♦,v* Digitized by the Internet Archive in 2017 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/details/taxquestionabridOOensl The Tax Question * By Enoch Ensley (Abridged) Introduction by Lawson Purdy Secretary, New York Tax Reform Association Printed for the New York Tax Reform Association hi Broadway, New York By The Trow Print 1901 ELy\ r \8>^’ V CC/A CONTENTS O 4 4 ~ P a ip Page Introductory.7 The Tax Question.11 Fallacy in the Constitution.12 The Golden Rule of Taxation . . .14 Movable and Immovable Property . .15 Reflected Value . . ..17 Effect of Taxation on Local Prosperity 18 Business Profits and Real Estate Values 20 Movable Property Attracted or Repelled by the Rate of Taxation . . . .22 Money, Merchandise and Manufacturing Capital.24 Reciprocal Advantages for County and City.25 Farmers Gain from Prosperous Cities . 28 Local Option for County and City Tax¬ ation .31 Improper Taxation Worse than a Plague 32 5 Page Tenants Must Prosper Before Real Es¬ tate Owners Can Prosper ... 36 Real Estate Owners Should Ask for the Exemption of Personal Property from Taxation.37 Justice Will Be Done.40 6 INTRODUCTORY By LAWSON PURDY, Secretary New York Tax Reform Association. The following letter was written in 1871 by Enoch Ensley, a landowner of Tennessee, to Governor Brown. Mr. Ensley was a pioneer in the cause of tax reform, and his letter, written nearly thirty years ago, is just as true and ap¬ plicable to present day conditions as it was to the conditions of Tennessee when he wrote it. So far as known, Mr. Ensley’s thought was original with himself, for with the exception of some few advanced thinkers in the state of New York, no one had advocated in this country the exemption of personal property from taxation. The general property tax had natu¬ rally grown up in this country as an in¬ heritance from Europe, and in the early days of the republic, when conditions 7 were primitive, it was comparatively easy to tax all forms of property. The original theory on which the general property tax was based seems to have been that men should pay taxes in pro¬ portion to their ability, and that the amount of their property was a fair in¬ dex of their ability to pay. At the present day it is not uncommon to find the theory advanced that equality of taxation requires the equal taxation of all property. Both these theories are condemned by their impracticability, but the theo¬ ries themselves will not stand exam¬ ination. There is no reason why dif¬ ferent principles should be advanced to justify payments to the state from those which justify payments in business deal¬ ings between man and man. All ordi¬ nary business dealings are based on the exchange of equivalents. The store¬ keeper does not grade his prices ac- 8 cording to the income of the purchaser, but exacts a payment in proportion to the value of the article sold. This is the natural principle to be applied in the affairs of state, and each taxpayer should be called on for the equivalent of the pecuniary benefits he receives from the state—no more, no less. Mr. Ensley approaches the subject from what may be called the practical rather than the theoretical stand-point, and shows the unwisdom and disad¬ vantage to the interests of all in at¬ tempting to tax movable property. The text which he says should be engraved in letters of gold in every legislative hall remains and will remain supremely true: Never Tax Anything That Would Be of Value to Your State , That Could and Would Run Away , or That Could and Would Come to You . 9 THE TAX QUESTION. By ENOCH ENSLEY. Memphis, Tenn., Sept, i, 1871. To His Excellency, Governor John C. Brown. Dear Sir :—As a citizen of the state over which you have the honor to pre¬ side as governor, feeling a deep interest in its prosperity, I desire to submit for your consideration and the considera¬ tion of the people of Tennessee, some remarks on the subject of taxation— what I deem the correct principle or system of taxation, as compared with the unwise and incorrect system now in operation in our state; and in doing this I desire to cast no reflections upon you, as governor of the state, nor hold you in any way responsible for the present system—for the evil, as I understand it, is in our organic law, the constitu- tion of the state, and cannot be reme*- died short of a change of said consti¬ tution.* Further, I will say that if you were, to some extent, responsible, I would be prepared to excuse you, for the evil exists not only in Tennessee, but in many, if not all, the states of the Union. But, notwithstanding it may exist in all the states, it is, nevertheless, an evil — a wrong system working against the interests and prosperity of the states wherein it exists , but perhaps, owing to the peculiar surroundings, not so much against the prosperity of any state as our state of Tennessee. FALLACY IN THE CONSTITUTION. The clause of our constitution I refer to is the one which requires all property, real, personal and mixed, to be taxed alike. Under this clause all money, * This does not apply to the Constitution of the State of New York. 12 trade, etc., are sought to be taxed. It requires not only that the state tax should be levied on it, but also that the county and city tax in the various coun¬ ties and cities of the state, for their re¬ spective uses, should be levied on it, and said various counties and cities cannot exempt from taxation, even if they should be disposed, when the tax is entirely for their own purposes, for they are left no discretion in the matter. I propose to show that, whilst every part of the state and each and every citizen of the state, no matter what his vocation, occupation or trade may be, would be benefited by a change of the entire system, including state as well as county or city, some parts of the state absolutely demand a change, so far as the county and city tax is concerned; and to bring about a speedy change, as you are the only person clothed with the necessary power to take the initia- tory steps, I take this liberty of address¬ ing you upon the subject, hoping that good may come of it. In showing or proving what I have above promised to show, I will proceed thus: THE GOLDEN RULE OF TAXATION. First, I will present you with a rule or motto which I think it would be well for the state to adopt and have cut into the stone at the capitol (in large letters and have them gilded), in the senate chamber, the hall of the house of repre¬ sentatives and in the governor’s office, for I think it entirely harmonizes with the correct principles of taxation in every particular, to wit: Never Tax Anything That Would Be of Value to Your State, That Could and Would Run Away , or That Could and Would Come to You . 14 MOVABLE AND IMMOVABLE PROPERTY. There are two kinds of natures of property in the world only, movable and immovable; the former, as its name implies, can be moved from one place to another, as its owner chooses; the latter is fixed and cannot budge an inch, no matter what its owner chooses. I hold it to be true that immovable property has no value till it is occupied or located upon, or brought to subsist or employ movable property, and as a rule, the more it employs or subsists, the more valuable it becomes, and the greater the inducements or attractions it offers movable property, the more it will have to locate upon it. For instance, the best acre of land in America is worth nothing until man goes upon it with his ax, horse, cow, etc., and cuts the timber off, builds his log cabin, puts it in cultivation and brings it to subsist himself, horse, cow, 15 etc., and from that moment it com¬ mences to have a value, by reason of the fact that it employs or subsists the man (who, if he can be called property at all, is certainly movable property), horse, cow, etc. (the horse, cow, etc., are movable property). And if this acre of ground, from any cause, should become attractive to and employ double the amount of movable property, as a gen¬ eral rule it will become doubly valua¬ ble and so on; if it should become at¬ tractive to and employ profitably ten or a hundred or a thousand fold more movable property, it would become, in like ratio, more valuable, even up to the value of Mr. A. T. Stewart’s acre of ground on Broadway, New York, which is worth perhaps two million dollars, by reason of the fact that it offers attrac¬ tions and has employed upon it profit¬ ably five, ten or fifteen million dollars’ worth of movable property. (Of course, when ground gets beyond a certain value it must be put to other uses than agriculture.) Just this process the Stew¬ art acre of ground has doubtless passed through since the Dutch first landed on Manhattan Island. REFLECTED VALUE. There are exceptions to this rule— that immovable property is valuable as it has movable property employed di¬ rectly on it, for it frequently has a greater value than the movable prop¬ erty employed directly on it would war¬ rant. It has a value reflected from the employment of movable property on immovable property near by, as in the ease of residences in or near cities.. For instance, the use of Mr. Stewart’s mov¬ able property on his Broadway lot not only gives great value to that, but also gives a value to his residence up town, by reason of the fact that it is suf- 17 ficiently near and convenient for it to be in demand for him to live there and transact his business daily at his store, all of which, however, is attributable to the employment of movable property on his Broadway acre. EFFECT OF TAXATION ON LOCAL PROSPERITY. The thrift or profit which immovable property offers to movable property helps to regulate its value. For in¬ stance, a man owns two pieces of prop¬ erty alike — say in different towns — rented out to merchants of equal capi¬ tal ; one is enabled to make 7 per cent per annum only on his capital, for the reason that he has to pay 3 per cent tax on his capital, and the other makes 10 per cent net, and pays no tax; the property paying 10 per cent will be the most valuable, for it will pay the largest rent, because there will be more appli- 18 cants for it than for the 7 per cent, and, the law of supply and demand govern¬ ing, it must rent for more. It is, how¬ ever, impossible as a general thing for these two merchants to remain of equal capital. The 10 per cent man will soon have more capital from his extra thrift, and the 7 per cent man, seeing his pros¬ perity, is apt to pull up stakes and quit his town and move to the 10 per cent town, and other merchants will perhaps do the same thing, until, by competition increasing in the one town by other merchants coming in, and decreasing in the other by their going out, may make profits the same. This, however, is not apt to make profits the same in a coun¬ try like ours, for there is generally new trade to be looked up to keep pace with the new comers. So the result would be that new comers would continue to go to the 10 per cent town from the 7 per cent town and other places, until 19 the one becomes a large and prosperous city and the other a dilapidated, lan¬ guishing town. It will be easy then to say which storehouse is the most valu¬ able. BUSINESS PROFITS AND REAL ESTATE VALUES. I hold that of all men the real estate or fixed property man is the most inter¬ ested in the rule or motto I have adopt¬ ed. To illustrate nearer home, I will say that there is an acre of ground in Memphis, Tenn., say, in front of the Peabody Hotel, Overton block, that is worth at the rate of $200,000 per acre, whilst the writer has an acre six miles below the city, quite as good naturally, and even better, than the Overton block acre, because it will produce more corn, cotton, pumpkins, peas, potatoes, cab¬ bage, etc., than the Overton acre will, or ever would, and my acre is not worth 20 one hundred dollars per acre. Now, why is it that the Overton acre is worth $ 200,000 per acre and mine not worth $ 100 } The reason is that there is em¬ ployed on the Overton acre, profitably, two, three, four or five hundred thou¬ sand dollars of movable property, while upon mine there is employed the six¬ teenth part of a negro, the sixteenth part of a mule, plow, hoe, etc. Now, if you will manage in any way, either by taxa¬ tion or otherwise, to drive from this Overton acre the two, three, four or five hundred thousand dollars, and render the Overton acre so that this capital, or any part of it, cannot be employed on it with a profit, it will not be worth more than my acre—in fact, not so much—for there is nothing so valueless as ground covered with houses when there is no demand for said houses. And, further, if you do anything to make the two, three, four or five hun- 21 dred thousand dollars pay less profit you will damage the ground or lessen its value more rapidly than you will decrease the profits—not in the same ratio, but more rapidly. Suppose, for instance, the profit has been io per cent net on the capital employed, and the property is paying a rental on $300,- 000; if you reduce the profits perma¬ nently, in any way, to 5 per cent net, the property would not pay a rental on $150,000—in fact, it would hardly pay any rent at all, for 5 per cent would be too small to induce a business at all in this country. MOVABLE PROPERTY ATTRACTED OR REPELLED BY THE RATE OF TAXA¬ TION. Movable property always seeks and locates on immovable property where it thrives and multiplies most rapidly. It is said that it was the last feather 22 that broke the camel’s back, whilst the first had as much to do with it as the last. An oppressive tax, such as exists in some parts of our state, drives off a good deal of movable property and ab¬ solutely forbids any more coming to such parts, unless it comes relying upon dodging or evading the law, which large capital never does. Men of small amounts of money, goods, etc., such as one can hide, may come, but men of large amounts of money, to go into open banking or merchandizing, on a scale that cannot be hidden, or evade the law, will not come. Of course, all mankind, where they have lived for a time, form local and social ties and will submit to some op¬ pression, though their property be all movable, before they get their consent to move away, but with the millions of dollars of movable property we desire to attract to us, no such ties exist, and, 23 if we do not offer quite as much thrift as other localities, and even more, when the property may be already located, we need not expect to attract it to us. MONEY, MERCHANDISE AND MANUFACT¬ URING CAPITAL. As I have said, any tax levied upon movable property tends to drive it away; consequently it is incorrect in principle, whilst a heavy and oppres¬ sive tax is absolutely prohibitive and suicidal. Embraced in the rule I have presented in the beginning, never to tax anything that would be of value to your state, that could and would run away, or that could and would come to you, are two or three kinds of movable property which I regard as most impor¬ tant, and which I will mention, to wit: Money , merchandise and capital to be used in manufacturing. These pertain to cities mostly. There are many other 24 kinds of property which, perhaps, would come under the rule, but for the present I will speak of these three, because through them great wealth generally enters the state. RECIPROCAL ADVANTAGES FOR COUNTY AND CITY. And here I desire to call your atten¬ tion to the fact that the great bulk of the movable property generally enters a state or nation through its cities and towns, money and merchandise or trade always, and capital for manufacturing purposes most frequently, and from the cities and towns its beneficial effect is radiated throughout the state far and near, greater the nearer the city, but beneficial to some extent even to the utmost bounds of the state, particularly when we owe a common debt, as most of the states of the American Union do, and as our state of Tennessee certainly 25 does, to the extent of over $ 20 , 000 , 000 . And here I wish to note the fact that there exists in Tennessee, in the minds of some of our farmers, or people living in the country, a prejudice against the cities. They imagine that the interest or prosperity of the cities is entirely separate from theirs, if not antagonistic, and again, the people of one part of our state imagine their interest to be sepa¬ rate from other parts of the state, which is incorrect in toto. This idea or feel¬ ing has to a great extent been manufact¬ ured by demagogues or ignorant poli¬ ticians and by newspapers actuated by incorrect motives or ignorance of the correct relations between cities and country and the different parts of the state. This is all wrong, and the sooner the people turn a deaf ear to all such the better it will be for all parties. There is no antagonism of interest be¬ tween them, but, on the contrary, a unity of interest. For a city to grow large, rich and prosperous within the borders of a state that owes a debt to be paid by all parts of the state in pro¬ portion to the wealth of the respective parts, of course, cannot be against the interest of any part of the state or coun¬ try, and vice versa, for the country to become rich and prosperous it cannot well hurt the cities, for east Tennessee to flourish cannot hurt middle and west Tennessee, and so on. But, on the contrary, the prosperity of one is and must be advantageous to the other, not only so far as paying the common debt is concerned, but in divers other ways, such as the country patronizing the trade and manufactories of the cities, etc., and the cities, in return, buying what they may consume of country products from the country and offering a near and convenient market for many of their products that cannot be shipped to more distant markets, besides shed¬ ding or radiating an increased value on their lands in every direction, for miles and miles. To attempt to enumerate the various reciprocal advantages is useless, for, the mind once directed to the subject, they become apparent by the scores. FARMERS GAIN FROM PROSPEROUS CITIES. And here I desire to call the attention of the farmer or countryman to a fact that many have never thought of, which may tend to abate their hostility toward the cities. It is this, to wit: Whilst it is impossible for a rich and prosperous farming country to surround a city without contributing to the prosperity of said city, yet it is possible for a city to be located within the borders of a state and grow to be rich, prosperous and large and to add great value to the lands around and to the state without receiving a corresponding value from the country of said state. In fact, such is always the case where the city is large ; for instance, the great city of New York is not indebted to the country or farm lands of New York for one-hun¬ dredth of her prosperity and wealth. She reaps her wealth not only from all the states of the Union, but from all the civilized parts of the world, yet she doesn’t contribute a dollar to the pay¬ ment of current expenses and state debt of any state in the Union or any part of the world except the state of New York. She gives in her immense wealth to be taxed solely for the state of New York, thereby relieving each and every farmer in the state. St. Louis reaps a majority of her prosperity from other states than Missouri. New Orleans reaps four-fifths of her prosperity from other states than Louisiana. Hence it will be seen that 29 the farmers or country people should not be prejudiced against the cities lo¬ cated within their state, for they re¬ ceive more aid from them than they give in return, and are consequently the gainers. So the practical operation of large cities seems to be to receive trade, and become rich out of it, from other states more than their own, and allow their own state alone to receive the full benefit, as far as her demands go. This, it strikes me, should not be objectionable to the farmer or country¬ man, or to the state or any part of the state. Consequently, by no means should they desire any law of any kind to exist in the land .whereby the cities are oppressed and kept from growing, when by its repeal or modification they would not be harmed a particle, but, on the contrary, be benefited, as is now the case in some parts of Ten¬ nessee, and as I expect to show be- 30 fore I close this communication be¬ yond controversy. LOCAL OPTION FOR COUNTY AND CITY TAXATION. Thus far it has been my object to show that it is unwise and in violation of the correct principle of taxation and against the interest of the state and every part of the state and against the interest of every individual in the state and every occupation in the state, and especially against the interest of the real estate or immovable property owner of the state, to tax or in the least oppress movable property, and whilst I have no doubt of the correct¬ ness of the principle or policy, as I have before said, I do not hope to get the state, as far as the tax of forty cents on the hundred dollars is concerned, to make any change, but I do hope to get our laws changed, so far as our counties 31 and cities are concerned, so that they may be allowed, at their option, to levy their county and city tax for their county and city purposes, on whatever species of property they may see proper, thus giving some of them that are literally blighted and crushed the privilege of throwing off the great bulk of their oppression. IMPROPER TAXATION WORSE THAN A PLAGUE. Further I will say, if you will levy and enforce and collect the tax that is sought to be collected in Memphis to¬ day on the money, trade, etc., of the great city of New York, and you charge no tax in Boston, Philadelphia or Balti¬ more, I will guarantee to transfer in a short time hundreds of millions of the trade, money, etc., of New York to those cities, and it she will continue it five or ten years I will guarantee to 32 show you, in either of these cities, more trade, more money and more people than in New York. I will guarantee to depopulate her more effectually and more permanently than a plague ever did a city, and impoverish her more effectually than ever a war did. Yes, I will hurt her infinitely worse than fire that might burn every house from Castle Garden, from river to river, to Central Park. I will make it entirely safe for women and children to cross Broadway at City Park, Astor House, Wall street or elsewhere without the protection of policemen. I will reduce the value of the real estate of Mr. Astor from $ 100 , 000,000 (it is said to be worth $ 100,000,000) to $25,000,000 or $10,000,000, and perhaps even less, and the estate of every real estate or im¬ movable property holder in the same ratio, but I cannot say that I will greatly injure the movable property man, for he may go to Boston, Philadelphia or Baltimore and do quite as well as he did in New York City with his money, goods, etc. The truth is, it would en¬ tirely bankrupt the great city, for the demand for immovable property would not be sufficient to pay a rental suffi¬ cient to pay the interest on her city, county and state debt. Hence I say that of all the men of our state who should object to oppressive and, to follow the principle, I will say any taxation at all on money, mer¬ chandise or trade, manufactories, etc., it is the man who owns the real estate or immovable property. His position should be this: He should say to the thousands of men in the civilized world, with their money in their pockets, look¬ ing out a favorable locality to go to banking, merchandising, manufacturing or farming, etc., “ Come, locate on me; I will not oppress you ; come to me, for I 34 can’t go to you, and we must come to¬ gether or I am worth nothing, and, know¬ ing this, I will not tax you and oppress you. Other localities make you pay a tax:; I will not; consequently I offer that advantage over other localities.” Here¬ tofore it has been the merchant who has done the complaining about the tax levied on him; he is not the one to do it; it is the real estate man, and the writer being one of those men owning real estate almost entirely, say, nine- teen-twentieths of what he owns being in farms and other kinds of realty or im¬ movable property, and not owning a dollar’s worth of merchandise of any kind for sale, and not being a lender of money, but, on the contrary, a borrower, and not being a manufacturer of any kind, and not being the owner of ma¬ chinery except a steam saw-mill and a steam cotton-gin establishment, but be¬ ing what is known as a plain farmer or 35 planter by profession or occupation, thinking he sees his interest in the system he is advocating, consequently therein is to be found the moving cause of this letter. TENANTS MUST PROSPER BEFORE REAL ESTATE OWNERS CAN PROSPER. Here I wish to state a truism which, perhaps, many owners of real estate in Tennessee may never have thought of. It is this, to wit: The renter or lessee of real estate must always prosper be¬ fore the owner of the real estate can ex¬ pect to prosper. This is certainly true as a rule, when taken for a series of years in a country like ours where land is abundant, and the people free to go where they please. This will apply to all real estate, whether farms, store¬ houses, shops or other kinds of realty. I do not mean that he must have greater prosperity, but that he must prosper first. 36 REAL ESTATE OWNERS SHOULD ASK FOR THE EXEMPTION OF PERSONAL PROPERTY FROM TAXATION. I think I have shown beyond ques¬ tion all that I promised to show in the beginning of these remarks—that it is not in harmony with the interests of anyone in the state to tax money, trade, manufactures, etc., and that, of all others, the owner of fixed or immovable prop¬ erty should demand that the present system be changed—that they should say, don’t adopt any system that has a tendency to drive movable property from me, but, on the contrary, adopt a system that will attract it, for we are worth nothing without it and the mov¬ able property man may go elsewhere and do quite as well. Whilst I have shown that any tax upon movable property is incorrect in principle, yet, as I have before twice said, it is not my hope to have any 37 change made at present, so far as the state tax is concerned, and, as I before said, it is to get the laws changed so as to allow the counties and cities, so far as their county and city taxes are con¬ cerned, to be allowed to levy the tax on whatever species of property they may see proper. I think I have shown the absolute necessity for a change, so far as two of our counties and cities are concerned, and perhaps more of them, and one of them, Memphis, that is al¬ most a life and death matter with her, and whilst I think I have shown that her surroundings are as good as those of any other city, inland, in the United States, yet it is impossible for her to grow and become a large and prosper¬ ous city under the present system and rate of taxation. When taxes are very small, the correct system can be vio¬ lated without perceptible harm—yet harm will be done; but when they get 38 to be high and oppressive a violation is ruinous. To illustrate: For instance, suppose it was necessary, in Nashville and Memphis, in order to pay current ex¬ penses, interest on debts, etc., to levy a tax of i o or 15 per cent, on all kinds of property, real, personal and mixed, and that it was rigidly enforced. Does any¬ one suppose that there would be any movable property there in twelve months to collect the tax from? No, sir; you would hardly be able to find a pocket-handkerchief or a pound of cof¬ fee in either of these cities. But all the real estate, houses, etc., would be there still, but without tenants, and conse¬ quently, on account of the high tax and want of occupants, worth nothing. Sup¬ pose, again, it was possible to adopt a process to make the real estate worth something, could it be done by running the occupants off and receiving no rent 39 whatever from it? No; it could only be done by adopting a process which would fill all of your houses with ten¬ ants, and secure to you a rental from them, and that could only be done by allowing movable property to thrive and by attracting a sufficient amount of it to you to occupy additional ground and to pay additional rental until your rental would be more than the tax. This process, at any rate, and under all cir¬ cumstances, would be better than have these cities entirely deserted. JUSTICE WILL BE DONE. I have mentioned this subject in the last twelve months to many of the first minds of the state; at first they would oppose me, and invariably they would say it is right and just for all kinds of property to be taxed alike; they all re¬ ceive protection from the laws alike, and of course they ought to pay alike. Jus- 40 tice is not violated by the system I pro¬ pose, for there is no oppression. Injustice is done to the real estate owner under the present system, for it injures him. I will not injure anyone, and conse¬ quently will not violate justice. How¬ ever, it is due to the system I am advo¬ cating to say that of the aforesaid first minds of the state I have met, that I never, with scarcely an exception, failed to convince them they were wrong, and that my position was correct. To undertake to enforce a very op¬ pressive tax on money is ridiculous nonsense. It is impossible. The Maker of all things has forbidden it, in giving to all things their peculiar nat¬ ure. He has forbidden an oppressive tax on money, by giving it that easy mobility that it can go in a fortnight from Tennessee almost to the uttermost parts of the world. And just so, to some extent, with other kinds of mov- 41 able property. It would be about as wise for the Legislature to pass a law enacting that, from and after this date, the great bulk of the water of the Mis¬ sissippi River shall flow toward Cairo instead of toward New Orleans, as to enact that the great bulk of the money of Memphis shall pay per cent tax per annum. It is wise in man to deal with things as they are, and will be in spite of him, and not as he may think they should be. Don’t kick against the pricks! 42 b i '