The History of the history of taxation there is discernible the influence of four sets of causes. First and most sig nificant ate the general economic conditions. The fiscal system is always in large part a reflex of the economic system. When economic conditions are simple, the forms of taxation are apt to be simple. Where there is a prepon derance of certain economic factors, the tax system will vary accordingly. Thus, in the American colonies, there were three funda mentally different systems of taxation, corre sponding to the system of small farms. and petty industry in the New England colonies, to the dominance of business interests in the middle colonies and to the plantation system in the Southern colonies. The fiscal system of the feudal ages rested largely upon land. The success of the tax on personal property was and is very different in the towns from what it was in the country. The growth of modern forms of business has brought with it an en tirely new system of taxation. Second to be emphasized is the influence of democratic fac tors. Modern democracy and the changed atti tude to the laboring classes has brought with it a considerable alteration in the kinds of taxes and in the proportion between the so-called di rect and indirect taxes. The same influence is attributable to the introduction of the modern system of progressive taxation. In the third place, we note the development of the idea of faculty or ability to pay. More and more the system of taxation has been molded by the de sire to fit the burden to the capacity of the con tributors and the tests that have been progres sively employed to measure faculty have, as will be seen below, undergone a continual modifica tion. In the fourth place, side by side with the adoption of individual faculty we note the sub stitution of the social for the individual treat ment in taxation, that is, a system modified by a study of the social consequences and economic effects of the tax system upon the various economic classes in the community as a whole.
Influence and Effects of Taxation.— The effects on production. Here again two theories stand opposed to each other. A former school contended that taxes stimulate production. It had been claimed by some that a new tax evokes a new ability to bear the tax and that in this sense an increase in the seeming burdens may really augment the industry of the people. It has been argued that if industry in general is the result of coping with the natural disad vantages, such as the inclemencies or difficulties of nature, why should not the same result be brought about by artificial disadvantage, like taxation? Attention is directed to the period of the Napoleonic wars where the increase of British taxes seemed to result in greater power to bear the taxes. On the other hand, we find the contention that all taxes are injurious, or, as in the case of the Single Taxers, that all taxes excepting the land value tax exercise a deleterious influence because they are taxes on labor and industry and, therefore, check or repress labor or industry.
The truth again lies in the midway. It is undoubtedly a fact that some taxes seem to increase industry. But if regarded more at tentively it will be seen that the tax is the oc casion, rather than the cause, of the redoubled activity and In that in almost all cases the lure of profit rather than the fear of loss is the real stimulus to productivity and invention. It
is undoubtedly far more frequent that industry is injuriously affected, rather than benefited, by the burden. But it by no means follows that every tax exerts an injurious result. If certain principles of equality are observed, it is pos sible for a tax to be innocuous so far as the producer is concerned, and, at the same time, to have the consumer benefit more from the results of the government outlay than he suffers from the tax. There is no broad generalization to be framed in this respect. According to the character of the particular impost, taxation may be said to have educational, destructive or regu lative effects. There are two points of more general influence. One is connected with the inequality of taxation. If an exclusive or un equal tax is imposed upon some permanent source of revenue, the tax or the excess of the tax over the normal rate will be amortized or capitalized into the diminution of the selling value. If I per cent is assessed upon securities, for instance, which bear 5 per cent interest and have been selling at par, the new purchaser will pay only about 80. This is known as the capitalization of taxation. The same 'tendency of things to seek their level is found in the imposition of a new tax in general. A French writer, Canard, had laid down the principle that every new tax is a had tax and every old tax is a good tax. What he meant was that the disturbance of industry by the imposition of a new tax often takes some time to allay itself. This of course must not be misinterpreted into the belief that a tax which is inherently bad can ever become good through the lapse of time. The effect of taxation on exchange of wealth is marked. The chief reason, for instance, why there is no large class of real estate dealers in Paris as compared with New York is the exist ence of a high tax on the transfer of land. It has sometimes been alleged that the downfall of Spain is due to the universal tax on sales, akavala, in the Middle Ages. An important principle connected with the influence of taxa tion on exchange is the so-called excess-of price doctrine. In its original form the doc trine held that every time a taxed commodity changed hands the tax grows in arithmetical' proportion, for as the profits of each dealer are added to the price, the tax is imposed in each case successively on the new price, includ ing the profits. This alleged principle, how ever, is open to the objection that according to. modern economic theory, profits are not a part of price, but the result of price and that the price is always fixed at the point of minimum cost. The element of truth contained in the principle is due to the fact that interest is a part of cost and that to the extent that interest on the successive prices is of any importance, the tax tends to be cumulative. The influence of taxation on distribution is indisputable. Many taxes are designed to have such an effect, as high inheritance taxes, graduated income taxes, but many taxes also have unexpected effects on distribution. One of the older theories or doctrine states that the ideal tax ought to leave every indi vidual in the same relative position as before the imposition of the tax. This is no longer accepted as an ideal.