special advantages from their environment, however, will pay a correspond ingly heavy rate. Railways, to take a single illustration, will pay a higher rate than some businesses, a lower rate than some others, but in any event there will be no attempt to equate the tax upon railways with that upon property and persons, because the railway will pay upon its property as property, upon its business as business, and the owners of railway securities will pay in accordance with their ability as measured by rent or some similar index. Business and License Taxes. About 12 per cent of state tax receipts in 1902 came from licenses and permits, and taking the state and local governments together, the revenue from this source in 1902 amounted to seventy-five millions of dollars, of which over fifty-five millions came from liquor licenses. The high liquor license is now so common in most parts of the country that its social and fiscal importance needs little discussion. In most Southern states, however, there is an extensive system of business licenses, which supplement and partly replace the general property tax. The significance and importance of the business license have not hitherto been sufficiently appreciated. They are levied in theory under the regulative power of the government rather than the taxing power; but they have by extension and multiplication become taxes for the most part, as distinguished from sumptuary charges or payments for small privileges. The license system of the South is characterized by many defects. Here and there traces of class feeling are discerned, as in the prohibitive licenses levied upon peddlers; and the rates employed are often illogical, inconsistent, and inequitable to the point of absurdity. In a few cases also, these taxes are high enough to bar certain occupations to the man with small capital. But on the whole they are among the best taxes employed by American commonwealths. They are easily and cheaply collected, very productive, cause little or no complaint, are not excessive as a rule, and exercise little or no influence upon prices. And in so far as they discourage the excessive multiplication of small retail shops they perform the useful service of preventing almost inevitable loss and bankruptcy. The great significance of the business license is its expression of the truth that the general property tax in its simple form is unsuited to the taxation of business. Under the property tax, business in general is taxed upon its tangible assets, i.e. fixed plant and stock. One has only to think of the varying relationship to taxable capacity of the plant and stock of a manufacturer, a grocer, an express company, and a stock broker, to realize the grave injustice of this method of taxation. In countries of continental Europe, as in the southern part of the United States, a wide and generally satisfactory use is made of the business tax. Eventually we must come to the same thing in all parts of this country. But the tax should be adjusted to earnings on profits in a more effective way than is now done in the South. It aroused bitter Poll Taxes. The poll tax is the oldest tax we have in this country, and throughout the greater part of the colonial period yielded more than any other source of revenue. opposition in many commonwealths and was prohibited by the liberal constitution of Maryland at the beginning of the Revolutionary War; but it persisted in many of the states, and still remains the most important source of revenue, after the property tax, in a few of the Southern states. The tax still stands on the statute books of about one half of the states, and is nominally employed as a highway or local tax in a still larger number of commonwealths; but in many places little or no effort is made to enforce it. In Wisconsin, for instance, no attempt is made to collect the poll tax in more than half of the local taxing districts. The poll tax is not only difficult to collect, but is regressive and, when its payment is required as a prerequisite to the exercise of the suffrage, results in widespread political corruption. "No concealment need be made of the fact that the poll tax is used in Mississippi as a means of disqualifying the negro in national elections and controlling the vote in local elections." 1 A BALANCED REVENUE SYSTEM The main outlines of the distribution of taxes among the various governmental units have already been suggested: to the 'C. H. Brough, in Studies in State Taxation, Johns Hopkins University Studies in Historical and Political Science, Vol. XVIII, p. 213. ! federal government the excise and customs duties, with taxes on transactions in times of war or emergency and the taxes on interstate commerce hereafter discussed; to the state governments the inheritance tax, the more important corporation taxes, and some of the license taxes; to the local governments the tangible property tax, the occupation tax, such of the license and business taxes as are not taken by the state and federal governments, and taxes or royalties on municipal franchises. Public franchises or munici pal management of public-service monopolies should be made in the United States, as in Europe, to pay a considerable part of the local expenses of government. It will be observed that business and corporation taxes are to be divided among the several governmental divisions. The principles upon which this distribution should be made are very obscure and give rise to many important problems. The first and most important of these problems has to do with federal control of interstate commerce. Business, like property, has a natural situs for purposes of taxation, and companies engaged in interstate commerce should be taxed by or under the direction of the national government. -- Federal Control of the Taxation of Interstate Commerce. State taxation of companies engaged in interstate commerce gives rise to many problems. Railways may be used as an illustra tion. The enormous difference between the value of the physical property and the value of the stock and bonds or the capitalized earnings of railways has called public attention to the presence of vast intangible values in railway property. In order to tax these values - which the courts have decided to be "property" the railway has to be assessed or valued as a unit an exceedingly difficult and costly undertaking and the share of this valuation belonging to the state in question has to be determined. This apportionment of values to state jurisdictions is not only artificial and difficult, but opens the way for much abuse. Each state is tempted to adopt the method which gives it the largest share of the assessed value; and the railway has not only to adapt itself to as many methods of assessment as there are states, but it is not unlikely to be much overtaxed in the process, unless it -- "goes into politics" with the avowed purpose of controlling legislation in its own interests. Federal control would substitute a single assessment for many assessments, and one method of apportionment for the great variety of conflicting methods now in use. These essential reforms having been determined upon, the other problems of federal control may be settled in a variety of ways. (a) The federal government might confine its work to valuation and apportionment, certifying to each state the valuation of the property assigned to it, to be taxed there at the same rate as other similar property. This plan, however, assumes that railways will continue to be taxed in accordance with the underlying principles of the general property tax. (b) Or the federal government might permit the physical property of railways to be taxed by the states in which it is situated and confine itself to taxes on the business as such, -a method in harmony with the general plan of business taxation suggested above. (c) Or it might wholly prohibit state taxation of either the property or business of interstate companies, although the constitutionality of such prohibition is particularly doubtful. Assuming that one of the last two plans will be adopted, the federal government could (a) either refund the proceeds of the tax upon interstate business to the various states, in proportion to the amount of business done in each state or some other equitable method of apportionment; or (b) retain the revenue itself to be used in meeting emergency needs or in reducing the consumption taxes which now weigh so heavily upon the poor. The constitutionality of the whole project of federal control is in grave doubt, although this aspect of the subject cannot be discussed here. But that Congress will eventually be forced to use all the power that it possesses to bring order out of the existing chaos seems as inevitable as it is desirable. Separation of the Sources of State and Local Revenues. — Just as Congress should assume control, if possible, of the taxation of interstate railways, express, telegraph, sleeping car and steam The desideratum is federal control of the taxation of interstate corporations, not necessarily federal taxation. ship companies, so the state government should assume control of the taxation of inter-urban railways, telephone companies, and other concerns whose business is "state-wide" in scope. In recent years economists have urged the state to set aside enough such taxes for its own exclusive use, until with such revenues as the state derived from inheritance, poll, and license taxes — it would be able to meet expenses without resorting to general levies upon property. This programme is in the main admirable, and would bring to an end all those evils arising out of the efforts of local districts to escape state taxation by underassessment of property. But the project has dangers and defects of its own. In the first place it does not provide for the abolition of the general or personal property tax within the local districts, but permits the latter to persist in the attempt to tax stocks and bonds, money and credits, manufacturing plant and merchants' stocks. In our opinion the attempt to tax all kinds of property should be abolished by the state legislatures, without waiting for the agreement of the local governments. In the second place, it would be unwise for the state government to monopolize corporation, inheritance, and license taxes merely to get upon an independent footing, and then leave the local governments to shift for themselves. Compared with local taxation, state taxation is really a matter of small importance, and the great problem of commonwealth finance is how the large cities, in particular, are to meet the enormous expenditures thrust upon them by the mere growth and congestion of population. Take the liquor license, for example. The saloon contributes very materially to the expenses of the city government. If the state were to take over the liquor license for its own use, it would deprive the city of one of its most logical and necessary sources of revenue. For similar reasons the state should be exceedingly careful in selecting the corporations upon which local taxes are not to be levied. To prohibit the taxation of railways by the local governments is wise, but to deprive them of the power to tax light, heat, and power companies, as was recommended by the California Commission on Revenue and Taxation, would be |