign.
It is made in compliance with copyright law
and produced on acid-free archival

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Preservation facsimile printing and binding
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