Cornell University Library HJ2439.A72 1914 Taxation in Washington; papers and discus 3 1924 014 007 847 New York State College of Agriculture At Cornell University Ithaca, N. Y. Library / J'^jl Cornell University Library The original of tiiis bool< 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/cu31924014007847 BULLETIN OF THE UNIVERSITY OF WASHINGTON University Bxteniion Series No. 12 General Series No. 84 University of Washington University Extension Division Taxation in Washington Papers and Discussions of the State Tax Conference at the University of Wash- ington, May 27, 28 and 29, 1914. Price Fifty Cents SEATTLE Published by the University August, 1914 Entered ■• leoond cUm metter at Sefittte, under the act al July 16, 1894 University of Washington University Extension Division EDWIN A. START, Director Tbe pnrpose at the Extension Division of the UnlTcraltr of WaaMnston !■ to make the Instruction and resources of the VnlTenilty more n-rallable and more serviceable to the vrhole state. It hias charge of all vrork of the University outside of the campus that Is not otherwise provided for. The work of the Division Is organlKed in three departments : 1. DEPARTMENT OP INSTRUCTIOrf Through this deportment of the Extension Division teaching Is done by university Instructors, thronsh correspondence or classes held at centers outside the campus. Courses are thus offered In Astronomy, Botany (In- cluding; teachers' courses In agrrlcultnre and horticulture). Business, Chem- istry, Economlf», Education, EuKlneerluK (civil and mechanical), English, Forestry, French, Geology, Crerman, Greek, History, Home Economics, Jour- nalism, Latin, Mathematics, Philosophy, and Spanish. Detailed Information In regard to all of this work Is contained In a number of circulars of In- formation, one or all of which will be sent on reouest to anyone. II. DEPARTMENT OF COMMUNITY SERVICE This department Includes a number of bureaus the purpose of which Is to utilize the resources of the University as completely as possible for the general good of the stwte. The following are organized; BUREAU OF MUNICIPAIi AND liEGISIiATIVE RESEARCH. Herman G. A. Brauer, chief. Tbe purpose of this bureau Is to render expert assist- ance to the legislature and to municipal officers of the state through in- vestigation and Information upon legislative and administrative auestlons. This Involves a wide correspondence and the assembling of a classlfled collection of the most recent material relating to the problems of legis- lation and administration. A circular of Information In regard to this work is published. BUREAU OF DEBATE AND DISCUSSION. lico Jones, chief. Thia bu- reau Is engaged In the promotion of public discussion of Important ques- tions. "A Manual for Debaters" and several outlines for debate have been published, much special material has been prepared, and package libraries of reference material are loaned to organizations, schools and individuals. The bureau may also be consulted for advice in its field and will assist in the organization of civic and debating clubs independently or in connection with community centers. For further information consult the special cir- cular Issued for the bureau. BUREAU OF liECTURBS. Through this bureau arrangements may be made for lectures, single or In courses, commencement addresses, and so forth. The only charges are the lecturers' fees and expenses. See the circular of Information for fuller details. III. DEPARTMENT OF PUBLICATION This department publishes the University Extension Journal, a quar- terly, and numerous bulletins required for diacrent phases of the exten- sion work, and to bring to the public or to portions of it the results of work In dlfterent departments of the University. A list of publication* already Issued will be found on the third cover page. BULLETIN OF THE UN IVERSITY OF WASH INGTON University Extension Series No. 12 General Series No. 84 University of Washington University Extension Division Taxation in Washington Papers and Discussions of the State Tax Conference at the University of Wash- ington, May 27, 28 and 29, 1914. SEATTLE Published by the University' August, 1914 Entered ai second class matter at Seattle, under the act of J My 16. 1^94 Contents Introduction 3 Review of the Progfram 4 Preface by the Program Committee 9 I. Opening Addresses. Address of Welcome. President Henry Landes 11 Response. Mayor H. C. Gill 13 II. Elements of the Problem. Scientific and Unscientific Taxation. Vanderveer Custis 15 Discussion 23 Administration of the General Property Tax. Albert E. Parish 25 III. Taxation of Natural Resources. Taxation and the Farmer. J. W. Brislawn 35 Discussion 41 Forest Taxation in Washington. Frank G. Miller 45 Discussion 56 Taxation of Fisheries. W. H. Kaufman 69 Discussion •. 75 Taxation of Mineral Lands. Joseph Daniels 80 Discussion 89 The State's Resources as a Factor in the Reduction of Taxes. T. E. Skaggs 91 Discussion 97 IV. Private and Public Corporations. Taxation of Business Corporations. Abraham Berglund 108 Discussion 116 Taxation of Public Utilities. H. M. Stephens 125 Taxation of Railways. Explanatory Note 131 Taxation of Municipal Public Service Companies. Norwood W. Brockett 132 Discussion 138 V. Taxation of Land Values. The Vancouver System. L. D. Taylor 148 The Single Tax. Oliver T. Erickson 156 The Tax on the Increase in Land Values. G. M. Janes 161 Discussion 167 VI. Methods of Tax Reform. The Essential Conditions of Tax Reform. T. S. Adams 196 An Ideal System of State and Local Taxation. C. C. Plehn. . . .209 Practicable Reforms in State and Local Taxation. Charles J. Bullotk 1 . . : 224 Separation of Sources of State and Local Taxation. J. E. Fito$t; 240 VII. Administration and Amendment. The State Bdard o-f Tax Commissioners. C. R. Jackson 246 Discussion 251 A Budget System for the State of Washington. Lester M. Liv- engood 253 A Constitutional Amendment. Charles H. Shields 262 Discussion 275 Appendix ! ! . .299 Index 300 (2) Introduction The State Tax Conference was held at the university under the auspices of the extension division. May 27, 28, and 29, 1914. The conference had a three- fold purpose: First, to bring about a better understanding of the character of our present system of taxation; second, to consider in what direction changes are practicable and desirable; and, third, how these changes can be put into effect. The conference was called as a result of a suggestion made by Mr. Albert E. Parish, assessor of King County, to President Landes of the university. Mr. Parish believed that the time was ripe for such a conference and that it could best be managed by the university so that it might be kept entirely outside of political or interested consideration and have a purely educational character. President Landes submitted the proposal to the director of the university extension division, who undertook to arrange the confer- ence on behalf of the university. A committee was appointed as follows: Edwin A. Start, chairman; Leo Jones, secretary; J. Allen Smith, John T. Condon, Vanderveer Custis, Herman G. A. Brauer, and Abraham Berglund. To Professor Custis, representing the de- partment of economics of the university, was assigned the making up of the program. The executive and clerical work was handled in the extension division offices. In the weeks preceding the conference Director Start and Pro- fessor Custis presented the plans to several business and civic bodies. Invitations to participate were sent to the cities of the state through their mayors, to county commissioners, treasurers, and assessors, to all commercial clubs and chambers of commerce, to the heads of the grange and farmers' union and to numerous commercial and trade organizations. As far as possible all of these correspondents were kept informed of the progress of arrangements. At the outset these correspondents were asked to make suggestions as to topics and speak- ers. A few of them gave some assistance in these regards. It was the desire of the university that the representation at the conference should be as broad as possible so that all those in the state who had given intelligent thought to constructive taxation policies might pre- sent their views and take whatever part they desired in the discussion of the problems presented. (3) 4 TAXATION IN WASHINGTON The committee invited to the conference to aid in its deliberation, several of the ablest tax experts of the country. Three of them accepted and their presence and counsel contributed largely to the success and value of the meetings. They were: Charles J. Bullock, professor of economics, Harvard University, and tax expert of the taxation committee of the Boston Chamber of Commerce; Thomas S. Adams, professor of economics, University of Wisconsin, and member of the Wisconsin Tax Commission; Carl C. Plehn, professor of pub- lic finance. University of California, and expert of the California Board of Equalization. The sessions of the conference were open to the public. A con- siderable number were present as appointed representatives of cities or organizations. The attendance reached two hundred and fifty at the first two evening sessions and ranged from that number down to about fifty at the closing session, Friday evening. The program was made as comprehensive as time limits would allow and as much time as possible was allowed for open discussion. It was designed to bring out the general principles of taxation as they have been discovered by experience and study of economic theories and to open for discussion the, specific problems presented by the conditions of the State of Washington. Governor Lister, who took a deep interest in the purpose of the conference, had planned to be present and to preside over its de- liberations, but urgent state business prevented his presence. A tele- gram was received from him during the sitting of the conference, in which he expressed his regret at his inability to attend, his belief in the usefulness of the conference and his hope that it would result in great good to the state. REVIEW OF THE PROGRAM The opening session, Wednesday morning, May 27, was held in Meany Hall. The meeting was called to order by Director Edwin A. Start of the extension division, who briefly explained the purpose of the conference. An address of welcome was delivered by Presi- dent Henry Landes of the university and responded to by Mayor Hiram C. Gill of Seattle. The general problems before the confer- ence were then presented in two papers, the first on "Scientific and Unscientific Taxation" by Vanderveer Custis, assistant professor of economics. University of Washington, and the second on "Difliculties in the Administration of the General Property Tax" by Albert E. INTRODUCTION E Parish, assessor of King County. The final paper of this session was on "Taxation and the Farmer," by J. W. Brislawn of the State Tax Commission. Governor Lister had been expected to speak at this session and to preside over the conference, but he was prevented from attending by urgent state business, and President Landes presided at the morn- ing and afternoon sessions of Wednesday. The afternoon session in Bagley Hall took up the taxation of two of our natural resources — forests and fisheries. The leading paper dealing with the first of these was presented by Frank G. Miller of Wenatchee, former dean of the College of Forestry of the university. The discussion was participated in by Burt P. Kirkland associate professor of forestry in the university; E. T. Allen, execu- tive secretary of the Western Forestry and Conservation Association; Professor T. S. Adams; Miss Mary O'Meara, financial secretary of the Washington Single Tax League; Charles H. Shields, and others. The paper on "Taxation of Fisheries" by W. H. Kaufman of Bellingham took ground in favor of the proposed initiative measure to impose a royalty on the fish catch. As the fisheries interests failed to be represented at the conference, for reasons explained by Pro- fessor Custis, there was practically no discussion of this paper. There was an attendance of over two hundred at the Wednesday evening session, presided over by Professor Custis. Professor Thomas S. Adams of Wisconsin gave an address on "Essential Conditions of Tax Reform"; and Professor Carl C. Plehn of California on "An Ideal System of Taxation." These two papers presented ably and with authority the general question in its various aspects. The fourth session, Thursday morning, was held in the Good Roads Building, Dean John T. Condon of the law school presiding. T. E. Skaggs of the State Tax Commission gave a paper on "The State's Natural Resources as a Factor in the Reduction of Taxes," which elicited a lively general discussion, participated in by Dr. Herman Brauer of the bureau of municipal and legislative research, W. H. Kaufman, Isaac Cooper, Professor Vanderveer Custis, Charles H. Shields, Professor T. S. Adams, Albert E. Parish, Director Ed- win A. Start and E. T. Allen. This was followed by a paper on "Taxation of Business Corporations" by Abraham Berglund, assist- ant professor of economics. University of Washington. In the dis- cussion of this topic Professor Plehn of California, Professor Bul- lock of Massachusetts, and Professor Adams of Wisconsin gave in 6 TAXATION IN WASHINGTON some detail the experiences of their states in taxing business cor- porations. The fifth session in Bagley Hall, Dean J. Allen Smith presiding, had before it for consideration taxation of public service companies. There were three papers: "Taxation of Public Service Companies" by H. M. Stephens, corporation counsel of Spokane; "Taxation of Railways" by C. P. Bissett of Seattle, an attorney of the Oregon- Washington Railway; and "Taxation of Municipal Public Service Companies" by Norwood W. Brockett of Seattle, an attorney of the Stone and Webster interests. There was a lively discussion following these papers, in which Charles A. Murray, assistant tax commission- er of the Northern Pacific Railway; J. E. Frost, former state tax commissioner; Charles H. Shields, Professor T. S. Adams, and the gentlemen who gave the papers took part. At the sixth session in Bagley Hall, Thursday evening. Director Start presided. There was an attendance of over two hundred and fifty persons. Professor Charles J. Bullock of Harvard University spoke on "Practicable Reforms in State and Local Taxation." This was followed by an address by J. E. Frost of Seattle, a former state tax commissioner, on "The Separation of the Sources of State and Local Taxation." The seventh session, Friday morning, in the Good Roads Build- ing, was presided over by Dean John T. Condon. The session was devoted to the single tax and related subjects. There were three papers: "The Vancouver System" by L. D. Taylor, former mayor of Vancouver, B. C; "The Single Tax," by Oliver T. Erickson of the Seattle city council; and "The Tax on the Increase in Land Values," by Dr. George M. Janes, instructor in economics. University of Washington. The discussion was opened by Thorwald Siegfried of Seattle, who was followed by E. T. Allen of Portland, Oregon; A. F. Faussett of Everett; Charles H. Shields of Seattle; Robert E. Smith of Roseburg, Oregon; Will Atkinson of Seattle. The debate was closed by Mr. Erickson. The eighth session, Friday afternoon in Bagley Hall, was pre- sided over by Director Edwin A. Start of the extension division. The first paper was on "The Taxation of Mineral Lands" by Joseph Dan- iels, assistant professor of mining engineering and metallurgy. Uni- versity of Washington. It was discussed by Dean Milnor Roberts of the College of Mines, University of Washington, and by Charles H. Shields. INTRODUCTION 7 This was followed by a paper on a subject closely related to tax- ationj "A Budget System for the State of Washington," by L. M. Livengood, a delegate from the Spokane Chamber of Commerce. In connection with this paper the question of resolutions by the confer- ence was raised and the decision of the committee against such action was stated and generally approved. ( Mrs. Frances C. Axtell of Bellingham, a member of the state legislature, asked whether it were possible for the conference to make a recommendation to the next legislature for a budget system, along with a constitutional amendment. The chairman stated that the committee had considered the pos- sibility of formal endorsement by the conference of a definite pro- gram and had decided that it would weaken rather than strengthen the influence of the conference, which was not organized as a rep- resentative assembly, was open to the general public, and might therefore pass at any session resolutions desired by a group that might be in a majority at that session. It was thought wiser to let the discussions of the conference stand on their own merits, backed by the influence of the speakers; and to that end the discussions would be published and made accessible to public officers, state legislators and the people of the state generally. Dr. Joseph F. Barton of North Yakima, agreeing with the com- mittee as to the wisdom of this decision, and endorsing the work of the conference, expressed the hope that there might be organized as an outcome of the conference a tax reform association made up of representatives of all the institutions of learning in the state, of all commercial organizations, county commissioners, auditors, and asses- sors, and others. In closing this discussion. Professor Custis stated his position as follows : "This is a conference and not a convention, and for that reason anything in the way of formal resolutions would hardly be in order. In the second place, it is called by a university; and the great func- tion of a university is education, not attempting to put sentiments back of anything in particular. That is another reason why it seems to me that it would be hardly proper to have resolutions. As to the future, I have been somewhat hoping that our experience would be such that it might become a part of the university's work to hold conferences, not conventions, on a number of subjects of public in- terest, and for that reason I should rather, I think, prefer not to have 8 TAXATION IN WASHINGTON any formal association. That is simply an expression of my personal opinion in the matter." The ninth and closing session was held Friday evening in Bag- ley Hall, Director Start presiding. The first subject considered was the work of the State Tax Commission, presented by C. R. Jackson of Tacoma, president of the board. Mr. Jackson's paper was a plain statement of the duties and work of the board — a board which every expert at the conference agreed was one of the essentials of good tax administration. Throughout the conference program the necessity was recognized of a constitutional amendment giving wider latitude to the legislature in imposing taxes, and the interest of those who had given closest attention to the conference centered about this subject, which was scheduled as the closing number. A paper was given by Charles H. Shields, opening the question. Mr. Shields offered an amendment which he believed would meet the requirements. In the discussion that followed there developed a considerable difference of opinion as to the form and scope of the amendment. F. C. Kapp, chairman of the taxation committee of the Municipal League of Seattle, advo- cated the amendment already made public by his committee. Pro- fessor Custis offered an amendment which had been prepared by a group of those present at the conference. The subject was further discussed by Dean Condon, ex-Mayor George F. Cotterill of Seattle, Dr. H. A. Brauer, A. E. Parish, Professor T. S. Adams, and Pro- fessor Charles J. Bullock. The conference then adjourned. In the following pages the chronological order of the program is departed from, in order to group related subjects. Space has been saved by the omission of remarks of merely formal or temporary in- terest, the publication being intended not as a journal, but as a suggestive discussion of taxation. The foregoing account will put the narrative record in its proper relation. Preface BY THE PROGRAM COMMITTEE The rapid increase of public expenditures has made the burden of taxation a heavy one, and the growing complexity of economic con- ditions has made difficult the problem of its just distribution. While the importance of economy in expenditure warrants serious public consideration of the means by which it can be attained, the difficulties in the way of an improvement in our system of taxation are such as to justify a conference in which attention is devoted exclusively to the latter subject. As regards expenditure for public purposes, the legislature has a fairly free hand; but the methods of taxation are largely prescribed by the state constitution. If these methods were good there would be little cause for complaint, but it can hardly be too strongly emphasized that the general property tax, prescribed by the constitution, is defective in theory and incapable of being fairly applied in practice; and is condemned with substantial unanimity by academic authorities and practical administrators. Taxation is too large a subject to be fuUy covered in a three days' conference. In the selection of topics and speakers the chief consideration was given to those phases of the subject to which a spe- cial interest might be expected to attach if the constitution were amended. Subject to this limitation, the effort was made to have every important interest in the state represented. It is a matter of great regret that as far as the fishing industry is concerned this ef- fort was not successful. It was understood by those in charge of the conference that a speaker would be appointed by the fishing interests to represent them. Unfortunately this was not done and, as a result, no satisfactory discussion of the subject was possible. In view of the interest that has been expressed in the "single tax" it seemed right that some place should be made for it on the program; and one session was devoted to the taxation of land values. It must be remembered that the term "single tax" is sometimes used today in a sense rather different from that in which it was used by Henry George. To the author of Progress and Poverty the great cause of most of the economic evils of society was to be found in the (9) 10 TAXATION IN WASHINGTON private receipt of economic rent; and the remedy was a tax that would take for society all income of this sort. It was not primarily a fiscal matter, but a fundamental social reform. While there are some who hold this view today, the "single tax" means to many sim- ply a system under which the taxation of personal property, espe- cially improvements on land, would be reduced or abolished, and the loss in revenue made up by an increase in the taxation of land. To them the "single tax" is almost altogether a fiscal matter, and a considerable proportion of them would object to any heavier taxation of land than is necessary. To others land speculation seems to be a great evil, for which taxation would be a proper remedy. Many of these would doubtless be satisfied with some form of increment tax- ation along the lines followed in England and in Germany. Neither of these classes would necessarily confine taxation to economic rent. In making up the program consideration was given to each of these views of the "single tax." To those in charge of the conference it seemed undesirable that any attempt should be made, by the adoption of formal resolutions, to influence legislation or public opinion. It was felt that the uni- versity would be rendering a greater service to the state if it con- fined attention to the throwing of as much light as possible on our tax system and the ways in which improvement can be made. It is with the hope that something has been accomplished in this direction that this volume is now presented to the people. PROGRAM COMMITTEE, Vandervekr Custis, Chairman John T. Condon, Abraham Berglund. I. Opening Addresses Address of Welcome PRESIDENT HENRY LANDES, UNIVERSITY OF WASHINGTON I regard it as an honor to preside at the initial meeting of this tax conference^ although it is a matter of personal regret to me, and I know it is to you, that Governor Lister could not be present today. His reasons are excellent for his non-appearance, and we are confi- dent that he will be here on Friday. The subject of increasing taxes is one that is becoming more and more acute. In most counties in Washington during the past year the increase for each individual property holder has ranged from 25 to 50 per cent. This rapid rise, unaccompanied by marked increases in valuation or any corre- spondingly upward tendencies in wages, has caused every citizen to wonder what it all means, and where it will stop. To the ordinary taxpayer, who is in no wise an expert in the matter, two questions at least will unquestionably arise in his mind. First, what is the ne- cessity for the larger and larger amount of money raised annually; and second, is the present scheme of taxation equitable and fair to all persons and all interests ? The answer to the first question is not far to seek. Each succeeding year brings us a higher type of living as far as comforts and conveniences are concerned. We build better houses, and those demand better walks and streets, and naturally follow parks and boulevards, sewerage and sanitation, police protection and a host of other things. We annually spend more and more money for the public good, for education in all its phases, for commissions of every variety. Out of all these things it is perfectly natural that there should follow a greater cost of government, city, county, state and national. I assume that it is the purpose of this conference to seek answers to the second question just asked, the method of taxation; is the present method the best; does it assess uniformly and log- ically all classes of property; does it affect man and man justly and equitably; is it the best scheme yet devised; what state or country can offer or suggest to us a more desirable plan.? The whole matter of taxation is one of the most serious and fun- damental problems of government, and intelligent and profitable dis- (11) 12 TAXATION IN WASHINGTON cussion of the subject requires men of learning, wide reading, and abundant observation and experience. The solution of the question requires men of vision and courage, and those who possess the true qualities of statesmanship. The logical place for a thorough discussion of taxation in all its bearings and phases is at a state university such as this. Under such auspices and upon a forum unbiased and unprejudiced it is ex- pected that progress should and will be made towards the solution of a vexatious problem. While the diverse views of many able men will be presented, and harmony of thought and action may appear to be well nigh impossible, yet it will be regrettable if out of it all there does not spring some tangible suggestion or resolution which may appeal to our citizens as worthy of enactment into law. It is an ambition of the university to assume a leadership in all those great lines of thought and action which concern our citizenship. The sub- ject of taxation is one which challenges our clearest thinkers, and it is one which we are very glad to consider with you at this time. It is my very great pleasure to welcome you to the university for this confer- ence. To you who are citizens of Washington it is a welcome to what is already your own, and we insist that you should assert your property rights to the full throughout this conference. To you who come from without the state our welcome is no less cordial, and we hope that you also will feel entirely at home during the days you are here. It is our hope that the program may be carried out with fidelity as well as expedition, and that your discussions, serious and high-minded as they must be at all times, will be of lasting value te you personally and will redound to the good of this entire common- wealth. The first response was to have been made by Governor Lister. I have great pleasure in presenting to you for the second response Mayor Gill, the executive of the largest city of the State of Washington. Response MAYOR H. C. GILLj SEATTLE It is a pleasure to be able to take any part, however small, in this movement headed by this Tiniversity, which may lead to the rec- tification of our taxation system. This institution has done and can do great good. No state in the union today suffers so much from taxation as does this city. The day will come when out of this meeting will grow other meetings and this university will take up another branch of taxation which is so interwoven with this that they must come together. We are not suffering today relatively, in my opinion, so much from a defective method of taxation, or indeed legislation, as we are from the extravagance of oflScials, which has come about by the revolution in government which has slowly taken place since the inauguration of the direct primary in politics. I am not speaking of the partisan part of it one way or the other. The party government has gone. There is no more any fixed responsi- bility of any official. Every man is a government of himself, and this has brought about a reign of extravagance both in city and state government. It is true that taxation methods need reform, and it can be studied out and brought about. So to you from out of town I will say that today the sky is weeping, and will weep tomorrow and every day that you are here, and everything weeps when we talk taxes in King County any more. They have good reason to. Every day when we have nothing else to do we hold a single tax charter election. If we do not elect at that we hold another election. Not only in the city, but all through the state, where our expenditures have increased so vastly that taxes go up, the first instinct is to lay it to the man who assesses the taxes. Our taxes have been assessed as wisely here in the past few years as probably in any municipality that ever assessed a tax. It is not the assessor's fault. It is prob- ably not altogether the law's fault. Years and years ago the effort was to assess a man according to the number of chimneys or windows he had in his house. There was some justice in it, and they could locate the tax. Today a man may be a millionaire, and his wife go around clasped with diamonds, and some poor woman out here with a visible hen is taxed with more personal property than the (13) 14 TAXATION IN "WASHINGTON millionaire; and that is wrong. Some way can probably be devised to get away from that. These are matters for you to study, and these are matters for this great institution to follow, but I suggest that in your deliberations once in awhile you stop to think a little of a system which makes extravagance the cause of high tax rates a good deal more than does the system of taxation. As I say, it is a great pleasure to me to welcome you and to welcome the interest the university is taking in this matter. Nobody needs it more than this city, and I certainly hope on behalf of the city that from your deliberations may come some good results, and I know they wHI. I thank you. II. Elements of the Problem Scientific and Unscientific Taxation VANDERVEER C0STIS, ASSISTANT PROFESSOR OP ECONOMICS IN THE UNIVERSITY OP WASHINGTON Washington, like many of the other states, is firmly bound by its constitution to the general property tax. All property not specifically exempt is supposed to be taxed at a uniform rate, without regard to kind or circumstances. The exemptions consist chiefly of government, property and of that which is used for a public or semi-public pur- pose, such as the property of religious, educational, and charitable institutions, and of three hundred dollars worth of personal property to each head of a household. By a law passed in 1907 credits are not regarded as property for the purpose of taxation. This implies the exemption, among other things, of stocks, bonds, mortgages, and similar forms of investment. It is an exemption of great importance, not only because of the amount of property involved, but because it is in the attempt to tax credits that some of the worst abuses of the general property tax are to be found. When the general property tax was first utilized in this country economic conditions were relatively simple; the expenses of govern- ment were small; property consisted almost entirely of land and of goods locally owned and of a sort easily found and easily assessed; the distribution of wealth and of income was much more nearly equal than it is today. Under such circumstances the general property tax was a natural and, upon the whole, a simple one. Today the conditions are widely different; but the system of taxation is funda- mentally the same. Every other civilized country in which it has been tried, save Switzerland, has long since abandoned it as an important part of the tax system. In state after state commissions have been appointed to examine the system, and have come to very much the same conclusions as have those who have studied it from an academic point of view. With an approach to unanimity that is rarely attained in such important matters of governmental policy, academic investigators, tax commissioners, and others charged with the administration of the system, have condemned the general prop- (15) 16 TAXATION IN WASHINGTON erty tax as unjust and, as far as administration in accordance with the intent of the law is concerned, impracticable. It is clear that if there is to be any material modification of the general property tax the constitution must first be amended. At every session of the legislature since the state board of tax commis- sioners was organized the attempt has been made to secure the sub- mission to the people of an amendment that would give the legislature a large measure of discretion. In 1908 such an amendment was submitted and was defeated at the polls. Its defeat was due, in a large measure at least, to the fact that the need and purpose of the proposed amendment were not understood; to the fear that in the absence of constitutional restrictions there would be serious danger of unfair regulations and radical experiments; to the belief that present exemptions would be destroyed; and to the apprehension of some influential persons that they would be more heavily taxed. While I hold that there should be some constitutional safeguards, I am inclined to think that they had best be confined to a simple statement of fundamental principles and to provisions that would prevent any irrevocable act of legislation such as a grant of exemp- tion in a corporation charter. Some sort of provision for the preven- tion of injustice as between different classes of persons is doubtless desirable; but it is hard to see what form a satisfactory provision of this sort could take. Presumably the uniform rule was embodied in the constitution to prevent inequality; but it has had the reverse effect. After all, it must be remembered that the demand for radical reforms is greatly strengthened by the evils of the existing system. Sooner or later there must be a change. To build up a dam of con- stitutional restraints is to take a grave risk that the demand for reform will eventually, like a destructive flood, sweep all before it. Leaving to other speakers the fuller discussion of the need of constitutional amendment and the form it should take, I wish to ask you to consider with me two main points having to do with funda- mental principles; first, the object of taxation; and, second, the basis upon which the burdens of taxation should be distributed among the people. Most of you wiU probably concede that the main object is the simple financial one of securing needed revenue. Taxation is used, however, both by the federal government and by the states, for the regulation of industry. The protective tariff and the license taxes imposed on the liquor business are examples. There is, moreover, an II. ELEMENTS OF THE PROBLEM 17 Idea, too widespread to be ignored, that one of the most important objects is to secure a more just distribution of wealth. Now, it should be noticed that when taxation is imposed as a means of regulation two distinct things — the raising of revenue and the regulation of industry — are generally confused. "No man can serve two masters" j and our experience seems to support the idea that a tax cannot at the same time satisfactorily regulate industry and provide a considerable amount of revenue. The protective tariff is, indeed, productive; but the income which the government re- ceives in this way is very unstable, iluctuating in a manner that can- not be calculated in advance. The revenue has at times been small when the need was great, and at other times has resulted in a sur- plus that led to gross extravagance. The fault is not due solely to the protective feature; but there is no doubt that the evil is greatly ag- gravated thereby. In particular, the protective feature makes adjust- ment for financial reasons very difficult; and financial considerations sometimes stand in the way of reform from the point of view of protection. Difficulties of a somewhat similar sort are to be observed in the case of liquor licenses. The fact that these taxes yield a large rev- enue furnishes a strong motive for the encouragement of the business they are intended to restrain. In some instances it has been frankly urged as a reason for granting licenses. The city of Everett, just north of us, a few years ago went "dry." The effect on the city's in- come was so serious that resort was had to a popular subscription as a means of defraying municipal expenses; and Everett is now "wet." It may be that a "wet" policy is better than a "dry" policy. On that question I am not now passing judgment; but surely it would be better if the question could be considered on its own merits. Sometimes there is found what is, for constitutional reasons called a tax, but is reaUy intended solely for regulation. Such, for example, is the federal tax of ten per cent on the notes of state banks. This is provided for a single purpose; and that is not the raising of revenue, but the placing of a penalty on the issue of such notes. It yields no revenue, and is intended to yield none. It would doubtless be going too far to say that no tax should ever be imposed for the double purpose of revenue and regulation; but certainly such a double purpose is to be regarded as, prima facie, a ground for condemnation. Ordinarily taxes of this sort are ob- jectionable, not only on the ground that I have already suggested. 18 TAXATION IN WASHINGTON but because regulation that is open and above board is to be preferred to regulation that is imposed under the pretense of accomplishing something else. The evils that may be expected to flow from a double purpose are less obvious and perhaps of less importance in the case of taxes designed to alter the distribution of wealth. There are, however, other evils that are likely to prove more serious than those that we have considered. That the present distribution of wealth is grossly unequal, and that there is much suffering in consequence, is unhap- pily true. The remedy, however, is not, in my opinion, to be found in taxation. To tax the rich for the enjoyment of the poor is to treat the symptoms, not the disease — to hit at results, not at causes. Doubt- less by a wise expenditure of wealth the government may do much to remove the causes of the present inequalities. The regulation of industry and the provision of educational facilities, vocational as well as cultural, are examples of what can be done; but from a finan- cial point of view these are problems of expenditure. To be sure, expenditure implies taxation; but it is none the less true that the great purpose of taxation should be to raise the necessary revenue as equitably as possible. It may, however, be urged that taxation can at least be used as a palliative, pending the application of real remedies and the accom- plishment of their purpose. It is not impossible that there may be a limited justification for this view. It should be remembered, how- ever, that such taxation is very like an opiate, having in some cases a limited usefulness, but unless very carefully and intelligently ap- plied, diverting attention from the real causes of the trouble, weak- ening the incentive for the discovery and application of a remedy, and tending to produce great permanent evils of its own. We live in an economic era; and one of the chief purposes for which society should utilize the forces of evolution is to encourage the production of wealth, the development of economic efficiency, and the discovery of better industrial methods. In so far as a tax designed to alter directly the distribution of wealth falls upon legitimate earnings its natural effect is to place a discount on the economic virtues and a premium on the lack of them. To some, however, it may seem that taxation is an eminently suit- able method of dealing with what have been called findings, or un- earned incomes of various sorts that cannot be characterized as stealings. That the arguments against such a use of taxation have II. ELEMENTS OF THE PROBLEM 19 less weight than in most other cases may^ I think, be admitted; yet heavy taxation of incomes of this sort is by no means dependent for its justification on such a view of its purpose. Unearned incomes commonly place the recipient in a particularly good position to contribute to the public expenses at a relatively small sacrifice. This is ordinarily the case, for example, with large collateral inheritances. Heavy taxation may be imposed on them where the object is to raise revenue and the effect on the distribution of wealth is an incident not desired, though perhaps not regarded as objectionable. The mention of unearned incomes at once suggests the single tax. In so far as this is simply a term for the heavy taxation of incomes that are really unearned — and this is all that it does mean to many who call themselves single taxers — it may be justified, after making considerable allowance for certain considerations such as prescriptive rights, on the ground that I have suggested. I should be unwilling to admit, however, that land values are really unearned to the extent commonly supposed by many advocates of the single tax. There can be no doubt, however, that the system advocated by Henry George was designed to alter very radically the distribution of wealth. It should hardly be thought of, however, as a system of taxation; and the term "single tax" has been recognized by some of his followers as a misnomer. The whole idea underlying it is that land values are due to the growth of society; and that in taking these values society would only be taking what rightfully belongs to it. To Henry George, moreover, the private receipt of economic rent was not only a case of "findings" for the landlord, but the cause of the persistence of poverty and a barrier in the way of progress. If this view be correct the case for the single tax is certainly a very strong one; but it can hardly be regarded as an exception to the rule that taxation should not be used as a means of altering di- rectly the distribution of wealth. It has, indeed, the form of a tax, but it differs radically in purpose and character. From one point of view it means that society should live on its own and not demand taxes unless this should be insufiicient. From another point of view, it is a fundamental social reform, not an attempt to correct the unjust distribution of wealth by taxation. It may properly be given some consideration in a conference such as this because, if the premises of its advocates be admitted, it would make real taxation unnecessary, or at least relatively small in amount. If we are to think of taxation as the securing of revenue for the 20 TAXATION IN WASHINGTON state by compulsory contributions levied upon those subject to its jurisdiction; and not, save possibly in a few special cases, as a means of regulating industry or altering the distribution of wealth; the next question is as to the way in which the burden should be distrib- uted among the taxpayers. The theory most commonly accepted in this country is that the amount of taxes that a man shall be called upon to pay depends upon the benefit that he receives from the state. Obviously it is impracticable to measure benefit directly and in each individual case; and the theory upon which the general property tax is based is that, as a general proposition, benefit is to be measured by the amount of property held. Where there is some special benefit additional taxes of an appropriate sort can be levied. Of these what is sometimes called a privilege tax is a good example. Now if, as certain socialists contend, the government were con- trolled by property owners and conducted in their interest, it would be reasonable to take the amount of property owned as a measure of benefit, though even then the question might be raised as to how far all kinds of property represent the same degree of benefit. Most of us, however, do not accept the socialist theory. One of the great functions of government is doubtless the protection of property; but another is the protection of life and liberty, and unless we are to assume that the poor man, or the man who spends his income as fast as he receives it, does not need such protection or that he values life and liberty less highly than does the property owner, it would seem that a rather large poll tax would be a proper part of the sys- tem. Education, to mention only one other instance, is one of the most expensive functions that the state performs, and certainly the man with little or no property receives much of this benefit. Under the benefit theory there would be no doubt some taxation of property; but, upon the whole, such indications of particular benefit as we can get would seem to call for a system of taxation so highly regressive as to violate our sense of justice and to be impracticable. One of the chief faults of the benefit theory is to be found in the tacit assumption that the great function of the state is to confer benefits on particular individuals or groups. There are, indeed, some functions of which this is the object; and they may be treated ac- cordingly. For the most part, however, the benefits are common. Governments are instituted among men to secure the blessings of life, liberty, and the pursuit of happiness, because it is believed that a society in which these are secured is stronger and better than one II. ELEMENTS OF THE PROBLEM 2X in which they are not, and that under such conditions there is a larger measure of individual happiness. We may not agree with the framers of the Declaration of Independence in their view of inalien- able rights; but we may, I think, agree that, in the present stage of civilization at any rate, the rights upon which they laid such stress are among the most important of those that enable a society to sur- vive in the evolutionary struggle and to prosper. A state university is supported, not for the benefit of the relatively few persons who are students there, but because such an institution is regarded as making the state stronger and a better place in which to live. "Social justice," "social welfare," and similar expressions are sometimes used as terms with which to conjure, very much as the term "natural rights" formerly was. Often they are used in argument in such a fashion as to beg the question at issue. Impatience with such use, however, should not cause us to forget that there are certain condi- tions and institutions, which may properly be called social, upon the maintenance of which the welfare of the individuals composing so- ciety and the prosperity — in some cases the life — of the state depend. A regressive system of taxation, such as would be required by the benefit theory would not only be unjust, but, by reason of its im- practicability, would make much of this common benefit impossible. Looking at the matter from the point of view of expense, we reach the same conclusion. The expense, like the benefit, is common; or, to use the language of theoretical economics, it is a joint expense. It is, for the most part, like the expense of a railroad for securing its right of way or repairing the damage due to storms. Such ex- penses cannot be attributed to particular elements of the traffic. As in the case of the railroad, so in the case of the state, most of the expenses can be attributed only in part to the benefits conferred on particular individuals; and probably this is more largely true in the case of the state than in the case of the railroad. The analogy between taxes and railroad rates has often been noticed. It is by no means a perfect analogy; and sometimes it has been pushed too far. As Professor F. W. Taussig pointed out a good many years ago, there are some substantial differences. These dif- ferences are not as great, it appears to me, as might be inferred by a casual reader of his article. The state and the railroad are both great undertakings, conferring great benefits at an expense that is largely joint, in the sense that it is impossible to establish a con- nection between the benefits to a particular class of individuals and 22 TAXATION IN WASHINGTON the expense involved. The state^ like the railroad, must consider the ability to pay of the different classes sharing in the benefit. It is when we come to consider the determination of ability that some of the chief differences between taxes and railroad rates ap- pear. The railroad bases its policy on the relative demand of the different kinds of traffic for transportation. It is neither practicable nor desirable for the state to make use of a similar method. The principle of distributing expenses according to ability seems to be sound; but, as most of us would look at it, ability is to be measured rather by what the individual can afford to pay than by what he can be made to pay. In short, we take the term "ability,'' not strictly, but with some regard to sacrifice. The best method available seems to be to treat the resources of the taxpayer as the chief consideration, taking some account of his necessary expenses. Under the Wis- consin income tax, for example, a certain exemption is allowed for every natural person, and an additional exemption for each de- pendent. The federal income tax allows an exemption of $3,000 for each single person and an exemption of $4,000 for a married couple living together. The general property tax derives more justification from the ability theory than it does from the benefit theory; though even then it is far from satisfactory. As I hope will be brought out more fully by subsequent speakers, different kinds of property represent different degrees of taxpaying ability; and, except so far as taxes are shifted the man who spends his income freely and saves nothing is left completely out of account. There is one other thing to be learned from the experience of the railroads that I wish to mention. They have learned that there is nothing to be gained by fixing a rate so high that traffic of a given kind will not move, when at a lower rate it would contribute something to the general expenses. We should realize that the same principle applies to taxation. There are certain forms of property that cannot be made to pay a high tax. They will be concealed or will leave the jurisdiction of the authority that tries to tax them. The attempt has not only failed to secure any great amount of rev- enue, but has resulted in gross injustice to the few that are reached, and in evasion or downright perjury for a larger number, with all the evil effects on public morals and civic spirit that this implies. To have such a law upon the statute books is generally far worse than useless. To frankly give up the attempt is not necessarily to conn- II. ELEMENTS OP THE PROBLEM 23 tenance injustice. Each individual should pay taxes according to his ability; but it does not follow that justice prescribes any par- ticular method. If we had to rely entirely on any one tax, the income tax, as- suming that it could be successfully collected, would probably be the best. It has, however, some defects of its own, even from the point of view of ability. No one tax is perfect; and a system composed of a variety of taxes minimizes the defects of each. It has the further advantage that the tax upon any one object is relatively small; and this is very important when assessment and collection are con- sidered. The work of this conference is to examine our tax system and to consider the possibility of improvement. The present system is admittedly unsatisfactory; and to find just where the trouble lies is one of the problems before us. I have left the specific faults and specific reforms to other speakers, and have tried to point out cer- tain principles upon which reform should proceed. It must be rec- ognized, first, that no considerable reform is possible without a con- stitutional amendment; and I hope that no speaker will feel that he must confine his suggestions to improvements that would be pos- sible under the present circumstances. The conference is called to consider the tax system as a means of raising revenue. Taxation is such a powerful instrument that there is a great temptation to use it for the attaining of other ends ; and I have endeavored to show that, as a general proposition, this is not a legitimate use, and is likely to do more harm than good. Finally I have considered the principles on which the burden should be distributed; and have given some reasons for my belief that ability is the most important consideration. How far does the existing system conform to these principles? In what way can it be made to conform to them better? DISCUSSION W. H. Kaufman of Bellingham: I wish to call attention to one thing which was not mentioned by the speaker, and which seems to me of very great importance; and that is whether taxes can be shifted or whether they cannot be shifted. Some taxes are paid ostensibly by one man and ultimately by another man, as, for instance, if we tax every sack of sugar or flour that is sold 25 cents on a dollar, the merchants pay it, but the consumer pays it in the end. I can see no sense at all in taxing stores. In fact, I challenge anybody to 22 TAXATION IN WASHINGTON the expense involved. The state, like the railroad, must consider the ability to pay of the different classes sharing in the benefit. It is when we come to consider the determination of ability that some of the chief differences between taxes and railroad rates ap- pear. The railroad bases its policy on the relative demand of the different kinds of traflSc for transportation. It is neither practicable nor desirable for the state to make use of a similar method. The principle of distributing expenses according to ability seems to be sound; but, as most of us would look at it, ability is to be measured rather by what the individual can afford to pay than by what he can be made to pay. In short, we take the term "ability," not strictly, but with some regard to sacrifice. The best method available seems to be to treat the resources of the taxpayer as the chief consideration, taking some account of his necessary expenses. Under the Wis- consin income tax, for example, a certain exemption is allowed for every natural person, and an additional exemption for each de- pendent. The federal income tax allows an exemption of $3,000 for each single person and an exemption of $4,000 for a married couple living together. The general property tax derives more justification from the ability theory than it does from the benefit theory; though even then it is far from satisfactory. As I hope will be brought out more fully by subsequent speakers, different kinds of property represent different degrees of taxpaying ability; and, except so far as taxes are shifted the man who spends his income freely and saves nothing is left completely out of account. There is one other thing to be learned from the experience of the railroads that I wish to mention. They have learned that there is nothing to be gained by fixing a rate so high that traffic of a given kind will not move, when at a lower rate it would contribute something to the general expenses. We should realize that the same principle applies to taxation. There are certain forms of property that cannot be made to pay a high tax. They will be concealed or will leave the jurisdiction of the authority that tries to tax them. The attempt has not only failed to secure any great amount of rev- enue, but has resulted in gross injustice to the few that are reached, and in evasion or downright perjury for a larger number, with all the evil effects on public morals and civic spirit that this implies. To have such a law upon the statute books is generally far worse than useless. To frankly give up the attempt is not necessarily to coun- II. ELEMENTS OF THE PROBLEM 23 tenance injustice. Each individual should pay taxes according to his ability; but it does not follow that justice prescribes any par- ticular method. If we had to rely entirely on any one tax, the income tax, as- suming that it could be successfully collected, would probably be the best. It has, however, some defects of its own, even from the point of view of ability. No one tax is perfect; and a system composed of a variety of taxes minimizes the defects of each. It has the further advantage that the tax upon any one object is relatively small; and this is very important when assessment and collection are con- sidered. The work of this conference is to examine our tax system and to consider the possibility of improvement. The present system is admittedly unsatisfactory; and to find just where the trouble lies is one of the problems before us. I have left the specific faults and specific reforms to other speakers, and have tried to point out cer- tain principles upon which reform should proceed. It must be rec- ognized, first, that no considerable reform is possible without a con- stitutional amendment; and I hope that no speaker will feel that he must confine his suggestions to improvements that would be pos- sible under the present circumstances. The conference is called to consider the tax system as a means of raising revenue. Taxation is such a powerful instrument that there is a great temptation to use it for the attaining of other ends ; and I have endeavored to show that, as a general proposition, this is not a legitimate use, and is likely to do more harm than good. Finally I have considered the principles on which the burden should be distributed; and have given some reasons for my belief that ability is the most important consideration. How far does the existing system conform to these principles ? In what way can it be made to conform to them better.'' DISCUSSION W. H. Kaufman of Bellingham: I wish to call attention to one thing which was not mentioned by the speaker, and which seems to me of very great importance; and that is whether taxes can be shifted or whether they cannot be shifted. Some taxes are paid ostensibly by one man and ultimately by another man, as, for instance, if we tax every sack of sugar or flour that is sold 25 cents on a dollar, the merchants pay it, but the consumer pays it in the end. I can see no sense at all in taxing stores. In fact, I challenge anybody to 24 TAXATION IN WASHINGTON point out where a store has been taxed in the State of Washington and the storekeeper pays the tax in the end. The storekeepers never do pay itj and any storekeeper will tell you that he does not care how much he is taxed if only his competitors are taxed the samcj because they put it all on the consumer. The same is true of a great many other kinds of taxation, and that seems to me one of the very most important considerations of this whole conference, whether the tax which we assess is paid by the men who ostensibly pay it, or shifted along to the wage-workers and farmers who make up the bulk of the population. There are three taxes which cannot be shifted: the tax on the population value of natural resources, the tax on incomes, and the tax on inheritances. We have, of course, many learned men here, our professors and experts from abroad, and if any of them can show me any other tax that is not shifted or paid ultimately by the farmer or wage-worker I should be very glad indeed — any other tax at all of any kind, any real tax that amounts to anything. You can tax stores, you can tax merchandise, you can tax a house. As Professor Custis said, a tax on houses is paid by the renter, not by the owner. It is absolutely foolish and unjust and criminal to tax houses — dwellings or offices just the same. Any tax at all, except on natural resources, on incomes or on inheritances, is barred out, because any other tax falls ultimately upon the wage- worker and the farmer, who constitute the bulk of ultimate consum- ers. Administration of the General Property Tax ALBERT E. PARISH, ASSESSOR OF KING COUNTY Those upon whom the duties devolved of arranging the program for this conference, by the assignment of the subject "Difficulties in the Administration of the General Property Tax" to a Washington county assessor, evidently recognized the fact that ministerial taxing officials in the performance of their daily duties have to deal with actual conditions rather than with the theories and principles of taxation, save as they become applicable to the statute law. Taxes, as defined by Judge Cooley, "are the enforced propor- tional contributions from persons and property levied by the state by virtue of its sovereignty for the support of government and for all public needs." The power of imposing and apportioning taxes in this state and throughout the United States has ever been a legis- lative power, the taxing authority of our legislatures over persons and property being unrestrained in the absence of federal or state constitutional inhibitions. The constitution of the State of Washington relating to taxation provides : Article 7, Section 1. "All property in the state not ex- empt under the laws of the United States or under this constitution shall be taxed in proportion to its value to be ascertained as provided by law." Article 7, Section 2. "The legislature shall provide by law a uniform and equal rate of assessment and taxation on all property in the state, according to its value in money, and shall prescribe such regulations by general law as shall secure a just valuation for taxation of all property, so that every person and corporation shall pay a tax in proportion to the value of his, her, or its property." These limitations of legislative power, incorporated in the con- stitution at the time of the state's admission to the union, are in sub- stantial accord and in the exact words, in some instances, of those in the constitutions of many of the older states, and impose upon the taxpayers of this state what is known as the general property tax, under which all property within the state, irrespective of its character and employment, not specifically exempted from taxation, is required (25) 26 TAXATION IN WASHINGTON to be assessed upon the same basis of value in each taxing district, and taxes annually levied thereon at a uniform rate. Following the constitutional direction, the Washington statutes provide : "All real and personal property now existing, or that shall be hereafter created or brought into this state, shall be subject to assessment and taxation for the support of the state government, and for county, school, municipal, or such other purposes as shall be designated by law, upon equalized valuations thereof, fixed with reference thereto on the first day of March at 12 o'clock Meridian, in each and every year in which the same shall be limited, except such property as shall be expressly exempted therefrom by the provisions of law." (Rem. & Bal. Code, Section 9091.) "All real property in this state subject to taxation shall be listed and assessed under the provisions of this chapter in the year 1900 and biennially thereaftet in every even num- bered year, with reference to its value on the first day of March preceding the assessment. All personal property in this state subject to taxation shall be listed and assessed every year with reference to its value on the first day of March preceding the assessment ****** provided, that all real estate subject to taxation shall be listed by the assessor each year in the detailed and assessment list, and in each odd numbered year the valuation of each tract for tax- ation be the same as the valuation thereof as equalized by the county board of equalization in the preceding year." (Rem. & Bal. Code, Sec. 9101.) Former problems presented in the assessment of real estate in King County were largely solved in the year 1908, when the Seattle Real Estate Association, in cooperation with the then county assessor, my immediate predecessor in ofiice, furnished the City of Seattle tor taxation purposes, an accurate, equitable and scientific appraisal of its land values. The assessment then made established a structur- ally stable foundation for the subsequent biennial assessment required by law, so that it may now fairly be said that substantial difficulties no longer attend the assessment of Seattle realty. The principal changes since 1908 in the assessed value of city real estate have been necessitated by local conditions such as newly opened streets, re- grades, and similar causes ; values in the territory affected being sus- ceptible of rapid and comparatively easy readjustment. For several years a card index system has been maintained in the assessor's office in connection with the assessment of buildings. II. ELEMENTS OF THE PROBLEM 27 containing full data as to the history, character, size, cost, construCT tion and condition of every building improvement in the city and county. Extraordinary changes in the value of any building, due to fire, wreckage, or other cause, is noted upon the card of the building af- fected, while the ordinary depreciation common to all buildings is credited thTough an age deterioration scale running from one and one-half per cent per year upon class A buildings to a maximum al- lowance of ten per cent per year upon the improvements of shortest life — salt water docks. The employment of this card index system has entirely elim- inated the necessity, except in very rare instances, of any other than the original appraisal of improvements. Its maintenance expense has been nominal, postings being made from day to day upon the reports of field deputies. While its installation as a permanent ofiice record would have been amply justified as a means for furnishing exact and immediate information when needed by taxpayers, the most grati- fying feature to all taxpayers is the fact that the system has already resulted in an administrative saving in the expense of field deputies largely in excess of its cost. * * * The real difficulties in the administration of the general prop- erty tax in this state, as elsewhere, arise from the assessment of personal property. No principle of taxation is more generally approved by political economists and others versed in governmental finances, than that laid down by Adam Smith more than a century ago in his "Wealth of Nations," as the first of four canons which should govern the impo- sition of taxes, to-wit: "The subjects of every state ought to contribute to the support of the government as nearly as possible in pro- portion to their respective ability; that is, in proportion to the revenue which they respectively enjoy under the protec- tion of the state." Equality and uniformity of taxation has been generally accepted by the taxpayers of this state as the fundamental principle of our state constitution and as the predominating economic feature of our revenue laws. Ample ground for the entertainment of this belief has been furnished by the most eminent authority in the state, the 28 TAXATION IN WASHINGTON supreme courtj through many of its decisions. In Savage vs. Pierce County (68. Wash. 623), this court said: "Uniformity is the highest and most important of all re- quirements applicable to taxation under our system." And in State ex rel Wolfe vs. Parmenter (50 Wash. 164), it declared : "It is just as imperative that taxation should be uni- form and equal upon all property as it is that all property should be taxed." The equality and uniformity actually accorded the Washington taxpayer, however, is a far cry from that equality of taxation de- fined by John Stuart Mill, in his valued work on political economy, in the following language: "Equality of taxation, therefore, as a maxim of politics, means equality of sacrifice. It means the apportioning of the contributions of each person towards the expense of govern- ment, so that he shall feel neither more nor less his inconveni- ence from his share of the pajTuent, than every other person experiences from his." How does our system of taxation work out in practice? Is the burden fairly apportioned? The method of the assessment of personal property in statutory phraseology is as follows: "The assessor shall call at the office, place of doing busi- ness, or residence of each person required by this chapter to list property, and list his name, and shall require each person to make a correct statement of his taxable property, in ac- cordance with the provisions of this chapter ; and every per- son so required shall enter a true and correct statement of such property in the form prescribed, which statement shall be signed and verified by the oath of the person listing the property, and shall deliver to the assessor, who shall here- upon assess the value of such property and enter the same in his books." (Rem. & Bal. Code, Sec. 91021/^.) The assessor, in his office to store, factory to sawmill, residence to ranch, quest of assessable personal property physically views but a smaU portion of that subject of taxation, and necessarily, in making the assessment, is compelled to rely largely upon the verity of the lists of property furnished by the assessed and to a great extent upon their representations of value. Mankind is much the same wherever his habitation. The tax- payers of the County of King and those of the State of Washington II. ELEMENTS OF THE PROBLEM 29 are in general as public spirited and scrupulously honest in matters pertaining to taxation as in those of other walks of commercial life. A minority, however, here as in all other communities, seeks to evade its just share of the tax burden by the concealment from assessing officers of taxable personal property and the undervaluation of that assessed. I have endeavored to minimize the effect of this art of tax- dodging by assigning to the various classes of property to be assessed, deputies especially qualified by training and experience to locate; and place proper valuation upon all property discovered. The result of tax evasions by the dishonest is to penalize tax- payers who honestly list and value their property. Unfortunately, this penalty falls most heavily upon those least able to bear the shifted burden. The personal possessions of the poor are of a sim- ple nature, visible to the assessing officers, their value easily deter- mined and fully assessed, while those of the rich are often phantom- like in character, always difficult of appraisement and seldom fully assessed. While not particularly frequent, complaints from taxpayers are by no means uncommon of inequalities in the assessment of their property, as compared with that of their neighbors. These complaints are invariably deferred until after the taxes become payable, when correction is extremely difficult and often impossible. County boards of equalization were created for the express purpose of correcting in- equalities in assessments. They convene and remain in session for from three days to three weeks in August of each year when all as- sessments are matters of public record and may be reviewed in the assessor's office, and have power not only to decrease assessments in- trinsically or proportionately too high but to increase those too low after timely citations to the offending parties. They also have authority to place upon the tax-rolls all assessable property omitted from as- sessment, similar power being vested in county assessors subsequent to the adjournment of the county boards of equalization and prior to the delivery of the tax-rolls to the county treasurers who there- after have exclusive jurisdiction over the tax rolls with like power to add omitted property thereto. The duty of the taxpayer is not fully performed by the complete listing of his own personal property for purposes of taxation. He owes a duty not only to himself but to his fellow taxpayers to examine the tax rolls as compiled by the county assessor in reference to the assessment of his neighbor's prop- erty and that of others of whom he may have knowledge, and to 30 TAXATION IN WASHINGTON promptly report to the proper officers all errors in the valuation of assessed property and all omissions of taxable property from the as- sessment rolls. The fulfillment of the taxpayer's obligation in this respect, sadly neglected in the past, will be welcomed by all as- sessors and, if general, will have a most salutary effect upon those inclined to escape their just proportion of the tax burden. Inequality of taxation, however, arising through errors in the as- sessment of taxable property or the failure to assess property properly assessable is, in the opinion of the writer, infinitesimal in compari- son with those occasioned by the non-assessment of property and per- sons rendered immune from taxation by the exemption statutes of this state. Briefly stated, Washington exempts from taxation all property of the federal and state governments, school districts, county and municipal corporations, cemeteries, churches, young men's Christian associations, young women's Christian associations, public libraries, orphanages, orphan asylums, institutions for the reformation of fallen women, homes for the aged and infirm, hospitals, fruit trees, ships, vessels and boats in actual construction and materials therefor, schools and colleges whose income from endowments exceeds the income from tuition, ships and vessels used exclusively in trade between this state and territories, states of the United States, and foreign countries, personal property of the head of a family to the amount of $300, and "mortgages, notes, accounts, certificates of deposit, tax certificates, judgments, state, county, and municipal and school district bonds and warrants." While much of the property above enumerated is of such a char- acter as to well justify its exemption from taxation, serious doubt is felt as to the wisdom of extending entire freedom from taxation to other property thus preferred, notably credits, all of which are en- tirely exempted from taxation under the Easterday law of 1907. In addition to the property specifically exempted by statute, an indirect exemption seemingly wholly unwarranted measured by con- siderations of public policy, ability to pay, or any other fair standard, is accorded stockholders of incorporated banks owning real estate by the method prescribed by statute for assessing state and national banks which is as follows: "All the shares of stock in banks whether of issue or not, existing by authority of the United States or of the state, and located within the state, shall be assessed to the owners II. ELEMENTS OF THE PROBLEM 31 thereof in the cities or towns, where such banks are located, and not elsewhere, in the assessment of all state, county and municipal taxes imposed and levied in such place whether such owner is a resident of said city or town or not; all such shares shall be assessed at their full and fair value in money on the first day of March in each year, first deducting there- from the proportionate part of the assessed value of the real estate belonging to the bank." (Rem. & Bal. Code, Section 9134.) Under this law banks are not taxable as such, their only prop- erty subject to assessment being real estate which is assessable like all other real estate, irrespective of ownership. The shares of capital stock of banks not owning real estate, are assessable to their shareholders at their full value. Shareholders of banks holding real estate, however, are entitled to have deducted from the otherwise assessable value of their stock, their proportionate part of the assessed value of all real estate belonging to the banks, which in the case of several large banks in the City of Seattle has for many years resulted in the entire exemption from taxation of their share owners upon accovmt of their stockholdings, the value of the bank's real estate exceeding the entire stock value. The theory for according this exemption was doubtless based upon the assump- tion that the bank's investments in real estate would be from their capital and that the taxation of both its capital stock and real estate would constitute double taxation. Experience has proved the premise false; the highest courts of the land have declared the conclusion erroneous. Investments of banks in real estate are not ordinarily that of their capital, but are usually speculations with the funds of their depositors, diverted from regular banking channels in the ex- pectation of greater financial returns. The deduction directed, more^ over, is not limited to the banks' actual realty investment, the statute requiring the deduction of the full assessed value of the real estate, though it be heavily encumbered and the bank's true interest merely nominal. In no event would the taxation of such shares of bank stock at their full value, as other bank stock is assessed, constitute a doable taxation of property. The law upon this point was expounded many years ago by the supreme court of the United States in an action in which the value of United States bonds was sought to be deducted from the value of shares of bank stock in the hands of individual owners. The court, in disallowing the claim, used the following language: 32 TAXATION IN WASHINGTON "The corporation is the legal owner of all the property of the bank, real and personal, and within the powers con- ferred upon it by the charter and for the purposes for which it was created, can deal with the corporate property as abso- lutely as a private individual can deal with his own. The in- terest of the stockholder entitles him to participate in the net profits earned by the bank in the employment of its capital during the existence of its charter, in proportion to the num- ber of his shares ; and upon its dissolution or termination, to his proportion of the property that may remain of the cor- poration after payment of its debts. This is a distinct, in- dependent interest or property, held by the shareholder like any other property that may belong to him." {Fan Allen et al. vs. Nolan et al., 70 U. S.) As in the case of under assessments and failure to assess taxable property, the legal exemption from taxation of the possessions of individuals and corporations, necessarily increases in the same ratio the tax of all others not similarly favored, the exemption constituting a discrimination against the one seldom justifiable and a benefaction to the other which should not be lightly bestowed. The owners of tangible property in the State of Washington are at the present time paying practically the entire cost of state, county and municipal government. The total assessed value of personal property in the City of Seattle for the year 1913 amounted to the sum of $37,102,506, and in the County of King to the sum of $43,372,764. During the same period national and state banks in the City of Seattle alone reported deposits, wholly untaxed, in excess of the sum of $80,000,000. Un- taxed wealth, in the form of mortgages, bonds, accounts, stocks, and other securities, probably greatly exceeds said sum. Do their for- tunate owners contribute to governmental expense within the defini- tions of Smith and Mill as does the merchant with his unpaid for stock or the widow with her mortgaged home, assessed at full value without regard to the incumbrance? Ownership of taxable property in the State of Washington is no longer an indication of ability to contribute to the support of its gov- ernment. The owners of non-taxable property, the recipients of high salaries, those who receive large professional incomes, enjoy alike with the possessors of property subject to taxation the protection, privileges and benefits of citizenship in this state and should con- tribute in proportion to their means to keep its machinery in motion. There appears neither equality, uniformity, equity nor justice II. ELEMENTS OF THE PROBLEM 33 in taxing the instrumentalities through which wealth is created in the hands of the producers and exempting their product in the possession of the beneficiaries. The farming implements of the rancher, the tools of the mechanic, the household chattels of the home owner, the sources of livelihood, should not in equity be subjected to taxation and bank deposits, bonds, mortgages, and similar wealth wholly exempted therefrom. I am firmly of the opinion that the true principle of taxation is that based upon the earning power of man and property. An amend- ment to our state constitution will be necessary to incorporate this principle in the tax system of our state. I feel that the labors of this conference will be in vain if a declaration is not made in favor of an amendment which will enable the state legislature to abolish the general property tax. It is indefensible in principle; it is iniquitous in practice. It creates inequalities in individual assessments in the taxing units and results in a lack of uniformity of assessed values between the several counties of the state and between different classes of property in the same county. Under it, all coimty assessors of the state have since territorial days wholly ignored the statutory man- date that all property be assessed at its full and fair value in money and have adopted for assessment purposes such percentages of true values as they deemed most advantageous to their respective counties, too often measured solely by improper benefits over other counties in the equalization of their assessments for state revenues. In the year 1908 the state board of equalization found that the average ratio of assessed to true values of property in the different coimties of the state ran from sixty per cent in Ferry County to twenty per cent ia Pacific County. The variation has been somewhat less in recent years owing to the activity of the state tax commission, yet the board of 1913 reported a variance of from 52.76 per cent in Clallam County to 29.12 per cent in the County of Cowlitz. While the assessment of 1914 under the 1913 law now for the first time operative may not result in a greater uniformity in state assessments than in former years, it will at least have the virtue of being made without a violation of the oflScial oaths of assessing oflS- cers as in former years, as the law provides that : "All property shall be assessed at not to exceed 50 per cent of its true and fair value in money." (Chap. 140, Laws of Wash. 1913.) 34 TAXATION IN WASHINGTON Assessments at less than fifty per cent of full value are, therefore, not unlawful. The views of political economists, tax specialists, and expert ad- ministrators in regard to the general property tax were well sum- marized by the committee appointed to investigate this subject by the executive committee of the International Tax Association at their third international tax conference held at Louisville, Ky., September, 1909, in the conclusions to their report unanimously adopted by the Fourth International Conference held at Milwaukee, Wis., in Sep- tember, 1910, as follows: "To sum up your committee finds: That the general property tax system has broken down; that it has not been more successful under strict administration than where the administration is lax; that in the states where its adminis- tration has been the most stringent, the tendency of public opinion and legislation is not towards still more stringent administration, but towards a modification of the system; that the same tendency is evident in the states where the administration has been more lax; that the states which have modified or abandoned the general property tax show no intention of returning to it ; that in the states where the gen- eral property tax is required by constitutional provisions there is a growing demand for the repeal of such provisions. "We conclude, therefore, that the failure of the general property tax is due to inherent defects of the theory; that even measurably fair and effective administration is unat- tainable; and that all attempts to strengthen such adminis- tration serve simply to accentuate and to prolong the inequal- ities and unjust operation of the system." That these findings will never be reversed by the supreme court of the United States is evidenced by its decision in the case of Pacific Express Company vs. Seibert (142 U. S. 351), in which the court said: "A system which imposes the same tax upon every species of property, irrespective of its nature, condition or class, will be destructive of the principle of uniformity and equality in taxation and of a just adaption of property to its burdens." With the removal of the shackles of constitutional restraint from the legislature, the way will be open for the adoption of a rational, scientific, modem system of taxation, the fundamental principles of which, in my opinion, should be the entire separation of state and local revenues, the former to be derived from the taxation of inherit- ances and inter-county public service corporations, the latter through real estate and incomes, locally assessed and taxed. II. Taxation of Natural Resources Taxation and the Farmer J. W. BRISLAWN, MEMBER STATE BOARD OP TAX COMMISSIONERS It was a happy thought on the part of those directly in charge of the preparation of this program that consideration should be given to the taxation of agricultural lands and the personal property that is held in connection with and produced on such lands, for the reason that the question of the present high rate of taxation in this state and its effect upon agriculture is of vital importance. The subject of the taxation of agricultural lands and agricultural personal property is of vital importance to all of the people of this state be- cause our greatest source of wealth, our hope of continued prosperity rests upon the full development of our agricultural resources. There- fore, if taxes are high the burden of those high taxes should not be shifted to, or borne alone by any class of property, but particularly should that industry, the development of which means the continued growth and prosperity of the state, be protected against any undue or unequal burdens of taxation. It is not my purpose in treating this subject to deal exclusively with those lands or personal property on which taxes are paid only by actual farmers. It is my purpose to discuss the taxation of all property devoted to the production of foodstuffs and property which is incident thereto. It is not my purpose to speak of the farmer as a taxpayer as distinguished from other taxpayers who pay taxes on the same kind and class of property. We frequently hear the statement made that the general prop- erty tax such as we have in this state is, in fact, a real estate tax and that, therefore, it must be a tax upon the farmer. With no previously conceived opinion on the subject, but with the desire to ascertain what the actual condition is in this state, the tax commission made a diligent search through all of the records available on the subject in order to determine what portion of the taxable property of this state is farm property, real and personal, and what portion of tbi^ entire tax of the state this property pays. The total assessed valuation of taxable property on the 1913 tax (35) 36 TAXATION IN WASHINGTON rolls of this state is $1,014^4.75,027, against which a total tax of $88,- 811,100 was levied. The average rate of levy for the state against all property was 87.75 mills. The average rate of levy against farm property was approximately 29 mills or 8.75 mills less than the average for the entire state. This is true because the incorporated towns have levies for city purposes varying from 1 to 30 mills. The value of improved lands is $152,615,044. The value of un- improved lands, exclusive of timber, coal and other mineral lands, is $65,522,804. The total value of improved and unimproved lands is $218,137,848. Add to this $20,000,000 for improvements on agri- cultural lands and $5,884,081 of personal property and we find that the farm lands and personal property of farms in this state together with improvements is approximately $244,021,429 of assessed valua- tion, which is 24.05 per cent of the total taxable wealth of the state. Personal property such as is attached to and produced on farms has an assessed valuation of $5,884,081. The total value of personal property appearing on the rolls of the state, exclusive of the personal property of steam and electric roads, assessed by the state board of tax commissioners, is $122,850,549, of which the farmers' personal property is 4.8 plus per cent. The foregoing figures are reasonably reliable and indicate that the assessed value of property, real and personal, which may be classed as farm property is approximately 29 per cent of the total taxable property of the state. Of the total tax for the year 1913 which was $38,311,100 we find that $8,239,173 was paid by city property exclusively for city pur- poses, leaving $30,071,927, in which amount farm property partici- pated to the extent of $7,076,621. The percentage of the total tax paid by farm property is approximately 18 per cent, and the percent- age of the total tax exclusive of that paid for city purposes is ap- proximately 23 per cent. Computations heretofore made indicate that the value of farm property is .2405 of the total taxable value of the state. If farm property paid taxes in this state in the same proportion to the total tax paid as it bears to the total taxable valuation of property, it would then pay $9,194,664 in taxes as against $7,076,621. It might appear from these figures that farm property enjoys a very favorable rate of taxation as compared with other property in this state. How- ever, it should be remembered that the great bulk of the taxable prop- erty is within the corporate limits of the cities and towns of the state III. TAXATION OF NATURAL RESOURCES 87 where the levies are the highest. Farm property, not enjoying the privileges of local self government and the other advantages of com- munity life, paved streets, electric lights, sewers and city water, nat- urally is not taxed for the upkeep of these conveniences and there- fore has a correspondingly lower levy. On the other hand, if farm property in this state is the victim of excessive and unequal taxation, it is due to the system to which we are committed by our constitution, — ^the general property tax. Farm property is of a character that can be measured and counted and numbered and its value can be ascertained to a reasonable certainty. It is property that cannot be concealed or withdrawn from circulation at taxpaying time, nor can it escape taxation imder the plea of double taxation. Owing to the character of farm property and its familiar- ity to all, it is probably more thoroughly listed and assessed than other classes of property, and its value on the tax rolls more nearly ap- proaches the ratio assigned to it than does the value of some other large classes of property. This is particularly true of the personal property attaching to farms. The interest of the farmer then, in taxation in this state, need not necessarily be directed toward the securing of a more equitable assessment of his property as compared with that of other property in order that the burdens of taxation may be lifted from his shoulders and placed upon other property now on the tax rolls but which es- capes taxation by reason of a more favorable administration of the assessment laws affecting it. The farmers' interest in taxation should be along the lines of securing a more uniform and equal assessment of farm property within the several counties and as between the various counties of the state in order that there may be no shifting of the burdens of taxation as they grow more onerous and that public expenditures may be reduced as much as possible so that the rate of taxation may be reduced on aU classes of property throughout the state. The lack of uniformity in the present assessment of property in the State of Washington is inherent in the general property tax sys- tem. Perhaps it is inherent in all systems of taxation, for no one has yet been able to devise a perfect system that can be applied with absolute uniformity to all classes of property. P,erhaps the greatest reason for lack of uniformity in the assessment of farm property in this state lies in the varying ratios of assessed to actual value as applied by the different county assessors and by the several deputy assessors 38 TAXATION IN WASHINGTON within the same counties. For example, we find that in Asotin County the average value at which farm lands are assessed is $22.71 p;'.r acre, in Whitman County $19.42, in Lincoln County $16.80, while iii Yakima County it is $92.11. The average value for unimproved lands varies from $2.92 per acre in Clallam County to $17.88 in King County. What the actual values are in these cases is a most diflBcult thing to determine except where one is personally familiar with the locality and soil, the crops and the accessibility to market of the cul- tivated lands and the possibilities for grazing or agricultural develop- ment of the unimproved lands. These varying valuations noted above are the outgrowth of the idea and the practice on the part of assessors of determining to as- sess property at a certain percentage of its actual value, each assessor claiming the right to determiine that percentage for himself. There- fore, each assessor has assessed property in his county according to his own judgment at a ratio of assessed to actual value, varying in the different counties from 28 per cent in Franklin County to 52.76 per cent in Clallam County as found by the state board of equaliza- tion in accordance with sworn testimony taken by the state board of tax commissioners in every county in the state in 1912. In some counties the board found that the taxable value as found by the assessor i? based on ridiculously inadequate values, and in other counties the values were based on speculative prices that had been brought about by real estate booms and maintained in the interest of higher sell- ing prices for real estate, with the result that the actual farmer and home owner is paying taxes on a speculative value. The legislature of 1913 passed an act limiting the assessment of property in this state to not to exceed 50 per cent of its actual or market value. In order to take advantage of this increased opportu- nity for a uniform assessment of property, the tax commission ad- vised the assessors that all property should be listed by the field deputies at its full value and that the percentage figures should be extended by the assessor or his ofiBce force under his supervision. This plan would have the advantage of showing what the deputy believed to be the full value of the property and there would be less chance of one percentage of actual to assessed value being applied to one piece of property and another percentage being applied to prop- erty in the same county by another deputy. Thus one of the chief sources of inequality and lack of uniformity would be eliminated. A uniform assessment of farm lands has never been accom- III. TAXATION OF NATURAL RESOURCES 39 plished and has only been approached in a few counties in this state. In order to secure a uniform assessment of farm lands, each county should be cruised by competent men qualified to judge of the value of land by its character, location, and the nature of the crops to the production of which it is best adapted. In accordance with this cruise of the lands, plat books should be prepared showing the character and value of each forty acres. The value of improvements should then be added and from year to year the additional improvements and the increases in value due to better transportation facilities or changes in the crop production could be noted and the increased values added by the assessor. The farmers of each county should insist that this be done. Thereby they will reduce the expenses of the biennial assessment because it will no longer be necessary for the county assessor to employ a host of deputies to do the field work. The first cost would probably exceed the cost of making the biennial assessment of the real estate of each county, but the cost thereafter would only be a fraction of the present cost biennially. As taxes grow more onerous, each taxpayer thinks himself the victim of discrimination and consequently there is a tendency to shift the burden. Farmers have always believed themselves the victims of unfair taxation in this state as compared with the property of other taxpayers. This feeling is probably due to the fact that the farmer feels his burden and at the same time has not scrutinized the sta- tistics of the state on taxation closely enough to determine the facts. There should be no attempt to shift the burdens of taxation on to any class of property; agricultural property in particular should not be unfairly taxed because such a course would strike a blow at the fund- amental factor in the development and upbuilding of this state. We frequently hear men say, "I don't care to own any real estate in Washington. Taxes are too high. I would rather not own property where the rate of taxation is 37.5 mills on the dollar, or $3.75 on each one hundred dollars." However, it should not be overlooked that the ratio of assessed to actual value throughout the entire state is but 42.44 per cent so that the actual average rate of levy throughout the state is $1.59 plus on each $100, or 15.9 mills of the actual value of the property. Farm property, as we have already pointed out, pays less than this on the actual value since it pays less than the average for the entire state. Almost every class of property that comes before our board seek- ing reductions in taxation makes its plea for such reductions on the 40 TAXATION IN WASHINGTON ground that the ratio of taxes to earnings is so high that unless re- ductions are granted the industry represented by such property will be destroyed and great harm come to the state thereby. For this reason we have given some little attention to the taxation of farm property as compared with earnings, in this state. While no abso- lutely accurate figures are available, the following computations will be found reasonably so and will be helpful in suggesting a method whereby the taxation of farm property might be compared with other property on the earnings basis. Estimating the gross value of agricultural products for the state for the year 1918, at $110,000,000 and considering the tax paid by farm property at $7,076,621, we have the equivalent of a gross earn- ings tax of 6.48 per cent. As a specific instance of the application of the earnings tax to farm property, we have computed the tax paid on the North Half of the Northeast Quarter of Section 10, Township 22, Range 38, situated in Lincoln County. This property is eighty acres of wheat land, having no improvements other than plowing and fenc- ing thereon, the actual value of which is fixed at $8,600. The gross earnings of this property for the past five years is $5,268. The taxes during the same period were $158.50, being a little more than 3 per cent of the gross income. The net income after deducting taxes and expenses was $1,460.80 to the owner of the land, who received one- third of the crop as his share. Therefore, the tax on the net income is approximately 11 per cent. In this instance the owner of the land paid no taxes on personal property in connection therewith, there were no expensive improvements on which taxes were paid, and the local school district and road district each had a very nominal levy during the five years covered by these figures. The total levy for the year 1913 on this property was 22.8 mills, which is 6.2 mills less than the average that we found for farm lands for the state. Data of the character herein given, if reasonably accurate, would be of inestimable value in determining questions with reference to the taxation of farm lands throughout the state. It is to be hoped that the present interest in the subject of taxation will stimulate owners of farm property to keep such records as will enable them to accu- rately and intelligently compare taxation of farm property with other classes of property. The rate of taxation and the expenditures of public funds are of vital concern to every taxpayer. Various reasons have been assigned for the high rate in this state, all more or less true perhaps. Persons in. TAXATION OF NATURAL RESOURCES 41 who are careless in the choice or use of words say the excessive cost of government is the reason for the high taxes, but in so speaking they include all of the activities in which the state now participates, includ- ing education and roads, these two being the chief consumers of direct revenue and the chief reasons for high levies, together requir- ing 54 per cent of total money raised by direct taxation, whereas the cost of government, including state, county and municipal branches, is much less than 50 per cent of the direct taxes levied. Budgets of local taxing districts are now required by law to be published in advance of the actual levying of the tax and notice is given to every interested person to appear before the taxing board and object if need be to any levy. All taxpayers should avail them- selves of this right and privilege so that the levies made will be for the actual necessities of each community in order that the present tendency to large appropriations and large expenditures of public funds may be curbed. The farmers of the state can have a direct influence on the tax rate by appearing before the county commission- ers on the first Monday in October and with their advice and counsel aid the commissioners in fixing such levies as will be adequate and at the same time within the ability of the taxpayers to meet. The course pursued by the ordinary taxpayer is to remain away from the meeting at which the levies are fixed, and at the same time demand for a particular district the expenditure of as large a portion of public funds as possible. His objections are heard usually at the time that he pays his tax when it is too late to have any effect upon the rate of levy. In conclusion I would urge that all taxpayers study the questions here presented with fair, open and unbiased minds, and that a united effort be made, not to reduce taxes upon any class of property, not to shift the burdens from one class of property to another, but to reduce the burdens upon all property and to lay them equally upon all property. This can be accomplished by a more uniform assess- ment, by putting all property subject to taxation upon the tax rolls fairly and honestly and by keeping a tight string upon the public purse. DISCUSSION W. H. Kaufman: Mr. Kegley of the state grange requested me to express to this conference as the representative of the grange the purport of the resolution that we have been adopting for the past 42 TAXATION IN WASHINGTON five years, and with the permission of the chairman I will do so. He cautioned me particularly not to "let them put anything over on us," and I will try not to do so. Our particular grievance lies against the speculators. We have adopted resolutions for the past five years at every session of the state grange, county granges, and by a great many subordinates, for the reform of our system of revenue so as to abolish speculation in land. When I was a small boy I purchased a pig. It spent most of its time rubbing itself against the pen, but did not seem to grow. Finally I asked my father what was the trouble. He teased me for awhile and then stated, using big words, that it was "supporting too many parasites." I asked him what a parasite was, and he said, "Your pig is lousy." The speculator is a louse on the body politic. He is absolutely useless, a mere parasite. He takes what does not belong to him. We farmers clear up our land and more than half the values we create goes to speculators. That ought to stop. We ought to collect from the speculator all that he gets that he does not earn. There ought to be taken from the speculator a special economic rent, not a tax, not a burden upon industry, not a burden on anything he is doing except his stealing. We believe that the speculator ought to be relieved of that which he has unjustly acquired, to which he has no more right than the slave-holder or pirate to his ill-gotten wealth. These are strong terms, but it is the language of the grange. They have adopted reso- lutions again and again, unanimously and with great enthusiasm, and we submit that the principal thing this conference can do is to so reform our system of taxation, of public revenue, as to prevent the speculator getting a single doUar he has not earned. Just a word considering what the speculator is doing in the' community. If I went over on the other side of the mountains and dug a ditch, and a man should take water from that ditch, say half of it, he would be stealing. Yet every farmer who goes out on the stump land on the West coast, cultivates a farm and opens it up, has most of his value stolen from him by speculators — absolutely stolen. If a man were to come to my farm and drive o£E half my stock he would not be robbing me of a bit more, directly or morally, of what I had created, than he does when he takes the value I have created by clearing my farm. An Italian went to Bellingham and bought a lot from a speculator in the suburbs for $200. After awhile he thought he wanted to buy another lot, and tried to buy it for $200 — a lot next to the one he had already bought. But the speculator said, "No, you III. TAXATION OF NATURAL RESOURCES 43 have added $100 to the lot adjoining your house." He did not get that $100. The speculator stole it. It is absolute stealing. Now we go further than that; we say the special curse of our whole system of taxation is the speculator. If we take from the speculator anything like what he is stealing from us we would not need any taxes. We could absolutely abolish all taxes and have a vast fund left over for a dividend to every stockholder. Our timber is increasing tremendously. Our fisheries are in- creasing. The value of land on Second Avenue has increased, not because of what has been done by the owner, but because there are something like 80,000 people more in Seattle now than there were ten years ago. The people that come in create but don't get that value. The speculator gets it all. The speculator is the sole cause of un- employment. Every man who wishes to control any natural resource should be made to pay to the public an annual rent of four or five per cent, whatever is right, on the population value of the natural resources he is controlling, and we would have in this state more than $100,000,000 a year over and above our expenses, and that is a very conservative estimate. Timber increased in the State of Minnesota- in eight years more than $7 per thousand. You and I have built the Panama Canal by the increase in the price of sugar, $1.50 a sack, a few dollars on a suit of clothes, 50 cents to a dollar on a pair of shoes. The Panama Canal will add to the price of the billions of feet of tim- ber in this state perhaps a dollar or two dollars per thousand, how much nobody knows yet, but something. Who is going to get that? If any man living thinks the timber barons are going to get that he is badly fooled. The state grange, the state federation of labor, and other organizations in this state propose to collect for the people every dollar of population-made value, or a fair rental on the values which our people have added to these natural resources, giving to the timber men merely what they have created, but keeping for the people all the values they have created. We propose to give the individually- made value to the individual who creates it. That is all we claim, all that we want. It is considerable to be sure, but it is all that we want. We want that every individual should have all that he creates, abso- lutely free of taxes. That is the position of the grange, asserted again and again in resolutions as clear as language can be made, to give to each individual all that he creates; to abolish all penalizing fines upon any industry and not fine a man for doing what he ought tci do, what we want him to do. Up in Whatcom County every man 44 TAXATION IN WASHINGTON who keeps a cow is fined 60 cents a year. If he keeps a good horse he is fined $3 a year. If he paints his house or takes out a stump he is taxed (fined). In the state in which I was born and raised, they paid a man for planting trees ; but here we tax a man who blows out a stump. We should fine the man who keeps the stump in, and reward the mln who takes it out. We want to tax the stump and ex- empt the cow. That, we think, is the only system. As representative of the grange I will have to make my report to the grange — they want to know what the attitude of every speaker is and what he thinks concerning the speculators. I think we of the grange do not care a continental about anything else. Are you going to help us to rid ourselves of the parasites (the speculators), or are you not? Are you going to help us to free ourselves from the men who are robbing as of the values we create, or are you going to fool away your time in a sham fight in putting upon property a lying tax which ultimately will fall upon the farmer and the wage- worker? Forest Taxation in Washington FRANK G. MILLER^ FORMER DEAN OF THE COLLEGE OF FORBSTRYj UNIVERSITY OF WASHINGTON This paper is based upon a report prepared in 1912 for the Unii- ed States Forest Service by the writer and Mr. F. B. Kellogg. That investigation was undertaken with a view of determining the actual burden of taxation on forest land as compared with that borne by other classes of real estate, the effect of the present system of taxation on the management of forest property, and what remedial legislation should be enacted. As a basis for the investigation a very complete list of the timber owners of the state was compiled, and in the course of the study an effort was made to reach each owner either through a personal interview or through a circular letter calling for information bearing upon forest taxation. The field work, though extending over practically every section of the state, was centered in Whatcom, Snohomish, King, Jefferson, Cowlitz, and Pacific Coun- ties west of the Cascade Mountains, and in Yakima, Chelan, and Ste- vens Counties east of the Cascades. These nine counties are so sit- uated as to afford an opportunity to study varying conditions in all parts of the state as they affect forest taxation. Replies to the circular letter sent out, interviews with property owners of all classes, tax officials and others, supplemented by a re- search study of the county and state tax records and of publications on forest taxation, constitute the basis of this report. Owners interviewed or heard from by letter represent upwards of three and a quarter million acres, or nearly 55 per cent of the timber-land privately owned in the state. Data furnished by the federal government, the state land com- missioner, county assessors, and cruises of private holdings indicate that the state has upwards of three hundred and thirty billion feet of merchantable standing timber. The report of the United States commissioner of corporations* estimates the stand at three hundred and ninety-one biUion feet, but this is believed to be rather too high. A comparison of the value of the lumber output with the value of the other leading products shows that the timber crop is easily ♦Summary of report of the Commissioner of Corporations on the Lumber Industry. Part I. Standing Timber. (45) 46 TAXATION IN "WASHINGTON the chief resource of the state. Eighty per cent of the manufactured value of the forest product is put into general circulation through the purchase of labor and supplies, thus remaining within the state. Probably one-third of the population of the state is supported by the lumber business and its dependent industries. Many of our leading cities and towns are almost solely dependent upon the lumber industry. It has contributed more to the settlement and development of the state than has any other interest. It is therefore of vital importance to the state as a whole, to those remotely interested in the forests as well as to those whose money is invested in them, that the lumber industry be put on a perma- nent basis. The national forests are already under management, and plans are being worked out which will insure continuous crops. It is the hope that the state will soon inaugurate a comprehensive forest policy which will enable her through purchase greatly to increase her forest holdings, and then put the whole under scientific manage- ment. But any forest policy which does not include private holdings goes only half way. Two primary obstacles stand in the way of the practice of forestry on private holdings — ^the fire hazard and taxes — neither of which is necessarily insurmountable. These are not the only barriers confronting private forestry, but they are exceedingly important ones, and with them removed the way to the practice of forestry will be opened to a large proportion of the privately owned land. My subject readily divides itself into two sub-topics — ^taxation of virgin timber and taxation of second growth. TAXATION OF VIRGIN TIMBER The few years intervening since the creation of the state board of tax commissioners in 1905 mark an important period in the history of timber taxation in Washington. Prior to that time the appraise- ment of timber-lands for assessment purposes was purely guess work, resulting in the grossest inequalities of value, the poorest and most out of the way tracts often being asessesd at the same value as the best and most accessible. Immediately on organizing, the commission set about it to correct this loose and haphazard business by advo- cating a cruise of the timber. Such a cruise has now been made in all the important timbered counties. Prior to 1908 the land of the state for assessment purposes had III. TAXATION OP NATURAL RESOURCES 47 been classified outside of the cities merely as improved and unim- proved land. In that year the timber-lands except in a few cases were segregated into a third class and assessed separately. The agitation of the question of timber taxation incident to the making of the county cruises and the segregation of timber-lands has resulted in a marked increase in taxes on timber property. Figures furnished by the county assessor of a county in the western part of the state show that the assessed value of the timber- lands of the county for 1908 was more than double that of 1907, as a result of the county cruise which was made in these two years. The assessor states that values for assessment purposes have been materially increased since 1908. Data furnished by one of the larger lumber companies in western Washington whose holdings are scattered through several counties show that the taxes on its holdings more than trebled in the five years from 1905 to 1909. The manager of another large timber company west of the Cas- cades in sworn testimony before the state tax commission stated that the taxes on his company's holdings nearly doubled in the four years from 1906 to 1909, although 20 per cent of the valuable timber had been cut off during that time and about 10 per cent of the land area had been sold to settlers. Furthermore, he added, logs were decidedly cheaper in 1909 than they were in 1907. The records of the state board of tax commissioners show that the average assessed value of the timber-lands of the entire state increased from $4.88 per acre in 1905 to $13.36 in 1912, which is an increase of 235 per cent in eight years, and in that year the timber-lands bore nearly nine per cent of the total tax burden of the state. But the importance of timber-lands for tax revenue is seen more clearly in a study of the timber counties, more especially those west of the Cascade Mountains. For example, in Pacific County the as- sessed value of the timber-lands is about 37 per cent of the assessed value of all property. In Jefferson County, it is over 47 per cent, and in Wahkiakum County over 51 per cent. Much of the outlying territory in the timbered countries, such as school or road districts, are even more dependent upon the forests for tax revenue than these figures would indicate. Whether timber-lands in general are over assessed depends on how long they are held. The average assessed valuation of $16.36 per acre placed upon timber-lands of the state in 1912 probably does not exceed two-fifths of the true average value of these lands. But 48 TAXATION IN WASHINGTON since the timber-land is assessed annually, it exacts a tax which in the course of a few years places a value on timber holdings which they are incapable of attaining. The argument is made that the greater body of the virgin forest has come into the hands of the present owners at relatively low prices, that the value of stumpage has risen and will continue to rise suflS- clently to absorb the taxes and still make the investment an inviting one. It is further argued that much of the timber has been bought up by outside capital and is, therefore, held by parties who do not in any way contribute to the welfare of the state except through taxation, and that the state is entitled to large benefit from this source. But these arguments are not entirely germane and should not be allowed to cloud the really vital issue — the effect of the present tax system on the matter of a future timber supply. Not only has the tax on timber-land increased rapidly in the last few years but there is strong pressure being brought to bear on tax officials constantly to increase it still further. This pressure will be stronger in the future than it has been in the past, for as additional land is cleared and in consequence yields less tax revenue the tendency will be to require the non-cut-over land to make up the difference. The facing of this almost certain increase, together with the annual recurrence of the tax, whatever it is, with no income from the property itself with which to pay it, is going to have the inevitable result of hastening cutting unduly, regardless of the residence of the owner or the price at which he bought, which means enforced waste through the rushing of the timber off on a weak market. In fact, there is now a decided movement in this direction. In the questionnaire used in this study the timber owners were asked whether taxation has ever hastened the cutting of timber on their holdings. To this question 564 replies were received. It is significant that 135 replies, or over 27 per cent of the total, state that taxes have hastened the cutting of timber in the past, while 88, or nearly 15 per cent of those replying to this question, say that taxation is going to force them to cutting if present taxes continue or are increased. It is admitted that other causes than taxes, such as in- terest, the fire risk, the necessity of keeping mill plants supplied, etc., have the effect of hastening cutting. Nevertheless, these answers clearly establish a relation between taxation and premature cutting in this state. III. TAXATION OF NATURAL. RESOURCES 49 The timber owners were also asked what changes in the present system of taxing forest land they would suggest. The replies make it clear that while there is much dissatisfaction with the present sys- tem of taxing forest land there is a great lack of unanimity among timber owners in regard to a suitable substitute. In eleven answers the single tax idea is advanced as a better system than the present for taxing forest land^ while 36 advocate a tax on the timber only, thus exempting the land. In five cases the British Columbia plan is preferred. The plan referred to is that in vogue on Crown lands held under lease where an annual tax called ground rental is assessed on the land, and a royalty at a flat rate per thousand is collected on the timber when cut. In one case, it is proposed that each owner be assessed on his own valuation, the same to be one on which he would sell. This plan ought to secure unifornily true valuations provided it gives the county or state the option of purchasing the land at the owners' valuation in case its tax officials thought the valuations too low. This is essentially the plan in operation in parts of Australia where the state reserves the right to purchase the property at the valuation the owner puts on it plus 10 per cent. By far the larger number of replies express a preference for a dual system which would tax the land annually and levy a tax on the timber when cut. Forty-eight per cent of the 524 answers received in reply to this question endorse this plan. A system of taxation which taxes the land and the timber sep- arately, by laying an annual tax on the land and taxing the timber when cut is not new, as it is the one in use in most of the leading European countries, having been practiced by some of them for a century or more. There it is recognized that an annual tax is highly desirable as a certain definite revenue for the state, while an annual tax without an income from the property taxed works a hardship on the forest owner. The system in vogue is an attempt to satisfy these opposing interests. The criticism has been made that a scheme of taxation which would tax forest land annually and defer the tax on the timber crop till it is cut would discriminate against the farmer. This is not the case. On the contrary, the present system of taxation discriminates against the forest crop. For example, theoretically, farm crops are taxed. Practically, they pay very little tax because assessments are made at a time when there are no farm crops in the ground, and by 60 TAXATION IN WASHINGTON the time the next assessment is made, they have been grown, harvested and very probably marketed. Hence, as a rule, the land only is assessed. The plan proposed calls for an annual tax on the land based on a fair value, and not only does not ask that the timber crop be exempt- ed from taxation, but provides for the equivalent of an annual tax equal to the present tax, and allows the state a rate of interest on deferred payments above what the state would have to pay for borrowed money. As stated, farm land is taxed annually — theoretically, the crop is taxed once and that when harvested. The proposed system asks only that for purposes of taxation virgin forest property be placed on the same basis as farm property so that the timber crop would be taxed but once and that when harvested, with this difference, that while farm crops usually escape taxation, this plan provides that the tax on the timber crop shall actually be paid. This paper has pointed out that the present tax system undoubt- edly tends to premature cutting. The point has been made that it might be to the highest interests of the state to hasten clearing on so much of the timber area as is suited to agriculture, since such land, if under cultivation, would produce a larger income than in timber. In answer, it is only necessary to call attention to the fact that there are today several hundred thousand acres of logged-off agricultural land lying idle. It will be many years before this land is all taken up and settled. Moreover, timber-land fit for agricultural purposes is being cleared far more rapidly now than it is being brought under cultivation. It is apparent that it is folly to cut the forest faster than market conditions warrant and agricultural needs demand. The change from the present methods of taxing forests to a dual system whereby the land is taxed annually, and the timber on yield when out has distinct advantages, both to the timber holder and to the state at large, though some difficulties are in the way of making it. The advantage to the individual is that the bulk of the tax falls due when he realizes upon the crop. If, perchance the growing crop is destroyed by fire before it matures, the state justly shares the loss to the amount of the tax on the crop. Since the state in this way would assume a part of the risk, it would be more apt to pro- vide adequate fire protection. The state at large would benefit by the change, because the new system by encouraging the holding of timber till market conditions were right would promote conservative lumbering, thus husbanding III. TAXATION OP NATURAL RESOURCES 51 the present timber supply. The chief difficulties in the way of mak- ing the change are that the tax revenue from the forest would be considerably less for the first few years, and it would accrue dispro- portionately to the different timbered counties since the cut is rela- tively unequal in them. In the state at large, timber-land instead of paying about nine per cent of the taxes as it did in 1912 would have paid a little more than two per cent under the new plan. The difference must necessarily have been absorbed by other classes of property, obliging them to bear an increased burden of about six per cent the first year. This extra burden would be gradually decreased from year to year and the revenue from the timber holdings would cor- respondingly increase until it would equal the present revenue and from that on would exceed it. In the end, other classes of property would not be compelled to bear any extra burden on account of the change and it is believed that the proposed system would assist ma- terially in perpetuating the lumber industry. As far as the state at large is concerned the difficulties in the way of making the change do not seem insurmountable. However, in the counties where the timber-lands pay such a large proportion of the taxes, in some cases as this report has pointed out, up to 30 or 40 and even 50 per cent the obstacles to a change are more for- midable, if not prohibitive. Here the interests of a public nature are so dependent upon tax from timber-lands that a complete imme- diate change seems unwise even if it were possible. Again, it is believed that if the state should enact legislation which would assess the land annually and the timber when cut, it should exact from the timber-land owners benefiting by the law that they harvest the present crop in such a way as to insure a second crop. "The supreme courts of the United States and of the states of Maine and New Jersey have recently announced decisions which indicate a belief that the state has a right to regulate cutting upon private lands or protect forests and stream flow on such private lands because of the public service of the forest and the streams."* RECOMMENDATIONS FOR REMEDIAL LEGISLATION As applied to the present stand of merchantable timber, therefore, it is recommended: That a change be made in the method of taxation which will lay •Taxation of Forest Lands by A. C. Shaw, Proceedings of the Inter- national Conference on State and Local Taxation held at Toronto, Canada, October 6-9, 1908. 52 TAXATION IN WASHINGTON an annual tax on the land, and a tax on the timber when cut; pro- vided that whether such timber-land shall be taxed according to the, system herein proposed shall rest in every case at the option of the owner; provided further that any timber-land owner taking advantage of the new system shall enter into an agreement with the state so to harvest the present crop of timber as to insure the establishment of a new crop, either natural or artificial. The foregoing plan would insure an introduction of the new sys- tem on a scale so gradual as to produce no serious reduction in the amount of revenue now derived from the timber-lands. Very little if any such lands as are of agricultural value would be affected by the new system, since the new system carries with it the obligation on the part of the owner who takes advantage of it to reforest his lands as fast as he removes the present crop. It is not expected that owners of lands having genuine agricultural worth will care to hold them for a second crop of timber. Again, only such owners as those who, because their lands are at present inaccessible or for some other reason expect to hold them for a number of years would take advantage of the new law. The practical result would be that in the main only such timber holdings as are non-agricultural in character and non-accessible would come under the operation of the new sys- tem, and these are the lands most in need of such remedial legislation. TAXATION OF SECOND-GROWTH Few states present as great opportunities for reforestation as the state of Washington. Attention is called to the fact that in Western Washington alone of the more than eight and one-half million acres of land, exclusive of town and city lots, in private ownership, probably not over one-half has agricultural possibilities. This means that up- wards of four million acres of these lands will never be fit for anything else than the growing of timber and should be devoted permanently to this use. Several hundred thousand acres, possibly one-fourth of these lands, have already been logged off. An unknown proportion has reforested through natural agencies. The rest lies idle and rep- resents so much non-productive capital. This non-producing area will be constantly increased as additional lands are logged off until eventually a large proportion, perhaps the greater part of the prob- able 4,000,000 acres of non-agricultural land will be in a deteriorating, non-productive condition imless taken over and reforested by the state, or unless conditions are created whereby private initiative can afford III. TAXATION OF NATURAL RESOURCES 53 to do it. As idle lands they will in time become an iacumbrance upon the state; if reforested they will produce timber in great abundance. But it will be a long time before the state can purchase and reforest an area of this magnitude. A large proportion of it must be refor- ested by private owners or lie idle. The constitution requires that the logged-ofE lands be assessed annually at first as waste lands, but that later the value of the timber, if any, be added. Even under these conditions there is a considerable acreage of cut-over but reforested land in private ownership. This reproduction has taken place by natural reseeding following logging operations. As additional lands are cleared a certain percentage can be expected to seed in the same way. With some care in logging, this new crop could be greatly increased with very little additional outlay. Just how far private capital can afford to go in the matter of reforestation is problematical. Somewhere between the cost of holding land for a second crop that seeds up naturally with little or no expense and the maximum cost of holding it where the crop must be established by artificial means, is a dividing line beyond which the individual cannot go, and here the state must come to the rescue. The turning point at best will come soon enough to give the state all it can handle. As an encouragement to private initiative in the matter of re- forestation and to enable it to go further than would otherwise be possible, it is commonly proposed to lay an annual tax on the land and exempt the growing timber from taxation till cut, the tax to be based on a certain percentage of the stumpage value. This investiga- tion has led to the belief that the state should go a step farther and exempt both the land and the timber from taxation till the timber is cut, the accumulated tax against both to be levied then against the timber. According to figures compiled by E. S. Kellogg and E. A. Ziegler in their report on "How Much Does It Cost to Grow Timber," pub- lished in American Lumberman for July 24, 1909, taxes on the present basis of assessing timber land constitute roughly from 20 to 30 per cent of the total cost of growing Douglas Fir, varying according to the age at which the timber is cut. So large a proportion of the cost falling due annually on a crop which matures only on a long time rotation is certain to have a discouraging effect on private initiative in the project of reforestation. This is particularly true when it is remembered that however effectively the growing crop may be guarded 54 TAXATION IN WASHINGTON against fire, the owner always takes a chance of having it burn before it matures. This is a risk the state should share, as it would do if the tax were not paid till the timber is cut. Or, to put it another way the state cannot in justice exact a tax on a crop which through no fault of the owner may never be harvested. Attention has been called to the fact that taxes are a large factor in the cost of growing timber. A large proportion of this cost occurs as a tax on the land aside from the timber. If the land is assessed annually at even a so-called nominal figure, the tax mounts up into high figures in long time periods. It requires 80 to 100 years for even a rapid-growing tree like Douglas Fir to develop into saw timber of good quality. A tax of ten cents per acre, if paid annually, and five per cent compound interest is allowed on the payments, amounts in 80 years to $97.12 and in 100 years to $261.00. This investigation has shown that the greater portion of the logged-off lands is still in the hands of the lumbermen, and that very little of it has ever been abandoned. Among the questions in the circular letter mailed to timber owners were these two bearing on the matter of reforestation : 1. Are you holding your cut-over land for a second cut? 2. Would exemption from taxation on young growth untU cut, and a tax then to be paid upon the stumpage value, influence you to hold your cut-over lands for a second cut? About 500 replies were received to each of these questions. Of this number 13.5 per cent say they are holding their cut-over land for a second cut. This showing is significant considering the fact that these lands are assessed annually, and that till within recent years they were absolutely without fire protection, and indicates that with proper encouragement in the way of fire protection and favorable tax laws private capital will engage in the business of reforestation on a considerable scale. To the second question 39 per cent reply that they would hold for a second cut if the tax reform as indicated in the question were brought about, showing clearly that the present tax system discourages private reforestation. In 36 replies is expressed the belief that re- forestation is the function of the state, emphasizing a sentiment which prevails quite generally that the state should go into the business of growing timber on a comprehensive scale. This paper endorses the principle of a yield tax as applied to vir- gin timber. But it is recognized that a certain fixed amount of revenue III. TAXATION OF NATURAL RESOURCES 55 must be raised in the state annually. If a change in the method of taxation were brought about whereby taxes on virgin timber were to be deferred till the timber is cut, the most of the tax revenue now derived from this source would have to be apportioned temporarily upon other classes of property. Hence to apply the yield tax to all virgin timber-land at one time would require changes in the present method of raising revenue that would make its adoption impracticable, if not unwise. Therefore, as applied to virgin timber, a modification of the yield tax system is favored which it is believed will give relief where most needed and at the same time will not work a hardship on other classes of property holders. In the case of cut-over land, however, the yield tax if adopted would from the nature of the case take effect so gradually as to create no disturbance whatever in the present method of raising revenue, and could not affect disadvantageously other classes of property. In the first place the total acreage now cleared which would ultimately be affected by the change pays a tax revenue which is a mere bagatelle as compared with the total raised, and this acreage would be benefited by the change only at the option of the owner and as it should prove to have been reforested. It is , therefore, recommended that as an encouragement to private capital to hold cut-over land for successive crops of timber, the state should exempt both the land and the growing crop from taxa- tion, a yield tax of a certain percentage of the stumpage value to be levied against the timber when it is cut. CONCLUSIONS 1. The timber industry is the chief resource of the state, and the timber-lands pay nearly nine per cent of the taxes. 2. Timber-land is assessed at more nearly its true value than is agricultural real estate, and city real estate is assessed at more nearly its true value than timber-land. Moreover, where sufficient data have been collected to warrant comparisons they show that the actual burden of taxation on timber-land is generally greater than on agricultural real estate and less than on city real estate. 3. Though still imperfectly applied, forest tax laws are being car- ried out with increasing efficiency and uniformity. Taxes on for- est property have increased rapidly for several years past. Wheth- er it is overtaxed depends largely on how long it is held. Tim- ber which will be carried for a considerable period of years will 56 TAXATION IN WASHINGTON bear an undue proportion of taxes and, therefore, it must be concluded that it is the system of taxation rather than the amount of taxes which is at fault. 4. The evidence points clearly to a relation between the present tax system and premature cutting. Taxes have not been any great factor in hastening cutting in the past, but the present system is sure to have a more marked influence in this direction in the future. 5. Much confusion exists among timber owners in regard to a sub- stitute for the present plan of taxing virgin forest land. However, preference is expressed for a dual system which would tax the land annually and the timber when harvested. Owing to the serious di£Sculties in the way of making this substitute, this re- port recommends its adoption in part only. 6. Despite a rather high tax on cut-over lands, they are not being abandoned for taxes even when they are known to have no agri- cultural value. A large percentage of these lands are restocking naturally. Quite a percentage of owners are now holding for a second crop. A still larger number would do so under remedial tax laws. Undoubtedly a yield tax system would stimulate and encourage reforestation on the part of private capital. DISCUSSION Professor B. P. Kirkland, College of Forestry, University of Washington: Professor Miller, who has spoken to you, and others who wiU. follow, will deal with the taxation of mature timber. In the few minutes allotted to me I will endeavor to throw a little light on the relation of taxation to the cost of growing timber. It is true that we have as yet concerned ourselves very little with this problem. Lumbermen at the present time are more concerned with the problem of marketing what they have than of growing more. But if the lumber industry is to continue to be of as great importance as it has been we will soon have to concern ourselves with growing more timber, because timber cannot be grown in a short time, and the harvesting of timber crops means preparation in advance. A good many say that at the present rate of cutting the timber in Washington will last eighty to one hundred years, and that is probably true if the rate of cutting is not increased, but it will increase. There are some lumbermen present who are interested in the ownership of timber-lands, and if you should ask them whether they expected the timber on their lands to last them eighty to one hundred years I think III. TAXATION OP NATURAL RESOURCES 57 you would be informed that they do not expect it to last more than twenty to thirty years, or perhaps forty at the outside. If you should ask other large owners in the state the same question I do not think that any of them would tell you that their holdings were expected to last more than twenty to forty years. It is obvious that if no in- dividual owner expects his holdings to last more than that length of time the timber in private ownership cannot last more than that period. That is, the private owners expect to be able to increase the cut on their lands sufficiently to dispose of their mature timber in much less than eighty to one hundred years, or even less than fifty or sixty years. Therefore it seems that the growing of another crop of timber is perhaps of more immediate importance than would appear at first thought. That is the reason that I am justified in dealing with this question exclusively. In order to bring out the point I wish to make as to the relation of taxation to the cost of growing timber I wish to use a table which was really prepared for another purpose, but which will serve to illus- trate this point, and as it will be very difficult to make the table understood through the spoken word only, I have had it distributed. [See Table I., page 58.] This table gives the elements of cost in growing timber, including the element of taxation, in order that for this discussion I may compare the cost of taxation with the other costs. You will note that I give the costs when the owner operates under various interest rates. The cost of growing timber varies with the interest rate, because interest is one of the greatest elements of cost due to the long time it takes to grow timber. The first line of the table gives the interest rates under which I have computed costs. The first element of cost then under the various interest rates is the compound interest on the estimated soil value, on medium quality forest soil, the value of which I have estimated at $5 per acre. That is somewhat higher than is generally figured upon as the value of forest soil here in cases where persons have figured on the state ac- quiring non-agricultural land for this purpose, but of course the higher we assume this value the more conservative our results become. It should first be noted that the soil value itself is not charged up, that is, the principal sum is not charged up to any particular forest crop, because when the crop is harvested we still have the soil unimpaired. Therefore, the amount to be charged to each crop is merely the compound interest on the soil value during the time it takes the crop to grow. 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