TAX AND TAXES 



5712 



TAX AND TAXES 



funds with which to meet its public expenses, 

 such as the salaries of officers, the construction 

 of public improvements, the support of the 

 police and of the army and navy. In order to 

 obtain such revenue, a certain percentage of 

 the wealth of those who reside within the na- 

 tion's boundaries is demanded by that nation. 

 In other words, the money to conduct the gov- 

 ernment comes from the people. 



Such a means of securing revenue has been 

 employed from the earliest days of civilization. 

 Many inscriptions testify that taxes were col- 

 lected in Babylonia, Egypt and other countries 

 of antiquity, while in both the Old and the 

 New Testament there is frequent reference to 

 taxgatherers, or "publicans." In Europe, dur- 

 ing the Middle Ages, most governments were 

 supported chiefly from the income of lands 

 owned by the government (public or national 

 domain) or by the ruler himself; there were 

 some regular taxes and numerous special fees, 

 but a state system of taxation was practically 

 unknown. In the European cities of the period, 

 however, local taxes were collected with con- 

 siderable system and regularity, and in many 

 of these centers only taxpayers were allowed 

 the privileges of citizenship. 



Kinds of Taxes. Taxes are of two kinds, di- 

 rect and indirect. A direct tax is levied on the 

 persons or the property upon which it is 

 planned to rest, while an indirect tax is levied 

 in such a way that its burden can be shifted 

 or divided. In general, it is true that national 

 governments are supported by indirect taxa- 

 tion, whereas local governments are main- 

 tained by direct taxation. 



The simplest form of direct tax is a poll tax, 

 literally a tax per head, each head, or person, 

 limited to males of voting age, paying an equal 

 amount. Formerly an important source of in- 

 come, the poll tax has been generally aban- 

 doned. A more important form is the tax on 

 real estate and on personal property; this tax, 

 in various forms, is adopted to-day in all 

 civilized countries. In former days, when prop- 

 erty was less complex, the property tax was 

 satisfactory; in a modern, more highly de- 

 veloped society, in which there is much prop- 

 erty which can be hidden from taxing bodies, it 

 has serious defects. It may allow huge 

 amounts of property to escape taxation en- 

 tirely for example, stocks and bonds and it 

 does not divide equitably the burden of taxa- 

 tion. For this reason there have been numer- 

 ous suggestions of substitutes, the most impor- 

 tant being the single tax. There is also the 



income tax, which in theory is ideal, in that 

 each person pays according to his ability. The 

 difficulty of collecting income taxes, however, 

 has greatly restricted their use. Much easier 

 to collect is an inheritance tax, but not suffi- 

 cient revenue could be derived from this source 

 alone. 



One of the chief troubles in adjusting a tax 

 is the fact that it does not always fall on the 

 persons who the government proposes shall pay 

 it. Thus the owner of a house, if he lives in it, 

 pays his own taxes, but if he leases his house 

 to another he will add the taxes to the rent. 

 Again, a cigar manufacturer must place a reve- 

 nue stamp upon each box of cigars, but he 

 carefully considers this tax before setting a 

 price on his products. These taxes thus be- 

 come indirect. The most important indirect 

 taxes are customs duties and internal revenue 

 taxes. These are the chief sources of the reve- 

 nue of most nations. 



Theory of Taxation. It is just that a citizen 

 should pay some revenue to a government 

 which protects him and guarantees that he 

 shall live practically unmolested in the enjoy- 

 ment of his talents and property. Until about 

 1850 economists generally assumed that taxa- 

 tion was the price of protection. This view 

 meant that taxes should be apportioned ac- 

 cording to the benefit received, or according to 

 the expenses incurred by the state in creating 

 conditions which yield this benefit. This the- 

 ory was weak in that neither the benefit nor 

 the expenses could be figured exactly. In ac- 

 tual practice, taxation is now based on the 

 theory that each individual is under obligation 

 to contribute in proportion to his means and 

 ability. This is an obligation derived not from 

 special benefits, but from the very fact of his 

 existence as a member of a civilized state. 



Economists add several other characteristics 

 to taxation. A tax should be in proportion to 

 the means of the taxpayer, but it should not be 

 so heavy that it discourages initiative. For 

 example, if every factory employing more than 

 twenty men were taxed one-third of its annual 

 income, the manufacturer would soon close his 

 shop. A tax should not be so heavy that it 

 amounts to confiscation, but under special cir- 

 cumstances it should permit of great expansion. 

 In war times taxes might be doubled or 

 trebled; under other conditions they might be 

 reduced. A system of taxation should be 

 flexible and accommodate itself to conditions 

 from year to year, but this flexibility should 

 not cause additional expense. It is right that a 



