But when the government undertakes these various tasks, the expense falls unequally on individuals and affects differently their incomes. When free schools take the place of private schools, the law compels every one to contribute to education. To many individuals it is a matter of indifference whether they pay tuition or taxes, but the wealthy bachelor sometimes grumbles when forced to help in educating the day-laborer's family of twelve. The average result may be right, but individuals diverge from the average and thus have constantly a motive to attempt to change the limits of governmental action. Happily the subject is not always viewed with selfish eyes. The ethical and patriotic thought is not, "How will this affect my interests?" but, "How will it affect the general interests?" But as the question of value is always involved, men are usually found favoring or opposing a measure of taxation according as it affects their own income. Thus taxation is inevitably an economic question.
§ II. FORMS OF TAXATION
The various forms of taxes
On incomes
On property
On expenditure
On business
1. Taxes usually are a portion taken from the income arising from labor or from wealth. In rare cases more than the net income of wealth may be taken, but the aim of taxation in general is to take only a portion of the income for public uses. As economic income has many sources, it may be intercepted at many different points, and taxation may take various forms. First, private income may be appropriated by a tax on income. This is the simplest in thought, but the administrative difficulties of the income-tax are great in practice. It is not easy to determine the money value of the various sources of enjoyment that come into a man's possession in the course of a year, including, as the ideal requires, the immaterial gratifications along with the material. A second form is a tax on property in proportion to value. Since the value of material wealth is the capitalization of the rentals at the prevailing rate of interest, the property tax, so far as it applies to material wealth, should take an approximately equal proportion of incomes. If it were accurately assessed, it would be in some respects better than a tax on actual rents, for it reaches the prospective, or speculative, rental. A third form of tax is one on consumption, or expenditure. This is but another mode of attacking income, for in the long run income is spent, not always by the individual who earned it, but by some one, and thus it is reached by a tax on expenditure. The principal consumption taxes in the United States are the tariff duties and the internal revenues of the national government. In time of war, internal revenues are extended in the United States to a multitude of articles, but usually they are limited (with minor exceptions) to liquor and tobacco. A fourth form of tax is one on selected agencies of industry; such are business taxes, licenses, taxes on investment in business, corporation taxes, etc. These burdens are diffused and rest eventually on some income, not always exactly ascertainable. Actual tax systems combine these forms in great variety, subtracting many minute fractions from each citizen's income in ways unsuspected by him.
Changes of taxation and in capitalization
2. The immediate effect of a change in the form of taxation is a change in the market value of goods. If the new tax reduces the net rent of any productive agent, it reduces likewise its value, which is but the capitalization of its net rental. If taxes are taken off of factories and put upon farm rents, factories rise and farm-land falls in value. The immediate change in value is much greater than the annual tax, for if five dollars is to be taken permanently from the annual rental of the farm, nearly one hundred dollars is taken at once from its selling value.