Chapter XX - Too Much and Too Complex Taxation

Pretty much everything in sight, in the way of ex isting property and income, has been taxed already. So the attention of the tax-gatherers is now turned to taxation of what does not· yet exist, toward future production rather than past thrift, by means of levies on turnover or sales. This new tendency seems to me wholly salutary and worth while, be cause by the very nature of such taxation, the atten tion of the taxpayers at last will be focussed on what the tax-gatherers are about. The vice of our existing taxation has been that it is so largely hidden from the voters that they have paid no attention to it. I am not a tax expert, and have not studied the history of taxation at all exhaustively, but it is a reasonable guess that the worldwide habit of taxing existing real and personal property grew up through the centuries, because the property was there; not to be hidden, convenient for seizure by Government in enforcing payment. Probably for the contrary rea[ 31 5 ] Too Much Government-Too Much Taxation son the poor have largely escaped direct taxation, even under old-time autocracy; not from any particu lar sympathy for them, but because the property was not there; and it is impracticable to collect cash from those who have nothing but services with which to pay. Under modern democracy another powerful reason for not appearing to tax those who have little or nothing exists in the fact that there are so many of them, and that they are apt to be voters. The game of the average modern demagogue is to fool the many poor into the belief that the few rich pay all the taxes. Playing that game for fifty years or so in the United States has resulted in taxation so largely invisible that perhaps a majority of our voters imag ine that they pay no taxes at all.

'rhenatural result is that taxation seldom becomes a political issue. The writer has been a voter for more than fifty years, and has lived east and west in small and large communities, yet never has he known a single election to turn upon the issue of taxation, or governmental expenditure, national, state, or local. That issue is, in practice, not raised. Nevertheless, taxation is the paramount issue-the great issue profoundly affecting all good government; and most of all, democratic government. History is one long record of the rise and fall of governments; in which last overtaxation is usually a potent factor. Ind ustry, commerce, and the creation of weaJth are everywhere spontaneous, and spring up first; then government follows, and with it taxation. The cost of government has always been, always will be, and always should be, like the overhead expense in any productive industry, merely a protective, non-pro ductive charge upon industry. The less such a charge costs, the better for all concerned.

Whenever taxation grows excessive, and poverty [ 316 ] Too Much and Too Complex Taxation becomes unbearable to the people, then come revolu tion and overthrow of government. Meantime, daily life and industry go on somehow-as in Soviet Russia to-day-although crippled by violence and disorder . Eventually new government arises, and for a generation or two, while the lessons learned are fresh in mind, individual and national economy, law, order, and protection of property, prevail; and there commences a new cycle of prosperity. Men who love their country rejoice in that prosperity, and dream· that it will endure for ever; but it never does! The most that humanity can hope for is gradually to learn from the experience of the past; and so to reorganize government as to prolong cycles of pros perity to the utmost. Under democracy (the most likely form of future government in sight) no single factor is more vital to vigorous and prolonged na tional life than that of least and fairest taxation; and, as I said a moment ago, the colossal taxation of the Great War is now pressing on the attention of all nations almost to the exclusion of other factors. It is' the' psychological moment for a free people to stud y methods and amounts; and stand for least and fairest taxation.

Adam Smith's Four Canons; Their Viola tion. Adam Smith laid down over a century ago four cardinal principles or canons of taxation, which have been accepted generally ever since. They were as follows: First, EQUALITY OF TAXATION Second, CERTAINTY OF TAXATION Third, CONVENIENCE OF TAXATION Fourth, ECONOMY OF TAXATION. That' is to say, taxation must be just as between citizens, or proportionate to income received, direct or from property; it must not be arbitrary, subject [ 317 ] Too Much Government-Too Much Taxation to the will or whim of assessors; it must be conve nient of assessment and collection; it must be econom ical, not costing the people materially more by its reaction on trade than it yields to Government in revenue. Let us examine our existing taxation for its con formity .. or failure to conform to these canons taken in their order. My own thought was first directed to the subject of equality of taxation by personal experiences away back in the 80'S when head of the gas industry in Chicago. I was nearly forty years old, and had had broad business training, yet never before had had occasion to reflect on that great factor in civil and political purpose. I have already told the story of a gas company voucher for $5,000 paid to a member of the Illinois State Board of Equalization, who threatened tax assessment of ruinous size. The Illinois laws imposed a capital-stock tax upon certain corporations, and placed the assessment thereof in the hands of the State Board of Equalization. But that Board was entrusted also with "equalizing,"

or distributing, state taxation among various local governments embraced in the state. These local governments, as is often done elsewhere, include the state tax along with local taxes, in making local as sessment and collection; but as the rural communities of Illinois were always trying to load upon the great city of Chicago what Chicago considered an unfair share of state taxation, the Chicago Assessors side stepped by assessing city property at only one fifth of its actual value; increasing the city rate of taxation accordingly to 6 or 7 per cent. The state rate of less than I per cent. thus applied, of course, to but one fifth of the real value of city property; which divided by 5 the share of the state taxation laid upon Chicago. [ 318 ] Too Much and Too Complex Taxation Under another statute, however, capital stock had to be assessed at market value, which therefore could not be divided by 5. Consequently a city assessment at 6 or 7 per cent. of market value, which in the case of the Pullman Company, for instance, was about $200 per share, would .have penalized that un fortunate concern (which was taxed also on its tan gible property in the state) with taxation of some 12 per cent. upon its capital; or more than its entire dividend. Such a working-out of a purely demagogic law was so manifestly and ruinously unjust that the law was ignored and became a dead letter; and the State Boar4 of Equalization used to assess such capital stocks upon the general principle of "you tickle me, I'll tickle you." The opportunity for graft was unique, and appointment to membership in the Board of Equalization became a political plum of such high flavor as to fetch $5,000 checks. The elements of "equality," and "certainty," too, were conspicuously ·absent in this taxation.

Chicago city taxation was no better. About the time of the experience with tax grafters noted above I suffered from simple stupidity of taxation, in which there was no graft asked or paid. I owned some real estate in the heart of the city, where skyscrapers were being erected; but this particular piece could not be so utilized without extending any lofty structure that might be. built upon it also over a small corner lot adjoining and essential to my property. Without the corner a profitable skyscraper could not be built; but it was tied up in litigation, and could not be ob tained. I waited in vain several years. Meantime, my property was taxed upon the valuation paid for near-by lots on the same street, upon which sky scrapers actually were erected. Upon my lot stood an old six-story building, which no desirable tenants [ 319 ] Too Much Government-Too Much Taxation would enter. The taxation and expenses took more than the entire shrunken rents of the property, and cost me a net loss of six or seven thousand dollars a year. Finally, in desperation, I sold it at a heavy loss, to a corporation that wanted a well-situated low building' for its own special use, and was looking for cheap property. It has remained so occupied ever since. Yet that unjust tax assessment was levied according to law, though contrary to Adam Smith's principles of equality and certainty.

These are but haphazard cases out of thousands, to illustrate how any system of ad-valorem taxation, whether of land, or personal property, or income, must necessarily be subject to vast fluctuation of natural and artificial values; and must offer almost unlimited lack of "equality" and "certainty" with constant temptation to undervaluation, fraud, and graft. On general principles, any system which imposes any such strain upon human nature should be relegated to the scrap-heap as soon as any better substitute can be found. I have given only one or two instances, but the history of our taxation reeks with favoritism and corruption. Certainly we can do better by planning better. I repeat that I am no tax expert, and the very fact that experts are so necessary in our taxation speaks volumes for its violation of Smith's third canon, of "Convenience." Take, once more for instance, the most time-honored of existing ·taxes-championed by many as the only tax-that upon real estate.

The assessment of real estate for taxation is one of the most difficult of governmental functions. No two pieces of land are exactly alike, and the condi tions surrounding any given piece are continually changing. Thoroughfares are opened or closed, drainage' and sanitation improve or deteriorate, [ 320 ] Too Much and Too Complex Taxation fashion or industry causes shifting of occupancy. So great is the fluctuation in the value of real estate, especially in cities, that-as I know· by the bitter experience already cited-investment in any real property except a grave is quite as hazardous as stock speculation; the only advantage offered to the real estate plunger being that he is in practice com pelled to put up say 30 per cent. margin instead of the 10 per cent. demanded upon stocks-so that to that extent he is better financed against fluctuation. On the other hand, his market is far less broad and less immediate. So, when it comes to determining values of real estate for taxation, year after year, it requires the services of experts, intimately familiar through long .contact with neigh borhoods and changes, to··assess the value for taxation of one piece of property as against another; and like every govern mental function, this assessing power must beexer cised by human beings. It is therefore subject· to human error, human cupidity, or human favoritism; with the frequent results of inequality and injustice and graft. Furthermore, continuous and· com plicated records of taxable property, of changes of ownership, of liens, payments, and penalties, of court proceedings to enforce collection and the like, neces sarily load and encumber taxation of real estate, and aggravate its burdens.

Or consider our internal revenue and tariff taxa tion. Survey the huge machinery and complication of detail required in the assessment and collection of, for instance, the liquor taxes, or· the taxes on im ports; consider the necessity· of bonded warehouses, of entry and withdrawal thereat of liquor or goods, of following stuff in bond through years of storage, of hunting down and prosecuting illicit distillers; con sider, too, the immense premium placed upon crime [ 321 ] Too Much Government-Too Much Taxation and fraud by the very nature of the taxes, of the commodities and of those who deal in them. Or, finally, consider the income and excess profits taxes. The Treasury Department at Washington is some three years behind in mere auditing of some millions of returns, and meantime there hangs over the heads of those who made them an unknown liability for taxation dependent upon the whim or judgment of the auditor, which will not even be known for years to come! Yet some 3,000 employees are engaged upon that audit!

Almost worse still, consider the demoralizing by products of personal property and income taxation; the constant opportunity and temptation to conceal personal assets and minimize income. Consider also the enormous establishments required for as sessing and collecting both and the huge govern mental expenditure involved. The cost of collection of internal revenue and cus toms taxation as given by the latest Statistical Ab stract of the United States (for 1919)-about $30,ooo,00o-was not excessive for the amounts collected. But for the cost of assessing and collecting state, municipal, and rural local taxation, statistics from public records are not so readily available; and more or less guess work must be indulged in. Per haps the following may not be too misleading: Tabulation shows that there are in the forty-eight states some 250 cities of over 25,000 inhabitants, and about 3,000 county governments; all of which prob ably elect or appoint, under various appellations, assessors and collectors of taxes. It is probably fair to estimate the number of these officials and their staff of bookkeepers, etc., at five persons per county in the rural communities, and in the cities at ten persons each; and that they draw nowadays an [ 322 ] Too Much and Too Complex Taxation 'average salary of $2,7°0 per annum all around.

The office accommodations, books, stationery,· etc., might average as in commercial offices, say $25 per month, or $300 per annum per person em ployed. A little arithmetic then gives roughly the total resulting bill for cities and counties as $52,5°0,000 per annum; and the entire cost for nation, state, and municipalities totals as follows:For the Nation, say as above $30,000,000. For the State (!% of revenue) . . . . . . . . . . . . . . . . . 4,500,000. For the Municipalities (17,540 employees @ $3,000 salary and expenses per annum. . . . . . . . . . . . . . . 52,500,000. $87,000,000. All expended without the creation of one cent of value, simply for laying and collecting a total tax ation say of ninety-two hundred and fifty million of dollars. These figures are too huge to grasp, but when com pared, as they will be further on, with the cost of collecting sales taxation, they constitute cumulative evidence of breach of the canon of "Convenience."

Last in our order of review comes violation of the canon of "Economy"; most frequent in tariff taxa tion-and one of the most potent arguments against that mode of raising revenue. Here are sonie typical cases: I was handed at the office of the Home-Market Club of Boston, yesterday, a leaflet from the Textile World Record of April, 1909, touching the tariff on washed and unwashed wools. It seems that wool shrinks tremendously in washing, some wools more than others. Ten thousand pounds of a certain greasy wool, said this leaflet, pays duty under the Payne Protective Tariff of $110. The same wool scoured weighs 6,652 pounds and pays $2,194.16; [ 32 3 ] Too Much Government-Too Much Taxation difference $1,°95.16. Now it costs for labor to scour this wool $80.99; showing clearly that the man who scours has a tariff protection of $1,°95.16 to cover labor cost of $80.99, and need therefore have no fear of foreign importation. The details of this article are too confusing to go into, but I wish to point out the transgression of Adam Smith's fourth principle; that is, in tariff taxation which takes an extra cost of $1000 on every 10,000 pounds of wool out of the pockets of the people, and hands it over to the man who does the scouring, without yielding a cent to the Government in revenue. This case of scoured wool is comparatively unimportant, I fancy; does not run into the millions of dollars so fast. But consider a conspicuous instance, that of the tariff on iron and steel, which was for many campaigns the backbone of the Republican party's protective policy. Here is a much more effective illustration of violation of Smith's fourth canon.

When I first went west to Lake Superior, in 1869, there was a protective tariff on iron ore of 75 cents a ton. The lake ores went by water to Cleveland and by rail as far east as Harris burg, on the Pennsylvania R. R., there to meet the Spanish, African, and Cuban ores coming in by water to Philadelphia and thence by rail and paying 75 cents a ton import duty. West of Harris burg the freight rates on the foreign ores increased as they left the seaboard, while those on the lake ores decreased, and the foreign ores' came no farther inland. It did not pay to use them. The effect of the tariff of 75 cents a ton on the foreign ores was to give to the lake ores a strip of territory west of Harrisburg as wide as a freight charge of 75 cents a ton would bridge. If, for instance, the rate had been one half a cent a ton a mile, as it easily may have been, the lake ores kept a strip of ISO miles west [ 32 4 ] Too Much and Too Complex Taxation from Harrisburg that otherwise might have been penetrated by the foreign ores. From Johnstown westward, clear to the Rockies, the whole interior of the country, the great Ohio and· Mississippi valleys producing perhaps two thirds of our entire output of iron and· steel was already handed over to the lake ore owners, and absolutely protected from competi tion of foreign ores by freights. All the same they drew down a tariff bonus of 75 cents a ton, paid by the people of the United States in the shape of in creased costs of iron and steel, without turning in a dollar to the United States Treasury. There was a proportionate tariff on iron and steel, both of which enjoyed a largely unnecessary protection.

The consequence was the extraordinary growth of the great iron and steel fortunes, such as Carnegie's. He told me himself, one evening in 1875, that his properties were then worth at a conservative valua tion two millions and a half of dollars; and that he and his brother had started fifteen years before with less than twenty-five thousand dollars. He thought that growth astonishing and so did I; yet in 1901, only twenty-six years later, he sold those same prop erties and accretions to the. U. S. Steel Corporation for $450,000,000, and had earned $41,000,000 profit the current year. During that interim he had averaged an extra profit, presented to him by the tariff laws of our country, which I have heard es timated at 1>5 per ton on his enormous output, for which the people paid, whiletheTreasuryofthe United States got nothing. Nor can it be said even that the tariff created the giant industry; forit was created by the demand of the country for steel, which certainly was not stimulated by loading with an extra 1>5 the price of every ton hought. Certainly every ton that was bought would have been bought just the [ 32 5 ] Too Much Government-Too Much Taxation same, if the price had been that much less; the mills would have grown just the same, and a comfortable profit would have been made, though not just the same. Mr. Carnegie would have been obliged to take in many more owners in financing his growth; and would not have accumulated so much and so fast himself.

The stock argument for a protective tariff is that it is vital to develop American industry and raises American wages; that it means the "full dinner pail," to quote the slogan of the McKinley campaign. If this argument were broadly true, its force would have to be admitted; but it has always been extremely difficult to establish any direct connection between high wages and high tariffs in any given industry; for instance, between the tariff on garments and the wages of the Sweat-Shop Garment Workers in New York. Furthermore, though some of our great manufac tures, such as steel and woolen, have certainly pros pered immensely under tariff protection (which has been credited by politicians with that great prosper ity), what has caused the immense development, for instance, of the oil or the automobile industries? The Carnegie fortune was, indeed, largely owing, as I have just said, to the protective tariff; but what of the· Rockefeller fortune, or the greatest fortune of all times, that of Henry Ford ? Neither Rockefeller nor Ford benefited at any time by tariff protection.

Yet theirs have been our most colossal business suc cesses-and both, particularly Ford, pay the highest wages in the world! The case for the Protective Tariff is, as the Scotch say, "not proven." It may be said truly enough that, though Carne gie's $450,000,000 came out of the pockets of our one hundred million people, they did not know it; nor did it make any practical difference to them. Four [ 326 ] Too Much and Too Complex Taxation dollars fifty cents each, spread over a period of forty years growth, or say eleven cents a year, certainly did not hold the American people back as much as it pushed Carnegie on. All the same, taxation that furtively takes out of all our earnings every year a few cents each for the enrichment of one of us, even upon the political excuse of reasonable war pre paredness, is economically vicious; and as certain to breed lobbyism and corruption in legislation and administration as carrion is to breed maggots.

Moreover, it always pays incomparably better to tra?e with other nations than to fight them at arms, or In commerce. Surely the simpler and better ultimate policy, especially for the United States, now the strongest and richest of all exporting nations in industrial resources, is that of universal peace and the "open door" at home and abroad; kept open perhaps by some form of association of the nations for disarma ment and maintenance of international justice. Meantime our exports languish, and our tariff and internal taxation are the plaything of politics and parties, constantly violating Adam Smith's Four Canons; and so complex and unintelligible, even to Congressmen and State Legislators who try to master them, as shown by their debates and blunders, that the average voter like myself can but conclude that they violate also every canon of common sense. No more convincing evidence of the demoralizing impossibilities of tariff legislation can be presented than the struggle in Congress over the Fordney McCumber Tariff Act, which has been so freely denounced in the press for months past. The Bill originated in the House, but the Senate loaded it with some 2,000 amendments~think of it! A Conference Committee will somehow iron out the differences ber 327 ] Too iMuch Government-Too Much Taxation tween the two chambers on this Bill, but what sort of intelligent or. just consideration can possibly be given by a Senate of 96 and a House of 435 members to endless variation in tariff rates, in a bill covering over 100,000 schedules! I personally am not a be liever in any taxation upon imports; but, if we must have a tariff, its schedules should never be framed by Congress or become a matter of political, as distinguished from economic, expediency. Maybe this suggestion is impossible. If so, so much the worse for our politics.

Hidden Taxation. I have spoken of least and fairest taxation. But what is least and fairest taxa tion? What should be the cost of government? No living man can answer these questions, for the excellent reason that we have no standards of com parison, and so far have never taken the least trouble to establish any. As I have said already, I have never known an election to turn on governmental economy or extravagance; because our taxation, while constantly growing, has been so largely hidden that legislators who vote away our taxes are not held responsible by those who pay them but never know it. It reminds me of an old-time telegrapher's story of the early days of the Western Union Company, when it was noted for iron-clad treatment of its employees. A highly trusted lineman was sent out one day in a blizzard to repair some lines downed by the storm, where the Pennsylvania Railroad crosses the Alleghany Mountains. He fought his way through snowdrifts and worked for several hours between two or three poles; and when his job was done, at the risk of his life, he could not find his overcoat, which he had had to throw off while climb ing among the cross arms and wires, and which had [ 328 ] Too Much and Too Complex Taxation become buried by the driving snow where he had tossed it. He reported to the Division-Superinten~ dent at Pittsburgh, and asked fora new overcoat at company expense. ' "You did a great job, Jim, and deserve a new coat all right," was the reply, "but you know mighty well that I never ca~ get a voucher for an overcoat past the Auditor at New York. I am sorry!" The lineman said "all right," and went his way; but for several weeks after that, every time he put in an expense voucher he asked the Superin~ tendent to look at it carefully, until at last the latter asked him why the devil he was so particular about his vouchers. The lineman answered: "I will not be any more, Sir; this is the last one. That overcoat was in those vouchers, but the Auditor will never find it, any more than you could" -and the Auditor never did. Jim got his coat, and the company paid for it.

Just so with our taxes: the voters pay them, but never find it out. Shall I give proof of this asser tion? Take, for instance, an item so conspicuous in our national revenue before the days of prohibition as the spirits tax. Out of a total national income of $724,000,000, in 1913, it yielded approximately $164,000,000. For a population of say ninety-seven millions in 1913, this tax amounted to $1.70 per cap.;. ita. Perhaps sixty per cent. of itwas paid by manu facturers, using alcohol in the industries; and passed along to the public in the price of their product.No body saw it there. Forty per cent. of it was paid, however, for the most part only by those who were known as moderate drinkers; probably not over one tenth of the population, or say ten millions in num ber. These men paid say $6$,000,000, or $6.50 apiece per annum; which was quite lost in the price [ 32 9 ] Too Much Government-Too Much Taxation of their daily drink or drinks, costing say 10 cents each. The manufacturing cost of whiskey at Peoria used to be around 19 to 20 cents per gallon: the revenue tax about $1.10 per gallon-say six times as much. This revenue tax came to perhaps 2 cents per glass, or one fifth of the retail cost to the men who bought. Did the latter, largely laboring men, real ize the heavy burden of taxation thus laid upon but concealed from them? They did not!

Or consider the customs tax on woolen cloth. On the average these same working men probably bought before the war for say $75 or $80 retail prices, two suits of clothes and an overcoat annually. Ac cording to the Department of Commerce Statistics, the customs duty for 1917 was 37 per cent. ad va lorem on wholesale CQst of about $55. The aver age American working man that year paid a hidden tax of about $20 on these garments alone. Did the man know it? Did he realize that he was paying taxes of $26.50 per annum on but two items (clothes and drink) of his living cost? No; he had not the least idea that the tax-gatherers were reaching into his pocket, or that the Government was spending his money. On the other hand, our state and municipal taxa tion has been assessed for the most part upon land and personal property values, and further meagre revenue has been derived from licenses of various kinds; but in general only those who possess real property, or personal property that cannot be con cealed from taxation, are called upon to face the tax gatherers. In the country the farm owners, and in the towns the owners of buildings, industrial and commercial property, are taxed and know that they are taxed. But transient farm and industrial labor ers, and the large urban classes who live in rented[ 330 ] - - - - - Too Much and Too Complex Taxation lodgings, who together must constitute a very con siderable majority of our voting population-never have to worry about paying local or other taxes from the cradle to the grave. They pay most of the real estate taxes in increased rents but· never know it.

They think they pay none at all; and that the real estate owners, corporations, railroads, banks, and the rich fellows generally are paying the taxes. So our law makers figure that, as there are not many rich men, and as corporations have no votes, not very many voters will squirm and fight invisible taxation; and that laying the visible burden upon the rich will be popular with the poor, the majority. Well-the politicians are right enough in their shrewd estimate; taxation of the rich, especially the income tax, has undeniably appealed to the mass of the voters. Under such camouflaged taxation no fear of consequences has held back Congress, or the local governments, from lavish expenditure. Too Much Taxation. Coming now to state and local taxation, I have heretofore called attention to the multiplicity of taxing bodies, each taxing inde pendently of the other, for such amounts as each in clines to spend. This mayor may not result in extravagance; but must always tend in that direc tion. The logical remedy to-day is that of simpli fication, and consolidation of all taxing bodies to the utmost. This, of course, would .automatically be accomplished if the consolidation of local units and the simplification of local government suggested above were first to be carried out; which is also true of state government. Even making due allowance for the abnormal national and local expenditure caused by the Great War, the following revelation of what is annually taken out of his pbcket by our [ 33I ] Too Much Government-· Too Much Taxation various governments, national, state, and local, will stagger the average man when compared with his own annual income. Here it isl Note the steady increase in our burdens.

PER-CAPITA COST OF NATIONAL GOVERNMENT (Statistical Abstract of the U. S., 1920, Page, 770) 1800-$2.04 1876-$5. 87 1891-$5.56 1906- $6.49 1810-1.17 1877-5.21 1892-5.29 1907-6.41 1820-1.90 1878-4.98 1893-5.77 1908-7.10 1830-1.18 1879-5.46 1894-5·43 1909-7.45 1840-1.42 1880-5.28 1895-5.16 1910-7.30 185°- 1.77 1881-5.06 1896-5.01 1911-6.96 1855-2.15 1882-4.92 1897-5.10 1912-6.84 1860-2.01 1883-4.94 1898-6.07 1913-7.01 1865-37. 27 1884-4·45 1899-8.14 1914-7.07 1870-7.61 }CiVil 1885-4.63 1900-6.39 1915-7.26 World 1871-7.16 War 1886-4.22 1901-6.56 1916-7.08 War 1872-6.66 and 1887-4.56 1902-5.96 1917-11.06 land 1873-6.84 Con-1888- 4.32 1903-6.26 1918-85.38 Con 1874-7.04 sequ-1889- 4.60 1904-6.50 1919-144.77 sequ 1875-6.25 ences 189°- 4.75 1905-6.77 1920-57.72 ences. NEW YORK CITY BUDGET INCREASE IN FIVE YEARS (From New York Herald, October 21, 1922) The following table shows New York City's steadily mounting budget during the Hylan administration. The figures for 1923 are those proposed for adoption yesterday by the Board of Estimate and may be trimmed somewhat before final acceptance October 31: Increase $ 9,9° 1,675 25,564,23° 71,881,935 4,944,9 25 11,252,457 Budget $248,025,759 273,689,664 345,571,599 35°,5 16,5 24 361,768,981 Year 1919 1920 1921 192 2 1923 (pro posed) The budget for I9IS-the last year of the Mitchel administration-was $238,123,759, and for 1914, Gaynor's last year, $199,388,158. The increase of [ 33 2 ] Too Much and Too Complex Taxation the proposed 1923 budget over the 1918 budget IS $123,645,222, about 52 per cent.

A particularly vicious feature of the 1923 budget is the fact that salaries were increased, not appar ently by the City Council, but by the State Legisla ture. On what principle taxation of New Yorkers for New York local expenditures, by vote of represen tatives from Buffalo and other towns in the-State of New York, can possibly be based, is one of those costly conundrums inseparable from our American variety of Too Much Government. Hardly a city in the United States but will furnish a record of increased expenditure, varying in degree, not often forced on it by State Legislation, but still unreasonably great. For many years to come we must foot the cost of the World War, gradually and year by year. A bil lion of the Civil War debt was still unpaid when the World War began; so we cannot now hope to get back to pre-war taxes in the near future. We can, however, lay down sounder limitations of govern ment activity, and curb ordinary national taxation at the same time.

TotaLnational receipts from taxation in 1919 were four billions six hundred forty-eight millions; for 1920 the estimated requirement was four billions one hundred and eighty-five millions; of which one billion was to pay interest on war loans. That is to say, from a population of one hundred and five mil lions as per the census of 1920, the National Govern ment planned to take for taxes in various forms nearly $40 per capita. The various state govern ments also spent during 1918 (figures for 1920 not yet available) eight hundred and ninety-three mil lions; or in round numbers as the population then stood, $8.50 per capita. The 227 municipalities of ( 333 ] Too Much Government-Too Much Taxation over 50,000 population throughout the United States, for 1919, took eleven hundred fourteen mil lion dollars from their population of thirty-four mil lion seven hundred thousand; or$35.58 apiece.

In Massachusetts the bill came higher. Seventy five towns of over 5,000 population took from 680,600 residents thirty-eight million five hundred thousand dollars, or $56.50 apiece. Two hundred and one small towns in Massachusetts, of less than 5,000 popu lation, took from 400,000 people eighteen million five hundred thousand dollars, or about $46.50 each. Apparently government costs the country taxpayer in Massachusetts more than it costs the average city taxpayer (not in his own state, but in the United States generally); which is logical-and should be the case universally . For the cost of government ought to decrease per capita with the increase of population served, just as the cost of doing any kind of business tends to decrease with the growth in volume of business done. However, if we accept the grand average of all the 50,000 population cities in the country, namely, $35.58 annual tax per capita, in order not to over estimate, as fair for the entire country (that is, no higher in the rural communities than in the cities), we have the following result for 1920: The national collection from each of us was $4°.00 The state do do 8.50 The municipal do do 35.58 Total collection for that year per capita and it is not likely soon to be less.* $84.08 *The National Industrial Conference Board's Research Report No. 55 of October, 1922, gives total taxation per capita as $87.4o-a more ac curate survey than my own-for year 1921. Percentage of average income absorbed by taxation, 16.7 per cent.

[ 334 ] Too Much and Too Complex Taxation How does this compare with our national earnings per capita? The Statistical Abstra'ct of the United States Census for 1919 estimates the gross income of the American people for 1914 at $35,282,000,000, or $388 per capita. Various estimates of gross income for 19I 9 taken from the statistical record of the Census Bureau at Washington, and from the pub lications of the Bankers Trust Co. of New York, and of other economists, run from forty billion to sixty-eight billion dollars per annum. Assuming fifty billions as the mean, and a population of one hundred five millions, we have in round num bers an earning power of $475 per annum per capita, as against an average tax per capita of $84.08. In other words, more than one sixth of the average income is absorbed by national, state, and local government in aggregate average taxation. It makes no diffetence what the form of that taxa tion is; this great average burden of say 18 per cent. of the annual income is actually laid on every man, woman, and child of our population, directly or indi rectly-and the bulk of it is paid indirectly by the original producer, the worker. If taxation lies on real estate, the poor man pays his share of it in rent; if it lies on whiskey and clothing, he pays for it in the increased price of both. Even in the case of taxes on income or excess profits (both yielded by high prices to the consumer), though they are laid pri marily on,the rich and on the successful corporations, still a burden· is shifted eventually. to the shoulders of the working man; for those taxes seriously cut down the accumulation of capital which otherwise would be employed in useful industry, giving him new openings for employment, paying new wages, stimulating productiop, increasing the volume of [ 335 ] Too Much Government-Too Much Taxation commodities, and lowering prices. Moreover, in come and excess-profits taxation cause the well-to-do to switch their inve~tments, from successful produc tive industries where they are heavily taxed, into tax-free obligations of government, where they neither produce revenue nor serve useful purpose in creating future industry; although they do have the merit of contributing to pay the piper for past governmental extravagance.

Collectively, we now payout this sixth of our gross receipts}n taxes; but how many of us know it? Let us enquIre. There are 6,400,000 farms as per Census of 191o,' and 20,000,000 homes, including the farm houses. There were 275,000 manufacturers in 1914 and 3,500,000 persons reported for income tax in 1919, 345,000 corporations reported earnings for taxation in 1917. Merchants numbered about 1,200,000 according to Census of 1910. Probably all of the foregoing, numbering together by this time perhaps twenty-five million persons, were taxed, and knew it -but how many of them were voters? In the rural districts probably half of the voters were taxed, and knew it; but in the cities, the centres of industrial population, my guess would be that two thirds of the voters never knew or now know that they are taxed, or have any interest in cost of government at all. It is high time that everyone of us waked up and looked about him, to see where our Ship of State is going; to find the leaks in its hold and stop them before the decks are awash. To stimulate our curiosity, let us note the extraordinary differences in cost of government in different years and coun tries. For instance, the Dept. of Commerce Statis tical Abstract for 1920 gives the taxation per capita [ 33 6 ] Too Much and Too Complex Taxation collected by leading governments as follows (re duced to dollars) : ItalY-I 919 .

Belgium-I 914 . France-I 9 19 . Germany-I 918 . ]apan-I 919· .. ~ . Great Britain-I91.o . United States . Canada-I9 18 ......................•...••..• 1> 49·94 1.0·35 49·44 17·37 7.0 7 11.3.40 41.~91. 3°.18 What vast differences are shown; and why should they be so vast? I have in the foregoing pages on taxation taken the hastiest, most superficial crack at a few of the most conspicuous inequities of a huge problem, that of just and wise taxation. I should be ashamed to write of it in so sketchy a way did I not know that I paint a picture familiar to every reader's eye. I have been paying taxes, domestic and foreign, for myself and others all my life; and I can truly say I never knew anything about them. I have had to take the word of tax experts, or go it blind, every time. I never met a man, not a tax expert, who knew, any more than I did, what our governors were spending; how much they ought to spend; how they apportioned the amount amongst us; or how they ought to do so !

Now I submit that amounts and methods of taxa tion-the very foundation of all government, the crux of good government-which are so complex as to be utterly beyond the m~stery of men of ex perience as broad as my own (to say nothing of the millions of average voters) are utterly unsuited to democracy. The profoundest concern of the peo ple lies right there, in taxation! That they should be absolutely without knowledge of it would ,be [ 337 ] Too Much Government-Too Much Taxation called unbelievable if it were not so universally habitual and true. Every man ought to know what government ought to cost him. With this apology for wasting no more time in proving what nobody denies, I leave the existing situation for the moment; to return to it later in making suggestions for better methods of taxation. { 338 ] CHAPTER XXI SIMPLIFICATION AND VISIBILITY OF TAXATION New Canons of Taxation Needed. Adam Smith's Four Canons of Taxation were enunciated rather early in the evolution of· British democracy; when for the most part the suffrage was restricted to the few, and taxes. were assessed against those who had visible, tangible property; upon landholders and capi talists. Probably they were reasonably fair and just then, as between the men who paid them. But in our day and land of universal suffrage our American principle that "taxation without representation is tyranny" necessarily implies the converse principle, that representation without taxation is injustice.