H Ji530 PS Cornell University Library HJ 4590.P8 Taxation of personal iroperty, 3 1924 013 981 133 Cornell University Library The original of tiiis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924013981133 TA X AT ION OF PERSONAL PROPERTY BY LAW SON PURDY Secretary New York Tax Reform Association This article was first published in "Municipal Affairs." It has been revised and the statistics compiled from the most recent reports obtainable. Single Tax Information Bureau E. B. Swinney, Sectretary, 134 OLARK80N ST., BROOKLYN, N.Y.' New York Tax Reform Association 52 William Street, New York 1903 TABLE OF CONTENTS PAGE Taxation of Personal Property 5 The System in Theory 5 The System in Cities of New York 7 What Happened in Syracuse and a Country Town 12 Massachusetts Towns 15 A Failure in New Jersey 16 Ohio Tax Inquisitor Law ... 18 Illinois Listing System ... 19 Missouri Cities ..... 21 West Virginia 22 Theory of General Property Tax Fallacious , 23 Personal Property Tax Drives Out Capital . 24 Tax on Manufacturing Plants a Tax on Con- sumption 26 Tax on Chattels Double Taxation ... ,28 Tax on Mortgages Increases Interest . . .29 Taxation of Banks 33 Benefits of Exemption Universal 33 Index 38 TAXATION OF PERSONAL PROPERTY. The average intelligent business man who is well-informed on most subjects is usually Ul-informed as to what the tax system actually is, and the injury which he suflPers from a bad system. The taxation of personal property in the United States is a survival of ancient methods, which other countries have outgrown; it becomes more unequal and unjust as our country increases in population and wealth. Under primitive conditions, agriculture or stock raising are the chief industries, land has little value, and taxable prop- erty consists mainly of visible, tangible things, and it is pos- sible to assess and tax everything of value with considerable uniformity. In the strictly rural parts of the country these conditions stiU remain, but when large cities have grown up, and the land of the cities has become of great value as a site for working up raw material, storing personal property, and exchanging it; and when personal property has assumed new forms of an intangible character, such as bonds, stocks, and notes, it becomes impossible to tax it fairly because it cannot be found and cannot be accurately valued. It then becomes disastrous to the welfare of the city to attempt to tax personal property, because taxation decreases production and tends to drive away personal property and population, which alone give value to city real estate. I Both city and country are vitally interested in the aboli- tion of taxes on personal property. Cities suffer most from inequality of assessment as between individual tax-payers, and the country suffers most by paying an undue share of taxes on personal property. Both suffer from trying to carry the burden in the wrong way. { The System in Theory. The law of New York and that of most states classifies as personal property almost everything of value to the pos- sessor which is not real estate. It also permits the deduc- tion of all debts owed by the tax-payer from the value of his personal property.^ Many states permit only the deduction of debts from credits, or no deduction at all. The labor and skill required to make a reasonably fair assessment of personal property is simply appalling ; the mere enumeration of some of the items of personal property which might be owned by any prosperous citizen is a suffi- cient demonstration of this. The assessor might start at the tax-payer's residence, where he must value all the furniture, pictures, works of art, bric-a-brac, plate, linen, wearing ap- parel, books, jewelry, including of course the jewelry and wearing apparel actually being worn by members of the family. In order to make a fair valuation, the assessor must be an expert in valuing paintings, antique furniture, jewelry, carpets, and practically have expert knowledge of every class of articles in the house. An ordinary man could do little more than value paintings by the square foot ; and one picture a foot square might be worth $5,000, while an- other five feet square might be worth $5. One antique rug would readily sell at auction for a thousand dollars and a much larger one might be worth less than one hundred. Unless the assessor were an expert in valuing precious stones, he would be thousands of dollars out of the way in setting a value on the jewelry of hundreds of New York families. From the residence of the tax-payer the assessor might ' N. Y. Tax Law, § 2, paragraph 5 : " The terms 'personal estate ' and 'personal property ' include chattels, money, things in action, debts due from solvent debtors, whether on ac- count, contract, note, bond or mortgage ; debts and obligations for the pay- ment of money due or owing to persons residing within this State, however secured or wherever such securities shall be held ; debts due by inhabitants of this State to persons not residing within the United States for the pur- chase of any real estate ; public stocks, stocks in moneyed corporations, and such portion of the capital of incorporated companies, liable to taxation on their capital, as shall not be invested in real estate." §21. Preparation of Assessment- Roll. They shall prepare an assessment' roll containing five separate columns, and shall, according to the best infor- mation in their power, set down ; * * 4. In the fourth column the full value of all the taxable personal prop- erty owned by each person respectively after deducting the just debts owing by him. then go to his stable, and there he would have to be an ex- pert in valuing horses, harness, and carriages, for it would not be difficult to make an error of several thousand dollars in valuing three or four horses. Let us suppose that our tax-payer is a merchant, and car- ries a large stock of goods, then the assessor's next duty would be to value that stock of goods. Everyone knows that it would take the merchant's own clerks several weeks to make a correct inventory of his stock, and they would know the actual prices paid for the goods, while the assessor must estimate their value by mere inspection. It is perfectly clear that the most skilful man could not possibly make a fair appraisal of even one small department store in a week's time. The System in Cities of New York. The actual working of the system in New York is very much simpler than the method outlined, and the work in the old city of New York was all done by two or three men. As described by Mr. Feitner,^ Commissioner of Taxes, the ^Testimony of Hon. Thos. L. Feitner, President Department of Taxes and Assessments, before Mazet Committee, as reported in New York Sun, June 2, 1899: " Q. — How is the roll made up ? A. — The City Directory is taken for the names. Inquiry is made as to location, business, etc., and any further information that is attainable is taken. Then the man is put on the books if he is taxable. It is a sort of sifting process. If a man swears off taxes one year he isn't put on for a year or two. " Q. — Do you generally accept a man's affidavit ? A. — Not necessarily. If we know he's all right or if his circumstances are obviously poor we do. "Q. — Now, doesn't the tax system as at present constituted — I'm not holding you responsible for it or intimating that you are in any way to blame — doesn't it result in a lot of people who have saved up a couple of thousand dollars getting on the tax list while a lot of rich persons go un- noticed .'' A. — Yes, it does. It's a very defective system and works great injustice. It's been compared to a trap that lets the big fish through while the little ones are caught. The great majority of persons who pay personal taxes are worth under $10,000, and there are few who pay on more than $100,000." Mr. Harkness, former tax assessor of Brooklyn, said before the Manu- facturers' Association of New York, December 19, 1898 : " I made inquiry in regard to the way and manner they had been assess- ing heretofore, and they told me that they simply guessed at it. If a man in the manufacturing business was prosperous looking; he had a pretty good names of persons who are likely to be possessed of taxable personal property are taken from directories, and they are assessed for a sum which is thought to be in keeping with their manner of living. Many men are placed on the rolls who have no property in excess of their debts, and many thousands, who have taxable property, escape altogether. The difficulty of assessing all personal property in a large city is proportionately much greater than in small towns.^ assessment levied upon him. If he Hved in a brownstone house, he was assessed $10,000 ; if he lived in a brick house, he was assessed a little less ; and if he lived in a frame house he got oiT for $2,000. Some amusing epi- sodes came up in my experience every once in a while. We had a servant in a gentleman's house, a coachman, who was assessed for $5,000, simply because his residence was with his master. The whole system of personal assessments in Brooklyn — and I do not know that it is any diflFerent in New York — is simply absurd." ' Comparison between some large cities and small towns of New York, showing the percentage of personal property to the total assessed valuation : City or Town. Laroe Cities. Albany Buffalo Rochester. Syracuse Troy Small Towns. Friendship Olean Ausable Hudson Kinderhook Stamford Ashland Lowville Geneseo Otsego Charlton Hartford Connty. Albany . . . Erie Monroe . . . Onondaga . Rensselaer Allegany Cattaraugus. . . Clinton ....•■ Columbia Columbia Delaware Greene Lewis Livingston . . . Otsego Saratoga Washington . . AsBessed Value of Personal Property. 1901. ^3,712,875 7,522,000 9,145,662 6,058,243 3,406,137 223,168 1,020,267 98,800 1,389,860 529,645 331,145 55,500 618,600 975,050 508,550 127,350 171,980 Total Asseesed Valne of Beal and Personal Property. 1901. $65,073,275 242,262,073 116,448,973 87,143,653 53,802,814 1,037,848 4,170,157 555,370 5,485,160 2,160,435 1,080,425 214,720 2,525,930 3,412,165 2,545,525 622,999 726,549 Percent of Personal to Total. 5.7 3.1 7.9 7.2 6.3 21.5 24.3 17.7 25.9 24.5 30.6 25.8 24.8 27.4 20.0 20.0 23.6 These large cities have twenty-nine times the value in real estate that the small towns have, but only five times the value in personal property. In 1903, the number of individuals, corporations, and estates who were assessed in the city of New York was 78,339; of these 37,687 appeared before the tax commissioners and swore that they had no taxable property in excess of their debts, and the whole number taxed was 40,652. This is a very small proportion of the total population, a smaller proportion than the same effort would have obtained in small towns. In thirty-two cities of Massachusetts, with an average popula- tion of less than 50,000 persons, the number taxed on per- sonal property was 82,211. If the same proportion had been taxed in the city of New York, the number would have ex- ceeded 180,000. The persons taxed in Massachusetts were put upon the assessment rolls by the same methods as those in use in New York, only five per cent having made sworn returns as required by law. These results can only be at- tributed to the greater ease of assessment in smaller places. When the city of New York was smaller, personal prop- erty paid a larger share of the tax. In 1865, personal prop- erty paid 35 per cent, in 1870, 29 per cent, in 1898, 21.5 per cent, and in 1903, 12.5 per cent of the total. Other cities of the state show a similar decrease in the assessment of personal property.^ A Tax on Honesty and Intelligence. The result of this haphazard, impracticable method of rais- ing revenue has been serious injustice to those cities where tax assessors are intelligent, honest, and efficient, and enormous injustice to individuals, more ignorant or more honest than ^ A comparison between the assessed valuation of real and personal property in 1870 and 1901, for four counties of New York, which contain large cities : County. 1901. 1870. Eeal. Personal. Per Cent of Personal to Total. Beal. Personal. Per Cent of Personal to Total. Albany Erie Monroe Rensselaer .. $93,297,880 277,307,745 142,745,862 72,357,516 $5,581,950 9,981,128 10,929,842 5,051,068 05.6 03.4 07.1 06.5 $35,345,497 41,462,863 23,066,624 21,720,013 $ 7,669,879 11,431,680 2,739,692 7,796,515 17. 22. 10. 27. Total.. $585,709,003 $31,543,988 05.1 $121,594,997 $29,637,766 19.1 their neighbors. Those cities have prospered most where the assessors have been neghgent or incapable. Tax officials in this state have complained of the injustice of our tax system in almost every report.^ Hon. George H. Andrews, for many years commissioner of taxes in the city of New York, '■ Some quotations from the reports on taxation of officers of the State of New York : Official documents tell us that, " instead of being a tax upon personal property, it has in effect become a tax upon ignorance and honesty. That is to say, its imposition is restricted to those who are not informed of the means of evasion, or, knowing the means, are restricted by a nice sense of honor from resorting to them " (Report of Com. of Taxes and Assessments, City of N. Y., 1872, p. 9). The defects of our system are too glaring and operate too oppressively to be longer tolerated (Comptroller's Report, 1859). A more unequal, unjust, and partial system for taxation could not well be devised (First Annual Report State Assessors, I860, p. 12). The burdens are so heavy and the inequalities so gross as almost to para- lyze and dishearten the people (Assessors' R., 1873, p. 3). The hope of obtaining satisfactory results from the present broken, shat- tered, leaky laws is vain (Report of Com. of Taxes and Assessments, 1 876, p. 52). The absolute inefficiency of the old and rickety statutes passed in a by- gone generation is patent to all (Assessors' Report, 1877, p. 5). The system is a farce, sham, humbug (Assessors' Report, 1 879, p. 23). [The general property tax is] a reproach to the state, an outrage upon the people, a disgrace to the civilization of the nineteenth century, and worthy only of an age of mental and moral darkness and degradation, when the "only equal rights were those of the equaS robber" (Assessors' Report, 1879, p. 7). The present result is a travesty upon our taxing system, which aims to be equal and just (Comptroller's Report, 1879, p. 34). I am still firrrdy of the opinion that the attempt to reach personal prop- erty in a general property tax should be abandoned. This has long since been done in practically every civilized community in the world, except the United States. . . . Upon no class in the community does the tax on personal property, as now administered, bear more inequitably than upon the farmer. . . . The tax upon personalty is therefore unjust as be- tween individuals ; unjust as between communities, and, as experience has shown the world over, it is impossible of even approximately just adminis' tration. Then why should it be continued (The Report for 1 898 of Comp troller James A. Roberts) ? Political economists are all but unanimous in insisting that an enlightened system of taxation must exempt all personalty, and the tendency seems to be to embody that theory in law, as it has already come to obtain largely in practice (The Report for 1898 of Superintendent of Banks Frederick D. Kilbum). 10 in a letter to the New York Times in 1877, describes what it would be necessary to do honestly to assess personal prop- erty : " First to amend the Constitutions of the States ; second, to amend the Constitution of the United States ; third, to amend the constitution of human nature ; fourth, to amend the constitution of things. " Hon. David A. Wells, in the report on local taxation submitted to the legislature in 1871, said : " It would seem as if no intelligent person could give the slightest consideration to the facts revealed in the fore- going tables and statements without arriving at the fullest conviction that the valuation of personal property for the purposes of taxation generally, and in the State of New York especially, is a mere semblance, and a libel upon the intelligence and honesty of both those who enact and those who administer the laws." Individual cases of extraordinary hardship can be cited, and the answer is sometimes made that, " Hard cases make bad law." But such a case of oppression as that narrated in the second report of the WeUs commission ought not to happen under any law. A farmer and his wife who were too old to till their farm sold it for $5,000, and allowed the purchase money to remain in the form of a mortgage with the expectation of hvirig on the interest. The town * being very small, the fact of the sale and the consideration became known to everyone, and assessors were compelled, in opposi- tion to their usual practice, to tax the old man to the full amount of the mortgage as personal property. But the year in which this was done happened to be a year in which the town, anxious to avoid a draft of men for the army, to which the old man was not liable, put up the rate of taxa- tion to more than the legal rate of interest, in order to pro- vide sufficient money to purchase recruits. The result was that the old man and his wife were obliged to go out to day's work in order to pay the balance of taxation and support themselves. ' In the State of New York a town is the subdivision of a county which in Pennsylvania and Western states is called a township, but with larger powers of self-government, and may contain one or more villages. 11 What Happened in Syracuse and a Country Towni The State Tax Commissioners of New York have been working hard for the last seven years to enforce the law as it is, and the assessors in some parts of the state have acted upon the instructions of the State Tax Commissioners to the best of their ability. Syracuse is one of the unfortunate cities where the assessment of personal property was greatly increased in 1897. In 1896 the assessed value of personal property in Syracuse was $3,000,245. In 1897 the assess- ment was $11,364,801, which is almost four times as great as the assessment in the previous year. On March 7, 1899, the Post- Standard, of Syracuse, said editorially : " The Post- Standard offers no apology for a correspondence of unusual length which appears elsewhere on this page. It is written by a representative Syracuse business man. It treats of the personal property tax abomination. It is conclusive of the mischievousness and folly of the personal property tax law, as illustrated in its disastrous effects upon the business in- terests of Syracuse." In the letter referred to proof was offered of the serious injury which had resulted to Syracuse by the enforcement of the law.^ The severe enforcement of the law in 1897 was so obnox- ^ Extract from business man's letter to Post-Standard oi March 7, 1899 : " Our city fathers in their recent direct taxation of all the personal prop- erty they could find in Syracuse thought thereby to decrease the tax of the small real estate holder, taking no heed whatever of the much greater dam- age that they thereby would and have done him, by driving factories out of and preventing others coming into the city ; by jeopardizing the small profit which for years past the mercantile interest has struggled to save ; by stopping the taking of second mortgages, thereby stopping building, throwing carpenters, masons, and other employees out of work, and lessening the hardware, lumber, and other trades ; and by generally depreciating the rental value of real estate in the city and lessening the capacity of the city to employ its labor. " The folly of this direct taxation was very forcibly illustrated when the wife of one of these small real estate owners came to state to her mortgagee that she could not pay him his interest. ' Why ? ' ' Because my husband, a carpenter, has been out of work all winter.' ' But by this direct taxing of personal property in the city you must have saved about fifty cents in taxes on your little house and lot ? ' ' Yes, but my husband has lost a whole winter's work.' " 12 ious to the people of Syracuse that the vahie of personal property has steadily declined since that year, and in 1901 was only $6,058,243, a little more than half as much as in 1897. During the same period the assessed value of real estate has increased over $16,000,000. Another instance of injustice due to the conscientious work of tax assessors recently occurred in a small town of this state. The town assessors placed on the tax roll per- sonal property to the value of $629,249, and nearly all the increase over the year before was in the rural districts out- side of the village, the major part of this amount on the cattle, horses, sheep, hogs, and implements of the farmers. One of the town assessors is the village assessor, and in assessing the village he absolutely refused to follow the example of the country assessors in adding to his usual assessment of personal property. The country assessors said they rated everything, pianos, guns, and even fish poles, and in one case they assessed a cow $20, the property of a widow who owned a few acres of land. They assessed a young man's gun $10 ; and the village assessor said, " When they got through with that raid on personal property, they made a great row because there were no pianos or guns in the village, which has 6,000 inhabitants." The country assessors increased the assessment on personal property over the previous year by the sum of $412,936. When the board of supervisors of the county met, it was found that no other town in the county had followed this example, and as this town had not voted with the majority of the board, they received no favors. As a matter of fact the board had no authority to do anything for them, for the law does not provide for any equalization of personal assess- ments. The village assessor says the town assessors will never be induced again to assess the cattle, horses, sheep, hogs, pianos, guns, and fish poles of the farmers until every other town in the state has done it for one year. The assessment for 1898 fully testifies to the truthfulness of that assertion, as the assessment of personal property to the farmers was only about $25,000, instead of over $300,000 the year before. The number of persons assessed on per- sonal property in 1898 was 101, instead of 352 as in 1897. As the laws are to-day, no wealthy man who has proper - 5^ legal advice need pay any direct taxes on personal property/ And if we are to trust the experience of other states, he can- not be made to pay on any large assessment. The fact is that wherever there is any attempt to enforce the taxation 1 Extract from the address of Hon. George H. Andrews, tax commissioner of the city of New York, before the Assembly Committee on Ways and Means of the State of New York, delivered October 6, 1874 : " The inequalities and incongruities of the New York Tax Law may be very well illustrated by a series of contrasts as follows : A B C D E F G H K L M N O P Q R S T U V w X Y Z has $100,000 of imported goods. " " " miscellaneous goods. " " " goods consigned. " " " goods owned. " " " goods manufactured in N. J. « " " goods manufactured in the city. " " " goods for which he borrowed capital on U. S. bonds. " " goods which he sold U. S. bonds to pay for. " in ships plying from this port but reg- istered in Boston. " in ships plying in the Pacific but reg- istered here. " in mortgages on N. J. property, in- terest paid in Jersey City and mortgages deposited there. " in mortgages on city property. " of money in his pocket. " " money in bank. " " Cert, of Dep. in Sub-Treasury. « " " " n bank. " " specie in the Assay Office. « " " " his safe. " " cheque on the U. S. Treasury. " " " " bank. " " Treasury notes. " " promissory notes. ,« « U. S. bonds. " " state or city bonds. ' « in Cert, of Indebt. of U. S. " " " " a corporation. And is exempt, taxed. ce exempt, taxed. et exempt, taxed. It exempt. a taxed. t( exempt. tf taxed. tc ft exempt, taxed. ec te exempt, taxed. tc et exempt, taxed. tt te exempt, taxed. ee et exempt, taxed. et et exempt, taxed. et ee exempt, taxed. ee ee exempt, taxed. "And if the alphabet had been longer my statement had been stronger." Since Mr. Andrews prepared this statement there have been several changes in the law, so that it is not now entirely correct. However, the list could be corrected and lengthened to-day, so the changes are imma- terial for purposes of illustration. 14, of personal property, the burden falls, as Mayor Hewitt said in his message to the board of aldermen in 1888, " upon the estates of widows and orphans, and wards in chancery. Those who ought to pay the most of it pay the least, while the humble citizen who is unable to ' fix up ' his statements, is subject to the full amount of lawful taxation." Massachusetts Towns. Those who are inexperienced and rely blindly upon the mistaken theory that to secure equality of taxation all kinds of property must be equally taxed, frequently claim that the fault is not in the law but in its administration. It is gener- ally conceded that the state of Massachusetts has unusually able and competent assessors, and that their work is per- formed, on the whole, better than in any other state of the Union, yet the proportion which the assessment of personal property bears to the assessed value of real estate varies greatly throughout the state. ^ In some towns the propor- ^ Assessed value of real and personal property in eighteen Massachusetts cities and towns. City. Bcal Estate. PerBonal Estate. Per cent of Ferscmal Estate to Total Valoation. < Fall River Lowell Lawrence New Bedford . . Everett Chelsea Summerville. . . . Boston Cambridge Springfield Worcester Town, Manchester . . . . Hopedale Easton Milton Lancaster Falmouth Lincoln $41,935,800 53,935,960 26,669,525 33,920,700 13,739,100 20,528,550 45,224,800 770,261,700 67,835,100 48,344,280 74,953,100 3,067,078 838,286 1,850,694 7,620,350 1,206,605 2,216,400 797,584 $27,350,696 15,965,987 8,214,698 22,360,417 683,450 2,384,544 3,788,250 211,008,213 15,914,995 13,071,811 16,825,172 3,740,536 1,108,163 2,732,017 11,371,089 1,807,870 4,284,422 1,637,335 39.47 22.84 23.54 39.73 4.74 10.40 7.73 21.51 19.01 21.29 18.34 54.96 56.93 59.61 59.87 59.97 65.91 67.24 is" tion of personalty asesssed is very small, being less than five per cent, in 1895, of the total valuation in Revere, Winthrop, HuU, and Mashpee. In a few towns it is less than ten per cent, and in a considerable number less than fifteen per cent of the total. These figures in comparison with some other Massachusetts towns are remarkable, for there are eight towns in which the assessed value of personal property ex- ceeds the assessed value of realty. In Falmouth the per- sonalty is sixty-five per cent of the total, and in Lincoln sixty- seven per cent. A commission appointed to inquire into the expediency of revising the tax laws of the state, in their report issued in October, 1897, says: " The taxation of personal property in the form of securities and investments is thus a failure. It is incomplete, uncertain, not propor- tional to means as between individuals, grossly unequal in its effects in different parts of the state. The experience of Massachusetts in this regard is the same as that of the other states in the Union. Everywhere, without exception, the testimony is that this part of the system of the general prop- erty tax is unequal, unsuccessful, often demorahzing to tax officers, always irritating to tax-payers. "The experience of Massachusetts is the more striking because here the difficulty does not lie mainly in the admin- istration of the tax laws. The assessors are usually honest, competent, zealous. We have heard much of grave abuses, of almost corrupt laxity, in other states, but in this Com- monwealth, notwithstanding occasional defections (some of which we have just referred to) the standard of public duty continues to be high, and the cause of failure is not to be found mainly in official dereliction. It lies in the system itself." A Failure in New Jersey. New Jersey testifies to the same effisct. A commission was appointed in that state by Governor Griggs to investi- gate the subject of taxation and reported in 1897. The commission says : " It is now literally true in New Jersey as in other states, as has been well said by another, that the only ones who now pay honest taxes on personal property are the estates of decedents, widows and orphans, idiots and lunatics. * * The reports of our state board of taxation _ for 1893, 1894, 1895, speak of these things and decry them, and like complaints have come to us from many sources." Then follows a complete table of the counties of the state with the assessed value of real and personal property and the percentage of taxes paid by each class of property. In speaking of this table the commission said : " It is submitted, this table speaks for itself — is a significant indictment of our present tax laws — and reveals evils and abuses in New Jer- sey taxation that, together with the foregoing, call for due and early remedies." The table tells the usual story of high assessments in some counties and low assessments in others.^ Camden and Hud- son counties contain the cities of Camden, Jersey City, and Hoboken, while Hunterdon and Salem are spoken of by the State Board of Taxation as distinctly agricultural. In the two city counties the value of real estate is six times as great as in the two rural counties, but the value of personal property in the two rural counties exceeds that in the city counties. 1 Assessed value of real and personal property in two city and two rural counties of New Jersey, with the percentage of personal property to total valuation : ' City Connties. Camden . . Hudson . . Total Beal Estate. $34,978,226 135,386,022 $170,364,248 Personal. $2,960,763 11,921,881 $14,882,644 Per Cent of Personal to Total. 07.8 08.1 08. Rural Counties. Beal Personal. Per Cent of Personal to Total. Hunterdon $16,095,819 12,024,817 $9,646,673 6,082,623 37.5 Salem 33.6 Total $28,120,636 $15,729,296 35.9 17 Ohio Tax Inquisitor Law. It has been claimed by some that the administrative feat- ures of the law in the states so far mentioned are not suffi- ciently thorough and severe, but this reproach cannot be laid against the law in Ohio. In 1893 Hon. WiUiam McKinley, then Governor of the State, appointed a tax commission of four members, two being republicans and two democrats, but all expressing themselves in favor of continuing the tax on personal property. In their report they said : " The sys- tem as it is actually administered results in debauching the moral sense. It is a school of perjury. It sends large amounts of property into hiding. It drives capital in large quantities from the state. Worst of all, it imposes unjust burdens upon various classes in the community ; upon the farmer in the country, all of whose property is taxed because it is tangible ; upon the man who is scrupulously honest, and upon the guardian and executor and trustee, whose accounts are matters of public record. " In Ohio they have the most efficient and minute scheme of assessing all classes of property which has been devised in any state. Every citizen is bound under oath to make a complete return of his property in detail. If he decUnes to make the oath required by law a penalty of fifty per cent is added. In addition to this they have what is called the Tax Inquisitor Law, which gives the county commissioners au- thority to make a contract with such persons who may give information which will result in personal property being placed upon the assessment roll. Under the act passed in 1885, applicable to Hamilton and Cuyahoga counties, the amount authorized to be paid to informers is twenty-five per cent ; and under the general act passed in 1888, appli- cable to the entire state, the amount authorized to be paid is twenty per cent of the amount recovered. The efforts of the tax inquisitors are principally devoted to ascertaining what foreign stocks and bonds are improperly withheld from the returns. The result of the severe listing law and of the inquisitor law has been steady shrinkage in the assessed value of personal property.^ ' Extract from an article on the Tax Inquisitor Law in Ohio by the Hon. Beneath the cold figures we can see the ruin of character, the confiscation of hard-earned savings, the oppression of the industrious, and the certain concentration of wealth, which is always incident to an evil system of taxation. Illinois Listing System. In the state of Illinois the statutes require personal prop- erty to be listed yearly according to the quantity owned on the first of May. Persons hsting are required to make state- ment under oath and to deliver to the assessor an itemized schedule of the number, amounts, quantity, and quality of all taxable personal property in their possession or under their control. When any person refuses to make and verify E. A. Angell, late of Ohio State Tax Commission, published in The Independ- ent, February, 1898 : (Cincinnati is in Hamilton county and Cleveland is in Cuyahoga county.) " Let us compare the returns of intangible property in Hamilton county thirty years ago with the corresponding returns at the present time : 1866 $17,460,477 1867 17,199,669 1868 15,455,611 " The corresponding figures for the present time are as follows : 1894 $5,722,789 1895 6,036,935 1896 5,389,350 ''The amount of money returned in Hamilton county in 1866 was $6,- 778,883, while in 1896 it was $1,097,283. The amount of money on deposit in Cleveland banks in 1896 is about $70,000,000, and of this there was returned for taxation in 1896 $1,741,129. It must be borne in mind that the population and wealth of these cities have marvelously increased within this period. Cincinnati was a city of about 160,000 in I860 ; it has now more than 400,000. Its growth in wealth is more striking than the growth in population. So, too, of Cleveland. Any discussion would be inadequate which did not take these facts into consideration. There are on deposit in the banks throughout the State about $190,000,000 ; of this $135,000,000 or $140,000,000 are in the five city counties. These city counties return for taxation about $5,000,000 in money, while the remainder of the state returns $29,000,000 out of perhaps $60,000,000. So of credits and stocks and bonds. The whole amounts of stocks and bonds returned in the whole state is but $7,000,000. Thirty years ago it was over $12,- 000,000. It is evident at once, therefore, that the informer scheme does not make the general property tax eflfective. It has utterly broken down in Ohio as elsewhere. The merest bagatelle is reached outside of visible tangible property." _ the schedule required, it is the assessor's duty to list the property of such person according to his best judgment, and to add a penalty of fifty per cent to the valuation ; the per- son refusing being subject also to a fine of $200 as for a misdemeanor. By 1897 this system was a complete wreck in Chicago and was little better in the remainder of the state. Personal property in Chicago amounted to only 13.5 per cent of the total taxable valuation of all property, and in the remainder of the state it amounted to only 17.7 per cent. Cook county (containing the city of Chicago) in that year had one-third of the total real estate value of the state and only one sixty- third in value of watches and clocks, one-ninth as much money, one twenty-second as much value in carriages and wagons, and one fifty-fifth as much of credits. Recently all attempt to obey the letter of the law was abandoned in Chicago, and for the tax upon personal prop- erty there has been substituted what is practically a gross revenue tax upon business. Professor Commons has de- scribed this extra-legal system in the Meview of Reviews} 1 Extract from " Some Taxation Problems and Reforms," by Professor John R. Commons, in Review of Reviews of February, 3 903 : " Lists are made out for each line of business, and are sent to all the tax- payers appearing on the list. In addition, the Board of Review selects a committee of citizens from each 'line,' and submits the Ust to them for revision. This committee, being familiar with all the business houses, rates them all according to the amount of business and regard- less of the itemized schedules returned by each. At the present time there are more than 200 of these separate committees of citizens co-operating in the assessment machinery. The Board of Review ac- cepts their ratings, but at the last assessment added 10 per cent all around, in order to relieve real estate that much. This method of citi- zen assessment has resulted in raising the valuation of personal property in Chicago from $21,000,000 to $88,000,000, but with the interesting out- come that the personal property tax has been transformed into something like a gross revenue tax ; for the Board disregards the itemized schedules returned by business houses and accepts the proportionate ratings returned by the committees, based upon their judgment of the amount of business done by each house. Naturally, in each line, the stock of goods is propor- tionate to the amount of business, but it is assessed as a unit and no longer by items. The law is indeed conformed to by publishing the items as re- turned in the schedules, but the additions made by the Board are entered under the item ' all other property,' and this item is now two-thirds of the personal property assessment. One notable feature of this practice is the 20 It is a striking testimony to the impossibility of enforcing the general property tax in a large city and to the practical nature of the American people, who in this case have man- aged to work some sort of rough justice while entirely dis- regarding the letter of the law. The relation between the assessed value of the various items of personal property classified in Cook county and in the remainder of the state is an object lesson to farmers just as it was in 1897.^ Missouri Cities. Missouri is blessed by the same kind of a listing law as that of Ohio and lUinois. There are only four large cities in the state, and the iniquitous effect of personal property taxation is clearly shown by a comparison between the city counties and the remainder of the state, or between the city of St. Louis and one of the rural counties (1899). In the four city counties personal property amounts to less than 14 per cent of the total assessed value of real and personal entire elimination of mortgages from the lists, and the almost complete elimination of credits. While other parts of the state and other states pay attention to these items, the Chicago assessors lump them all together under their 'unit rule ' of assessment." iNsme. Farm Lands. Town and City LotB. Total Beal Estate. Personal. Hi Cook County Remainder of State . $14,915,853 300,002,192 $282,831,401 113,089,736 $297,750,254 413,091,928 $88,109,999 118,983,855^ 2.8 2.3 Name. Watches and Clocks. Carriages and Wagons. Money. Credits. Cook County Remainder of State Proportion in Cook County. 428,021 1/8 $236,249 2,411,653 1/10 $2,253,282 18,875,452 1/9 $5,026,746 21,345,914 1/5 Cook County has more than 1/3 of the total real estate value of the state. 21 property, while in the remainder of the state it amounts to 28 per cent.^ In St. Louis personal property amounts to 12 per cent, and in the rural county of Camden it amounts to 30 per cent of the total. Camden county is an exceed- ingly good illustration of the way the taxation of personal property affects the farmers. The assessed value of the property in the county is $1,773,076. Of this amount 30 per cent is personal property, and nearly two-thirds of this personal property by value consists of live-stock ; that is, over one-sixth of the entire taxable value of Camden county is live-stock. Under a severe listing system it is absolutely impossible for farmers to avoid paying taxes on their live- stock, and the result is that fanners as a class pay vastly more in taxes than they ought to pay. The effect of this upon the cities is indirect, but none the less extremely harm- ful. The farming industry is discouraged, and country boys are driven into the cities, where their competition reduces the wages of those who are city born. West Virginia. In West Virginia there are no large cities, and conse- quently personal property pays a large share of the taxes. ' The figures in the first table are given in thousands of dollars. Name. Farm Lands. Town Lots. Total Beal Estate. Personal Property. Per Cent of Personal to Total. 4 City Ck)unties Remainder of State . . . Total $26,786 294,982 $383,024 76,211 $409,811 371,193 $63,871 144,855 13.4 28.0 $321,768 $459,235 $781,004 $208,726 21.0 1 Name. Beal Estate. Money, Bonds, and Kotes. St. Louis $311,992,390 470,011,684 $8,409,410 58,034,819 Remainder of State 1 22 averaging for the whole state over 28 per cent. A New York assemblyman once said to me that the personal prop- erty tax worked beautifully in West Virginia, because there is a severe listing system there, and he said that this proved that all the state of New York or any other state needed was to imitate the system of West Virginia. This theory might sound well to one unacquainted with the facts, but, as always, the facts in West Virginia give the lie to any the- ory of universal taxation. In Ohio county town lots are more than double the value of farm lands, and personal property pays 25 per cent of the taxes ; while in Harrison county, in which farm lands are six times the value of town lots, personal property pays 36 per cent of the taxes. In West Virginia a record is kept of the various items of personal property. In Ohio county, which has more than double the real estate value of Harri- son county, watches and clocks are assessed at $1,550, while in Harrison county they are assessed at $15,425, or ten times as much. The 27,000 inhabitants of Harrison county have 2,514 watches and clocks (exclusive of those in stock in stores or factories), while the 48,000 inhabitants of Ohio county get along with 34 (according to the assessors). These figures are from the auditor's report for 1902, and there is no evidence of any improvement since the report of the commission in 1884, which said ; " Things have come to such a condition in West Virginia that, as regards paying taxes on this class of property, it is almost as voluntary and is considered pretty much in the same light as donations to the neighboring church or Sunday school." Theory of the General Property Tax Fallacious. An analysis of the assessment rolls of every other state of the Union will disclose conditions as bad or worse than those described. '^ It is a marvelous thing that a well-sounding ' Report of Prof. Richard T. Ely to the General Assembly of Maryland, 1888, page 104: " I have first to remark that the one uniform tax on all property as an ex- clusive source of revenue, or the chief source — the main feature in direct taxation — -never has worked well in any modern community or state in the entire civilized world, though it has Jbeen tried thousands of times, and ii theory should have so long deluded the practical American people. The theory that taxes to be equal must be equally laid upon all property must have a good sound to many people or it would not have prevailed so long as the basis of tax legislation in this country. It has been proven that the ingenuity of man is unequal to the task of framing an equi- table system based upon this theory, and that in itself is conclusive that the theory is false, for there is no such thing in this world as a true theory that will not work ; but this theory may be proved false on purely theoretical grounds, for it neither conforms to the test that taxes must be in pro- portion to ability to pay nor to that other test, which seems to me to be the true onej(that taxes should be in proportion to the benefits received from government.\ Personal Property Tax Drives Out Capital. The impracticability and inequality of personal property taxation have been discussed, but its effect in driving out capital has been referred to only incidentally. This is an important effect, and is particularly important to owners of real estate. Personal property is easily transported, and will although all the mental resources of able men have been employed to make it work well. I have read diligently the literature of finance to find an ex- ample, but in vain, and lest this should not be. sufficiently trustworthy, I have made it my business, in my capacity as tax commissioner, to visit typical states and cities and to make inquiries in person, of citizens as well as of officials entrusted with the administration of the laws. I have visited Charleston, South Carolina ; Savannah, Atlanta, and Augusta, Georgia ; Co- lumbus, Ohio ; Madison, Wisconsin ; Toronto, Montreal, and Quebec, Can- ada. And the result has been abundantly to confirm all that I have said about the impracticability of the one uniform tax upon real and personal property." Prof. Edwin R. A. Seligman, in his work on " The General Property Tax," page 52, says : " Practically, the general property tax, as actually administered to-day, is beyond all peradventure the worst tax known in the civilized world. * * * It puts a premium on dishonesty and de- bauches the public conscience. It reduces deception to a system and makes a science of knavery. It presses hardest on those least able to pay. It im- poses double taxation on one and grants entire immunity to the next. In short, the general property tax is so flagrantly inequitable that its retention can be explained only through ignorance or inertia. It is the cause of such crying injustice that its abolition must become the battle-cry of every states- man and reformer." 24 fly away from oppression wherever there is a refuge. The laws of our states differ so much that no state can legislate for itself without taking into account the laws of other states which surround it. There is abundant testimony that capital has been driven from New Yorls^ by oppressive taxation,^ and when capital is driven away population goes with it. Not only is capital driven away, but also many rich men are induced to acquire a legal residence in other states, although they may continue to live a part of the year in New York. The large cities of Ohio have lost so many wealthy citizens that there has been a great decUne in the value of choice residence property.* The effect of the opposite poHcy is referred to as follows by the Wells Commission in their second report to the New York Legislature in 1872 : " In Pennsylvania under her ex- isting system of local taxation less dissatisfaction is probably expressed and less trouble reported by officials than in any other state. Real estate is not regarded as unduly bur- * Hon. Michael Coleman, for twenty years Deputy and Commissioner of Taxes in the City of New York, testified as follows before the joint com- mittee of the Senate and Assembly in 1893 : " In 1869, along the easterly and westerly shores, there were large fac- tories employing at one time a hundred thousand skilled workmen. The first case that came up was the Singer Sewing Machine Company. For three years they conferred with the department as to what their taxes would be. Finally they moved to New Jersey, and from that time up to the pres- ent they have been going almost every year, and to-day' there is only one large establishment that was here at one time, and that is Hoe's estab- lishment." ' Hon. E. A. Angell, late State Tax Commissioner of Ohio, in- the Inde- pendent : " The indirect results of the operation of the law have been to drive away large masses of capital from the state. It is estimated that at least $200,000,000 has been lost to Cleveland alone, and as much more to Cin- cinnati. Another well-established result has been the unparalleled deprecia- tion of real estate in Ohio. Real estate in Cleveland is much lower than in any other city on the Great Lakes. The reason is obvious. Let one hundred men of large wealth be driven from a city and the possible buyers of high-priced real estate are limited in number. This depreciation has been most marked in high-class residence property. Twenty to twenty-five years ago land in the residence part of Euclid avenue had a ready sale at $400 to $500. a foot front ; it is not worth half that sum to-day. The rea- son is an obvious one when it is recalled that the people who formerly bought such property now live in Washington and New York." —J 25 dened ; rents in her large cities are comparatively low ; while, under the inducements offered by liberal legislation, popula- tion and wealth are very rapidly increasing, the gain in pop- ulation from 1860 to 1870 having been 21.18 per cent as compared with 12.94 per cent for New York. " In Pennsylvania the system of local taxation is entirely different from that of either New York or Massachusetts, and far more liberal than the system of any of the other states, inasmuch as in that state personal property is either wholly exempt from taxation, or is taxed to so small an ex- tent in comparison with New York and Massachusetts as practically to amount to exemption."' The commission quoted with approval the report of the law committee of the Philadelphia common council against the proposition to tax personal property in Philadelphia as in other states.* Tax on Manufacturing Plants a Ta^ on Consuvvption. One of the worst features of the taxation of personal property is the taxation of manufacturing plants. Such a 'During the year 1870 the subject of the direct taxation of personal property being agitated in Philadelphia, the conunon council of that city requested its law committee (consisting of nine members) to consider the subject, and prepare a biU "for the taxation of all personal property as now enforced in some of the states of the Union." This committee, in Febru- ary, 1871, submitted a report declining, in fact, to report any such bill, on the groimd that, after careful examination, they were satisfied that it would "injure the business interests of the city and stop or retard the growth of our industrial estabhshments." Discussing the effect of the proposed change on the real estate property of this city, the committee says : " Will the owners of real estate be relieved of any of the weight of local taxation by imposing a part of the levy on the business of the city ? " Capital, business, and industrial establishments alone give value to city real estate. With it, the real estate can be made to produce revenue, main- tain or increase in value ; without it, come depreciation in values and want of occupation for large classes of people. If, therefore, a tax imposed on the business interests of the city would have an unfavorable effect upon its ! growth and prosperity, the transfer of a part of the tax levy to property in business would, in effect, be an injury to the owners of real estate. This, we think, would be the result. . . ." " We cannot afford to try the experiment of imposing a tax on our manu- &cturing interests." (Second repoH; of the New York Tax Commission in ;il872.) tax if generally imposed must increase the cost of produc- tion and so increase the cost of goods. This makes it a tax upon consumption, which is always heaviest on those least able to pay. If the tax is not imposed by all states, it will operate as a discrimination against manufacturing industries in those states where it is imposed. Machinery rapidly becomes antiquated or worn out, and is, therefore, one of the most difficult things to assess fairly.^ Even if the prin- ciple of taxing manufacturing plants were not wrong the impossibility of making fair assessments would demand the abolition of the tax. Rhode Island is a great manufacturing state ; one-fourth of the entire population being employed in factories. The assessment rolls show that mill property is usually over- assessed as compared with other property, and that there is great inequality in the assessment of mill plants in the vari- ous cities of the state. The report of the Rhode Island state board of valuation of 1891* shows that in some towns, such as Cumberland, mill property pays two-thirds of the entire personal tax, and in many towns one-half. The board reported that : " There was not a board of assessors in the state who knew, and but few who pretended to know, what the true valuation of mill property was." In the town of Warren personal property amounts to 50 per cent of the total assessment, and more than a third of this personal property is personal property of mills, which is double the real estate assessment of the mills. The town of Bristol is a remarkable contrast to the town of Warren ; for in Bristol mill real estate is assessed for $602,000, and personal prop- erty for only $75,000. The assessment rolls show that there is no basis for the fair assessment of miH property, that mill property as a rule ^ " A striking example of how difficult it is for the assessors to tax ma- chinery at its real value may be found in a late sale made by the Lawrence Manufacturing Company, of Lowell, of some of its machinery. Forty thou- sand spindles, in good condition, were sold by them for. $25,000, or 62^ cents per spindle. This machinery had been assessed, the year before (1895) at $6.43 a spindle, or ten times the amount of its real valu^. It was sold because the company found it unprofitable to make four-yard sheetings at Lowell." (Report of Massachusetts Tax Commission, 1897.) ^ This board was a special committee of the Legislature and there has been no report since 1891- _ is more fully assessed than other classes of personal prop- erty, and that the law is more strictly enforced in small towns than in large cities. The board said that in the city of Providence : "The assessors experienced the same dif- ficulty in relation to personal property (only perhaps in a greater degree) as is met by the assessors in every town of the state, and that the result is that they guess as well as circumstances wUl permit." Taoc mi Chattels Double Taxation. It has been proved that it is impracticable to assess chattels of any kind fairly, but it is unjust to tax them at all, for such taxation is a double tax upon the owner. There is a law of nature which is superior to the laws of courts and legisla- tures, a law of nature which imposes a tax upon all chattels, with absolute fairness and with absolute impartiality. No man can possess any tangible thing without paying for land upon which it may rest, and for shelter with which to cover it. When the owner has paid for the use of ground and shelter, he has paid the full measure of the advantage to him of keeping his chattel in that particular place. In the city of New York, if he keeps his furniture and pictures on Fifth avenue, he pays much more in taxes than if he keeps them on Avenue A ; if he keeps his horses in a stable on Fifty- eighth street, he pays more taxes than if he keeps them in a country village. The merchant who keeps a stock of goods on Broadway pays many times more in taxes when he pays for ground and shelter than if he kept his goods in Hoboken. One result of attempting to tax chattels is not understood nor is its importance appreciated as it should be. Goods and merchandise are not only taxed when they are in the hands of the consumer, but also in all the stages of their manufacture, and the different articles entering into the final product may also be taxed several times. As an illustration we may trace the history of a coat; first the sheep is taxed ; when the wool is clipped and in the hands of the wholesale merchant that is taxed ; when it is sent to the mill it may be taxed again as raw material ; it is worked up by taxed machinery; it is dyed with taxed dyes; the cloth is bought by a jobber and taxed again ; when the merchant tailor puts ii ~~~ it on his shelves it is taxed ; it is finally made into a coat and sold to the consumer, and in theory of law that coat is taxed on the wearer, and again as it goes to the paper or shoddy- mill, when the round begins again. Admitting that the goods are not taxed to the full extent contemplated by the law, the fact remains that to some ex- tent taxes are laid upon materials at every stage of their pro- duction. How much is added to the cost of goods by this continuous taxation it is impossible to estimate, but it is certain that the consumer must finally pay several times as much as the state receives.! The demand for goods is lessened by the increased prices and in consequence the demand for labor is less.) There is a vicious double tendency to lower wages and to decrease the amount that wages wiU buy. Tax on Mortgages Increases Interest. The taxation of mortgages is about the meanest kind of double taxation there is, fori it singles out the man who is in debt to impose upon him a special burden with no resulting benefit of any kind. If by stringent provisions of the law all mortgages are taxed, there is a certain equality in the iniquity, but the (^general rule is that only occasional mort- gages are placed upon the assessment roll, as in this state. Here the interest rate on mortgages is only increased by a portion of the taxi and some owners of mortgages who escape taxation profit by a higher interest rate than they would otherwise receive, which all mortgagors must pay ; while some mortgagees, who are too honest or too ignorant to escape, pay the full tax and submit perforce to a confiscation of their property. It does not seem necessary to prove the self-evident fact that a tax upon mortgages is paid by the borrower, for even the courts have repeatedly so decided,^ but the experience of * " The tax on government stock is thought by this court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently to be repugnant to the Constitution." (Weston et al. V. The City Council of Charleston, 2 Peters, 469- (Chief Justice Mar- shall wrote the opinion of the Court.) " I come now to the point, whether a tax on land at its full value, and a tax on a debt for money loaned, secured by a mortgage on the land, is in sub- stance and legal effect a tax on the same property. We all know, as a — California, since the adoption of the Constitution of 1879, is interesting and instructive. The framers of that Constitu- tion in their effort to tax the money lender provided that : "A mortgage, deed of trust, contract, or other obligation by which a debt is secured,' shall, for the purposes of taxation and assessment, be deemed and treated as an interest in the property affected thereby. . . . The value of the prop- erty affected by such mortgage, etc. , less the value of such security, shall be assessed and taxed to the owner of the property, and the value of such security shall be assessed and taxed to the owner thereof." Another section of the Con- stitution declares that every contract " by which a debtor is obliged to pay any tax or assessment on money loaned " shall be null and void, and no interest can be collected on mortgages affected by such a contract. Professor Carl C. Plehn, in his work on the " General Property Tax in California," proved that the tax is regularly matter of general notoriety, that almost universally, by a stipulation between parties, the mortgagor is obliged to pay the tax both on the land and on the mortgage. Practically he is twice taxed on the same value, if he has still in his possession the borrowed money to secure which the mortgage was made. The law taxes in his hand both money and land ; and by his stipu- lation he is required to pay tax on the mortgage debt, and also, if the money has passed out of his hands into the possession of some other taxpayer, it is taxed in the hands of the latter, so that the money bears its share of taxa- tion, and the land its share, in the hands of whomsoever it may happen to be. " It is very true that a voluntary agreement on the part of the mortgagor to pay the tax on the mortgage debt cannot improve its situs. The state was no party to the contract, and is not bound by stipulation inter alias. The burdens of taxation cailnot be shifted from those on whom the law imposes them by stipulation between private persons ; but in the absence of such a stipulation, an inexorable law of political economy would impose upon the mortgagor the burden, in a different form, of pa3dng the tax on the mortgage debt. Interest on money loaned is paid as a compensation for the use of the money, and a rate of interest as agreed on is the amount which the par- ties stipulate will be the just equivalent to the lender. If, however, by the imposition of a tax on the debt, the Government diminishes the profit which the lender would otherwise receive, the rate of interest will be sufficiently increased to cover the tax, which in this way will be ultimately paid by the borrower. The transaction would be governed by the same immutable, in- flexible law of trade by reason of which import duties on articles for con- sumption are ultimately paid by the consumer, and not by the importer. The rate of interest on money loaned is regulated by the supply and de- 30 ~' ■ ■ shifted to the debtor, together with something more by way of insurance against a possible rise in the tax rate. There is a still further burden upon the mortgagor because his property is invariably more sharply assessed than unencum- bered property. In an article published in the Independent in February, 1898, Professor Plehn says : " The shitting of the tax, which entirely defeats the purpose of the framers of the measure, can be seen from the following facts: The average rate of taxation throughout California for state and local purposes together, is about 1.75 per cent of the assessed valuation. It varies this year from 1.03 per cent in Santa Clara county to 3.21 per cent in Sierra county. In San Francisco it is 1.6954 per cent. The average rate of interest upon mort- gages in California for the decade 1880-1889, according to the eleventh census, was 8.90 per cent, or exactly two per cent more than the average throughout the United States, mand which govern all articles of commerce ; and the burdens imposed by law in the form of a tax on the transaction, which would thereby di- minish the profits of the lender, if paid by him, will prompt him to compen- sate for the loss by increasing to that extent the rate of interest demanded. If his money would command a gp)en rate of interest without the burden, he mil be vigilant to see that the borrower assumes the burden, either by express stipula- tion, or in the form of increased interest. This is a law of human nature, which statute laws are powerless to suppress, and which pervades the whole of trade gov- erned by the laws of supply and demand. Nor would the enactment of the most stringent usury laws produce a different practical result. Human in- genuity has hitherto proved inadequate to the task of devising usury laws which were incapable of easy evasion ; and wherever they exist, they are, and will continue to be, subordinate to that higher law of trade which or- dains that money, like other articles of commercial value, will command just what it is worth in the market, no more and no less. Assuming these premises to be correct, and I am convinced that they are, it results that it is the borrower, and not the lender, who pays the tax on borrowed money, whether secured by mortgage or not; but if secured by mortgage he is taxed not only on the mortgage and property, but on the debt which the property represents and which is held as a security for the debt." (Savings and Loan Society vs. Austin, 46 Cal., 486; Oct., 1873.) " Of the soundness of this decision there could probably be no more con- vincing illustration than the statement that upon its announcement the savings banks of San Francisco gave notice that they would immediately reduce the rate of interest on their loans secured by mortgages by the amount of the tax on the mortgage." (David A. Wells, in Popular Science Monthly, March, 1898.) — which was 6.90. At present the rate of interest has fallen here as well as elsewhere in the United States ; but the best evidence shows that it is still, for mortgages, at least two per cent higher than the general average. . . . It is further true that the rate of interest charged on mortgage loans of the same degree of safety is greater in counties where the tax rate is regularly high than in counties where it is usually low." In most of the states only a small proportion of mort- gages has been actually taxed, and the rate of interest in such states is affected rather by a risk of taxation than by a certain charge on the mortgage. Another element which affects the interest rate on mortgages is the fact that savings banks in New York can loan money on mortgages entirely free from taxation, and in Massachusetts and other states savings banks pay only a small tax in proportion to indivi- duals. Those states, therefore, which exempt mortgages from taxation altogether do not show an interest rate which is lower by the full amount of the average tax rate ; more- over when interest rates in states which now exempt mort- gages from taxation are compared with interest rates in the same states prior to exemption, allowance must be made for the previous uncertainty of the tax. In Massachusetts mortgages were exempted from taxa- tion in 1881, and the tax commission of 1897 says : " We beUeve that the change in the tax law made in 1881 has tended to bring about a decline in the rate of interest on mortgages, security being the same; and this decline has been as great as could be expected in view of the conditions prevaiUng at the time the law was changed." The impression seems to prevail in some quarters that the exemption of mortgages from taxation would be a special benefit to those who lend money. So far from this being the case it seems probable that many who now lend money on mortgage security and escape taxation would really re- ceive a smaller net return by reason of the greater compe- tition in the loaning of money. The benefits really would be so widely diffused that all classes in the community would participate in them. 32 Taxation of Banks. The taxation of banks is one of the strongest features of the laws for the taxation of personal property, in most of the states, and in consequence it has probably done the country more harm than the attempt to tax any other item of per- sonal property. It is now a matter of history that there is a very widespread feeling that the supply of currency is inade- quate for business needs. This feeling is strongest where the taxation of personal property is most effectual. If banks are virtually prohibited, there never will and never can be currency enough to effect exchanges. If the prohibition against branch banks, as in New York, and the taxation of banks were abolished there are thousands of small places where branch banks could do a profitable business, and set free an amount of currency which it is impossible to esti- mate. In many of these places the country store is per- forming the functions of a bank by making exchanges pos- sible, but doing it in a most clumsy and costly fashion. In most of such places there is a great deal more currency than the volume of business justifies and yet it is frequently in- adequate. In the large cities there appears to be a plentiful supply of banks, but the enormous taxes they are required to pay must be earned, and of course they can only be earned by an increase in their charges. These charges are paid by the business community, and the tax finally falls on the con- sumers of goods. Closely related to the tax upon banks is the tax upon money. First, banks are taxed so as to render necessary a larger supply of money ; more money is demanded, and at the same time a tax is laid upon money which, if it could be actually assessed and collected, would drive money out of circulation. It is like forcing a man to do more work, and then opening his veins and taking away his blood in proportion to the extra work he is required to perform. Benefits of Exemption Universal. The idle fear that to exempt personal property from taxa- tion is to benefit only a class is born of ignorance and preju- ' 33 dice. Sufficient facts have been presented to show that the taxation of wealth instead of opportunity is not a tax upon rich men, but a tax upon brains and industry, and honesty and thrift. The exemption of personal property from taxa- tion is one of the few reforms that can be effected without injury to anyone, and with benefit to every class and every individual. ^ The owners of real estate are the only ones who have even the shadow of a right to object, and one-third of them pay more personal taxes than they would pay in increased taxes on real estate if personal property were exempt; all the re- mainder would benefit in reduced prices of goods, and in an increased demand for labor. All those whose real estate is mortgaged would benefit in decreased interest charges. AU real estate would tend to rise, in value, for population would be attracted and the productive capacity of the peo- ple increased. Real estate has value in proportion to the number and productive capacity of the population; it has its greatest value where there is the largest amount of the most valuable personal property placed upon it. When the pro- duction of wealth is no longer punished by fines and penal- ties, real estate owners will get their share of the general prosperity, t In addition to these considerations, the improve- ment in the morals and conscience of the community which would ensue from the abolition of this terrible temptation to perjury and fraud is worth the earnest effort of the greatest statesmen. An elaboration of the argument is unnecessary, but cu- mulative evidence may be offered to any extent. I shall only quote those whose opinions have special weight or whose experience is particularly valuable. Hon. Abram S. Hewitt, in his message to the Eoard of Aldermen in 1888, said : " The abolition of personal taxes in this city would attract to it the capital of the whole world. We are now the cen- ter of exchanges on the Western Continent, but in a few years we should be the clearing house for the commerce of the globe Any proposition to impose taxation upon what people or corporations owe, instead of what they own, is absolutely unsound, and it is difficult to understand by what process of reasoning this policy is advocated. Ac- 34 cording to the conclusions of the best financial authorities actual property should alone be taxed. Evidences of debt should never be taxed, because, as a rule, they only represent property which has ah-eady been taxed. No sounder system of taxation for local or state purposes can be devised than that which practically puts the tax upon tangible and visible property, and upon pubhc franchises which have an actual cash value, as shown by their earning power." Hon. William H. Arnoux, for forty years a practicing lawyer in New York, whose firm is very largely interested in the loaning of money on mortgages, |lO,000,000 passing through their hands annually, testified before the joint com- mittee of the senate and assembly in 1893 as follows : " In this state the taxes on personal property have never been collected in a way to do justice to the community, and in my judgment the law should be abolished. " If taxes were levied upon the real estate alone the benefits to the real estate would be, I think, much larger than the cost would be. In this way, if it were known to the world at large that a man could bring any amount of personal property into this state — money, bonds, or any other form — absolutely free from tax, it would increase loanable funds of the state to such an extent that the diminution of interest would far more than equal the amount of tax that would be added." George H. Andrews, Commissioner of Taxes in the City of New York, in his address before the Assembly Committee on Ways and Means, October 6, 1874, said : "The effect of the present laws for assessing personal property is disastrous to the owners of real estate, inasmuch as many of our best citizens remove to the states already enumerated to avoid the operation of our tax laws. The real estate of the state needs for its development and pros- perity residents, capital, and business. These are the ele- ments which, coursing through the veins of the community, give it life and health. Without these real estate must droop and languish, but with these trade must flourish, mechanics find employment, stores and tenements be fuUy occupied, the farmer find a ready market for his produce, and the sunshine of prosperity gladden every heart and I lighten every burden. 35 "Under the operation of the present laws real estate must continue to bear more and more of the burden of taxa- tion, and also suffer heavily because those laws, instead of attracting, scare away residents, capital, and business." The Brief of the Merchants' and Manufacturers' Associa- tion, published in the Baltimore Sun, December 2, 1896, stated : " That the exemption of manufacturing plants has been one of the greatest sources of prosperity to Baltimore, and that the impetus thus given to the establishment and exten- sion of manufacturing industries in our city has far exceeded in value the taxes which have been abated. In some lines Baltimore now ranks among the leading manufacturing cen- ters of the country, and this is mainly the result of the growth in the last fifteen or sixteen years. Employment has been furnished to thousands of our citizens, and it would be difficult to estimate the addition either to the number of inhabitants or to the amount of taxable basis directly due to the development of our manufactures." Prof. Richard T. Ely, in his report to the Maryland Legis- lature in 1888, asserted that : " The diffusion of the benefits of exemption from taxation can perhaps best be seen by a concrete illustration. Any- one in Baltimore who walks from Baltimore street in a northerly direction out St. Paul street or Calvert street, beyond the boundary of the city into the country, will notice a large number of houses newly constructed or in process of construction, and which are offered for sale or rent at far lower prices than such comfortable houses can be obtained for in any other great city in the American Union. It is not too much to say that a house in this section of the city, which can be obtained for $25 a month — a pleasant, weU- situated house — could not be obtained in any other city of the size of Baltimore in the United States for less than $50 a month. Now, why is it that so much building is going on and that houses are so cheap ? If anyone thinks that the exemption of mortgages fi-om taxation is not connected with it, a conversation with a practical builder or banker will probably disabuse him of this idea. As a matter of fact, savings banks would not and could not put their money into such improvements in Maryland if they were taxed. This _ _ _ is what they do now, but if mortgages were taxed, money now spent in Maryland would go to the West, just as thirty millions of dollars have recently left the state of New Hamp- shire. Who then get the benefits of this exemption ? They are diffused widely through the community. The working- man does, for he has more abundant opportunities for labor, and the taxation of mortgages would be a blow which he would feel. In addition to this, to tax mortgages would tend to raise his rent. The real estate man derives a benefit, as he does from every improvement, for it raises the value of his land. The farmer is also benefited in a better home market for his produce. The merchant is benefited in larger sales. If the money lender is benefited at all, his advantage is not greater than that of other members of the com- munity." Hon. David A. Wells, in his report to the New York Legislature in 1871, said : " New Jersey and Pennsylvania, with a wiser experience, have, as before shown, entirely exempted mortgages from taxation over a large part of their territory, and will, un- doubtedly, at no distant day make the exemption universal. And here occur points to which special attention should be given, viz. : In both of these states it is represented to the Commissioners that the demand for this exemption came not in any degree from the capitalists, but from the small land holders, particularly those of the working classes ; and further, that the influence of the exemption has been most beneficial to the districts affected by it, so much so, to use the words of one conversant with the question, ' that if it were possible to take in, as from an eminence, a view of the whole state, the counties in which mortgages were ex- empt from taxation would be as readily distinguished from the others as would be a field of luxuriant wheat or corn from a field of scrub oak or brushwood.' " 37 INDEX AndrewSj Hon. George H., quoted, 10, 14, 35 Angell, Hon. E. A., quoted, 19, 25 Arnoux, Hon. W. H., quoted, 35 Assessment by citizen committees, 20 Assessment in Chicago, 20 Assessment in a New York town, 1 3 Assessment in City of New York, 6-9 Baltimore, exemption of manufact- ures, 36 Banks, taxation of, 33 California, mortgage taxation, 29-32 Capital, effect of taxing, 25 Carriages and wagons in Illinois, 21 Chattels, taxation of, 28 Chicago, assessment in, 20 Coleman, Hon. Michael, quoted, 25 Commons, Prof. John R., quoted, 20 Consumption, tax on, 26, 28 Debts, deduction of, 6 Double taxation, 28, 29 Ely, Prof. Richard F. report of, 23, 36 Exemption of manufactures, 26, 36 Exemption of personal property, 26, 33 Factories, assessment of, 27 Factories, driven from New York, 25 Factories, effect of exempting, 26, 36 Farmers, effect on, 13, 22 Feitner, Hon. Thos. L., testimony of, 7 Hewitt, Hon. Abram S., quoted, 34 38 Illinois, taxation in, 19 Listing systems, 18-23 Live-stock, taxation of, 22 Manufactures, exemption of, 26, 36 Manufactures, taxation of, 25-27 Marshall, Chief Justice, quoted, 29 Maryland, exemption of manufact- ures, 36 Maryland, report of Prof Ely, 23, 36 Massachusetts, assessments in, 9, 1 5, 27 Massachusetts, exemption of mort- gages, 32 Massachusetts, report of tax com- mission, 16, 27, 32 Merchandise tax, 28 Merchants, assessment of, 7, 20 Mill property, assessment of, 27 Missouri, taxation in, 21 Money, taxation of, 33 Mortgage taxation, 29-33 New Jersey, taxation in, 16-17 New York, City of, assessment of personalty, 7-9 New York, City of, factories driven out, 25 New York, City of, message of Mayor Hewitt, 34 New York, City of, tax officials quot- ed, 7, 10, 25, 35 New York, State of, 8-14 New York officials quoted, 1 Ohio, capital driven from state, 25 Ohio, taxation in, 1 8 Pennsylvania, exemption in, 26 Personal property definition, New York, 6 Philadelphia, exemption of manu- factureSj 26 Plehn, Prof. Carl C, quoted, 30 Real estate, effect of personal prop- erty tax on, 25, 26, 34 Rhode Island, assessment of mills, 27 Savings and Loan Society vs. Austin, 29-31 Seligman, Prof. E. R. A., quoted, 24 Shifting of tax, 3 1 Syracuse, enforcement of law in, 12 Tables : Illinois, 21 Massachusetts, 15 Missouri, 22 New Jersey, 17 New York, 8, 9 Ohio, 19 Tax commissions quoted : Maryland, 23, 36 Massachusetts, 16, 27, 32 New Jersey, 16 New York, 10, 11, 25, 26, 37 Ohio, 18 Philadelphia, 26 Rhode Island, 27, 28 West Virginia, 23 Tax inquisitor law, Ohio, 18 Tax officials quoted, 7, 10, 11, 14, 18, 25, 35, 37 Theory of personal property tax, 5 Valuation, difficulty of, 6 Watches and clocks, assessment of, 21,23 Wells Commission quoted, 11, 25, 37 Wells, Hon. David A., quoted, 1 1, 31 West Virginia, taxation in, 22 39