Out of this uniform poll tax a class
tax soon developed. Classes were formed on the basis of
wealth, profession, and other characteristics, and each
individual of a particular class was to pay a definite
amount. These taxes, with some modifications as to
classes and rates, formed the most important part of the
system until the income tax was introduced.

The income tax was adopted about the middle of the
nineteenth century, and since then has supplanted the
former class taxes in importance, although the latter are
still used to some extent. The scheme for taxing incomes
has been modified with attempts to more nearly approach
ability to pay. Progressive rates are found, not only for
incomes of increasing size, but also on incomes from prop-
erty as distinguished from incomes from labor. As might
be expected, assessment difficulties have been hard to
eliminate. A more detailed study of the Prussian income
tax will be found in the chapter on Income Taxes.

87. Fiscal Development in American Colonies Was Not
Uniform. The conditions under which the fiscal systems
of the Ajnerican colonies developed possess a number of
distinctive features. Land was never held under a feudal
regime, but could always be bought and sold, so the fiscal



148 OUTLINES OF PUBLIC FINANCE

systems were not modified by a transition to private own-
ership. Some payments of the officials in earlier Colonial
history resembled, somewhat, the older feudal payments.
Such were a part of the products of the soil which were
occasionally collected.

Another situation peculiar to the colonies was that they
were not free to shape a fiscal system which did not con-
form to the ideas of the Mother country. The lack of
uniformity in industrial pursuits, moreover, made a uni-
form development of tax measures a circumstance not to
be expected. Consequently, the early fiscal development
corresponds, somewhat, to the economic characteristics
which distinguish one section of the colonies from the
others.

Northern Colonies. Where definite forms of property
developed, this was taken as an indication of ability to
pay taxes, and some form of a property tax was found.
In some cases specific articles were stipulated as the base
upon which taxes were to be levied, as land, horses, or
cattle; in others, all forms of property were taken as the
base. The latter condition gradually became prevalent
as more and more objects were added to the taxable list
in those localities where only specific forms of property
had been taxed.

The above method of securing revenue is best illustrated
in the Northern colonies, although it was not entirely con-
fined to them. Even there it was frequently supplemented
with other sources of revenue. In the use of property as
a base, the attempt was made to arrive at the taxpaying
ability of the citizens, and a number of the early laws
state that the measure was adopted in order to meet the
ability to bear taxes. It was on this ground that the
extension of the list of taxable property was justified, as
well as the inclusion of professional classes, such as law-
yers, doctors, and others whose incomes were of such a
nature as to enable a tax burden to be met. Some use was
also made of different forms of indirect taxes, but it was



REVENUE SYSTEMS OF IMPORTANT COUNTRIES 149

of little importance when compared with the taxes on
property. Frequently, also, poll taxes were found.

Middle and Southern Colonies. Economic conditions of
the Middle and Southern colonies differed from those of
the Northern group. Commerce developed much earlier,
and continued to be more active. The small farm of the
North gave way to the large plantation of the South. It
was the difference between a general ownership of land
and a small property-holding class. This class, as might
be expected, was not in favor of land bearing the tax
burdens, and other measures were sought. The poll tax
received early consideration and was extensively used. A
uniform levy was at first adopted, but the injustice soon
became so glaring that the kind and amount of property
owned was considered in making the levy. The poll tax
was also considered as a lien against property. The sys-
tem was so unsatisfactory, however, that indirect taxes
were used extensively. These took the form of export
duties as well as import duties.

In the middle group of colonies trade developed almost
at the beginning, and was the logical source of obtaining
revenue. Consumption duties were levied as well as im-
port and export duties. These did not take care of all
the needs, and resort had to be made to other sources of
revenue. Under the Dutch rule of Peter Stuyvesant in
New York, for example, an " honest and fair tax" was
placed upon "land, houses, or lots, and milch cows or
draft oxen." Property taxes gradually increased in im-
portance in this group of colonies, and at the time of the
Revolution they were firmly embedded as a fundamental
part of the fiscal system of all the colonies. These taxes
centered around land, and the importance of its ownership
was intensified in some colonies by making the full rights
of citizenship dependent upon the possession of a certain
quantity of land.

88. The Central Government Encountered Difficulties
in Financing the Revolution. The difficulties encountered



150 OUTLINES OF PUBLIC FINANCE

by the central government in securing funds to carry on
the Revolutionary War warranted some express provi-
sions in the Federal Constitution in regard to revenues.
The underlying difficulty was that the Continental Con-
gress had no compelling power, neither had it any inde-
pendent source of revenue. Its sole course was to make
requisitions upon the colonies, but it could not enforce
payment. The Colonial revenue systems were simple,
and had never been strained by heavy demands, since
the governmental functions were comparatively few and
inexpensive. To expect them to respond to such a need
as a national war would have been to expect entirely too
much. Indeed, the results were even better than such a
loose arrangement might warrant, for more than 50 per
cent of the paper money requisitions were paid, and about
15 per cent of the specie demands.

The fiscal provisions in^the Articles of Confederation
illustrate the lack of power of the central government.
No state was expected to levy duties that would interfere
with any treaties into which Congress might enter. All
the general expenses were to be met from a common fund,
which was to be supplied by the various states in propor-
tion to the value of land and improvements. The levies
and collections were to be made by state authorities.

The lack of any power to enforce these provisions re-
sulted in a dearth of funds. An attempt was made in 1781
to get the consent of the states to a rather general 5 per
cent tax on imports. In spite of many protests and much
coercion, Rhode Island remained firm against the meas-
ure and its adoption failed. Two years later an attempt
was made to secure import duties on certain specific
articles, the collection to be made by state officials. Less
interest was shown in this than in the previous proposi-
tion, and the continued opposition of New York kept the
proposal from becoming active.

89. The Federal Constitution Contains Important Fis-
aj Provisions, Fiscal problems, as might be expected,



REVENUE SYSTEMS OF IMPORTANT COUNTRIES 151

received no little attention in the Constitutional Conven-
tion. The measures in the Constitution to safeguard the
revenues of the Federal government are as follows:

Congress shall have power to lay and collect taxes, duties, imposts,
and excises, to pay the debts and provide for the common defense
and general welfare of the United States; but all duties, imposts, and
excises shall be unif jrm throughout the United States.

No capitation, or other direct tax, shall be laid, unless in proportion
to the census or enumeration hereinbefore directed to be taken.

No tax or duty shall be laid on articles exported from any state.

No state shall, without the consent of Congress, lay any imposts or
duties on imports or exports, except what may be absolutely neces-
sary for executing the inspection laws; and the net produce of all
duties and imposts, laid by any state on imports or exports, shall be
for the use of the treasury of the United States; and all such laws
shall be subject to the revision and control of the Congress.

All bills for raising revenue shall originate in the House of Repre-
sentatives; but the Senate may propose or concur with amendments,
as on other bills.

The importance of providing for uniform duties is clear.
Had it been otherwise, disgraceful state and sectional fili-
bustering and log rolling to secure local advantages would
have been augmented by attempts to secure favorable
duties for a particular section. Attempts to make the ex-
pression " uniform" apply to individuals rather than to
localities, have been frustrated by the courts.

Direct and Indirect Taxes. The apportionment of direct
Federal taxes caused much difficulty in the Constitutional
Convention, and the solution, from the standpoint of jus-
tice, leaves much to be desired. The previous apportion-
ment with land values as a base had been a failure, because
no adequate assessment had been made. The apportion-
ment, according to numbers, is no less objectionable.
With such an unequal distribution of taxpaying ability
as exists among individuals in the United States, appor-
tionment on this basis cannot but work injustice. The
greatest virtue of the provision is that it seldom has been
used. Even when it has been tried the success has not



152 OUTLINES OF PUBLIC FINANCE

been all that could be desired. The revenues have come
in slowly and in uncertain amounts. The first attempt to
use it was in 1798, when $2,000,000 was apportioned
among the states. It was still being paid five years later.
Direct taxes were again used as an emergency measure
at the tune of the War of 1812, and also at the time of the
Civil War. The states were tardy in paying their appor-
tionment and the full amount never was received.

Meaning of Direct Taxes. The meaning of direct taxes
has not always been clear, and has led to considerable
litigation. The court has usually decided the particular
case before it, without giving a general interpretation. In
its decisions it has not always been consistent, neither has
it followed the distinctions which have usually been laid
down. The income tax of the Civil War was held to be
constitutional, while a similar tax in the early 'nineties was
declared to be unconstitutional on the ground that it was
a direct tax not levied in accordance with population.
Soon after the adoption of the Constitution, an attempt
was made to secure Federal revenues by levying a tax on
carriages and on the sale of certain commodities. The
carriage tax varied according to the kind of carriage and
was contested on the ground that it was a direct tax. The
ordinary distinctions between direct and indirect taxes
would place such a tax in the former class, yet the court
did not so rule. It held that a tax on expense was to be
considered as an indirect tax. Carriages were consumable
commodities, therefore an expense to the owner, and a
tax would be an indirect one. The court was inclined to
believe, it is said, that the direct taxes intended by the
Constitution were a poll tax and a tax on land.

Restriction upon Export Duties. The singular provision
that prohibits the levy of taxes on exports was due to the
efforts of the Southern coast states. Many leaders of the
convention urged the necessity of granting Congress power
to levy export duties. The delegates of these Southern
states feared such a power might be used to discriminate



REVENUE SYSTEMS OF IMPORTANT COUNTRIES 153

against their agricultural exports. For fear of losing the
support of the South, therefore, the concession was
granted.

The taxes used by the Federal government, then, are
principally of the indirect nature. They consist of two
kinds duties upon imported goods, and internal revenue
duties. The protective feature of the import duties, how-
ever, has often surpassed the revenue aspects in impor-
tance. The use of the Federal income tax, which was
authorized by the Sixteenth Amendment to the Consti-
tution, has been an important recent source of revenue.
A tax upon the net income of corporations and a Federal
inheritance tax have also been used to a small extent.

90. Numerous Taxes Make Up the Revenues of the
States. The fiscal systems of the states are separate and
distinct from that of the Federal government. The Fed-
eral government is one of delegated powers, while the
powers of the states are residual. Much diversity, there-
fore, might be expected in the fiscal systems of the states,
while the Federal system can only be changed by constitu-
tional amendment or a change in court interpretations.

Constitutional Limitations. The constitutional provi-
sions noted above have an appreciable effect upon the
revenue systems which can be used by the states. No
state, of course, can levy duties upon exports or imports.
The significance of this restriction has increased in im-
portance as commerce has become more extensive, and
has opened up greater and greater possibilities of securing
revenue. The constitutional provisions which guarantee
the citizens of one state all the privileges and immunities
of the citizens of another state, and which give the con-
trol over interstate commerce to the Federal government,
place further limitations upon the state's taxing power.
No state can, therefore, lay a tax upon a citizen of another
state which does not apply likewise to its own citizens.
The courts have excepted corporations from this inter-
pretation of citizenship. A corporation which does busi-



154 OUTLINES OF PUBLIC FINANCE

ness in a state other than the one in which it was char-
tered may be taxed differently from corporations formed
within the state. Should a state attempt to levy a tax
upon goods, either leaving its borders or coming in, this
action would immediately be declared void by Federal
authorities because of the interference with interstate
commerce. Consequently, what might be made a very
fruitful source of revenue cannot be used, and resort must
be had to forms of taxation which will stand under the
constitutional provisions.

State Taxes. Some form of property tax was early
found in all the states, and has so developed as to include
practically every form of property, both personal and
real. In spite of the difficulties which have arisen, it still
remains the tax of primary importance in every state, if
not for state purposes, for the minor political divisions.
Problems of equal assessment arose at the beginning of
its use, but have increased many fold with the develop-
ment of immense wealth in the form of intangibles, which
so easily escape assessment. Many innovations and modi-
fications have been tried to remedy the defects, but with
far from satisfactory results. The long use of the property
tax has so firmly embedded it in state and local tax sys-
tems that attempts to dislodge it, or even materially
modify it, have generally proved futile.

The property tax still retains much of its earlier im-
portance, yet other taxes are used in most states to sup-
plement it, and in some cases almost to supplant it for
securing funds for state purposes. Where this is true, the
property tax is given over more exclusively to the local
political units. One of the first taxes to be used, and one
which possesses great possibilities which have not been
developed, is the inheritance tax. It is only recently that
its adoption has become important, and as yet the rates
are comparatively low. A few states have developed the
use of the income tax, and its further extension as a source
of state revenue may be hastened by the adoption of the



REVENUE SYSTEMS OF IMPORTANT COUNTRIES 155

Federal income tax. The policy of most states of impos-
ing taxes of various sorts upon corporations is one of
increasing importance. Early corporations were looked
upon in a measure as public benefactors, and consequently
were treated with leniency. As this attitude changed,
and as it began to appear that corporations were well able
to contribute to the support of the state in a way which
they were not doing under the property tax, states began
to impose special taxes upon them. License and business
taxes, in recent years, are finding a more important place
in the fiscal systems of states.

Local tax systems are largely governed by the states,
and invariably hinge around property taxes. License
and business taxes, as well as special assessments, are also
used. The principal taxes used by the Federal, state, and
local governments will be treated in detail in some of the
succeeding chapters.

91. Definite Tendencies Are Indicated by Fiscal Sys-
tems. In this review of the development of tax systems
of different countries certain definite tendencies may be
noticed. The most important, perhaps, is that, as the
central governments become older, and the political duties
and responsibilities become recognized by the citizens,
direct taxes can be used to supply an increasing propor-
tion of the needs. This is evidenced by the importance of
the income tax in the fiscal systems of England and Prus-
sia, and its recent adoption in the United States.

Another noticeable tendency is to place less reliance
upon property as a base for taxes. The European coun-
tries have given it up in large measure, while in the Ameri-
can states other taxes are being used to supplement it,
and in a few cases the revenue from property is left almost
entirely for the use of localities. The tendency has de-
veloped, also, to formulate revenue systems, based upon
ability to pay taxes. The gradual replacing or supple-
menting of indirect taxes by those, the burden of which
can more easily be traced, and the seizing upon new forms



156 OUTLINES OF PUBLIC FINANCE

of ability as they make their appearance, are evidences of
this condition.

No generalization can be made as to tendencies toward
centralized control of fiscal systems. In some European
countries such control is practically absent, while in others
it is important. In the United States, aside from consti-
tutional limitations, the Federal government exercises no
control over the states. The states, however, usually
have complete control over the minor political divisions.
There has been a recent movement in some parts of the
country to secure local option in fiscal matters, but as yet
it has met with little success. Another very marked
tendency in every political division is the resort to the use
of public credit. A subsequent chapter will be devoted to
this aspect of revenues.