Union, are to be congratulated, because during the past year the
Nation has carried to a brilliant triumph one of the most righteous
wars of modern times. When last spring it became evident that the
interests of humanity and of national honor alike demanded that we
should drive Spain from the Western Hemisphere and free from her
tyranny the subject peoples of the islands of the sea, New York
responded with eager zeal to the call for volunteers, and in the
Cabinet, in Congress and in camp, her representatives did all they
could to insure the success of the American policy. We are not merely
New Yorkers. We are Americans; and the interests of all Americans,
whether from the North, the South, the East or the great West, are
equally dear to the men of the Empire State. As we grow into a mighty
nation, which, whether it will or not, must inevitably play a great
part for good or for evil in the affairs of the world at large,
the people of New York wish it understood that they look at all
questions of American foreign policy from the most thoroughly national
standpoint. The tropic islands we have taken must neither be allowed
to lapse into anarchy nor to return under the sway of tyranny. War
is a grim thing at best, but the war through which we have passed
has left us not merely memories of glory won on land and sea, but
an even more blessed heritage, the knowledge that it was waged from
the highest motives, for the good of others as well as for our own
national honor. Above all, we are thankful that it brought home to all
of us the fact that the country was indeed one when serious danger
confronted it. The men from the East and the West, from the North and
the South, the sons of those who wore the blue and of those who wore
the gray, the men of means and the men who all their lives long had
possessed only what day by day they toiled to earn, stood shoulder to
shoulder in the fight, met the same dangers, shared the same hardships
and won the same ultimate triumph.
In our domestic affairs, the State is to be congratulated on the
gradual return of prosperity. Though temporarily checked by the
war this return has been on the whole steady. The capitalist finds
constantly greater business opportunities; the wage-worker, in
consequence, is more steadily employed; the farmer has a better
market.
TAXATION
No other question is of such permanent importance in the domestic
economy of our State as the question of taxation. At present our
system of taxation is in utter confusion, full of injustices and of
queer anomalies. It is an exceedingly difficult subject, one well
worthy the attention of our best men, the men with most highly trained
minds and the broadest practical experience; men who are able to
approach the subject from the standpoints alike of the farmer, the
merchant, and the manufacturer. Not only is it necessary to consider
whether any kind of tax ought, if practicable, to be levied, but
whether it is in fact practicable to levy it. We should discourage the
building up of non-taxable interests, and yet we should discourage
driving property out of the State by unwise taxation, or levying a
tax which is in effect largely a tax upon honesty. I most earnestly
commend the whole matter to your special attention.
* * * * *
MESSAGE OF THE GOVERNOR OF NEW YORK TO THE LEGISLATURE, MAY 22, 1899
STATE OF NEW YORK, EXECUTIVE CHAMBER,
ALBANY, _May 22, 1899_
_To the Legislature_:
I have called you together in extraordinary session for the purpose of
considering the subject of the taxation of franchises.
My message to the Legislature of March 27, 1899, ran in part as
follows:
“At present the farmers, the market gardeners, and the mechanics and
tradesmen having small holdings are paying an improper and excessive
portion of the general taxes, while at the same time many of the
efforts to remedy this state of affairs, notably in the direction of
taxing securities, are not only unwise, but inefficient, and often
serve merely to put a premium upon dishonesty.”
* * * * *
“There is evident injustice in the light taxation of corporations. I
have not the slightest sympathy with the outcry against corporations
as such, or against prosperous men of business. Most of the great
material works by which the entire country benefits have been due to
the action of individual men, or of aggregates of men, who made money
for themselves by doing that which was in the interest of the people
as a whole. From an armor plant to a street railway no work which is
really beneficial to the public can be performed to the best advantage
of the public save by men of such business capacity that they will not
do the work unless they themselves receive ample reward for doing it.
The effort to deprive them of an ample reward, merely means that they
will turn their energies in some other direction; and the public will
be by just so much the loser. Moreover, to tax corporations or men
of means in such a way as to drive them out of the State works great
damage to the State. To drive out of a community the men of means
and the men who take the lead in business enterprises would probably
entail, as one of its first results, the starvation of a considerable
portion of the remainder of the population.
“But while I freely admit all this, it yet remains true that a
corporation which derives its powers from the State should pay to the
State a just percentage of its earnings as a return for the privileges
it enjoys. This should be especially true for the franchises bestowed
upon gas companies, street railroads and the like. The question of
the municipal ownership of these franchises can not be raised with
propriety until the governments of all municipalities show greater
wisdom and virtue than has been recently shown, for instance, in
New York City; and the question of laying and assessing the tax for
franchises of every kind throughout the State should in my opinion be
determined by the State itself. I need not point out to you that in
foreign communities a very large percentage of the taxes comes from
corporations which use the public domain for pipes, tracks and the
like.”
I stated that the power of assessing the tax on franchises should be
left with the State authorities—not the local authorities—because in
my view this was desirable both for the sake of providing against
improper favoritism of or discrimination against corporations by
the local authorities, for the sake of working equity as between
the franchises in different localities, and finally for the sake of
providing for the cases where a railroad or telephone or telegraph
line runs through several different communities.
Many representatives of corporations owning franchises heartily
approve of having them properly taxed; and I am confident that, in the
end, this will be of positive benefit to the franchise owners, and in
no way oppressive to them, save as all taxes are oppressive to all
owners of property.
The line of cleavage between good and bad citizenship does not
follow the line dividing the men who represent corporate interests
from the men who do not; it runs at right angles to it. We are bound
to recognize this fact, to remember that we should stand for good
citizenship in every form, and should neither yield to demagogic
influence on the one hand, nor to improper corporate influence on
the other. There is no intention of oppressing people who have put
their money into franchises. We recognize that, as in the case of
all legitimate business, they benefit not only themselves but the
community at large. If a franchise is worth very little, it should
be taxed very little; but where the franchise is of great value, it
certainly should be heavily taxed; and the value is of course based
upon the use of the city’s or State’s real estate. Such use of the
public real estate should not be given without substantial returns;
returns not only in the way of service to the public, which of course
a street railway or a gas company gives, precisely as the proprietor
of a grocery or dry goods store gives it, but also in the way of
bearing a just share of the burden of taxation; again, precisely
as the owner of the grocery or dry goods store bears his share,
the difference being that a railroad company, for instance, owes
infinitely more than the proprietor of a big business establishment
does, to the real estate itself. Of course, this value differs greatly
in different places. Where population is dense, as in New York City,
the real estate along which the tracks are laid on Broadway may be
worth an immense amount for every lineal foot, exactly as the real
estate fronting this portion of Broadway is worth an immense amount
for every lineal foot. In sparsely settled districts, however, the
value of the real estate of the railroad will diminish greatly, just
as the value of the realty through which it runs diminishes.
I am perfectly well aware that as Chief Justice Marshall says: “The
power of taxation is the power of destruction.” But this applies to
every species of property. If demagogues or ignorant enthusiasts who
are misled by demagogues could succeed in destroying wealth, they
would of course simply work the ruin of the entire community; and
first of all, of the unfortunates for whom they profess to feel an
especial interest. But the very existence of unreasoning hostility to
wealth should make us all the more careful in seeing that wealth does
nothing to justify such hostility. We are the true friends of the men
of means, we are the true friends of the lawful corporate interests
which do good work for the community, when we insist that the man of
means and the great corporation shall pay their full share of taxes
and bear their full share of the public burdens. If this is done,
then sooner or later will follow public recognition of the fact that
it is done; and when there is no legitimate basis for discontent, the
American public is sure sooner or later to cease to feel discontent.
The Legislature passed, and there is now before me, a bill for the
taxation of franchises by treating them as realty. After watching the
progress of this bill I became convinced that the opposition to it
was less to its particular features than to the general principle of
taxing franchises in any way; in other words, I became convinced that
any really effective measure of taxation aimed at franchises would
be vigorously opposed. It therefore became of the utmost importance
to secure this year some statutory enactment which would distinctly
recognize the principle which we seek to establish. Toward the end
of the session it became evident that the influences against the
taxation of franchises would be content with nothing save the defeat
of any measure of substantial relief; and a measure of less than
substantial relief I would not accept. Finally it became evident that
the Legislature could pass only one bill and that without amendment.
I therefore sent in a special message asking for the passage of this
bill. It was passed on the last day of the session. It represents a
long stride in the right direction, and one from which there must be
no retrogression.
Nevertheless, it can be greatly bettered if amended in two important
particulars. In its essential principle, that of taxing franchises
as realty, it is right and proper. After much study of the question,
I am convinced that in this way we can come nearer to doing justice
than in any other which has as yet been proposed. It is no new thing
to treat franchises as realty. They are so treated in Washburn’s
work on real property, and by Chancellor Kent; but under the laws
of New York as they are now a franchise can not be taxed except by
special statute, and as a matter of fact this extremely valuable
species of property is in very many, if not in most, cases untaxed
or taxed far below its value in comparison with other kinds of real
estate. Local franchises are granted for various purposes and under
varying conditions; sometimes by special statute and sometimes by
the municipal authorities under a general statute. The value of the
franchise of course varies widely in different localities, depending
upon a variety of circumstances; but a great part of its value is
dependent upon the same causes which operate to make other kinds
of real estate more valuable in one locality than in another. The
franchise is inseparable from the property of the corporation in the
street, whether this property consists of poles, pipes, or tracks,
above the ground, under the ground, or on the ground. The right to
lay a railroad track and operate a railroad in a public street can
not be separated or dissociated from the railroad itself. This is
equally true of the right to lay water and gas mains and the like.
The franchise is a necessary and inevitable element of value and is
a proper subject of consideration in determining the taxable value of
the real property of the corporation enjoying it. The right to occupy
a street should not be classed as an intangible something, distinct
from the other property of the company, but should be treated as a
necessary incident to the tangible property and one to be considered
in measuring the value of the whole property. The Nichols law in Ohio
which provides for the taxation of certain kinds of corporations such
as telegraph and telephone companies and the like, doing business in
the public streets, proceeds along these lines, and has in practice
been found to work admirably. It is possible that further experience
may enable us to find some better method of taxing franchises, but
with our present knowledge it is certainly wisest to tax them as
realty.
Under the bill before me the assessment will be levied by the local
authorities. This would result in many cases in a dozen different
sets of local authorities assessing the value of different parts
of the same franchise. It is on every account far better that this
assessment should be delegated to the State authorities who will
necessarily ascertain all the conditions affecting the franchise and
obtain information which will enable them to judge of the value of
the franchise in the different localities in which it is exercised.
The Board of State Tax Commissioners can collate the facts, compare
conditions and determine values as a result of a wider range of
observation and experience than can be obtained by local officers,
and under them the system of assessment will tend to produce justice,
harmony and uniformity. This is the system adopted under the Nichols
law and it has worked well in practice.
Furthermore, the bill before me fails to take account of the fact
that, in a very unequal and irregular way, many corporations do
already pay a certain, though usually an utterly inadequate sum in
taxes. Some pay nothing at all to the local municipalities, but others
pay sums varying from one to five per cent on their gross earnings.
The amounts have been determined in the most haphazard manner and bear
no proportion whatever to the value of the franchises or to their
earning capacity. It is obviously unjust, when introducing a system
under which we believe that these franchises will for the first time
be fully and fairly taxed according to their respective values, not
to allow for this existing and inequitable taxation. Accordingly it
should be provided that from the sum assessed by the State authorities
as the tax which a corporation must pay because of its local
franchise, there shall be deducted the amount already annually paid by
it to the locality for such franchise. In no other way is it possible
to tax these corporations with uniformity and equity. It is contended
by the advocates of the bill that in reaching the value of the
franchise under the new law the amount thus paid away in taxes must
be allowed for and deducted anyhow; but it is not certain that this
would be done, and in any event the principal should be definitely
established by the law itself. There can be no possible opposition to
putting it in the law by any man who is anxious to tax corporations
as other property is taxed, and who believes that this end can be
attained by taxing them as realty. Either by taxing them as realty we
shall tax them at their full value, or we shall not; if, as we hold,
the former is the case, it would be unjust to tax them for more than
their full value, and this would happen were not these existing taxes
deducted.
If it is claimed that the particular method of assessment by the
State Tax Commission may be improper or unjust, provision can be made
for the same appeal to the courts that now lies in the case of any
assessment on other kinds of property.
Accordingly, I recommend the enactment of a law which shall tax all
these franchises as realty, which shall provide for the assessment
of the tax by the Board of State Tax Commissioners, and which shall
further provide that from the tax thus levied for the benefit of each
locality there shall be deducted the taxes now paid by the corporation
in question. Furthermore, as the time for assessing the largest and
wealthiest corporations, those of New York and Buffalo, has passed for
this year, and as it will be preferable not to have the small country
corporations taxed before the larger corporations of the cities are
taxed, I suggest that the operations of the law be deferred until
October first, of this year.
THEODORE ROOSEVELT.
MESSAGE OF THE GOVERNOR OF NEW YORK TO THE LEGISLATURE, JANUARY 3, 1900
STATE OF NEW YORK, EXECUTIVE CHAMBER,
ALBANY, _January 3, 1900_
_To the Legislature_:
It is a very genuine pleasure to congratulate the Legislature upon
the substantial sum of achievement in legislation and administration
of the past year. Laws of the utmost usefulness to the community
have been enacted, and there has been a steady betterment throughout
the year in the methods and results of the administration of the
government.
* * * * *
The whole problem of taxation is now, as it has been at almost all
times and in almost all places, one of extreme difficulty. It has
become more and more evident in recent years that existing methods
of taxation, which worked well enough in a simpler state of society,
are not adequate to secure justice when applied to the conditions of
our complex and highly specialized modern industrial development.
At present the real estate owner is certainly bearing an excessive
proportion of the tax burden. Men who have made a special study of
the theory of taxation and men who have had long experience in its
practical application are alike in conflict among themselves as to the
best general system. Absolute equality, absolute justice in matters of
taxation will probably never be realized; but we can approximate it
much more closely than at present. The last Legislature most wisely
appointed a committee to consider the feasibility of a thorough and
far-reaching change in our tax laws; and there is good reason to
believe that their forthcoming report will present a scheme which will
receive the support of substantially all classes of taxpayers, and
which will be of such a character as to commend itself to the most
careful consideration of your body upon broad lines.
The law must not only be correct in the abstract; it must work well
in the concrete. Experience shows that certain classes or symbols of
property which in theory ought to be taxed can not under the present
practice be reached. Some kinds of taxes are so fertile in tempting
to perjury and sharp dealing that they amount to taxes on honesty—the
last quality on which we should impose a needless burden. Moreover,
where the conditions and complexity of life vary widely as between
different communities, the desirability and possibility of certain
taxes may seem or be so different that it is hard to devise a common
system that will work. If possible the State tax should be levied on
classes of property, and in a manner which will render it collectible
with entire fairness in all sections of the community, as for instance
the corporation or collateral inheritance tax is now collected. So far
as possible we should divorce the State and municipal taxes, so as
to render unnecessary the annual equalization of values between the
several counties which has proved so fertile a source of friction
between the city and the country.
There is a constant influx into New York State of capital ofttimes
previously incorporated under the laws of other States, and an
increasing number of men of means from other parts of the country,
non-residents of New York, come into this State to sojourn and to
conduct and be at the head of various business enterprises which are
drawn to New York as the financial centre of the whole country. This
calls for legislation which shall provide, in a broad and fair spirit,
for taxing foreign capital in this State, whether in corporate or
individual form, exactly as we tax domestic capital doing business
along the same lines.
I call your attention to the fact that the great burden of taxation
is local, not State. In the large cities the heavy local charges are
mainly due to the action of the local authorities themselves. For
this the local authorities are of course responsible. But sometimes
taxation is added to by legislative enactment.
On certain points the failure of the tax laws has become so evident
that it is possible to provide more or less complete remedies without
waiting for a general scheme of reorganization. Again and again
in recent years this has been recognized, and through legislative
enactment certain species of property which had escaped taxation
have been made to pay their proper share of the public burdens. The
collateral inheritance tax offers a case in point. The corporation
tax offers another. In all these matters of taxation, however, it is
necessary to proceed with extreme caution, the path never being so
simple and clear as the advocates of any particular measure invariably
believe. Every wealthy corporation that perpetrates or is allowed to
perpetrate a wrong helps to produce or inflame a condition of angry
excitement against all corporations, which in its turn may in the end
harm alike the honest and the dishonest agents of public service and
thereby do far-reaching damage to the whole body politic. Much of the
outcry against wealth, against the men who acquire wealth, and against
the means by which it is acquired, is blind, unreasoning and unjust;
but in too many cases it has a basis in real abuses; and we must
remember that every act of misconduct which affords any justification
for this clamor is not only bad because of the wrong done but also
because the justification thus given inevitably strengthens movements
which are in reality profoundly anti-social and anti-civic. Our laws
should be so drawn as to protect and encourage corporations which do
their honest duty by the public; and to discriminate sharply against
those organized in a spirit of mere greed, or for improper speculative
purposes.
There is plenty of misconduct, plenty of selfish disregard of the
rights of others, and especially of the weak. There is also plenty of
honorable and disinterested effort to prevent such misconduct or to
minimize its effects. Any rational attempt to prevent or counteract
the evils, by legislation or otherwise, is deserving of hearty
support; but it can not be too deeply impressed upon us that such
attempts can result in permanent good only in proportion as they are
made in a sane and wholesome spirit, as far removed as possible from
whatever is hysterical or revolutionary. It is infinitely better when
needed social and civic changes can be brought about as the result
of natural and healthy growth than when they come with the violent
dislocation and widespread wreck and damage inevitably attendant upon
any movement which is revolutionary in its nature.