question of equalization and the evils and inconsistencies of the personal property tax.

(3) The raising of revenues for state purposes by a general levy upon all the real and personal property of a state was, and is yet in most commonwealths, the method of securing the funds necessary to carry on the work of the state governments. Out of this system arose, because of the failure of assessors to make true value assessments, the problem of equalization in every division of government-town, village, city, county, and state. Boards of equalization were devised in the law for each of the divisions of government as seen in the boards of review, county boards of equalization, and the state board of equalization. The first was to equalize between individuals, the second between local governments, and the third between the larger divisions of local governments, the counties. Equalization tended by the very nature of the problem involved to hold the assessment down to the minimum point rather than to encourage the increase in the as

sessments.

(4) The last of the four reasons referred to above was the breakdown in the general property tax. So far as real estate was concerned the local assessment of real estate reached every piece of property, though often at varying assessments. The same could not be said of the personal property. The levy of a state tax upon real estate resulted in contributions in varying percentages of assessment, but the personal property tax fell upon tangible goods and failed to reach the great values bound up in securities, money and other intangible representations of wealth. To reach these by giving over the local assessment method of dealing with personal property and commuting the whole tax upon personalty of corporations and the holdings of individuals by levying a flat rate upon franchise values, capitalization of earnings, was but the inevitable result of the breakdown of the general property tax.

of separation.

The advantages to be derived from the separation of state and Advantages local revenues are declared to be: (1) conformity of tax system to natural division of government; (2)

greater equality of assess

The abandonment of the general property tax

for state purposes.

ment; (3) lower tax rates; (4) the elimination of the conflicts be
tween city and country; and (5) a greater flexibility of taxes and
larger adaptation of means to end. The growth of statewide busi-
ness has made it necessary to materially modify the tax system.
The taxation of corporations by special acts has tended steadily
to separate the sources of the state's revenues from those of the
local governments. It is felt that in addition to securing a natural
division of taxing function based upon the character of the govern-
ment, such separation would eliminate the efforts now made to
keep assessments lower, since the question would then become a
local one.
Local tax rates would be reduced by the amount of the
former state tax and some of the old causes of strife between city
and country over the assessments, no longer existing, would do
away with that friction since each community would in a large
measure determine its own basis of assessment. And finally each
community could work out for itself the adjustment between as-
sessment, taxes and expenditures which seemed wise to the people
of the district. Two methods of securing the separation of state
from local revenues have been suggested: one is known as the
special taxation of corporations and the other is called the appor-
tioning of contributions to the state on the basis of local expendi-

tures.

Ist. The first method proposes the abandonment of the general property tax as a means of raising state revenues and the substitution in its place of special corporation taxes, tax on inheritances, license taxes, etc. It is not, however, every state that has sources of revenue large enough to make it possible to raise all the revenue needed from the tax on corporations and inheritances. The best that can be done in states where such is the case is to develop as far as possible the special taxes on corporations and inheritances and rely for the balance upon the taxation of the general property in the state. The state of New York has carried this plan to its logical conclusion and has accomplished the complete separation of the state revenue from the local revenues, though the general property tax still exists as the means of raising the moneys

needed to meet local expenditures. Pennsylvania levies no state tax upon the general property of the state, but the state does collect for both state and local purposes a tax upon licenses, sales of merchandise, capitalization of corporations, inheritances and gross earnings of public utility corporations. In the sense of separation of state and local revenues Pennsylvania has not accomplished the results that New York has been enabled to put in force, but in the sense of centralization of tax collection and administration Pennsylvania has made marked progress by devising the system of dividing the tax between the state and local governments collected through the agency of the state. The relation of revenues to expenditure is overlooked in this plan; the state finances lack elasticity, but the local governments are able to secure it by modifying the rate on real estate.

of localities according to expendi

tures.

2nd. In order to meet the difficulty referred to above, that of Taxation insufficient sources of revenue to permit of separation of state and local revenues, it has been proposed to call upon the local governments to contribute to the expenses of the state in proportion to their expenditures and by this means secure what was accomplished by the special taxation of corporations. Professor Seligman in his paper before the National Tax Conference of 1907 describes this method as follows: "At present the state general property tax is distributed among the counties by apportioning the quota of each according to the assessed valuation of the property. The apportionment-by-expenditures method as opposed to the apportionment-by-valuation method would distribute the amount to be raised for state purposes to each county on the basis of the total expenditure, or, what is the same thing, on the basis of the total revenue collected to defray this expenditure within each county and all the taxing districts contained in the county." This method gives the local government the opportunity to levy taxes as it sees fit, to secure greater equality of tax burden and economy, and renders it possible to know what the relation is between state and local expenditures.

The objection urged against this plan is the check it places upon

Objections to the plan

Oregon's experiment.

Elasticity of

revenue.

local expenditures. This would be especially true of new communities that are struggling to secure better roads, pavements, sewers, electric lights, and schools. Such communities would be punished for the expenditures made for improvements. While this objection in the long run would not hold good it is doubtful if the legislatures of any considerable number of states would look with favor upon the plan. They would prefer the more direct way of taxing corporations.

One state, Oregon, however, has adopted this system of apportioning state expenses. The tax commission of that state in their report for 1906 have the following to say regarding the system: "Happily, Oregon has taken a very advanced stand in the matter of state apportionment. In fact, the method in force in this state at the present time, and as contemplated by our present statutes to be enforced in the near future, is very near ideal, and reduces to a minimum the necessity of indirect taxation for state purposes." It also avoids the chief objection to the separation of state from local revenues, that of inelasticity, the lack of coincidence between revenue and expenditure.

This desirable feature of a taxing system exists in the case of the general property tax under whose provisions more revenue was secured by raising the tax rate on the same assessment or a lesser amount on a larger assessment by a change in the tax rate. Separation of the state's revenues from those of the local government and the getting of the revenue from corporations lost to the state the advantage of elasticity. Says the Oregon tax commission in its report for 1906: "The general property tax is certainly elastic and self-regulative, which cannot be said of the indirect method of raising revenues for state purposes. The state has no control over the happening of events which make the tax inure to it. It can neither ascertain the number of such events nor the time of their happening, in advance of their taking place, and it must fix the rates beforehand. The consequence is that it must accept the sums coming due to it without any power on its part to increase or diminish them to meet its financial needs. The indirect tax creates

either a surplus or a deficit at the end of the fiscal year, and the state is powerless to determine which way the balance will be. Further the taxpayer does not take as keen an interest in the expenditure of his money as when he pays it directly into the public treasury and consequently does not hold the public officers to the same strict accountability. We contend for the principle that tax contribution and demand for revenue shall act and adjust them selves each to the other."

231. Taxation of Personal Property

It was for a long time a theory of American finance that all property should be taxed equally at a certain valuation, but with the growth of enormous masses of wealth in the form of intangible securities which escape assessment, serious defects have become apparent in the application of the old principle, and a demand has come for its abandonment. The problem is fully considered in the recent report of the Minnesota Tax Commission:

personal property

tax is re

tained.

The criticism against the general property tax has been directed Why the almost wholly toward the personal property side of the tax. Commission after commission, author after author, and expert after expert, have fulminated against the tax upon personal property. Despite these criticisms this form of tax still continues to stand on the statute books in many states as well as in Minnesota. The general fear has been that its removal or modification might result in an increase in the burden upon real estate, which is regarded as a fundamentally just and practically workable tax. This contention has no little weight and will check any change in the personal property tax until the owners of real estate are satisfied that the tax burden on their property is not increased, but lessened, by the alteration of the law.

The burden on tangible personal

As has been shown in some degree in previous chapters, the assessment of personal property is a matter of the greatest difficulty not only in determining the values but in locating the property. In property. most instances the assessor is compelled to ask the value of stocks of goods, to use an average value for determining the assessment against