Just Taxation

J. Whidden Graham

[Reprinted from the New England Magazine, Vol.12, No.6, August 1892]

The chief purpose for which democratic government exists is to maintain justice and thus promote "the general welfare," which is impossible without justice to all. From failure to apprehend this latter truth has arisen every act of injustice done under the form or protection of the law. Legislators desiring to promote the general welfare have repeatedly passed laws that have infringed upon the rights of various classes. Had they kept in mind the truth that it is only by guarding the equal rights of all that the general welfare can be secured, our statute books need not now be loaded with a mass of unwise laws.

Probably the most persistent violations of that law of equity that should underlie our legislation are to be found in our laws for raising the revenues of the government. Government must be supported, and to support it revenues are needed. But such taxes should be levied so as to fall in proportion to the benefit to be derived by each class of society. This is the basis of adjustment that is most natural and that alone is consonant with equality of rights. Instead of being so levied, our taxes are constantly so imposed as to put the burden on those who derive least benefit from government and permit those who get the greatest benefits to escape. Wherever a law so operates it should be at once abolished, even if large classes are interested in maintaining it, because the greatest good it can accomplish can never offset the evil it will produce. No one has a right to be "benefited at the expense of others.

All taxes levied on. wealth - that is to say, tariffs, whether protective or revenue, internal revenue taxes, taxes on personal property, and taxes on improvements on land - as well as all licenses and taxes on consumption, being continually shifted to and paid by the consumer in increased prices, instead of being taxes on the one who pays them in the first instance, What really takes places is this: First payers whose operations produce so little profit that they are unable to bear the increased burden pat upon then) are forced to suspend, production is restricted, and the prices of products therefore rise to meet demand, and are enhanced until they reach a sum sufficient to cover the tax. There are some exceptions; but they are only apparent. The tendency of such taxes is to give the first payer a monopoly by requiring a larger capital than otherwise would be needed to do business - thus violating the rights of those who are forced out of business.

The inequality with which such tees foil is another violation of equal rights; as the poor consumer, who spends his entire income, is taxed the whole amount of his income, while the rich consumer, who spends only a part of his income, is taxed only on that portion of it: which is expended. Moreover, the experience of all nations shows that taxes levied directly on personal property cannot be equally collected; that while the poor, defenceless, and honest are always required to pay in full, the rich, powerful, and dishonest frequently escape paying anything and rarely pay their entire dues.

Whatever man produces by his own labor is his, and the only deductions from the total product that can with justice be required are (1) a part for rent for the land, from which or on which it is produced and (2) a part interest on the capital that has aided production. Any other deduction, no matter how or by whom or in what manner taken, is a violation of equal rights. It is no less robbery for government to take it in the form of taxation, either directly or in process of exchange, or to empower others to do so, than it is for any one else to take it.

But there is no need of imposing a tax on labor or on interest or capital, or on any other forms of wealth. Society itself produces a fund from which such, expenses can be drawn, and as the fund is amply adequate for the purpose, justice demands that the products of labor and capital should be left untouched, and that taxes should lie levied on this source. Wherever men congregate, there attaches to land, solely by reason of such congregation, a value that did not before exist. As population increases, the value increases. This value, then, - the potential value of the land,- being produced by organized society, is the natural source from which the expenses of organized society should be drawn.

A tax levied on the potential rental value of land cannot be shifted to the tenant by compelling him to pay increased rent, because the existing rent already measures the full difference of value over the best land to be had for noshing, and because the pressure of taxation operating on all valuable land -- much of which is held Stile or only applied to partial use - has a tendency to compel the putting of this land to its best use, a tendency which becomes more imperative as the taxes increase, causing more and more land to be offered for use, -- which .offering reduces the competition. Therefore, such a tax has the effect of reducing ground rents, and could not be evaded by the landlord by being shifted to the tenant.

This value is the only value that can be justly or wisely taxed. Its taxation cannot infringe the equal rights of any, as society itself produces the value and therefore has the right to tax it. To increase the lax would not therefore be an injustice to existing owners. No argument can be adduced opposing increased taxation on the value of land on the ground of injustice to existing owners, that will not apply with greater force to any other subject now taxed. The present owners would be in some degree compensated for reduced or lost ground-rent by their own increased wage-earning capacity, as well as by the generally improved conditions which would result; while there is no compensation whatever to the consumer in the case of taxation of other subjects. Furthermore, society is under no more obligation to guarantee landlords that their land shall be remunerative than it is to guarantee any other class of speculators against loss; on the contrary, it has a right to step in at any time and take any part or the whole of the value which itself produces, and this, notwithstanding the fact that it has hitherto left a large part of much value in the hands of a class. No contract exists between society and landlords; and it is impossible that a permanent contract could exist between such parties. There is nothing besides the potential rental value of land that can he taxed without injuring the equal rights of some, and there is therefore no alternative.

No tax can be so accurately and impartially levied, or so cheaply, easily, or surely collected, as this tax. Its collection would require but a small part of the force now engaged in the collection, of taxes, and the expense of government would in this way be greatly reduced.

The abolition of all other forms of taxation would greatly cheapen commodities by relieving them from taxation and by breaking down many monopolies that rest thereon. The concentration of capital is the potential rental value of land would break up the landed monopoly by reducing the prices of land and greatly reducing the rent of land. Thus, access to opportunities to produce wealth would be large. Smaller capitalists could then engage in production on the best natural opportunities, and vastly more wealth could be produced than is now produced. The result of new demand for labor would raise wages, or wages would rise because labor could get easier access to natural opportunities; it would not be necessary to have labor organizations to keep up wages. With cheaper accommodations and higher wages, the laborer's condition would be universally improved. All who desire to work could easily procure employment at good wages. There would he no justification for pauperism, and no need of charity, except in cases of physical incapacity. With monopoly destroyed, leaving it impossible for any one to get a part of the products of the labor of another without full compensation, and with the possibility of securing by means of labor the means required for the gratification of rational desires, the fever for the piling up of immense wealth would abate; the idleness which causes poverty and the crime and vice which spring from poverty would no longer exist; men would no more assume an attitude of warfare or of armed peace toward each other, as they do now, but would be imbued with a spirit of fraternity and would work together for the general welfare, inspired by the best motives; the mind, liberated from the slavery imposed by unjust industrial conditions, would be no longer dwarfed, and those at the bottom would rise until equality existed among men.

It is proper to add, what the reader who is acquainted with economic discussions of coarse perceives, that the conclusion here reached is identical with that reached by Mr. Henry George in his "'Progress and Poverty." But the route travelled is quite different. Mr. George holds that the causes of our present social troubles are consequent upon and reside in our system of private land ownership, which, he attacks, and only incidentally opposes existing systems of taxation, I agree with his argument, but believe that, approached from that side the question is too complex and too difficult of comprehension for many to meet with ready acceptance. Therefore, I have here endeavored to present an aspect of the same question, treated as one of tax reform instead of land reform, with the wish so far to simplify it.