Chapter XXI - Simplification and Visibility of Taxation

Smith's intention was, of course, to do justice; to make every citizen bear his fair share of the burden of common defence, security, and welfare. In his day, as I have said before, taxes were assessed and col lected upon existing property, mainly upon land; and it was admitted that a certain recognition was due those who paid the largest taxes. That recognition worked out in the form of graded suffrage, or right to elect representatives and governors; which was granted only to those possessed of property, and to some extent in proportion to the amount thereof. The value of property was fixed by the rents or in come received from it; and the value of government as protection to the property owner, viz., his contribu tion to taxes, was estimated in proportion. Here [ 339] Too Much Government-Too Much Taxation and there some injustice resulted; as, for instance, in the case of misers, who paid increased taxes by reason of savings useful to the community-whereas no man himself profits by stinginess. However, among the comparatively small number of tax payers of that day such a distribution of taxes on the whole probably worked out fairly enough; and it was not unfair, as between taxpayers, that voting power should conform to taxpaying power. How now do our present methods work out?

To-day, as we give every man, rich or poor, and indeed every woman, equal voting power, the choice of governors and the determination of national policy has passed from the hands of those who have much property to those who have little or nothing. There is no longer any justice in laying taxation only upon those who have, and according to what they have, if others who have nothing have equal voting power. Let it not be supposed that government is instituted for the benefit solely or mainly of the rich and strong. On the contrary, from the very earliest dawn of history government has been and is framed for the protection of the poor and the weak, against the rich and strong-who are abundantly able to protect themselves. The poor are always in the majority, in every age and clime; because most men, like most animals, work and save just hard enough to keep themselves comfortably alive. If they have set up good government, they keep their little sav ings in ·peace and safety and they prosper. The abler and thriftier among them produce more, keep more, and prosper more. To that extent govern ment is more useful to the able than to the dull; it helps to make them rich faster in reward for their greater energy. It is perhaps just that the able and thrifty should contribute proportionately to cost of [34° ] Simplification and risibility of Taxation government, but not that they should pay its entire cost.

A very little consideration shows that the middle class and poor folk really benefit more by government than do the rich; and actually cause most of the cost of government. They occupy, use, and wear out more square ~ yards of the public streets and high ways than do the rich, by ten to one at least. They drink more of the water supplied by public works; their children fill the larger part of the public schools; the police are occupied in watching over criminal classes recruited mainly from their number; the hospitals and asylums are mainly filled by them; the street-cleaning and sanitary service, the removal of garbage, and prevention of disease, are almost en tirely for protection against their willingness to live without cleanliness. Local government, good local government, is an essential factor in· their daily lives; while most of the functions it performs for them are privately performed, and paid for, by the rich for themselves. National and state govern ments are farther removed than local government from the daily life of the poor, and come more to the direct attention of the rich and well-to-do; yet still underlie all industrial peace and prosperity, upon which the welfare of the working men so entirely depends. Here again the latter get their full share of benefit from cost of government; and everyone of them should contribute full-share to it. They do so only in military service at present.

To Adam Smith's Canon of Equality should now be added a new canon, that of Universality. For it is utterly false to every principle of free representative government that even a single voter should share by ballot·the power of ordaining government, yet seek by exemption from taxation to escape sharing in its cost. [ 341 ] Too Much Government-Too Much Taxation Furthermore, as Adam Smith's Canon of Equality, as explained by him, meant contribution to cost of government in proportion to property or income, our modern conception of universal suffrage without regard to property or income, per contra, logically demands for taxation a measure of proportion with out regard to either. No other measure remains but that of every man's expenditure; of outgo in stead of income. All that a man gets out of life is what he and his consume. The inscription upon the tomb of the old knight at Innsbruck-was it not ?-sums up the story of riches in three lines: "What I saved I lost: What I spent I had: What I gave I have."

That is the true philosophy of wealth-how best to get rid of it. All that a man works for is the means to spend. His home, his food, his clothes, his lux uries-one of the greatest of which is to maintain a certain social station-to enjoy all of these things is his excellent reason for laborious years in office or work-shop, and for constant economy all through life. His main object in supporting the burden of government is to insure to himself and others, weak or strong, their respective rewards for thus working and saving. But only when and as he quits saving, and begins spending, does he actually realize that reward; and only then, logically, should he pay what might be called an insurance premium upon, and proportioned to, the reward actually enjoyed, in the shape of taxation on his personal expenses. How would taxation so levied-that is, upon ex penditure-satis(y us here in America; whether for [342 ] Simplification and risibility of Taxation justice to poor and rich, or for the good of the community?

The answer is, I think, that for every reason of justice and patriotism as well, every voter rich or poor, man or woman-should be taxed, should bear and should be glad to bear, should be ashamed to shirk, his or her fair share of the cost of government. Once more let me submit that a new canon should be added to our theory of taxation, namelv, "Taxa tion must be Universal as well as Equal." W But what is each voter's fair share of universal taxation? Shall it be proportioned to what the voter has? But many voters have nothing; and from those who have little-who have no fixed abode, who are migratory by trade or by nature-how shall taxes be collected, and to what community shall they belong? Shall the man or his property be taxed, where found, on a day certain, once a year? How, then, shall payment of taxes be enforced? The same old conundrum presents itself-for which no an swer has ever been found, and which apparently has freed the poor heretofore from paying for govern ment maintained principally for their benefit!

We have already seen in a very sketchy way, yet clearly enough, I think, the inevitable failure of existing methods to reach all property and reach it fairly; also their deliberate deception of the voter, their intent to make the many think themselves not reached at all by the hand of the tax-gatherer. We have recognized the poison of graft and corruption fed into administration and party politics by the very impossibility of doing justice in taxing property; we admit the vice of penalizing that most useful human virtue, thrift. Is there then no better way, no fairer measure of the voters' duty and ability to contribute to the common expenditure for all, than [ 343 ] Too Much Government-Too Much Taxation taxation of what they have? What, indeed, can we levy on and how can we collect, in the frequent case of those who spend everything and have nothing? The mere putting of the question in the foregoing form at once suggests its simple and logical answer that the fairest measure of duty and ability to contrib ute to the public expenditure is the amount which every voter privately expends upon himself, includ ing, of course, his family; that that expenditure ac curately measures the value of government to him, and his just ratio of payment therefor; and that the way to collect is to do so as he spends. Let us follow out this thought a little.

If the workingman's family spends the bulk of the family income, as most working families do, it must payout every year at recent rates of wages let us say $1,500 or even $2,000. (Families average more than one breadwinner each.) Supposing now that Rockefeller spends, as he easily may, $500,000 per annum upon his personal and family living, he would spend two hundred and fifty times as much as the working family; and if both were taxed in pro portion to expenditures he would pay 250 times the taxes paid by the latter. Certainly Rockefeller on that basis would get off much cheaper, as far as his check for taxes is concerned, than he does now; but will any man contend that he and his family cost government anything like as much as two hundred and fifty workingmen and their families? Rocke feller is a peaceful, law-abiding, orderly citizen, for whom police and jails are not maintained, and who is said to employ his own special guardians of life and home. He probably educated his children 'at private schools; and will pay his own doctor's bill and funeral expenses when the inevitable day comes. He creates small demand for cleaning and sanitation at public [ 344] Simplification and risibility of Taxation cost where he lives; and about the only direct return he gets for his taxes that 1 can think of offhand is a fairly good roadway under his motor car. To be sure,' his home is safer frt'm Bolsheviks and thugs than if there were no state troops or city police; yet I fancy he could surround himself with retainers, as the robber barons used to do, for less than the amount of his present tax bill.

Will any man of common sense argue that govern ment is worth to Rockefeller two hundred and fifty times as much as to the average head of a family? How can or does he, or any other very rich man, get much more out of government than any poorer fellow citizen? Government does not make his fortune for him; but, on the contrary, in this our day tries to prevent his making it, and taxes it away from him to the utmost. Very often even his own country men do not make it for him; but he goes after it to the ends of the earth. All his government can do for him is just what it does for the poorest of his na tion; namely, to protect what he honestly creates or acquires. It can do no more, and ought to do no less, for any citizen. Unfortunately for the very rich, they can eat but three meals a day; just like the nearly rich, the well-to-do, or even the average workingman. No rich man can conveniently' wear more than one suit of clothes at a time; in which he resembles the well-to-do and the poor man. There are only a few multi-millionaires in America, and but one of them a Rockefeller; yet there are many hundred thousand well-to-do men, and their families, who live sub stantially as well as he. He surpasses them ap parently only in magnificent power to give away which after all is the supreme luxury! Of what other use to him, or to any other rich man, are surplus accumulations in excess of his cost of living and [ 345 ] Too Much Government-Too Much Taxation giving? They but increase his cates, since he must reinvest and make them productive-which is cer tainly worth far more to the men employed than to the rich man himself; for their livelihood depends on the success of one particular venture that employs them; while his usually does not. For him, there is merely to accept the immutable law of nature, and of idle wealth as well, that "Moth and rust doth cur rupt, and thieves break through and steal." There is but one salvation for modern wealth, namely, to keep it employed in useful industry. Therein lies the value of the multi-millionaire; and there must be his function in the world, the reason for his existence, so laid out by the creator of all things, as I guess it -to act as conservator for part of the world's wealth, and a wise director of its useful employment.

Let him, for instance, build a new factory in a coun try village. Everyone welcomes the industry and the quiet town starts at once into life unknown before. Let him build a railway or steamship line, and link together isolated communities. Every one rejoices, population grows, and agriculture pros pers. But the man himself cannot eat, drink, wear, or house his family in either factory, railroad, or tnine. Oftentimes he never even sees either one or the other, and has to be content merely with appointing some other man to run it; hopeful of profit if it prospers, but certain of loss if it does not. Even if it does prosper, the very rich man himself enjoys nothing from increased income, but merely carries an ever-increasing load of investment and care. He has, of course, the gratification of financial power and reputation, and the respect of his fellow men for his achievements; but why should these intangible though just rewards of thrift, courage, and brains be penalized and discouraged by taxation?

[ 346 ] Simplification and risibility of Taxation Are such penalty and discouragement for the best interest of the community? Is it not better for all of us-even the very poor-that capital should ac cumulate, and be kept usefully employed? Are not, for instance, the banks,' railways, and factories of these fortunate United States the foundation of the difference between the lot of the working folk here and, let us say, in Soviet Russia, or in China, where to-day thirty million people have just been starving for lack of means of transportation and finance, and asking alms from us? Indeed it is altogether stupid to tax a man on what he saves but does not enjoy. That is to penal ize thrift; the most thrifty thus paying the greatest taxes-though they contribute least to cost of govern ment, and most to the common welfare. Thinking A.mericans must recognize that thrift, though per fectly selfish in its purpose, is in practice first bene ficial to the community, and only later to the thrifty man himself-namely, when he spends. So long as he saves, his savings only increase his capital, which under modern conditions must accumulate in pro ductive industry, trade, and transportation, and be come the foundation of the common prosperity.

To tax that capital is therefore a blunder. We are just now seeing upon a very large scale the evil result of Excess-Profits taxation in penalizing thrift and prosperity. The reinvestment of American capital in active industry and the development of produc tion thereby have sensibly been checked; while ex travagance and .crooked effort to evade taxation have been stimulated. The owner says to himself, "What's the use of working harder, of taking greater risks and doing more business, only to have my hoped-for greater profits absorbed in ever more ruth less taxation?" Perhaps that man is not quite right; [ 347 ] Too Much Government-Too Much Taxation but he is eminently human, if he lets up in effort and slows down in pace. Thrift should not be punished! Finally, it does not stand to reason that a man's income or accumulations should measure his fair share of taxation; but rather should his rate of spend ing. Rockefeller has five hundred millions and the average worker say five hundred dollars.' Is the former a million times happier, or more of a man, or does he cast a million times the vote of the latter?

He spends perhaps two hundred fifty times as much, or so we assumed a little while ago-but does he get even the odd fifty times as much out of life as does the average worker-or anything like the joy of living of fifty husky "hunkies"? The master of Standard Oil was said, not long ago, vainly to have offered one of those millions for a good digestion. Certainly he has only one life for government to protect-not two hundred and fifty; nor even the nine lives of the traditional cat! No, it is not just to the poor man (nor good for the community) to maintain government mainly for his benefit; yet tax him nothing for it. It is not just to Rockefeller, nor good for the community, to tax him out of all proportion to what government does for him; or spitefully to penalize him, for being enor mously successful in furnishing the world with oil. In fact, no matter how rich he may he, the multi millionaire can derive from government, as com pared with the rest of us, no benefit that cannot be fairly squared by payment of the same rate of taxa tion as paid by us all, applied to his greater cost of living. Such taxation would more truly meet the intention of Adam Smith's Canon of Equality than does our present nondescript mess of system and no system. It seems to me high time to add to our modern theory of taxation a Sixth Canon: "That [ 348 ] Simplification and J7isibility of Taxation taxation should be proportionate to Expenditure, not to property or income."

I have showed the mischief of .concealment of' taxation in a former chapter. While we are amend ing or adding to Adam Smith's Four Canons the two new ones that "Taxation must be Univers'al", and upon "Expertditures," let us add also another, a Seventh Canon-if anything more vital still to Free Government; that "Taxation must be Visible to every voter." It is one saving grace of the Great War, one of the "sweet uses of adversity," which may well be borne in on this fortunate country of ours, that we are at last aware of taxation. May we never shut our eyes to it again, if we value the integrity of our system of representative government! I would urge that our taxation be laid not only on every voter without exception, but should also daily be thrust upon his attention; in form so simple and com prehensible, and at rates so plain and so easily com parable with his total cost of living, that a rise or fall in public expenditure shall as instantly be recog nized by him, as it is in his own daily wage or in come. I would have him keenly conscious of taxa tion; and continually alive to the responsibility of legislators and administrators, for honest conduct of the vast business of the people.

"Eternal Vigilance is the price of Liberty!" -!nost of all perhaps in the vital affair of taxation! Lastly, I would add an Eighth Canon, that of "Least Taxation," or in other words, Least Govern ment-based upon the simple principle that gov ernmental function, supported by taxation, should be limited to those activities for the common good, which are too costly or too unprofitable to spring up spontaneously; or else by their nature are fraught [ 349] Too Much Government-Too Much Taxation with power too great safely to be entrusted to private initiative and control. New Methods---Retail-Sales Taxation. I have argued above, as the gravamen of my charge against our existing taxation, that it is not "Universal" while suffrage is universal; and that it is largely and intentionally "Invisible," while its constant and dangerous· growth, for every reason of honest citizen .ship and free self-government, should never be con cealed for a moment.

My prior argument, or showing of constant viola tion of all of Smith' s Four old Canons, was relatively not so important; though, again for every reason of good democracy, such violation should be stopped at once. Let me now go on to argue that our whole attempt to punish the rich for being rich, by taxing away their money; our whole existing theory of taxation of property, or income, especially when pyramided or repeated during the various steps in production, is not only ethically false, but economically unsound. The whole machinery of industry, the creation and distribution of all products, exists only in anticipa tion of final consumption of every product by some body; and leads but to its disappearance from the face of the earth once for all. Increased production and consumption of commodities, and they alone, mean higher standards of living; they alone cause common prosperity and are universally desirable.

Every obstacle to the former-especially such a negative obstacle as taxation-should, in common sense, be removed from the path of industry; up to the final point when production and distribution cease and consumption takes place. At that point the value created and consumed must always be exactly and automatically assessed, in the process [ 35° ] Simplification and risibility of Taxation of final retail sale; and taxation upon it should then be paid by the ultimate consumer-as his perfectly visible, unquestionably just, and entirely unavoidable contribution to the common purse. Just now has come into the spotlight a new method of taxation-namely, upon sales; publicly proposed by responsible political leaders, and by business men and economists-largely adopted al ready in France and elsewhere-which is likely to be forced upon the slow acceptance of the mass of our voters by the mere pressure for revenue and the exhaustion of old sources of supply. I hail this new departure with enthusiasm; because, if rightly limited to Retail Sales, it will not only conform perfectly to all four of Adam Smith's old Canons, but will abundantly satisfy the Fifth, Sixth and Seventh of the new ones, just formulated above; while as to the Eighth-the consciousness of taxa tion created by taxing only ultimate Retail Sales would tend to exalt the importance, and amplify the acceptance, of the most vital and basic principle of all, that of "Least Taxation."

Let me verify the foregoing statement by consider ing the actual working out of Retail-Sales Taxation in some detail. To begin with, precisely the same principles should apply to every tax, whether paid to the United States, the state, or the municipality. It follows, therefore, that, if Visible or Sales Taxation is advisable at all, it should as rapidly as possible be made our sole method and applied to the collection of all public revenues, whether national, state, or municipal. Taxation is merely the accepted means of fairly dis tributing cost of government; and the total amount of taxes is the total cost of government, no more and no less. The latter is not altered much by the [ 351 ] Too Much Government-Too Much Taxation mere method adopted for tax collection; therefore rates of sales taxation would easily be determined for nation, state, and municipality, by the proportion that total cost of each government bears to total retail sales within its jurisdiction. It would be necessary at the outset to make a survey of total retail sales for former years, from which to estimate probable gross sales for the future. This estimate used as a denominator, with the total revenues re spectively required by the different governments for the coming year as numerators, would give as quo tients separate uniform taxation rates-or percentage of retail sales for the nation, the state, and the muni cipality. These three rates added together would give a total rate, to be assessed and collected local~y and preferably monthly-upon retail sales.

There would from time to time arise, of course, the difficulty experienced in all taxation, of overesti mating revenue and underestimating expenditure. Fluctuations in prices and consequent money value of total sales are certain to occur; as, for instance, in the year 192 I. The gross figures of retail sales may easily be from 30 to 40 per cent. less than those of 1919. Like fluctuation, however, occurs in most existing taxable values, as the current shrinkage in customs and internal revenue abundantly proves. I Unfortunately, there is no workable method of shrinking governmental expenses so' as closely to anticipate or even follow unforeseen shrink age of governmental income. Like overhead ·ex pense in private business, the cost of government is not elastic; and it must run on, substantially uni form in good and bad times alike. The customary remedy would still be applicable; viz., to offset mis calculations by deficiency appropriations for the last year, added to regular estimates for the next [ 352 ] Simplification and risibility of Taxation year. There should be, however, the same advan tage realized by the daily intrusion intp life of sales taxation, in calling public attention to deficiency ap propriations, as in the case of regular appropriations.

It would become politically more important than it now is that those who make up our budgets and levy our taxes should' also make' accurate and eco nomical estimates, and live up to them! It needs but brief thought to show that only final retail sales to the consumer need or should be taxed; as all other sales are but intermediate succes sive steps in the process of production and distribu tion of the thing consumed,' and would if taxed in volve "pyramiding." Application of this principle would also wipe out at one stroke all taxation of standing values; of real estate--which is never con sumed-of buildings, or raw materials, factories, railways, mines, machines, etc., in short, of all means of production and distribution; and would restrict it to the simple daily toll of retail or ultimate sales and rents; covering shelter, food, clothing, luxuries, and recreations of personal consumption or enjoyment. Some of these, even, might present difficulties and have to be cut out; although not very many. (One such instance which occurs to my mind, in hasty review, is that of personal transporta tion for pleasure; such as railway or steamboat travel on vacation or for social purposes. Such journey-' ing constitutes an item of ultimate personal con sumption, and should logically be taxed. But the difficulty of differentiating at the ticketseller's win dow between business and pleasure trips, in collection of the tax, would probably make it more convenient to leave that item, with other such, altogether out of consideration. On the other hand, transportation by motor-such as joy-riding, as distinguished from [ 353 ] Too Much Government-Too Much Taxation motor trucking-should logically pay sales tax; and differentiation in record thereof on the sales ticket kept by the gasolene salesman could be arranged without difficulty. Another difficulty would be to tax farmers or bakers, for instance, for food produced and consumed by themselves; and to tax itinerant peddlers, newsboys, and the like on their sales. But such sales are small in comparative total amount and could probably be ignored without doing great injustice to anybody. In general, it may be said that modern methods of retail accounting, certainly in the United States, have developed to the point where very few retail sales are made without being recorded either upon a charge ticket or a cash-sales register, even in the smallest retail establishments.

No accounting machines or methods worth mention ing need be added to those now in actual daily use throughout the country in order to furnish complete and accurate record of taxation, if levied upon the great mass of retail sales, no matter ho,v small. Our whole business system is ready, in short, for the quick and frictionless adoption of Retail-Sales Taxation. As I have just said, the evolution of the cash register and of the sales ticket, has provided in advance the means for assessing and registering such taxation, without imposing a serious burden upon either buyer or seller. Offhand, I can think of no merchant, except perhaps the banana peddler and the newsboy, who is not nowadays provided with a cash register. There should be no difficulty whatever (so the cash-register men tell me) in providing each cash register with a tax-adding mechanism so that the vendor can ring up the sale and the tax also for each cash transaction. The cash-register manufac turers already make just such machines for specific sales, such as at soda fountains. For credit trans[ 354 ] Simplification and Visibility of Taxation actions, the modern practice is to make out duplicate purchase tickets and subsequently charge same to the buyer's account. It would again impose no great burden upon the salesman to figure the tax on amount of sale and add it on the sales ticket at the· moment of sale, exactly as is now done upon patent medi cines. These sales tickets go to bookkeepers, who charge them to the customers' accounts from day to day. There are various systems of entry; for the most part such that classified total sales of the· day or second day before are placed upon the manager's desk every morning. Many sales tickets are made and totaled at the same time by adding-register ma chines. Here again there would be no difficulty in entering in parallel column each sale and the tax thereon; so that total taxes for the day might be reported back to the manager together with the total sales. There would, of course, be a little more labor required for each sales ticket and each entry, but I think most practised bookkeepers will agree with me that the time required for keeping records of sales taxation would not increase the work of bookkeeping more than one fourth. If so, I imagine that mer chants and other proprietors would willingly accept this additional cost of labor, in lieu of undergoing the annoyance of existing methods of assessment and taxation of their business; to say nothing of thus contributing to eventual reduction of aggregate tax ation.

It would, however, certainly remove all cause for complaint on the part of retailers, and make them cordial co-operators in ensuring collection of taxation on all retail turnover, to allow them a small com mission for doing the work of figuring, collecting, and transmitting to the proper local collecting officer, each concern for itself, the entire taxation on its own [ 355 ] Too Much Government-Too Much Taxation sales, from month to month. To allow them such a commission would be entirely fair as between them and other tax payers, the latter being at no trouble whatever in regard to tax returns; and equally fair to government, which would thus be relieved of enor mous labor and expense. A uniform commission of a fraction of one per cent. should be sufficient to com pensate proprietors for buying cash registers and installing standardized accounting blanks; the latter suited to tabulation and entry en bloc at the Tax Collector's office, in the quickest and simplest way.

As to payment of taxes, here again great conven~ ience and economy should result. There would be no material difficulty caused by requiring each proprietor to report, upon the same day of the month for all concerns in the same vicinity, the total of taxation taken from the cash-register "counters," or the tax column of the sales journals for the previ ous 30 days. There should be no more difficulty in this than in settling with merchandise creditors for purchase accounts ,due each month: Merely one more statement, to render, and one more check to draw, for money already taken in or charged to customers' accounts. Thirty days' delay might be allowed the proprietor for collecting the latter, and he might be refunded taxes paid on bad-debt ac counts never paid him. But in ninety-nine cases out of a hundred the Government would get in its money from the merchants without ever having to send a collector after it. Taxes draw penalties for non-payment, and are promptly taken care of!

There would be, of course, as many returns to verify and collect for as there are merchants; but the number would be far smaller than the present number of assessments. It is possible to make a guess at the economies resulting from the universal [ 356 ] Simplification and risibility of Taxation adoption of Retail-Sales Taxes as sole mode of taxa tion, as follows: According to the Department of Commerce Statis tical Abstract for 1919, the cost of the internal revenue service was $3°,45°,000. against collection of $3,840,000,000; and of customs service $10,200,000, with collections of $I83,4z8,ooo-together costing forty million six hundred thousand dollars and yield ing, say four billions. Probably at least thirty mil lions of this cost was for salaries; although the abstract quoted does not give them separately. If those sal ari~s averaged $2,400 a year, as nowadays they easIly would, there would be some twelve thousand five hundred employees in the two bureaus of cus toms and internal revenue alone. The Statistical Abstracts of the Department of Commerce also give total state levi~s of ad-valorem· taxes by the 48 states of the Union, for the year 1912, as thirteen hundred and fifty million dollars. If we allow the same proportionate salary-cost for collection of this state revenue, as is indicated by the cost of collect ing internal revenue and· customs tax shown above (namely three fourths of I%) the 48 states would have disbursed for salaries in assessing and collecting the aforesaid revenue at least ten millions of dollars.

That·would represent the payment of some forty-one hundred salaries at twenty-four hundred· dollars each per annum. In a preceding chapter I have es timated the municipal employees in the assessment and collection of city and county taxes throughout the 48 states of the Union as more (municipalities included) than twenty.;.one thousand in number. All these total a small army of thirty-seven thousand five hundred employees, at a very conservative estimate, engaged in the work of assessing and col lecting national, state, and local taxes. (This is, of [ 357 ] Too Much Government-Too Much Taxation course, the roughest kind of guess, as the Statistical Tables which I have been able to dig up do not give the precise information wanted; and it is necessary to work out the numbers given from tables of gross receipts and expenditures given in dollars.) Now, what should be the force required for levying and collecting all taxes, national, state, and local, if laid solely as suggested upon retail sales, and col lected at one and the same time, by one and the same machinery, for all three governments?

The World Almanac for 1920 gives from the Cen sus Bulletin the total number of retail dealers in the United States for the year 1910 as eleven hundred and ninety-five thousand, as against twenty and one quarter million families. That would be one retail establishment for every seventeen families. Off hand that figure looks ample. (At the same time there were two hundred and seventy thousand manu facturers; or about one fourth as· many manufactur ers as retailers.) By now (1920) there may well be thirteen hundred thousand retailers; but not to skimp it let us call their number fifteen hundred thousand. How large should be the organization necessary to keep the very simple accounts and make the very easy collections required for retail-sales taxation re ported by fifteen hundred thousand retailers? An answer to this question may be hazarded from the experience of the great department stores with their numerous customers' accounts. A leading store in Boston informs me that there are upon its books over one hundred thousand open accounts; out of which sixty thousand are active every month, the bills rendered averaging about fifty-eight thou sand a month. The entire accounting and collecting force required to make and collect these bills (many of which consist of numerous items charged and [ 358 ] Simplification and T7isibilityof Taxation many credits for goods-returned, from day to day) is but 63 persons; or about one employee to each one thousand accounts-and it is ample.

The precedent now established by most lighting companies might be followed. They avoid con gestion in rendering and collecting of all bills at the end of each month by distributing this labor-that is, by reading the meters in one neighborhood on the I st of each month and rendering bills accordingly doing the same in the next block say on the 2nd of the month, rendering bills accordingly, and so on through the month. A small number of experts can handle a surprisingly large number of accounts without inconvenience or delay. The head of the gas company here tells me that his inspectors can comfortably read 275 meters per day; in all six, men read about 40,000 meters every month. A total force of twenty-one inspectors, bookkeepers, and collectors get in the entire revenue from forty thousand customers; or say one employee to each two thousand gas users. This more than con firms the department-store experience cited above.

Applying the former ratio to the fifteen hundred thousand retail dealers taken above as a basis of calculation, the entire clerical and collecting force > required should not exceed fifteen hundred persons. Compare this small force with the thirty-seven thou sand five hundred who must, upon the foregoing con servative estimate, be employed in the various taxing offices throughout the United States; and remember always that the total work imposed upon it would be the mere reception from each 'merchant and verification of cash and report; and the entry, once a month, of but two items, namely: the aggregate sales made, and ~he gross sales taxes remitted by each concern report Ing. [ 359 ] Too Much Government-Too Much Taxation It might well be necessary to verify the honesty of the returns by checking gross. sales against gross purchases; for which purpose the merchant might be required to submit recapitulation of purchases as well as sales and taxation, and be prepared to support same by original purchase invoices accompanying the return. This again would be no hardship; for every merchant nowadays keeps track of details and totals of purchases in the ordinary course of business. It might, however, require a visit of an inspector from the tax office every month to each merchant to make the verification on the spot. If so the force em ployed at the tax office might. even be doubled, raising the foregoing estimate from 1,500 to 3,000 though far smaller increase than should be needed which would still be out of all comparison smaller than the forces now employed.

To sum up, it is reasonable to assume that a force of 3,000 persons, working from the 250 cities of more than 25,000 population, as basis· of operation, could adeq uately and satisfactorily cover the United States; and collect and divide between national, state, and local treasuries the great sum now assessed and col lected by 37,500 employees if the foregoing calcula tions are anywhere near right. Meantime, there would be no possibility of uncertainty or arbitrariness in the important matters of valuation and assessment. The monthly bills, actually paid by everyone of us for everything we consume, would automatically fix values for taxation. Tne sum of the sales tickets, the total from the cash-register wheels, would be absolutely and without shadow of doubt the true valuation sought for. The whole complex mass of tax laws and the vast establishments for assessment would pass at once into "innocuous desuetude." No possibility of fraud or graft can be imagined; that is [ 36o ] Simplification and Visibility of Taxation to say, no practical method of collusion between buyers and retail sellers, that could possibly be fixed up, occurs to my mind~especially when We consider that every retailer could be made to verify valuation reported in gross sales by submitting returns of gross purchases, properly attested by vouchers. The prac tical difficulty of falsifying countless sales tickets and cash registers, and the danger of discovery thereof, would be so great that such falsification is unbeliev able. In short, it seems to me that the whole matter of taxation would resolve itself down to one single point of concentrated public attention, namely: that of the tax rate· and its three constituent factors: na tional, state, and municipal expenditures. * Taxation of Rents. Before passing on I am re minded of the subject of taxation of rent of dwellings as a large part of every consumer's current expendi tures, and logically taxable along with retail sales.

Rents certainly should be taxed. Man eats and drinks food, wears clothing, lives in houses, and moves himself or other things about. These four broad categories sum up life. Taxation of retail sales (including sales of tickets to theatres and other amusements; and cost of personal. service of many kinds, such as house wages, laundry and garage charges) would cover pretty much all of our ex penditures for ultimate consumption except cost of shelter. Taxation of rents would complete *1 may remark in passing that the much-advertised "Single Tax" on real estate or rents-has the same advantages of simplicity and certainty; and of ad vertising and emphasizing changes in rate, and in public expenditure; and to that extent always has appealed to my judgment. It has, on the other hand, the great disadvantage of being levied primarily on a limited class, the land owners; with the result of being lost to the view of the crowd, in rents paid, especially in cities. It could not so force itself on the notice of every voter as the retail-sales tax certainly would do. "

[361 ] Too Much Government-Too Much Taxation the list, though requiring a slightly different proc ess of handling and collection. Where rent is paid the landlord could be obliged to file with the collector copies of leases; and to collect and pass over a sales tax on monthly rents at the same rate as upon other sales. As rents are so fixed as to return interest on capital, and provide for deprecia tion and maintenance, and finally for renewals, it follows that by the time a dwelling is worn out and has to be pulled down, the Government will have col lected taxes upon its entire cost, as an article of human consumption. If the owner should occupy it himself, he should pay tax upon an upset rental rate based upon the value of the ground and the first cost of building-with regard to material and construction, and consequent durability. Standard rules for determining this rental rate could easily be worked out, and applied once for all to each dwelling when built; upon the principle that a definite part of the cost of the dwelling, not the whole of it-as in the case of food, for instance-is consumed each year; and that tax should be paid only on that part each year. The rule would relate, of course, only to the cost of the building, not of the ground on which it stands, which is never consumed. The landlord himself would be taxed on his own expendi tures; not on his receipts, like others.

The collection of taxes on monthly rents presents, I think, the only problem requiring change of busi ness methods to introduce sales taxation. There were some 20,000,000 "homes" in 1910 according to the Census ; and half of them must be rented. It might become necessary, for convenience, to require filing of all leases, and payment of all rents, at central collecting offices together of course with the rental sales tax. These central offices, which would be, [ 362 ] Simplification and risibility of Taxation naturally, at the tax-collector's bureau, would pass along the rents to their owners and retain the taxes. No especial hardship would be entailed on either landlord or tenant; but merely a visit to the central collecting office once a month. It would often help the landlord to collect rent, that the taxes would also be in arrears; and Government would get after the delinquent. A simple form of tax-and-rent receipt could be devised, with three coupons: one for the tenant, one for the landlord, and one for the collecting office in the form of a card-index card (3 x 5 in.) which would make the task of keeping track of collections very easy. That of chasing up tax delinquents, however, would be serious; and in practice would probably be thrown into the discard, as costing more than worth; on the principle that if the landlord has to lose his rent the Government should lose·its taxes, and leave it to the landlord to oust the tenant who pays neither.

Another alternative would be to discard taxation of rents altogether by reason of complexity, and in crease proportionately. the tax rate on other retail sales, as simpler and easier of collection. In most cases the results in amounts paid by the individual taxpayers would not differ greatly. If, however, rents were taxed, and delinquents followed up, it would probably be necessary to in crease the small force of 3,OCO tax-gatherers above estimated by one employee for every thousand tax payers on rents, say by 10,000 employees for ten million renters. Even so, the force would still be small in comparison with present forces. Of course, the whole vexed question (under present systems) of the proper taxation of unused or un cultivated land would disappear with the disappear ance of land taxes. . [ 363 ] Too Much Government-Too Much Taxation Local Government To Collect All Taxes. In or..

der to realize full measure of convenience and econ... omy" the handling of all retail-sales taxation should eventually be given to the local government, urban or rural, as the case might be. The local gov ernment must always maintain a tax establish ment for its own revenue; and, for every rea son of convenience and simplification, the same office should deal with the same citizen at the same time; or, rather, with the landlords and retail ers, who would automatically deal with and collect from the citizen, for all taxation on the same rent or sale. Of course delay in getting all the states into line on this .should be forecast, as in all cases of change in state and national relations. If Sales Taxation comes, it may easily begin at Washington before reaching many of the state capitals. In that case, the existing Internal Revenue offices of the United States could easily undertake their own col lection job at the start, turning it over to local tax offices as fast as the latter begin it for themselves.

It would be too optimistic to expect unanimity of national and state action, or to plan for simultaneous reorganization of all taxing bodies at once. It would not be hard, however, to start national methods of receiving tax returns and payments from retailers, with an eye to eventual adoption of the same meth ods by state and local governments; so as in due time merely to add the state and the local rate to the national rate, in order to assess and collect all three taxes at the same moment and by the same calcula tion. The cumbrous machinery and personnel for annual collection of assessed taxes on property, as well as the great establishments now maintained for internal revenue and customs imposts, could for the most part be abandoned as fast as the local [ 364] Simplification and risibility of Taxation sales-tax offices came into line. Offhand, the possi ble saving of cost and increase of revenue seem enormous.

And the detail would be so simple! The rates of taxa'tion required to produce the respective neces sary revenue for the coming year having been fixed by the nation, the state, and the local government, would of course be publicly announced by each. The total of all three would be the rate for use by the salesman in ringing up each sale and its tax upon the cash register, or figuring both upon the charge ticket. Thence they would go, .both sales and tax totals, each day to the sales journal, just as sales go now in every well-ordered house. The total tax collections due every month, say from the retailer to the local tax office, as taken from the sales journal, would check with the total sales of each merchant multiplied by the total tax rate; and the total sum taxed to the region would be the total of regional retail sales multiplied by the total rate. The shares of this total belonging· to each (the na tion, the state, and the city or town), would of course be pro rata to their respective tax rates; and the local tax office would have no trouble in reporting to and settling with the national and state treasurers by mOhthly check accordingly.

Another minor, but yet important, advantage gained would be the monthly collection of taxes in arrears, instead of annually in advance. The present method involves temporary disturbance of the money market in anticipation of vast collections at a given date; also the carrying, over certain sea sons, of large treasury balances; which in practice have to be distributed widely among the banks through out the country. There is always the chance of scandalous favoritism and loss, as lately in Massachu[ 365 ] Too Much Government-Too Much Taxation setts, and South Dakota, and of temptation to offi cials to misuse large amounts not immediately required. On the other hand, there are often large governmental expenditures in anticipation of coming collections, with temporary financing thereof by short-time borrowings-always a bad practice. It seems to me that, after a few years of Sales Taxa tion, it should be possible, with income coming in regularly throughout the year, for governments to reach the simple, healthy practice of paying as they go; monthly receipts taking care of monthly ex penses, with only moderate working balances carried over. That should tend to minimize deficiencies and obviate belated taxation to make them good.

Another marked advantage would be gained by permitting each local government to. handle all sales taxation, in eliminating the tax jealousy be tween states and between state and nation now shown in vexatious discrimination and taxation, by states and municipalities against corporations of other states or municipalities, which for good com mercial reasons do large business or hold much prop erty in the former. Many states require of foreign corporations payment for licenses to do business, or of capital stock or corporation taxes, upon the capi tal supposed to be employed; or on business supposed to be done within their borders. Many require elaborate reports to be filed annually, and the ap pointment of attorneys on whom process may be served, the neglect of which invalidates debts due the delinquent. Hundreds of tons of such reports are filed away at state capitols all over the country, which are never looked at from one year's end to another; as useless and absurd a burden to be laid on business, and passed along in prices to the unlucky inhabitants of these jealous states, as can be [ 366 ] Simplification andJ/isibility of Taxation found in all the· repertoire of demagogy. "There is a reason" for them, however; a "little joker" always hidden under the mask of protection for the citizen of the state enacting such laws; to wit, a fee for filing the reports, which usually goes to some bureaucrat, who fills an office created for that purpose. Nothing appeals to your bureaucrat like a fee! Therein lies one great charm of office., But, were all taxation laid squarely upon Retail Sales and were each local government to collect all taxes upon all sales within its own borders-(no matter whether made by foreign or domestic corpora tions or citizens) who, then, except the bureaucrats deprived of fees or jobs by this simple method of do ing justice in taxation-who, I say, could com plain? Before long it might well be that a man could incorporate his business in his own state instead of going to New Jersey, or Maine, or' ,Delaware, for freedom from compound-commi nuted taxation and restriction. Before long, indeed, there might be National Incorporation, under act of Congress; though not then so needed as now. Mean time, the· states would see that the more sales the more revenue. Why should any state shut out any vendor, even the foreigner?

Estimated Sales Tax Rates Required for Present Budgets. Naturally, while pondering over Sales Taxation, the first question to suggest itself is: "What would the tax rate have to be-how much would be added to the cost of all we buy-say to meet present expenditures? At this moment we are facing abnormal cost of government, and may have to do so again. The question of tax rates is a crucial one, and involves a veritable revelation of hidden burden to most of us, if answered without evasion. [ 367 ] Too Much Government-Too Much Taxation Adam Smith's Canon of "Certainty"-lack of arbitrary imposition-involves the idea of reasonable regularity in government expenditure from year to year. But disturbances like the recent war can, of course, never be foreseen. To that extent Adam Smith's principle of Certainty, or freedom from arbitrary change, will always remain impossible. But the substitution of simple retail sales taxation for the many taxes now imposed would normally go far to establish Certainty. Except for extra bulges in tax rates, caused by wars and the like, current ex penditures of government ought to run fairly even from year to year. The amounts to be raised ought not to increase arbitrarily, or out of proportion to increased population. The rate per capita should tend to decrease. If, as argued above, the attention of voters were to be concentrated by sales taxation upon governmental expenditures; and if candidates for office had to feel themselves accountable ac cordingly, the result should be a gradual increase of efficiency and decrease of cost of government, with steadily decreasing taxation.

According to the rough estimates given in a former chapter of national, state, and local expenditures for cost of government, and upon the assumption that retail sales absorb the greater part of our collective annual income, placed as above at fifty billion dol lars, the rates of taxation required to meet present expenditures would be about as follows: The National rate would be 8.42 per cent. of Retail Sales State do 1.80 do do Local do 8.53 do do The Total rate would be 18.75 per cent. of Retail Sales. This total is indeed staggering; and no matter what the mode of taxation may be, we have got to face at [ 368 ] Simplification and risibility of Taxation least the national portion of it without much reduc tion, until such time as we can liquidate a consider~ able part of national indebtedness and minimize military expenses; which would cut off say one half. Perhaps we might hope to reduce the national tax rate upon retail sales during the next ten years to 4 per cent.

This reduction would not, however, affect state and local taxation, and there is nothing by which to figure the definite reduction of either. In former years the writer was at the head of some large public utilities in Chicago, and was able to make direct comparisons of costs; for instance, of street lighting, paid by his own corporations with those paid by the city. Not all items could be compared; but those that could be showed that municipal operation cost just about double private operation. Though much distorted by war exigencies, recent operation upon a large scale by the general government of railways, shipping, telegraph, and telephones, closely parallels this little experience. Most men of large private affairs, with whom I talk, think that if local govern ment could be carried on as economically as private busines§ its cost could be reduced at least one third. If so we might start out with the thought of reducing total taxation say to 10 per cent. of retail sales, as a mark to try for.

Certainly the foregoing revelation of 18.75 per cent., now paid without realizing it, is frightful enough. I have spoken of our average income per capita as about $475 per annum; but we us ually consider family income rather than per-capita income. According to the 1910 Census, America , averaged 4! persons to the family; so that family income would average say $2,100 per annum (more than one earning member to each family) out [ 369 ] Too Much Government-Too Much Taxation of which therefore about $400 is absorbed in taxa tion. At present the average head of a family is entirely unconscious of this heavy burden which is lost in the high cost of living, or "H.C.L." Does it not stand to reason that· if it were being hammered into his own and his wife's consciousness, in the con spicuous form of a 19 per cent. addition to the cost of everything they buy, their attention at coming elections would concentrate very keenly upon good government, management, and economy-especially in local affairs transacted directly under their own eyes and noses?

Is it not indeed high time to make taxation visibly universal and universally visible? Does not Retail Sales Taxation, offhand, seem likely to satisfy not only all four of Adam Smith's Four old Canons, but also my four new ones? All in all, is it not a fascinating task to study the application of what might be called good business engineering to our huge governmental establishment? And should not intelligent and patriotic American voters decree that selfish and outworn methods and crystallized bureaucracy must stand out of the way of such application? Obstacles to Sales Taxation. I see by the papers that Secretary Mellon in his recent recom mendations for tax revisions turns down the Smoot suggestion of Sales Taxation-though of course, as made, it was not nearly so sweeping as my own as at present unadvisable. Probably the Secretary is right, as far as immediate consideration goes, for public opinion has not yet been clarified on this matter of taxation, which indeed is in its present condition quite beyond the compre hension of the average voter. That is why I am down on present methods.

[ 37°] Simplification and risibility of Taxation It seems to me a self-evident proposition, admit ting of no dispute, that, to a democracy, second only to the supreme question of war·or peace comes that of taxation; that it vitally affects every voter; and, finally, that methods and rates of taxation that are too complex and too blind for the enlightenment of the average man-that fool him into voting unin telligently-are unfit for use by free government, and should be discarded without delay or hesitation if better can be found. What, then, are the obstacles that Secretary Mellon sees to the consideration of Sales Taxation? The most conspicuous of them is probably the established Protective Tariff. "Protection" has been for many years a fetish of the Republican party; and "Free Trade" has been an opposition slogan, though not apparently a matter of deep conviction with the Democratic party. Socialists and "long hairs" gen erally are, of course, entirely at sea upon every economic question, taxation included. Between all parties and their conflicting ar'guments the average voter throws up his hands in despair when he tries to discern the merits underlying Congressional de bates upon the intricacies of taxation; or the discus sions in State Legislatures of capital~stock and in come taxes, and the like. The only clear-cut popular attitude toward just or unjust ~axation might be stated at present in the slang expression, "Soak it to the rich fellows." I have already indicated the mischief to the average man and the community growing out of that conception.

That, however, is another story; we are talking of obstacles just now. The immediate inauguration of retail-sales taxation as a sole method would, of course, do away with taxation upon imports along with other complex and unsatisfactory methods. [ 371 ] Too Much Government-Too Much Taxation Its abolition-unle.ss accomplished very gradually, as it should be-would, of course, seriously disturb and cause heavy temporary loss to many industries, which have been built up upon the faith of a na tional protective policy. The newly created aniline industry may be cited as the most conspicuous in stance. The manufacture of dyes, high explosives, and other products of the distillation of coal, was a peculiarly German industry; and the interruption of commerce with Germany by the Great War left the United States substantially without supply of these important products, as I found by personal experience in buying certain chemicals. In consequence, pa triotism as well as scarcity, and the high prices at once demanded for aniline dyes, stimulated American capitalists to the wholesale erection of aniline plants and the development during the war of an enormous producing capacity; despite the fact that our finan ciers and captains of industry had both eyes open to the competition with Germany, which would cer tainly result upon the termination of the war. They thoroughly realized that, as in the past German state policy had backed, so probably in the future it would back, the German dye manufacturers; already for midably equipped for, and firmly entrenched in the world trade in chemicals. A Democratic administra tion then reigned at Washington; nevertheless, more or less formal assurance was given to those undertaking the aniline venture, that at the proper time the new plants would be protected by an ample tariff upon foreign dyes, etc; in spite of party belief in free trade.

As was natural under such circumstances-and as had already happened in the case of the tin-plate industry, developed in the '90S under protection of the McKinley Tariff-a trust or combination was [ 372 ] Simplification and risibility of Taxation promptly formed by the principal American exploit ers of this aniline field. In order further to solidify their position-and perhaps (as in the case of the Panama Canal) to take national advantage of an unparalleled foreign situation-all United States pat ents upon chemical processes, which stood upon the records of the Patent Office in the names of German holders, and which had, during the war, been· con fiscated as enemy-alien property, were sold by the United States Government in April, 1919 (of course after the armistice, and before the peace), to theChem ical Foundation, Inc.; a corporation formed, I believe, under the laws of the State of New York. * This ac tion was taken, I surmise, not to create a monopoly for the Chemical Foundation Corporation is obliged to license all comers upon equal terms under all pat ents so acquired-but rather to forestall the develop ment in this country, after the war, by the foreign owners of those patents, of overshadowing chemical manufacturing power. Whether this policy was as wise industrially and economically as it then seemed to be politically is yet to be determined. I know nothing of the chemical business, and have therefore not attempted to form a· personal opinion; but a single instance, which has come to my notice, inclines me to believe that, as usually happens, our big pioneer American concerns already in the busi ness will reap the main advantage, the advantage to the general public remaining uncertain.

However, what treatment should, in justice, be given to the great works so recently built, upon the faith of government protection? Both the free trader and protectionist should, it seems to me, reply that, in good faith, the American aniline pro*Since the foregoing was written, the Harding Administration has com menced suit in the United States Courts to set aside this sale. [ 373 J Too Much Government-Too Much Taxation ducers ought not to lose their money, nor a hand- ' some profit thereon. The rooted protectionist will say that a practical shut-out of the foreign products ought to go on forever. The reasonable free-trader will say that shut-out ought to be limited to such time for development as will enable the American Aniline Combination to meet German or Belgian or British competition either in home or foreign markets with little or no protection. But either answer would mean inevitably further Congressional pulling and hauling in due course of time; to deter mine whether or when the big baby has grown to youth's or man's estate, able to walk without leading strings, and even to carry weight. Either way, the aniline products will have to be counted out as a present factor in import trade, for restoring the normal course of exchanges between the nations; which last is the vital thing for American trade and industry just now.

Harking further back, what treatment should be given say to the tin-plate industry, thirty years ago created by the McKinley Bill; which between the years 1891 and 1898 expanded and developed domes tic competition, and evolved a trust, which now forms a part of the great United States Steel Cor poration ? No tin mines worth mentioning are found in the United States, and block tin must be imported. It does not, I fancy, weigh as much as the sheet-steel which it covers in the manufacture of tin plate; and, as far as domestic consumption is concerned, it is probably quite as economical to pay freight on the block tin, and spread it upon sheets manufactured in the United States-that is, bring the tin to the steel-as it would be to import both tin and steel in the form of tin plate. When it comes to foreign consumption, to exporting tin plate, however, the [ 374] Simplification and Visibility of Taxation British manufacturer both pays lower wages and has a short haul upon both materials in bringing the tin and the steel together. He has Cl natural ad vantage, which can be overcome only to the extent that American manufacturing skill can surpass Brit ish; which last reminds me of a little story.

Just before the passage of the McKinley Bill, I found myself in a parlor car on the way to a summer resort near Chicago, sitting next to one of the Nor ton brothers, then the largest manufacturers of tin cans in the United States. I said to Mr. Norton, "What are you going to do if this McKinley Bill passes, raising the price of tin from thirty to forty per cent?" He answered, in effect, "I shall be all right. In the first place, .I have laid in a big stock of tin plate; and in the second, I am going to manu facture it myself. You know that I am an inventor, and the can-manufacturing machinery which I have devised is the foundation of our success. Some years ago I was in England, and investigated the process of making tin plate. I found six or seven men en gaged in dipping the sheets one by one. as they pass through the various solutions. I designed a ma chine which has now passed through its experimental stages. With it one man can do the work of the six in Cornwall. We can make tin plate to-day quite as cheap as they make it in England, though we have to import the block tin. If the tariff bill is passed and a duty of 30 to 40 per cent. is put on tin plate, the amount of that duty will be 'pure velvet' for us; so you see we have no cause to worry."

Well, the McKinley Bill was passed, and the Nortons went into the manufacture of tin plate. A few years later their plant went into the Tin Plate Trust. The Nortons, who were most estimable men, retired with large fortunes. But-just to what [ 3751 Too Much Government-Too Much Taxation extent did the American people profit by the develop ment of that industry in the United States? The price of tin plate in New York has never from before the McKinley Bill to the present day been as low as in Swansea; that is, the American people have always paid more for their tin than the English paid. The United States is now, nevertheless, a large ex porter of tin plate; though not so large as England, ex cepting during the war. Friends of mine in the trade cannot forecast the eventual outcome of world com petition, but they think the United States will al ways retain a fair proportion of the world trade. If they do, they must probably rely upon "dumping"

American tin upon the foreign market at prices less than sold for here at home. Such has always been the German practice; which we in America have fiercely condemned. Indeed, when we come to apply it to our own export trade, here we meet again one of these concealments of taxation which are so vicious in their effect. It is certainly most unjust that the American buyer of tin plate or steel should pay artificially higher prices, in order that the Amer ican manufacturer may be enabled to make lower prices to foreign buyers. That is no argument for protection, certainly of a fully matured industry. As things are, the workingman who buys a tin din ner-pail never dreams that he is paying part of the cost of the Brazilian's or the Chinaman's dinner-pail, let us say . Yet such is the case. The immediate question is: Should we continue to protect our tin-plate industry as well as the chemi cals; or should we say to their owners-"You now are big enough, old enough, and strong enough to take care of yourselves; if you cannot, with all the natural resources, aggregated capital, and engineer ing genius of the United States behind you, compete [ 376 ] _4 Simplification and Pisibility of Taxation for the trade of the world with countries exhausted by the Great War, it is high time that we all should accept the limitations of trade imposed by natural conditions, too strong for a protective tariff to over- .

come." Of course, that brings up again the whole old ques tion of war, and preparation for war; of the necessity of industrial and commercial autonomy, to great nations. Economically, the question presents but a single answer, viz. : "Do away with wars, and inaugurate worldwide free trade." Politically, however, human nature and racial difference stand before us, as eternal and .perhaps immovable obi stacles to universal peace and untrammeled com merce. At this moment we can go no further than existing conditions permit. Until universal disarma ment and International Courts, with power to enforce their decree, have become world-accomplished facts, our protective tariffs on chemicals and tin plate, etc. (though no higher and for no longer than necessary to countervail subsidies and like. political aids to foreign competition), may well be continued in force, as measures of preparedness for possible war.

But after the coming of general disarmament, in my conviction, our slogan should be, "A fair field and an open door for everybody; no favors for anybody; and let the best merchant and manufac turer win." That battle cry, if adopted, would herald swift and certain American supremacy, both in foreign and domestic trade. As Calvin Coolidge might say, let us "Have Faith in America!" Other Political Obstacles. Perhaps yet more formidable, in practice, is the obstacle of a lot of well established bureaucracies, engaged in the assessment and collection of customs and internal revenue, and of state and local revenues, throughout the country, I [ 377 ] Too Much Government-Too Much Taxation with their enormous personnel. Good, comfortable jobs are involved, to the number as guessed at above of 37,500; and everyone of the job holders is a live and more or less energetic opponent of any change involving his place and wage. Congressmen and the state legislators are most responsive to the ap peals of these job holders, everyone of whom is a constituent of some law-maker or executive and a possible .factor for his re-election or defeat. The strong bond of politics, patronage, and of sticking like glue to a comfortable living, cements together the entire legislative and executive personnel, from the highest to the lowest. In the old European day of autocratic and hereditary government, now pretty much passed away, this solidarity of the ruling and officeholding class (relatively small yet actually numerous) was an abiding cause of jealousy and hostility to the common people. From time im memorial the masses have resented the existence of a bureaucratic, largely parisitic, class, sucking the life blood of the community.

Of course that resentment was often unjust, for government is not necessarily parasitic-but vital to the community; and if good is worth far more than its cost. There should be no hatred or jealousy of our governors as such; and as the affairs of the community are larger than private affairs, those who handle them wisely and honestly should fare better than their compeers in private life. They do fare somewhat better-as things are here in the United States-in publicity and personal importance, though not often as well in earning power-that is, among those above the rank and file-which, how ever, is beside the question. The main thing is that we Americans should be as thoroughly awake and on guard against growing bureaucracy as ever. were our [ 378 ] Simplification and risibility of Taxation forefathers against autocracy . We entrust to our elected representatives the power to limit cost of government, and the growth of a governing class; and consequently there is a natural tendency to take it comfortably for granted that those representatives are doing the right thing by-us, and are actually limiting taxation and bureaucracy instead of use lessly enlarging them. In general, however, quite the contrary is the sad fact; for it is the dangerous weakness of representative government that it does not always represent. There are only two main stays of free government: first, good political engin eering-that is, so to frame free institutions as to put the smallest strain upon the human material of which they are built; second, and all the time, to remember that "Eternal vigilance is the price of liberty."

At present there exists everywhere in the United States, it seems to me, far too large a bureaucracy, far too much government, too many offices .and officeholders;* especially as already roughly shown in our bureaus of assessment and collection of taxes. We should first redesign our system so as to reduce personnel to a minimum, and then cut down without hesitation to that limit; hewing to the line no matter where the chips may fall. Politically, that is a very difficult task indeed, especially here in the United States. Not only is there the solidarity of govern ment and bureaucracy referred to above, but that solidarity includes, of course, the extra governmental organizations of the great political parties-namely, several hundred thousand working politicians; not all of them in office, but professionals whose livelihood depends upon their influence with officeholders. *Thomas Jefferson complained that there were toO many officeholders already in his day.

[379 ] Too' Much Government-Too Much Taxation Just as happened during the early years of the fight for Civil Service Reform, when the whole working force of the great political parties was arrayed against that movement, so must opposition be expected to any attempt to minimize bureaucracy by the re duction of taxation. The serious conviction that such minimizing is due, and highly necessary, must first germinate and grow until it masters public opinion, before our. politicians and legislators can be expected to respond. That is the reason for my attempt to influence public opinion by this book. Resume. In closing this short and I hope not too shallow study on, a huge subject, let me once more deprecate the giving of any impression of "know ing it all," or of undue haste to change the estab lished order of things. I am well aware that such a fundamental upturn of the whole great business of revenue getting, split up as it must be between na tional, state, and local government, involves discus sion, conviction, and ultimate legislation of the most serious and deliberative nature. I am writing as a plain citizen, to the great, mass of my fellow plain citizens; who like myself, I am sure, without knowing much about the subject, would gladly inaugurate any common-sense plan of taxation that would give them in clear and concise form from year to year the knowl edge of how much they are taxed, whether they are fairly taxed, and whether they and the whole com munity get their taxes' worth. I hope these few pages will give them, as writing them seems to me to have given myself, a broad, simple, comprehensible idea of the way in which taxes· should be laid; in order best to force home that knowledge upon us all.

If there is a better way, I dearly hope that it may be brought forward. So far I have been unable to find one. [ 380 ] Simplification and Visibility of Taxation I could go on indefinitely multiplying instances of injustice, confusion, and evasion, in our present taxa.tion; but would that strengthen my case? Which one of my readers that owns real estate does not know how it is taxed and re-taxed by city and state for general. purposes, .for special improvements, paving, grading, sewering, park and boulevard ex tension, drainage; how its rents are taxed as income, and even its mortgage-incumbrance as property or source of income or both; how its assessments swing from year to year upward-seldom downward-no matter what its actual yield or carrying costs may be. Who has not felt bitter injustice in' comparing his tax with his next-door neighbor's? What corporation manager, especially if he does interstate or international business, does not squirm under the lash of multiplex taxation? His corpora tion is taxed for the privilege of being born; some states being less rapacious than others, so that to them flock the rash men who would risk cash for stock in new ventures. It is taxed every year on its capital stock for the privilege of staying alive; in some states it is taxed every year on the market value of its capital stock. in excess of its tangible property in its home state, and on the share of its capital employed in other states, where found; it is in many assessed a license tax for the privilege of doing business in the state; in many it is compelled to make returns of condition, of business done, etc., and to pay a fee for filing the returns .away in dark fastnesses, where no human eye ever sees them; every time its shares are sold they must pay a transfer tax and a stockbrok er's tax, if sold through one; when the poor thing finally dies, it must pay a burial tax for the privilege of giving up the ghost.

While it lives, it must pay license taxes where it [ 381 ] Too Much Government-Too Much Taxation opens stores, peddlers, taxes where it employs sales wagons or trucks, import taxes when it buys abroad, many kinds of inspection fees, property taxes, income taxes, excess profits taxes, surtaxes. Is the forego ing list complete, I wonder? Verily, I do not know; but when I was a manufacturer I well remember all of the above. Who that has paid an income tax does not know the temptation and ofttimes the effort to understate and evade taxation? What man of the older generation does not remember the Whiskey Ring tax frauds in the days of Grant's Administration; or anyone of a dozen conspicuous undervaluation frauds at the New York Custom House? Need I cite the present burning question whether to value invoices for in stance in German marks as sold ahroad, or in American dollars at current exchange rates, for import duties at home? Must I spin out the sad recital forever, to convict our existing taxation of violation of every canon of convenience and good practice laid down not only by the old Scotsman, Adam Smith, but byour sound Yankee common sense?

No; short as this discussion is, I have said enough. There remains little more to say, except to voice a robust optimistic belief in the honesty and good will of the American voter. In the matter of taxation, the winning appeal to the men and women of Amer ica will not be: "Vote for us; we will make the rich men pay all the taxes and let you off tax free." It will be, in my belief, something like this: "Vote for us and we will see that every single voter pays taxes; spending for his country in proportion to.his spending for himself." I am confident that this broad, sim ple, clear, and just idea of taxation will find few Amer icans so mean and selfish as not to accept it with enthusiasm.

·Simplification and risibility of Taxation And I am equally sure that politicians who say) "Taxation should be blind and indirect. What the voters don't know about they can't grumble about" - I am sure, I say, that· they will fool themselves, not the voter. Once it is brought to his attention, as the present exigencies are bringing it, he will de mand to· know his taxation. He will take keenest interest in it. Imagine, if you can, that universal sales taxation were to-day the rule; and that the voter paid on every purchase as estimated above 8! per cent. additional to the Nation, as much more to the City, and 2 per cent. to the State; and that Secretary Mellon in announcing the total budget for next year were to say that the amount named meant a national tax rate of but 7!per cent. Suppose, too, that the Mayor were to follow suit, and announce a total budget carrying the city tax rate down to 7!

per cent.; and the Governor, catching the idea, in his turn should announce a state· budget reducing the state rate to I! per cent. Verily, such experiences have in the lifetime of the writer been so unknown as to require the wildest stretch of imagination to suppose them; but-if they materialized, would not those three administrations go to the voters at the next election with solid ground for, and.·confidence in, popular approval? If, on the other hand, they were to announce increased tax rates, would they not be at once upon the defensive, and need some such powerful motive as war menace, and prepared ness against it, to escape political disaster? Would it not soon be possible to the everyday citizen to visualize the relation of taxation to good government; and to realize what he was getting for his money? Would not ere long standards of cost of government, the legitimate charge for many fac tors in governmental functions and budgets, begin to [ 383 ] Too Much Government-' Too Much Taxation establish themselves, in the course of justifying to the voters the totals of taxes levied? Such standard ization under such conditions seems to me simple, practical, certain to come at no distant day, and to be eminently desirable from every point of view.

For government is nothing but a great big business organization for accomplishing certain ends. Like other businesses it must acquire plant and create personnel. Li'ke them it can be wise and economical or foolish and wasteful. Like themit may be robbed. Good government for the most part is not a political affair, hut rather an industrial or cooperative prop osition, whose aim ought to be the achievement of the greatest results at the least cost. It operates under the great economic handicap that in the nature of its functions (which are seldom money-makers, and ought never to .be) it cannot be run for profit. Hence· cost becomes a secondary consideration. In war, for instance, "Co~t is nothing, time is every thing" is one of the great strategic maxims. So in police protection, sanitation, education, etc., the object to be achieved for the public good, once de termined on, becomes the first consideration, and the cost-whatever it is-must simply be taxed upon the people benefited. In commerce or industry, on the contrary, cost must come within selling price, or bankruptcy ensues, and cessation of the entire affair.

But no such danger threatens public service when it costs more than the provision made for it. Defi ciency taxes are levied and the service goes on. This easy escape from disaster tends always to demoralize public officers, as it makes them quite irresponsible for extravagance. Add to this irresponsibility the normal indifference of the people to extravagance and overgrowth of bureaucracy-so well expressed by the old saw, "What is everybody's business is 384 Simplification and Visibility of Taxation nobody's business" -and aggravate this indifference by taxation so blind and complex that ninety-nine voters out of a hundred are, as a matter of fact, totally ignorant not only of what they pay in taxes, but of what they get as compared with what they ought to get for them-top off the whole with wars and rumors of wars of unparalleled wastefulness· and deadliness-and we have the ghastly showing of to-day, in this wonderful country; that is to say, over one sixth of its whole earning power swallowed up in non-productive cost of government!

Well, the Great War is ended, and please God the world will so reorganize that all war may some time be ended for good, for very great good~ But taxation will go on, as government must go on; and will continue to. be unproductive, as government must and should always be unproductive. (For production comes cheaper and better in private hands.) Wherefore taxation, that is, the cost of government, must be minimized. But for so doing, the first essential is knowledge. The voter must know three things: First, how much he is taxed. Second, whether he is taxed his fair share. Third, whether he gets his money's worth. I submit that universal Retail-Sales Taxation is the shortest cut to that knowledge. And I appeal with entire confidence to the patriot ism, the honesty, and the common sense of the Amer ican people (which has never failed when supremely tested) to see to it that every voter pays his share of the taxes. Just as slavery failed to make us brutes in 1861; as repudiation and fiat-money could not make us cheats in the days of the green-bac~ craze; as free silver and talk of crosses of gold and crowns of thorns could not make us cranks in 1896; as paci[ 385 ] Too Much Government-Too Much Taxation fism could not make us cowards in 1917; even so the new-fangled forms of popular selfishness preached to us to-day by politicians who "know exactly what they want" will not make us tax-dodgers now.

Lord Nelson said at Trafalgar, "England expects every man to do his duty"-and every man did it. A clever friend of mine coming back from Europe one day, and somewhat vexed at declaring her new stock ings for custom.s tax at the Port of New York, paro died Nelson as follows: "America expects every woman to pay her duty." Our beloved country certainly expects every voter to shoulder his or her share of the cost of the best government ever known; and I am proud to believe that every lover of our country and that means most of us-honestly wants.to do so, and willingly will. ( 386 ] CHAPTER XXII REMEDIES WORSE THAN THE DISEASES I COULD go on forever illustrating the foregoing various theses, but why do so? As I have said be fore, 1 am a pragmatist, one who believes that uni versal and age-old facts, such, for instance, as "Capi talism" and the so-called "Wage System" in industry, exist because they are in general right, and conform to human nature and natural law. If they did not, they would have gone into the discard centuries ago.