THE THEORY AND PRACTICE OF TAXATION. INTRODUCTION. IT is the purpose of the writer, in the chapters which follow, to discuss the principles of taxation from a broader basis and by different methods than have heretofore been attempted, special consideration being given to the experience of the United States. Such a discussion primarily involves the inquiry, of how far the varied and curious experience of nations leads up through what may be regarded as a process of evolution, to a recognition of the underlying and essential principles of a just and at the same time an efficient system of taxation. And it also necessitates, for the attainment of correct conclusions in the prosecution of such inquiry, that illustrations drawn from the world's great record of experience should take precedence of theory, especially in the way of example and exhibit of the many abuses of the power of taxation which the ignorance of legislators and the cupidity of designing men have inflicted upon nations. The subject is one of transcendent importance, perhaps more universally important than any other that can invite public attention. Its discussion opens questions of the widest possible range. There can be no civilization without government, and no government without an adequate supply of revenue obtained from the persons and property of the people governed. There can be no health in the body politic without sound finance, and no sound finance without a sound system of taxation. In fact, taxation is to our body politic what blood is to the body physical: if healthy, infusing life and warmth; but if un healthy, the agent for producing discontent, decrepitude, and paralysis. The absence or existence of limitations on the power of a government to make compulsory levies on the property or persons of its people for its use or support, constitutes the dividing line between a despotism and a free government a fact most pertinent to legal, economic, and societary studies which has attracted little attention. The methods and scope of what is called taxation regulate more than all other agencies the distribution of wealth, which is really the great question of the future to all nations. Ever since Adam Smith wrote his paramount work on the Wealth of Nations the political economists and students of social science have concerned themselves mainly with the production of wealth. That problem has been practically solved. Wealth is now produced with a rapidity that the world has never before supposed possible, and the laws governing its production have become well understood by those who have made a special study of the subject. An inevitable result of this condition of affairs has been, that wealth produced under the greater control that man in general has obtained over the forces of Nature has aggregated itself, as it always will, in the hands of those whose faculties especially qualify them to obtain and manage it, and who, in common parlance, have received the name of "money-getters." These have become enormously rich, while the masses, whose material condition is also absolutely much better than at any former period of the world's history, are, however, relatively poorer. Improved instruments for transportation have greatly facilitated intercommunication, and the oppor * Recent investigations indicate that the absolute effective force available to the American people for the production of wealth is more than three times greater at the present time than it was in 1860. The outflow of British capital for investment in foreign securities and negotiated in London alone, during the eight years next previous to 1890, has been estimated by those best qualified to express an opinion, to have amounted to the large sum of nearly or quite $700,000,000 per annum. And this estimate does not comprise all the British capital loaned to foreign countries, but only such as was subject to public cognizance. The number of people annually transported on the railroads alone in the United States exceeds many times the total population DISTRIBUTION OF WEALTH. 3 tunity thus afforded for the observation of extreme contrasts in individual conditions has operated as a very great factor in occasioning discontent among the masses, who, by reason of the never as yet fully tested experiment of universal suffrage, have become, at least theoretically in the United States, the sole arbiters of the policy of their Government and of the selection of the legislators who are to enact laws in conformity with such policy.* The problem of the acquisition of wealth having thus been solved, that of the proper distribution of wealth logically and necessarily follows, and the character of the measures which directly or indirectly involve what is called taxation for the attainment of such result, which seem to commend themselves to the people of the United States, is especially worthy of attention. These measures are indicated in part by the adoption of a pension system unlike anything of the kind ever known in history, and which necessitates an annual expenditure of money (raised by taxation) to meet the military expenses of the country -army, navy, and pensions-in excess of that entailed by the immense military establishment of any of the countries of Europe, and the enactment of an income-tax statute whose primary object was not to raise revenue for the support of the Government, but an unmistakably po of the country, the annual number for the New England States being more than sixteen times greater than their population. The widening of the sphere of one's surroundings, and a larger acquaintance with other men and pursuits, have long been recognised as not productive of content. Writing to his nephew more than one hundred years ago, Thomas Jefferson thus concisely expressed the results of his own observation: " 'Travelling," he says, "makes men wiser, but less happy. When men of sober age travel they gather knowledge, but they are, after all, subject to recollections mixed with regret; their affections are weakened by being extended over more objects, and they learn new habits which can not be gratified when they return home." "The great, the unanswerable argument in favour of universal suffrage is, not that it insures a better or purer government, but that all must be contented with a government in which all have an equal voice. If it be deficient in this particular, if it fail to protect the poor against the oppression of the rich, or the rich against a destruction of their property by the poor, it is pro tanto a failure, and another method of representation should be adopted."-Address of Justice Brown, United States Supreme Court, before the Law Department of Yale University, July, 1895, litical and socialistic measure, which threatened to annul the most important and exceptional feature of the Federal Constitution. That the diminishing rate of returns, in way of interest or profits, by the force of laws which no combination of capital can resist, is seriously impairing the relative value. of wealth, and may eventually reach a minimum which will greatly diminish the inducement to individuals to economize or save it, although not generally recognised or appreciated, can not be denied.* And neither is it recognised that the current rate of taxation on capital in all civilized countries even now approximates, and to an extent actually exceeds, the current rates of interest or profit on its use. Thus, for example, the rate of discount at the Bank of England during the greater portion of the years 1894 and 1895 has not been in excess of two per cent, and the discount (borrowing) rate for three months during this period was not infrequently less than a rate of three quarters per cent per annum. If taxes, according to popular theory, do not diffuse themselves, but remain a burden on the person, business, and property subject to their first incidence, there is a problem likely to come at no distant day before tax legislators, which up to the present time they have hardly thought of, and which is certain under a free government to be solved by human nature rather than by statute.f *The French economist, Paul Leroy-Beaulieu, treats fully of this subject in his Essai sur la Répartition des Richesses. M. Léon Say, the distinguished French economist, in a recent discussion of the income tax, asserts that the public and private financial history of France has been one of incessant abolition of private and state debts, and in substantiation of such a conclusion he shows that if a capital of 8,330 francs had been invested in national debt obligations of France in 1522 and allowed to remain subject to the various changes in respect to capital and interest which the financial policy of the state has necessitated and required under its successive governments, the present value of the investment to the legitimate heirs of the first investor would be but 83 francs. The reduction of annual income to the holders of the national debts of Europe, contingent on the refunding of the same during the year 1894, is estimated at $24,000,000, requiring an addition of $960,000,000, with an earning capacity of two and a half per cent per annum, to the total of what is called capital, to make up for the subtraction of income from the individual holders of |