Tax systems. Bastable, Plehn, A tax upon all real estate and all per.onal property. Seligman, Statements and the assessment. that a premium is placed on dishonesty. No tax can be easily administered that does not meet with the support of the people, or of which the cost of collection is great. (5) It should be suited to the district for which it is assessed. The absurdity of allowing cities or even States to levy customs duties or internal revenue is clearly apparent, while a general land tax would be about as little suited to the purpose of the central government. By a system of taxes we mean the sum total of all of the taxes levied by any one government. In most countries there are two tax systems : - the national and the local; in this country we have at least three: -the national, the state, and the local. Now, as a matter of fact, no one tax is likely to possess all of the characteristics we have just enumerated. But if no tax is seriously defective, and if the system as a whole conforms to these characteristics, the tax system might be said to be good. But in order to be satisfactory, a tax system must do more than that. The systems of the nation, the state, and the localities must not conflict or greatly overlap, while each system must be adapted to the peculiar needs of its government, as shown in the expenditures of that government. THE GENERAL PROPERTY TAX 149. Character. Assessment. - At least three fourths of all the revenue for the state and local governments comes from the general property tax, which is in universal use for the support of our local governments, and is used as the chief resource of the state governments, except in a few manufacturing States. This tax is levied theoretically upon everything that possesses value. It is customary to say that one part of the tax is that assessed upon real estate, i.e. lands and houses, while the rest is upon personal property, including house furniture, stock of goods in stores, farm implements, horses and cattle, notes, bonds, and other forms of credit. In order to aid the assessors who determine the value of each man's property, every one that owns anything assess Public able is obliged to make out a written inventory of his Plehn, property, with an estimate of its value. He must swear Finance, that this inventory, known as a statement, contains a com- 210-217. plete and correct list of all his taxable wealth. With these statements in their possession, the assessor and his assistants make up the assessment rolls, showing the total assessable value of property within their district, usually a town or some other subdivision of the county. Certain classes of property are exempt from taxation. Exempted In most States churches that are used exclusively for re- property. ligious services are not taxed. Taxes are not paid upon school buildings or other public property. The list of exempted property often includes more than a tenth of all the property within a town or city. with real estate. 150. Difficulties in assessing Property. There are cer- Difficulties tain difficulties inseparable from the assessment of any property. The assessed value of real estate must depend to a great extent upon the assessor's judgment, and, for that reason, it is difficult to secure a perfectly uniform assessment even by one man. But as no one person is likely to do all this work within a town, and as it would be absolutely impossible for all of the property within a county to be assessed by a single assessor, the danger that some individuals will be compelled to pay more than their share of the tax is indeed great. mountable difficulties With personal property, much more trouble is experienced Insurthan with real estate. A great part of this form of wealth may be concealed easily, so that the assessors are ignorant with perof its existence. As a rule the inequalities of assessment of sonal personal property, and consequently of taxation between property. man and man, are very marked. In many States little attempt is now made to search out these more 66 intangible" Adams, Finance, kinds of property, and the personal property tax law is practically a "dead letter." A large number of States are seeking to reach this form of wealth through other channels, as we shall see (§§ 153-154). 436-445. Qualifica tions of a good assessor. Boards of equalization. Adams, Finance, 445-449. The tax rate. It must be perfectly evident that we need capable and upright men as assessors. There are few parts of the government's work that can affect us personally so much as a just or unjust assessment of our property, and to protect ourselves, as well as our neighbors, every care should be taken in the selection of these officials. 151. Equalization and Collection. — In order to have the assessment of property in the different towns of a county as nearly uniform as possible, county boards of equalization have been formed. The principal work of the boards is to decide whether the assessors of any town have been too lax or too strict. If they find that any set of assessors has assessed their town too low, the assessment is raised to correspond with the others. The assessments from the counties are treated in the same way by the state board of equalization, which considers evidence to determine whether the assessment throughout the State is uniform, and, if it is not, to make it as nearly so as possible. The chief difficulty that the boards of equalization encounter is the undervaluation of property within an entire county, in order to reduce the state tax of that county to a minimum amount. In one State this process of undervaluation was carried so far that at one time no county's property was assessed at even one fifth of its value. The attempt to equalize assessments is, at the best, but partially successful. When the boards of equalization have completed their tasks, the tax rate for the coming year can be ascertained easily. The amount of money needed to run the city, county, or state government has already been established by the legislative body in its total appropriations. When this sum has been divided by the total assessed value of property within the city or county, the rate of tax upon every dollar's worth of property is known. All taxes not paid1 before a certain day become delinquent, and a penalty of from one to ten per cent, besides interest at a high rate, is added to the amount of the taxes. If still unpaid, the government for which the tax was assessed allows any one who will pay the tax to collect the amount, giving him what is virtually a first mortgage upon the property at a high rate of interest. Because of these rigid regulations, the prompt payment of taxes is customary. 152. Observations on the General Property Tax. — The extent to which the general property tax is used must be 1 State taxes are never paid directly to state officials, but to county, or in New England to town officials. communi ties. taken as an indication of its value. Indeed, the tax is quite The tax in satisfactory in agricultural communities that have no large agricultural cities, and none of whose people are especially wealthy in other things than houses and lands. Unfortunately few of our States can be said to be of this class, for with the very great development of commerce and industry during the The tax in last two or three decades, the inequalities of wealth have become more striking. Our city population has meanwhile ties. increased from one fifth to one third of the whole population. The present outlook is that the general property tax will be used much less by the state governments than formerly, although it is likely to be the financial mainstay of the localities for a long time to come. industrial communi The principal objections to the general property tax may Objections be stated as follows: to the tax. Economics. (1) It is practically impossible to discover and assess Bullock, "intangible" property through this tax, and the tax is, therefore, in reality a real estate tax, although theoretically a tax on general property. (2) As a result of this failure, the farmer and the poor man pay more than their proportional share of the tax, and very much more than their wealthier neighbors in proportion to their ability. (3) Because of the difficulties of assessing it over a large area, it is not a good state tax. If we compare these defects with the characteristics noted in § 148, we shall see why the general property tax is so unjust and unsatisfactory. OTHER FORMS OF REVENUE forms of 153. Corporation Taxes. — Because the general property Reasons tax has failed to reach personal property, and may be for and unsatisfactory for state purposes even when it is adminis- corporation tered properly, many of the industrial States have aban- taxes. doned it entirely or chiefly as a state tax. Most of these strive to reach the "intangible" forms of personal wealth Bullock Finance, 350-356. Seligman, by means of corporation taxes. Two States have general ings in Pub. corporation taxes levied on all corporations doing business within their limits, but most of the States that are trying this form of taxation do not attempt to tax the ordinary corporation, for the ordinary corporation is little different from the individual whose property and stock in trade are reached under the general property tax. They levy their taxes principally on the great corporations which do so much business and have so little competition that they are almost monopolies, or else upon those public service corporations upon whom special privileges have been conferred by the people. Both classes of these great corporations have escaped a large share of taxation in the past. Special taxes. Some States try to tax banks by making them pay a corporation certain per cent of their stock. Insurance companies are taxed on the total amount of the premiums they receive each year. Large manufacturing corporations are often obliged to contribute a part of their net income, but more frequently the tax is assessed upon their capital stock. Railways, both within and outside of cities, express companies, telegraph and telephone companies, are often taxed separately. Sometimes these companies are assessed according to the value of their franchises, which is usually represented by the market value of their stock. taxation. Diversity in 154. Questions regarding Corporation Taxation. — There corporation is little uniformity in the methods used by the different States in their attempts to reach corporate wealth, a great contrast being presented in that respect to the general property tax, which is alike in most of the commonwealths. Not only do the States vary greatly in their views regarding the corporations to be taxed, as noted in the preceding section, but they have adopted at least a dozen different practices, when they decide whether the tax shall be levied on the franchise, the stock, or some form of the earnings.1 Adams, Finance, 449-464. Seligman, Taxation, 166, 176-179. 1 Many think that corporations should pay taxes according to the par value of their stock; others assess the market value of the stock. Some |