properties, American taxation today is in practice regressive, and some progressivity is needed, if only to balance the admitted regressivity of existing taxes.

While general considerations thus seem to warrant persistent effort to introduce a moderate measure of progressivity into our direct taxes, the student is warned that this should not be done in any doctrinaire or offhand fashion. A thousand considerations of practical expediency must be taken into account in the shaping of a revenue system, and in the end we are more likely to attain the goal which the advocates of progressive taxation seek by careful exemptions from taxation, by special taxes upon corporations, monopolies, inheritances, and certain forms of income, and by directing expenditures to the succor of the weak and the equalization of opportunity, than by exclusive dependence upon any one far-reaching tax such as a progressive income or property tax.

No tax system, then, can be fairly judged without reference to the character of expenditures. Where the expenditures are wasteful, corrupt, and unwise, heavy taxation is a curse, -although even here the rational method of reform is rather to root out the corruption and improve the administration, than to reduce taxation, even if temporarily it may be wise to do the latter. But where the expenditures are on the whole wisely and beneficently made, heavy taxation is not an evil. No country was ever yet ruined by large expenditures of money by the public and for the public. The true principle to be observed in levying taxes was tersely expressed in the 41st section of the constitution adopted by Pennsylvania in 1776: "No public tax, custom, or contribution shall be imposed upon, or paid by, the people of this state, except by a law for that purpose; and before any law be made for raising it, the purpose for which any tax is to be raised ought to appear clearly to the legislature to be of more service to the community than the money would be if not collected, which being well observed, taxes can never be burthens."

Direct and Indirect Taxes. - The conations just adduced have an important bearing upon a proble hich will probably

become acute in the near future: the question of raising additional revenue by indirect taxation. Indirect taxes have been strongly condemned by many authorities in the past, largely because they weigh more heavily upon the poor than the rich. But if we are to finance successfully a double program of military preparedness and social insurance in the future, it will probably be necessary not only to keep most of the indirect taxes which we now have, but to adopt others. There are practical limits to direct taxation in every country. Pushed beyond a certain point, direct taxes discourage both saving and business enterprise. Many of them—although the income tax is a marked exception - fall upon the taxpayer in lean years as well as in prosperous years, and must be paid even though the money to pay them has to be borrowed by the taxpayer. Indirect taxes, on the other hand, are usually paid in small driblets and there is, in their payment, a voluntary element which makes them easier to bear. The person who elects to drink beer may pay proportionally a large indirect tax, but he is not compelled to drink beer. Moreover, indirect taxes may be levied upon articles of luxury and other commodities consumed predominantly by the wealthier classes, so as to operate as progressive rather than regressive taxes, when considered from a broad social standpoint. Finally, even regressive taxes may be helpful to the poorer classes if public expenditures are directed in sufficient volume to the support of education, social insurance, and the equalization of opportunity. It is more important that expenditures should be progressive in their social incidence than it is to collect taxes in accordance with schedules of progressive rates.

The Shifting of Taxes. - Up to this point we have been speaking as if a tax must remain where it is originally placed. This we know is not always the case. Excise taxes, for instance, are usually levied with the expectation that they will be passed or shifted from the business man, who first pays them, to the consumer or some other person. The conditions which control the shifting of taxes must evidently be considered at least in a very general way - before we discuss the practical working of the American system of taxations.

The word "shifting" usually refers to the increase of price by which the original payer of the tax attempts to recoup himself. This increase of price is usually accompanied by collateral economic disturbances or dislocations suggested by the phrase repercussion of taxes" which is frequently employed in this connection that are quite as important as the mere change in price. For instance, an excise tax (per unit of product) upon a monopoly may raise the price by as much or even more than the tax itself. But the monopolist nevertheless feels the burden of the tax in reduced profits. When we say that a tax is shifted, then, we do not imply that the original payer evades all the evil effects of the tax.

Mobility is the chief factor which controls shifting; and this in turn is largely dependent upon the inclusiveness or scope of the tax, and upon the existence of monopoly or differential advantages. Place a tax upon a person or thing which can easily move to a jurisdiction where such taxes are not imposed, and the tax is very likely to be shifted. Local taxes upon mortgage loans offer a good example. Such taxes are very likely to raise the interest rate by as much or a little more than the tax rate, the "little more " being explained by the trouble imposed upon the lender in looking after the tax and the risk that the tax rate will be increased. On the other hand, if mortgage lenders are constrained by ignorance or custom or the existence of particularly high rates in this district to keep on supplying the old amounts of loans, the tax will not be shifted. Unless the supply can be or is reduced by the tax, shifting will not ordinarily take place.

Naturally, therefore, the particular nature of the supply is of prime importance. We may illustrate by an excise tax per unit of product upon competitive industries of various kinds. In industries subject to the law of constant expense, a fixed tax per unit of product will raise the price by just the amount of the tax, in theory. In industries subject to the law of increasing expense, however, the reduction of the supply caused by the tax somewhat reduces the expenses of production per unit exclusive of the tax, and on this account prices in such industries will in

crease by an amount less than the tax. In industries subject to the law of diminishing expense, on the other hand, the price will be raised by an amount equal to the tax, plus an amount equal to the increased expense of production caused by the limitation of supply.

Mobility, as has been said, is the most important factor in this connection, and it may be restricted or destroyed in a variety of ways. Monopoly limits mobility, and, as we have already seen,1 the monopolist cannot shift a fixed tax or a proportional tax on net profits unless the tax is so high as to reduce monopoly profits below the amount that could be earned on the same investment in a competitive industry. For somewhat similar, but not exactly the same reasons, differential gains from durable property are peculiarly susceptible to taxation. Thus, economists generally indorse the proposition that a tax on economic rent falls upon the landlord and cannot be shifted. The validity of this depends both upon the durability of land and the fact that the tax is levied upon a differential element. If land wore out and had to be replenished, the tax would reduce the future supply of land and hence raise its price and its rent in the future. Similarly, if the tax were levied upon the product of marginal or no-rent land, it would elevate the margin, reduce the supply of those products or services which land affords, and in this way again raise prices and partially reimburse the landlord. But, by hypothesis, neither of these suppositions is true. Land, as we define it, does not wear out; and at the margin land yields no economic rent.

The proposition that a tax on economic rent cannot be shifted is true, moreover, only of a proportional tax. A tax of so much per bushel or pound upon agricultural produce would move the margin of cultivation and thus affect prices. Indeed, the exact form of a tax- whether fixed, proportional, or progressive, upon net or gross returns, upon product or upon profit is of fundamental importance always. Generally speaking, proportional taxes upon net income are less easily shifted than other forms of taxes.

1 Pp. 202, 203.

If the object of taxation be durable and the tax a special or exclusive one, the price of the object is likely to be reduced by an amount equal to the capitalized value of the tax. Prospective purchasers of land take into account the taxes that are likely to be levied upon it, capitalize these, and subtract their capitalized value from the amount which they would pay for the property if it were not liable to taxation. The apparent result of this capitalization or amortization of taxes, as the process is called, is to place the burden of an endless succession of taxes upon the original owner, and relieve subsequent purchasers of any real burden.

Many present-day followers of Henry George find in this principle of amortization at once a justification and a method of securing for society all economic rent. Under present conditions, they say, a man who buys land wholly escapes taxation upon it. Consequently, in order to make landowners pay as much as other people we should have to increase the tax upon land by a rate equal to that paid by the average tax-payer as often say every thirty years as the land of the community changes holders. In this way the State could gradually and with justice absorb all economic rent.1

But this whole chain of reasoning is fallacious for three reasons: (1) What the prospective purchaser capitalizes and deducts is not the entire tax on the land, but the excess of that tax over similar taxes upon other investments open to him. A new purchaser of land does not "buy free of taxes," as is so often stated; what he does is to buy free of any excessive or abnormal tax burden. After the purchase he not only pays taxes in appearance, but in actual fact pays the average tax rate. (2) In so far as this program of the single taxers was anticipated and understood, it would visit the whole burden of the "reform " upon present owners, instead of being distributed. over several generations. Subsequent purchasers would discount these periodic increases of the tax and pay to owners for their land only the present value of the rapidly vanishing income

1 See the paper upon "The Single Tax" by C. B. Fillebrown in State and Local Taxation (Proceedings of the National Tax Association), vol. i, pp. 286-293.