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Taxation

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TAXATION. What Is a Tax? — A dis tinction must be made between a tax and the exercise of the power of taxation. Property may be taken from individuals by the govern ment in the exercise of various sovereign pow ers, such as the power of eminent domain, the penal power, the police power and the taxing power. Where the purpose of the compulsory payment is neither to exercise the right of eminent domain nor to inflict punishment nor primarily for purposes of regulation, we have to deal with the power of taxation. The power of taxation may be exercised, however, in sev eral ways. The government may perform a service for the individual from which a speci fic benefit is received and where the cost of the service is presumed to be covered by the payment. Such payments are called fees or tolls. Or, again, the government may, with or without the consent of the individual, make an improvement which increases the value of his real estate and may impose what is technically called a special assessment or a betterment charge. Finally, the government may impose a payment on the individual where the special benefit, if any, is merely incidental. Such a pay ment is called a tax. Taxes in the narrower sense are to be distinguished, therefore, not only from fines and penalties as well as from prices (charges made by the government when it carries on a commercial or industrial under taking) but also from fees or tolls and from special assessments, both of which are equally manifestations of the taxing power, but which are distinguished from taxes in the narrower sense in that the special benefit accruing to the individual is both positive and measurable.

A tax may, therefore, be defined as a com pulsory contribution from the person to the government to defray the expenses incurred in the common interest of all, without refer ence to special benefits conferred. Each word in this definition is significant. A tax is a con tribution, whether in money or in kind; it is compulsory (to distinguish it from a gift); it is paid by a person — either a natural person, like an individual, or an artificial person, like a corporation; it is paid to the government in any of its forms, whether local, State, Federal or international; the expense must be incurred in the common interest of all or, in legal parlance, it must be for a public purpose; otherwise it is confiscation, not tax ation. Finally, it must be paid without ref

erence to special benefits conferred. It is levied for the common benefit, not for any special benefit.

The Reason of By the reason of taxation is meant the ground or the philo sophical justification of taxation. The older theory may be called the exchange or the con tract or the reciprocity theory. It was con nected with the 18th-century contract theory of the state. This theory holds that taxes are a mere exchange between the individual and the government, that the government performs cer tain services like that of protection, for the individual 'and that the individual gives the government something in return. This theory has been completely superseded by the more modern political philosophy. The modern the ory may be called the organic theory of tax ation. It does indeed not deny the obligation of the government to do something for the community in return for the payment exacted from the community. In this sense, there is, indeed, reciprocity; but it is an- exchange be tween the community as a whole and the gov ernment which represents the community. It is not an exchange of any kind between the state and the individual. Modern political philosophy does not recognize the contract theory. The individual does not contract or bargain with the state. He is born into the state, or, if he transfers his political allegiance, he does so without any reservations. In this sense the state is as much a part of the individual as the family is a part of the individual. Just as the individual involuntarily assumes certain obli gations to his family, so he assumes obliga tions to the state of which he is a member. It is, therefore, as much his duty to support the state as it is to support his family. In fact, we may go further. The state or politi cally organized community is indispensable to modern civilized man. We cannot conceive of any one living outside of the state. Since no one can throw off the obligations of the state — which can in the last instance demand a man's very life — it is as much the duty of the in dividual to support the state as it is to sup port himself. The obligation to pay taxes may, therefore, be declared in modern times to be a natural obligation and the state is everywhere justified in converting this moral obligation into a legal obligation.

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