§ 7. Separation of state and local taxation. For the rea son just indicated the failure of the general property tax has been most conspicuous where it is used as a basis for state taxation. This has led some financial students to advocate the plan of separation of state and local taxation. This means the assignment of certain sources of revenue (such as corpora tions and the liquor business) primarily or exclusively to the state, leaving all real estate and the general property of non corporate persons to be taxed by the counties and minor divi sions under the general property tax. The plan has been increasingly applied in New York, until, in 1906, it became almost complete. In 1910 the plan was adopted in California; and it is largely used in New Jersey, Connecticut, Delaware, and Pennsylvania, and to a small extent in some other states. An efficient state assessment of general wealth would accom plish most of the advantages claimed for this plan, while avoiding some of its dangers.
§ 8. Federal taxation of commerce. Customs and in ternal revenue (including the income tax) constitute the chief revenues of the federal government. Unlike the gen eral property taxes, these are not levied upon the main body . of wealth held in possession, but upon income as it accrues or upon articles of merchandise in course of trade and upon business activities. Stamps on receipts, checks, deeds, bills of sale, and licenses on the sale of liquor and tobacco are taxes on business acts which are necessary to the acquisition, use, or expenditure of wealth. Goods imported are taxed at the time of entering the country ; domestic prod ducts, such as cigars, spirituous or malt liquors, playing cards, and (at times) matches, pig iron, and other products, are taxed usually at the time of exit from the factory.
It has already been shown that when the tariff duty pre vents the importation of foreign goods and by raising the price encourages domestic manufacture of the article, there is virtually taxation of the consumer to subsidize the private manufacturer. A system of properly adjusted compensatory duties (tariffs and internal duties combined) which would prevent tariff duties from having any prohibitive effect could, in a great country like ours, be made to produce any revenues desired. Such a system, combined with the federal income tax, seems destined to be the chief dependence for the national government.
The increasing needs of revenue between 1913 and 1920 led to the development of many forms of federal taxation on business. The most important of these, under the names
of the taxes on corporate incomes and excess profits, will be more fully discussed with the income tax, with which, though of a different nature, they have been closely con nected in legislative development.
§ 9. Proposal of the single tax on land values. Besides the general property tax, there are found in the country as a whole a large number of special property taxes. Some of these have been introduced as substitutes for the general property tax; such is the special taxation (above referred to) of mortgages, and bonds. Other special property taxes have been introduced because they were believed to be good in themselves; such are special franchise taxes on corporations and some kinds of taxes on land. A much more drastic policy of special taxation of land, or of land values, was proposed by Henry George and has been advocated by his followers since the publication of his remarkable book "Pro gress and Poverty" in 1879. The doctrine there set forth is that the state should "appropriate land rent by taxa tion," should "tax land values, irrespective of improve ments." It is maintained that a "single tax" of this kind would be quite sufficient for all the purposes of government. The main arguments adduced for this plan may be reduced to three propositions: first, private prop erty in land is essentially unjust, because land is made by nature, not by man; second, the plan would make assessment simple and certain by lim,iting it to the unimproved land and making unnecessary the more difficult assessment both of tangible improvements and of intangible personal property; and third, it would work a marvelous reform in social con ditions, abolishing poverty and greatly increasing produc tion.
It is impossible within our limits of space to discuss this proposal further than to indicate that: (1) It assumes an un tenable theory of property.' (2) It overlooks the difficulty of distinguishing the value of the land, "irrespective of improve ments," from that of the land as it actually is, a difficulty especially great in the case of agricultural lands The diffi culty is present even in the case of urban land when the im provements of filling, draining, and leveling have become in corporated with the site!' (3) The plan ignores the stimulus (motivating force) which private ownership has given and still gives to the maintenance and fuller productive use of land. Nowhere has production thriven where the state was the uni versal landlord.