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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 5 continue

Outlines of public finance - Chapter 5 continue

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue

A mathematical computation of these rates some-
times might prove difficult, so the desired results can be
approximated by allowing a fixed exemption on each
base, and levying a proportionate rate on the remainder.
Suppose an exemption of $1,000 is allowed from each of
the bases of $2,000, $4,000, $6,000, $8,000, and $10,000,
and a 10 per cent tax were levied upon the remainder.
The actual percentage burden upon each amount would

be as follows: 5 upon $2,000; 7J5 upon $4,000; 8.33 upon
$6,000; 8.75 upon $8,000; and 9 upon $10,000. The
accompanying graph, No. I (see page 112), will show the
trend of a curve for these figures, with the percentages for
the intervening thousands also shown.

In the tax scheme, where the exemption is changed as
the base increases, or where a fixed amount is taken from
each grade rather than a certain per cent, or where other
than proportionate rates are used, the regularity of the
curve may be affected in a number of ways. As long as
any exemption remains, however, it is impossible to reach
100 per cent, or confiscation. Graph No. II illustrates the
actual percentage burden of the first grades under the
1916 income tax in the United States. If, instead of
a percentage tax paid in each grade, a lump sum is
taken, the lines within each grade will be descending
rather than ascending. This is true of the Prussian in-

In so far as a tax on tobacco is shifted to the consumer,
in order not to have a regressive effect, each individual
would have to purchase according to his ability. The
effect of a general property tax is much the same. Owners
of a small amount of property usually have it in a tangible
form, which is easily assessed, while the owners of large
amounts hold much intangible property, which escapes
assessment and taxation. This places a burden upon the
small property owner out of proportion to his ability to
bear it. Progressive taxes on incomes and wealth, then,
may tend only to give proportionality to the tax system
as a whole, since they to some extent equalize the dispro-
portionate burdens caused by the regressivity of other

Either proportional or progressive taxes may be par-
tially regressive if the rate is a flat amount rather than a
certain per cent. A ten mill rate in reality means that the
classes are to be differentiated by one dollar amounts.
The class below one dollar is exempt; from one dollar to
two dollars the tax is ten mills; from two dollars to three
dollars it is twenty mills, etc. In this case the tax is a
greater burden upon the person who is just over the lower
boundary of a grade say $1.05 than one who is near
the upper limit say $1.95. That is, ten mills, which
each will pay, is a larger part of $1.05 than of $1.95. The
smaller the grades, of course, the less the effect of this
regressivity would be felt. If the ten mill tax be calcu-
lated as a 1 per cent tax, and levied upon the actual
amount of the base, then the tax is proportional rather
than regressive within each grade.

Apportioned Taxes. Taxes, moreover, are sometimes
said to be apportioned. This occurs when some central
political unit distributes the amount of tax to be collected
among several of the minor political divisions which com-
pose it. The apportionment may be made according to
some definite rule, such as population, property, or in-
come, or it may be that each district in the apportionment

area will be asked to contribute an equal amount. An
apportionment according to some definite rule, however,
does not prescribe a definite plan for raising the tax. A
tax apportioned on the base of population, for example,
does not mean that the levy will be in the form of a poll
tax. Each district may use any method it chooses in
raising the necessary amount.

Kinds of Incomes. Another problem which arises con-
cerns the ability of a base to bear taxes under varying
conditions. Distinction is often made between earned
and unearned incomes and wealth, and between the funded
and unfunded incomes and wealth. It seems reasonable
that a greater sacrifice would be felt by giving up an
amount from funds secured through labor than if they
had been secured in some fortuitous manner. Likewise
a funded income one which is dependent upon some
other factor than the efforts of the individual receiving it
can better bear burdens than one which depends solely
upon the exertions of the recipient. The former will con-
tinue when the productive capacity of the individual
ceases; the latter will not. No one would hesitate in
choosing between the two forms of income.

In seeking to determine the faculty of the taxpayer,
then, a number of complex problems must be considered.
Not only must a just base be found, but justice must be
used in applying the rate of tax. No tax, moreover, can
be viewed as a distinct factor, but must be considered in
relation to the other taxes in the system. A particular
tax might be found to work injustice, but when used with
another the two may be found to work together in such
a way that justice will result.

69. The Social Aspects of Taxes Deserve Considera-
tion. Many reforms have been advocated with taxation
as the machinery through which they were to be accom-
plished. In these programs of reform taxes have been
considered as having a social or ethical function as well
as a fiscal function. Some attempts have been made to

separate taxes into periods, in one of which they were
used only from the fiscal standpoint; in the other, from
social considerations as well as fiscal. It would be difficult
to find a time, however, when taxes were not used to some
extent as a social measure.

Different persons suggest different social functions for
taxes, according to the institutions they would have cor-
rected. Some of the more extreme would have the state
use the taxing power as a means of equalizing wealth.
This use of taxes is sometimes advocated on the ground
that wealth inequalities have arisen because of the past
action of the state, and hence the state is perfectly justified
in taxing large wealth. This principle is sometimes called
the compensatory theory of taxation. Others, who think
the present system of wealth distribution woefully un-
sound, would use taxes, not only to break down large
fortunes now in existence, but to remove political and
economic conditions which make such unequal accumula-
tions of wealth possible. To accept such a field as a proper
function for taxes, one must be willing to concede the
present scheme of distribution to be unjust and to be
based upon unsound principles a concession which would
not generally be made.

Regulation of Undesirable Institutions. Taxation has
seldom been used to the extent suggested in the preceding
paragraph, yet everyone is familiar with its use for elimi-
nating or regulating social evils. The circulation of state
bank notes was considered such an evil to sound currency
that their continued use was made unprofitable by the
heavy tax that was placed upon them. Enterprises whose
products are considered harmful to the moral or physical
well-being of society are frequently subject to taxes.
Conspicuous among these are the taxes which have been
placed upon the liquor industry. The ethical question
arises, however, as to the justice of compromising with
evil by allowing it to remain by paying a tax. To eliminate
an evil at once, however, may not always be desirable,

or an institution may be an evil only if it is unregulated.
Taxation may be used in these cases as a valuable social

Since taxes have so often been used with a social sig-
nificance, some would have this aspect a prune considera-
tion in the levy of every tax. The purpose of the state is
to promote the general welfare, and this is accomplished
most effectively when the state so functions as to bring
the greatest good to the greatest number. In levying
taxes, then, the state should not only be concerned about
the sacrifice upon the individual who must pay, but with
the good or evil effects upon society as a whole. If the
base be considered an evil, then a repressive tax is desir-
able, and the resulting good to society would more than
counteract the loss to the industry, even though it be

With this idea in mind, officials should carefully con-
sider the bases upon which taxes will be levied. Taxes
tend to have a repressive effect, and if levied upon a de-
sirable and useful industry to such an extent that its
production is noticeably curtailed, the sacrifice of the tax-
payer may be small in comparison to the general burden
on society. Authorities, in levying taxes, then, should be
concerned not only with the fiscal aspects, but with the
possible repressive effects as well. There can be little
doubt that, with the development of the police power, the
social aspect of taxes will continue to receive much

70. States Do Not Always Attempt to Follow Principles
of Justice in Levying Taxes. It must not be forgotten
that the primary concern of the state is to get revenue;
hence considerations of justice often give way to those of
expediency. Taxes are found in the fiscal system which
cannot be justified on the basis of equality of sacrifice,
and which must be considered in formulating a new
scheme simply because they have been embedded there
by age. The very fact that they have been able to erjclijre

is enough proof that they are good taxes. To fiscal stu-
dents, the saying that an "old tax is a good tax," is almost
trite. The ones who pay have become accustomed to the
burden and little objection is made. It is a place where
the goose may be plucked with little squawking.

The burden of indirect taxes is much greater upon the
poorer classes than upon the rich, yet there is no evidence
that they are being given up to obtain equality. The
qualities of expediency are too evident to cast them lightly
aside. Revenue is easily obtained at low cost and with
little objection, since it is paid in the purchase price of
goods, frequently without the knowledge of its being paid.
The use of the income and inheritance tax by the Federal
government, however, is evidence that less reliance will
be placed upon indirect taxes in the future than has been
placed upon them in the past. Fiscal authorities are often
concerned in arriving at a workable scheme one which
will produce revenue at a reasonable cost, and which will
arouse as little antagonism as possible. In formulating
tax programs and in proposing tax reforms, however,
public officials have given much attention to justice.

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