problem of profits and wages, as well as the minor question of the prosperity of protected industries. It will undoubtedly happen that, for one purpose or another, attempts will be made to distort the returns. But the alteration of one item is very apt to throw it out of harmony with the others, and thus to reveal the fraud to the eye of the expert. It will depend on the fidelity and skill of the census officers if the returns are in any degree trustworthy. Other illustrations might be found in the statistics of wages, of railroads, telegraphs and shipping, as well as of many particular industries where the answer to great public questions depends upon correct and tested returns and presentations. But the above will suffice. It will be easy enough to show later whether the census has been equal to its work.

It may be thought, perhaps, that we are making unreasonable demands on officials who, after all, are but men. It is necessary to remember, however, that they have an unexampled opportunity, and that all we demand is technical skill and honest endeavor. The amount of money at their disposal is very generous, ten times that appropriated by any other government for census purposes. The superintendent is practically uncontrolled in the choice of his assistants and subordinates. Some inquiries are forced upon him, but otherwise he has full discretion as to methods of work. If we had a little more of the old Roman or the modern Chinese severity in regard to public officials, we might say that if he through wilfulness or carelessness should neglect so great an opportunity, he should pay for it with his head. Without being so bloodthirsty as that, we will say that the men who are about to attach their names to the eleventh census are deliberately handing themselves down, so far as the scientific world is concerned, to eternal credit or discredit. For a census is so connected with the past and the present that it never dies. It is a chapter in the continued record of the nation's progress and, as history at least, it can never lose its interest. It lives forever.

RICHMOND MAYO SMITH.

IN

THE TAXATION OF CORPORATIONS.

I.

a previous essay1 we have seen the inadequacy and practical failure of the general property tax. In all ages and in all countries it has been found almost impossible to reach intangible personalty. What has always been a difficult task has become immensely complicated to-day through the growth of the modern corporation. At present the greater portion of personalty in the hands of individuals consists of intangible property, of evidences of ownership in associations, of corporate securities. The first reform of our direct taxation is conceded by all to lie in this direction. Governments are everywhere confronted by the question how to reach the taxable capacity of the holders of these securities, or of the associations themselves. Whom shall we tax and how shall we tax them in order to attain a substantial justice? Perhaps no question in the whole domain of financial science has been answered in a more unsatisfactory or confused way. We have in the United States a chaos of practice a complete absence of principle. And not only this, but there has thus far been absolutely no comprehensive attempt made, from the standpoint of theory, to evolve order out of the chaos in which the whole subject is plunged.2

The first requisite in any scientific investigation of this kind is to have the facts. The facts of corporate taxation in the United States have never been presented in their entirety. And yet, without a knowledge of the existing conditions, any propositions of reform would be utterly valueless. Given the laws, it is necessary next to consider the interpretation put upon them by the courts. But even then we have only the legal, not the economic view. Unfortunately, good law is not always

1 POLITICAL SCIENCE QUARTERLY, V, I (March, 1890).

2 The only book on this subject is Dietzel, Die Besteuerung der Aktiengesellschaften in Verbindung mit der Gemeinde-Besteuerung, 1859. But this has no application at all to American conditions; the distinctions it seeks to make are valueless, and the whole book is immature and antiquated.

sound economics. It will be advisable therefore to subject the legal principles involved to an analysis from the economic point of view. Only after such a comprehensive examination, in the course of which a comparison should be made with the facts of European taxation, will it be possible to reach any conclusions that may lay claim to scientific precision. Only such conclusions, arrived at through such a method, should be made the basis for practical reforms.

This then is the programme of the present series of articles on the taxation of corporations. The great importance of having all the facts accurately stated leads me, even at the risk of tediousness, to devote the first essay to an examination of the history and actual condition of the tax, reserving the theory and criticism for future consideration.

I. Early Taxation of Corporations.

During the first two decades of this century, banks and insurance companies formed the chief examples of corporations, apart from the numerous turnpike roads and toll bridges. During the twenties and thirties the development of transportation facilities led to the creation of many canal and railway companies. And it was not long before the other forms of commercial and industrial enterprise followed in the same path.1 The early tax laws

1 The following list contains a statement of all private corporations chartered by New York state and existing at the close of each decade to 1830:

The details can be found in N. Y. Revised Statutes, 1st edition, vol. iii, app.

271 made no mention of corporations at all. But as the system in vogue throughout all the commonwealths was the general property tax, it was tacitly assumed that the property of artificial as well as of natural persons was equally liable. Corporations were a new institution. In the mind of the legislator, the readiest way to dispose of them was simply to thrust them into the existing methods of taxation, whether they naturally belonged there or not. Our Solons had neither the leisure nor the inclination to study the matter further.

The first commonwealth law which treats of the taxation of corporations in general is the New York law of 1823.1 This provided that "all incorporated companies receiving a regular income from the employment of their capital" should be considered "persons" liable to the general property tax. They were required to make returns to the county officers of all their property and capital stock. The corporations paid the tax and deducted it from the dividends of stockholders. But they might commute by paying to the treasurer of the county where the corporations transacted business, ten per cent on their "dividends, profits or income," which the legislator evidently presumed to be identical. The taxes were paid by the county. officers to the state, and were then credited to the counties in proportion to the amount of stock held within each county, after deducting the state tax.

In 1825 and again in 1828 the system was slightly changed so as to conform more closely to the general property tax. The law 2 was made applicable to "all monied and stock corporations deriving an income or profit from their capital or otherwise." The real estate of these corporations was separately taxed. In addition they paid the property tax on their capital stock paid in or secured to be paid in, deducting the amount paid for real estate and the stock belonging to the state and to literary and charitable institutions. Manufacturing and turnpike companies paid on the cash value, not the amount, of the capital stock. Turnpike, bridge and canal companies, whose "net in

1 Laws of 1823, p. 390, §§ 14 and 15, act of April 23.

2 Revised Statutes (1828) I, 414. For the law of 1825, see act of April 20, § 7.

" did not exceed five per cent of the capital stock paid in, were exempted; while manufacturing and marine insurance companies under the same conditions might commute by paying five per cent of their net income. It will be seen that by this law corporations were divided into different classes, and that the system pursued was the general property tax, with the exceptions that if a corporation had no profits it paid no tax on its stock, and that certain classes could in certain cases commute by paying an income tax to the local officials.

This remained the tax system, except for banks and foreign insurance companies, until 1853. In that year1 the total exemption of non-profit-paying corporations was abolished and all companies were taxed on the same principle, i.e. on their real estate and on the amount of the paid-up capital stock in excess of ten per cent of the capital, with the same deductions as above. All corporations, moreover, whose profits did not equal five per cent on the capital stock might commute by paying five per cent on "net annual profits or clear income." It seems that very few of the corporations ever availed themselves of this doubtful privilege. In 1857, therefore, the law was again changed. The principle of commutation was abandoned; and since there was no distinction between profitable and unprofitable companies, so far as personal property was concerned, all corporations were now taxed on their realty and on the actual value (not the amount) of their capital stock plus the surplus profits or reserve in excess of ten per cent of the capital. In addition to the previous deductions a further abatement was made for the capital invested in taxable shares of other companies. The remainder was then taxed in the same manner as the other personalty and realty of the county. This remained the law of New York, with the exception of some special provisions as to banks and insurance companies, until the recent changes in the taxation of corporations. These however affect only taxation for state purposes, leaving the local taxation still governed by the provisions of the law of 1857.

It appears, then, that the New York system was a taxa1 Laws of 1853, chap. 654. 2 Laws of 1857, chap. 456, vol. ii, p. I.