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most of the mercantile capital from her (bcing only 100 miles distant), just as Newark and other cities are more or less affected in some instances. But we have prospered in other branches of industry; and the fact that in each of the years 1869 and 1870 more than 4500 dwelling-houses have been erected, which are occupied as soon as they are finished, is evidence of that prosperity."

Again, attention is also called to the fact that in Lower Canada, which borders upon New York upon the north, there is comparatively no taxation upon bank capital, money at interest, manufacturing establishments, shipping, or other personal property;* and that the two neighbouring States of Maine and Vermont, with a view of developing their own resources, increasing their wealth, and attracting population, have each, within the last two years, enacted laws to exempt from taxation for a period of years (in Maine ten, and Vermont five), manufacturing establishments of whatever character, together with all machinery and capital employed in operating the same.t

It is also to be remembered that the State of New York is yearly becoming less and less of a distinctively agricultural and more of a commercial and manufacturing State; and that, through the inclusion within its borders of the harbour and city which is the entrepôt of two-thirds of all the foreign commerce of the country, the State itself, far more than any other, is

* For a detailed exhibit of the system of local taxation in Montreal and the province of Quebec, reference is made to the appendix to this report marked A.

+In Maine the exemption of manufacturing establishments is made to depend upon the consent of the towns where the same are located. In Vermont the exemption has been made absolute by the State for a period of five years from the date of the commencement of operations. The following is the Vermont act in question:

"An Act in Amendment of an Act entitled 'An Act to encourage Manufactures,' approved November 16, 1869.

"SECTION 1. Section 1 of an act entitled 'An Act to encourage Manufactures,' approved November 16, 1869, is hereby amended and construed so as to read as follows:

"All manufacturing establishments erected after the 16th day of November, 1869, and all such as were then in process of construction and not then completed, and all the machinery and capital used for operating the same, together with all such machinery hereafter put into buildings heretofore erected but not now occupied, or not now in condition for occupation, and all the capital used for operating the same, shall be exempt from taxation for the term of five years from the time of commencing to operate the same, where the amount of capital actually invested shall not be less than $1,000; but all property so exempted shall be appraised by the listers each year, and its valuation shall be stated upon the grand list, and the exemption from taxation, and the time when such exemption will terminate, shall be noted against it.

"SECTION 2. This act shall take effect from its passage.

66

'Approved November 22, 1870."

brought directly in contact with foreign countries and with their systems of taxation; so far especially as these latter affect the cost and movement of money capital, the development of shipping, manufacturing and mining, and the cost of storage and distribution of merchandise. And in reviewing the respective systems, we find that there is, upon the one side, as nearly perfect freedom from inquisition and restriction as the wants of local government and society will permit ; and on the other as cumbersome, vexatious, and ineffective a system as accident or the force of circumstances could well originate.

Thus, for example, in Great Britain, France, Belgium, Prussia, and Holland, there are no direct taxes on personal property; and in all of these countries special care is taken that the incidence of local taxation shall not increase the cost of production, especially of manufacturing, or of the commercial transactions involved in the movements of the finished products of industry to a market; but, in New York, in common with all the other States, except Pennsylvania, it has thus far been considered desirable rather than otherwise to impose upon the capital especially employed in manufacturing as large a proportion of the burden of local taxation as practicable. It is, therefore, evident that, to the extent of this difference in the incidence of taxation, the manufacturers in New York must enter a foreign market at a disadvantage, for which there can be no direct compensation; while as regards his own, or the home market, he has need of a corresponding measure of protection, either in the way of increased expenses of transportation or a rate of tariff, in order to hold his own against his more favoured foreign competitor. How this condition of inequality operates as a bar to State and national progress conjointly may be practically shown by various examples.

Let us suppose the projection of a new line of steamships to run between the city of New York and Europe in competition with existing lines, now controlled by foreign capitalists and registered under a foreign flag. If the nationality of the company is to be American, and its location New York city, the State, city, and county would have levied, or have authorised the levying, during the past year, on the whole accessible capital or property of the company, in the form of vessels, wharves, store-houses, machine shops, offices, and floating capital, a tax of 2.27 per cent.

Beyond this, the national government would have imposed an average tax under the tariff, on all articles of foreign growth or importation used in the vessels of the line, of fortyeight per cent; on the profits or dividends of the company (if perchance there should be any), an income tax; on all tickets

for passage, a tax varying from fifty cents to one dollar and a half: and until quite recently would have also taken two and one half per cent on gross receipts from both passengers and freights. If, on the other hand, the situs of the company is made foreign, and its location fixed at Liverpool, the whole amount of local taxation to which the company would have been subjected would be merely an assessment to the extent of from ten to twenty-five per cent on the rental value of the premises occupied either as offices, store-houses, or machineshops. Beyond this the British Government would have levied, in the year 1870, an income tax on the profits of the individual stockholders or owners, of four pence on the pound sterling, equivalent to one and two-thirds per cent, and, omitting all other forms of direct taxation, would have allowed all articles subject to taxation either under the excise or tariff, such as distilled spirits, teas, sugars, coffee, wines, and tobacco, which may be required for use on board the steamer in question, to be taken from bond free of duty. The difference in the return on the investment, therefore, growing out of the difference merely in the fiscal systems recognised in the different locations specified, would be of itself sufficient to afford to the foreign capitalist a dividend on his stock nearly or quite equal to the ordinary rate of European interest on the capital employed: while to the American investor the disadvantage would have an expression at least twofold greater through an increase of expenses and a diminution of profit which can be traced directly to a system of taxation and currency which has enhanced the price of everything that has entered into the steamer, from the laying of her keel to the coal that feeds her engines. With competition, therefore, with foreign nations, on terms of equality, being thus from the very outset by our own acts rendered impossible, it is not to be wondered that no American steamship sails to-day from the port of New York on any transatlantic voyage, and that there is not now in any commercial city of the United States hardly a single forge fire alight which could at once weld and fashion a shaft adequate for the necessities of a first-class ocean steamer. It is also interesting to note that during the present year the Legislature of Pennsylvania has incorporated a transatlantic steamship company, having its American situs in Philadelphia, in which all the property of the company, stock and bonds included, is specifically exempted from all taxation.

If we select another example, the manufacture of cotton in Great Britain and New York respectively, we find that in the former country the incidence of all local or other direct taxation extends only to the rental value of the buildings used for

the reception of machinery or the transaction of other details of the business of manufacturing, and does not in any way regard the value of the machinery which may be placed in such buildings, or the capital employed in its workings. On the other hand, in New York in common with all the other States, except Pennsylvania, the incidence of local taxation falls upon everything connected with the business of cotton manufacture that is accessible, viz., buildings, land, capital, and machinery, and is, moreover, not unfrequently duplicated; the land, machinery, and buildings being taxed to the company or corporation at the place where they are situated, and the stock to the stockholders at the place of his residence or domicile.

In one instance (and that not exceptional) brought to the notice of the commissioners, the aggregate of these local taxes imposed on a particular corporation located in one of the New England States, amounted, in 1868, to over four per cent upon the whole capital invested, and in years previous the aggregate was reported as considerably in excess of this figure.

But vicious as this system is, upon its face, its effects, contrasting our domestic with foreign systems of taxation, cannot be fully appreciated until we take into consideration the fact that the capital required to build a cotton or woollen mill in the United States is about double the amount required in Great Britain, or upon the continent of Europe. Four per cent, therefore, on the capital of a cotton mill in the United States represents eight per cent on the same productive power in Great Britain, Belgium, or Germany; a rate which is almost double the average rate of interest in the latter countries. It is, therefore, clear that the manufacturers of the State of New York engaged in cotton, woollen, or other industries similarly affected, are now so burdened by the acts of their own domestic legislation, that they absolutely need some measure of compensation, freight, or tariff protection, in respect to this one item, to enable them to compete successfully in their own markets against foreign competitors; and if the neighbouring States were to adopt the system of local taxation existing in Pennsylvania, or a more liberal one, and New York were to adhere to her present system, manufacturing industry, to a very great extent, would either be obliged to abandon the State, or force a repeal of the existing laws.

IMPERFECTIONS AND ANOMALIES OF THE EXISTING SYSTEMS OF LOCAL TAXATION.

But apart from any necessity for reform in the system of local taxation in New York, growing out of diversities in the

systems adopted by other commercially competitive or contiguous States, which may be remedied by compensating legislation; and apart from the differences through varying debts and expenditures in the burden of annual taxation to be of necessity sustained, which last may, in a degree, be remedied by more economical administration, and by adjusting the load to be carried in such a way as that it shall fit squarely upon the back of the body politic, rather than paralyse by pressure on the neck, or suspension from the extremities; there is a further imperative need of inquiry and reform from the inequality and inadequacy of the existing system to accomplish the work assigned to it. In short, it needs but the most superficial examination of the prevailing system of local taxation in the State of New York to abundantly satisfy, that whatever it is of to-day, it has grown up in common with the tax systems of all the other States, under the pressure of necessity, and mainly under the influence of accident and circumstance, And it does not appear that in a single instance in which previous attempts at reform in State taxation have been made, that those entrusted with the work have ever proposed to themselves anything more than to amend the administration of the laws imposing taxation as they found them, and to include a larger number of items than before in the range of valuation and assessment; and that no inquiry was either instituted or contemplated in respect to the influence of local taxation on the cost of production, on the growth and development of the State, or the equitable distribution of the annual surplus of production over consumption among the masses.

The illustrations which may be given in support of these positions constitute some of the most curious of the contributions which have ever been made to the history of political and social economy. The exemption of bonds and mortgages on real estate from taxation in a majority of the counties in the State of Pennsylvania, and the retention of the tax upon such instruments in others, has been referred to, but the history of the origin of this inequality through what may be termed "accident" is yet to be related. It is reported in this wise: A single county in the State, a few years ago, in the first instance, finding its local development obstructed through a deficiency of loanable capital, which deficiency in turn was occasioned by a taxation which reduced the rate of interest on such capital when lent on mortgages below what could be obtained by investment in other securities, petitioned the Legislature for the exemption of mortgages executed within the county limits, from all taxation. The petition being acceded to, other counties, through their representatives, were on motion, included in the

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