Evening star., 1938-05-29
BY JOHN C. HENRY.

RosAsLY no theory Of taxation re-
- ceives more consistent lip service
than the principle of ability to pay.
Yet, as far as specific taxes are
concerned, the popular-sounding principle
invariably is sacrificed to give prior consid-
Grafton to revenue peeds, to punitive theo-
ries or to some other motivation.
For instance. greatest aggregate yield
from any single tax classification in the
United States comes from the property tax.
Returning approximately s4,5oO, ,000, 900
during the last fiscal year, this levy has
become virtually the sole source Of revenue
of local governments OF the total yield,
about $2Oo. 100000 goes to State govern
ments to comprise nearly 10 per cent of
their revenues.
Reduced in most cases to nothing more
than tax on real estate, the property tax
seldom operates on any reliable measure of
justice witt actual ability Of the owner to
pay being affected not only by income from
the property but from other sources, by
arbitrary valuations and by other economic
circumstances.
Change TO Income Basis Proposed.
Largely because of valuation abuses,
either actual or potential, the suggestion
has been made that the base Of the prop
erty tax be changed from capital value to
income from property involved, a measure
believed more susceptible to precise calcu-
lation than the capital value. Several
States are experimenting with this plan.
While a gesture toward justice in real
estate taxation has been made in some
States through exemptions granted to resi-
dental property of moderate size the effect
which this broad classification Of tax has
on rentals and prices of commodities and
manufactured products leaves it generally
applicable without regard to the economic
status of those on whom the burden even.
tually rests.
In simpler fashion the various State and
Federal taxes on liquor, gasoline and to-
bacco and the general sales taxes operative
in several States are better measures Of
buying requirements than of ability to pay.
The man of small income and many obli-
cations, for instance, will pay as much tax
on these products or commodities as the
man of great wealth. Likewise, persons Of
equal economic circumstances will share
unequally in the tax burden as they may
differ in their willingness or their COM
pulsion to spend.
Disregarded in Social Security.
Ability to pay also is disregarded in the
taxes levied on both employers and en-
ployes for social security purposes.
Subjected to payroll levies for unem-
ployment compensation and old-age in
surance, employers fined for bigness with
out regard to whether their operations are
at a profit or loss or whether the burden
of another per cent on their aggregate
payroll might be fatal to their continued
operation. Employees, too, find themselves
subject to a tax on their gross income
without regard to other obligations.
Other taxes on business reflect disre-
gard for ability to pay, either by the busi-
ness entity or by the stockholders who are
actual owners.
A fragrant instance is the business priv
ilege tax imposed in the District and using
gross income, as the base. Obviously gross
income without regard to profit or loss
factors is no more true measure of ability
to pay taxes than is the pay roll levy.
Such a tax is unjust both to the business
entity and to the stockholders.
Unequal Burden Of Corporation Tax.
The research staff of the Twentieth Gen.
t,rv Find spopsors of One 0f the most
comprehensive surveys of our tax prob
lens now available, make the following OBJ
servation on the manner in which cor
porate taxes fall finally upon the corpora
ton owner, the common stockholder:
Holders of stock in a large corporation
are of various kinds-some are rich, some
are barely well-to-do: some have large FAM
lilies, some have small families. The ordi-
nary corporation tax cannot take these
facts into account 1t is levied on the cor
poration as a unit, and it reduces every
stockholders dividend by the same per-
centage Whether the corporation tax is
at a nat rate or at graduated rates. whether
it is tax on all net profits or simply un-
distributed profits, common stockholder
AS share in the companys earnings is cut
precisely the same percentage as the share
Of common stockholder B.
In other words, provided that the bur-
den rests on common stockholders, and not
on employees, customers or others, cor
porations income tax is equivalent to q
tax at uniform nat rate on every one Of
its common stockholders. A tax at uni