# Popular Science Monthly/Volume 52/November 1897/Principles of Taxation: The Existing Methods of Taxation XXI

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APPLETONS’
POPULAR SCIENCE
MONTHLY.
NOVEMBER, 1897.
* PRINCIPLES OF TAXATION.
By DAVID A. WELLS, LL. D., D. C. L.,
CORRESPONDANT DE L'INSTITUT DE FRANCE, ETC.
XII.—THE EXISTING METHODS OF TAXATION.
(Continued from vol. li, page 776.)
TAXATION OF PERSONAL PROPERTY.—Great, however, as may be the inequalities in the valuation and assessment of real property, those which obtain in respect to personal are so much greater as to almost preclude the idea of comparison.
In the incipient stages of society, when property consisted almost or quite exclusively of things tangible and visible—lands, buildings, slaves, horses, cattle, ships, household effects, and implements—when railroad shares, bonds and mortgages, certificates of deposit, and all the multifarious forms of credits and evidences of debt, by which we are enabled to-day to secure interests in land or in visible, tangible personal property in the possession of others, were absolutely unknown, and when the rate of taxation was comparatively small, the theory under consideration was not impracticable in its application, and, under most circumstances, afforded but little opportunity for the working of injustice in respect to arbitrary discriminations in assessing. For when personal property was of a visible and tangible character there was no opportunity to conceal its ownership and to avoid the tax'. Each member of the community furthermore took a sufficient interest in his neighbor's affairs to see that justice was done in this regard. This kind of friendly interest found ​expression in Rhode Island in a law that was passed in 1673, by which it was provided that, under certain circumstances, a citizen might be required "to give in writing what proportion of estate and strength in particular, he guesseth ten of his neighbors, nameing them in particular, hath in estate and strength to his estate and strength." It is only fair to add, however, that this law was intended to prevent tax-dodging, and only required a man to guess with respect to the relative size of his neighbors' estates to his own, when he himself was suspected of having undervalued his own estate. Very curiously this ancient law and practice find expression to this day in Rhode Island in the circumstance that no citizen of that State is qualified to vote upon any proposition to impose a tax, or for authorizing the expenditure of public money, that has not paid a personal property tax six days preceding such day of voting. Lists of persons who are or may be qualified to vote generally are published and placarded before election, with prefixes to each name, showing the electoral qualification of its representative on the list, whether the same is dependent on real estate or personal property taxation. Any person who shall take down or destroy this list once placarded is liable to a fine of three hundred dollars, or three months' imprisonment.
Then again very little of a citizen's property was situated without the territorial jurisdiction of the taxing power, or indeed without the territorial limits of the hamlet, town, or city in which the citizen lived. Then a man could not very conveniently live in one place and do business in another. Within a century an English court has declared a contract invalid which stipulated that one of the parties thereto should do an act in London and Oxford the same day, because the stipulation involved in this particular an impossibility. Now the distance involved could be traversed in about an hour. The nature of property, as well as the means for moving it, was also such as to render all transportation difficult, and rapid transportation impossible. The discrepancy in taxation as respects different places was also so small that no great advantage could be gained by shifting one's residence or property for the sake of evading taxation; and the difficulty and inconvenience of so doing were so great that the temptation could hardly have existed. But even in the most simple condition of society the practical application of what may be properly termed the "infinitesimal" system of taxation must have been always attended with great difficulties, for the reason that it involved and necessitated personal inquisitions, than which there is nothing in government that men more dislike and resist; and, in the language of a committee of the French National Assembly of 1789 (of which Talleyrand and Larochefoucald were members), the ​recognition and practice of which, by any government is something inconsistent with, and antagonistic to, the maintenance of a free people.
It is not generally known, furthermore, that Alexander Hamilton, as a member of the conventions which framed the Constitution of the United States and the first Constitution of New York, gave all his influence in favor of the restriction of all internal or local taxation to visible, tangible objects, and to the assessment of these specifically, and by some uniform and simple rule. The language used by him in one of his papers (The Constitutionalist) on this subject is as follows: "The genius of liberty reprobates everything arbitrary or discretionary in taxation. It exacts that every man, by a definite and general rule, should know what proportion of his property the State demands. Whatever liberty we may boast in theory, it can not exist in fact while (arbitrary) assessments continue."
Again, had nothing come down to us in English history from the time of Edward III, other than one of the assessment rolls of that period (when there was little or no property capable of taxation but what was visible and tangible), the evidence would be complete that the mass of the English people were but little better than slaves; for the mere inspection of such rolls shows that their preparation involved such an inquisitorial scrutiny into domestic life, such a seeing, handling, enumeration, and minute valuation of everything in the household, from the utensils of the kitchen to the furniture of the bedchamber, as to make personal freedom, or a sense of self-respect, on the part of the taxpayer who submitted to such a scrutiny, almost an impossibility.
And in this connection it is instructive to again refer to the famous insurrection of English yeomen and peasants under "Wat" the Tyler, in the reign of Richard II, the successor of Edward III, which originated directly in the attempt of a tax-gatherer or assessor to ascertain, by brutal personal examination, whether a daughter of "Wat's" had attained the age of puberty, and in consequence had so become liable to enrollment for capitation assessment.
But to whatever extent simplicity in the elements of property simplified the original methods and ideas in respect to local taxation, the problem involved rapidly changed, and became more and more intricate as increasing population, and increasing commerce, and ​intercommunication, required that property should, to a great extent, be put into a condition to admit of being readily mobilized, in order to allow of its most profitable use and application. Thus a large part, in fact the larger part of what is to-day termed "personal property" in every civilized state, is of the most intangible character, and in great part invisible and incorporeal: such, for example, as negotiable instruments in the form of bills of exchange, state, municipal, and corporate bonds, and the multiplied forms of evidence of indebtedness, certificates of stocks, copyrights, patents, legal-tender notes, etc., all of which, if entitled to the name of property, is, through a great variety of circumstances, constantly exposed to fluctuations in value, frightful in amount, and incalculable in their suddenness, and under the influence of which wealth vanishes as if by the wave of a magician's wand. It is offset or measured by indebtedness which may never be the same one hour with another; is easy of transfer, and, as essential to using, is in fact continually transferred from one locality to another, and from the jurisdiction of one state to the jurisdiction and laws of another and a different state; is here to-day, gone to-morrow; is burned, sunk at sea, lost in mines, patents, railways, factories, trading associations, and in a thousand other different ways. It has been recently said that five men who do business in Boston can together control or dispose of an amount of property which equals one fifteenth of the entire assessed valuation of that city; and that they could, if they pleased, carry round the evidence of the existence of that property in their coat pockets, or, according to popular theory, the property itself.
For the purpose of ascertaining the amount of taxable personal property owned by individual citizens two methods have been employed in the United States:
1. In several States, such as Massachusetts, Connecticut, and Illinois, the taxpayer is required to give each year to the assessor a detailed and verified statement, carefully itemized, of all the personal property owned by him or under his control and of every kind, sort, and description. This method is generally known as "the listing system." In several of the States the principle that a State can only tax that which is within its territorial jurisdiction is ignored, and even visible tangible property situated outside of the taxing State is required to be returned for the purpose of taxation.
2. The other and more general method of ascertaining taxable personal estate is that which is exemplified in the State of New York, by which the assessor guesses at the personal property of the victim, and places him upon the list at such a figure as either his information ​or imagination sustains him in considering to be that which justly represents the personal estate of the taxpayer.
In view of the fact (made certain by all experience) that very few returns of personal property, even when supported by oaths, are worthy of implicit credence, the position of the assessor who honestly desires to enforce the law is one of great difficulty and embarrassment. For, in the absence of some superhuman power which will permit that to be seen which to ordinary vision is invisible, and to know what, through the exercise of ordinary reason, can not be known, any attempt on his part to obtain independent cognizance of such commercial and financial instrumentalities for the purpose of valuation and assessment is, on its face, an impossibility; and if the co-operation of the person to be assessed is to be invited or relied on, two of the most powerful influences that can control human action—love of gain, or the unwillingness to part with property, and the desire to avoid publicity in respect to one's private affairs—immediately unite to oppose and prevent such co-operation.
A resort to personal inquisition, with the accompanying machinery of oaths, "dooming," and penalties, is next in order; under which the State, ignoring all rules enacted for the protection of debtors in the ordinary collection of debts, pursues the citizen for the collection of what it claims to be a debt, with no better result, in nine cases out of ten, than the impairment of the public sense of both justice and morality.
But it is claimed that each individual owes the State annually a certain sum of money in the way of taxes, proportioned to his entire property. If he voluntarily pays, he escapes arbitrary measures. If he declines to pay, or tries to avoid payment, he has no just cause to complain if he is regarded in the light of a criminal, or if the same arbitrary measures are used to collect his tax as if it were a debt owing by one citizen to another. Let us examine this averment.
If the defaulting taxpayer is to be regarded as a criminal, and ​as such placed in the worst possible light, he certainly ought not to be deprived of the privileges of a criminal, which are a right to a public investigation according to the rules of evidence adopted by free and enlightened communities, a right to be heard before condemnation, and the right to be presumed innocent of having property subject to taxation until the fact is ascertained otherwise by legal proof. But under the existing tax laws of most of the United States there are not accorded to the taxpayer the privileges of a criminal; for no tax can be assessed on a large proportion of the personal property of the State according to any rules of legal evidence that any common law court would adopt. No assessor, under the laws of New York, for example, in assessing personal property, can act judicially. The law gives him no power to obtain legal testimony of a character that is admissible in court; he must act the part of an arbitrary despot against an inculpated taxpayer, or not act at all, and his conclusions for acting must be reached at best by the testimony of those who have no means of knowing anything, in a legal sense, about the subject-matter under investigation. It seems clear, therefore, that any attempt to tax without legal evidence is an act of usurpation or despotism, wholly antagonistic to the principles of a free government, and that it is a mockery to characterize such acts as, in any sense, judicial proceedings. Nor does the right to reduce or regulate the assessment by the oath of the taxpayer relieve the law, in any degree, of its unequal and despotic character; for every individual holding public office knows that oaths, as a guarantee of truth, in respect to official statements, have ceased to be of any value. The assessments made according to the oaths of parties, furthermore, are not made according to legal evidence, upon examination and proofs; but according to the will and secret caprice of each taxpayer, instigated by his selfishness and the natural depravity of human nature. Each taxpayer, under the present rule, becomes, therefore, the interpreter not only of the law but of the fact, and makes a secret interpretation of both, and we have as many interpreters of the law as there are numbers of taxpayers; and also an indefinite multiplicity of assessors; for each person who unfairly reduces his own assessment arbitrarily assesses thereby some other of the community for the difference. Could or would any people apply the same rules for the collection of debts? Is there any one who has so much confidence in human nature that he will propose a law that a person who is sued shall be discharged from all claims of indebtedness if he will make oath, interpreting both the law and the fact himself, that he owes the claimant nothing? Is it believed that under tariff laws the government could get sufficient revenue to pay for its collection if the importer was ​permitted to offset debts against the value of his goods; or if the law was peremptory that his oath alone should be given, and that there should be no legal examination, inspection, or proof of the value or character of the importations?
In whatever aspect, therefore, we regard the present popular system of local taxation in the United States, it is arbitrary and in violation of the principles of constitutional government. If the assessor acts, he acts solely by his despotic will, and without any reference to legal proof or evidence, such as is enforced in recovering private debts; and if the taxpayer, by his oath, becomes the arbiter, his will is supreme and not subject to investigation or control. It is a system, in short, that violates all the laws of evidence, the growth of centuries in civilized countries; that makes secret that which should have publicity, and proceeds upon a basis that could not be recognized for one moment in the collection of debts, or in the trial of persons accused of the most heinous of offenses.
Such, then, are the difficulties which all experience has shown to be attendant upon every attempt to tax personal property of an intangible and invisible character, and which all who have investigated the subject acknowledge to be insuperable. As not a few, however, who are ready to make this acknowledgment nevertheless insist, that all personal property that is visible and tangible and can not be concealed, but can be reached effectively and equally, ought to be taxed; and as the drift of popular sentiment in the United States at the present time favors this assumption, it is important to next consider the nature and extent of the results attainable by intelligent and faithful assessors acting in conformity with it.
As the experience, however, of the States that have enacted the most precise and stringent methods of taxation proves beyond question, that the returns of the owners of visible, tangible personal property, even when supported by oaths, will not, as a rule, afford a basis for the correct valuation and assessment of such property, the further assumption is warranted, that the attainment of such a result in even an approximate degree must depend on the personal visitation and inspection of the most intelligent and honest assessors. And here at the very outset of the prospective investigation its inherent insuperable difficulties begin to manifest themselves.
Thus a large proportion of the so-called personal property of every highly civilized country which is not intangible and invisible, and which requires only ordinary perception for recognition and valuation, is in the nature of instruments or subjects of commerce between states and nations; such as railroad machinery, ships, steam-boats, immense stocks of raw and manufactured products accumulated in store for the sole purpose of movement, or actually in ​transitu. As a matter of fact the granaries for no small portion of the surplus stock of the world's cereals are at the present time ships and railroad cars in the process of movement to the points of greatest demand for consumption. What shall be the situs of all such things for assessment? If actual location is to be determinative, then a product of grain, or merchandise, which, in movement for a market, or conversion into other forms, may happen to be in Illinois in April, in Ohio or Massachusetts in May, in New York in July, in New Jersey in August, and in Connecticut in October, will be liable to five separate taxes in one and the same year; for the laws of each of these States require their assessors to return, for taxation, all such property as at the periods mentioned may be actually within the sovereignty and jurisdiction of the taxing authority.
If, therefore, the existing system of taxing visible and tangible personal property in the United States is to be continued and made equitable and effective, the first essential step for the purpose of making it such, by preventing evasions and avoiding duplicate taxation on one and the same persons and property, is for all the States to agree that all their assessors shall make their visitations, inspections, and appraisements for the purpose of assessment on one and the same day, as, for example, the first day of April. The following probable forecast of the result has been made by a recent writer:
"On the appointed day, all over the country, a swarm of assessors must besiege the factories, mills, shops, and stores for the purpose of making an honest valuation of all merchandise on hand. This valuation must be completed in one day; or otherwise Smith's valuation being completed on April 1st, while Jones is left to April 2d, there will be a midnight exodus of easily portable goods from Jones to Smith, so that one assessor shall find little of value in the possession of Jones on April 2d. No help must be asked in the work of valuation from the owners or clerks; for if that is done, the assessor might just as well accept the sworn returns of the owners, as is done now, with the most ludicrous and inequitous results. As it is evident also that it would be impossible for the owners themselves to make such a valuation in one day, even with the aid of all their clerks, there must be a number of assessors employed, exceeding all the number of persons employed in holding and selling merchandise. The work might, however, by extreme diligence be done m a rough way by two million local assessors. As it would take them at least three days to tabulate, copy, and file their returns, besides the one day occupied in valuing, each would serve at least for four days; and if paid at the rate necessary to procure men competent for the task, the lowest cost of such an assessment, independent of printing ​and stationery, could not be properly estimated at less than forty million dollars.
"Again, on ‘assessment day,’ there would be universal concealment of all articles of small bulk and great value. Watches, jewels, gold, money of all kinds, and every like conceivable thing would vanish from sight. Men would walk about stuffed with valuables. Old stoves, pots, and pans would be filled with money and jewels. Valuable goods which could not be hidden would be covered with dust or otherwise made to look almost worthless. In every mill and factory manufactures would be kept in an unfinished state, as far as possible, until assessment day had passed. A thousand devices would be resorted to in order to reduce the apparent value of the things which the assessor would inspect, or to prevent him from seeing them at all.
"In order to make this plan of official valuations successful, the assessors must enter every room in every house and strip naked every man and woman whom they suspect of concealing taxable property. This is the only way in which visible, tangible personal property ever was or ever can be fairly, equally, and effectually taxed.
"And, when all this was done, the system would none the less fail. It could not be made even approximately correct. Every article would be valued very much too high or very much too low. Nor would the average produce any fair result. The goods of Jones would be appraised at two hundred per cent of their real value; the goods of Smith at ninety per cent; and the goods of Brown at fifty per cent. Jones would thus be cheated heavily, and of Smith moderately, for the sole benefit of Brown."
On the other hand, if the fiction of law, that personal property follows the owner, is to govern, then all such property may be taxed where it is not, and be exempt from taxation in the place where it actually is, and where it shares in the benefits that flow from the protective expenditures—police, fire department, etc.—which are incident and necessary to the locality. Or, as is very often and perhaps most usually the case, the same property is subjected to double taxation; and as a proof that this latter supposition, which seems on its face an absurdity, is a matter of constant experience, it may be mentioned that some years since, and probably at the present time, a well-known publishing house was regularly taxed in Cambridge, Mass., for so much of its stock in trade as was kept in store and permanently employed in business in New York city, although it was admitted that the same tangible, visible property ​was at the same time regularly taxed by the New York authorities; and, furthermore, when a protest was made to the Massachusetts authorities against the continuance of this injustice, the decision was rendered, that under existing Massachusetts statutes the plundered taxpayer could have no remedy except by change of business or change of (State) residence.
Again, if a foreign banker subscribes to any of the State or municipal loans of the United States, the bonds or other evidences of indebtedness which he receives in exchange for his money are exempt from taxation by reason of his nonresidence; but if a resident widow or maimed soldier be moved by the desire for security to purchase a little of the same loan, the small rate of interest which such investments generally carry will be made still smaller to all such persons, by reason of an annual tax of from one to two or a greater percentage imposed on the holders, for the simple reason that they are residents; although the protection afforded to the latter is in no degree different from or greater than that afforded to their more fortunate and rival foreign competitors, who reside where such taxes are not imposed; all of which is equivalent to saying officially that whenever an American loan, particularly desirable for trust investments, is created, it shall be sacredly reserved for foreigners, or that bad portion of citizens of the United States who have no scruples about cheating the assessors. Local subscriptions to local indebtedness, with the augmentation of interest in the locality which would necessarily follow, are therefore discouraged; while to the American citizen who ventures to subscribe, residence is made an offense and coupled with a penalty.
In the case of agriculturists, who constitute more than half the population of the country who follow gainful occupations, their personal property, consisting mainly of farm animals, implements, and farm products, is always readily open for inspection, and has a nearly uniform value throughout the country. The personal property of farmers is accordingly more completely reached and more accurately valued by honest assessors, than the property of any other class of the population.
Consider next the case of merchants. "What assessor, however honest and competent, can personally value all the stock of even one store, not to say the stock of all the stores in his district? Fancy an assessor making a personal appraisal of the stock of fifty drug stores, a hundred dry-goods stores, and as many groceries! In one store there are hundreds of different articles at different prices, by the yard, or the pound, or the gallon. Bales of goods lie side by side; some worth four cents a yard, some ten cents, some two dollars. The difference between goods worth one dollar a yard and those worth ​two dollars is often imperceptible to the eye of any one but at expert. But how can an assessor have time even to open all these bales, to look at them, much less judge accurately of their value? All the assessors of New York city could not approximately value the stock of one of its great dry-goods merchants without relying upon the word of their clerks. Therefore the stock of merchants and manufacturers would be assessed upon the valuation given by themselves, as in fact it is now. Thus the assessment of 'visible and tangible property' in these important cases, is made and must be made in exactly the same manner as the assessment of bonds, notes, and other invisible property, resulting in a double or treble burden upon the simple and truthful as compared with their unscrupulous neighbors."
And, finally, as regards so much of other "personal property" as is tangible and visible, and clearly within the territorial jurisdiction of the taxing power, such as articles of personal adornment, clothing, furniture, works of art, musical instruments, books, etc., shall we assume that we have here a class of articles on which it is desirable to levy taxes? Of course, the popular answer will be in the affirmative; for are not all these objects, it may be asked, the very ones best fitted to sustain taxation? and are they not in great part luxuries rather than necessaries? But how, it may be asked, are you going to tax them? for it is reasonable to suppose that if they are to be taxed, it is to be by a system that works equitably, and not by a system which, by taxing A, and letting B, C, and D escape, brings the law into contempt; and, by making the sense of the commission of a wrong on the part of the State the excuse for the commission of another wrong on the part of the individual, gradually undermines the morality of a community that does not wish to be dishonest.
An even approximately correct valuation of the above-enumerated articles is, however, a matter of great difficulty, and none but an expert can effect it. In very many houses there are many articles, like bedding, carpets, pictures, glass, porcelain, and the like, which exhibit few outward indications of undue value, and yet whose cost was very many times greater than similar articles in ordinary use. In fact, in proportion to the wealth of the taxpayer would be the failure of the most honest assessor to estimate the true value of his property. Some years ago a State tax commission in Illinois, with a view of aiding assessors to discover and rightly assess property of the character under consideration, recommended to the State Legislature the enactment of a statute whereby every woman of "full age and sound mind," either directly or by her representative, should annually return to the assessors a statement of the value of all the jewelry, household furniture, and all other property in her possession; but these recommendations never ​received any higher consideration from the public than that of being denounced and laughed at. And most naturally; for what woman would tell her age or the amount and value of her jewelry and finery, and more especially to a stranger invested with brief official authority as an inquisitor and assessor?
Again, a very large part of what is termed "personal property" is, through the necessities, policy, or organization of governments, made exempt from taxation; as, for example, all instrumentalities and property of a government—national, State, or municipal—especially the bonds, notes, currency, and certificates of indebtedness issued by the United States. The several States also generally exempt or lightly tax the deposits and surplus of savings banks, the accumulations of mutual insurance companies, the property of charitable, religious, or educational organizations, and also a comparatively small amount—but large in the aggregate—of personal property in the form of household furniture, clothing, working tools, vehicles, and animals, and the produce of farms not sold but consumed by the producers; and that the present tendency of State legislation is furthermore to continually enlarge the list of exempt property. The aggregate money value of such exemptions can not be accurately stated, but there is reason to believe that they include about one fifth of all the personal property of the United States.
Taxation of the Instrumentalities of Commerce.—Extensive as has been the foregoing review of the inherent difficulties attendant on the attempt to equitably and efficiently tax personal property, the results of taxing the instrumentalities or objects of commerce are especially worthy of additional notice in this connection.
A little reflection ought to abundantly satisfy that to tax the instrumentalities or objects of commerce in one locality, and to exempt the same from all direct taxation in another, will clearly not permit the former to enter a common market on an equal basis for competition with the latter. And yet this unjust discrimination is exactly what does result from the attempt of a majority of the States of the Federal Union to tax all such instrumentalities or ​objects under the general head of personal property, and the exemption of the same classes of property from any corresponding assessment in the British provinces of North America, and in all foreign countries with which the United States enter into extensive commercial intercourse and competition. Boards of trade and commercial conventions may pass "deploring" resolutions concerning the decay of American commerce, and committees of Congress may continue to investigate the same subject, but so long as ships, engaged in the carrying trade on the free ocean, and owned in Canada, England, France, Germany, and Holland, are not directly taxed, and ships engaged in competition in the same business, and owned in Portland, Boston, Baltimore, New Orleans, and San Francisco, are taxed, and taxed heavily, commerce will incline to move in the paths which are made easy and profitable to it. The difference in cost of a single penny per bushel in laying down grain at Liverpool may alone be determinative of the question whether millions of bushels shall be supplied by the wheat fields of the United States or those of Russia, India, or Hungary.
"As a rule, the States of the Federal Union tax shipping as other property is taxed, regardless of the fact that the other leading maritime nations usually impose no taxes on shipping as property, but tax only the actual earning of shipping; assuming doubtless, and correctly, that from the very nature of its use shipping can not fairly share in the benefits which accrue from state and municipal taxation for public purposes. In short, when a vessel is fulfilling the function for which it is built, it is navigating the ocean, remote, except during brief stay in port, from the fields and purposes to which state and local taxes are applied."
Only one State—Delaware—exempts shipping from all taxation; New York and Alabama exempt so much of their shipping as is engaged in foreign trade; Massachusetts, New Hampshire, and Connecticut tax the earnings only of their shipping in foreign trade; and, under decision of the United States Supreme Court, Pennsylvania imposes no tax on its shipping in interstate or foreign trade.
All the other States tax all classes of vessels as personal property, making no distinction between those engaged in foreign and domestic trade.
The comparative burden of taxation on shipping in the United States and the maritime states of Europe finds practical illustration in the following examples: The city of Portland, Maine, levied more taxes in the year 1893 on its shipping (63,206 tons, valued at $909,000) than the Cunard Company paid to Great Britain in the same year on a valuation of their ships of nearly $9,000,000. The taxation of shipping at Charleston, S. C, is five times heavier than that ​levied by Great Britain or Germany. During the year 1893 the city of San Francisco levied taxes to the amount of $85,675 on its shipping, a sum within $600 of the combined taxes paid during the same year by the Cunard Line, the Hamburg-American Line, the North German Lloyd, and the Compagnie Générale Transatlantique of France to their respective Governments; their combined shipping comprising upward of 700,000 tons of the best steel and iron steamships valued at upward of $58,000,000. And in addition to this onerous and (in comparison with other countries) discriminating burden of taxation or shipping, the income-tax act of 1894 imposed an additional and new tax of two per cent on the earnings of shipping in excess of $4,000, which would have fallen mainly on that portion of the United States merchant marine—i. e., the great American steamships—which is most exposed to foreign competition, and which it is regarded as especially desirable to nationally foster.
On the other hand, Great Britain, Germany, France, and the Netherlands tax only the earnings of shipping—i. e., an income tax. Austria in 1894 suspended for five years all taxation of its vessels engaged in foreign trade. Under this system of vessel taxation by the great maritime countries of Europe it is, furthermore, to be noted that the ownership of a ship that is idle and not earning does not entail any burden of taxation; but in the United States it makes no difference whether a ship be at work or idle, profitably or unprofitable employed, she pays taxes all the same.
The experience of the several States in respect to the taxation of vessels affords, however, a very striking illustration of the facility with which obnoxious taxes are evaded in the United States, or shifted upon those who are less able to bear them, and is thus related in the Report of the United States Commissioner of Navigation for 1894: "It is relatively an easy matter for the owner of several vessels to form a partnership with the resident of another State in which low taxes are imposed on shipping, and by allowing the vessels to stand in the name of such partner to escape the endeavor of the law to tax him more than his competitors in navigation are taxed. Thus, some years since, the authorities in Chicago decided to tax the shipping owned at that port on its full insurable value at the rate fixed for municipal taxes. The vessel owners of the city, in self-defense and to enable them to continue in business against competing ports, were compelled to make nominal transfers of their property, and thousands of tons of shipping, doubtless owned in Chicago, appear on the records of the National Bureau of Navigation as owned in other States. Though in the number and tonnage of its entries and clearances Chicago ranks with the greatest ports ​of the maritime world, yet its apparent rank as a ship-owning port is insignificant."
It is important also to notice how changes in the methods of doing business, in the facilities for transporting persons and property, and in the constitution of society and standards of morality, antagonize and nullify the popular ideas concerning taxation of personal property.
Formerly (as has been already pointed out) a man could not conveniently live in one place and carry on business in another. But now men may live and be taxed at places where the taxes are light and do business every day in a city twenty, thirty, or fifty miles distant where taxes are high, and there be exempt from all taxation. And yet how are you going to prevent a citizen from deciding for himself where he will live and where, under the accepted fiction of law that personal property follows the owner, his personal property shall be taxed? Formerly, to bargain for the sale of goods in a place not farther removed than New York is from Boston or Philadelphia, transport them there, and receive the proceeds of the sale, was an affair of weeks. Now a man living in Boston may bargain for a sale of thousands of dollars worth of goods in New York, transport them there, and receive his pay in the space of a single day. Nay, more. A man may acquire property and part with it at places on the opposite side of the globe with the greatest ease and security within the space of a few hours.
A change in the standards of morality has been alluded to as antagonizing methods of taxation. Thus, not very many years ago, every man knew, at least approximately, the amount and kind of property of all his neighbors, and knew that his neighbors knew the same in respect to himself. "He was willing to admit, under oath or otherwise, what everybody knew; and he would hardly dare to drive six cows to pasture every morning and swear in the afternoon that he had none." But now let us see from an indisputable experience of very recent date how the conditions of property and of morals have changed. Previous to January 1, 1889, the State of Connecticut, in accordance with common practice, taxed personal property in the form of bonds and notes from one to two or more per cent, wherever it could be found. The result was that the State from the outset could never reach for assessment but a small fraction of such property, although every citizen was required to annually submit a list to the assessors and make oath that he had included in it all property of the character in question; and this fraction, furthermore, tended to rapidly decrease. Thus, in the so-called grand list or aggregate valuation of the State for the year 1855, the value of the notes, bonds, and money at interest made subject to assessment constituted about ten per cent of ​the entire taxable property of the State. In 1865 it was about seven and one half per cent; in 1875 a little over five per cent, and in 1885 about three and three quarters per cent; and yet during the period covered by these statistics it is probable that the amount of State, railroad, municipal, and farm-mortgage bonds owned by the citizens of Connecticut increased to an extent equal to at least one half the valuation of all the other property in the State returned and made subject to taxation. In 1855 the inhabitants of eighty-one towns of the State did not own a single mortgage bond. Not a bond was returned as owned in the rich city of Meriden. The twenty thousand inhabitants of the thriving city of Waterbury by their united efforts managed to scrape together only seven hundred and fifty dollars in bonds. So far as cash is concerned, there was never a community since mankind emerged from a state of barter that got along with so little. In 1889, however, the Legislature of Connecticut modified her former statutes, and provided that the owners of all notes and bonds who would register them with the State Treasurer, and agree to pay in advance a tax of one fifth of one per cent per annum for a period of five years, should be exempted from all further State or local taxation on the same. Note now the results. The law in question went into operation on the 1st of August, 1889, and between that date and the 1st of January succeeding, something over $30,000,000 of bonds and notes were registered under the modified assessment, of which the treasurer in his report to the Legislature says, "Probably at least three fourths have never paid any taxes whatsoever." Here, then, within five months was uncovered to the taxing power a quantity of what the law makes property in excess of $22,000,000, and returns are still being received in large volume. The conclusion, therefore, seems to be that there is a good deal of conscience in the highly moral State of Connecticut which can be induced to cheat an forswear on a two-per-cent tax, that can not be bribed on a tax of one fifth of one per cent; or that a tax of from one to two per cent on bonds and notes in Connecticut is sufficient to nearly tax out of existence all conscientious scruples of its people in respect to the violation of law and the perpetration of fraud in respect to matters of taxation.
​In view of these facts the following answer, made some years ago by a man of New England birth and education, but of unenviable character and influence, to a question as to his father's honesty, has no little of point and application: "He is honest as the world goes. He won't tell a lie for twelve and a half cents" (the New England ninepence), "but he will tell eight for a dollar."
* ↑ Of the evidences of wealth owned by one of the richest families in the United States, almost the whole did not have an existence as recently as the year 1840.
* ↑ A copy of an assessment roll of the time of Edward III (1329–’67) given by Lingard, in his History of England, contains a list of articles, down to a towel and a bench; and the historian notes that in the returns are carefully mentioned the very rooms in which the articles were found, and that there were no exemptions except one suit of clothes for each person, which were supposed to be included in the tax levied on the poll or person.
* ↑ "In a case involving the assessment of personal property, in one of the courts of this State a few years ago, an assessor in one of our cities testified that his method of ascertaining what personal property a taxpayer owned was to examine the directories, the county clerk's office, and papers relative to estates of deceased persons; and when he lacked definite information, to guess at the assessment from the place of business or of residence occupied by the taxpayer. If the tax was cheerfully paid for two or three years, the personal assessment would then be ‘marked up.’ This process of increasing the personal assessment went on until, as the witness graphically said, the taxpayer ‘squealed,’ when the amount was finally fixed at what the taxpayer would bear without swearing it off."—Address on the Taxation of Personal Property, by Julien T. Davies, before the Manhattan Single Tax Club, January, 1891, New York.
* ↑ Taxation of Personal Property, Impracticable, Unequal, and Unjust. By Thomas S. Shearman. New York, 1895.
* ↑ The New Jersey State Board of Taxation, in their annual report for 1895, call attention to the fact that, out of the total amount of assessed property in that State in 1894, nearly ten per cent, or $72,786, 571, was exempt from taxation. The amount of tax exemptions in Newark, N. J. (a city which within recent years has been nearly bankrupt by excessive indebtedness and taxation), is reported for 1897 at $18,076,568, made up in part as follows: Churches, $4,081,750; private schools, $196,900; city property, $4,924,950; cemeteries, $893,800; charitable institutions, $1,231,700; public parks, $4,654,867. Soldiers' and sailors' widows have exemption to the amount of $523,675; firemen, $79,445; the National Guard, $36,475. These figures do not include the railroad exemptions, which are under the charge of the State Tax Commissioners.
* ↑ For succeeding years the amounts registered with the State Treasurer were returned as follows: 1890, $33,654,335; 1891, $24,792,509; 1892, $39,473,988; 1893, $12,418,673; 1894, $20,507,396; 1895, $18,533,543; 1896, $21,159,161. Why the large difference in the receipts of the above years occurred has not been satisfactorily accounted for by the State officials.
* ↑ In 1897 the Legislature of Connecticut, not satisfied with the unexpected large amount of notes and bonds returned for taxation at the rate of one fifth of one per centum per annum when voluntarily paid in advance, doubled the rate of tax to two fifths of one per cent, or four mills on the dollar. What will be the result of this fiscal policy is yet to be determined; but it is to be regretted that the original experiment could not have been longer continued.