THE QUESTION OF TAXATION
The question of taxation was one of the most complex problems with which
the Administrator had to deal. As with the legal machinery he formed a
board of five to advise with him, and to carry out his very well-defined
ideas. Upon this board was a political economist, a banker, who was
thought to be the ablest man of his profession, a farmer who was a very
successful and practical man, a manufacturer and a Congressman, who for
many years had been the consequential member of the Ways and Means
Committee. All these men were known for their breadth of view and their
interest in public affairs.
Again, Dru went to England, France and Germany for the best men he could
get as advisers to the board. He offered such a price for their services
that, eminent as they were, they did not feel that they could refuse. He
knew the best were the cheapest.
At the first sitting of the Committee, Dru told them to consider every
existing tax law obliterated, to begin anew and to construct a revenue
system along the lines he indicated for municipalities, counties,
states and the Nation. He did not contemplate, he said, that the new law
should embrace all the taxes which the three first-named civil divisions
could levy, but that it should apply only where taxes related to the
general government. Nevertheless, Dru was hopeful that such a system
would be devised as would render it unnecessary for either
municipalities, counties or states to require any further revenue. Dru
directed the board to divide each state into districts for the purpose
of taxation, not making them large enough to be cumbersome, and yet not
small enough to prohibit the employment of able men to form the
assessment and collecting boards. He suggested that these boards be
composed of four local men and one representative of the Nation.
He further directed that the tax on realty both in the country and the
city should be upon the following basis:--Improvements on city property
were to be taxed at one-fifth of their value, and the naked property
either in town or country at two-thirds of its value. The fact that
country property used for agricultural purposes was improved, should not
be reckoned. In other words, if A had one hundred acres with eighty
acres of it in cultivation and otherwise improved, and B had one hundred
acres beside him of just as good land, but not in cultivation or
improved, B's land should be taxed as much as A's.
In cities and towns taxation was to be upon a similar basis. For
instance, when there was a lot, say, one hundred feet by one hundred
feet with improvements upon it worth three hundred thousand dollars, and
there was another lot of the same size and value, the improved lot
should be taxed only sixty thousand more than the unimproved lot; that
is, both lots should be taxed alike, and the improvement on the one
should be assessed at sixty thousand dollars or one-fifth of its actual
value.
This, Dru pointed out, would deter owners from holding unimproved
realty, for the purpose of getting the unearned increment made possible
by the thrift of their neighbors. In the country it would open up land
for cultivation now lying idle, provide homes for more people, cheapen
the cost of living to all, and make possible better schools, better
roads and a better opportunity for the successful cooperative marketing
of products.
In the cities and towns, it would mean a more homogeneous population,
with better streets, better sidewalks, better sewerage, more convenient
churches and cheaper rents and homes. As it was at that time, a poor man
could not buy a home nor rent one near his work, but must needs go to
the outskirts of his town, necessitating loss of time and cost of
transportation, besides sacrificing the obvious comforts and
conveniences of a more compact population.
The Administrator further directed the tax board to work out a graduated
income tax exempting no income whatsoever. Incomes up to one thousand
dollars a year, Dru thought, should bear a merely nominal tax of one-half
of one per cent.; those of from one to two thousand, one per cent.;
those of from two to five thousand, two per cent.; those of from five to
ten thousand, three per cent.; those of from ten to twenty thousand, six
per cent. The tax on incomes of more than twenty thousand dollars a
year, Dru directed, was to be rapidly increased, until a maximum of
seventy per cent. was to be reached on those incomes that were ten
million dollars, or above.
False returns, false swearing, or any subterfuge to defraud the
Government, was to be punished by not less than six months or more than
two years in prison. The board was further instructed to incorporate in
their tax measure, an inheritance tax clause, graduated at the same rate
as in the income tax, and to safeguard the defrauding of the Government
by gifts before death and other devices.