6o6 POPULAR SCIENCE MONTHLY. 



ing that the former is a thing, while the latter is only the repre- 

 sentation or shadow of the thing. 



In levying taxes on realty the owner, as a rule, is not allowed 

 to offset or reduce its valuation by the amount of his outstanding 

 indebtedness ; but in the case of the taxation of personal prop- 

 erty such an offset is generally permitted, on the ground that a 

 man should be taxed only upon what he owns and not upon what 

 he oiues ; and even when not allowed by law, the circumstance of 

 indebtedness is almost always taken advantage of by persons 

 assessed, for reducing valuation in making returns to the tax offi- 

 cials of the value of their property. In assessing an income tax 

 a deduction is allowed for interest paid on mortgages, and such 

 business expenses as lessen income. Personal expenses, as house 

 rent, cost of living, and the like, can not, on the other hand, be 

 properly deducted from income before it is taxed, because income 

 is sought for and exists for the purpose of defraying such ex- 

 penditures. By the income-tax law of the United States, enacted 

 in 18G5, and also in 1894, deductions were allowed from the 

 amount of taxable income, of all taxes paid within the year, of 

 all interest paid on indebtedness, and the rent or rental value of 

 any homestead actually occupied by the taxpayer. 



One of the most curious features of recent tax experiences in 

 the United States has been the extent to which this practice, or 

 right of reducing valuations of personal property for taxation by 

 debts, has been made the op|)ortunity for evading taxation. Thus, 

 by the very structure of the Federal Government, its various in- 

 strumentalities, as heretofore explained,* are necessarily exempted 

 from all taxation by the States of the Federal Union. Recogniz- 

 ing this, it has been the habit of individuals to effect credit pur- 

 chases to a greater or less amount of United States securities a 

 short time previous to the time fixed for tax returns or valua- 

 tion, and then offsetting the debts thus incurred against valuation, 

 evade the taxation on their personal property to which thej'' 

 would otherwise be subjected. f And for such moral wrong there 

 would appear to be no legal remedy on the part of the State, 

 except by the commission of a greater wrong namely, the pro- 

 hibition of the offsetting of all debts in tax valuations ; or, what is 



* See Popular Science Monthly, vol. 1, No. 3, p. 289 ; vol. 1, No. 4, p. 468. 



f When the Federal Government effected in November, 1894, a loan for .$50,000,000, 

 a premium was paid on no inconsiderable amount for the privilege of purchase, or invest- 

 ment, so large as to net to the purchaser an abnormally low rate of interest 25 per centum. 

 The explanation of this action was that, apart from the recognized value of an unquestion- 

 able security, the investment carried with it an exemption from a national income tax of two 

 per cent, as well as from State and municipal taxation so that the rate of interest accruing 

 to the purchaser was not as low as it might have seemed to be, and ])y the holders and 

 managers of trust properties was generally regarded as satisfactory. 



