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IV. CRITICISM OF PRESENT TAX SYSTEM

The long continued and widespread criticism of the present system of taxation in Illinois relates to defects in administration, failure to meet its own standards of uniformity and equality, the impossibility of its enforcement, and the injustice involved in a strict application of the principles on which the tax laws are based, as construed by the courts. More specifically, the objections urged are to the general undervaluation of property, the great inequalities in the assessments made, and the escape from taxation of large amounts of property.

Undervaluation. The most obvious factor is the universal undervaluation in the assessment of property for taxation. This practice has been definitely recognized in the law; by the provisions for assessment at a fractional part of the "full value". But it is clear that the "full value" as placed on the assessment books falls a good deal short of the actual true value. This situation is not only generally known; but has been officially recognized and its extent indicated to some extent in the reports of the United States census. In the table below a comparison is made of the census estimates of the true value of tangible, taxable property and the assessed valuation of property in Illinois at different census years from 1850 to 1912, and the assessed valuation for 1918.

Estimated true value and assessed valuation of taxable property in Illinois, 1850-1918.a

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(a) From U. S. Census Reports on Wealth. Debt and Taxation.

(b) Auditor's reports show assessed valuation for 1860, $367,227,742; for 1870, $480,664,058; for 1890, $808,892,782.

(c) Currency Values.

(d) Assessor's "Full Value", 5 times the taxable value for 1900 and 1904; 3 times the taxable value for 1912 and 1918.

It will be noted that there was a steady decrease in the percentage of true value assessed from 1850 to 1890. With the legal recognition

of undervaluation in the assessment law of 1898, there was a large increase in the "full value" assessments. But since 1894 the "full value" assessments have again declined to less than half of the census estimates of the true value of tangible taxable property.

This general underassessment of property is one of the most important factors in the present system of taxation. So long as real estate and tangible property is undervalued for taxation, it cannot be expected that intangible property will be returned and assessed at its true value.

Inequalities. If the undervaluations in assessments were all made on the same basis, the principal effect would be to increase the nominal rates of taxation necessary to raise public revenue. But along with the general undervaluation, it is clear that there is a great deal of inequality in the degree of undervaluation, and a corresponding inequality in distributing the burdens of taxation, as between different classes of property different local districts and different taxpayers.

Such inequalities appear even in the assessment of real estate, as between different counties, and as between lands and town and city lots. In some counties the "full value" assessment of real estate has been twice as high in proportion to the census estimates of true value as in other counties; and even in recent years there has been a variation of as much as 50 per cent in the relative degree of assessment as between different counties.1

As between farm lands and urban real estate, the census reports indicate that in 1912 farm lands were assessed at a somewhat lower proportion of true value-about 50 per cent in comparison with 60 per cent for urban real estate. The increase in value of lands since that time is not reflected in the assessed valuations.

Little attention has been given to the taxation of the large amount of mining lands in Illinois, though such property should receive special consideration and can not be properly assessed by local assessors.

The general undervaluation of real estate is of importance in making comparisons with the greater underassessment of intangible personalty. The full assessment of the latter can hardly be expected so long as real estate is largely underassessed.

Estimated true value and assessed valuation of taxable real estate in Illinois.a

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1 Fairlie, J. A.; Taxation and Revenue System of Illinois, p. 26. From U. S. Census Reports, Reports of Auditor of Public Accounts and Proceedings of the State Board of Equalization.

Estimated true value of farm lands and buildings and assessed valuation of lands and improvements in Illinois.

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a From U. S. Census Reports, Reports of Auditor of Public Accounts and Proceedings of State Board of Equalization.

b Currency Values.

"Full value" assessments for 1900 and subsequent years.

More striking are the variations and inequalities in the assessment of personal property.

The census estimates indicate that assessments of all personal property were only about 31 per cent of the true value of tangible personal property in 1912, as compared with 54 per cent for real estate. In respect to the various items of enumerated personal property the most absurd and whimsical variations appear in the official reports, both as to the number and the average value of particular items in different counties, and in different towns of the same county.1 On the face of the returns it seems clear that local assessors in many parts of the state make no attempt at a complete assessment of all the petty items in the schedule required by the revenue law; and in some assessment districts it is said they omit altogether personal property below a minimum limit. In all of this there is no effort at a uniform standard of exemption; and the local assessors use their own discretion. Average taxable value of specified items of enumerated property, 1918.

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In St. Clair County only 10 steamboats were assessed, in Cook County 64, and in Lake County 258 (925 in 1917). No sewing machines were assessed in Pulaski and Putnam counties.

1 See report on Taxation in Illinois by the committee on revenue of the house of representatives in 1919.

Estimated true value and assessed valuation of taxable property in

Illinois, 1912.3

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a U. S. Census Report on Wealth, Debt and Taxation 1912, and Proceedings of the State Board of Equalization.

Inequalities and variations in the assessment of real estate and some kinds of tangible personal property may be reduced by more efficient methods of administration; and some improvement in such matters may be looked for from the State Tax Commission established in 1919. But if it seems advisable to exempt by law a minimum amount of household property (as is done in a number of states, and as is practically done by local assessors in Illinois), or to establish some kind of business tax in place of the taxation of merchandise or manufacturer's equipment, a change in the present constitutional requirement for uniform taxation of all property will be necessary. Still further, if it should be desired to permit any classification of real estate, (for example, so as to place on a definite legal basis variations which now exist in practice in a hap-hazard way), or to segregate, some classes of property for state revenue (such as railroads and public utilities)—as is done in some states-the present constitutional provisions will need to be altered.

Intangible property. The most serious evasions of the present tax laws however are in connection with the assessment of intangible wealth, such as money, credits, stocks and bonds. Under the existing laws, such wealth is taxable, on the same basis as tangible property. But only a small proportion of it has ever been taxed; and no method has been discovered of making any satisfactory estimate of the total amount. Some facts in connection with the assessment of such property and as to the value of certain kinds of wealth included will throw light on the great degree of evasions.

The table below shows the assessed valuation of various items of personal property in Illinois, for Cook County and for all other counties for the year 1918.

Taxable valuation of specified items of personal property in Illinois, 1918-Cook County and all other counties." a

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It will be noted that both for enumerated property and for most of the items of intangible wealth, the assessment for Cook County is only a small fraction of that of the rest of the state; although this county has nearly half of the total real estate assessment, and fourfifths of the assessment of bank shares. On the other hand, the assessment for "all other property" in Cook County is about six times the amount under this head for the rest of the state, and is nearly one-half of the total assessment for personal property in Cook County. The explanation of this seems to be that a large proportion of the personal property assessments in Cook County are made in lump sums under the heading of "all other property", without attempting to segregate them under the various items in the schedule. Such assessments appear to be based on statements by the taxpayers to the assessors, made in place of filing the schedules required by law. How much of this should be apportioned to the various items of tangible or intangible property, there is no way of determining; but as about one-third of the personal property assessments in other counties are for intangible property, it may be roughly estimated that at least one-third, and perhaps more, of "all other property" in Cook County represents assessments for intangible property.

This large uncertain item, and the impossibility of apportioning it exactly to the various other items, adds to the difficulties of attempting to estimate the extent to which intangible property escapes taxation. The tables below, however, give some data as to two important items in the personal property list. Bank deposits are legally assessable as money of other than banker, broker, etc.; and mortgages form perhaps the largest portion of credits other than bankers, brokers, etc. In both of these cases, the item in the assessment schedule covers more than the property with which it is compared. Yet in each case, it will be

From Proceedings of the State Board of Equalization.

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