A third fundamental step would be the co÷rdination of local, state, and Federal taxing authorities. The central aim of such co÷rdination should be so to distribute tax burdens that no form of taxable wealth would escape its just burden, and so that no form of wealth would be subjected to unduly heavy taxation. There is a growing feeling that to prevent double taxation and similar evils, all local taxing bodies ought to be co÷rdinated under the state authorities, while for similar reasons the Federal government ought to have some measure of direction or control over that share of state taxation which is interstate in its effects.
403. REFORM OR ABOLITION OF THE GENERAL PROPERTY TAX.—The reform of state and local taxation logically begins with the general property tax.
In many states attempts are being made to reform this tax. In some cases "tax ferrets" are employed to discover tax evaders, a policy which may easily lead to corruption and favoritism. In other states the conviction is growing that local elective assessors ought to be supplanted by a permanent corps of state assessors, appointed under the merit system. This would reduce the danger of unequal and unfair assessments.
In other states there is a tendency to abandon the general property tax altogether. In New York, Massachusetts, Pennsylvania, and other states, there is a marked tendency to turn over the general property tax to local governing bodies. In such cases it is intended that the state shall depend for most of its revenue upon income, corporation, inheritance, and license taxes.
The future will doubtless see a more widespread tendency toward the reform or abolition of the general property tax. In some states, however, such changes in the taxation system require constitutional amendment, and constitutional amendment is often a slow and tedious process.
404. REFORM IN LAND TAXATION.—Coupled with plans for the reform or abolition of the general property tax are proposals for the reform of land taxation. A primary aim of these proposals, some of which suggest elements of the single tax doctrine, is to secure a more correct assessment of land values. In many cases a state does not now tax the holder of a mortgage when the mortgaged land is also within the state and thus directly subject to taxation. This is a desirable development, but we ought to go still further, so that the holder of a mortgage would not be taxed whether or not he lived in the same state as the owner of the land. A mortgage is obviously not social wealth, but a paper claim on wealth, and this wealth ought not to be taxed twice.
Some authorities believe that the tax rate on land ought substantially to be increased, when it appears that such land is being held for speculative purposes. To encourage improvements, it is also proposed that certain permanent improvements on land be temporarily exempted from taxation. Lastly, it would appear socially desirable to levy special taxes on urban sites, so as to secure for the community some share of the future unearned increment.
405. THE INCOME TAX.—All taxes ultimately come out of income, but when we speak of an income tax we refer to a direct levy upon income as it arises, chiefly in the form of wages, salaries, and profits. A Federal income tax was levied during the Civil War, but in the nineties the Supreme Court held that such a tax violated the constitutional provision that Congress shall not lay direct taxes except in proportion to the population of the states. In 1913 the Sixteenth Amendment to the Constitution permitted Congress to lay and collect taxes on incomes without apportionment among the several states, and without regard to any census or enumeration.
Since 1913 Congress has passed several income tax laws, and a number of the states have also adopted this form of taxation. The essential features of these laws are as follows. Incomes below a certain amount are exempt from taxation. The limit of untaxable income is raised for married persons living together. In calculating their net income, individuals may make allowance for debts, business expenses, and certain other items. Upon all taxable income above a certain minimum there is then levied a flat rate, constituting a "normal" tax. Where incomes exceed a certain amount, there is an additional tax. Thus the income tax is said to be "progressive," that is, the larger the income the higher the tax rate.
Many benefits are claimed for the income tax. It falls upon those best able to pay, and it is not easily evaded or shifted by the person upon whom it is levied. It is elastic and can readily be increased or reduced according as revenue needs change. Its progressive character is a feature which is considered socially desirable.