The Perennial Question of Taxes

The Perennial Question of Taxes By W F. Wanlass, Dept. Business Administration, Agricultural College .

of Utah

Even had there been no costly wars in recent years, the item "taxes" would have loomed larger and larger in the budget of every taxpayer. War merely accentuated an upward tendency that was already pronounced. All our governments na- — — tional, state, county, and municipal have been increasing their activities at a pace which is amazing when we stop to think of it. This increase is both intensive and extensive. There are those who think we are becoming socialistic in spite of ourselves. Be that as it may, so long as we, through our chosen representatives, continue to exact more and more at the hands of the government we must expect to pay the ever-mounting cost. The same is true of the economic system under which we live. Rather inconsistently, we are always burdening the governmental or economic machine and then fretting when we have to pay the bill. Most people are prone to think of taxes as a dead loss, forgetting the invaluable service and protection which the government renders. When we are inclined to think of taxes as merelv a necessary evil, it would be refreshing to call to mind some of those unhappy states of the world where there is no government worthy of the jame. Such reflection will give us a keener appreciation of this silent partner in our industry, without the assistance of which all property would be valueless, and life itself would be hardly worth the living. Can't we share with this partner less begrudgingly? In a complex civilization, such as our own, government must also be complex if it is to be adequate. Of course, much might be saved by better administration, but democracies have never won fame in the observance of sound business methods. Our hope, then, lies not in decreasing the cost of government, but rather in a better adjustment of the load to the shoulders of society. There must be greater recognition of the principle of the ability to pay. In Utah, as in most of the forty-eight states, the cornerstone of the revenue system is the general property tax. By the "general" property tax we mean a tax based upon all forms of property, whether real or personal, tangible or intangible. For purposes of discussion and administration, the general property tax is frequently divided into the real property tax, and the per-

336 IMPROVEMENT ERA

sonal property tax. In Utah, all property, in theory at least, is lumped together for purposes of taxation. Section III of the state constitution instructs the legislature to "provide by law a uniform and equal rate of assessment and taxation on all property in the state, according to its value in money, and prescribe by general laws such regulations as shall secure a just valuation for taxation of all property, so that every person and corporation shall pay a tax in proportion to the value of his, her, or its property." In a new community where the economic life is simple and the forms of property are few in number, the general property tax works very well. It is not difficult for the assessor "who has eyes to see" to list all property subject to the tax. As capital increases and property rights take a multitude of forms, the task of assessment becomes a formidable one. The wholesale evasion of taxation by owners of intangible forms of property rights is too generally known to require discussion here. If this evil is less prevalent in Utah, it is only because our social and economic life is still less complex than that of the older states. Thus far, no administrative device has been perfected in America that really secures a just and uniform assessment of such elusive things* as stocks and bonds. Men, who would not ordinarilv defraud, deliberately perjure themselves when it comes to filing tax returns. The result is to put a premium on dishonesty, to deprive the government of much of its rightful revenue, and to make taxation grossly unfair. Owners of tangible property may be taxed to the legal limit while owners of equally valuable "paper" property rights may escape taxation completely. The general property tax is universally condemned by students of taxation because of this seemingly inherent defect. Another very important form of tax ability which escapes state taxation in all but eight of the states is the earning capacity of indivduals irrespective of property ownership. If any unbiased investigator will study the assessment lists in any country, in this or any other state of the Union, he is almost certain to find that assessed valuations of small property holdings bear a much closer relationship to actual market values than do those of the largest holdings. Space does not permit us to discuss the reasons for this discrepancy, but those who are thus escaping just taxation should be reached in some other way. The obvious remedy for all of these defects in the present system is to enact a graduated income tax law. While we have not succeeded in perfecting means of assessing intangible property rights, we have evolved fairly workable methods of determining individual income. Another great merit of the income

THE PERENNIAL QUESTION OF TAXES 337

tax is that it rests finally upon the taxpayer and cannot be shifted to others. Eight of our most progressive states have already followed the federal government in providing for this most nearly just of all taxes. The only obstacle to the enactment of an income tax law in Utah is found in the constitutional provision already quoted. If we have an income tax we should not, at the same time, tax intangible or representative property. To do so would be not only double taxation, but triple taxation, for the real property back of these "paper" property rights is now, and would continue to be, taxed. However, the terms of our constitution forbid any such exemption or classification The same difficulty confronts those who propose to lessen or abolish taxes on such non-revenue yielding property as homes, There are, of course, some administrative difficulties connected with the income tax just as there are with any tax. The federal government has gone a long way toward the solution of most of these, and we can follow its methods insofar as they are applicable to local conditions. There are also valuable precedents in the experiences of other states. With reasonably low exemptions, this tax can* be made to yield a handsome revenue, even with low tax rates, and without imposing any commensurate burden. Summarizing, the situation is this: we may either enact an income tax law now to meet the expected deficiency in revenue, imposing some unjust taxation upon those owners of intangibles who don't escape the assessor, until we can amend our constitution; or we can content ourselves with the present system, during the two years required to amend our constitution. In either case, the legislature should at once propose an amendment that would, if ratified, provide for a classification of our various forms of property and the necessary exemptions. Logan, Utah

Destruction Through Smoking

Valuable records, some dating back to 1790, were destroyed January 10, 1920, by a fire that broke out at the department of commerce, Washington. Census bureau officials estimated that it would cost $2,000,000 and take about two years to copy off

and thus save the damaged records. Some records were almost totally destroyed. Senator Reed Smoot declared that smoking, during working hours, in the government departments, should be stopped. The fire, it was supposed, originated through cigarette smoking.