If waste were avoided the tax burden would be diminished.
If this enormous flow from the nation’s earnings into the public coffers were wholly, or even largely, used to promote and encourage production, it would not be so bad. Much of it is wasted, or spent without adequate return. This takes place because the people do not keep close watch on the officials whom they elect to public office and do not hold them to a strict accountability when public money is squandered. More than a hundred years ago the most eminent of American jurists, Chief Justice John Marshall, pointed out that “the power to tax involves the power to destroy”. He was right; the power to tax is the most far-reaching power that any government can possess. By the use of the taxing power a government can take from the people what they would otherwise save, thus preventing the increase of the nation’s wealth and ultimately breaking down its prosperity.
Taxes are:
How Taxes Differ from other Payments.—Taxes differ from most other payments in two respects. |(a) compulsory.| First, they are compulsory. No one need pay interest, rent, wages, or prices unless he bargains to do so; but the payment of taxes is not the result of any bargain. Taxes are levied without any reference to the initiative or wishes of the individuals upon whom they may fall, except, of course, in so far as these individuals by their votes may have an influence in determining the general taxing policy of the government. |(b) levied without reference to service rendered.| Second, taxes are not payments made to the government by individuals and corporations in return for services rendered. The man who rides a hundred miles on a railroad pays twice as much as one who goes half that distance, because he gets twice as much for his money. But the man who pays a thousand dollars in taxes does not get twice as much in benefits from the government as the one who pays only five hundred dollars.
The basis of taxation is ability to pay.
Nearly all payments that we make are in the form of a quid pro quo; they are in proportion to the benefits which we receive. This is the case in payments for all forms of goods or services—the one great exception is the payment of taxes. Taxes have no direct relation to benefit; those who pay very little in taxes, either directly or indirectly, sometimes receive a large return in the form of public services. Take for example the taxes that support the public schools. The fact that a wealthy man has no children, or prefers to send his children to a private school, does not relieve him of the obligation to pay his full share of what public education costs the community. On the other hand, a man whose contribution in taxes is very small may send a dozen children, one after another, through the public schools without any extra cost.
Why taxes cannot be adjusted to service.
It would not be possible to base taxation upon service, because there is no way of knowing how much benefit each individual receives from the government’s work. Do some individuals, for example, obtain more benefit than others from the maintenance of law and order or do all derive benefit alike? Who gets the greater benefit from clean streets, the rich man who drives his motor car over them, or the poor man whose children use the streets as a playground? Taxes could not be adjusted to benefit. Even if they could be so proportioned, it would be unwise to do so. The general interest requires that everyone should enjoy the benefits of police protection, the public schools, the parks, the playgrounds whether they are able to pay for them or not.[[215]] So taxes are levied in order to pay for these things, not on a basis of individual benefit, but simply by putting the heaviest burden in the first instance upon those who are best able to pay it, letting them shift it if they can.
Principles upon which Taxes are Levied.—How is the ability of individuals to pay taxes estimated? It is done by taking some such thing as property or income as the basis. Those who have more property or income are called upon to contribute more than those who have less. |The basic principles of taxation according to Adam Smith.| About a hundred and fifty years ago a famous writer on economics, Adam Smith, laid down four principles to which all taxation should conform. These maxims of taxation are now everywhere recognized as valid and are worth remembering. Briefly stated, they are as follows: People should be taxed according to their ability to pay; all taxes should be definite and not uncertain or arbitrary; they ought to be levied at the time and in the manner which causes the least inconvenience to the people; and they should be so contrived as to take out of the pockets of the people as little as possible over what is needed by the public treasury. Those who make the tax laws do not always heed these maxims, and taxes are sometimes levied on the principle of getting the most money with the least trouble.[[216]]
Taxes on property.