On the subsequent submission of the Constitution to the people, this section, by direction of the Legislature (act of April 24, 1869), was voted upon separately and independently, with apparently a full understanding, from the debates of the convention and other public discussions, that the effect of its ratification would be to thereafter disallow indebtedness to offset or diminish the valuation of any description of property for the purposes of assessment and taxation; a rule which, practically, would amount to the taxation of credits or indebtedness the same as absolute property. The result was that the proposition was signally disapproved, the popular vote against its ratification and adoption being 273,260 in a total vote of 457,211. And it is a curious circumstance worthy of note, as showing the extent to which members of the convention mistook the sentiment of the people on this subject, that the vote of the districts of several of the delegates who confidently and explicitly assured the convention that the measure was most popular, was subsequently either very small in favour or altogether adverse to its ratification. An analysis of the vote upon this article also shows that, while the majority in the counties containing the large cities almost uniformly and largely voted against its ratification, the vote of a large number of the less densely populated or agricultural counties was also in the same direction; as for example, the counties of Sullivan, Oneida, Fulton, Hamilton, Chemung, Clinton, Columbia, Delaware, Dutchess, Genesee, Greene, Herkimer, Lewis, Niagara, Orleans, Oswego, Richmond, Rockland, Saratoga, Schoharie, Schuyler, Ulster. Wayne, Yates, etc.

In view of these circumstances, therefore, it would seem to be to no purpose, even if it were deemed expedient, for the commissioners to recommend for adoption a system which the Legislature and the people of New York have so recently and unmistakably indicated that they will not sanction.

But supposing these objections to be removed, and that the Legislature and the people were willing to reconsider and reverse their prior determinations, the more important question yet remains to be considered, namely: Will the adoption by New York of a system of taxation analogous to that of Massachusetts, remedy the inequalities and imperfections now existing and complained of, and in the end prove alike expedient and beneficial to the State? And in answer to this the commissioners would say, that the system of Massachusetts, which is probably carried out more efficiently and intelligently than any similar system in any other State, fails, according to the acknowledgment of its most experienced officials, to obtain in the city of Boston at least thirty per cent of the personal property

existing within the city limits and liable to taxation; and in the city of Dorchester, where, in common with the rest of the State, it may be presumed that the law is less efficiently executed than in Boston, the valuation of the entire property in 1869, as already shown, was nearly thirty-three per cent below the standard as established in Boston.

In Connecticut, also, as has been before stated, the amount of personal property that escapes taxation under a similar system is estimated at forty per cent; while the failure of the system in Cincinnati and Providence is unmistakably demonstrated by the circumstance, that in both of these cities their valuationlists of personal property are known to fall off in consecutive years very largely (often to the extent of millions), while the aggregate valuation of real property continues to advance uninterruptedly and with great regularity. Now, if the thirty, forty, or larger percentage of personal property that escapes taxation under the most favourable circumstances represented a uniform deduction from the value of all property of such character liable to assessment, as is the case when a percentage of the value of real estate is uniformly taken as the standard of valuation, there would be an equality of assessment of any one man in this respect as compared with every other (the comparative assessments of real and personal property not being taken into account). But such unfortunately is not, and never can be the case; inasmuch as it is known to every one who has ever given the slightest attention to the subject, that that portion of personal property which always escapes taxation is the one which is the best able to bear it-as capital not permanently invested but used for speculative purposes; negotiable instruments, national, State and other bonds, affording either by stipulation or conditions of purchase a high rate of interest money lent on collateral; costly personal effects, plate, jewellery, furniture, etc.; while the portion that never escapes taxation is that whose exemption would most conduce to the interest of the State-as machinery, tools, implements, ships, canal-boats, etc., the cost of all of which, whenever and however increased, is always reflected upon the cost of production; or mortgages, the taxation of which almost invariably tends to increase the rate of interest to those who mainly borrow on such security for the purpose of building or otherwise improving real estate.

*In Cincinnati the valuation of personal property fell off from $68,412,000 in 1867 to $61,583,000 in 1868, and $58,471,000 in 1869; while the valuation of real property increased during the same time from $68,569,000 in 1867 to $69,799,000 in 1868, and $72,243,000 in 1869. In Providence, R. I., the valuation of personal property fluctuated from $43,618,000 in 1868 to $42,162,000 in 1869; while the valuation of realty increased during the same time from $49,107,000 to $50,908,400.

And it must be further remembered that as the requirements of the State for revenue are imperative the failure of any portion of a given description of property to meet its relative liabilities necessarily increases the burden that must be imposed upon the remainder.

TAXATION OF INDEBTEDNESS.

Again, another difficulty which presents itself in endeavouring to carry out a uniform rule of valuing and assessing all property, both real and personal, grows out of the question of indebtedness, and which, as before stated, was the real question involved in the fifteenth section of the eighth article of the Constitution of 1867-'8, rejected by the people.

In Massachusetts the laws do not allow indebtedness to offset or diminish the amount of tangible property, the only allowance for liabilities being a provision of law that debts due from may be deducted from, or offset, debts due to the person to be taxed (General Statutes, chap. 11, sec. 4); but no debts are allowed to offset or decrease actual property which is assessed to the holder (except consigned goods), even although the larger part or the whole of such property is purchased upon credit. Thus, to take a particular case for illustration: A merchant in Boston worth $100,000 capital, and goods in store to the value of $500,000, would be assessed upon the average amount of goods held during the year preceding the first day of May ($500,000 if he was replacing goods as fast as he sold) and also for any money he might have on hand May 1st, and the profits made during the year as income. (See General Statutes of Massachusetts, chap. 11, sec. 4.) "But," to quote from the communication of a Massachusetts official on this subject, "as Boston construes that section, so much of the income only would be taxable as was withdrawn from business, as in taxing his business we should assess all of his profits that were allowed to remain there; other municipalities, however, construing the law differently, would tax the whole profit (income) less $1,000. The point has never as yet been decided by the courts as to which construction is correct."

In Connecticut the law provides, "that the average amount of goods kept on hand for sale during the year shall be the rule of valuation and taxation; but merchants shall also be liable to be assessed for any amount of credits and debts due them from responsible persons over and above their liabilities." And any merchant may have a deduction from his list for debts owing by him "to residents of this State when the debt is

liable to be assessed and set in the list of the person to whom the same is due, as money at interest."*

Now, in looking at these provisions of the tax systems of Massachusetts and Connecticut, it would seem as if they presented indisputable evidence upon their very face that the law in respect to the taxing of indebtedness never is, and, from the very necessity of the case, never can be, effectually carried out and enforced. In proof and illustration of this, let us apply the example, before quoted by the Massachusetts officials, of the merchant with $100,000 capital and an average stock of $500,000 of goods bought upon credit, to the city of New York. The rate of taxation in New York city for the current fiscal year being 2.27, the amount which the merchant would be liable to pay would be equivalent to 11 per cent upon his capital; to which, according to the Boston custom, there would be further added a tax at the rate of 2.27 upon all money on hand on the day of assessment, and also upon all income realised from business during the preceding year. If the business was carried on in the city of Brooklyn, the aggregate percentage levied upon the capital of the merchant, in the place of being 11 would be 19%; in Albany, 22.8; in Rochester 33. And to these amounts, if we would know the cost of the capital employed, there must be also added the rate of interest which the capital costs, or is worth independently, viz., seven per cent. And again, if the system of Massachusetts was to be applied equitably in New York (and unless it is so applied the tax assumes the character of a mere arbitrary exaction or confiscation), an institution like the Park Bank, in the city of New York, with a capital, on the 1st of October, 1870, of $2,000,000, and money and securities, in addition, in its possession (for which it is indebted), to the extent of $21,441,000 would be taxed upon all the securities it holds, and on all the property in its possession; or, not being allowed to deduct in the assessors' valuation its indebtedness, would be practically taxed 2.27 on $23,400,000, or at the rate of twenty-six per cent

*The provision of law proposed in Illinois on this point is as follows:"In making up the amount of moneys and credits which any person is required to list for himself, he shall be entitled to deduct from the gross amount of moneys and credits the amount of all bona fide debts owing by such person for a consideration received; but no acknowledgement of indebtedness not founded on actual consideration, believed when received to have been adequate, and no such acknowledgment made for the purpose of being so deducted shall be considered a debt within the meaning of this

section.

In the debate in the constitutional convention in New York on this subject, in 1867-'68, cases were cited by a delegate where merchants or firms in New York with a capital of half a million were constantly carrying stocks of goods or securities, promissory notes, etc., to the extent of from three to five millions.

on its capital. Now, it needs no argument to show that no business in any location could stand such an onus of taxation and survive; and therefore we have a right to infer that although such a system is nominally carried out in Massachusetts and Connecticut, it is nevertheless in some way rendered practically inoperative.

The above examples also afford a practical illustration of the truth of that economic principle in taxation, that the productiveness of a tax is not its first consideration to favour; and that the benefit which accrues from an amount of revenue specially collected may fall far short of compensation for the blight resulting to the State from the manner of taking it—a blight which ruins the harvest which it cannot gather.

But it may be said that, with a uniform and full valuation and assessment of all descriptions of property, such rates of taxation could never occur. In answer to this it may be said that in Boston, where such a system nominally prevails, the rate for the current year is 1.53; which, in the case of the merchant above referred to, would tax his capital to the extent of 71% per cent; and in the case of the bank to 15%. And, furthermore, under this system of valuation and assessment the rate of tax in Massachusetts rises not unfrequently to two per cent, and sometimes as high as 3.20, 3.33, and 3.89.

And yet at the same time it is difficult to see how a system which proposes to tax all personal property uniformly can be made to work with any degree of success, unless the right or privilege to offset or diminish valuation by indebtedness is strictly and explicity forbidden, inasmuch as it is this very right or privilege which furnishes the opportunity whereby personal property can most successfully evade taxation. Nothing is more easy than to create debts for the purpose of diminishing valuation, which no investigation on the part of the assessors will suffice to prove fictitious, and yet of such a character that individuals of easy conscience will find no difficulty to making oath to their validity. In the debate which took place on this subject in the constitutional convention of 1867-68, numerous examples were given by delegates of expedients of this character which had fallen under their observation*

*In the country and in the towns and cities in the interior of the State, the rule is almost universal for persons to get up an indebtedness of some kind or other so that their property may escape taxation. Some persons will give notes to their children; others will exchange notes with their neighbours; and others will enter into obligations for the purpose of creating a liability, just about the time the assessors come around.--Hon. Sanford E. Church, Debates Constitutional Convention, vol. iii., page 1932.

"It would be well to particularise some of these attempts to get rid of taxation. Among other things, sir, we have official bonds given by different