Uniformity or Equality of Taxation.— By equality is of course not meant absolute numerical equality, but relatively proportional equality. Uniformity, in other words, means relative uniformity. The question then arises as to the relation involved. To what should taxes be relative, in order to be equal? In former times the answer was that the real basis of taxation should be either the cost of service to the government or the value of the service to the individual. The more modern theory maintains that taxes should be in some relation to the faculty or the ability of the indi vidual to pay. Much time has been spent upon the problem of what constituted the real ele ments of faculty. For a long time faculty was stated in terms of sacrifice. By equality of taxation there is meant an equality in the sacri fice imposed upon the individual. In more recent times, however, emphasis has been put upon another aspect of the problem. Sacrifice has to deal with the phenomenon of parting with one's wealth. It involves the question of what is left for immediate consumption after the tax has been paid. But economic life deals not only with consumption, but with production. When we come to consider the production of wealth rather than the consumption of wealth we are confronted by the facts of opportunity or privilege in the amassing of wealth. A man's ability to pay a tax, therefore, must be considered not only from the point of view of consumption but from that of production. In other words, the two elements of faculty are privilege and sacrifice: the easier it is for a man to make his money, the more ability he has to pay taxes; the harder it is for a man to be deprived of his money, the less ability he has to pay taxes.
The Norm of By the norm of taxation is meant the test of faculty. There have been no less than five such tests disclosed in the history of taxation: (1) The first test of faculty was polls. Everyone was supposed to have an equal ability to pay. In a primitive form of society the poll tax was legitimate. It has virtually disappeared to-day except in a few democratic communities like the United States, where it still lingers as a survival of a former and more primitive equality. (2) Ex penditure. The advantage of expenditure as a test is that no one can escape because every one spends something. The disadvantage of expenditure as a sole test of faculty is that some people must spend all they make, while others can save most of what they make. Ex penditure thus becomes an increasingly unsatis factory test of faculty; (3) Property. In a comparatively early form of society wealth in terms of property is an excellent test of faculty. The general property tax is accordingly found everywhere at a certain stage of development. The more complicated and the more differen tiated the society, the more apparent, however, are the shortcomings of this test. The chief modern defects of property as a test of equal ity in taxation are the following: (a) While it is generally true that capital is nothing but capitalized income, there is in modern times frequently a discrepancy between the property and the yield or produce of the property. This may be due to speculation, to chance or to other accidents of economic life; (b) In mod ern times more and more wealth is derived from rather than from prop erty. The property tax would hit the owner
of a $10,000 farm but leave untaxed the recipi ent of a $100,000 professional income; (c) There is a great difference between the legal and economic concept of property. Economi cally a man's wealth measured in terms of cap ital is his surplus over debts. Legally, prop erty is independent of the debts. I may own a $10,000 farm even though I have borrowed $8,000 on the farm. The property tax fre quently fails to make allowance for debts; (d) The concept of property fails to distinguish between consumption and production property. The property tax makes no distinction between the lawyer's library which contributes to his income and a bibliophile's library which may be a source of expense. 4. Product. The diffi culties with the concept of property as a test of faculty led to the substitution of yield or produce as the proper test. Almost every where at a certain time the general property tax on the individual was, therefore, replaced by a series of taxes on the things themselves, meas ured by their product. Instead of a general property tax we now find a land tax, a capital tax, a business tax, a wage tax, etc. Produce is in some respects a more satisfactory test of faculty than property: it gets closer to the reali ties. But in the course of time a weakness dis closed itself in that not enough attention could be paid to the individual conditions of the re cipient of the produce. 5. Income. The mod ern world has, therefore, come in large measure to an acceptance of the fifth test of faculty, which is that of income rather than of prop erty or of produce. The tendency is accord ingly strong for the replacement of the older taxes by modern taxes on individual income and business profits.
Graduated further refine ment, however, of the idea of faculty is seen in the growth of graduated or progressive taxa tion. Proportional taxation is giving way to graduated or progressive taxation because of the realization of the fact that graduation, al though a technical breach of uniformity, really involves a higher uniformity. Progressive taxation is now almost everywhere recognized even in American jurisprudence, as involving no inequality of taxation. A graduated tax is a tax the rate of which increases with every unit of the base. The entering wedge of the theory of progress in taxation is found in the minimum-of-subsistence doctrine, the doctrine, namely, that a certain amount of income should be exempt from taxation because that minimum is indispensable to existence. This wedge was soon pushed further in so that emphasis was placed upon the element of sacrifice. The sac rifice involved in taking by taxation $100 from a man with a $1,000 income was recognized to be far greater than the sacrifice involved in taking $10,000 from the man with a $100,003 income. In one case the tax trenches upon the necessities and in the other it affects only superfluities. After some time, however, the conception of sacrifice was re-enforced by that of privilege. The difficulty of making the first $1,000 of a man's fortune is far greater than that of making subsequent accretions. All modern democracies are accordingly fast devel oping graduated or progressive taxes.