Charges of
graft, recklessness, inefficiency, and general lack of eco-
nomical methods have been frequent. The rapidly in-
creasing tax burden, because of this enormous growth in
expenditures, has led to many demands that something
be done to curb the power of the assessing and taxing
officials. In some states attempts have been made to
curb this supposed extravagance of municipal and even
of state officials. The most common method of proce-
dure is to place some constitutional or statutory limitation
upon the amount of revenue a city may secure. The
amount of a city's indebtedness, also, has been closely
guarded, and provision has been made to limit the fiscal
activities of some state legislatures.

The most used limitations upon the fiscal powers of
municipal authorities is to impose a fixed or limited tax
rate with provisions for securing increased funds to meet
emergencies. Not only has it been thought that this sort
of restriction would curb wasteful expenditure, but that
a limited rate of taxation would be an incentive for list-
ing a larger amount of the intangible personal property.
Experience has shown, however, that no very startling
results have been obtained in bringing this class of prop-
erty from hiding.

Methods of Tax Limitation.- The use of a fixed tax rate
for municipalities has not proved satisfactory since there



268 OUTLINES OF PUBLIC FINANCE

is no definite relation between a city's property and its
necessary activities. Besides, some cities may be under-
taking more legitimate enterprises than others, which
will necessarily entail greater expenditures. If the fixed
rate is higher than is necessary it will lead to extrava-
gance, waste, and graft, while if it proves to be too small
it will result in the restriction of necessary activities, an
increase of borrowing where this is possible, or the exten-
sion of the revenue system to include unproductive or
undesirable sources.

As a substitute for the fixed rate, a limited tax rate has
sometimes been used. This plan allows an increase in
the rate, but not to exceed a certain percentage of the rate
for the preceding year. This, however, is only more
satisfactory than the fixed rate, for if the limitation is the
same for all cities in a state, it is attempting to place a
uniform standard upon needs which vary greatly. In
neither case is there any guarantee that the burdens upon
property will be kept down because authorities can resort
to increased assessments to swell the revenue. A more
effective method of real limitation is to allow only a cer-
tain increase in expenditure over a preceding year, or the
average of several preceding years. Neither the tax rate
nor property valuations can be juggled to offeet the in-
tended restrictions.

The limitation on indebtedness usually takes the form
of allowing bond issues to only a definite percentage of
the property valuation, and this, frequently, only upon
popular vote. In any system of limitation some provision
for flexibility should be made to allow for emergencies, or
for various forms of capital investments which, of course,
should be put into a different category from current
expenses.

Many municipalities are finding themselves pressed for
funds because of the limitations which have been placed
upon them. The increased costs of labor and materials
have more than outstripped the possible revenue increases



PROPERTY TAX REFORM 269

from the existing sources, while the decrease caused by
canceled liquor licenses has often been keenly felt. In-
debtedness has frequently been increased to the limit,
and the only recourse has been to seek new sources for
funds. The course most generally pursued has been to
increase the use of license taxes, as upon vehicles, and
professions.

Ohio Plan of Limitation. Ohio furnishes one of the best
examples of state tax limitation. According to the law
a maximum of fifteen mills is placed for the aggregate of
all levies, while a limitation of ten mills applies to all
levies, except to those authorized by a vote of the people,
and those necessary to provide interest and a sinking fund
for indebtedness. The limitation extends to the minor
political divisions in that the maximum levies of the
county, municipality, township, and school district are
placed, respectively, at three, five, five, and two mills.
These levies, however, are exclusive of any special levies
which the citizens may vote. Little satisfaction and much
criticism have been expressed concerning the working of
the plan.

143. The Separation of Sources of Revenue Has Been
Advocated. The complexities and evils of modern tax
systems have led many to desire and to seek for better
things. One cause for the difficulties has been the attempt
of different political divisions to secure funds by levying
taxes upon the same bases. This has led to evasion of
payments particularly those in which the individual has
not been visibly and closely interested. One reason for
the reluctance of individuals to turn in their property to
the assessor has been that a part of the tax collected
would be expended in a distant part of the state where
no benefits would accrue to the payer. Another difficulty
has grown up through the attempt of local officials to
assess properties, the nature of which caused them to
extend far beyond the limits of any one jurisdiction. A
remedy for some of these difficulties that has been much



270 OUTLINES OF PUBLIC FINANCE

discussed in recent years is that state and local revenues
should be derived from separate sources.

Advantages of Separation. On the face of the proposi-
tion some outstanding advantages present themselves.
It is evident that certain fields of resources are much more
suited to the cultivation of the state than of local units.
The first example which presents itself is the large class of
corporations which are much more nearly organizations
of the state than of any locality. The complexities and
nature of their business is such as to require assessors of
a much higher degree of skill than local districts can afford
to provide. It has been advocated that the assessment
of the property of corporations should be taken from the
locality and turned over to the state. The inheritance
tax is another source of revenue which is adapted to the
use of states rather than to the use of localities. In the
first place, localities do not possess the machinery to ad-
minister the tax satisfactorily, and in the second place, in
a small area, no reliance can be placed upon enough trans-
fers of property occurring within a given time to insure a
stable revenue. Within a larger district this stability can
be counted upon with a reasonable degree of certainty.
A large number of license taxes, also, can be more efficiently
handled through state machinery than through that of
localities. It seems reasonable, then, that these sources
of revenue could be profitably turned over to the state.

If the state be given the revenues from corporations,
inheritances, and certain licenses, it would be possible to
relieve the localities from contributing to the support of
the state from revenues which are collected by local
officials. There would be no state tax to be collected,
consequently there would be no particular advantage for
the inhabitants of one district to secure a lower percentage
valuation than in adjoining ones, for it could not reduce
the tax burden, but merely affect the rate. It would give
the localities, moreover, a much greater autonomy in de-
termining fiscal policies.



PROPERTY TAX REFORM 271

Dangers of Separation. There is no doubt that the
revenue systems of state and localities have been too
closely interrelated, and that some degree of separation
would prove beneficial. An entire divorce of the two,
however, with absolute local autonomy in determining
fiscal policies which the most ardent advocates desire, is
fraught with dangers, and would not, perhaps, accomplish
all that is hoped.

It is desirable to have some uniformity in the raising of
local revenues, even if no part of the revenue is to go out-
side of the district. Local fiscal officials, moreover, would
not always be competent to decide what plans would be
feasible to adopt. The use of an income tax as the base
of revenue in one township, for example, while the adjoin-
ing township used property, would either impose double
taxes or exempt entirely an individual who owned prop-
erty in one township and lived in the other. Other rea-
sons exist, moreover, for unequal assessments than be-
cause a part of the revenue collected locally goes to state
purposes. The local assessor, under the plan of separa-
tion, would still be an elected official, and the same rea-
sons for showing favoritism would continue to exist.
While a separation of revenues may be desirable to some
extent, the local units should still be kept under central
supervision to the extent that some uniformity remain in
local fiscal methods. They should also be restrained from
experimenting with systems which are not adapted to
their need.

The absolute separation of sources of revenue possesses
the added danger of leading to parsimony or extrava-
gance. Take, for example, the states which rely almost
entirely upon revenues from corporations. If these enter-
prises be powerful in the state, and have a controlling
influence with the legislature, expenditures will be reduced
to the minimum, and many desirable public activities may
be thwarted in order to make the tax burden as light as
possible. As was previously pointed out, moreover, it is

18



272 OUTLINES OF PUBLIC FINANCE

politically undesirable to have one class voting the ex-
penditure of funds which another class contributes, for
this will lead to extravagance. If, then, corporations be
the source of tax, and unpopular with the legislature be-
cause it represents another class of people, no amount of
expenditure will appear to be too great. For the sake of
economy an absolute divorce may not be desirable, and
better results may be expected if the people who vote the
expenditure of funds also have to help bear the burden.

As between Federal and state revenues the tendency
seems to be in the opposite direction from a separation of
sources. A few years ago it was argued that, since the
Federal government had the field of customs and excises,
the states should have that of incomes, corporations,
and inheritances, and leave the returns from property to
the localities. More recently, in spite of much objection
from state officials, the Federal government has widened
its scope of sources. Its use of incomes, corporations, and
inheritances as sources of revenue has already been
discussed.

144. The Present Tendency Is to Centralize Fiscal
Authority. The preceding topic has indicated that there
is some demand for what is known as local option, or home
rule, in taxation that is, to allow each tax district to be
an automaton in determining its fiscal policies. While it
does not usually appear in the public discussion that this
is a single tax measure, yet the single taxers are always
ardent advocates for the adoption of the principle, with
the hope that some locality, when it has secured the power
of acting on its own initiative, will adopt the single tax.

Many of the arguments which are presented for this
decentralization and separation are appealing, and de-
serve notice. It is claimed that the physical and indus-
trial conditions of a state differ so widely that tax methods
which are suitable to one locality are adverse to the in-
terests of another. In proof of this, disparity between the
needs of farms, villages, and large cities is pointed out.



PROPERTY TAX REFORM 273

Furthermore, it is claimed that the local authorities, be-
cause of the intimate knowledge they have of the local
affairs, and because of their personal interest in them,
have a much better basis upon which to formulate fiscal
policies than would officials who have no such interests.
The placing of citizens of local districts upon their own
resources, and allowing them to work out their own salva-
tion, will stimulate an increased interest in civic and
fiscal affairs, it is claimed.

It has been suggested above that absolute autonomy on
the part of local districts presaged an increase in the evils
of double taxation. Not only this, but it would open the
way for all sorts of favorable discrimination to particular
industries to secure location within the district. The dan-
gers of giving a large number of irresponsible assessment
districts a free hand to introduce and experiment with all
sorts of untried ideas are too great to be accepted. A
certain amount of freedom is no doubt desirable, but it
should be so curbed and directed as not to endanger the
safety of the larger body politic.

Equalization of Assessments. The recent trend for the
solution of fiscal difficulties, however, has been toward a
centralization of authority and responsibility, rather than
toward a further decentralization. One factor which has
caused this has been the desire to secure greater equality
in the valuation of property. The inequalities in assess-
ment, which arose with the growth of corporate industries,
first led to centralization. This was in reality a movement
away from the practically pure local option which formed
the early part of our fiscal systems. These discrepancies
in assessment led to an attempt to equalize values by a
central board appointed for that purpose. It has often
been difficult for this board to secure the proper informa-
tion, yet it has frequently been able to alleviate much of
the inequality and injustice which has arisen because of
the incapabilities, inconsistencies, or indisposition of local
officials.



274 OUTLINES OF PUBLIC FINANCE

Control of Assessments. A more important develop-
ment of centralization has been the control which central
officials exercise over local ones, especially over the as-
sessors. More frequently, also, is it becoming true that
the assessment district is being enlarged, and the assess-
ment for the district performed by competent agents. In
many cases it has gone so far that the central authority
is found to be a state official, to whom county supervisors
are held responsible, while under the county supervisors,
and responsible to them, are the local assessors. In some
cases the smallest assessing district has been made the
county, and all the assessments are made by the county
supervisor. These supervisors and assessors are usually
appointed under civil service rules, and may continue in
office as long as efficiency warrants.

Advantages of Centralization. The outstanding advan-
tages of this form of centralization are plain. In the first
place the assessor is divorced from politics. His position
does not depend upon how much leniency he shows the
owners of the assessed property, but rather upon how well
he performs his task. In the second place, men of much
better qualifications can be secured through a process of
examination of the capabilities for performing the tasks.
The system in use in New York City will illustrate the
possibilities. The assessors are chosen on the basis of
competitive examination, the examination dealing largely
with the aspects of valuation. The law requires that one
out of the first three rated highest in the examination
must be appointed, and it has been the practice of the
mayor to designate that the appointments must be made
in order of the eligibility, as shown by the examination.
As a whole, competent men have been chosen, whose
only fear of losing the position is from failure to per-
form satisfactory service. Many of the assessors have
been serving a number of years, and have become more
efficient and valuable with the accumulation of experience.

145. The State Tax Commission Presents the Best



PROPERTY TAX REFORM 275

Example of Centralization. The growth of problems which
called for the attention of central authorities, and the
general trend toward this form of administration, have
demanded a competent central organization to render
the required services. At first the duties were placed upon
boards already in existence, with results which were far
from satisfactory. The final outcome has been that in
more than three fourths of the states organizations usually
known as state tax commissions may be found. While
an accurate generalization of their nature is impossible,
yet it may be said that the boards are composed of few
members, usually three, appointed for a comparatively
long period, at a compensation which is large enough to
obtain men of expert knowledge and capabilities. As far
as possible the attempt has been made to keep political
influences apart from the tax commission.

Activities of Commissions. The work of these commis-
sions has been so varied that again no accurate generaliza-
tion can be made. They are expected to form the balance
wheel of the fiscal system of the state to discover the
evils, formulate remedies, and induce legislatures, when
this is necessary, to make the needed changes in the fiscal
machinery. The general supervision has had a wholesome
effect upon the activities of subordinate officials, even
down to local assessors. The introduction of the mere
possibility of supervision at first had an exhilarating psy-
chic effect which, however, tended to wear off with time,
causing more actual supervision to become necessary.
The most marked result on the part of local officials has
been the increased and more uniform assessment of real
estate. The aid which has been given to local assessors
in formulating methods, such as the use of the tax map,
has aided materially in accomplishing this result. The
extent of the supervision varies from mere advisory pow-
ers to absolute control of all assessments, as in the state
of Ohio.

Auditing and Accounting. Since the advent of the state



276 OUTLINES OF PUBLIC FINANCE

tax commission, much progress has been made in the adop-
tion of uniform systems of public auditing and accounting.
It is only through such uniformity that any accurate
knowledge and comparisons may be had of public ex-
penditures, and this is the basis for the solution of fiscal
problems. In a few cases the commissioners aid in making
up the budget estimate, but this is as yet not generally
true. From their knowledge of the sources of revenue,
however, their services should be acceptable in helping to
formulate state budgets. The work which has been done
in auditing and accounting, however, bids fair to lessen
the squandering of public funds and to prove a material
saving through the elimination of inefficient and wasteful
methods.

Corporation Assessments. Another accomplishment, for
which the tax commissions deserve credit, has been the
improvement in the processes for valuing the various
classes of corporate property. It has been through their
studies and experiments that the various plans gross
earnings, net earnings, ad valorem, and other plans-
have been tried, and the merits and defects of each noted.
Tax commissioners have succeeded in creating an attitude
of respect from the corporations, because of the fair treat-
ment they have extended, which has been beneficial in
more ways than in an increased revenue. Mention should
be made of the valuable contributions to fiscal knowledge
which have been made through the reports of the various
commissions. Many of them are a part of the most val-
uable literature on fiscal problems, and should be consulted
by students interested in systems of state revenue.

146. Taxation of Property Remains Unsatisfactory.
So far the changes made in assessing and taxing property
have been void of satisfactory results. If all the devices
suggested above were generally adopted, some of the
defects of the present property tax might be less flagrant,
yet it seems doubtful if the scheme as a whole can be
made satisfactory. Most authorities would be willing to



PROPERTY TAX REFORM 277

conclude concerning the general property tax, as does
Professor Seligman:

The general property tax as actually administered is beyond all doubt
one of the worst taxes known in the civilized world. Because of its at-
tempt to tax intangible as well as tangible things, it sins against the
cardinal rules of uniformity, of equality, and of universality of taxa-
tion. It puts a premium on dishonesty and debauches the public
conscience; it reduces deception to a system, and makes a science of
knavery; it presses hardest on those least able to pay; it imposes
double taxation on one man and grants entire immunity to the next.
In short, the general property tax is so flagrantly inequitable that its
retention can be explained only through ignorance or inertia. It is
the cause of such crying injustice that its alteration or its abolition must
become the battle cry of every statesman and reformer.