Property and Corporation Taxes

§ 10. Various reforms in land taxation. While the single tax plan is defective in principle, its wide discussion has served to direct attention toward the need of reform in the taxation of land. Some proposals looking toward this end are widely favored by opponents as well as by advocates of the single tax. Such are the following: (a) The abandonment of the taxation of mortgages."' (b) A more correct assessment, in accordance with the pres ent laws, of lots and lands held for speculative purposes, which in usual practice are now greatly under-assessed.

(c) More adequate special franchise taxation upon corpora tions for special privileges in the public highways.

(d) Exemption, in value equal to the costs, of improvements 4 See ch. 32.

6 See Vol. I, pp. 116, 117, 145, 445-455. 6 See Vol. I, pp. 117, 148, 453.

? See 4 4 and 4

5.

on land, such as buildings, drains, fences, and fertilizers, for a limited time after they are made, perhaps five years.

(e) The separate assessment of urban lands used as mere building sites and of the buildings on them.

(f) Taxation of the increase ("increment") of urban land values, periodically or on the occasion of transfer of owner ship.

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11. Difficulties in taxing corporations. Until near the second quarter of the nineteenth century, business corpora. tions (of which there were few) were taxed just as was the general property of individuals, excepting that fees were charged, usually payable but once, for the incorporation of new companies, or at times of increasing the capital stock of an old one, variously called taxes on corporate charters, license taxes, incorporation fees, organization fees, and charter fees. This still continues to be the case in the main in most of the states. The methods and ma chinery of assessment were (and still are) essentially local and simple, and have proved to be inadequate to reach or justly assess the larger and more complex corporate enterprises when their equipment and business extend beyond town, then county and, finally, state lines. Moreover, the corporate forms of organization presented in complex and puzzling ways the dual conception of Here was the tangible wealth of the corporation, and there were the diffused rights of owner ship, the capital of individual stockholders and bondholders. Confused by this ambiguity, the men of that time believed (as many still believe) that there were here two separate and justly taxable funds of value, the tangible wealth and the paper evidences (or the mere intangible rights) of ownership. The popular view was, and still is, that "all kinds of property ought to bear their fair share of the burdens of taxation." The real question is, what is "fair"? To treat the object owned and the right of ownership (or the equity in it) as separate bodies of property is surely double taxation, 8 See above, 4 3.

and results in confiscation in many cases. Between this doubt and the practical difficulty of assessment, it turned out that corporate wealth, far from being doubly taxed, was largely escaping even its due single burden.

§ 12. Special taxes on banks. Attempts to deal with the difficulty without clear perception of its cause took the form of legislative tinkering and patching. Taxes were gathered

from corporations by any device that seemed workable. The banks, being the earlier important corporations, were first experimented upon. Taxes on capital stock and on circula tion were tried first (in 1805, by Georgia), then a tax on divi dends (in 1814 in Pennsylvania, and in 1815 in Ohio), ex amples that were followed or modified by a number of states. After the national banking system was started in 1864, at tempts to tax both the capital of the banks and the stock in the hands of individuals led to federal court decisions and then to state legislation, by which now in many of the states the banks are separately taxed on their real estate and the shares are assessed to the individual holders (by various rules), but the taxes deducted from dividends and paid by the bank. There are, besides, special franchise taxes and fees paid by banks in various states.

§ 13. Special taxes on insurance. Insurance companies present in a striking manner the complexities of the am biguous property concept. The assets of the insurance companies (we refer here particularly to the reserve com panies), which belong in equity to the policy-holders (less the claim of the stockholders in the case of the stock companies), are nearly all invested in stocks and bonds of corporations and in mortgages on real estate. Now, under the general property tax, strictly interpreted, the policies are assessable at their surrender or reserve valuation in the hands of the policy-hold ers ; secondly, the securities and credits that compose the assets are assessable to the company ; and, thirdly, the railroads, factories, and houses, built with the outstanding loans made by the insurance companies, are assessable as tangible wealth to the various owners (individuals or, usually, corporations) of the wealth. Even more complex problems may and do arise. If such an interpretation were practically enforced it would result in double or multiple taxation levied upon the same economic source, and would be utterly prohibitive of the insurance business. The enforcement has, however, been impossible in practice. Insurance companies have comparatively little tangible wealth excepting real estate for offices. This is taxed locally. Several methods have been tried (beginning as early as 1824) to make insurance com panies pay taxes (usually for state purposes) on something besides tangible wealth. A tax on receipts from premiums proved most workable, first as applied to "foreign corpora tions" (that is, to those of other states) and later, generally, to domestic companies also. Now, amid bewildering variety and interstate rivalries in tax laws, the most usual rate is 2 per cent on gross (in a few cases on net) premiums collected. The taxes on premiums, with various licenses and fees, now amount to 2.15 per cent of the total receipts from life insur ance premiums in the United States. This is taxation not on an existing body of accumulated wealth, or upon income, but upon the process of accumulation, a tax directly on the act of saving. A consistent policy of wealth taxation, combined with income taxation, would require the abandonment of the present forms of special insurance taxes.