The ocean merchant marine comprises two widely different branches, the coastwise and the foreign trade. The former is open only to vessels flying the American flag, and has shown a very steady growth; five-sixths of our ocean merchant marine today is engaged in this branch of commerce. Coal, lumber, cotton, and similar bulky commodities constitute the chief items entering into the coastwise trade. The tonnage of American vessels engaged in the foreign trade, on the other hand, has shown a steady decline ever since the outbreak of the Civil War. Foreign vessels today carry fully 90 per cent of the foreign commerce of the United States. The causes of this decline are economic rather than political, for American legislation has on the whole been very liberal to the shipping interests. At the time the western part of our country began to be opened up and its great resources exploited,
our merchant marine was one of the best in the world. But now the other opportunities for the investment of capital were so profitable and alluring, and the need of it so great, that all the available labor and capital of the American people began to be devoted to the development of their internal resources. A nation cannot do everything with equal advantage at the same time any more than an individual can. Accordingly we began to withdraw our capital from shipping and devote it to agriculture, mining, manufacturing, transportation, and similar more profitable enterprises. Foreigners could build vessels and run them more cheaply than we could and it paid us to hire them to do it. Recently, however, and especially since the recent awakening of a national consciousness after the Spanish-American War, the patriotism of many individuals has been hurt by the thought that we had to depend upon foreign vessels for the carriage of our foreign commerce, while in the minds of others a comprehensive naval program demanded the building up of a native merchant marine. Two questions suggest themselves here: Do we wish to stimulate this growth artificially? And, if we do, what means shall we adopt? On the second point the Merchant Marine Commission of 1904 recommended for the United States a general bounty on all shipping, such as France has, and the subvention of certain lines of steamers over ten specified routes, following the example of Great Britain, Germany, and Japan. Without committing ourselves on this point, it may be suggested that on political, geographical, and economic grounds we may expect in the near future to see the natural development of an American merchant marine. With the growth of our foreign trade, the accumulation of capital at home, and the building up of a strong navy, the conditions for American shipbuilding and shipping will become steadily more favorable, and we may expect to see American enterprise
engage in this as in other lines of industry. Eventually we are destined to become a maritime nation.
XVII. TAXATION AND TARIFF.
In no way does the State affect the interests of its citizens more vitally than in the sphere of taxation. The State in modern society is the people organized for certain collective purposes, as for the public defense, the preservation of domestic peace, and the furtherance of the social and industrial welfare. To carry out these objects money is needed and the State has therefore to collect from its citizens sufficient revenue to defray its expenditures. John Fiske has tersely defined taxes as “portions of private property taken for public purposes.” Taxation thus implies a certain degree of compulsion; by it the Government interferes with the free choice of the individual and expends a part at least of his income for him in ways that he himself might not have chosen. The social and industrial consequences of a system of taxation may also be far-reaching and important. As Professor R. T. Ely says: “Taxation may create monopolies, or it may prevent them; it may diffuse wealth, or it may control it; it may promote labor or equality of rights, or it may tend to the establishment of tyranny and despotism; it may be used to bring about reform, or it may be used to aggravate existing grievances and foster dissensions between classes.” It is evident therefore that the utmost care should be exercised in framing a system of taxation.
Certain canons or rules of taxation were laid down by Adam Smith over a hundred years ago and have been generally endorsed by economists ever since. One was that taxes ought to be certain and not arbitrary, as to amount, time and manner of payment; another was that taxes ought to be levied in the manner most convenient to the tax-payer; and a third, that taxes ought to take as little as possible out of the pockets of the tax-payer over
and above what is paid into the public treasury. These three maxims—certainty, convenience, and economy—have been generally accepted, but less general agreement exists in regard to the fourth, which states that the subjects of every state ought to contribute to the support of the Government as nearly as possible in proportion to their respective abilities. This rule has given rise to two problems: first, is ability the most just basis of taxation; and secondly, if so, how is ability to be measured? The theory of justice generally accepted by legal writers and by the American courts is expressed in the maxim that taxes should be proportioned to benefits received. The benefit theory affords a good rule in the assessment of local property taxes, but fails utterly in the domain of national and state affairs. Who can measure the benefits to each individual of an appropriation for a new war ship or for a state penitentiary or for the public school system? Probably the benefits are in inverse proportion to the income or wealth of the individual, and the heaviest taxes would then have to be apportioned to those least able to pay. Most economists today agree that taxes should be apportioned according to “faculty” or ability to pay. It satisfies better our sense of fairness and is more readily applicable than the benefit theory. In the last analysis, of course, it may be said that taxation in general must confer real benefits upon society or it will not be tolerated. Here, however, we are concerned with a rule of apportionment.
The second practical problem encountered is when we attempt to apply the faculty principle in practice; how is ability to be measured? Three measures have been suggested: expenditure, income, and property. Expenditure is open to the objection that it would place an unduly large proportion of the tax burdens on the poor, whose expenditures are larger in proportion to their means than those of other classes of society. Property is objected to
because large classes of society, including professional men with large incomes, would then escape taxation largely or altogether. Income on the surface seems the fairest measure of ability, but is objected to because the incomes of different individuals, both on account of source and size, really indicate unequal and not similar abilities. In practice, however, all three methods are employed in all advanced states, so it is not necessary to decide which is theoretically the fairest.
Still another practical question confronts us after we adopt the ability theory: Shall the rate of taxation be the same no matter what the amount of the property or income, or shall it increase as the amount grows larger? In other words, shall taxation be proportional or progressive? In general the advocates of the ability theory also support progression, though there are many exceptions to this statement. Three main arguments have been urged in support of this method. First, progression is advocated in order to secure equality of sacrifice; it is argued that each dollar of a $10,000 income affords less gratification to the owner than each dollar of a $1,000 income, and that consequently in order to equalize the sacrifices of the two individuals a larger proportion of the first income should be taken than of the second. Objection is made to this, that wants expand even more rapidly than incomes and therefore the initial assumption is untrue. Progression is urged, in the second place, by those who desire to use taxation as a method of introducing social reforms or of bringing about a more equitable distribution of wealth, as by the breaking up of large fortunes. It seems inadvisable, however, to use the machinery of taxation for such purposes. Other writers urge that the ability to earn or produce wealth increases at an accelerating rate, and that taxation should therefore keep pace with it. “It is the first thousand that counts.” The objection is made here that it would penalize ability and energy.