9. Is the money you pay for a postage-stamp a tax?

10. Of the articles which are mentioned in the text as being taxed are there any which should go on the free list?

11. Under the Constitution can the Senate originate a bill to revise the tariff?

12. What is the difference between an appropriation bill and a revenue bill?

XXXVII

STATE FINANCE

The Taxing Power of the State. In the days of the Confederation the power of the State to tax was full and complete, but by the adoption of the Constitution the taxing power of the State was to some degree restricted and abridged. Since one of the chief objects of the Constitution was to secure easy trade relations between the States, taxation on exports and imports was prohibited to the States and placed under the control of Congress (44). With the view of further protecting the freedom of commerce, the Constitution forbids any State to levy without the consent of Congress any tonnage duty, that is, any tax on the carrying capacity of a vessel (76) -a prohibition which applies to all instruments of commerce. A State cannot impose a tax on "tonnage passing through, from or to a State or foreign country, be it on railway, canal, river, or otherwise." Moreover, since "the power to tax is the power to destroy," a State cannot tax the agencies by means of which the federal government is enabled to exercise its functions: it cannot tax the bonds (p. 288) of the federal government, or its property, such as its lighthouses and post-office buildings, or the salaries of its officers, or the public money in its treasuries, or the metals in its mints. Aside from these restrictions, the State is free to tax all taxable objects within its borders.

The Authority for State Expenditures. Although they may differ somewhat in detail, the financial system of the

States are quite uniform in their workings. Authority for all public expenditures within each State flows directly or indirectly from its constitution and its legislature. Expenses of the State government are estimated and levied directly by the legislature, and are usually comparatively light. In some States the constitution limits the amount which can be levied in one year.1

The heavy expenses of local government are met by taxation imposed by the minor legislative bodies, by the municipal council, or board of county commissioners—a legislative body as far as taxation is concerned-or townmeeting, or the township supervisors or trustees. Since

the greater part of the sum paid for taxes is levied by local authority with the almost direct sanction of the voters themselves, it can almost be said that the people are not taxed-for they really tax themselves.

Taxation in the State. It has been seen that federal taxation is a very simple matter. Congress determines the tariff and excise rates, and the Treasury Department places its collectors of customs at the various seaports to collect the duties on foreign goods as they come into the harbors, and sends its collectors of internal revenue into the distilleries and tobacco establishments to collect the excises on liquors and tobacco as they are manufactured-and that is substantially the story of federal taxation. The account of State taxation must be somewhat more complex, for it involves the consideration of more processes and more governmental machinery.

I. The General Property Tax. While national taxation is almost wholly indirect, State taxation is almost wholly direct. In the State the general property tax is the great source of revenue. This tax reaches all property, real and personal, located within the boundaries of the State. When

1 The constitution of New York places no limit upon the legislature's power to tax, but it requires that every law imposing a tax shall state the purpose to which it is to be applied.

the owner of property resides outside the State, he does not for that reason escape taxation.

In the payment of the general property tax the taxpayer should bear a burden proportioned to his wealth; all the property of every person should contribute according to its true value. This, as has been seen, is a fundamental principle of taxation. In order to realize this principle of equality and justice when levying the general property tax the government must set in motion an elaborate taxing machinery, and must carefully control all the processes of taxation. Its officers must discover all the property of every person, and must place thereon a fair valuation; it must provide agencies for correcting unjust and unfair valuations; it must have officers for collecting the taxes and means of enforcing payment; finally, it must, in the name of public policy, exempt certain classes of property from the payment of taxes.

An account of the operation of the general property tax includes the consideration of the following topics: (1) Assessment; (2) Equalization; (3) Collection; (4) Delinquencies; (5) Exemptions.

1. Assessment. The administration of the general property tax begins with the placing of a valuation upon all property, real and personal. This official valuation is called an assessment. The officers of assessment, known as assessors, in some States are elected by the people; in other States they receive their office by appointment.

The assessors of a local division-of a city, or town, or township 1-after personally inspecting the property of the taxpayer and making a series of inquiries in reference to it, place a value upon it. This is done in respect to the property of every taxpayer. The sum of all the valuations of property thus made is the assessment of the local division. The tax rate of the local division is found by dividing the expenditures determined upon by the assessment.

1In some States the county is the smallest local division for purposes of assessment.

If the assessment is fifty million dollars, and the expenses of the local government are five hundred thousand dollars, the tax rate is one hundredth or one per cent. Every taxpayer, therefore, must pay local taxes amounting to one per cent. of the assessed valuation of his property.

1

But this local division, even if it be a large city, most probably is located in a county in which there are additional expenses of county government. The local division must bear its share of these expenses, and this will increase the rate of the taxpayer. The county rate is found by dividing the county expenditures by the county assessment, which is the sum of the assessments of all the local divisions of the county. Again, the county as a part of the State must contribute its share to the support of the general State government. The State rate3 is found by dividing the State expenditures by the State assessment (the sum of the county assessments). This rate added to the local and county rates gives the tax rate of the local taxpayer.

2. Equalization. In levying the general property tax the individual assessments must be just. If A's house is assessed at one thousand dollars, when it is worth two thousand dollars, and B's house is assessed at three thousand dollars when it is worth two thousand dollars, B will pay three times as much in taxes as A, whereas, in justice, he ought to pay only as much as A. In most of the States means are provided for correcting unfair assessments. Very often there is a local board of equalization to which taxpayers may appeal when they think they have not been treated fairly at the hands of the assessors. Sometimes such complaints are taken to an appeal tax court, or to the board of county commissioners. When the board

All cities in the United States excepting Baltimore, St. Louis, and Washington, D. C., are located in counties.

2 The valuation put upon property in the local assessment is usually regarded as its proper valuation for purposes of county and State taxation.

In several States there is no general property tax for State purposes, the revenue for the general State government being obtained chiefly from corporation taxes and from licenses.