VII. COMMENTS AND CONCLUSIONS ON TAXATION

Many other variations in methods of taxation are to be found in the tax laws of other states and countries; and still other methods have been proposed at different times and places. It is impossible to examine in detail all of the various methods and proposals; but a brief mention may be made of some which are likely to be actively discussed.

Single Tax. One proposal vigorously advocated for many years is that for the single tax on land values, which aims ultimately at exempting from taxation all personal property and improvements on lands, as well as all forms of indirect taxation. This proposal has been proposed primarily as a theory of social reform; but the fiscal policy involved has one point of similarity to that of the uniform general property tax, in assuming that an ideal system of taxation cam be based on a single principle; and the most ardent supporters of the single tax also agree with the conservative supporters of the uniform general property tax in urging that their particular system be definitely provided for in the constitution.

The single tax has never been applied in a complete and thorough going manner. To provide for it in the constitution as the sole method of taxation would be open to the same fundamental objection as is made to the requirement for a uniform general property tax, that this will tie the hands of the legislature, and prevent changes in methods of taxation which may be needed to meet new conditions and the fiscal needs of the government. It is also urged that it involves, in principle, the confiscation of existing property rights, and is in fact in direct antagonism to the institution of private property.

Various other proposals have been made from time to time, based on a partial acceptance of single tax views, which have been supported by less radical groups, and also by some pronounced single taxers as steps toward their complete program. Such proposals include the exemption of personal property from direct taxation, the partial or gradual exemption of improvements on land, and the taxation of the increment of land values. Several constitutional amendments have been submitted in American states for land value taxation, combined with income, inheritance and franchise taxes. Proposals for complete local option in taxation have also been made, with a view to securing the adoption of the single tax in certain local districts; though the single taxer would oppose local option, if the single tax could be applied to a whole state or the nation.

Some of these proposals merit consideration. Exemptions of small amounts of personal property and of small incomes are not uncommon in existing tax laws, and in the actual practice of assessors in Illinois; and less frequently a particular class of intangible property (as mortgages) has been exempted, so as to avoid double taxation. Exemptions of intangible property from local taxation may also be a convenient method in working out a partial separation of state and local sources of revenue.

Exemption of buildings and improvements has been applied on a considerable scale in a number of new and rapidly growing communities in western Canada. Investigation of the results indicates that under such conditions, this has not proven disastrous; and in some. cases has produced beneficial results; but that the land tax alone cannot be relied on under all conditions to yield sufficient revenue, and that in times of depression is likely to give rise to serious problems.

1

The special taxation of the future increment of land values has been applied in Germany and Great Britain; and in theory such a tax appears to merit serious consideration. The actual results thus far, however, have not yielded any large additional revenue. The problem. of administration is not easy; and there are difficult problems in differentiating between unearned increment and that due to improvements and management.

Single tax theory seems to assume a uniform method for the taxBut recent discussions of taxation have indiation of land values. cated the need for varying the rule of uniformity even in the taxation of land. The taxation of forest and mineral lands appears to call for special treatment, in the interest of conservation of natural resources.3 The different bases actually used in the assessment of urban and rural lands suggests the inquiry whether some difference may be justified, as has been provided by law in Minnesota.

Local variations in local taxes also seem to be advisable to some extent; and some home rule or local option in taxation may properly be authorized. But it is doubtful if this can be definitely adjusted in a constitutional provision to meet the needs of varying times and conditions. The present provisions of the Illinois constitution preventing the General Assembly from imposing local taxes and requiring local taxes to be imposed by local authorities may well be continued.

A committee of the National Tax Association appointed to prepare a plan for a model system of state taxation presented a report at the Chicago conference in 1919 approving the following fundamental principles, which it finds in a general way at the basis of American tax laws, though at times applied by faulty methods:

"1. That every person of taxable ability should pay some sort of a direct personal tax to the government from which he receives the personal benefits that government confers".

1 Haig, R. M. The Exemption of Improvements from Taxation in Canada and the United States.

3 For recent discussions of the single tax and land value taxation, See: Yetta Scheftel: The Taxation of Land Value (1916), and Arthur N. Young: The Single Tax Movement in the United States (1916).

3 L. E. Young: Mine Taxation in the United States (University of Illinois Studies in the Social Sciences).

"2. That tangible property, by whomsoever owned, should be taxed by the jurisdiction in which it is located, because it there receives protection, and

"3. That business carried on for profit in any locality should be taxed for the benefit it receives."

Conclusions. The general conclusion which may be drawn from this analysis of taxation methods in Illinois and elsewhere is that taxation is not a simple problem which can be settled by a single phrase either of uniformity or single tax; but that under modern social conditions it is a highly complex affair, which requires continuous study and frequent modifications, to meet changing conditions and the needs of the government. To attempt to establish any one system of taxation in the state constitution seems clearly to be unwise; and constitutional provisions should leave the largest possible discretion to the law making authorities.

In chapter IV of this pamphlet (pp. 232-235) has been set forth the inequalities and injustices of the present tax system in Illinois, which seem to be inevitable under the requirement for a uniform general property tax; and the serious difficulties which have arisen under the detailed provisions of the present Illinois constitution relating to taxation.

As shown in chapter V (pp. 213-211), there has been a marked tendency in recent years toward relaxing the restrictions on the power of the legislature over taxation; and most state constitutions now contain much more liberal provisions on this subject than that of Illinois.

The Supreme Court of the United States has distinctly recognized that a single uniform system of taxing all kinds of property will prove unjust and unequal. As stated by Justice Lamar, in the case of the Pacific Express Company v. Seibert:

"This court has repeatedly laid down the doctrine that diversity of taxation, both with respect to the amount imposed and the various species of property selected either for bearing its burdens or being exempt from them, is not inconsistent with a perfect uniformity and equality of taxation in the proper sense of these terms; and that a system which imposes the same tax upon every species of property. irrespective of its nature or condition or class, will be destructive of the principle of uniformity and equality in taxation, and of a just adaptation of property to its burdens."*

In the case of Home Insurance Co. v. New York, Justice Field said:

"The [fourteenth] amendment does not prevent the classification of property for taxation-subjecting one kind of property to one rate of taxation, and another kind of property to a different rate-dis

142 U. S. 339, 351 (1891).

tinguishing between franchises, licenses, and privileges, and visible and tangible property, and between real and personal property".5

Justice Bradley, in the case of Bell's Gap R. Co. v. Pennsylvania, stated:

996

"It [a State] may, if it chooses, exempt certain classes of property from any taxation at all, such as churches, libraries and the property of charitable institutions. It may impose different specific taxes upon different trades and professions, and may vary the rates of excise upon various products; it may tax real estate and personal property in a different manner; it may tax visible property only, and may not tax securities for payment of money, it may allow deductions for inthe 14th amendment was debtedness or not allow them not intended to compel the state to adopt an iron rule of taxation. it would render nugaIf that were its proper construction tory those discriminations which the best interests of society require.' Some constitutional limitations on the general assembly seem however to be desirable. Care should be taken to prevent the grant of contractual rights by exemptions, by the surrender or suspension of taxation, or by any special form of taxation. It should also be provided that taxation should be imposed by general law, uniform upon persons and property of the same class. Suggested constitutional provisions based on these views and similar to those recently adopted in such states as Minnesota and Kentucky, have been formulated in a pamphlet issued by the Civic Federation of Chicago, as follows:

1. The right of taxation shall never be surrendered, suspended nor contracted away.

2. The general assembly shall provide for the taxation of persons and values by general law, so that each tax levied shall be uniform upon persons and values of the same class.

3. Exemption, if any, shall be by general law and shall not be contractual, but may be revoked by the general assembly at any time."

If, however, such provisions are considered inadequate and the constitutional convention wishes to make more definite provisions, a tentative draft, including some of the existing provisions in the constitution of Illinois, may be submitted for consideration as follows:

1. Taxes

shall be

Suggested Constitutional Provisions: levied and collected under general laws and for public purposes only; and shall be uniform upon all persons and property of the same class within the jurisdiction of the body imposing the same. Taxes may also be levied on incomes, privileges and occupaitons; and such taxes may be graduated and progressive, and reasonable exemptions may be provided.

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134 U. S. 594, 606 (1889).

134 U. S. 232, 237 (1889).

7 Study No. 2. Taxation and Public Finance, p. 34.

The question should be considered whether this phrase meets the difficulties noted on page 241 under the present requirement for complete uniformity within each Jurisdiction imposing the tax.

2. The power of taxation shall never be surrendered, suspended or contracted away; and exemptions, if any, shall be by general law and shall be revocable by the general assembly at any time.

3 The general assembly shall not impose taxes upon municipal corporations, or the inhabitants or property thereof for corporate purposes; but all municipal corporations shall be required to levy taxes for the payment of debts contracted under authority of law, and shall be vested with authority, to levy and collect taxes for local purposes— within limits to be prescribed by law.

4. Municipal corporations shall be vested with power to make local improvements and to maintain local services by special assessment, by special taxation of contiguous property, or otherwise, as may be provided by law.

In states with provisions for the initiative and referendum, tax laws are subject to these methods of popular control. But the referendum may be made inapplicable if a law is declared an emergency measure by a special vote of the legislature; and in Ohio tax laws are expressly exempted from the referendum. On the other hand, in Oregon, it is provided that tax laws, shall not be declared emergency measures; and the Kentucky taxation amendment of 1915 expressly provides for a referendum on certain tax laws. It may be observed that in case of a new tax law, there is more than the usual probability that those opposed to the new taxes will endeavor to file a referendum petition for the purpose of delaying the new taxes, even if there is little likelihood of defeating the law by the referendum vote. If a referendum is authorized for tax laws, it will be important to provide for an early vote; or the referendum may be authorized as a method of repealing the law, without preventing its going into effect in the meantime.