Suppose A and B aforesaid form an entire community, and that the whole tax of $150 is imposed on property. The whole valuation will then be $10,000 (A's farm), and the rate one and a half per cent, which A pays, and B goes untaxed. We will now change the principle, and have both property and credits taxed. The valuation will then be, A's farm, $10,000, and B's money at interest, $5,000; total, $15,000; and, with the same amount to be assessed ($150), the rate will be one per cent, of which A pays one hundred, and B fifty, dollars. So, then, we discover that A is not doubly taxed, as assumed, but at the worst pays only twenty-five dollars, or one-third, more than his share. Such must, in principle, be the result of this kind of taxation, taking a whole community together. All the amount taxed upon credit is so much relief to taxation upon property. This seems to be clear; and the justice of the thing is established by the fact that A bought his farm knowing that it would be subject to a full taxation, and bought it cheaper, as we have shown in another place, on that account. B, on the other hand, accepted his mortgage on the same ground, knowing it would be subject to tax on the common valuation. Is either party, then, wronged? But perhaps another reason may be given why A should pay taxes upon the whole value of his farm; viz., that, having the usufruct of the whole, he is entitled to all the profits on the farm. "But he don't own the whole of the farm." True, that is his misfortune: if he did, he would obtain a larger amount of net profits; but his obligation to pay tax on the whole is not impaired, because he has the use of a part of B's capital. As the owner of the farm, A has a chance for all the profits that can be made from the whole; while, by the taxation of B on the mortgage, the former saves a part of what he would otherwise pay in taxes. One pays taxes for the profits of business; the other, for the income on his capital. In this case we find another very clear illustration of the correctness of the income-tax policy. If there were no other tax than upon income, the matter would stand thus: B's income is taxed upon Total income to be taxed Amount to be raised, one hundred and fifty dollars: of this, A will pay one hundred dollars, and B fifty; and there would be no question as to the justice of the system by which both were thus taxed. If A's income should be more or less than nine hundred dollars, he would pay more or less, and B must pay less or more accordingly. In the absence of the income-tax principle, what can be more equitable and just than the practice of taxing both mortgagor and mortgagee? If the former were allowed to deduct from his inventory the amount he owed the latter, it would often happen, that, the mortgagee not living in the same town or State, so much property would escape taxation altogether. This in some communities, especially our Western States, would be a great evil. That much hardship may often result from taxing credits as well as property is undoubtedly true; but that only affords additional evidence that the income-tax principle is the only correct one. Next to this would be the levying of all taxes upon property exclusively; and if adopted at the very commencement of a social organization, as at the landing at Plymouth in 1620, it would secure a just taxation, because all property would be created, held, and transferred under that wellknown condition. TAXATION OF GOVERNMENT BONDS. The question of taxing credits assumes great practical importance, when regarded in relation to the national debt of the United States. We will assume that debt to be three billion dollars ($3,000,000,000). This forms a lien or mortgage upon the national wealth, which the Secretary of the Treasury, in his report, December, 1865, estimates at a little over fourteen billions: for convenience, we will call it fifteen billions. In that case, the national debt will be equal to one-fifth of the national wealth. On this debt of three billions, the interest, at six per cent, will be one hundred and eighty millions. If we suppose that all other demands on the Treasury amount to one hundred and twenty millions annually, we have an aggregate of three hundred millions as the amount of taxation. The national debt, if included in the national valuation, would increase it twenty per cent, or from fifteen to eighteen billions. This would reduce the rate of taxation by one-sixth, or 163 per cent; that is, if only property was taxed, the rate would be two per cent; if property and national stocks, the rate would be 1.66. Should the national debt be exempted from taxation, there will be one hundred and eighty millions of income that will go untaxed; and that, as can be readily seen, is a large share of the net income of the whole nation, or what the people. save annually after supplying their necessary consumption. The subject, therefore, is one of surpassing interest to the country. Quite fortunately, however, the matter is wholly within the control of Congress, which can, as fast as the present bonds and other securities become due (and they may all be redeemed* within seven, and most of them within three years from 1865), convert them into bonds not exempted from general taxation. Public faith should be kept inviolate, but public justice should also be secured as soon as possible. Better far to pay a high rate of interest, if need be, than have so large a share of individual income, and, consequently, of ability to pay taxes, escape its proper responsibilities. This is desira * Except the twenty-year bonds, which mature in 1881. ! { ble, not only as a matter of policy in removing a prominent The effect of exempting the public debt from taxation may be illustrated as follows: A has an income of one thousand five hundred dollars, derived from a salary; B has an equal income, derived from coupons on the national stocks. A must pay taxes, and, of course, must economize accordingly: B pays no taxes, and consequently has no occasion to save on that score. Now, as all national capital comes from the savings of the people, it can be seen at once, that, if onesixth part* (in amount) of the tax-payers are exempted from taxation, they are, to an equal extent, exempted from all necessity of saving. We are aware that the holders of public stocks pay indirect taxes (customs, excise, &c.), but so also does the man who has no interest in the funds. What we intend to say is, that so far as a man's wealth is invested in untaxed securities, in so far he has no motive to save arising from a taxation to which all others are liable. Looking, then, at its economical bearings merely, ought not all public securities to be included in the general schedule of taxation, both by the national government, and the States, cities, and towns in which the holders reside? CONSOLIDATION OF THE NATIONAL DEBT. While this work is passing through the press, a proposition is made in Congress to consolidate the debt of the United States into a uniform five per cent stock, having thirty years to run, payable, interest and principal, in gold. It is, doubtless, desirable to effect such a consolidation, * It is, doubtless, far more than one-sixth part of the net national income, probably at least one-fourth, or 25 per cent. A large share of the estimated fifteen billions of aggregate wealth is of a character to escape taxation. provided it can be done in an economical and proper manner; but the proposal to exempt the consols from taxation is quite another matter. We have already spoken of the invidious, as well as unjust, operation of a system which exempts from taxation one-sixth part of the national resources; but, since the proposal has been made, it becomes desirable, we think, to give the subject some further consideration. We shall not dwell upon the political bearings of a measure sure to create abiding dissatisfaction; sure to be a most dangerous weapon in the hands of political aspirants, and certain to endanger eventually the security of the debt itself. We shall speak only of its economic bearings. 1st, The exemption of three billion dollars from taxation for all national, State, county, town, school-district, and parish purposes, will create a very considerable and influential class of persons, who, while they will have the legal right to vote appropriations for all public objects, will be under no obligation to pay a farthing of the amount raised; who, while interested in having large public improvements made, will have no responsibility for the expense of them: a class to whom it will be a matter of entire indifference how large the assessments may be, or how unwisely or wastefully the public finances may be conducted. Can any reasonable man think it expedient and proper to create such a class? Does any one doubt that its influence would be unfavorable to the public welfare? We already exempt labor, to a great extent, from the burdens of State and municipal taxation, by limiting the poll-tax to a fixed and very trifling amount, so that the poll-tax payer can vote any sum he pleases with entire impunity. By exempting three billions of the national credit from taxation, it is now proposed to place capitalists, so far as they are owners of the public stocks, in the same favored position. The interest of these two parties will then be identical in regard to all public expenditures paid for by a direct tax on property, as State and municipal charges |