National Taxes.—The national government, by reason of its need for larger revenues in recent years, has resorted to many forms of taxation. At the present time the principal sources of national revenue are the taxes on the incomes of corporations and individuals, the customs duties, the excises, and the inheritance taxes. The national income taxes are levied upon the net earnings of all individuals, partnerships, and corporations above a certain minimum. The rate of taxation, in the case of individual incomes, is progressive—a normal tax is laid upon all incomes up to a certain figure and surtaxes are levied upon incomes above this amount.[[219]] Under the original provisions of the constitution, the national government could not levy direct taxes unless it apportioned them among the several states according to their population, and according to a decision of the Supreme Court in 1894 an income tax is a direct tax.[[220]] But the Sixteenth Amendment, adopted in 1913, now gives the national government authority to tax incomes “from whatever source derived” without the necessity of apportionment among the states. Once a year every person or corporation earning a net income above the prescribed minimum must make a sworn statement setting forth the exact amount of such earnings, and upon this “income tax return” the legal rate is assessed.
Duties on imports.
Duties on imports still yield a large revenue, as they have done every year since 1790. No duties may be laid upon exports, such duties being forbidden by the constitution. This is in some respects unfortunate, because duties on exports go into the price of the exported goods and thus fall upon the foreign consumer. A tariff on exports (such as lumber, coal, and ore) would not only yield a considerable revenue but would help to conserve the natural wealth of the United States. The excises are levied upon tobacco, theatre tickets, and other things which are rated as luxuries.[[221]] The national government also levies an inheritance tax, the rate of the tax depending upon the value of the property inherited. These various taxes bring in between three and four billion dollars per year.
Taxes for revenue and taxes for regulation.
The Two Purposes of Taxation.—The main object of all taxation is to produce a revenue. But this is not the only object. Taxation may also be used to bring about such social reforms as the nation or the community may deem desirable, and taxes are sometimes adjusted to this end. For example, the manufacture of goods by the use of child labor can be checked by placing a heavy excise tax upon such products.[[222]] It is believed that the growth of large fortunes can be checked by the imposition of heavy surtaxes on large incomes and on inheritances; the present national taxes on incomes and inheritances have been framed with this end in view to some extent. In other words the system of taxation can be used and is being used in some measure to secure such economic and social readjustments as Congress and the state legislatures think desirable. The question is: How far should the law-making bodies go in this direction? Many people believe that “swollen fortunes” are an evil in a democratic society and that all earnings above a certain point should belong to the community. Others feel that heavy surtaxes place a damper upon ambition, that they lessen the amount of money saved by the whole people, thus reducing the amount of capital available for industry, and that they give the government large sums which are spent wastefully.[[223]]
Taxation and class prejudice.
Tax Exemptions and Extravagance.—When taxation is regarded as a means not only of raising a revenue but also of redistributing wealth it takes on grave possibilities of abuse. The majority among the voters can always find reasons for increasing the burdens on the minority; the wage-earners urge that more taxes ought to be placed on the rich and insist that they themselves be exempted from taxation upon their incomes. The chief evil in all this is not the injustice to the rich, for they usually manage to shift the burden down the line till it comes back upon the wage-earner; the unfortunate part of it is that the masses of the people, proceeding under the delusion that they pay none of the taxes, are quite unconcerned when they see large sums of money being collected by the government and spent wastefully. They do not realize that it is their money; that they earned every cent of it before the government obtained it to spend. If they could be induced to see matters in this light, they would never permit their representatives in Congress, in the state legislatures, and in city councils to throw money around with such a lavish hand. Tax exemptions and extravagance are twin brothers.
The single tax.
Proposed Reforms in Taxation.—Various new forms of taxation are proposed from time to time. Many years ago a well-known American social reformer, Henry George, advocated the placing of all property taxes on land alone, allowing buildings and personal property to go untaxed altogether. His argument was that the high value of land in cities and towns is created by the community, not by the owner. Vacant land in the downtown portion of a large city is sometimes worth many hundred dollars per foot. What gives it this high value? Not the owner, for he has done nothing to improve it. The growth of the city round about this land has made it valuable. This “unearned increment” of value, therefore, Henry George proposed that the community should take by levying a very heavy tax upon it.[[224]]
Objections to the single tax.