TAXATION

is the normal means employed by the modern state in securing the wherewithal to carry on the work which it undertakes. It is imposed upon all who come within the conditions laid down when the tax is imposed. The e ential character of a tax is that it is compulsory—(i.e.) that those who fall within the categories should pay it. Whether an individual makes himself chargeable is to some extent optional— (e.g.) he may refrain from consuming taxed commodities. But this does not mean that the tax is optional, but that the conditions on which it is levied are avoidable. By means of taxes the state builds up a public income by withdrawing from private incomes amounts roughly calculated on the basis of their ability to pay. The state may undertake. some direct service for the taxpayer in return for a payment, as (e.g.), postal services; but, generally spealing, no specific service is involved. Taxes are levied for the general purpose of government, which are of course defined by the people through their representatives. a tax may be direct or indirect. A direct tax is paid by the person on whom it is a e ed; an indirect tax is shifted by the person who pays it first on to some one else. Indirect taxes were highly favored by the 17th and 18th cent. writers on taxation. They were levied through the customs and excise on a great variety of commodities. They were easy to collect, the merchants paying in the first instance and then pa ing them on to their customers. No objectionable a e ment of any one’s means was involved. Whether the taxed article was consumed or not was regarded as at the option of each individual. If he chose to consume it he did not distinguish between that part of the price of the article which was tax and that which was not. In modern times the merits of the direct tax have become more apparent. The actual payment brings home to the taxpayer the extent of his responsibility for the policy of the state. What he pays, le cost of collection, reaches the exchequer. indirect tax, on the other hand, tends to be heavier than it ought to be by the time it reaches the actual consumer, The modern discu ion of the principles of taxation begins with Adam Smith’s treatment of the subject in The Wealth of Nations, 1776. He laid down four canons—(viz.) that of equality, that the subjects ought to contribute to the support of the government as nearly as po ible in proportion to their respective abilities; that of certainty, that the time, manner, and amount of payment should be clear; that of conveniency, that every tax should be levied at the time and in the manner in which it is most likely to be convenient to pay; and that of economy, that every tax ought to be so contrived as both to take out and to keep out of the pockets of the people as little as po ible over and above what it brings into the public treasury. Of these the last three are maxims whose value in administration can scarcely be contested. The first is the crux of the whole matter. Adam Smith defines ability as proportionate to the revenue which individuals enjoy under the protection of the state. This has been criticized as-unsatisfactory on the ground that taxation should involve equal sacrifice—(z.e.) that the amount of income remaining after the tax is paid should be considered. To make the sacrifice anything like equal it would be nece ary to take more than a proportionate amount from the po e ors of higher incomes. In the income tax there is an exemption for small incomes, an abatement on higher incomes, and an increasing charge as they rise to the highest, when the super-tax also comes into operation. The income tax, however, is not the only tax. While its incidence might be adjusted to true ability to pay, equality might be upset by the burden of other taxes. This demands a compensatory view of taxation—(v.e.) the whole tax system must be considered. If the indirect taxes fall out of due proportion on lower incomes, this may be compensated for by the heavier charge of the direct taxes on the higher incomes. By such combinations the principle of equal sacrifice might be approached, though it is adSpeed difficult to realize it to the So far taxation has been regarded asa means of securing revenue. It is quite po ible for the state to have other objects in view. Until the middle of the 19th cent. taxes were retained for protective purposes—(t.e.) to protect home industries against foreign competition. ments, national, state and municipal, depend for their support and for meeting their multifarious obligations by levying taxes, which are their chief source of revenue. In theory taxes should be imposed with equality, certainty, convenience, economy and should also be elastic and not menace a country’s financial stability. In practice none of these e entials are satisfactorily realized. Rarely is there an equable division of taxation, nor certainty, since much taxation is evaded, nor convenient, as taxes in many cases fall as an untimely burden on the payers, nor is economy Ii the cost of collection easy, especially in the United States, while after the World War taxation became so exce ive as to curb busine enterprise and individual thrift. f In 1919 federal taxes in the United States totaled $4,926,000,000. In 1921 the amount collected amounted to some $500,000 le , but this was not due to reduced levies. Between 1914 and 1919 (the war period) the tax expenditures of outstripped all other outlays. While their wage costs.increased 158 per cent., their tax outlays advanced 371 per cent. Federal taxes formed 86 per cent of the total amount. As to where the burden falls, in 1920, 27.8 per cent. of those filing income tax returns paid 92 per cent. of the amount collected, 10 per cent. paid 84.6 per cent. of the total tax, and of the total number of persons gainfully employed in 1920—41,609,192—only 7,- 258,944 filed returns, or 17.4 per cent. The remainder did not file returns, largely because of liberal exemptions and abatement features of the income tax laws, though evasion probably explained the absence of many payments. The income tax became the bulwark of the federal finances, other federal taxes, such as those on customs, tobacco, liquors for medicinal purposes and miscellaneous excise sources constituting only about one-third of the total tax receipts. From 1903 to 1913 the per capita taxation of national, state, provincial and local governments rose from $18 to $23 in the United States, from $24 to $27 in the United Kingdom, from $17 to $23 in France, from $10 to $12 in Italy, from $12 to $19 in Germany and from $3 to $6 in Japan. These figures show the range of increase in the pre-war period. At the end of the war, the per capita total taxation, reduced to the pre-war internal purchasing power basis, was $32 in the United States, $42 in the United Kingdom, $9 in France (France did not increase her taxes for her war needs), $8 in Italy, $20 in Germany and $4 in Japan. In the fiscal year 1920-21. this per capita taxation was $41 in the United States, $46 in the United Kingdom, $55 in France (or $25 in the calendar year 1921), $8 in Italy, $19 in Germany and $5 in Japan. In the United States the total taxation, including federal, state and local levies, grew from $1,382,000,000 in 1903 to $2,194,000,000 in 1913, to $8,034,000,000 in 1919, and $8,363,000,000 in 1921. There was a phenomenal increase in state and local taxes in the pre-war —_ and post-war periods, especially local levies, which in 1919 in 41 states were 82 per cent over those imposed in 1912; in 1920 the increase over the preceding year was 21 per cent., and in 1921 a further gain of 12 per cent. was shown. Before the war, state and local taxes had been growing at a faster rate than federal taxes, which constituted but three-tenths of total taxation. During the war local expenditures were reduced to the lowest limit, due to the need of the federal government of revenue from every availabie source, but after the war came a mercurial rise in local government expenditures. State and local governments entered into ambitious construction program and floated numerous i ues of bonds, which, being exempt from federal taxes, were readily subscribed. While federal taxation in 1919 constituted over three-fifths of the total tax bill of the country, in 1921, these taxes dropped to about one-half of the total. The rates of state and local taxes to state income became higher in agricultural and mining states while the burden of federal taxes rested more heavily on manufacturing states. Taxes per capita in 1919 were highest in New York State with $148.36, followed by $124.41; Rhode Island, $115.25; and Michigan, $105.71. Alabama enjoyed the distinction of having the lowest per capita tax, namely, $26.47. In sixteen states, Arizona, Florida, Idaho, Iowa, Kansas, Minesota, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, South Dakota, Utah, Washington and Wisconsin, state and local tax burdens per capita exceeded federal levies. See Income Tax, SAEs Tax, Bupant, Nation an Dresr, War