27. What would be the best method of acquainting the general public with the fundamental principles of banking?
CHAPTER XXXII
TAXATION
394. THE INCREASING COST OF GOVERNMENT.—In the United States, as in other modern civilized countries, the cost of government is steadily increasing. The settlement of the Great West, the depletion of natural resources and the transition from a primitive to an industrial economy have obliged our government to pay out larger and larger sums for the services of public officials, and for the materials and commodities used for public purposes. The growth—of our cities and the increasing complexity of our industrial life have greatly increased the number of activities which it is to our advantage to carry on, not individually, but collectively or through the agency of government. The spread of altruism and the widening of the concept of social service have caused the extension of governmental activity in such new fields as social insurance, recreation, and public health. Altogether, our total government expenditure is more than seventeen times as large as it was a half century ago, while the per capita expenditure is more than five times as great.
395. SOURCES OF PUBLIC REVENUE.—Writers on taxation generally enumerate as sources of public revenue, public industries, the public domain, gifts, confiscations, fees, special assessments, fines, and taxes. At various times and in different countries of the world, all of these have been important, but in the United States at the present time taxes are by far the most important source of public revenue.
A tax may be defined as a compulsory contribution exacted from the individual by the government, for the purpose of defraying expenses incurred for the common welfare. The government does not return to the individual taxpayer a definite commodity or service. In return for taxes the government indeed renders many valuable services, such as public education, the safeguarding of health, and protection from domestic violence and foreign war. But on account of the collective character of these services, no attempt is made to apportion the payment exacted of the individual to the benefit which he as an individual receives.
Until recently our national government secured most of its revenue from taxes on imports, and from excises or internal taxes on such commodities as tobacco and liquor. Since national prohibition went into effect (1919), the Federal revenues are derived mainly from taxes on imports, from income and inheritance taxes, and from taxes on corporations.
More than three fourths of the receipts of state and local governments are derived from the general property tax, the amounts collected from other sources being as yet relatively unimportant. The general property tax is supposed to be levied upon all the property in the possession of taxpayers, though as we shall see a little later, this tax works out very badly. The old "poll" or head tax was formerly important, but at present less than two thirds of one per cent of state and local revenues are derived from this source. In most states it is being abandoned because of its small yield, and because of the difficulty and expense in collecting it.
A. DEFECTS IN AMERICAN TAXATION
396. LACK OF A TAX SYSTEM.—The fundamental defect of American taxation is the lack of a definite and co÷rdinated system. The tax laws of most states have been radically changed during the last few decades, and are still in a process of development. In many states old taxes are being modified or abandoned, and new taxes adopted. But too often this is being done without regard for the taxation reform of other states or of the Federal government. As a result, the tax burden weighs unequally upon different classes, while between state and state, or between state and Federal government, there is an overlapping of tax power. The effect of this overlapping is to create undue confusion, and to demoralize both tax officials and taxpayers.