Magna Carta, and Other Addresses

by William D. Guthrie

The recent message of the President to the Congress has strikingly brought to the attention of the American public the subject of graduated or progressive taxation upon inheritances and incomes. Acting upon the suggestions contained in the message, bills providing for such taxes have already been introduced in the House of Representatives. Amendments to the Constitution have also been proposed, one of which is to authorize Congress to tax inheritances amounting to or exceeding $50,000 and to levy an income tax without apportionment. The pending bills provide that successions of $10,000 and under and incomes of $4,000 and under are to be wholly exempted from the proposed taxes. The proposed graduated scales are to run from three-quarters of one per cent. on inheritances or successions over $10,000 and not exceeding $25,000 up to twenty-five per cent. on inheritances or successions exceeding $30,000,000, and from two per cent. on incomes exceeding $4,000 per annum and not exceeding $8,000 up to six per cent. on all incomes over $64,000. It is also suggested that Congress by means of such taxes should seek, not merely to raise revenue for the support of the national government, but also to solve social problems by breaking up fortunes assumed to be swollen to an unhealthy size and thus bring about a redistribution of wealth.

In considering these proposed measures, it should be borne in mind that, if they or any similar propositions become laws, the result will be—and such undoubtedly is the intention—to exempt the majority of property owners from this form of taxation and to cast the burden upon a very small minority. It should also be realized that this proposed progressive taxation, particularly as to inheritances, is conceded to be only a first step, and that increases in the scale of progression are contemplated and will certainly follow. Indeed, the President declares that "at first a permanent national inheritance tax ... need not approximate, either in amount or in the extent of the increase by graduation, to what such a tax should ultimately be." As the states have full power to levy taxes on inheritances and at the present time are deriving probably as much as $10,000,000 per annum from this source, it must be manifest that, if the scale adopted by Congress be high, the resources of the states will be correspondingly curtailed. In case of conflict, national taxes would take precedence over state taxes. We should also bear in mind that the power to tax is the strongest of all governmental powers, that it involves the power to destroy, that it generally knows no limitation except the discretion and moderation of the lawmakers, and that of all powers it is the one most liable to abuse.

From the time of the Declaration of Independence to the present hour, the distinctive feature of the American system of government has been equality before the law, not merely equality of rights but equality of duties and equality of burdens. Equality has been demanded in all things including especially taxation. The few exceptions in taxation, particularly in times of war, do not affect the general rule that has been followed. The courts have declared that according to American ideals "common justice requires that taxation, as far as possible, should be equal." Experience has shown that the only effectual protection against injustice and discrimination in taxation lies in the observance of some rule of equality and apportionment; and, although it is true that absolute equality is not always attainable, nevertheless an approximation to equality should be regarded as indispensable. As Hamilton said, "The genius of liberty reprobates everything arbitrary or discretionary in taxation." And Judge Cooley in his famous work on "Constitutional Limitations" said: "It is of the very essence of taxation that it be levied with equality and uniformity, and to this end, that there should be some system of apportionment. Where the burden is common, there should be common contribution to discharge it. Taxation is the equivalent for the protection which the government affords to the persons and property of its citizens; and as all are alike protected, so all alike should bear the burden, in proportion to the interests secured."[60]

In proportional or equal taxation, whereby every property owner contributes toward the expenses of the common government according to the amount of property he owns or inherits, or according to the income he enjoys, we find a perfectly safe and consistent rule and a definite and logical principle upon which to work. Proportional taxation subjects to the burden of government fairly and equally all property owners without distinction and without discrimination. Nothing is left to mere discretion or to the play of arbitrary and irresponsible power, and no class is likely to be unjustly singled out or discriminated against. Where property is as generally distributed as it is in this country, a proportional tax ordinarily reaches in one form or another a majority of the constituents of those who vote the taxes, and the sense of responsibility to these constituents operates as a conservative force and as a check upon unfair and unjust taxes, as well as upon improvident and extravagant expenditures. A proportional tax generally creates a large body of tax-paying voters whose property interests impel them to watch their representatives closely and to hold them to strict accountability. We then have taxation in its practical operation going hand in hand with representative responsibility, which was the cardinal principle for which our War of Independence was fought. A legislator who is conscious of the fact that a large, if not a controlling, number of his constituents will feel the burden of any tax he votes, is necessarily more careful, more prudent, more economical and more inclined to be just than if no such sense of responsibility exists.

On the other hand, where the great majority of voters are to be exempted from taxation, and where, accordingly, they will feel that they have no personal interest in governmental expenditures, they will be likely to take little or no pains to see that there is a fair apportionment of taxes which others must pay, or any economy in governmental expenditures for which others must provide. Their sense of justice and civic duty will become blunted. It will follow that, if the lawmakers are at liberty to enact laws which exempt the great majority of their constituents from taxation and cast the burden and expense of government on the few rich, frequently less than two or three per cent. of the voters in their respective districts, there will exist no practical restraint upon expenditure, but, on the contrary, every temptation to extravagance, wastefulness and injustice.

A graduated or progressive tax is necessarily arbitrary, for there is no definite rule or principle to apply to the scale. The rate, reasonable at first, may ultimately become confiscatory. There is nothing to check or stop the ascending scale. One act of injustice will lead to another. The appetite will grow and produce fresh injustice. If a tax of twenty-five per cent. on large fortunes now seems to some but a moderate beginning, where will the tax stop, and who is to determine what is or is not reasonable and beyond what point a legislative body shall not go? A few advocates of progressive taxation have already suggested fifty per cent. as a maximum applicable to the so-called surplus of large fortunes, but others more radical and less responsible may readily advocate a tax of one hundred per cent. upon the surplus they regard as superfluous or unhealthful. There is, indeed, no limit to the possible ascent in the scale of progression, and no power to prevent abuse and oppression on the part of temporary and irresponsible majorities. The rich would then be completely at the mercy of mere numbers.

During the French Revolution, the experiment was tried under the name of compulsory loans. These loans finally absorbed fifty per cent. of such incomes as the majority of the legislative assembly saw fit to consider as abondants, and one hundred per cent. of all incomes which they thought were superflus.

The late W.E.H. Lecky, one of the most eminent historians of our day, wrote as follows of progressive taxation in his work on "Democracy and Liberty": "When the principle of taxing all fortunes on the same rate of computation is abandoned, no definite rule or principle remains. At what point the higher scale is to begin, or to what degree it is to be raised, depends wholly on the policy of governments and the balance of parties. The ascending scale may at first be very moderate, but it may at any time, when fresh taxes are required, be made more severe, till it reaches or approaches the point of confiscation. No fixed line or amount of graduation can be maintained upon principle, or with any chance of finality. The whole matter will depend upon the interests and wishes of the electors; upon party politicians seeking for a cry and competing for the votes of very poor and very ignorant men. Under such a system all large properties may easily be made unsafe, and an insecurity may arise which will be fatal to all great financial undertakings. The most serious restraint on parliamentary extravagance will, at the same time, be taken away, and majorities will be invested with the easiest and most powerful instrument of oppression. Highly graduated taxation realizes most completely the supreme danger of democracy, creating a state of things in which one class imposes on another burdens which it is not asked to share, and impels the state into vast schemes of extravagance, under the belief that the whole cost will be thrown upon others."

In McCulloch on "Taxation," for fifty years the standard treatise in England on the subject, the following language is used: "It is argued that, in order fairly to proportion the tax to the ability of the contributors, such a graduated scale of duty should be adopted as should press lightly on the smaller class of properties and incomes, and increase according as they become larger and more able to bear taxation. We take leave, however, to protest against this proposal, which is not more seductive than it is unjust and dangerous.... If it either pass entirely over some classes, or press on some less heavily than on others, it is unjustly imposed. Government, in such a case, has plainly stepped out of its proper province, and has assessed the tax, not for the legitimate purpose of appropriating a certain proportion of the revenues of its subjects to the public exigencies, but that it might at the same time regulate the incomes of the contributors; that is, that it might depress one class and elevate another. The toleration of such a principle would necessarily lead to every species of abuse."

The well-known French political economist and scientist Leroy-Beaulieu in his works, Traité d'Economie Politique and Science des Finances, discusses at length the whole subject of graduated or progressive taxation, and condemns it as vicious in theory and unwise and unjust in practice. Among other things he says: "Progressive taxation constitutes actual spoliation. It violates, besides, the rule, established by all civilization, that taxation ought to be imposed with the full consent of the taxpayer; for, it is quite clear, that in this case, it is the mass of the voters who relieve themselves of the heavy weight of the tax and cast it upon the few, and these few do not consent, even tacitly, to the excess with which the government wishes to burden them. When the rate of the tax is equal for all, we can consider that the vote for the tax by the legislature carries with it the implied acquiescence of all the assessable; otherwise not.... Every system of progressive taxation, however attenuated, is iniquitous and dangerous."