We are thus led up and forced to the recognition of two propositions, or rather principles, in respect to taxation that can not be invalidated. The first is, that it is not necessary that a tax assessor or collector should personally assess and levy upon every citizen of a State or community in order that all should be compelled to contribute of his property for the support of such State or community; second, that there is an inexorable law by which every man must bear a portion of the burden of public expenditures, even though the official assessors take no direct cognizance of him whatever.
The following incident may here be cited as instructive: In one of the recent official hearings before a legislative committee of one of the States, a strenuous advocate of the popular doctrine that there was and could be no such thing as equality in taxation except by rigidly taxing everybody directly for all his property, of every description, both real and personal, and that to not tax immediately and directly was, in at least a great degree, to exempt from taxation, expressed himself as entirely opposed to any system of restricting assessments to a comparatively few things, on the ground that it would be a recognition in the United States of a system which in Great Britain had ground down the masses into poverty. He, however, obtained some new light on the subject of nondiffusion by being reminded that if the masses of England had been grievously oppressed by taxation, it had been under a system of many years' standing, which never in any way brings the tax collector in direct contact with nineteen twentieths of the entire population; the customs taxes of Great Britain being practically levied on only four articles—spirits, tea, coffee, and tobacco; and the inland revenue also on practically four—spirits, beer, legacies and successions, and stamps (on deeds, insurance policies, bills of exchange, receipts, drafts, etc.). Generalizing, then, on the basis of so broad a fact, how illogical and unscientific was the assumption that whatever persons, property, or business are not taxed directly are exempt from taxation!—and yet the practical exemplification of such a system, in the case of England, was a most efficient instrumentality for grinding the masses of her people down to poverty.
On the other hand, to generalize from the experience of an individual or a class in place of that of a nation or community, let us take the case of a person who passes all the year in transitu—moving backward and forward, for example, in a boat on the line of the Erie Canal, or between the head waters of the Mississippi and its mouth; a citizen of no one State, a resident in no one town, and buying all that he eats, drinks, and wears wherever he can buy cheapest. Does this man escape taxation because he has no permanent situs (residence as a citizen), and is unknown by any assessor? If he does, then his occupation is more profitable to the extent of the taxes he avoids than is that of the individual who, following analogous occupations, resides permanently in one location, and pays taxes regularly; or else some notable, easily discernible cause, as undue competition to obtain situations, will account for his exemption.
Let us next consider how practical experience definitely indicates the line of least resistance, in conformity with which those contributions of property or service which the State requires its citizens to make for its support, and are worthy of designation as taxes, diffuse themselves. Let us take first that form of indirect taxation which is known as customs, or taxes on imports, one from which the Federal Government of the United States has derived in recent years more than half of its revenue, and Great Britain more than one fourth of its total receipts from all forms of imperial taxes. That all such taxes as a rule diffuse themselves, and ultimately fall upon and are paid by final consumers, is capable of demonstration by a great variety of evidence. Every remission of customs duties on the imports into any country of its staple articles of consumption is followed by a reduction of cost approximately equal to such reduction, and a consequent increase in consumption. On the other hand, nothing is better settled than that an increase in customs taxes on imported articles as a rule increases prices and tends to reduce consumption. When Great Britain, in 1863, reduced her taxes (duties) on her imports of tea from 1s. 5d. to 1s. per pound, her importation of tea increased from 114,000,000 pounds in 1862 to 139,000,000 in 1866, and her per capita consumption during the same period from 2.70 pounds to 3.42 pounds; and again, when the duty was further reduced in 1865 from 1s. to 6d. per pound, the annual importations increased from 139,000,000 in 1866 to 209,000,000 in 1881, and the per capita consumption from 3.42 pounds to 4.58.
When by the act of October, 1890, the tax was removed from the imports of crude sugars into the United States, the price of the same went down almost immediately to an equal extent in all American markets; while the consumption of sugar in the country increased from an average of about fifty-four pounds per capita in 1890 to more than sixty-seven pounds in 1892. A like result has attended a similar experience in respect to this in other countries, and especially in Great Britain. Thus, the aggregate consumption of sugar by the British people in 1844 was returned at 237,143 tons. A reduction of taxes on its importation in 1864 increased its domestic use to 528,919 tons; a reduction of fifty per cent on existing rates in 1870 made it 695,029 tons; another reduction of fifty per cent in 1873 carried up consumption to 779,000 tons; and when, in 1874, all taxes on the imports of sugar were abolished, the annual domestic consumption increased in little more than a year's period to 930,000 tons. On the other hand, when by the tariff act of 1890 an additional tax of half a cent per pound was imposed on the import of tin plate into the United States, tin plate went up to an equal extent in price all over the country; and so also on pearl buttons, linen goods, and other articles of foreign production on the importations of which the tariff taxes were largely increased. By the tariff act of 1890, also, eggs, which could formerly be imported into the United States free of duty, were made subject to a tax of five cents per dozen. Since then the price of eggs imported from Canada into districts of the United States within the same sphere of territorial competition has been increased to the American consumers to almost exactly the extent of the import tax to which they are subjected. Thus, when the price of eggs was ten and a half cents per dozen in Toronto, they were sixteen cents in Buffalo and sixteen and a half to seventeen cents in New York. Such a result would be unaccountable if the Canadian farmers paid the duty on eggs sent by them to the United States.
It is interesting to here ask attention to the opinions entertained and expressed by those whose situation and experience have qualified them to speak with authority: "The duty constitutes the price of the whole mass of the article in the market. It is substantially paid on the article of domestic manufacture, as well as that of foreign production" (John Quincy Adams). "I said it, and I stand by it, that as a general rule the duties paid on imports operate as a tax upon the consumer" (John Sherman). Mr. Blaine, in his Twenty Years in Congress, says, speaking of the increase of duties on imports by the tariff act of July 14, 1862, that it "shut out still more conclusively all competition from foreign fabrics. The increased cost was charged to the consumer." Mr. McKinley, in 1890, in a report introducing a bill for revision of the tariff of the United States, in the direction of increased rates of duties on imports, said it was not the intent of the bill "to further cut down prices," that the people were "already suffering from low prices," and would not be satisfied "with legislation which will result in lower prices." In an elaborate opinion given by the New York Court of Appeals in 1851 (see vol. iv, New York Reports), in which there was no suspicion of any issue of free trade or protection, the courts, in carefully considering the relative powers of the legislature and the judiciary in respect to taxation, assumed the proposition that "all duties on imported goods are taxes on the class of consumers" to be in the nature of a self-evident truth or economic axiom.
Henry Clay, in a celebrated speech in the United States House of Representatives in 1833, in advocacy of a protective tariff policy, candidly admitted that "in general it may be taken as a rule that the duty upon an article forms a portion of its price." But he subsequently qualified such admission by claiming that it does not follow that any consequent enhancement of its price is a tax on consumers, inasmuch as "directly or indirectly, in one form or another, all consumers of protected articles, enhanced in price," will get an equivalent. But this may be equally affirmed of all necessary and equitable taxation, and does not in any way antagonize the theory that the final incidence of the class of taxes under consideration falls on consumption.
But, notwithstanding these conclusions and the incontrovertible evidence by which they are supported, not a few persons occupying places of great legislative influence, and no small part of the general public, hold to the view that taxes on imports are really in the nature of premiums paid by foreigners for the privilege of selling their goods in the markets of the importing country, and do not fall on its people who consume them. That means that if the foreigner has a yard of cloth, or other commodity, which he sells at home for one dollar, and the United States imposes a tariff of fifty cents on it, he will then sell it for export to America at fifty cents. There is no instance mentioned in history where this has ever been done, but history unfortunately is rarely taken into account by the public in the discussion of these questions. In this connection the following historical incident is interesting and instructive: In 1782 an attempt by the Congress of the Confederation of the several American States to provide a system of revenue to defray the general expenses of the Confederation by duties on imports, which then was not permissible, was blocked by the refusal of the State of Rhode Island to concur in it, the Legislature of that State unanimously rejecting the measure for three reasons—one of which was that it would bear hardest on the few commercial States, particularly Rhode Island, which in virtue of their relations with foreign commerce monopolize imports, and lightest on the agricultural States, that directly imported little or nothing. Congress appointed Alexander Hamilton to draft a reply to Rhode Island, and in his answer he relied mainly on what he regarded as an incontrovertible fact, that duties on imports would not prove a charge on an importing State, but on the final consumers of imports, wherever they may be located.
If the theory and assumption so confidently and generally asserted are to be accepted as correct, that the foreigner pays the protective taxes which a country levies on its imports, and that they do not fall upon or are not paid by its people who consume them, then it must follow that to the extent that a country taxes its imports it lives at the expense of foreign nations; and that, as Great Britain is the country with which the United States has the largest foreign trade, it must pay the largest share of the customs taxes of the United States, or a good share of its annual revenue from all sources. Attention is further asked to the exact practical application of this theory. Thus, the United States in 1895 imported $36,438,196 worth of woolen manufactures, on which it assessed and collected duties (taxes) to the amount of $20,698,264, or 56.80 per cent of the value of such imports. Certainly this was a pretty heavy tax on foreign nations in respect to the sales of only one class of these commodities; but it represented but a tithe of what the tariff taxes of the United States, if paid by foreigners, cost them. Thus they had to sell their woolens to the people of the latter country at less than half their value in order to compensate for the 56.8 per cent tax. But a nation engaged in foreign trade can not as a rule have two prices for the product of its industries; or one price for what it sells at home and another and different price for what it sells to foreigners. So the fifty-six per cent deducted from the cost of the woolens sold by foreigners to the United States necessarily had to be deducted not only from so much of their product consumed at home, but also from what they sent for sale to all foreign countries. A further practical application of this theory is worthy of consideration. As Great Britain imposes no protective duties or taxes on its imports, it evidently can not collect anything from other nations by the system of taxation under consideration. On the other hand, the aggregate value of its exports sent to foreign nations during the year 1892 was $1,135,000,000, and if these several nations taxed this value at the average rate which the United States imposed in 1894 on all its dutiable imports—namely, fifty per cent—Great Britain obviously had to pay some $557,000,000 in that year for the support of foreign governments; and while this has been the experience of Great Britain for more than forty years of this century, she has as a nation been increasing in wealth during this whole period.
Some of the recent official experiences of the Government of the United States that are pertinent to the topic under consideration are sufficiently curious to make them worthy of an economic record. In a speech introducing a bill into the United States House of Representatives, which subsequently resulted in the tariff act of 1890, the then chairman of the Committee of Ways and Means laid down the following proposition: "The Government ought not to buy abroad what it can buy at home. Nor should it be exempted from the laws it imposes upon its citizens."