TAXATION QUARTERLY October, 1927
Baltimore, Md, 10-7-1927.
It is impossible to talk taxes without talking government. One is justified is saying: No taxes, no government; no government, no taxes which is to say, if we had no taxes governments could not exist and if we had no governments no taxes would be necessary. All of us agree that society cannot exist without government, therefore taxes are a necessity. For just what food is to the human body, taxes are to government, and just as the human body can sustain life for a long time on poor food taken irregularly at wrong times and in wrong proportions, so government can be sustained for an indefinite period upon bad taxes that are oppressive, unjust, badly collected and in many respects injurious; but as bad food finally breaks down the health of the body so do bad taxes ultimately destroy the health and sometimes even the life of the body politic.
It is asserted that Rome owed its decline to bad systems of taxation as much as it did to slavery itself, for just at the time the 100 percenters were hollering the loudest the tax gatherers were so cruel and unjust in their efforts to squeeze the last cent out of the people that their morale was destroyed, their patriotism killed, and it became a matter of indifference to them under which taxing machine they lived. The same spirit was shown in our own country after this last war, when it was often said, “What's the use of trying to make money in your business when the government comes along and takes it away again?” Let this spirit become general and what happened to Rome will happen here. It only emphasizes the truth of the saying, THE POWER TO TAX IS THE POWER TO DESTROY. This power when used wrongly permits tyranny and robbery, all the more dangerous because they are carried on under the guise of law and because they are hidden.
Now the sickness of the body politic is shown and known as inequality, due largely to systems of taxation that fail to take into account natural rights. Wherein lies the difference between our form of government and every other form of government? And what is the object of government, anyhow? The difference lies in the assertion we make that governments derive their just powers from the consent of the governed, and that they are organized solely for the maintenance of natural rights, or, as some say, equal human rights. This doctrine of natural rights was enunciated and emphasized in the early history of this country by its early founders and no clearer expression of it can be shown than that contained in the declaration of the bill of rights, which states that all men are born equal and are endowed with certain inalienable rights. All other ideas of government are based upon the aristocratic and paternalistic concept which assumes that some people are born to govern the rest or, as Jefferson put it, as though they were born booted and spurred, to ride the rest of humanity.
These two ideas of government are constantly striving for supremacy in society at all times. The fact is, there never were but two kinds of government in the world since there was a world, and there can only be two kinds, no matter how long the world lasts: the paternalistic on the one hand and the democratic on the other. Between these two extremes are various gradations called by various names at various times, but the thought is ever the same. Such cries as, “That form of government is best which governs least,” or “Government is a necessary evil,” are but expressions of a belief in a democratic form. Those cries were much in use in the early history of our country, and the conflict between the two is still going on.
There are people today so imbued with the paternalistic idea that they would, and do, seek to regulate us in our private, personal habits, forgetting that whatever virtues we possess are not produced by government, that really government is but the expression of both our virtues and our vices and not the cause. Now the simplest definition of democracy can he expressed by saying “The democratic idea as applied to government demands that equality of fundamental rights be recognized as a natural endowment, to be protected as a public duty” fundamental meaning the right to life, the right to liberty, the right to own property and the right to make a contract. The right to the ownership of property rests on the proposition that to the laborer belong the fruits of his toil, and whether those fruits are the result of one’s own efforts or are the result of a contract or are a gift, they belong to the individual as against all the world, and no other individual, no mob, no TAXING POWER has any right to take of those fruits without the owner’s consent, unless the TAXING power can show that the one taxed is its debtor. And right here let me say, no one escapes taxes. I may own fifty houses, live in one and rent the other forty-nine; all the expenses on the forty-nine including TAXES are paid by the tenants.
Now the thing that shows the debtor relationship of the individual to the taxing power is the value of the location one occupies in a community. Location value is an absolutely sure reflection of the worth of government. To ignore the debtor relationship in apportioning taxes and to apportion them on any other basis is to ignore a person’s natural right to Ins property, which is taken away because the taxing authorities are given the power to take it. By the exercise of this power they deny the right of ownership to property as between the taxpayer and the taxing powers. But before going into this phase of the subject let us consider that there are some who deny there are such things as natural rights. For instance, some contend that questions of right are questions of expediency. They hold only that to be right which from experience appears to them to be wise. They say, further, that the distribution of wealth is a matter of human institution only, and that society collectively can do as it likes with things privately owned; it can place them at the disposal of whomsoever it pleases and on whatever terms it chooses; that even what a person has produced alone by his individual toil unaided by any one he cannot keep unless it is the will of society that he should do so. Today 90% of taxes are collected in accordance with this paternalistic or socialistic idea.
There should be a clear distinction drawn as to what are the legitimate functions of government. No government has any right to coerce an individual with regard to his individual concerns. What a person makes in his private business, either in a partnership or in a corporation, individually or professionally, is a matter of private concern. Yet we see our system of taxation (notably the income tax) ignore this and make public what should be kept private. In addition it arms with inquisitorial powers the tax office, which is permitted to nose into private affairs where by rights it has no business.
An effort is made through super-taxes to equalize wealth. The cry being that taxes should be levied according to a person’s ability to pay, one may well ask, Does the taxing power give me my ability? Usually if I have ability to accumulate 1 will also have ability to shift the tax to somebody else having less ability. The result is that the people are in reality taxed not according to ability to pay but to their inability to avoid paying. This is shown clearly by Otto H. Kahn of Kuhn, Loeb & Co., in a little booklet entitled “The High Cost of Living,” in which he says that the investor, in order to recoup a portion of his income tax, demands securities yielding much higher rates oi interest than formerly, thus enhancing the cost of capital; and when the cost of capital is enhanced the cost of the commodities that this capital enters into is enhanced also, and is finally paid by the ultimate consumer.
Mr. Babson, the eminent statistical authority, in one of his bulletins says: “Taxation and its effects on commodity prices and living costs are matters of too little general intelligence. For the majority of voters this field is left free to some who confuse it with propaganda for or against some issue at election time.” He says that by a natural law of readjustment in the long run taxes tend to distribute themselves over the whole community, no matter where the effort was made to collect them in the first place. It is a false theory that taxation can be used as an economic highwayman to bludgeon the rich so as to accomplish a permanent redistribution of wealth, and it: is surprising to find authorities agreeing that the tariff is a consumption tax and yet protesting against a sales tax on the ground that it puts a special burden on the consumer. What should be fixed in the public mind is this truth, that what governments pay out the consumers pay in. The only levy that can be depended on to lie where the government put it is the inheritance tax; a dead man cannot pass it along. I say this is the meanest kind of a tax, for it amounts to taking the penny off a dead man’s eye just at the time the family needs the money the most. The taxing authorities come along and reduce their income to one-third on an average. They practically put a pocket in the shroud so they can rob the dead, it being the case that taxes arc paid by the ultimate consumer.
The problem of taxation, then, revolves around this question: What is the proper measure to use in apportioning taxes to each consumer? In everyday talk we say we tax sugar, tea, coffee, houses, lots, stocks, bonds, etc. Now as a matter of fact we do nothing of the sort; what we really do is to tax persons. Persons pay all taxes, and the items mentioned are merely measures used to apportion taxes to persons. In 1920 the Federal Government collected from the citizens of the State of Maryland $1,085,000 from the consumption of candy, near-beer, ice cream, and soft drinks. In all seriousness it can be asked. Does the consumption of candy, near-beer, or ice cream show the consumer’s debtor relation to the taxing power, and should not that relation be shown? If the taxing power puts its hand into one man’s pocket and takes out $500, and into another man’s pocket and takes out $100, don’t you think the man who pays $500 has a right to ask why he should pay $400 more than the other? And what will the answer be today? “You got more, therefore you should pay more,” or, “You use more candy or tobacco or ice cream,” etc., when the proper answer would be, “Because you owe more.” Suppose I should put a pistol to your head and demand your money, under threat of bodily harm, what would my relation be to you? Wouldn't it be that of a robber to a victim? But suppose I met you and presented you with a bill showing you owe me $500. The relation then would be that of a debtor to a creditor. Now, when any government, federal, state, or municipal demands your money or property without using a measure which establishes your debtor relationship to them, then that government is in the first category and its act becomes robbery under the form of law.
Now the only thing that shows your debtor relation is the value of the location you occupy. If one lives in the woods or in a desert no value appears. An acre of land in Atlantic City on the Jersey Coast is worth more than a 1000 acres in Arizona. A sixteenth of an acre of bare rock in New York is worth more than a 1000 acres in Manitoba. Where people live together in close association as they do in New York, there is a profit in that association and that profit is called rental value or location value, which is rent capitalized. This value is a reflection of governmental worth which furnishes streets, schools, police and all utilities found necessary to be publicly carried on. All its activities are reflected in location values. By eliminating from the assessable basis all items of value except location value you have each one paying as he receives. A just formula for taxation purposes would be for everyone to contribute to the support of government according to the value of the privilege he enjoys under that government.
There is only one value that shows what the privilege of living in a community is worth, and that is location value. Where close association exists, rent is high and is the tribute which natural laws levy upon every occupant of land as the market price of all the social, as well as natural advantages attaching to a location, including one’s just share of the cost of government. It is therefore just that in apportioning taxes only that value that reflects social services shall be considered in fixing the assessment. By this means each one would pay the worth of the privilege of occupying a certain position in the community. He gains a certain profit by occupying that position, made possible by governmental action which furnishes security of tenure in the first place, and he should pay accordingly.
The view of taxation contended for here may seem extreme to some; none the less it is worthy of consideration. The economic effect flowing from the new plan advocated would create a tendency to put land to its full use. Improvements would be free from taxes; sites held for speculation undeveloped would pay more taxes and would press for use, creating a fuller and steadier demand for both labor and capital with ensuing greater production and a consequent higher standard of comfort. The repeal of all the various forms of taxation now in use with their consequent interference in private affairs is much to be desired, to the end that equality of fundamental rights may become a fact instead of a theory.