and not its former supposed or estimated value, and adding thereto ten per centum as an additional penalty.

Should all property be assessed at its full value, the very evident injustice done the owners of taxable stocks and bonds could be avoided, many of whose taxable estate may consist entirely of the class which is of necessity taxed at the reported market value, while others in the same community, whose taxable property is made up of real estate, is assessed at one-third of the market value.

Many owners of vacant land situated in localities adjacent to the larger manufacturing towns of the State, and which are held by them for speculative purposes, contend that inasmuch as the property in question yields no income, that it ought not to be taxed proportionally to other nearby estates, upon which buildings had been erected, thereby creating an earning capacity and from the rentals of which, income was derived. This contention. is an erroneous one, for it is asserted by many of the most noted writers upon the subject of economics that, increasing value is income, and is so defined by them.

"The present practice of Assessors in this matter is a good illustration of the misapplication of the principle of taxation according to ability. The holder of unimproved real estate gets no apparent income from it; he is therefore taxed on only a small percentage of the market value of the property, while the owner of improved land must pay a correspondingly heavier tax. This puts a premium on the worst sort of land speculation. The man who serves society is burdened; the man who stands in the way and tries to profit by others' progress is encouraged and helped." (Economics by Professor Arthur T. Hadley, page 474.)

The following extracts are also taken from writings of the same author, "A poll tax is in frequent use; but it is neither productive nor equitable, and stands as a relic of past methods, rather than as a subject of present importance. An inheritance tax has much to recommend it, in the fact that it takes property for the use of the State at the time when individuals least feel its loss. It is also easy of collection, because all estates of deceased persons must come under cognizance of the Probate Court, independently of the question of taxation. The chief objections to such a tax, are the possibility of evading it by donations before death, and the uncertainty of the amount which it will produce in any given year, which makes it unavailable as calculable source of immediate revenue. In spite of these objections, an increasing amount of government income is being collected by this method. *

Adam Smith, in a passage frequently quoted, (*) lays down. four criteria of a good tax system: equity, certainty, convenience of time of payment, and avoidance of unnecessary cost of collection, direct or indirect. If all these things can be combined, the tax is obviously a good one. But what if they cannot all be combined? What if the first two requirements (which are the most fundamental general principles, the third and fourth being largely matters of administrative detail) be found to conflict with one another? What shall we do if the pursuit of equity demands sacrifice of certainty, and if all the methods of taxation which promise a sure return, seem to leave some men untouched, who can best afford to pay? By placing equity first, Smith gives countenance to the popular view that we should make this not only our ideal of taxation, but our guiding principles in framing tax laws. As an ideal it is undoubtedly right; as a guiding principle, it will be found to defeat the realization of that ideal.

It should be said in justification of Smith, that the distinction. between ideals and guiding principles in taxation, which has since become so conspicuous, was in his day only just beginning to take shape. In ancient times certainty and equity went hand in hand. The men who held property and enjoyed incomes had this property and income in forms which rendered it easy of assessment. Their wealth consisted chiefly of real estate. Personal property was small in amount and consisted largely of visible and tangible objects, like plate or jewels, kept for display, rather than for income. The persons who could best pay taxes held the property whose value could be ascertained. The attempts to levy taxes on other people, though frequently made, were at once ineffective and unjust. But from the time of Adam Smith downward, there has been an increasing divergance from this state of things. The persons who are best able to pay taxes are not now so situated that the Assessors can ascertain the exact measure of their ability. Invisible forms of personal property, like stocks or notes, have assumed a dominant importance. The attempt to secure equal contribution by a general income tax, or a general property tax, may result in exempting the dishonest and burdening the honest, in making a tax system, whose burdens are wholly out of proportion to the financial results. Under these conditions the tax legislator now has to choose between making equality or certainty his primary end, rather than to keep both in view as co-ordinate aims.

In the light of experience in modern industrial communities, there can scarcely be any doubt as to the proper choice. Certainty is the fundamentally important object, without which all

(*) Wealth of Nations, Book V., chapter II. part II.

attempts at equality prove illusory. (*) With an uncertain tax no systematic improvement can be hoped for. With a certain tax any evils which exist at the outset tend to diminish as time goes on.

Uncertainty may result either from failure to discover the objects which should be taxed; or from doubt as to their value; or from the possibility of collusion between the Assessor and the person who should pay the tax by which consent is given to an unduly low valuation.

To avoid the first evil, taxes should be levied, as far as possible, upon visible and tangible objects. In general, things should be assessed rather than persons. The attempt to rely on personal disclosure as a means of discovering taxable property, results in discrimination of the worst character. The property of income of widows and orphans, which is in the hands of trustees, whose reports are matters of public knowledge, is taxed at its full value; so is that of a few exceptionally conscientious men. The majority of men make some return of taxable property sufficient to satisfy their consciences; but they interpret all doubtful points in their own favor, so as to make as few returns as possible. They take the law into their own hands; and as an English essayist has said, the law is such a fragile thing that when men take it into their own hands it is sure to get broken. Finally, there is a considerable class of men who have no conscience at all in the matter, and who, in safe reliance on the certainty that their property will remain undiscovered, escape taxation on everything which the law hopes to discover by their declaration.

Nor is this an evil that tends to correct itself by time. The success of the bad in escaping taxation, and the impunity with which they defy the law, lowers the public conscience year by year. When we have a tax law which discriminates against dishonesty, the honesty and the law both suffer in about equal

measure.

Of the visible and tangible sources of taxation, real estate is probably the most important. It can always be seen; it can never run away. In order to be sure of taxing its owners, it is only necessary to apply the rule of making no deductions on account of debt. Mortgaged real estate should be assessed at its full value. This may seem to bear hard on the debtor, but it is

*If people would carry out to its logical conclusion the modern theory that taxes are a self-imposed burden, we might make equity our primary object as well as our ultimate goal. Where public sentiment insists that people shall make correct tax returns, and treats laxity in this respect as a dereliction of public duty, the tax legis lator has a comparatively free hand. There are certain communities where this senti ment is so strong that the principle of self-assessment can be safely adopted, with the knowledge that crooked tax returns will be as severely condemned by the individual conscience as crooked voting. But with the increasing margin of doubt as to what constitutes taxable income, the difficulties of relying on such sentiment become greater; and in the absence of such a controlling motive no tax law can be made effective, unless framed with the immediate purpose of preventing evasion.

really far more equitable than the system of deductions. If such deductions are allowed, a large part of the money loaned on real estate escapes taxation altogether; while undue burdens are put, first, on the holder of unmortgaged real estate, who has to pay a higher tax rate on account of the deductions made from the grand list, and, second, on the honest minority of lenders (*), who pay a high tax rate on their investments, while most other investors make no adequate return of property thus loaned. The holder of mortgaged real estate gets comparatively little benefit from the deduction, because the theory that such loans are taxable against the lender drives enough honest investors out of the mortgage loan market to keep the rate of interest higher than it otherwise would be. The only real beneficiary is the unscrupulous investor, who profits by the high interest rate, and

makes no tax return.

The chief obstacle to a change in system, apart from the reluctance of legislators to abandon the old principle of taxing persons instead of things, is found in the apparent loss to communities of lenders, in allowing property which their citizens own, to be taxed in the place where it is invested. But the actual amount collected in this way is very small in proportion to the vexation involved.

Another objection urged against this plan is that real estate, which is already overburdened, will suffer still more, while personal property will be correspondingly relieved. But the secondary result of relieving the lender from taxation, owing to increased competition among different lenders, will be a lowering of the rate of interest, and the holders of personal property will thus indirectly pay a larger share of the taxes than they now do. If such loans can be reached by this indirect method, one of the largest items of personal property will be taxed; and a very large part of the remainder can be reached by taxes on corporations.

In the assessment of corporate property, as in that of real estate, no deduction should be allowed for indebtedness. If the attempt is made to tax the debt in the hands of the holders, it will fail. The tax should reach the whole property of the corporation without reference to the question of its ownership. In that way, and in that way only, will it be evenly distributed. the market price of the securities is used as a means of ascertaining the value of such property, bonds, as well as stocks, should be included in the estimate. It affords opportunities for evasion. no less than for injustice, if two railroads, physically alike, pay different rates of taxes, because the capital of the one was largely borrowed, while that of the other was subscribed. *

*

The third source of uncertainty arises from danger of collusion between the Assessors and those who pay the taxes. This comes about chiefly when minor civil divisions are asked to

(*)Chiefly those whose property is held in trust.

contribute to the general government, on the basis of their assessed valuation. For local purposes, it makes no difference to a town whether its citizens pay a tax of one per cent. on a valuation of $2,000,000, or two per cent. on a valuation of $1,000,000. But, if they are asked to contribute to the general government, the community with the less valuation will have an advantage, and the desire to secure such advantages will lead the local authorities to a system of undervaluations, which may easily result in great irregularities. No board of equalization can correct such an evil. For certainty of valuation, it is indispensable that the objects of national and local taxation shall be kept as far as possible separate from one another.

Innumerable remedies have been proposed in the past by legislators and economists who have studied the system of assessments for the purposes of taxation, as it obtains in Connecticut, but with no appreciable result. It appears to be the consensus of opinion that measures looking toward the establishment of a State Board of Tax Commissioners, bearing a similarity to the plan as adopted by the State of New York, (the law establishing which will be found at the close of this chapter), would be a move in the direction of the necessary reform in existing methods. A commission so organized would most certainly have the effect to establish a uniformity in form of assessments and valuations, the necessity for which is obvious. The argument used against the organization of such a commission having reference to the matter of expense, is a fallacious one, for consideration of the subject, clearly shows that a large increase in revenue to the towns and to the State would result in the application of a uniform rule to all towns in the matter of assessment rolls, and the often recurring examinations made by a competent commission having supervisory powers over the lists of all communities, thus preventing concealment of taxable property and collusion by property holders with boards of Assessors.

Another all important point which has escaped the notice of many of those citizens who have agitated the necessity of a more equitable and just system than the prevailing one, is the matter of time allowed Assessors in which to make up and complete the assessment lists, as has been previously shown in this report the length of time allowed by law for this purpose is entirely inadequate for the proper performance of the duties required of the Assessors. The very apparent impossibility of accomplishing the work of receiving the lists and estimating values of the property