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mation. In some of our states it is not an easy thing to tell anybody just what our financial system is, or where the money comes from, or where it goes. There are very few states which have fiscal laws that are clear. When we try to trace through anything, we find an act to amend an act to amend, and so forth, and we go back and try to follow it out, and our citizens come in sometimes and try to follow the laws through and become discouraged. We don't get the co-operation of public-spirited citizens that we need in these matters. Instead, those who appear before our committees are those who want some more money. We must have more of the co-operation of the body of business men, of the taxpayers of the state, who appreciate the relation between the expenditures and the revenue.
I said that I had been engaged in connection with the governor's budget system. The budget is a fine thing. We can do a lot with a budget, and a good budget is one of the things that we need. I think we have a good budget in New Jersey. I don't know as I would tell any other state to put in just what we have. It is a matter of what you do with your budget. It is an adapting of financial legislation to the conditions in the state the form of organization. But you cannot say, "We will put in a state budget," and then go home and forget it, because a budget don't run itself. You can have just as great a riot of expenditure with a budget as you can without it. You are not apt to have it; it is a good thing, but it is only one of the means of bringing about the end.
There is another thing in this indirect limitation of expenditures which can accomplish much too. I was reminded of this by the previous speaker; and that is the control through audit. Our appropriation bills read, "we appropriate the following amounts, or so much thereof as is necessary." Now, the controller has a power then to inquire into the necessity. He has not very much power to refuse; to try to disallow; but there are many, many cases where the mere inquiry by the controller into the necessity-the bringing of the matter to the public notice-is all that is necessary to disclose the fact that we don't need to spend $100,000, where we can spend $75,000 and accomplish results. Much good can be accomplished through that.
I want to summarize just this way: I think we must adopt these cardinal points: There should be no new increased taxation unless it is an absolute necessity; we must have frankness with our taxpayers and get their co-operation. To do this, we must have clearness and simplicity in our financial statements; we must have clearness in our financial plans; we must have clearness of our financial laws; we must emphasize the directness of the relation between the money raised and the money spent; we must have clear, sound
hard, honest thinking on the particular problems that we are faced with, each in our own individual state. Thank you.
CHAIRMAN HAGERMAN: We shall be very glad to hear from Mr. Sutherland of the Civic Federation of Chicago.
DOUGLAS SUTHERLAND of Illinois: Mr. Chairman and gentlemen: I think we are all singing about the same song. In Illinois we have had for many years laws limiting our tax rates. To a certain extent perhaps they have been a benefit to the taxpayer, because our laws classify cities according to population. In some cases it is in the power of the general assembly to so classify them. We have one law which it is supposed was originally intended to scale all rates down to one per cent of the full value, very much after the idea of the Smith law in Ohio; and then in addition to that each taxing body has in its substantive law a maximum rate, but the maximum rates have been advanced, and minimum rates, below which they cannot be reduced, have been put in; the progress of taxation has been upward and the burden has been increasing in Illinois, particularly in Illinois cities, as it has all over the country.
In other words, our experience has been that limitation on a tax rate is not an absolute bulwark upon which the taxpayer can rest
We have in addition, particularly in the city of Chicago, a situation which I have no doubt you have in your larger cities, and which you will have as time goes on in increasing amount, namely, the situation in which the public employees are very intensely organized, and their organization is used primarily for the purpose of getting more and more money out of the public treasury, which means inevitably an increase in the tax burden. In other words, our state tax-limit laws, limiting the levies of local bodies, are merely a sort of a trench; a breastwork in the battle between the taxpayer and the public employee, aided and abetted by the contractors that Judge Hough and Judge Zoercher have mentioned; a certain type of politician who assumes that the chief function of a public official is to spend public money; and others of that type, and they get after the public employees and say, "We must have a rate so and so; you go before the council and get a big appropriation, and then go before the legislature."
Another reason that the rate is only a stop-gap is this: The council of a city, the commissioners of a board, or a district, may know that they have a limit beyond which they cannot levy, but they will make appropriations far in excess of any estimated revenue based on such a rate, making the excuse that the valuation for that year will be larger, and then when they run a deficit, as has been the case in the last few years, they go to the legislature and say, "Well, we have spent the money; we have to get it back now;
we must have this increase in tax rate." So that, after all, it seems to me that the limit on the tax rate is only a comparatively weak defense, and we have come to the situation in Illinois where, on behalf of the taxpayer, we are trying to secure some better defense. I will admit that I am very much interested in the experience of Indiana, to which Judge Hough and Judge Zoercher have at various times called our attention, and that is one of the things that we may urge. Also, this has been suggested: You gain nothing by limiting your tax rate; the whole local battle is on expenditures. Why allow your local taxing body to pass the buck to your general assembly; to your state legislative body, and say, "Well, we didn't make this tax rate; the legislature made it," when, as a matter of fact, they laid the ground for it? Why not levy the tax rate, without state limitation, and hold the local body responsible for the amount of its expenditures, because, after all, the expend ture is what determines the burden of taxation. So there are these two lines of thought. But after all, it seems to me that the whole problem was epitomized by Judge Armson at our opening session, when he said eternal vigilance on the part of the citizens is the price of a reasonable and moderate tax burden. It takes a strong and vigorous and fearless tax commission to properly administer the kind of law that they have in Indiana, and it puts some stress and burden upon them at that; and behind that tax commission there must stand a fearless and vigorous governor. In the larger communities the taxpayer today is not alert as to matters affecting him, whereas the persons who are interested in getting money from the public treasury are very much alert, and are organized, while the taxpayers are not organized. The constant political pressure under that situation, even with a strong governor and a strong tax commission, is going to be towards weakening that defense. And again, if you leave it to "home rule," to local responsibility, while that may be better than passing the buck, unless your taxpayers are alert and as well organized as those interested in the expenditure of public money, you haven't gained anything there.
The whole problem, it seems to me, lies in informing the taxpayer as to the matters affecting him and organizing him for, if you please, his protection, self-defense; and behind that there must be a broadening of the base of direct taxation, so that as many citizens as possible, certainly as many voters as poss b'e, shall feel directly the burden of taxation, and therefore will apply their vote intelligently on that basis.
You have heard the old socialist slogan, that the people must be made "class conscious," with which, of course, we have no sympathy; but I want to tell you that one of the best antidotes for socialism, and one of the best plans for remodeling our citizenship and getting it back to the old basis, that every tub must stand on its
own bottom, and that every American citizen must be dependent upon his own efforts, and not rely upon government, will be a broadening of the base of taxation so that each citizen will feel that he is a part and that he contributes to the government of which he is a part.
Now, that is pretty general, but I think after all that it is going to be the controlling factor in citizenship, and I think that not only must men take that attitude, but that the women of the country also must inform themselves and must vote and share in the pocketbook that pays the taxes, and then we won't have so many women's organizations, led astray by politicians urging sob-stuff legislation, which they think will appeal to the ladies. I thank you.
CHAIRMAN HAGERMAN: Before proceeding with the round table discussion, we should like to have a few words, if possible, from Senator Van Alstine of Iowa, if he is present. Is the Senator here?
H. S. VAN ALSTINE: Mr. Chairman, ladies and gentlemen: We have heard much about the ever-increasing taxes, and I believe Iowa has generously contributed to, and must accept full responsibility for her share of these tax increases. We all like the advantages that accrue to our community from the spending of public money, and as long as money was easy to get, we had little complaint about taxes. But when prosperity is no longer with us then the tax issue looms large. It is an old axiom that nothing but death and taxes are certain. The average citizen is reconciled to the idea that taxes must be paid; but he gives mighty little attention to whence they come or whither they go, until called upon to walk up and pay his tax bill. Then his interest is usually confined to its size, and his action to kicking about it—with his chin.
One of the great difficulties in the taxation problem is to impress upon the people that tax budgets are largely home-made and that the remedy for tax evils must originate in the same place. The economic difficulties that now confront us are multifarious, and our tax burden is not wholly in the official tax budgets. The period of post-war inflation brought us high wages and high prices, permitting individual extravagances, too often accepted as necessities. and which our people are reluctant to forego. The average citizen is now living on a scale of expense that the country has never before seen, and it is doubtful if it can be long maintained. We all know that any expense in the tax budget, whether that tax be collected directly or indirectly, must find its place somewhere, and sometime, in the individual citizen's tax receipt. We also know that when any appreciable number of our people come to regard the luxuries and extravagances of yesterday as the necessities of today, then those things become one of these super-official taxes that the people are imposing upon themselves. Down in our state
many seem to think that I have almost made a fad of the automobile tax. I don't mean the direct tax that is levied by the state, but the super-tax that is levied by the people upon themselves in their efforts to support the cost of the use, or misuse, of the largest number of automobiles per capita in the world. It is said that we have an automobile for every four and one-half people. A gentleman remarked to me a few days ago, that if there was a flood in Iowa, the people could all get into their automobiles and leave the state. If they continue this "autophobia" at the pace they have been going, I am not sure but that the automobiles will automatically take them out of the state of solvency.
I have no grievance against the automobile. It is here to stay. It has and will hold a place in our affairs, as a necessity, a convenience, or a luxury, depending upon the circumstances of the user. But if its misuse becomes a menace to our economic welfare, then we should face the situation squarely. I have been in the banking business for thirty-odd years, and during that time have experienced the financial vicissitudes that come with the periods of inflation and depression, or of the so-called "good times" and bad times". One did not need to claim the vision of a prophet to foresee that such an orgy of inflation and speculation as we experienced in 1919 and 1920, would, in the ordinary processes of economic law, bring in its wake a period of financial disturbance and business depression. When the financial storm-signals were commencing to appear during the early months of 1920, it was plain to me that all too many of our people had come to regard numerous luxuries as necessities, and that when the day of reckoning came, would be calling on Providence, or the gilded dome down at Washington, or at the state house, for help, and that real help could not come from that direction. While I had no prejudice against the automobile, yet in my analysis of the situation, the cost of its use, or misuse, appeared to be the big leak-the big bung-hole. In order to arrive at a reasonably correct estimate of cost, I sent out a questionnaire to seventy-five or one hundred people in the state, selecting substantial business people, including farmers, bankers, merchants, automobile dealers, etc., who I thought would give the question careful consideration. The questions were substantially as follows: (1) What is your estimate of the average "life" of an automobile, meaning the length of time that the average automobile is used? (2) What in your opinion was the average cost of new cars during the season of 1920? (3) What in your opinion is the average mileage run per year per car? (4) What in your opinion is the average cost of tires, upkeep, and repairs? (5) What is your opinion of the average gas consumption per mile? A large percent responded, and it was interesting to observe the substantial uniformity of these estimates. I averaged these replies,