taxation which enjoyed great popularity for a time, and accomplished
the end of their creation in a crude and often cruel manner. Looking
over long periods of time, it is seen that some advances have been
made, rather from a change in the economic condition of the people
than from a true appreciation of the principles in question. The
development of popular liberty has been an essential factor, and the
alterations in tax methods require a close analysis of the causes
leading to the rise and dominance of political and constitutional
principle. While it is true that a popular uprising against fiscal
exactions usually marked the limit of endurance of an oppressive
system, it is also true that the same uprisings marked the completion
of one stage of political development, and the readiness or even the
need of entering upon a new stage. In one sense the progress of a
people toward civilization in its highest meaning may be illustrated
by its fiscal machinery and methods of obtaining its revenue from the
people. It will be of interest to glance at some of these passing
phases which have generally come down to a late day, and are still to
be found in activity in some of the most advanced states of Europe.
The practice of farming out the revenues of a state or any part of it
has become nearly obsolete, and where it does exist is the mark of a
fiscal machinery as yet not fully developed. The opportunities and
temptation which the contract system offered for oppressing the
taxpayers were apparent long before the state was in a position to
assert its ability to make its own collections. In France the
_fermiers généraux_ were a political factor, standing between the king
and his people, regarded as necessary to the former and as oppressors
of the latter. Their unpopularity, in part justified by their conduct,
was a not unimportant item in the arraignment of royalty by the
people. Wherever introduced, the farming of taxes proved in the long
run as unwise politically as it was unprofitable financially; and the
only reasonable defense for adopting it was the want of strength in
the state to command its own revenue--a want as likely to arise from
the dishonesty of its agents as from a political weakness. In early
times the most universal manner of supplying the treasury of the
state, the farming of taxes has become so rare as to be classed as a
curiosity. Italy still employs this machinery to collect her taxes on
tobacco, and Spain from necessity has mortgaged her taxes to the
bank, with the task of collecting them.
Of the same general character are the state lotteries, of which some
few and quite important instances may still be found in action. Of the
immorality of these instruments there can be little doubt, and there
is quite as unanimous an opinion as to their inefficiency as fiscal
instruments. Yet it is only within very recent years that state
lotteries have been discarded even in the most advanced countries. The
machinery of lotteries has often been modified, but, no matter how
altered in details, they all have appealed to the love of games of
chance. Adam Smith asserted that the "absurd presumption" of men in
their own good fortune is even more universal than the overweening
conceit which the greater part of men have in their own abilities.[6]
Yet another assertion of the same writer is as true: "The world
neither ever saw, nor ever will see, a perfectly fair lottery, or one
in which the whole gain compensated the whole loss." Where the state
undertakes it, there is a profit generally assured to the state, but
that profit is by no means certain, and can not make good the
demoralization introduced among the people. State lotteries are still
a part of the revenue system in Italy and Austria (proper), where the
receipts are important, but show a decided tendency to diminish;
Hungary and Denmark, where they are of little moment; and in Spain,
where they are retained because of the general incapacity of the
administration to reach other and more profitable sources of revenue.
The experience of the State of Louisiana in connection with a State
lottery is too recent to require examination. It is not probable that
once abandoned such an instrument for obtaining money from the people
will be revived, save as a last resort.
The state monopoly in the manufacture and sale of an article for
fiscal purposes holds a place in European countries of high
importance, and is met elsewhere under conditions not so favorable to
its maintenance. As an example of the latter may be cited the colonial
policy of the Dutch in their possessions in the East. After the
termination of the trading companies, the Government undertook the
entire control of the colonies, and sought to make them a source of
revenue. The natives were to be taxed, but, having little of their own
to be taxed, and practicing no occupation that could of its own
volition become a profitable source of revenue, the state undertook to
organize industry, and, by creating an opportunity for employing the
labor of the natives, to receive the profits of production for its own
uses. The native chiefs were made "masters of industry" and collectors
of the revenue; and a certain part of the labor of the natives, one
day in every five, was decreed to the state. In order to derive a
profit, this labor must be bestowed in cultivating some product as
find a market in international trade. Hence arose the importance of
the sugar, coffee, tobacco, and spice crops of these Dutch islands,
and for many years a handsome profit to the treasury was obtained from
the management and sales of product. With the great fall in prices of
sugar and coffee throughout the world, and the narrowing of the market
for cane sugar, the Government obtained a less income each year, and
has found it of advantage to relax the conditions surrounding
cultivation, and to throw the management of the plantations more and
more into private hands. To such an extent has this transition been
effected that the state can no longer be considered as controlling a
monopoly in product or sales, and is content with a revenue from other
sources, one that does not even cover the expenses incurred in the
colonial system. This experiment differs widely from those industries
undertaken with the aid or encouragement of the state to be found in
India. It was not with a fiscal object that they were established, and
not infrequently the state sacrifices revenue by releasing them from
tax burdens they would ordinarily endure. As one of the few remaining
instances of the direct participation of a state in the production of
products intended for foreign markets, yet undertaken and maintained
for fiscal reasons, the history of the Dutch colonies in the East is
instructive.
In Prussia the working of certain mines is in the hands of the state,
and was originally looked upon as an important contribution to the
income of the state. As in the Dutch experience, the changes in
production throughout the world have greatly reduced the returns and
made the income variable; yet there is little disposition to dispose
of these possessions. "The danger of mineral supplies being worked in
a reckless and extravagant manner without regard to the welfare of
future generations, and the dread of combinations by the producers of
such commodities as tin, copper, and salt, with the aim of raising
prices, have both tended to hinder the alienation of state mines."[7]
The more common form of state monopoly is that which occupies a middle
position, established for reasons of public safety or utility as well
as of revenue. The salt monopoly enforced in Prussia was only
abolished in 1867, and is still maintained in every canton of
Switzerland. The strongest plea in its defense has been the guarantee
by the state of the purity of the article sold, and this phase of the
question has superseded the revenue aspect. Few articles of prime
necessity, like salt, are subject to monopolies imposed by the state,
and by a process of elimination it is only articles of luxury or
voluntary consumption that are regarded as fit objects of monopoly for
the benefit of the state.
A tax imposed upon an article at a certain stage of its production or
manufacture may enforce the expediency or necessity of a state
monopoly. Where the supervision of the state agents must be so close
as to interfere with the conduct of the industry, the state intervenes
and itself controls the manufacture and sale. Tobacco has long been
subject to this fiscal _régime_, and, proving so productive of
revenue, there is little to be said against a monopoly by the state of
its manufacture and sale.
In Italy the tobacco monopoly is conceded to a company, but its return
of net revenue to the state is nearly as large as the revenue derived
from the taxes on real property (about thirty-eight million dollars a
year). Prussia imposes a charge on the home-grown tobacco by a tax on
the land devoted to its culture, but the return is very small, and
Bismarck wished to introduce a true tobacco monopoly, modeled on that
of France. But the conditions were opposed to his scheme, for the use
of tobacco is general throughout the empire, and a proposition to
increase its price by taxation or modify its free manufacture and
distribution excited a widespread opposition. France maintains a full
monopoly, and finds it too profitable to be lightly set aside unless
some equally profitable source of revenue is discovered to make good
the loss its abolition would involve.
While historical support is given to the maintenance of a monopoly as
in France, it is not probable that the system will find imitators in
other states, however tempting the returns obtained might seem. Great
Britain has by her insular position solved the problem in another way.
By interdicting the domestic cultivation of tobacco, all that is
consumed must be imported, and a customs duty offers a ready
instrument for making the plant, in whatever form it enters,
contribute its dues to the exchequer. In Russia, as in the United
States, where tobacco is a domestic product, the tax is imposed upon
its manufacture, and this method requires supervision but no monopoly
of the state.
The tobacco _régime_ is defended almost entirely on fiscal grounds,
and as a monopoly, an extreme measure, has proved its value as an
instrument of taxation. Other reasons, of a moral character, are urged
to induce the state to monopolize the manufacture and sale of
distilled spirits. Both France and Germany have considered this
question, and, in spite of confident predictions of a large profit,
have decided not to undertake it. Russia, on the other hand, has taken
it up quite as much on social as on revenue grounds, and is gradually
securing a monopoly of the trade in spirits. The initial cost of the
undertaking is large, and, as the system has not yet been perfected,
it is too early to give a judgment on its availability as a financial
instrument.
The transit dues, once commonly used by different countries, have been
generally abandoned, and in China must they be sought for in their
original forms of vexatious and unprofitable force. They arose from a
desire to derive some benefit from a commerce permitted grudgingly,
and rarely attaining any high results. The same end was sought by
duties on exports, much employed when the country was supposed to be
drained of its wealth by what was sent out of it. The conditions
necessary for a successful duty on exports are not often found, and
only in a few countries are they now existent. In Italy, South
America, and Asia, exports of certain natural products are taxed, and,
as in the case of Brazil, yield a notable revenue. In view of the
rapid advancement of production in new countries and of inventions in
the old, whereby many natural monopolies have been destroyed and
competition made more general, such duties prove to be more
obstructive to trade than productive of revenue, and are rapidly being
abandoned. In spite of a formal prohibition of export duties in the
Constitution of the United States, they are sometimes suggested in all
seriousness.
In thus clearing the path of what may be called dead or dying methods
of recent tax systems, the advantages enjoyed by the United States in
their freedom from such survivals become more evident. The practice of
farming taxes never gained a foothold in any part of the country.
Lotteries have been occasional, and with two exceptions have been
conducted on a limited scale--that of Louisiana is well known; an
earlier instance is less known. During the Revolution one of the means
resorted to by the Continental Congress for income was a lottery, but
the attempt proved disastrous to all concerned, and was finally
abandoned even more thoroughly than was the continental currency.
State monopolies of production and sale of any commodity have never
met with favor, and stand condemned in the desire for individual
initiative. As sources of revenue, the public lands, state control of
the post office, and of such municipal undertakings as the water and,
in a very few cases, the gas supply, has been employed, and in place
of profit the mere cost of management is sought. More than any country
of continental Europe, the United States has depended upon taxes, pure
and simple, unsupported or modified by state domains, state mines,
state manufactures, or state monopolies. Even Great Britain in her
local taxation is bound and hampered by precedent, and pursues a
system that is notoriously confused, costly, and vexatious. Long usage
and the erection of independent and conflicting authorities on
principles other than fiscal have imposed upon the local agents the
duty of assessing and collecting county and borough taxes which are as
indefensible in theory as they are difficult in practice.
From this weight of tradition and precedent the United States has been
almost entirely free, and it was possible to construct out of small
beginnings systems of Federal and State taxation at least reasonable
and consistent, producing an increasing revenue with the rapid
development of wealth and the larger number of taxable objects; and so
elastic as to adapt themselves to such changes as are inevitable in
any progressive movement of commerce or industry. That no such system
has resulted after a century of national life, and an even longer term
of local (colonial and State) activities, these papers have tended to
show. That the time is at hand when the problem of a thorough reform
of both State and Federal taxation must be met, current facts prove
beyond any doubt. If I have aided in a proper comprehension of these
problems, and, by collecting certain experiences in taxation among
other peoples and in different stages of civilization, contributed
toward a proper solution, the end of this work will have been
attained. It is not possible to introduce a complete change of policy
at once; it is not only feasible but necessary to indicate the
direction this change should take, and the ends to be secured in
making them. And first as to Federal taxation:
In a democracy like that of the United States, the continuance of a
mixed system of direct and indirect taxes is a foregone conclusion.
Not that there is an absence of change or modification in the details
of this double system, or in the application or distribution of a
particular impost or duty. To deny such modification is to deny any
movement in the body politic, or any progress in the industrial and
commercial economy of the people. There is a steady and continuous
movement in every direction, and the mere effort to escape taxation
results in a new adjustment of related facts. This development has,
partly through necessity and partly through a rising consciousness of
what a tax implies, been tending from indirect to direct taxes. Ever
restive under a rigid supervision by the state of private concerns,
there has been a wholesome opposition to inquisitorial taxes. But this
opposition has been carried too far, and is due more to the ignorant
and at times brutal disregard by the agents selected for enforcing the
law than to an appreciation of the injustice of the tax. Whether in
customs or excise, the same blunders of management have been
committed, and created a spirit in the people that is injurious to
their best interests. On the one hand, private enterprises have been
unduly favored by the removal of foreign competition, a favor that is
now disappearing through the remarkable development of domestic
competition. Thus taxes have been extensively used for other purposes
than to obtain revenue, and for private ends. On the other hand, there
has been created the feeling that taxation is a proper instrument for
effecting a more equal distribution of wealth among the people, and
readily becomes an instrument of oppression.
The almost absolute dependence of the Federal Government upon the
customs duties for revenue through a great part of its existence was a
striking fact. The simplicity of collection and the comparatively
moderate scale of duties, although considered high at the time of
imposition, gave this branch of the possible sources of revenue a
magnified importance. The development of the country was slow, and at
times greatly hampered by the tariff policy; but until about 1857 no
other source of income was needed to meet the expenditures of the
Government in a time of peace.
In recent years this has all changed, and not for the better. The
immense development in manufactures and financial ability accomplished
since 1860 has made a tariff for protection an anachronism. The
political features of customs legislation have been pushed so far as
almost to overshadow the fiscal qualities. The wave of protectionism
that followed the abrogation of the commercial treaties of Europe
about 1880 has resulted in tariffs framed with the desire to injure
the commerce of other states rather than to meet the needs of a
treasury. In the United States this policy has been carried beyond
that of Europe, and the tariff now in existence is more protective
than any hitherto enforced, short of absolute prohibition of imports.
In more respects than one the tariff law of 1897 was an extreme
application of the protective policy. Each year the United States has
demonstrated its ability not only to meet the industrial competition
of the world on an equal footing, but to engage with it aggressively
and with complete success. It is not necessary to give the figures of
exports of manufactures to establish this fact; it is now beyond
question. To frame a measure of extreme protection was, therefore, to
overlook the most striking phase of the industrial situation existing
in the United States. With an ability to manufacture cheaply and on a
grand scale, and with a capacity to supply the demands of a market
larger than any home market, there was no foreign competition to
encounter, and the higher rates of duties meant nothing, either for
protection or for revenue. In carrying further into action a tariff
framed more for protection than for revenue, a twofold error was
committed. The provisions were so complicated as to make the
application difficult, and in applying these provisions inquisitorial
and vexatious regulations were necessary to assure even a reasonable
fulfillment of the requirements. In former tariff laws a general
description carried a large class of articles, and a uniform duty,
usually _ad valorem_, was collected. But under the demand for a more
scientific tariff, these general classes were broken up into a number
of enumerated articles, each one carrying a specific or mixed duty,
and an omnium or basket clause at the end to catch any article that
could not be included in any enumeration. This desire to fix specific
rates upon each imported commodity has been applied more generally in
the law of 1897 than in any previous tariff act. An examination of the
imports of manufactures of textile fibers will illustrate this
increase of complexity without any increase of revenue. Indeed, these
classifications and rates, being suggested by interested parties, have
for their object a reduction of imports, and as a rule a reduction in
revenue from them follows.
The second objection to the increasing complexity of the tariff laws
is to be found in the petty annoyances imposed upon importers and
others in enforcing the not always consistent provisions of the law.
These vexations are made all the more telling by the fact that the
administration of the law is apt to be in the hands of those who are
openly hostile to foreign importations, and therefore regard the
importer in an unfriendly spirit. The power given to the customs
agents is enormous, and it is not remarkable that it is abused. The
demand for samples, the appraisement of articles, the classification
of new or compound commodities, all offer room for controversy, which
is not always decided by an appeal to the courts of justice. In
special instances, where a section of the law has been framed in
behalf of a special interest, the attempt to enforce it becomes petty
tyranny of the most intolerable kind.
In operation the law soon exhibited its failure as a revenue measure.
Although duties were generally increased, the more important articles
taxed yielded a smaller revenue than under lower rates. The aggregate
collections under the bill did not meet the expectations of its
sponsors, and for two reasons: first, because the higher duties
discouraged imports; and secondly, the demand for imported articles
was steadily decreasing under the expanding ability of home
manufactures to meet the needs of the market. No measure short of a
direct encouragement to importations can change this situation, or
prevent the further shrinkage in the use of foreign manufactures. It
follows that the tariff, unless radically altered, can no longer be
depended on for a return sufficient to defray one half of the rapidly
increasing expenditures of the national Government. By refusing to
impose moderate duties on articles of general consumption, revenue is
sacrificed; by insisting upon imposing protective duties where little
revenue can be had, the tariff is converted into a political weapon.
Its dangerous qualities are strengthened by turning these duties
against the products of certain countries, a policy specially fit to
invite reprisals.
Even the framers of this latest tariff entertained the belief that
some provision should be made for breaking its full effect. The
familiar scheme for reciprocity treaties, under which moderate
concessions in some of the duties could be made, was retained; but
France was the only power that could have an object in seriously
entertaining the proposition to enter into a negotiation. No real
reduction in duties could be given to Germany or any other country,
and it has become a recognized fact that Germany does not hesitate to
seize an opportunity to exclude the products of the United States, and
on the same grounds as support the high duties in the American tariff.
The system of drawbacks has ceased to be of much moment in our customs
policy, and in the export interest in canned goods finds its chief
exercise. Nor does a privilege to manufacture in bond affect more than
one article of importance--ores of lead containing silver. No matter
how it is regarded, the tariff of 1897 was not framed for revenue, and
in experience has not proved sufficiently productive to meet its share
of the expenditures of Government. The animus of its sponsors in
attaining the immediate political object sacrificed the more important
and permanent object of revenue.
Were the true object of customs duties--revenue--to be kept in view in
tariff legislation, it would be a simple matter to devise a measure
that would be satisfactory and highly productive of revenue. In the
fifteen hundred or more articles enumerated in the tariff schedules,
more than fourteen hundred are nonproductive, or yield so small a
return as to have in the aggregate no appreciable effect on the total
receipts. The number left after so large an exclusion can be still
further reduced without reducing the revenue one tenth; and it is from
a small number of articles, hardly twenty-five, that the great part of
the customs revenue is obtained. By reducing the rates of duties on
these to a point of highest revenue efficiency, at which the import is
not interfered with and yet not encouraged, a higher return could be
had than from the existing complicated, overloaded, and political
compilation of duties, usually imposed for any reason other than what
they will bring into the treasury.