to the fact that most villages and small cities of late years have decreased in population and in industrial prosperity, causing a decrease in the value of real estate therein, without a corresponding reduction in the assessed value. The result is that the farmers and the residents of the smaller municipalities pay a much larger general tax accordingly than do the owners of property in the larger cities.

While this discrimination in favour of the owner of property, especially personal property, in the city, is generally conceded, it is, however, claimed that the matter is not of great importance, since it only affects the taxes raised for state purposes and that local municipal taxes are not affected thereby. This contention is, however, fallacious, as it fails to take into consideration the fact that, since personal property is more generally assessed in small municipalities than in the large cities, the result is oppressive to industries in the small municipalities, which have to compete with similar industries in large cities which are favoured in taxation. This works against the industries in the rural sections not only because they are required to pay a tax of in the neighbourhood of 3 per cent. on both their real estate and personal property at an assessed value of nearly, if not equal to, the actual value, while in the larger city industries will be taxed only a small portion of the actual cash value of their real estate and personal property; but such industries are also discouraged in the smaller municipalities by the fact that the assessment of other personal property, including money and choses in action, has the effect of inducing the residents of these places who are thus subjected to a large tax, frequently amounting to from one-third to onehalf the income of their property, to take up their abode in the larger cities, where practically no attempt is made to tax them on this class of property. In this manner much of the capital which otherwise would stay in the smaller municipalities is driven to the larger cities; hence the owner of an industry located in a small municipality finds it hard, if not impossible, to borrow the money over and above his capital, necessary successfully to carry on the business in which he is engaged. To borrow this money, the owner of the industry finds it necessary also to remove to the large city.

The result is a constant loss, both of people and money, by the country, villages and smaller cities to the larger

cities. The story of this constant flow of population toward the great cities is best stated in the census returns, and while perhaps this discrimination in taxation is not entirely to blame for this condition, it is largely at fault for it. Competition in most industries is so fierce as to make the amount of the assessment and the rate of taxes, as well as the ability easily to borrow money necessary to operate a large manufacturing, business, decisive tests in determining the location of the business. Hence to these inequalities in the practical working of the present system of taxation may in a great measure be charged the lack of prosperity in the villages and smaller cities that now generally prevails. And to this system of taxation may be ascribed the failure. of the farming districts to shew any decided advance in population during the last decade, as well as the actual loss. of population in many localities during this period.

REMEDY,

Inasmuch as the movement from the rural districts to the large cities is very generally deplored, and serious efforts are being made to check same, the effect of our present system of taxation on this movement cannot be overestimated. It should lead to serious inquiry as to whether or not a more equitable means for raising the public revenues cannot be adopted,—one which will do away with the present system of requiring the owner of farm lands to pay taxes on the entire value of his land and personal property, regardless of his indebtedness thereon; and also a system that will be less repressive of manufacturing industries in the smaller cities and villages, that will not tax the small capitalist on his credits or money, thereby inducing him to remove to the larger city, where he enhances the opportunity to escape such taxation.

THE INHERITANCE TAX.

Different remedies for these generally acknowledged defects in the present tax system have been proposed, and one of them to a limited extent is now in force in many jurisdictions; this is the taxation of the right of succession, commonly called the inheritance tax. This tax is subject to the criticism that it is a double tax, and also that the amount each year to be derived from that source of revenue is un

certain. These objections or criticisms are, however, of small weight as compared with the advantages of the system, and especially the good to be derived from the system if developed along the line of a tax highly progressive in accordance with the size of the estate by thereby causing a frequent distribution of wealth and a dissolution to a great extent of large estates. In this way such a proportion of the needed revenues may be raised as will give immediate and substantial relief from the present system, to those most in need of it. And, as stated, this form of taxation also has the virtue of providing a means for the compulsory distribution of large estates. For these purposes it has been used in France with very gratifying results, where the maximum rate on distant collateral inheritance of succession to the largest estates is now 34 per cent., a rate which might be regarded as confiscatory were it not for the fact that neither in this country, nor in few if any other civilized countries, is the right of inheritance deemed to be a vested property right. Since without laws of descent and distribution, property upon the death of the owner would escheat. to the state or the sovereign power, hence in conferring the right of inheritance upon any individual or class of individuals, the state may place such burdens and limitations thereon as the public welfare may require. The taxation. in this country of estates of decedents, if based on the theory of the French tax, would go far toward providing all the necessary revenues needed for public purposes if the Government were economically administered.

DIRECT TAX ON REAL AND PERSONAL PROPERTY.

In addition to the foregoing method of raising revenue, the present method of taxing real estate and personal property may be rendered more equitable and less repressive of farming, and industrial business in villages and the smaller cities, by raising all the taxes through action of the state, rather than the different municipal bodies. All property, both real and personal, should be assessed by state assessors, and the actual cash value of the property should be determined by the condition and situation of the property and its selling value, estimated with due regard to the actual or probable income therefrom. The gross income to be con

VOL. XXXIII. C.L.T. —17+

sidered unless the owner, under oath, shews that he is entitled to deductions therefrom for money expended in operating expenses or ordinary repairs, etc. This means of assessing property should be applied both to real and personal property, and should include common carriers, telephone and telegraph lines and other public service corporations, and the value of their franchise. The owner of property taxed should be entitled to have deducted from the cash value his bona fide indebtedness thereon. This deduction, however, should depend upon the interest rate. If the interest rate is a low rate, say 4 or 5 per cent., the owner of the property should be required to pay taxes on the full cash value. If a higher rate of interest is exacted he should only be required to pay on his actual interest in the property; the balance of interest in the property should be assessed to the creditor at the same place as the local assessment, without reference to the actual residence of the latter. And payment thereof should be enforced by laws forbidding the right to proceed in the Courts to enforce any debt or lien on which the taxes have not been paid.

The taxes paid by public service corporations should be so assessed as to cover their just proportion of the state taxes and the taxes of the smaller governmental agencies, such as counties, towns, cities and villages which may be traversed by such public service corporation. Since they receive the benefit of fire, police protection, and other benefits from these municipalities, it is but right that they should contribute to the expense. The taxes paid by these different corporations should be distributed among the different municipalities traversed by them, and should be based upon a rate per cent. which the mileage, value of improvements, etc., in each municipality bears to the assessed value of the entire property, which of course would include the value of the franchise.

THE INCOME Tax.

Aside from the inheritance tax and comprising practically the other modes of taxation already proposed, is the income tax in a modified and more practicable form than the ordinary income tax. Because under the proposed system of taxation either the specific property or the income therefrom, unproductive real and personal property are

taxed as also are productive real and personal property, but in the latter case the tax is a single tax in that the owner, if he is assessed upon his income, including the income from such property, is entitled to have the direct tax deducted from the amount of his income tax, and this tax is on the gross income less operating expenses proven under oath. The result is a tax in so far as practicable on the net income only, but on a basis which will prevent fraud in escaping taxation, and insure the taxation of all property either by taxing the income or the property itself.

The income tax as a means for raising the revenue may also be commended in that it is the least oppressive of any, unless it is the inheritance tax. There are to-day thousands of our people who enjoy large incomes, who send their children to the public schools without expense, and who otherwise receive all the benefits of taxpaying citizens, but who share in none of the burdens of government and hence feel little of the responsibilities of citizenship. The wise and economical use of the funds raised by taxation is of little interest to this class of people as a general rule, and to this may be laid the fact that extravagance and waste in the management of public affairs may be continued with but little danger of rebuke at the polls.

It is frequently claimed that inasmuch as these people are consumers they indirectly pay a tax. This is to a great extent a fallacious theory, however, since the price to the consumer as to most articles, including rent, is influenced too largely by extrinsic facts, such as competition, supply and demand, etc., to make it possible for the taxpayer to compute and add to the selling price or rental, the amount of taxes paid. Moreover this form of taxation on the consumer, if it be regarded as a tax, falls equally upon all consumers, the direct as well as the indirect taxpayer.

In order, therefore, that the burdens of government fall more equally upon all citizens, the income of all persons, natural and artificial, above a minimum amount, say $500, should be taxed for state and municipal purposes according to the residence of the individual; but as already stated the direct taxpayer should be entitled to have deducted from his income tax the amount of his direct taxes on the property from which any part of the income is derived.