.


SCI LIBRARY

Report of the Assessment and Taxation Commission, Province of Manitoba, Canada, 1919: The Fate of Henry George in Canada

Francis K. Peddle, Ph.D.

(Faculty of Philosophy, Dominican University College, Ottawa, Canada)


2015



Immediately after the First World War the Province of Manitoba commissioned a wide ranging study of the tax system in the Province of Manitoba with a view to determining the most equitable method of assessing and taxing property. At the time property assessment and taxation, including both realty and personalty, constituted a much greater proportion of overall revenues to the government than today. The Commission was also specifically tasked with determining the advantages and disadvantages of the so-called rating of land values only instead of the total value of land and buildings. The Manitoba Report emphatically concluded that the theory of the Single Tax was too narrow and unreliable a basis for civic revenue to be an equitable and just element in any system for raising the necessary funds for municipal requirements. The Commission relied primarily on the testimony of then well-established experts in public finance from the United States. The evidence base for the Manitoba Report is the testimony and writings of these experts. The underlying economic theory of the Manitoba Report is the nascent historical and institutional science of public finance as it had developed in Europe and the United States in the late nineteenth century. The Manitoba Report had a widespread influence in the inter-war years and well beyond. The development of Canadian tax policy, especially at the local level, may have taken a very different course if the Manitoba Assessment and Taxation Commission had not adopted a philosophy of economics that focussed on the taxable faculty, or ability, of the individual rather than the capacity of communal resources to serve municipal needs.

***


Introduction


The history of tax policy development rarely analyses long-term continuities and assumptions in public finance thinking. There are, however, in the early part of the twentieth century several identifiable shifts, tectonic in nature, that subsequently pervaded Canadian tax philosophy as unchallengeable assumptions. These changes are ultimately philosophical in nature. They are widely articulated in the debates and reports of the tax commissions of that era. There is considerable evidence that these shifts in Canadian tax policy were ultimately sourced in fundamental changes in thinking about public finance in the United States in the late nineteenth and early twentieth centuries. Furthermore, the growth of a science of public finance at the outset of the twentieth century has origins in the German historical school of economics and in some basic re-orientations in how the science of public finance was to be understood. From a theoretical standpoint there is no indigenous Canadian tax philosophy. The principal antagonists in the competing tax philosophies of the period were the Americans, E.R.A. Seligman and Henry George. In one form or another these tax philosophies still permeate tax policy development in Canada.

The movement away from the taxation of inert property to the taxation of income based on ability to pay, or on the capacity or faculty of the individual, to shoulder a tax burden, did not develop in isolation from an overall transformation of classical tri-factor economics into neo-classical economics, or from a change in the centrality of natural law in economics to a historical, institutional and positivistic emphasis. A critique of benefits taxation in public finance was parallelled by the critique and revision of the role of economic rent and marginal utility in economics generally.1 Economics equally, and somewhat paradoxically, became both mathematized and historicized. Modelling, hypothesizing and an ontological state of ever looming refutability and revision supplanted an appeal to immutable laws, patterns and certain predictability. Economics now started moving in the direction of eventually becoming a Popperian and Hayekian vision of science. It shied away from scientism and historicism, with these “isms” understood as supra-historical and supra-institutional laws, patterns and predictabilities.

The ascendancy of the ability-to-pay principle based on individual taxable capacity, the re-orientation from in rem to in personam taxation, the movement away from tax exigibility on property income to income derived primarily from labour, capital and production was seen as a part of a progressive reform agenda in public finance. In an inquiry into the lineage of Canadian tax policy development, the influential Report of the Assessment and Tax Commission, Province of Manitoba, 1919 (hereafter the Manitoba Report) figures as a prominent example of this re-orientation. For example, almost fifty years later the comprehensive Smith Commission in Ontario of the 1960s approvingly quoted J. Harvey Perry, in his widely used Taxes, Tariffs & Subsidies of the time, who declared the Manitoba Report “a document that should rank among the Canadian classics in taxation literature.”[2] It was a classic because it embodied in the eyes of subsequent writers on public finance the leading edge thinking in tax reform. Canadian tax reform and tax policy development wavered little from the Manitoba Report in terms of basic principles for the next hundred years.

This inquiry begins with an analysis of the structure and underlying tenets of the Manitoba Report. It then discusses the philosophical orientations of the leading American figures in public finance and tax policy development in the early part of the twentieth century. This background cannot be understood in isolation from a wholly different, but equally powerful, call for public finance reform during the early decades of the twentieth century, that of Henry George. The Manitoba Report ultimately prevailed against the Georgist philosophy in subsequent Canadian tax history, although remnants of Georgism continue to this day in the tax reform debates, especially around the financing of public transit, natural resource rents and alternatives to local property taxation. This investigation concludes with some reflections on the course that tax policy development may take in future years, given that the current emphasis on faculty or ability taxation seems to have reached its limits in a world of globalized finance and ever illusive tax havens.


(A) The Mandate of the Commission


The mandate of the Commission was given by an order-in-council of the Manitoba provincial government in 1918 and reads as follows:

In furtherance of a resolution passed by the Legislature of Manitoba at the last past session thereof, constituted a commission to inquire into and report upon:

(1) The operation of the laws now in force relating to the assessment of different classes of property for the purposes of municipal taxation in the Province.

(2) The present method in force in the Province respecting the preparation of municipal assessments with the view of improving the same, and to secure, if possible, greater uniformity in this respect.

(3) The most equitable manner of equalizing municipal assessments throughout the Province to meet the annual statutory levies required to be made by the Municipal Commissioner.

(4) The advantage or disadvantage of rating land values only, instead of the value of lands and buildings, and extent to which and with what results, as far as can be ascertained, the rating of land value only has been adopted elsewhere.

(5) The advisability and justness of taxing incomes in addition to or substitution for other methods of taxation now in force in the Province.

(6) The most equitable method of assessing stocks and other property of mercantile firms or corporations.

(7) The most equitable mode of assessing companies operating public utilities under any statutes in force in the Province or under agreement with municipal corporations, such as companies who supply water, light, heat and power to the municipalities and the inhabitants thereof, telegraph and telephone companies, and companies operating electric street railways.

(8) Improvements in the assessment laws of the Province suggested by recent legislation in other countries.

(9) The statutory exemptions from taxation now in force, and to what, if any, changes it is desirable should be made herein.

(10) The re-arrangement, revision, amendment and consolidation of the provisions of “The Assessment Act” and all amendments.

(11) Generally to inquire, hear, consider and report upon any other matters connected with the assessment and taxation of property within the Province which may be brought to the attention of the Commission, or which might appear to such Commission to be proper subjects for consideration.

The powers given to the Commission were plenipotentiary and relate to all aspects of public finance in the Province. These Provisions reflect the controversies of the time as well as the revenue needs of government. The modern welfare state had yet to be fully formed and Canada was dealing with the financial repercussions of the First World War. The emphasis in the Mandate is on local taxation, but there is a noticeable shift in thinking towards ability to pay or faculty taxation based on productive income.

Provisions 1, 2, , 8, 9, 10 and 11 are primarily administrative and were principally given over to the recommendation for the creation of a provincially mandated Tax Commission to professionalize the levying and collection of revenues. Provisions 3, 4, 5, 6 and 7 deal with the thorny issues of tax equity and fairness. Uniformity in assessment, the Henry George doctrine of taxing only land values, increment taxation, the justness of the income tax, the taxation of intangibles (or personalty) and the assessment of public utilities constitute the theoretical core of the Commission’s mandate.

The body of the Manitoba Report contains eleven parts which do not strictly follow the order of the mandated provisions. The following parts follow specific mandates: Part 1 cites the second mandate, Part 2 the fourth mandate, Part 3B the fifth mandate (after a consideration in 3A of the taxation of business) and Part 9 the seventh mandate. The other mandates are variously addressed in the different parts of the text. Some public finance issues, which are not listed in the mandate are addressed in the Manitoba Report such as the funding of public schools in Part 3 and Succession Duties in Part 10. The Commission did not act outside of its mandate in this respect as it was given sweeping powers of review under sections one and eleven by the provincial government.

The Manitoba Report ends with a list of sixteen recommendations that do not fundamentally alter the property tax régime or the overall public finance system in Manitoba.3 There are significant recommendations for improvement in tax administration, especially around the proposal that a province-wide Tax Commission be created. Recommendations 1, 2, 3 (a) and 4 deal with property taxation. Recommendations 3, 5 and 6 address the taxation of income from individuals and businesses, recommendations 7, 13 and 14 provide for improvements in tax administration. Recommendations 8 and 9 ask for the repeal of the statute labour law (a form of corvée) and the poll tax, while recommendations 10 and 11 refine certain exemptions and 12, 15 and 16 address revenues from particular sources such as the abolition of the amusement tax and the dedication of revenue from automobile licensing.

The Summary of Recommendations in the Manitoba Report (99-101) essentially re-affirmed the incidence of municipal taxation in the Province. The assessment of real property followed the status quo by recognizing the unique nature of land value in that the Commission recommended that land ought to remain assessed at full value and the buildings at two-thirds of their value. The specific recommendations with regard to real property are stated thus:

(2) (a) Land, as distinguished from buildings, shall be assessed at its value at the time of assessment.

(b) In the case of land having buildings thereon, the value of the buildings be the amount by which the value of the land is increased.

(c) In assessing land having buildings thereon, the value of the land be set down in one column. In another the sum representing two-thirds the value of the buildings. The value of the lands and buildings together to form the total assessment of the property.

The separation of land and building values on the assessment rolls was a feature which took into account these very different factors of production in the property assessment base.[4] Secondly, the assessment of buildings was differentiated, at a lower amount, than land. Recommendation 2 (b) is tacit recognition of the building residual method of assessment - a method that was prominent at the time and which some have argued is superior to the land residual method commonly used now, but only in relation to the employment of a cost methodology.

The Commission gave wide powers of taxation to urban municipalities by recommending, besides the assessed value of real property, the assessment of businesses, incomes, special franchises and licenses for taxation purposes. The widening of the base of taxation to include an income tax in urban municipalities shows the influence of the American progressive economists, such as Adams and Seligman. The abolition of the poll tax and statute labour (corvée) provisions of The Assessment Act were overdue since they were fundamentally contrary to the ability-to-pay principle and were relics of bygone public levies.

By today’s standards, the evidentiary basis for the Commission’s recommendations would be viewed as wanting, although for its time it was undoubtedly leading edge. The Commission relied on citations from experts in the field, letters from experts and public statements by various experts and officials. There are eleven Appendices which contain expert reports prepared for the Commission, interprovincial comparative studies, for British Columbia,, Alberta and Saskatchewan, and some statistical analysis. Accurate and complete citation of sources is rare. At times there are verbatim citations which are wholly disguised in the text.[5]

The Commissioners were also not above rhetorical flourish and polemic. For example, the opening paragraph of Part 2 on the “Single Tax” reads:

What is known as the Single Tax, has had, and in isolated groups has at the present time, enthusiastic supports. Few persons, however, have any well defined ideas of what it really involves, while others, with a species of mental indigestion, and carried away with alluring statements of its advocates, have neglected to inform themselves as to the problem from the standpoint of modern economic science.

The phrase “modern economic science” and what that itself may mean is crucial for the understanding of “faculty taxation,” and the advance of “progressive” economic philosophy in relation to tax reform.

The recommendations of the Manitoba Report are not radical.[6] Its true significance lies in what it presages for Canadian tax reform in the twentieth century. The taxation of property versus the taxation of income is a core tension in the work of the Commission. It does not resolve that tension nor does it explicitly endorse a non-reciprocal either benefits or ability to pay tax philosophy. Both philosophies lie behind specific proposals and recommendations. Only subsequent tax history in Canada decided onesidedly and definitively in favour of ability to pay based on in personam income.

(B) E.R.A. Seligman, Charles Bullock, and Henry Carter Adams and the Ascendancy of Faculty Taxation


American Professors Seligman, Bullock and Adams figure prominently in the Manitoba Report, primarily in the sections on property and income taxation, although their influence can be detected throughout all parts of the Commission’s inquiry. The Commission also cites approvingly the work of the North Dakota, Nebraska and Wisconsin Tax Commissions, in which a growing cadre of public finance economists, such as Seligman, played instrumental roles in crafting a new tax philosophy.[7]

Although Seligman, Bullock and Adams, and to a lesser extent C.C. Plehn, are the principals cited by the Manitoba Report in Part 2 on the “Single Tax,” and the reports of University of Manitoba professor of political economy A. B. Clark in Part 5 on “Increment Taxation,” which has important theoretical connections with Part 2, there is a long history of development in the “science of public finance” that predates their testimony and their well established and formidable reputations in the field prior to the First World War. Such founding figures in tax policy as Francis A. Walker, Richard Ely, Robert Murray Haig, C.C. Plehn as well as the so called German Historical School of Economics, which had a formative influence on American tax economics, had long since declared war on the general property tax, especially the taxation of personal property. They, too, saw tax commissions and inquiries, boards of equalization, and various legislative reform efforts, as futile in the face of deep design flaws in the general property tax. The advocates of the philosophy of Henry George were associated with the property tax and thus from the outset of the campaign for public finance reform they seemed anachronistic, even when land value taxation in and of itself would have addressed many of the design problems in the general property tax.

The taxation of real estate and tangible or inert wealth as implemented at the time was seen as an inaccurate measure of a citizen’s social obligations, especially in a nascent industrial era of rising intangible wealth in the form of stocks, bonds and innumerable other forms of derivatives and securities.[8] That Seligman, Adams, et al., would be relied upon as authoritative in any tax commission in Canada in the early part of the twentieth century is no surprise. That the Manitoba Report should devote a whole section, front and centre, to refuting the single tax is the more interesting inclusion. It indicates at the very least that these duelling tax philosophies were at the centre of tax reform debates in the early twentieth century.

The ascendancy of faculty or ability to pay taxation represents a paradigm shift in tax philosophy, not exclusively in terms of its opposition to the philosophy of Henry George, but in terms of the foundation of what forms of taxation, its overall architecture, and the justification of those forms, would prevail in subsequent tax history. Seligman understood himself as a man of science, of logic, of the incremental, evolutionary development and refinement of the tax laws and the machinery of their administration.[9] One all-encompassing panacea for the world’s problems, to be effected through one tax reform, was anathema to his phased approach. He eschewed “isms,” deductive reasoning, timeless truths, self-righteous moralizing and many of the tenets of classical political economy such as reciprocity between the ability to pay and benefits approach as well as a doctrine of homo economicus rooted in self-interest.

For Seligman, all forms of taxation are historical categories. “Faculty” is an individual, personal, historical and social condition or circumstance. Seligman garners the following lessons from the history of taxation:[10]

The history of finance, in other words, shows from one point of view, at least, the evolution of the principle of faculty or ability in taxation - the principle that each individual should be held to help the state in proportion to his ability to help himself.

To arrange a system of taxation a large part of which at least shall, on the whole, correspond as closely as possible to the net revenues of individuals, and which shall take into account the variations in tax-paying ability, has thus become a demand of modern civilization.

If the history of taxation teaches any one lesson, it is that all social and moral advance is the result of a slow process and that while fiscal systems are continually modified by the working out of ethical ideals, these ideals themselves depend for their realization upon the economic forces which are continuously transforming the face of human society.

Faculty theory must not be understood exclusively from the standpoint of “equality of sacrifice” as in John Stuart Mill, or “minimum sacrifice” as in Francis Edgeworth, but from the production side. Seligman converts these various indicia of faculty or ability into, ironically, a reciprocal theory of sacrifice of acquisition as well as of disposition.[11] Seligman saw that the history of taxation contained two errors. The first is that the older faculty taxation erred on the side of disposition while the “privilege” theory erred on that of wealth acquisition.[12] He declares:[13]

The only satisfactory solution of the problem is, while upholding the faculty theory of taxation as over against the old benefit theory, so to broaden and interpret the faculty theory as to make it include all of what is legitimate in the privilege theory, without incurring any of its extravagances.

The progressive economists are clear, however, that the social point of view in taxation supercedes that of the individual, even though net income as the principal indicium of individual taxable capacity, lies at the basis of faculty taxation. The individual is not, however, elided in this theory.

The older conception of sacrifice was an individual conception; the newer idea of privilege is a social conception; these two conceptions have joined to form the modern doctrine of capacity or ability to pay.[14]

The progressive public finance economists allowed any number of micro-trajectories to influence the theory of faculty taxation. A century later the theory is undermined from both the individual and social perspective in that many modern tax régimes. The globalized financial system, which privileges the idea of privilege, undermines the fiscal capacity of governments. Equally it creates tremendous inequalities of sacrifice for individuals thereby corroding the fairness principles which the progressive economists saw as fundamental to participation in the state.

The new science of public finance at the beginning of the twentieth century was historicist and institutional. In order for leading edge tax reformers and progressive economists, like Adams and Seligman, to advance a tax philosophy based on faculty or ability to pay taxation they had to discredit older benefits theory of taxation and re-characterize the relation between the individual and the state. This meant that benefits taxation had to be decoupled from ability to pay. Adam Smith’s first canon of taxation was the classical epicentre of the reciprocity doctrine in taxation. The progressive economists had to portray the reciprocal ability to pay and benefits canon of taxation as indicative of antiquated social theory. Taxes are not contracts or exchanges. They are not extracted from us as payment for protection, services or some other public good. Rather we have a duty to pay taxes because the state is a part of us, it is inherently in us, and thus we must support the state as much as we would support or preserve ourselves or our family.[15] Such an approach obviously allows for a very expansionary view of the state and equally allows for an extremely wide range of indicia of what might constitute “faculty.”[16]

A critique of the general property tax was an integral part of the ascendancy of faculty taxation. General property tax was a phrase that included both real estate and personal property or personalty. The injustices, absurdities and perversions of the assessment and taxation of the later were well documented in the nineteenth and early twentieth century tax literature. The Manitoba Report (Recommendation 6) reflected this criticism by transforming the personal property tax and the business tax into a tax based on the net profit of businesses. The general property tax did not fit into the faculty theory because it was not seen by the progressive economists as an accurate measure of taxable capacity. Production, not inert property, was to be the new standard-bearer of ability, i.e. revenue flow from productive activity is thus the true measure of faculty.

Archibald B. Clark (1876 - 1953) was the first professor of economics at the University of Manitoba and the principal Canadian expert employed by the Manitoba Commission to advise them on tax reform.[17] The University of Manitoba and Clark produced an Outline of a Report on Provincial and Municipal Taxation in British Columbia, Alberta and Saskatchewan in March, 1920. These reports initially appeared verbatim as Appendices C, D and E of the Manitoba Report and represent at the time the most extensive and historically accurate description of the tax régimes in these provinces.[18]

The Outline is a unique blend of legislative analysis, empirical survey, political observation and proposals for reform. Each of the three chapters on British Columbia, Alberta and Saskatchewan are symmetrically bifurcated into sections on provincial taxation and municipal taxation. Under provincial taxation Clark discusses such topics as the lack of elasticity, wild lands taxation and income taxation. The section on Alberta contains a short, but important, section on the “unearned increment tax,” that is quoted extensively in Part 5 of the Manitoba Report on increment taxation.[19] The Commission clearly viewed “increment taxation,” with its philosophical sources in J. S. Mill and Adam Smith, as something conceptually distinct from the “single tax” controversies of the time.

Each of the provincial sections on taxation contain an analysis and critique of the “single tax” and local options laws with respect to the full or partial exemption of improvements. The sections on the “single tax” are various entitled as follows:

  • British Columbia - Local Option and the Movement Towards the “Single Tax”
  • Alberta - The “Single Tax” by Local Option; The Compulsory “Single Tax;” The Retreat
  • Saskatchewan - The “Optional Single Tax,” its Rise and Fall

Clark also considers the failure of municipal income taxation in Saskatchewan, the taxation of suburban land in Alberta and the growth of arrears of taxes and municipal indebtedness in British Columbia. The issue of municipal tax arrears figures prominently in critiques of the single tax during the early decades of the twentieth century. Tax arrears put single tax advocates in a peculiar and paradoxical situation. Falling real estate values during the First World War placed municipal tax administrators in the position of either having to declare that the rates on unimproved values must increase dramatically or else the tax on unimproved values must be abandoned in favour of other sources of revenue.[20] The single taxers, on the other hand, argued that it was precisely because the rate was not high enough in the first place that there was rampant real estate speculation with its concomitant boom and bust cycles. The issue of whether taxation can only possibly be retrospective or whether a tax system can be designed so as to be prospectively preventative of large-scale industrial and financial fluctuations is still an on-going debate.

The most instructive part of the Outline from a historical perspective is its two page Conclusion. Clark declared that his survey of the provincial and municipal revenue systems of Western Canada “leads inevitably to the following conclusions”:

(1) That there is urgent need for a reconsideration of the principles governing the relations between the tax systems of the province and the municipality. Under the present system the municipalities have to face a steady increase in the number and expensiveness of the functions for the performance of which they are responsible, functions often of general rather than strict local benefit, while at the same time the provinces are encroaching in an ominous manner on the field of taxation formerly reserved by tacit consent for the exclusive use of the municipalities.

(2) That a comprehensive scheme is required for broadening the basis of municipal taxation so as to distribute the burden more widely over the different classes of the community, with due regard to the generally accepted principles of ability to pay and benefit received.[21]

Clark received his Ph.D. in 1909 from the University of Chicago, with a thesis on public administration, and is portrayed in the political economy doxography as a Chicago “economist.” There are a number of parallels with the rising school of public finance economists in the U.S., but also some significant differences as well. The separation of distinctive tax systems according to political jurisdiction was a major reform advocated by Seligman, Bullock, Adams and many others. The jurisdictional revenue wars were in their infancy during this period, but it is clear from Clark’s first conclusion that a distinction between general and local benefit, or of indirect and direct benefit, a principle still espoused in the tax literature, was crucial for sorting out which revenue sources provinces and states should tap into and what would be left for the municipalities.[22] Ultimately, this jurisdictional war would be resolved on the side of income taxation for the provinces and property taxes for municipalities, with much cross-subsidization between the jurisdictions.

The second major conclusion about broadening the municipal tax base is interesting in that it relies on the reciprocity of the ability to pay and benefit principles. This is clearly contrary to Seligman’s position that the benefit principle must be decoupled from ability to pay if the science of public finance is to be advanced. Clark appears to subscribe to the reciprocity principle found in Adam Smith’s first canon of taxation.

A. B. Clark was no fan of Henry George and the single taxers, although he was certainly aware of the many arguments of its advocates. This passage on Vancouver’s experiment with the taxation of unimproved land, provides a good sample of his disposition.[23]

The whole movement from its inception seems to have aroused very little interest among the great body of the citizens; and from this brief survey of the facts it would appear that whatever influence, if any, the specious reasoning of the “single taxers” may have had in bringing about the initial reduction of the taxed assessment of improvements in 1895, there is no need to look for any such influence to account for the steps of 1906 and 1910, by which the complete exemption of buildings from taxation was reached. The familiar arguments touching the virtue of taxing the absentee landowner who thrives by the industry of others, and encouraging the good citizen by untaxing industry, which fell on deaf ears in 1905, were not needed in 1906 and 1910 when land values were bounding upwards. The phenomenally rapid increase in land values was undoubtedly the chief factor in bringing about the change. It as once furnished the opportunity and stifled opposition.

Clark then goes on to quote the classical tax shibboleth of Colbert, Louis XIV’s finance minister, about “the art of plucking the goose so as to get the maximum amount of feathers with the least possible resistance.” Taxation, in Clark’s view, is very much a matter of expediency and historical economic conditions.

Like most modern public finance economists, Clark did not like concentrating the tax burden on one particular class, source of income, or type of property.

Under the present system the burden of local taxation in the urban municipalities is concentrated to a dangerous degree on the owners of real estate, and in particular falls with crushing weight on the owners of vacant land.[24]

Base broadening is an aspiration in this passage. It also tacitly contains a critique of ad valorem property taxation or capital taxation, especially on unimproved land value. This is a peculiarly North American tax mechanism and is to be distinguished from the taxation of the annual yield or rent of the land as found in Great Britain. Clark wishes to clearly disassociate himself from the American economists in this regard.[25] Imperfectly and haphazardly developed urban sites create an inequitable situation, when the tax is on capital value, because it can be a tax that is out of proportion to the annual value.[26] The taxation of unimproved land value, irrespective of income, is therefore a form of endowment taxation on the capacity of a piece of land to serve the community. In the eyes of Clark, Seligman and the new public finance economists it is therefore a hypothetical projection of tax exigibility.

Clark does state that “income is a fairer measure than property of the ability or faculty of the taxpayer.”[27] But he also insists that the benefit received principle cannot be ignored in local taxation because owners of real property are “in a special degree the beneficiaries of local expenditure.”[28] Clark advocates the substitution of the annual rental value for capital value as the basis of assessment for the local property tax, although he thinks this might be impracticable given the amount of debt amassed by municipalities in Western Canada during the war years. This reform distinguishes Clark from his American counterparts and is in the Canadian tradition of straddling European and American approaches to tax philosophy. Clark portrays owners of urban vacant land as a “defenceless minority” who ought not to be singled out for some “popularly desired social end.”[29] He concludes that the principle of equity is all important in taxation and that “good morality is ultimately good economy.”[30] The obvious target is the inequity of an over-reliance on the taxation of vacant urban land.

It is a fair estimate that Clark’s influence on the Manitoba Commission was substantial and pervasive, if not pivotal, on many but not all recommendations. His survey of taxation in Western Canada constitutes the core of the expert background material in the Appendices to the Commission’s work. He is widely cited throughout the Manitoba Report. And even when not cited directly, the Commissioners have his work at the forefront of their deliberations. For example, in the section on “the disastrous results of the few years single tax nightmare of Vancouver and Victoria,” the table showing the growth of tax arrears during the war years in Vancouver is taken from Clark’s Appendix.[31] These arrears can be partially attributed to the reluctance of Vancouver City Council to proceed with tax sales, however, Clark forcefully says the real problem is “the narrow and unreliable basis of civic revenue.”[32]

Clark, like the American finance economists, was very sensitive to the historical and contemporary context of tax policy. A philosophy of taxation based on a single revenue source with a single assessment base was for him, from the standpoint of public revenue, a recipe for disaster. Base broadening, a key nostrum of twentieth century tax reform, thus became entwined with the principle of equity and the needs of a modern, complex economy. Clark saw ethics and economics as integral, like the single taxers he wished to discredit, but his sense of tax fairness was ultimately based on historical context and the new tax concepts of matching tax systems to political jurisdictions and the more uniform treatment of all factors of production in terms of the distribution of the tax burden.


(C) Henry George and the Single Tax - A Response


The philosophy of Henry George reached its peek as a political and legislative agenda in the early part of the twentieth century. The writings of E.R.A. Seligman, A.B. Clark and many others in the new school of public finance are substantially devoted to a critique of this philosophy, widely referred to at the time as the “single tax.” There are two parts of the Manitoba Report which deal with issues directly related to the philosophy of Henry George. Part 2 on the “Single Tax” and Part 5 on “Increment Taxation.” The Commission made no recommendation on increment taxation on the basis that “the practice of assessing real estate for taxation on its capital value means that the annual increment in value, whether due to improvements or “unearned” in the sense that it arises from the progress of society, tends to be included in the annual assessment.”[33]

The matter was quite different for the “Single Tax.” The Commission unequivocably rejected it as a basis for property taxation.[34]

To sum up: In our opinion the doctrine or theory of Single Tax in practice as applied to urban and suburban communities is too narrow and unreliable a basis of civic revenue, and would not in any event, produce the results claimed by its exponents, and, therefore, cannot be recommended as an equitable and just element in any system for the raising of the necessary funds to meet municipal requirements.

The Commission then quotes the well known tax expert Carl C. Plehn of the University of California, who declares that the single tax is unjust since it fails “to conform to the canon of equal taxation, that is, that all should contribute to the support of government in proportion to ability to pay.”[35] In order to put the nail in the coffin, Plehn declares that it discriminates against the small home owners, mostly working men.”[36] The populism of the Georgist appeal was primarily among working men. Widely divergent tax reformers and political groups would appeal to the same strata of society to support their cause.

The Manitoba Report pejoratively describes the Single Tax as a “panacea for human ills” and “a veritable Will-o’-the-Wisp” which is “lacking the essentials for practical use in any scheme of taxation.”[37] There then follows lengthy quotes from Seligman, Bullock and Adams condemning the Single Tax in both theory and practice. Adams, in particular, is of the view that the assessment of land at full value in Manitoba and improvements at two-thirds the value is justified on the basis of the “unearned increment” that occasionally accrues to land because of its inelasticity. Collecting the unearned increment is distinguished from the Single Tax by the new tax scientists. But it is the practical impossibilities of the Single Tax that are the principal focus of the Commission.

First of all, the Commission sees the completely separate assessment of land and improvements as an abstraction, a “hypothetical.” In their reasoning, if there are no buildings, there are no municipal activities. It is the buildings that produce rent and wealth and they, not the land, are proof of ability to pay. The Commissioners declare, that “It is the person who pays, not the thing.”[38] This is the classic Seligmanian shift to in personam taxation. The narrowness of the tax base with respect to vacate land may also necessitate a rate on landowners that is so high as to border on confiscation. The Commissioners then aver to falling land values after 1912 and the excessive tax liabilities which subsequently resulted from inflated assessments as the chief reason for tax arrears during the subsequent years. The Manitoba Report then relies on A.B. Clark’s analysis of the situation in Vancouver and Victoria to congratulate Manitobans for sparing themselves a disastrous single tax experiment in the City of Winnipeg. They overlook the fact that assessment lag, or rather poor tax administration, is an obvious reason for inflated assessments not being adjusted to declining economic conditions and speedy adjustment of the tax rates. The final section of the Manitoba Report is entitled “Recent Results of Single Tax Proposals in Two American States,” those being Oregon and California, where such proposals were soundly defeated by the electorate.

Single taxers would undoubtedly gasp at the myopia created by political expediency and historical conditions that underpins much of the discussion of George’s theory of public finance in the Manitoba Report. The Manitoba Commission, however, represents the new shift in the science of public finance in the early twentieth century. The Georgist philosophy was already by then politically discredited, antiquarian, dysfunctionally utopic, and practically infeasible. The Commission set the precedent for how “tax experts” would treat the philosophy of Henry George in Canada and elsewhere for the remainder of the twentieth century. The victory of the new tax scientists was, however, never complete.


(D) The Manitoba Report in Canadian Tax Policy Development


The Manitoba Report set the gold standard for tax policy reform for most of the twentieth century as the same tax debates resurfaced continually in many tax commissions and inquiries.[39] No predominant tax philosophy emerges from this extensive historical record. Tax measures are recommended based on regression versus progression, benefits versus ability, equality versus efficiency, income versus property, social versus environmental considerations, tax administration and sometimes sheer expediency. The Manitoba Lower Tax Commission (2000) is not qualitatively different in theory or practice from the Manitoba Report (1919). Likewise the same objections to the Georgist tax philosophy can be found in the Report of the Ontario Fair Tax Commission (1993) as in the earlier and monumental Smith Commission (1967).

The Manitoba Commissioners, as did the new tax scientists of the early twentieth century, carefully distinguished the taxation of land values from the single tax movement. As Seligman somewhat rhetorically puts it:p[40]
The single tax with which we have to deal is indeed a tax on land values, but a tax on land values is not necessarily a single tax.

The single tax and a tax on land values, Seligman insists, are fundamentally different. The Manitoba Report preserves this fundamental distinction by rejecting the single tax while recommending that land values be assessed at full value and buildings at two-thirds. Thus, split assessments in Manitoba mirror split tax rates in Pennsylvania, which are still in existence to some extent today. The Ontario Fair Tax Commission of the early 1990s called this “two tier assessment.” Its rejection of the later is something of a devolution from the Manitoba Report.

There were many studies of the property tax in all Canadian provinces after the Second World War. The most celebrated and comprehensive was the Ontario Smith Commission of 1967.

The section on “Twentieth-Century Developments” in Volume II commences with the “Single Tax Flirtation.”[41] This study refers to the legislative select committees, beginning in 1909, which looked at the “single tax’ in Ontario in the period prior to World War I. The select committees received many petitions from municipalities requesting the power to tax improvements at a lower rate than land. The Select Committee which was appointed in 1912 spent much time hearing submissions from the Single Tax Association and the Tax Reform League.[42] The Smith Commission notes that the lack of favourable recommendations in Ontario in the direction of the single tax during this period was surprising given the adoption of such recommendations in most of the Western provinces. Permissive legislation allowing Ontario municipalities to restrict their tax base to land was passed in 1920 and repealed “without result” in 1924.[43]

The most interesting section of the Smith Commission on the single tax focussed on its appraisal of the influence of the Manitoba Report.

Presumably, the reason that Ontario escaped the single tax was that other jurisdictions were beginning to have doubts about its efficiency, with the result that the pressures did not build up sufficiently to induce municipalities to put the tax into effect in this province. In 1919 the Report of the Manitoba Assessment and taxation Commission attacked the principles of the single tax in what Perry called “a document that should rank among the Canadian classics in taxation literature.” Municipalities throughout the four western provinces began moving away from the single tax after World War I, influenced no doubt by the Manitoba Report and the firm opposition of recognized tax experts.

The Smith Commission may have referred to Seligman’s important distinction between the single tax and the taxation of land values. The latter issue continues to appear in the work of tax commissions in Ontario and elsewhere. The work of the Ontario Fair Tax Commission (1993) is a recent example as well as that of the Bédard Commission (1999) in Québec. In fact Québec tax commission have given a more consistent endorsement of land value taxation since the Second War World than any of the English speaking provinces.[44]

The Ontario Fair Tax Commission in its 1993 Report Fair Taxation in a Changing World did not advance any tax concepts that were not canvassed in varying degrees in the Manitoba Report. This Report took “two tier assessment” as an “outgrowth of the single tax movement” of Henry George and proceeded to dismiss it as incompatible with Ontario’s multi-faceted planning objectives and also on the basis of tax fairness.[45] Since land values relate to the values attributable to future uses of property, or future potential capital gains, two tier assessment and taxation would “increase the weight given to these non-use related values.”[46]

The Fair Tax Commission conceptualized (or rather wished to re-conceptualize) property taxation as benefit taxation, much the same way as did A.B. Clark in the Manitoba Report.[47] But it nonetheless declared that the property tax is not strictly speaking a benefit tax, but only a reasonable proxy for benefits. Giving undue weight to non-use related values would violate the benefit principle, according to the Ontario Fair Tax Commissioners, and this in turn is an affront to tax fairness. This is clearly a reference to endowment type taxation which the Fair Tax Commission found anathema. The focus, however, on actual historical conditions, ability to pay or faculty taxation, jurisdictionally-relative revenue generation and current use are all underlying assumptions that were redolent seventy years before in the Manitoba Report. The Fair Tax Commission acknowledged that the advocates of two tier assessment played a prominent role in its Property Tax Working Group and at hearings in a number of locations.[48] The Seligman versus George tax debate was therefore still alive long after the Manitoba Report.


(E) Conclusion - Lessons for Today


The Manitoba Report was a classic for its time because it reflected the energy of the collision between two fundamentally different tax philosophies at the beginning of the twentieth century. That collision is still alive today in the first decades of the twenty-first century, though it now has different touchpoints and nomenclatures. It is a conflict of philosophies, politics, moralities, appeals to science and art, and the raw expediencies of tax reform and implementation. The new public economists and self-described tax scientists of the early twentieth century subscribed to an empirico-historical method that based the tax burden on productivity, wealth and the various forms of income derived therefrom. Equality in taxation meant being sensitive to multiple revenue streams and dissimilar wealth symbols. Taxation was thus given a theoretical basis that allowed for the infinitely diverse recognition of income.

The Georgist philosophy has, on the other hand, a general remedial tendency. In many respects its philosophical nisus is tangential to the vicissitudes of tax science. In its view, the great calamity of modern public finance is the movement away from, and general indifference to, the peculiar role of economic rent in economic systems. Its aim was to decouple the producerist revolution from the communal sources of revenue which would be necessary to sustain the social capital and backstaging of that revolution. Its message is inspirational and tutelary. Economic rent, ineliminable in any economic system as the collective endowment of civilization, would find its ebb and flow in the endless varieties of historical and institutional circumstances. And the science of garnering (taxing) that economic rent for the peculiar social conditions of the day is as historically contingent as any tax system based on “faculty.”

Seligmanian taxation is fundamentally different from the Georgist philosophy because it views public revenue as a matter of piecemeal engineering, not systemic socio-economic construction. The new tax economists simply accepted industrial production, urban wealth creation and the advance of civilization as something which occurs irrespective of a consideration of what the consequences may be of excessive tax burdens, non-neutralities and large-scale tax avoidance and evasion. Tax fairness is thus a highly relativized matter, with ever shifting degrees of efficiency, equality, certainty and practicality.

When George and Seligman debated the moral sources of public revenue they were confronting cohesive political jurisdictions, municipal, state and national, that contained large gaps in that cohesion between the growing revenue needs of the modern welfare state and the ability of concentrated groups and institutions to escape taxation. The situation today at the beginning of the twentieth first century is remarkably similar. Global finance capital knows no political residence or taxing authority. New methods and régimes of taxation must now be devised so as to recognize the economic rents which are attributable to these global actors. The morally suspect status of the unearned increment, the growth of extreme inequality and the efficient deployment of capital are perennial themes which come out of the clash of tax philosophies in the early twentieth century. Time will tell whether Seligman and the new (old) economists remain ascendant or whether the philosophy of Henry George is given another look as a necessary and viable alternative.


References


  • Andelson, Robert V., ed., (2003) Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty, Oxford, Blackwell Publishing
  • Bullock, Charles, (1909) “The Taxation of Intangible Property in State and Local Taxation,” Second International Conference, Columbus
  • Clark, Archibald Brown, (March, 1920) Outline of a Report on Provincial and Municipal Taxation in British Columbia, Alberta and Saskatchewan
  • George, Henry, Progress and Poverty (1879, 1992), New York, Robert Schalkenbach Foundation
  • George, Henry, The Science of Political Economy (1898, 19), New York, Robert Schalkenbach Foundation
  • George, Henry, Social Problems (1884,) New York, Robert Schalkenbach Foundation
  • Groves, Harold, (1974) Tax Philosophers: Two Hundred Years of Thought in Great Britain and the United States, ed D.J. Curran
  • Mehrotra, Ajay K., (2005) “Envisioning the Modern American Fiscal State: Progressive Era Economists and the Intellectual Foundations of the U.S. Income Tax,” Faculty Publications, Paper 289 Maurer School of Law, Indiana University, 52 UCLA Law Review 1793
  • Ontario (1967), The Ontario Committee on Taxation (Smith Commission), 3 Vols., Government Printer
  • Ontario (1977) Report of the Commission on the Reform of Property Taxation (Blair Commission), Government Printer, 1977
  • Ontario (1993) Fair Taxation in a Changing World, Report of the Ontario Fair Tax Commission
  • Peddle, Francis K., (1994) Cities and Greed: Taxes, Inflation and Land Speculation ,Ottawa, Canadian Research Committee on Taxation
  • (1995) Henry George and the End of Tax Commissions, An Evaluation of the Report of the Ontario Fair Tax Commission, Ottawa, Canadian Research Committee on Taxation
  • (2011) “Distributism and Marginal Productivity: The Application of Natural Law to Public Finance,” Science et Esprit, 63/3, 315-331
  • Robinson, A. J. and James Cutt, (1968) Public Finance in Canada, 2nd ed., Methuen, Ontario
  • Seligman, E.R.A. (1895) Essays in Taxation, London, Macmillan
  • Stark, Kirk J., (January, 2005) “Enslaving the Beachcomber: Some Thoughts on the Liberty Objections to Endowment Taxation,” Canadian Journal of Law and Jurisprudence, Vol. XVIII, No.1


FOOTNOTES


________________________________________
  1. It was John Bates Clark at Columbia, the mentor to many of the American figures in public finance mentioned in this paper, who took the Henry George theorem of economic rent and applied it to marginal productivity, vide, The Distribution of Wealth: A Theory of Wages, Interest and Profits (New York, Macmillan, 1908, [www.econlib.org/library/Clark), p. 3, but in the process excided land as a unique factor of production from the economic landscape, Francis K. Peddle, “Distributism and Marginal Productivity: The Application of Natural Law to Public Finance,” Science et Esprit, 63/3 (2011), 315-331 and Mason Gaffney, The Corruption of Economics, ( London, Shepheard-Walwyn, 1994).
  2. Smith Commission, Vol. 2, chap. 10, para.70, p.45. The quote is from J. Harvey Perry, (1955) Taxes, Tariffs & Subsidies, 3 Vols., (Toronto, University of Toronto Press), Vol. 1, 181.
  3. There are actually seventeen recommendations. There is a typographical error in the numbering of recommendations 10 and 11, which both appear as 10. Recommendation 10 deals with amendments to the School Act, that cite verbatim the recommendations on page 27 and recommendation 11, which deals with the parameters of the exemption of church property.
  4. This is something wholly ignored today in assessment jurisdictions in Canada. From a public finance perspective the Manitoba Report is therefore on a more sound theoretical basis than the provincial Assessment Acts of today, which conflate land and buildings in their definition of “land.” For example, the Ontario Assessment Act, R.S.O.. 1990, c.A.31, s.1 (d) as amended defines, “land,” “real property” and “real estate” to include:”all buildings, or any part of any building, and all structures, machinery and fixtures erected or placed upon, in, over, under or affixed to land.”
  5. For example, the second full and lengthy paragraph in Part 2 on the “Single Tax” is verbatim from E.R.A. Seligman’s Essays in Taxation, (London, Macmillan, 1895), (hereafter Essays), pp. 68-69, but the reference is not given, nor is the text in smaller print like other acknowledged, but not properly cited, quotations. Modern standards of plagiarism are noticeably absent.
  6. In fact a survey of most tax commissions and reports in both Canada and the U.S. would find most of them being essentially endorsements of the status quo with recommendations usually confined to mostly minor administrative and rate changes as well as tax responses to current economic conditions.
  7. E.R.A. Seligman’s participation in numerous tax commissions in the U.S. is well documented by him in Essays, chapters XIX to XXI, pp. 596-682, which also contains a bibliography with ninety entries of reports from tax commissions and studies in the U.S. from 1844 to 1911.
  8. Henry George called this intangible wealth “value from obligation” and distinguished it sharply from “value from production,” vide, The Science of Political Economy, (New York, Robert Schalkenbach Foundation, 198 )
  9. Vide, Andelson, Robert V., ed., Critics of Henry George: An Appraisal of Their Strictures on Progress and Poverty (Oxford, Blackwell Publishing, 2003), chapter 20, “Seligman and His Critique from Social Utility, “ Andelson and Gaffney, pp. 408-409.
  10. Seligman, Essays, p. 18.
  11. The most succinct statement of Seligman’s views on faculty taxation is the section entitled “Social Considerations and Faculty Taxation,” in Essays, pp. 338-342.
  12. The privilege theory still figures prominently in the work of tax reformers who follow the philosophy of Henry George.
  13. Essays, p. 340.
  14. Ibid., p. 342.
  15. Mehrotra, Ajay K., (2005) “Envisioning the Modern American Fiscal State: Progressive Era Economists and the Intellectual Foundations of the U.S. Income Tax,” Faculty Publications, Paper 289 Maurer School of Law, Indiana University, 52 UCLA Law Review 1793 at 1827. See also, Seligman, Essays, where it is stated that, “From the modern point of view, it is the duty of the citizen to support the government according to his capacity to support himself.” p. 15, also, “the state has direct relations not with property, but with persons.” p. 57.
  16. This is a re-characterization of the older notion of “faculty” as representing a station in life or capacity to be taxed in terms of one’s participation in a certain trade or having certain skills. Faculty taxation in this sense represents taxation on actual income and trade or profession. For a discussion of “endowment” taxation and historical “faculty” taxes, vide, Kirk J. Stark, “Enslaving the Beachcomber: Some Thoughts on the Liberty Objections to Endowment Taxation,” Canadian Journal of Law and Jurisprudence, Vol. XVIII, No.1 (January, 2005), p. 50.
  17. Professor A. B. Clark is listed as an actual member of the Commission representing the University of Manitoba, Manitoba Report, p. 4. Other “experts” show up in the Appendices to the Manitoba Report, such as in Statements by tax assessors, but none of them are actual members of the Commission. Clark’s status then as an expert, alongside representatives of various associations and political parties, on the Commission is unique.
  18. The frontispiece to the Outline by Clark notes that he had visited all of these provinces in the Autumn of 1918 on behalf of the Manitoba Commission and that the Outline is a reprint “with certain additions” of what appears in the Manitoba Report.
  19. Outline, pp. 42-49, Manitoba Report, Appendix “D,” pp. 155-156, and Part 5, pp. 74-77.
  20. Manitoba Report, pp. 19-20.
  21. Outline, p. 96.
  22. This position is endorsed by the Commission, vide, Manitoba Report, p .41.
  23. Outline, p. 31.
  24. Id.
  25. By contrast Professor Bullock is quoted in the Manitoba Report as supportive of the capital value taxation and not taxation on the annual rental, p. 64. The Commission adopted his advice.
  26. Clark lectured at the University of Edinburgh and was undoubtedly familiar with the English system of annual rating.
  27. Outline, p. 97.
  28. Id.
  29. Id.
  30. Id.
  31. Manitoba Report, Appendix “C,” p. 145, and Outline, pp. 31-32.
  32. Manitoba Report, p. 146.
  33. Ibid., p. 77
  34. Ibid., p. 21.
  35. Id.
  36. Id.
  37. Ibid., p. 16. “Panacea for human ills” is taken directly from Seligman’s Essays in Taxation, p. 69.
  38. Ibid., p. 18.
  39. A review of some of this tax history from the standpoint of tax principles can be found in Francis K. Peddle (1995) Henry George and the End of Tax Commissions, An Evaluation of the Report of the Ontario Fair Tax Commission, Ottawa, Canadian Research Committee on Taxation, pp. 7-34.
  40. Seligman, Essays in Taxation, p. 68. The phrase is eerily like, Mackenzie King’s “conscription if necessary, but not necessarily conscription.”
  41. Smith Commission (1967), Vol. II, pp. 42-45.
  42. Ibid., p. 43.
  43. Ibid., p. 44.
  44. An analysis of the philosophy of Henry George, the single tax and land value taxation in the Québec tax commissions warrants a study in itself but goes beyond the scope of this paper.
  45. Ontario (1993) Fair Taxation in a Changing World, Report of the Ontario Fair Tax Commission, pp. 698-699.
  46. Ibid., p.700.
  47. Ibid., pp. 662-663.
  48. Ibid. p. 698.