These conclusions respecting the diffusion of taxes may be said to be universally accepted by economists so far as they relate to the results of production before they reach the hands of the final consumers; but they are not accepted by many, as Mr. Henry George has recently expressed it, in respect to taxes on special profits or advantages on things of which the supply is strictly limited, or of wealth in the hands of final consumers, or in the course of distribution by gift, and finally in respect to taxes on land. But a little examination would seem to show that all of these exceptions are of the kind that are said to prove the rule. Special profits and advantages in this age of quick diffusion of knowledge and intense competition are exceedingly ephemeral, and are mainly confined to results which the State with a view of encouraging removes for a limited time from the natural laws of competition by granting patents, copyrights, and franchises. Of things which are strictly limited in respect to supply, what and where are they? Only a very few can be specified: ivory, Peruvian guano, whalebone, ambergris, and the pelts of the fur seal. Of wealth in the process of transmission, or in the hands of final consumers, it is not tangible wealth unless it is tangible property, which conforms under any correct system of taxation to the principles of taxation; and if any one advocates the taxation of the right to receive property which has already been taxed, he in effect advocates a double exaction of one and the same thing. If it be asked, Will an income tax on a person retired from business be diffused? the answer, beyond question, must be in the affirmative, if the tax is uniform on all persons and on all amounts, and is absolutely collected in minute sums. Would any one pay the same price for a railroad bond which is subject to an income tax as he would for it if it was free from tax? If one's land is taxed, either in the form of rent or income, will not the tenant have the burden primarily thrown upon him? And, finally, will not the consumer of the tenant's goods pay through or by reason of such consumption?
Respecting the incidence of the tax on mortgages, it does not make any difference how mortgages are taxed—no earthly power can make the lender pay it. If the borrower would not agree to pay the tax, the lender would not loan him money, and whenever possible loans would be foreclosed and payment insisted upon if the borrower should refuse to pay the tax.
Let us next subject to analysis the incidence of the so-called taxation of land. Considered per se (or in itself), land, in common with unappropriated air and water, has no value; and it can not in any strict sense be affirmed that we tax land; and when such affirmation is made, its only legitimate and justifiable meaning is that we tax the value of land; which value is due entirely to the amount of personal property (in the sense of embodied labor) expended upon it, and the pressure or demand of such property or labor to use, possess, and occupy it.
Vattel, in his Law of Nations, enunciates as a self-evident and irrefutable proposition that "Nature has not herself established property, and in particular with regard to lands. She only approves this introduction for the advantage of the human race."
One of the most striking examples of evidence in illustration and proof of this proposition is to be found in an incident, which has heretofore escaped attention, which occurred during a debate in the Senate of the United States in 1890 on a bill for revision of duties on imports, in respect to the article borax (borate of soda). Formerly the world's supply of this mineral substance, which enters largely into industrial processes and medicine, was limited, and mainly derived from certain hot springs in Tuscany, Italy; but within a comparatively recent period it has been found that it exists in such abundance in certain of the desert regions of California, Nevada, and Arizona, that it can be gathered with the minimum of labor from the very surface of the ground. Were a single acre of similar desert to be found in any section of a country enjoying the most ordinary privileges in respect to transportation and water supply, it would be a source of wealth to its proprietor. But under existing circumstances, although thousands and thousands of acres of this land can be bought with certain title from its owner—the Federal Government—for two dollars and twenty-five cents an acre, no one wants it at any price; and the prospective demand for it has not yet been sufficient to warrant the Government in instituting even a survey as a preliminary to effecting a sale. In the Senate debate above alluded to it was proposed to increase the duty on imported borax, with the expectation that a consequent increase in its domestic price would afford sufficient profit to induce such construction of roads and such a supply of water and labor on the borax tracts of the deserts as to enable them to become property.[13]
In the oases of the deserts of North Africa and Egypt the value of a tract of land depends very little upon its size or location, but almost exclusively upon the number of the date-bearing palms, the result of labor, growing upon it, and the quality of their fruit. John Bright on one occasion stated that if the land of Ireland were stripped of the improvements made upon it by the labor of the occupier, the face of the country would be "as bare and naked as an American prairie."
An exact parallel to this state of things is afforded in the case of lands of no value reclaimed from the sea and made valuable, as has been often done in England, Holland, and other countries, by embodying labor upon them in the shape of restraining embankments and the transportation and use of filling material. Again, the value of springs or running streams of water is generally limited and of little account. But when, through direct labor, or the results of labor, the water is collected in reservoirs and made the instrumentality of imparting power to machinery, or conducted through conduits to centers of population which otherwise could not obtain it, it becomes extremely valuable, and capable of being sold in large or small quantities. Another similar illustration is to be found in the case of atmospheric air, which in its natural and ordinary state has no marketable value, but when compressed by labor embodied in the form of machinery and made capable of transmitting force, it at once becomes endowed with value and can be sold at a high price.
An opinion entertained and strongly advocated by not a few economic writers and teachers of repute (more especially in Europe, but not in the United States)[14] is, that taxes on land do not diffuse themselves, but fall wholly on the landowner, and that there is no way in which he can throw it off and cause any considerable part of them to be paid by anybody else. The concrete argument in support of this opinion has been thus stated: "When land is taxed, the owner can not, as a general rule, escape the tax, for the reason that, to get rid of the tax, the price of the land or of the rent must be raised the full amount of the tax, and the only way in which this can be done is by reducing the supply or quantity offered in market, or else by increasing the demand. The supply of land can not be reduced, and the demand being created by capital and population, both of which are beyond the control of the landowner, he can do nothing to raise the price of land, and hence can not get rid of the tax. It may be stated, then, as a general rule, that a tax on land, or on any commodity the supply of which is limited absolutely, must be paid by the owner. It is possible to suggest cases in which, through combination of owners and the necessities of consumers, a demand may be created strong enough to raise the price to the full amount of such tax, but it is doubted if such cases ever really occur."[15]
The source of the contention on this important economic and social question, and the difficulty in the way of the attainment of harmonious conclusions, is due to a nonrecognition of the fact that land is taxed under two conditions, and can not be taxed otherwise. Thus, if a person holds land for his exclusive use or enjoyment, and consumes all of its product, a tax on such land, which has been characterized by some economists as its "pure rent," will not diffuse itself, because it is a tax on personal enjoyment or final consumption. The same is the case when a portion of a river or lake or its shore is rented for fishing for the purposes of sport. A like result will also follow, in a greater or less degree, from the inability or unwillingness of tenants, as has been often the case in Ireland, to pay rent sufficient to reimburse the landowner for interest on his investment of capital and cost of repairs. But if one employs land as an instrumentality for acquiring gain through its uses, the taxation of land must include the taxation of its uses—its contents, all that rests upon it, all that is produced, sold, expended, manufactured, or transported on it—and all such taxes will diffuse themselves. On the other hand, if the taxation of land under such circumstances and conditions does not diffuse itself, then the taking is simply a process of confiscation, which if continued will ultimately rob the owner of his property, and is not governed by any principle.
It is indeed difficult to see how a theory so wholly inapplicable to fact and experience as that of the nondiffusion of taxes on land—which makes property in land an exception to the rule acknowledged to be applicable to all other property—could originate and be strenuously maintained to the extent even of stigmatizing any opposite view "as so very superficial as scarcely to deserve a refutation."[16] No little of confusion and controversy on this subject has arisen from the assumption that land specifically, and the rent of land, constitute two distinct and legitimate subjects for taxation, when the fact is just the contrary. The rent of land is in the nature of an income to its owner; and it is an economic axiom that when a government taxes the income of property it in reality taxes the property itself. In England and on the continent of Europe land is generally taxed on its yearly income or income value, and these taxes are always considered as land taxes. Alexander Hamilton, in discussing the taxation of incomes derived directly from property, used this language: "What, in fact, is property but a fiction, without the beneficial use of it? In many instances, indeed, the income is the property itself." The United States Supreme Court, in its recent decision of the income tax (1895), also practically indorsed this conclusion. To levy taxes on the rent of land and also upon the land itself is, therefore, double taxation on one and the same property, which in common with all other unequal and unjust taxes can not be diffused; and for this reason should be regarded as in the nature of exactions or confiscation, concerning the incidence of which nothing can be safely predicated. In short, this whole discussion, and the unwarranted assumption involved in it and largely accepted, is an illustration of what may be regarded as a maxim, that the greatest errors in political economy have arisen from overlooking the most obvious facts or deductions from experience.