the old cameralistic doctrine that justice is not so important a criterion as effectiveness in raising the maximum revenue. It rests not upon ability to pay so much as upon the ability of the state to collect. Ability to get the revenue is looked upon as more imperative than abstract ability to pay. Practicality and expediency are strongly on the side of the cameralistic doctrine. The General Property Tax.-In strict definition, according to Seligman, “A tax is a compulsory contribution from the person to the government to defray the expenses incurred in the common interest of all, without reference to special benefits conferred." Two main characteristics of a tax are emphasized in this definition. First, it is compulsory. Unlike a private payment for a commodity in the market, where the individual chooses voluntarily whether he will pay the price, the payment to the government is imposed by the government and compulsorily collected. Second, no special benefit is given in exchange for the tax. There is no tangible quid pro quo. If an individual buys an article of food or clothing, he can see it, measure it, handle it. But when he pays a tax to the government, he has no particular article in hand, no tangible and labelled service or commodity which he is paying for. The benefits are general, and need not be in proportion to the tax. The provision of the federal constitution that "No capitation, or other direct tax, shall be laid, unless in proportion to the census" has had the effect of forbidding the use of the general property tax as a means of revenue to the federal government. This form of tax is used exclusively by the state and local governments. The tax falls upon real property, that is, real estate, upon personal property, and upon intangible property. The main reliance has been real property. forms of general property taken together supply from one-half to twothirds of the revenue raised by state and local governments. All The general property tax is the product of economic evolution. In early agricultural societies, the most important form of property is the land. The obvious source of taxation under these conditions is landed property. Property is assumed to be commensurate roughly with the owner's ability to pay. The property tax in the United States dates from colonial times, although it has undergone many subsequent modifications. As personal property and intangible property take on new importance, and as corporate industry develops, the general property tax becomes more and more complicated. Seligman summarizes the matter as follows: History everywhere teaches the same lesson. As soon as the idea of direct taxation has forced itself into recognition, it assumes the practical shape of the land tax. This soon develops into the general property tax which long remains the index of ability to pay. But as soon as the mass of property splits up, the property tax becomes an anachronism. The various kinds of personalty escape, until finally the general property tax completes the cycle of its development and reverts to its original form of the real property tax. The property tax of the United States is simply one instance of this universal tendency. It is not an American invention, but a relic of medievalism. The general property tax is impossible in any complicated social organism. Medieval methods cannot succeed amid modern facts." The defects of the general property tax are so serious that economic authorities condemn the tax with virtual unanimity. These defects may be briefly outlined as follows: 1. Some classes of property largely escape taxation whereas others bear the brunt of the burden. Personalty and intangibles particularly escape taxation, whereas real property is likely to be over-taxed. The records of assessment in various states show that assessment of furniture, wearing apparel, jewelry, tools, implements, etc., is grossly unequal and inadequate. Much of this personal property escapes altogether, and the rest is likely to be excessively undervalued. Intangibles such as money, notes, mortgages, stocks, bonds, and the like, manage to escape the tax burden to an amazing degree. A competitive struggle to undervalue such property or to sequester it altogether goes on in modern society. Real property bears an undue burden, whereas personal and intangible property avoid a due burden. Inasmuch as intangible property has come to have primary importance under the corporate régime of business, this defect in the general property tax is a grave one. 2. Inequality of assessment as between different sections becomes a serious evil. Local assessors seem to feel that as a matter of loyalty to their community they must pare the assessed valuation of property down as low as possible. To equalize assessments, various state boards and commissions have been established, but their work has fallen far short of the desired equalization. The proportion of assessed value to true value or fair value is not the same in any two states, and often varies in different sections within any one state. The ratios for the different states are shown by the census tabulation on page 721. Moreover, inequalities of assessment appear as between various forms of real property. In 1907, a study in Wisconsin showed that farm property was assessed at 59.2 per cent of true value, whereas property of manufacturers was assessed at only 21.84 per cent of true value. In Virginia, the discrepancy was the other way, and worked to the disadvantage of city property. In Indiana, a study made in 1916 showed that small parcels of land were assessed nearly twice as heavily in proportion to true value as large parcels. In Ohio, it has been found that some parcels were assessed at 11.3 per cent of market value whereas others were assessed at 120.7 per cent. In certain states, it has been found that some counties were assessed at only 10 to 20 per cent of true value whereas other counties were assessed at 100 per cent or more of true value. 3. Duplication of taxation becomes inevitable. Bonds, stocks, mortgages, may be taxed, and then the real property which they represent may also be taxed. Both intangibles and the tangibles behind them bear a load, and injustice is the inevitable result. 7 Essays in Taxation, p. 53. 4. The assumption that general property is a measure of ability to pay underlies the belief in the property tax. This assumption may have been roughly true in an earlier agricultural community, but it is not true of complex property rights in modern society. The extension of intangible forms of property has undermined the crude assumption that property is an index of ability to pay. PER CENT OF ESTIMATED TRUE VALUE OF REAL PROPERTY AND IMPROVEMENTS REPRESENTED BY ASSESSED VALUATIONS * Bureau of the Census, Wealth, Debt and Taxation, 1922, Estimated National Wealth, p. 5. † Revised basis; in the report for 1912 the basis used was 25 per cent. European countries, except Switzerland, have abandoned the general property tax. In the United States, numerous methods of reforming or abandoning the tax have been attempted. One method was to require the listing of all forms of property on the public records, but the owners forgot or neglected to declare their property, and brought the device to naught. Another method was to appoint special agents as tax ferrets, or inquisitors, but these proved unsuccessful after a short trial. A third method was to pass state laws arbitrarily setting tax limits, but since expenditures still increased, governments had to increase their public debts, and the futility of the tax limits became apparent. A fourth method was to centralize the assessment of property with a view to equalization, but inequalities still persisted. A fifth method was the separation of sources, whereby the states left the taxation of property to the local authorities, and attempted to derive their own revenues from new sources, such as corporation taxes. A sixth method was the classified property tax, whereby rates on personalty and intangibles were cut down to "what the traffic would bear." Both the separation of sources and the classification of property accomplished a certain amount of reform, but they did not eradicate many of the basic defects of the general property tax. The final method is the substitution of the tax on income and earnings for the general property tax. Both individual incomes and corporation incomes have been subjected to the newer taxation. The forms of such taxation must be adapted to the peculiar traditions and conditions in each state, but the principle commends itself strongly as a basic program of taxation reform. Where the new method is relied upon, its efficacy depends upon the efficiency of the administrative mechanisms entrusted with the collection of the tax. By one or more of the above methods, the scope of the general property tax has been narrowed among the states. It still prevails among local units of taxation, and is the chief source of revenue in cities and counties. The wane of the property tax is chiefly apparent in revenue policies of the state governments. Corporation and Business Taxes.-A marked tendency in recent years has been in the direction of so-called corporation and business taxes. In general, the underlying principle of these taxes is that revenue should be derived not from things but from transactions. The right to operate and carry on business should be paid for. Taxes should be aimed at exacting a remuneration for the privilege and opportunity of engaging in business. The following analysis, although incomplete, serves to delineate the main features of corporation taxes. 1. The New York State tax of 1923 provided a tax on incorporation of one-twentieth of one per cent of the authorized capital. Such a tax is scarcely more than a licensing fee for the right to organize a new corporate enterprise. It does not provide any material amount of revenue. 2. A general franchise tax on capital stock has come into prominence. In New York, banks and investment companies pay a tax on capital, surplus, and undivided profits; and railroads, telegraph, and telephone companies pay a general franchise tax on capital stock. The federal law requires that every domestic corporation shall pay annually a special excise tax assessed with reference to its "carrying on or doing business,' and that the rate shall be $1 for each $1,000 of so much of the fair average value of its capital stock as is in excess of $5,000. The calculation of fair value of capital stock must include surplus and undivided profits, and must take into account franchises, good will, outstanding contracts, earning capacity, market value of shares of stock, and value as a going concern. Massachusetts has applied a corporation tax to all domestic corporations except banks, trust companies, and insurance companies. The total value of all the stock of the corporation is estimated and then a deduction is made for real estate and machinery already taxed locally and for certain other exemptions. The "taxable corporate excess" is the basis for the imposition of the tax. The tax is designed to reach all of the value in corporate property, whether tangible or intangible, in such manner as to tax it once and once only. The state refrains from any further levy upon the individual holders of the corporate shares. Part of the proceeds are apportioned to the towns in proportion to shares held therein. 3. A gross receipts tax on premiums of insurance companies, on intra-state earnings of steam railroads, telegraph and telephone companies, and of water works, gas, and electric companies is imposed under the New York law. Insurance companies are a common subject of gross receipts taxes, the rates usually being from 1 to 3 per cent of premiums. Railroads and other public utilities are also widely taxed on the gross earnings basis. Many of these companies do an interstate business, and merely local taxation is futile. State assessment is made according to the unit rule, under which the total interstate gross earnings of the company are ascertained, and such fractions thereof as are derived from within the particular state are singled out for taxation there. In the case of railroads, the most convenient method of apportionment appears to have been the division of receipts in proportion to the railroad mileage found within the state. The principle of classification has in some states been applied to the gross receipts tax. Thus Minnesota applies different tax rates to steam railroads, express companies, and telephone companies. Maine classifies the tax rate according to the gross receipts per mile of railroad. The gross earnings tax has not generally been considered as suitable to all corporations but its special applicability to insurance companies, railroads, and utilities has been recognized. It is often objected that gross earnings are not nearly so reliable a measure of ability to pay as net earnings. This objection is doubtless well founded, but the gross receipts basis offers the advantage of simplicity and certainty in calculation. This advantage in large measure offsets the objection of not measuring ability to pay. The alternative to gross receipts. in taxing these special classes of corporations might be an ad valorem basis. The valuation of such properties, however, presents great difficulties, and throws taxation back into many of the difficulties of the general property tax. All things considered, the gross receipts tax has many advantages where both net income and property value are difficult to calculate with accuracy. 4. A franchise tax on net income of mercantile and manufacturing corporations amounting to 42 per cent was prescribed by the law of 1923 in New York. In 1925, twelve states imposed corporation income taxes of one kind or another, and in addition, the federal government included a similar tax in its scheme of revenues. Where uniform ac |