Community Civics and Rural Life

by Arthur William Dunn

CHAPTER XXIII

TEAM WORK IN TAXATION

THE DISLIKE OF THE PEOPLE FOR TAXATION

People have never liked to pay taxes. Their repugnance to it is largely a survival of the times when an autocratic ruling class imposed taxes upon the people for its own selfish purposes. Struggling for the bare necessities of life, the people had to pay the bills of the ruling class who lived in luxury. The long struggle for liberty in England and in the English colonies was a struggle against the power of rulers to impose taxes without the consent of the people. The habit of mind with respect to taxation formed under such conditions has to a considerable extent persisted into the present, when conditions are very different.

WHAT TAXATION MEANS IN A DEMOCRACY

The change to government "of the people, by the people, for the people" should put the paying of taxes in a very different light. We decide upon a service we want performed for us, we provide the governing machinery to perform the service, and the service must be paid for. We do not object to paying for having our house built, our food provided, our clothes made, and our goods hauled. Why should we object to paying for the service of schools, roads, protection of health and property, the defense of our liberties?

THE RETURNS FROM TAXATION

Such objection seems especially unreasonable when we consider that the value of the service rendered by government is, as a rule, far in excess of what it costs the individual citizen. In Chapter XVII we saw that a Virginia farmer, the value of whose farm was assessed at $3000, was taxed $19.48 for road improvements. In return for this he acquired the use of a system of roads throughout the county that cost at least $173,000. This local system connected him with the transportation system of the entire country, gave him a market for his produce, greatly increased the value of his land, brought better school facilities, and enriched his life in many ways.

The recent war imposed an unusually heavy burden of taxation upon us. But when we think of the millions of people who paid for the war with their LIVES, and of the fact that the war was fought for the most precious of all things,—human liberty,—the money tax that each citizen had to pay in some form or other seems very insignificant.

BENEFITS OF TEAM WORK IN TAXATION

In Chapter IV we read how Benjamin Franklin secured the services of a man to keep the pavements of the neighborhood clean "for the sum of sixpence per month to be paid by each house." By this bit of cooperation, each householder was relieved of a burden, and had the benefit not only of having his own pavement cleaned, but also of knowing that those of all his neighbors would be equally clean, and thus of having a pleasanter neighborhood, and the cost was insignificant. This incident illustrates the underlying principle of taxation in a self-governing community. The poorest citizen is made rich in the benefits that he may enjoy, while the cost is made proportional to his ability to pay.

MISUSE OF TAXES

Like the rest of our governing machinery, however, our system of levying, collecting, and paying taxes does not always work perfectly, and there is more or less ground for dissatisfaction with it. In the first place, the people do not always get full value for their taxes. While it is true that the farmer receives, in return for his road tax, vastly more than he could purchase privately with the same amount of money, yet, if the road improvements are poorly made, he gets less than he should. It usually costs as much to employ an inefficient road supervisor, or school teacher or superintendent, or sheriff, as to employ an efficient one—in fact, in the long run it costs more. Sometimes more persons are employed in government offices than there is any need for, or some of those employed are shirkers, or otherwise inefficient. There is wastefulness in the methods by which appropriations are made for the expenses of government. Sometimes there is "graft," by which public money is diverted to the private uses of officials, contractors, or others.

A CAUSE OF DISSATISFACTION

Such abuses as these are, of course, not faults of the TAXING system, but they naturally make citizens reluctant to pay taxes. People want to know that their money is spent for the purposes for which it was paid, and that it is used economically and effectively for these purposes. Nothing else will do so much to remove the dislike of taxation as assurance on these points. As Franklin said with reference to his successful experiment in street cleaning, it "raised a general desire to have all the streets paved, and made the people more willing to submit to a tax for that purpose."

TAXATION MUST BE JUST

A system of taxation must be JUST if it is to meet with popular approval. It is not easy, nor indeed possible, to devise a system that works with absolute justice in every case; for the assessment of taxes is a complicated process, and reliance must be placed to a considerable extent upon the honesty and conscientiousness of individual citizens. The people are satisfied, however, if they see that every reasonable effort is made to secure justice.

The first essential in a just system is that EVERY CITIZEN SHALL BEAR HIS SHARE of the burden. Therefore the paying of taxes is compulsory by law. It is also just that each citizen shall pay only IN PROPORTION TO HIS ABILITY. These two principles of taxation are similar to those applied in the selective draft for war service. It is in assessing taxes according to ability to pay that one of the principal difficulties appears. But an effort has been made to do this by the following procedure.

HOW THE AMOUNT TO BE RAISED IS DETERMINED

It is first necessary to know how much money will be needed by the government. Each year, therefore, the heads of the various branches and departments of government make an estimate for the coming year, based on their knowledge of past expenditures and present and future needs. Such estimate can be made intelligently only when there is an accurate and businesslike system of keeping accounts and records, and a well-planned BUDGET SYSTEM. Unbusinesslike methods of keeping accounts and the lack of a budget system have been among the chief weaknesses of our governments, equally characteristic of local, state, and national governments. Efforts are being made to remedy these defects and are described in Chapters XXV, XXVI, and XXVII.

TAXES ON PERSONS, PROPERTY, AND PRIVILEGES

The second thing to be ascertained is the ability of each citizen to pay. In some states a uniform POLL TAX is assessed upon every adult citizen. This is a tax upon the PERSON and usually amounts to about two dollars. Only those are exempt who are incapable of self-support. But the chief reliance is upon a property tax. State and local governments depend principally upon a GENERAL PROPERTY TAX, for which purpose property is divided into two kinds: REAL ESTATE, which includes land and buildings, and PERSONAL PROPERTY, which includes furniture, tools, livestock, money, and valuables of various kinds. In addition to the general property tax there may be taxes upon INCOMES and upon INHERITANCES. There are also LICENSE TAXES, such as dog and automobile licenses. Finally there are taxes upon certain PRIVILEGES which are bestowed upon the individual by the community and have a money value. Of such a nature is the license tax imposed upon a peddler or upon a person who maintains a market stand on the public street. Such, also, are the taxes placed upon corporations for the privilege of using the public highways for car tracks, water mains, or telephone poles.

It is necessary, therefore, for the government to ASSESS THE VALUE of the property (or privilege) of each citizen, and it has its organization for this purpose. Each local community The assessment of (township, county, or city) has one or more TAX ASESSORS, who endeavor to ascertain by inquiry values or inspection the value of each citizen's property. The sum of the individual assessments constitutes the assessment valuation for the town, or county, or city; and the sum of the valuations of these local communities constitutes the valuation for the entire state.

THE RATE OF TAXATION

The third step is to ascertain the RATE of taxation. This is found by dividing the total amount to be raised by taxation The rate of by the total property valuation of the county or taxation state, as the case may be. If the amount to be raised is $500,000, and the property valuation is $10,000,000, the rate would be 5 per cent, and the tax is levied against each citizen at this rate. A citizen who owns twice as much property as another should pay twice as much tax. Each should pay according to his ability.

DIFFICULTY OF JUST ASSESSMENT

This seems like a simple procedure; but it is very difficult to get a just result. The difficulty lies chiefly in the assessment It requires a good deal of intelligence to assess property fairly, even with the best of intentions. Assessors are not always competent. Two assessors may differ in their judgment, so that assessments in one part of the community may run at a lower level than in another part. Thus assessments vary in their fairness in different townships of the same county, and in different counties of the same state. An attempt is made to avoid this by means of county and state TAX EQUALIZATION BOARDS, which seek to adjust differences of this sort. But their efforts are only partially successful.

RESPONSIBILITY OF PROPERTY OWNERS

Property owners are themselves, however, more responsible than anyone else for the inequities of taxation in our country. It is a common practice of tax assessors to accept the property owner's own statement of the valuation of his property. In an astonishingly large proportion of cases he gives a valuation far below the real one. Even when the assessor inspects the property, it is easy to conceal from his eyes certain forms of personal property, such as money, stocks and bonds, and jewelry. Land and livestock cannot be concealed; and for this reason farmers are likely to pay a heavier share of taxes than others whose property is in less conspicuous forms. But they may make false valuations.

ILLUSTRATIONS OF UNJUST ASSESSMENTS

In one state, where the law requires the assessment of real estate "at its true value in money when sold in the ordinary manner of sale," a study in one township showed that "the average TAX value of farm land in the open country … is $7.89, while the average MARKET value runs around $20. The 73 largest taxpayers give in their farm holdings at values ranging from $6 to $20 an acre. Thus the burden of state and county support falls three or four times as heavily on one acre of farm land as on another—on farms lying side by side.

"When we look at suburban farm land the tax values range from $17 to $2220 an acre.

"But the most amazing 'jokes' appear in the values put by their owners on improved town lots. In the same end of the town we found three handsome town properties worth around $15,000 each, the tax values were $550, $4400, $4950. In another neighborhood, two adjoining homes about equal in value were listed at $500 and $3400; one at about 50 per cent and the other at about 8 per cent of the actual value."

With regard to personal property in the same township, the wealthiest private taxpayer in the township lists household goods and utensils, work-stock, vehicles, money, jewelry … at $216. The next wealthiest private taxpayer covers all these properties with $105. He's a farmer and well-to-do, but his household furniture, farm animals, vehicles, implements, and the like, are worth only $105—on the tax list.

"Another large landowner covers his household goods, farm animals, vehicles, and the like, with $82; another with $457, and another with $2272. The differences lie not so much in the properties as in the consciences of these big landlords."[Footnote: 1 E. C. Branson, A Township Tax-List Study; in North Carolina Club Year Book, 1917-1918, pp. 66, 67 (The University of North Carolina Extension Series No. 30).]

PUBLIC AND PRIVATE HONESTY

Such inequalities as these may be found in almost every tax list in any community. One of the strange things about it is that citizens evade taxation who would not think of being dishonest or unfair in a private business transaction. The reason is not easy to understand. Doubtless it is partly due to the feeling that as long as "everybody does it" it is justifiable. Of course this is not true. One taxpayer is reported as saying, "I feel dog-mean whenever I give in my taxes; but I'm doing as well as the rest and a little better than most."

GOOD SENSE AND GOOD BUSINESS

Dishonest returns by one taxpayer defraud the citizen who is honest, because they place a heavier burden of taxation upon the latter. Moreover, the dishonest taxpayer and good cheats himself along with others, for the lower the business valuation of property, the higher the rate of taxation, or the poorer the service received from the government. "It is good sense and good business for a state to show up with large tax values and low tax rates. It shows a brisk and lively prosperity that is attractive to outside capital and enterprise." [Footnote: E. C. Branson, A Township Tax-List Study]

INTELLIGENCE AND PUBLICITY NEEDED

To secure fairer taxation and better returns from taxation there is need of improvement in the organization for tax assessment and tax equalization. It is especially important to make it more difficult for the "tax dodger" to evade his responsibility. It would seem, however, that there would be fewer "tax dodgers" if the people once got "the right idea" of what taxation really means in a democracy. Great improvement would doubtless result, even under present conditions, if honest citizens would take more interest in the results of assessments as shown in the tax lists. The writer quoted in the paragraphs above asserts that, next to the Bible, "the most important book in any county is the Tax List, and it is the one book that the people in general know least about."

Everybody knows in a vague, general way that something is wrong with our tax system … but what everybody does not know is what the facts are in concrete, accurate detail. There is no cure like publicity for wrongs in a democracy. Give the folks the facts, whatever they are, and the folks will do the rest. … But at present nobody knows the facts. That is to say, nobody but the tax listers, the registers, and the sheriffs. And they are dumb because their official lives depend on silence. [Footnote:. C. Branson, A Township Tax-List Study.]

Investigate and report on the following:

Do people of your acquaintance like to pay taxes? What reasons do they give?

The cost of your town government, your county government, and your state government per year.

The purposes for which most money is spent by your town government, your county government, and your state government.

The assessed valuation of property in your town, county, state.

Does the law in your state require that property shall be assessed at its full market value? If not, at what part of its market value?

The tax rate in your county. Is it high or low? Reasons why it is high or low.

The tax list of your town.

The sources of revenue in your county and state, and the amount raised from each source.

The work of a tax assessor in your town.

Where taxes are paid in your community.

Who has charge of tax collections in your community?

What happens to a citizen in your community who fails to pay his taxes?

The difference between "assessing" and "levying" taxes.

Who levies the taxes in your town? county? state?

Explain the statement that "large tax values and low tax rates attract outside capital and enterprise".

TAXATION BY THE NATIONAL GOVERNMENT

We have been speaking so far of taxation, for the purposes of state and local governments. But Congress also has power by "to lay and collect taxes … to pay the debts and provide for the common defense and general welfare of the United States" (Constitution, Art. I, sec. 8, clause i). State and local governments raise most of their revenues by DIRECT taxation upon the property of citizens. The national government, on the other hand, has always relied chiefly upon INDIRECT taxation. Congress levies DUTIES ON IMPORTS. These duties are paid in the first instance by the importer. The latter, however, adds the tax to the price of the goods, so that it is paid finally by the consumers and not by the importer. In a similar manner Congress levies EXCISE TAXES, which are taxes upon products manufactured in this country. The principal excise taxes have been those levied on alcoholic liquors and tobacco. But here again the tax is paid by the consumer in the price which he pays for the liquor or tobacco.

ADVANTAGES OF INDIRECT TAXATION

The chief advantage of indirect taxes is the ease and certainty with which they may be collected by the government. the citizen pays them whenever he buys the articles on which the tax is levied. The retail dealer passes them on to the wholesaler, and so finally the importer is reimbursed. The government collects the taxes at customs houses at ports of entry, or at the tobacco factories and, formerly, at distilleries. Prohibition has deprived the government of one of its chief sources of revenue. Indirect taxes are also less objectionable to the people, for they are seldom conscious of paying them when they buy goods upon which they are levied.

FEDERAL INCOME TAX

Congress has the power to levy direct as well as indirect taxes, but it has usually avoided direct taxation, partly for the reasons stated above, and partly because the Constitution provides that "no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken"; that is, in proportion to population. It has been found difficult in practice to make such apportionment. Various attempts by Congress to levy a direct tax on incomes have been declared unconstitutional by the Supreme Court because it was not so apportioned. The Constitution has now been amended, however, to give Congress the power "to lay and collect taxes on incomes from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration" (Amendment XVI).

A large revenue is now derived from the national income tax. The law at first exempted from it single persons whose income was less than $3000, and married persons whose income was less than $4000. As a result of the war, only those are now exempt whose incomes are less than $1000, if single, and $2000 if married, with an additional exemption for each dependent child. The tax is PROGRESSIVE: that is, the larger one's income, the higher RATE one pays.

WAR TAXES

In ordinary times of peace, state and local governments together spend much more money than the national government. In war time the reverse is true. Enormous sums of money were required for the conduct of the recent war. As a result the rates of import, excise, and income taxes were greatly increased, and unusual forms of taxation were adopted. A war tax was placed upon many articles of common use, an inheritance tax was imposed similar to that in some of the states, and the EXCESS PROFITS of businesses which the war made unusually prosperous were taxed heavily. The effort in every case was to distribute the tax so that every one should do his share, while the burden should rest most heavily upon those who could best bear it.

GOVERNMENT LOANS

A large part of the money necessary for war purposes, and for permanent improvements in time of peace, is raised by borrowing. Governments, whether national, state, or local, borrow money by the sale of BONDS, the purchase price with interest being returned to the purchaser after a stated period of years. The national government borrowed more than 22 billion dollars during the war by the sale of "liberty bonds," and an additional large sum by the sale of "war savings stamps". These loans made by the people are ultimately paid off with funds raised by taxation. The people to- day advance money to the government, which the people of to-morrow pay back by taxation. This is justifiable because the war was fought for the benefit of future generations as well as of the people to-day. For the same reason, the cost of permanent improvements, such as roads and public buildings, is distributed over a period of years.

Investigate and report on:

The full meaning of Article I, section 8, clause i, and section 7, clause I, of the Constitution.

The loss to the nation of revenue as a result of the prohibition of the liquor traffic.

Compensating financial gains to the nation through prohibition of the liquor traffic.

Why an income tax is a good form of taxation. Why it should be "progressive".

The justice of an inheritance tax. Of a tax on excess profits.

Articles upon which you pay an import duty.

Why government is justified in using force to compel the payment of taxes.

READINGS

County and state reports. Local tax lists.

In LESSONS IN COMMUNITY AND NATIONAL LIFE:

Series B: Lesson 22, Financing the war.
Lesson 23, Thrift and war savings.

The United States Treasury Department; in Federal Executive
Departments,

Bulletin, 1919, No. 74, U.S. Bureau of Education.

In Long's AMERICAN PATRIOTIC PROSE:

Taxation and Government (John Fiske), pp. 249-254.

North Carolina Club YEAR BOOK, 1917-1918, pp. 49-68 (University of
North Carolina Record, Extension Series No. 30, Chapel Hill,
N.C.).

Tufts, Jas. H., THE REAL BUSINESS OF LIVING, pp. 52-54; 242-246
(Henry Holt Co.).

Hart, A.B., ACTUAL GOVERNMENT, pp. 381-429 (Longmans, Green &
Co.).

Reed, T.H., FORM AND FUNCTIONS OF AMERICAN GOVERNMENT, pp. 468-481
(World Book Co.).

ENCYCLOPEDIA OF AMERICAN GOVERNMENT, under "Tax" and "Taxation."

Plehn, C.C., INTRODUCTION TO PUBLIC FINANCE (Macmillan).