Statistics of Valuation. A few figures from the census
reports, chosen almost at random, will serve to visualize
the relative positions of these two classes of property, as
far as the assessors' books are concerned. The following
figures show the assessed value of real estate at different
times, as compared with the total assessment of property
for five states in various parts of the Union. The first
set of figures represents the total assessment, while those
just beneath are real estate values. The explanation of this remarkable increase in the assessment of personal property
given by the Bureau of the Census is as follows: . "Prior to 1918 the only personal property
subject to taxation in the District of Columbia was tangible personal property, but in 1918
the law was changed requiring that intangible personal property be assessed for taxation."
The large assessment of personal property for 1918 is an interesting exception to the general
rule.

No comment is needed to show that a wholesale evasion
of personal property assessment exists. Figures for other
cities are just as startling. The conclusions follow that
personal property cannot be reached by the assessors, or
at least is not reached, and that this class of property
bears tax burdens inversely proportionate to the amount.

132. Difficulties Arise in Exempting Property from Tax-
ation. The caption, " general property tax," is somewhat
misleading, for specific kinds of property are generally
relieved from the application of the law. In some of the
earlier states one of the privileges which attended citizen-
ship was the freedom from paying taxes. Exemption
from taxes to some extent is still practiced by most gov-
ernments. Difficulty in administering the tax laws has
been responsible for some exemptions, while others are
granted in an attempt to make the tax system more just.

Agitation for Exemption. The inability to administer
the tax laws in a satisfactory manner has led to much
agitation for the extension of exemption provisions. Thus
several states, because mortgages were not being assessed,
have exempted them from the property tax. Many au-
thorities urge the exemption of all intangible personal
property from taxation, and would reach the ability thus
represented in other ways. Some, who feel that taxpayers
should know the burden of the taxes they pay, see injus-
tices in indirect tax systems, and would have these abol-
ished. A few would even go so far as to exempt all bases
for taxes except land values. The question of exemption
takes on a somewhat different form, according to the
nature and advancement of a country, yet it forms an
important feature of all tax systems.

Kinds of Exemptions. One of the most common of the
exemptions from property taxes has been a minimum
amount of property. This has been for two reasons : first,
because there has been the desire to recognize, as it were,
a minimum of subsistence; and second, the administra-
tive duties in finding and assessing small amounts of
property proved entirely too burdensome for the returns
in revenue. Consequently a few hundred dollars are
usually exempt from taxes. Frequently, also, particular
classes of property, such as mechanics' tools, are placed
in the exempt class. Exemptions are sometimes granted
to industries during the developmental stage, or as an
incentive to get them to locate in particular localities.
Much variation, however, can be found hi the practice
of the various political units.

Other kinds of property which are free from taxes are
imported goods in the original package, and goods in the
process of transportation. Most states exempt the de-
posits in savings banks. Public property of the various
political units, such as buildings and parks, likewise enjoys



244 OUTLINES OF PUBLIC FINANCE

freedom from the burden of taxes. Public welfare insti-
tutions receive similar treatment. Under these come such
institutions as churches, hospitals, cemeteries, horticul-
tural societies, and the various charitable institutions,
such as county farms, almshouses, and homes for orphans
and the aged. Property used for educational and develop-
mental purposes is treated in like fashion. Not only does
this include public institutions, but it generally extends
to endowed colleges, libraries, and various kinds of scien-
tific and literary organizations.

It seems no more than just to make the burdens upon
public uplift institutions as light as possible. In many
cases, where the institutions are owned by the state, taxa-
tion would simply mean the transferring of the amount
of the tax from one pocket to the other. The exemption
of such property when owned by individuals has not
always been accepted in good faith, but, on the other
hand, has frequently been abused. Property holdings far
in excess of the need for carrying on their operations have
been accumulated by some of these institutions. Tax
exemption has been claimed, although the returns from
the property are much more of an individual than public
nature. This condition has led to considerable agitation,
in some localities, for the removal of the tax exemption
privilege upon this class of property.

Governmental Activities. A common source of tax ex-
emption is found in the securities issued by different
political units Federal, state, and local. It has been the
practice of the Federal government to exempt its securi-
ties from most taxes, and it has been held, in the famous
McCullough vs. Maryland case, that the states cannot
even indirectly tax the instruments of the Federal gov-
ernment. It has also been the common practice and
belief that the Federal government cannot tax the instru-
ments that the states use in their functions.

These two views create a large class of tax exemptions
that has become particularly significant since the intro-



PROPERTY TAXES 245

duction of the income tax. The freedom of the income of
Federal, state, and municipal bonds from the income tax,
while the income from the bonds of commercial enterprises
is taxed, sometimes places a hardship and disadvantage
upon the latter class of securities. Inequality likewise is
placed upon different classes of citizens. There is little
reason, for example, why a salary of $5,000 received by
an employee of a corporation should be taxed, while the
$5,000 paid to an employee of a state should not be taxed.

133. Evils of Double Taxation Arise with the Use of
Personal Property Taxes. The expression " double taxa-
tion " appears almost self-explanatory, yet it may have
a number of applications. In general, it refers to the levy
and collection of two taxes, the burden of which falls upon /
the same base. Such an occurrence immediately appears
to be unjust. This, however, is not necessarily true. If
a tax were levied upon all property, for example, and then
a tax were levied upon the income from this property, it
might be called a case of double taxation. It would be
unjust, however, only if some classes of the property
owners were subject to the income tax while others were
not. Under such conditions the income tax would be a
discriminating tax. When two taxes are levied alike upon
all classes, the result is the same as if a higher property or
a higher income tax had been used. The use of the ex-
pression " double taxation," however, usually implies an
injustice, so that it might be well to use another ex-
pression, say "dual taxation," to apply to the levy of
two taxes upon the same base when no injustice is
perpetrated.

Many cases of double taxation and even multiple taxa-
tion arise, however, which are clearly unjust because of
the unequal burden which they impose upon different
classes of property. Cases of this nature arise within a
particular taxing jurisdiction, and to a magnified degree
where competing jurisdictions are concerned. Double
taxation arises in the first case from the attempt to tax



246 OUTLINES OF PUBLIC FINANCE

land and factories and from the attempt at the same time
to tax evidences of claims upon this property. The same
situation arises between competing jurisdictions because
of the individual code of tax laws which each jurisdic-
tion has adopted, with little regard for inter jurisdiction
comity.^ The states, in particular, have been anxious to
extend their jurisdiction over as much taxable property
as possible. This ambition has often been so keen that
the legislatures, and even the courts, have frequently lost
sight of what would ordinarily be called fair play. The
result is that tax systems exist that will not stand the
requirements of justice under the present industrial
organization.

Place of Levy. Much litigation has arisen over the
proper situs or location of property for purposes of assess-
ment, and many unsatisfactory decisions have been ren-
dered. When securities are assessed by the officials of one
jurisdiction, and the property in which these securities
represent but an interest is assessed in another jurisdic-
tion, a part of the tax is clearly an unjust burden. A
share of stock of a corporation chartered in New Jersey,
and owned by a citizen of Pennsylvania, who is tempo-
rarily living in Maryland, should obviously not be taxed
in the three different states; yet such attempts have been
made, and marked injustice often arises. Modern indus-
try is so expansive that a single business unit may be
represented in a number of tax districts, which creates the
possibility of a multiplication of taxes.

Many factors have been used by the different states in
determining the proper principle upon which to make the
tax levy. Some use citizenship as the proper criterion
upon which to make the levy, while others use domicile,
situs of property, situs of securities, or other factors, until
it is possible to have taxes levied by as many as a half
dozen states upon the same taxable base. ^ If every juris-
diction should decide upon the same principle, then there
woul4 be little need to raise the question of double taxa,-



PROPERTY TAXES 247

tion. The disinclination to do this, however, makes the
problem a serious one.

The principle of citizenship is one that is frequently fol-
lowed in determining where taxes should be paid. The
United States, for example, levies an income tax upon its
citizens no matter where they are located. Citizenship,
no doubt, was at one time the important consideration,
and still has some claim in a state's right to levy taxes.
Under the organization of industry as it is at present,
however, other factors must be given consideration. A
man, for example, may be a citizen of one taxing district,
may be a permanent resident of another, may for the
time being be living in still another, and have all his
property in the form of a corporate business located in a
fourth district, the charter of which was taken out in still
another district. Each of the districts has some claim to
tax the individual, while evidently there is but one prop-
erty upon which the burden of the tax can fall.

It may be true that taxes should be paid in more than
one district in fact, it seems reasonable that an individ-
ual should pay taxes at least in the district where his ,
property is located and where he has his permanent resi-
dence. Yet it does not follow that each of these districts '
should levy the tax as if its tax were the only one to be
levied. It has been suggested that the owner of property
should be taxed where his real economic interest is found.
The suggestion is good, but to carry it out it would be
necessary to secure the proper apportionment of the tax
burden among the districts where the interests of the
indvidual lie, and to get each district to respect the rights
of the other taxing units. Until this is accomplished a
large amount of injustice may be expected in the taxes
levied by competing jurisdictions.

Bases for tax levies are sometimes arbitrarily made. A
good example of this situation is the taxation of the shares
of stock of national banks. These shares must be assessed
to the owner at his place of residence, but for purposes of



248 OUTLINES OF PUBLIC FINANCE

taxation his residence shall be considered in the district
where the bank is located. A man living in California,
who owns shares of stock in a national bank in New York,
would be assessed and taxed on the shares as if he lived in
New York.

134. The Proper Handling of Indebtedness Is Difficult.
Much difficulty has arisen in handling indebtedness.
Where indebtedness exists it is obviously unjust to tax
both the debtor on his indebtedness and the creditor on
the evidence of this indebtedness. On the face of the
proposition it is what an individual has, and not what he
owes, that gives ability to meet tax burdens. When evi-
dences of indebtedness are taxed the same property may
be made the basis of many taxes. Suppose, for example,
a man buys a house and gives a five-year promissory note
in payment; in a few days he sells the house and likewise
accepts a note; this purchaser in turn sells and accepts a
note. There now exist three notes and a house which
the assessor is expected to assess separately to four dif-
ferent individuals. It is the general consensus of opinion
that indebtedness does not create ability to bear tax
burdens, but in fact lessens such ability. Many authori-
ties, consequently, have declared themselves in favor of
allowing the deduction of debts from property assessments.

When debt deduction is permitted, however, the way
is at once open to so much fraud and deception as practi-
cally to defeat the tax. Fictitious debts are frequently
created to such an extent that, when offset against the
property, there is nothing left to tax. It is comparatively
easy for two neighbors, just before assessment day, to
lend to each other, without giving notes, a sum sufficient
to offset any property valuations which might exist. It
opens a particularly easy way for corporations to escape
assessment on capital stock. Bonds, of course, are items
of indebtedness, and under the plan of debt deduction
should be subtracted from the value of the capital stock.
Corporations, therefore, simply need to issue bonds to



PROPERTY TAXES 249

the amount of the capital stock, and when indebtedness
is deducted there is nothing left to tax. Evils of compara-
tive magnitude exist, therefore, whether or not debt ex-
emption is permitted, and there seems to be no way to
escape the difficulties. Some states have attempted to
solve the problem by allowing debt deductions from per-
sonal property, but not from real estate, with results that
have been entirely unsatisfactory. Such a practice fre-
quently causes a very arbitrary classification of property.
In the state of New York, for example, where debt deduc-
tions are permitted from personal property but not from
real estate, special franchise values are classed as real
estate to prevent the deduction of indebtedness which
might exist.

Taxation of Mortgages. Mortgages on real estate form
one class of indebtedness that has caused much concern
to fiscal officials and authorities. Obviously, to assess a
piece of land at full value, and then assess the mortgage
that is against it, is a case of unwarranted double taxation.
If every piece of property were mortgaged in the same
proportion, and all property and all mortgages taxed,
then no injustice would be perpetrated because the same
burden would be placed upon all property. Where only
a part of the property is mortgaged, however, and both
the mortgage and the property are taxed, it is an unjust
burden upon the mortgaged property. The mere issue of a
claim to one half the value of a $50,000 farm does not
increase the taxpaying ability of the farm. If the farm is
taxed to its full value, and in addition the mortgage is
taxed, it means that the tax burden is 50 per cent greater
than that upon unencumbered land. It is generally be-
lieved, moreover, that a tax on mortgages is shifted to the
borrower through an increase in the interest rate, so that
in reality the mortgagor is paying the tax both upon the
property and upon the mortgage he has given.

The situation with corporate property and the shares
of stock which represent that property, is much the same



250 OUTLINES OF PUBLIC FINANCE

as that of property and mortgages. The capital stock
does not represent taxpaying ability apart from the prop-
erty of the corporation. If the property of individuals is
taxed but once, it is apparently unjust to levy two taxes,
both of which must be borne by the property of the cor-
poration.

Credit Instruments. Examples of difficulties and in-
equalities which have arisen from attempts to tax credit
instruments might be multiplied indefinitely, and in the
end the conclusion that something is fundamentally wrong
with such a system would only be more strongly verified.
The taxing of credit instruments emphasizes the personal
rather than the property element of assessment. At the
base, however, property is the fundamental criterion, the
factor that creates the ability to pay, and under no sys-
tem of logic can credit instruments be justly put into this
class. Notes and bonds are simply evidences of contracts
under which the holder has transferred property for which
he expects to receive a future remuneration.

The issuing of $25,000,000,000 in United States bonds
did not automatically, increase the taxpaying ability of
the purchasers of the bonds by that amount. Neither
will the payment of the bonds and their subsequent de-
struction destroy any wealth or taxpaying ability. Credit
instruments merely represent rights to a share in property,
and their creation or destruction does not change the
amount of the property. While there is much to be said
against the assessment of credit instruments because of
the administrative difficulties that arise, the nature of the
instruments, moreover, indicates that there is no logical
basis for attempting to assess them.

135. The Personal Property Tax Discriminates Among
Classes. Many state constitutions assert that all prop-
erty must be assessed at a uniform rate, yet such a con-
spicuous violation of this principle occurs nowhere to the
extent that it does in the working of the personal property
tax. That wholesale evasion occurs is generally known,



PROPERTY TAXES 251

but the perversity of the situation arises in that the eva-
sion does not apply equally to all classes of taxpayers.

In the agricultural districts personal property to a large
extent takes a tangible and visible form live stock and
other similar forms of property upon which assessments
are comparatively easy to make. These items cannot be
hid as can the stocks, bonds, and mortgages which com-
prise the bulk of the personal property of the urban resi-
dent. Since little intangible personalty ever reaches the
assessment roll, the heavier burden falls upon the class
with the larger proportion of tangibles, which, it is evident,
is the agricultural class.

It follows from the foregoing that an undue burden is
placed upon those whose intangible personal property
does find its way to the assessment roll, whatever the
cause. Estates consisting of various forms of intangibles
are frequently placed in the hands of trustees to be used
for the benefit of widows and orphans. It is not difficult
for the assessor to place these upon his assessment roll.
Occasionally people will be so scrupulously honest that
the value of all household goods, jewelry, bonds, stocks,
and money in the bank will be returned to the assessor.
It is upon these classes, then, that practically the entire
burden of the taxes upon intangible personal property
rests. They are usually the individuals, moreover, who
are less able to bear tax burdens.

General Property Tax Regressive. It will easily be seen
from the foregoing features of the general property tax
that it is strongly regressive in the manner in which it
works out. A small amount of property takes the form of
visible personalty or realty, which is comparatively easily
assessed. As more property accumulates it begins to take
on the intangible nature which escapes taxation. Not
only this, but more effort is usually exerted by assessors
to obtain a full valuation of a small estate than in the
case of a large one.