12. A secretary of the British ambassador was arrested, brought before the judge of a New England town court, and fined for running an automobile too fast: Did the judge have the right to impose the fine?

A Hint on Reading.-Henry Wheaton, "Elements of International Law."

XXXV

TAXATION

Introductory. We now come to the function of taxation, or the orderly collection of revenue for the support of government. The science which treats of public expenditures and of the means of securing them is called public finance. Since under our dual system of government taxation is a concurrent function (p. 49) exercised with sovereign power by the State as well as by the federal government, and since each government determines its own. expenditures, public finance in the United States is resolved into two sharply defined systems-national finance and State finance.

An adequate study of the taxing function requires the consideration of the following topics: (1) Taxation in its General Aspects, (2) National Finance, (3) State Finance, (4) Public Debt, and (5) Problems of Taxation. In this chapter we shall dispose of the first of these topics.

The Cost of Government. It is plain that expenditures for government in the United States must be very heavy, for there are three highly organized governments to be supported: the federal government with its army and navy and courts of law and high officials and thousands upon thousands of employees; the State governments with their numerous departments; the local governments with their school system and charitable institutions and highway improvements and police and sanitary service. The federal government spends about $600,000,000 a year, State and

1

Territorial government about $100,000,000, local government about $800,000,000, making a total public expenditure of $1,500,000,000 a year. These numbers in themselves mean nothing-they are too large for the mind to grasp— but comparison enables us to comprehend their significance. $1,500,000,000 is about one twelfth of the combined annual earnings of every man, woman and child in the United States. The people, therefore, contribute to government in a year about as much as they earn in a month.

The Source of the Taxing Power. How does government get the revenue for its support? Which of its departments is vested with authority to take money from private citizens for public purposes? We have seen that this question arose between King John and his barons, and that Magna Carta declared that no contributions for the support of government should be made except by the consent of the general council of the realm. The same question arose between Charles I and Parliament and was settled by a declaration in the Petition of Right to the effect that the king could not take money from his subjects without the consent of the representatives of the people in Parliament. One of the greatest results of that mighty movement known as the French Revolution, which was also called into being by oppressive and arbitrary taxation at the hands of the king, was to take the taxing power from the executive and give it to a representative legislature. The outcome of the American Revolution, which also hinged upon the subject of taxation, confirmed the principle that in America there can be no taxation without either the personal consent of the people or the consent of their representatives in the legislature. Here is the cardinal fact of taxation: government must receive its revenue through the consent of the legislature.

The Different Kinds of Taxes. When the legislature makes a general call upon the citizens for contributions for the

1 Estimated on the basis of a census report of 1890.

support of government, it is said to tax them. When the levy or call is properly made the contribution is compulsory and cannot be escaped. A tax, therefore, may be defined as an enforced contribution of money levied by the legislature on persons, property or income, for the support of government. Property is the thing universally taxed. If any property escapes taxation, it is not as a rule the fault of the law, for legislators attempt to tax almost everything upon which a tax can possibly be laid. For the sake of system they divide property and other subjects of taxation into classes and name the tax according to the class upon which it is levied. The kinds of taxes which are usually collected are the following:

1. The general property tax, levied (a) on real property, which includes lands and buildings and other things erected on land, and (b) on personal property, which includes such things as household furniture, money, goods, bonds, notes of promise, stocks, mortgages, jewelry, horses, carriages, and farming implements.

2. The income tax, levied upon income from wages or salary or profits upon business.

3. The inheritance tax, levied upon property acquired by inheritance or will. Sometimes this tax is regarded as an income tax, an inheritance or legacy being considered as nothing more than a part of the yearly income. Inheritance taxes are collected in seventeen States.

4. The corporation tax, levied upon private corporations. This tax sometimes takes the form of an income tax levied upon the corporation regarded as a person; sometimes it is levied upon the bonds and stock of the corporation. In a few States it is levied upon the earnings of the corporation.

5. The franchise tax, levied upon a privilege granted by government. When a city council confers upon a corporation the right to operate a trolley line upon a certain street, the right conferred is a franchise, and upon the value of this right the franchise tax is laid. Though franchises are

not material, visible property they have nevertheless been declared by the Supreme Court of the United States to be property. Sometimes franchises have an enormous value. For example, while the tangible property, the rolling stock, rails, wires and power-houses of a trolley company may be worth only a million dollars, the right to use the street (the franchise) would not be sold for a sum several times as great. Sometimes a corporation is compelled to pay both a franchise tax and a property tax on its material possessions.

6. The poll or capitation tax is a sum ranging from one to four dollars levied as a personal tax. It is a tax on the person as a person, and not as a possessor of property.

7. Customs duties, levied upon articles imported from a foreign country. In some countries customs duties are levied upon exported articles.

8. Excises or internal revenue taxes, levied upon goods manufactured within the country. The articles which yield most of the internal revenue are: distilled spirits, beer, ale, tobacco and oleomargarin.

9. License taxes, collected from merchants, peddlers, hack-drivers, showmen, saloon-keepers, and others, for the privilege of transacting business. The license tax resembles the franchise tax.

10. Fees and special assessments, collected as a partial payment for services rendered by the government. The charge for issuing a marriage certificate is an example of a fee, while a charge made for connecting a private drain with a public sewer is an example of a special assessment. Fees and special assessments are not always taxes properly so called.

Direct and Indirect Taxation. When a tax is levied upon the very person who is likely to bear the burden, it is said to be direct. The general property tax, the income tax, the inheritance tax, the corporation tax, the franchise tax, and the capitation tax are direct taxes. When a person