The second type of double taxation is illustrated by the overlapping of similar taxes between state and state, or between Federal and state governments. Because it is the practice of most states to seek revenue without regard to the taxing activities of other states, or of the Federal government, it may happen that corporations, incomes, or inheritances are taxed by more than one agency of government. If a scientific and co÷rdinated tax system were deliberately to provide for this, the supposition would be that such taxation were reasonable and just, because intended to bear with equal weight upon all forms of property in the taxable class. But because such taxation is haphazard, it bears with unequal weight upon corporations and individuals, and is therefore unjust.
Moreover, it encourages the evasion of tax burdens. Individuals and corporations sometimes migrate from localities or states in which they are subject to double taxation, to localities or states in which the danger of such taxation is less. This in turn has the evil effect of tempting states and municipalities to neglect taxes on corporations, incomes, and inheritances for the sake of attracting wealthy individuals and large industrial organizations from neighboring areas.
B. SOME SUGGESTED TAX REFORMS
401. IDEALS OF TAXATION.—Summarizing the views of the more generally accepted writers on taxation, we may say that the following are the basic ideals in taxation:
Taxes should take as little as possible from the people and still meet the needs of government. Taxes should be uniform, that is, all taxable articles of the same class should be levied upon at the same rate. It is also important that the time, manner, and amount of the tax should not be arbitrary, but that the individual's convenience as regards the terms of payment should be considered. From the standpoint of the government, taxes should be easy to administer and economical to collect.
A good tax system will be elastic, so that taxes may easily be increased or decreased, according as the revenue needs of the government change. The ability to pay ought to have some influence upon the extent to which an individual is taxed. Taxes should adapt themselves somewhat to the local sentiment as to what is expedient or socially desirable.
Finally, taxation policies should be systematized and co÷rdinated.
402. ESSENTIALS OF A TAX SYSTEM.—The construction of an ideal tax system in this country would involve three steps.
In the first place, each branch of government should be enabled to secure revenues actually needed for justifiable purposes. In this regard the greatest need is to increase the taxing powers of our municipalities. This is imperative if the cities of the future are to care for their citizens properly.
A second fundamental step relates to the separation of taxing power. Each branch of government should pretty well confine its use of the taxing power to definite types of taxable wealth. The Federal government, for example, might secure most of its revenue from import duties, excises, an income tax, and stamp taxes of various kinds. Many taxation experts believe that the states ought to confine themselves mainly to license, corporation, inheritance, and, possibly, income taxes. Local governments might well secure most of their revenue from taxes on franchises, licenses, and real estate. Such a separation of taxing power might aid in the adjustment of fiscal needs to taxing power, as well as helping to remedy the evil of double taxation. However, a complete separation of taxing powers is not necessarily desirable, and certainly it is not practicable, for there is a growing tendency toward duplication in income, inheritance, and other taxes. At the present time, for example, not only the Federal government, but many of the states levy income and inheritance taxes.