The Ethics of Taxation
The writer of this article is the son of the first Minister of Agriculture for Ontario, the Hon. Charles Drury. He is a graduate of Guelph Agricultural College, the Ex-President of the Dominion Grange, and at present the Vice-president of the Canadian Council of Agriculture. He has frequently been the spokesman for farmers’ organizations and deputations that have waited on the Parliaments. He has a well balanced mind and can present his case in such manner as to mark him an antagonist against whom no debaters in the country will unpreparedly enter the lists. He has very strong views on the tariff and other outstanding questions.
E. C. Drury
SINCE the days of Matthew the Publican, and long before, the tax-gatherer has been an important, if not a popular, personage in all civilized communities. Popular opinion of him may have somewhat improved since the days when “publicans and sinners” were included in our dark generalization, with the publican first, but it cannot yet be said that the tax-gatherer is regarded as a welcome visitor. He is rather regarded as a bad necessity, a thing to be shunned and avoided as long as possible.
“There are two things you cannot dodge,” says a popular proverb, “Death and the tax-gatherer.” And yet this much maligned personage is, or should be, our greatest benefactor. Without his assistance, not all the efforts of the most enlightened members of the community could prevent a return to a condition of savagery and anarchy. But for him there should be no popular education, no civic or national improvements, no law and order. Club law would replace jury law as a means of settling disputes, and bad as our present condition in regard to laws and lawsuits is, that, would admittedly be worse. We should undoubtedly revise our ideas of the tax-gatherer, and instead of regarding him as an evil, look upon him as an angel of light, in disguise.
Yet, in spite of these very real and obvious reasons for regarding the tax-
gatherer as a benefactor, it is an unquestionable fact that most people look upon him as a natural enemy, and think it no crime to cheat him wherever possible. Men who would not for one moment think of a dishonest act toward another man, make false statements as to property and income when the assessor comes around, and go to church with a clear conscience the next Sunday. And, while the business of smuggling is generally looked down upon the most respectable citizens, pillars of the state and elders in the kirk, will smuggle a little, privately, when they get the chance. Undoubtedly there, is an unreasonable feeling of antipathy deeply implanted in the minds of most people towards this greatest public benefactor, which leads them to assume an attitude of hostility towards him, and to apply to him a different code of morals than that which applies to other people. It is possible that this feeling is an inherited instinct, hnded down to us from days when the tax - gatherer was not a benefactor, but an oppressor when taxes were not, as now, a contribution to a fund for enlightened community effort, but were really a tribute, yielded unwillingly to a tyrant, or to a conquering foe. It is possible that some of our methods of taxation are relics of the same dark days.
In our country, leaving out of consid-
eration those funds which are raised by the sale of natural resources, as, for instance, in Ontario, the revenues which are derived from the sale of timber limits, taxes are raised in two ways. For municipal and provincial purposes they are raised by direct taxation, that is, they are collected directly from the people, on the basis, in some few municipalities, of their land holdings, and in others, and so far the greater number, on the basis of their evident wealth, —their land, buildings, improvements, income and bequests. For Federal purposes taxes are raised indirectly, by means of a customs tariff, or tax levied on goods entering the country, and by means of an excise tariff levied on certain classes of goods, as spirits and tobacco, produced within the country. Let us consider the effect of these taxes.
At one time it was considered that all that was necessary was that a method of taxation should raise money for the taxing authority, that it should raise as much as possible, and do it without raising at the time undue opposition on the part of those who were taxed. There can be little doubt that both our methods of taxation grew up when these ends were the sole thoughts and consideration. The simplest direct tax was the poll-tax, a levy of so much per head from every subject. This, however, proved unsatisfactory in that not enough money could be raised by it. If the poor men were taxed no more than he would pay without violent protest, the rich man escaped too lightly. Hence, the tax was modified. Instead of a simple tax of so much per head, it became, in proportion to his riches, a tax on the evidences of wealth. Lands, houses, the number of windows in the houses, horses, servants, etc., have all been at one time or another, subjects of dircet taxation in the endeavor to tax the rich man in proportion to his riches. The modern direct tax has been simplified to a tax on land, improvements and income, but the object is the same, to tax men in proportion to their wealth. Nor can it be denied that this object is worthy and just, provided it works out. That aspect of the case we shall examine presently.
But, while the object of the direct tax was to tax men in proportion to wealth, with the original idea of raising as much money as possible, the object of the indirect tax was entirely dif ferent. Here the main end in viev was to raise money quietly. The main difference between direct and indirect taxation is the difference between the highwayman and the pickpocket. The fellow who levels a pistol at the wayfarer and demands “your money or your life,” may get-money, but he also stands a good chance to get a broken head, a bullet, or some other pleasant little reminder of the occasion. The more diplomatic pickpocket gets the money just as surely, and much more safely, his victim not knowing where his money has gone or in some cases even suspecting that it is gone. When someone discovered that taxes could be raised by the simple expedient of levying a toll on merchandise as it passed a certain point, and best of all, that the people would remain largely unconscious of the tax, we can imagine what a boon it was to arbitrary and unpopular governments. I do not know who made the discovery. Some credit it to the Moorish pirates, who, during the Moorish occupancy of Spain, used to sally forth from the town of Tarifa, near Gibraltar (hence the word tariff) and buy tribute on passing ships. I suspect, however, the discovery was much older. However that may be, it was at one time immensely popular. Not only national governments, but the barons of the Middle Ages, and even the cities and towns, raised money in this way. When Browning’s Italian gives his reason for living in the country, instead of in the city, where he would prefer to live, he says: —
“They have clapt a new tax on salt,
And what oil pays, passing the gate
’Tis a horror to think, so, the villa for me, not the city.
Beggars cannot be choosers.”
With the modern rise into power of the national governments, these local tolls have been abolished as hindrances to trade, the national governments reserving to themselves the right to collect taxes in this way. As of old, how-
ever, the tariff tax has this for its chief merit, that it is paid unconsciously for the most part while in many cases people are even under the delusion that the more they pay in this way, the richer they are. Thus governments are saved much vexatious criticism of their expenditures.
TAXATION ALONG ETHICAL LINES.
With the growth of modern economic ideals, however, men are beginning to demand more of systems of taxation than that they shall raise money plentifully and peacefully for municipal and national governments. This is perhaps a natural growth of democracy, for the subject is now the ruler as well, at least nominally, and naturally his viewpoint of the whole question is somewhat different from that of the arbitrary ruler, who was not so directly concerned with the question of the effect of taxation, but more particularly with its yield. But the ordinary citizen, the man who is being taxed, is now directing his attention to the effect of the taxes collected, on industry, on wealth, on public morality, on the vitality of the race. He is seeing, more and more clearly, that in the raising of taxes, as in the making of laws, the object should be, to make it easy to do right, and hard to do wrong, so that those who are engaged in useful activities and who live sanely, shall be taxed as lightly as possible, while those whose commercial or other activities are useless or injurious to the public, or whose manner of life tends to folly or luxury, shall pay as largely as may be inito the public revenues. Thus, in taxation, as in laws, the good should be encouraged, and the bad and useless, discouraged. Let us see, in the light of this test, how our present systems of taxation are serving the public well-being.
RAISING MUNICIPAL TAXES.
First, as to the direct taxes raised for municipal purposes. The system at present most in vogue in Canada, with some Western exceptions, taxes both land and improvements. During the past year there has been a considerable
movement in Ontario in favor of so amending the Assessment Act as to allow municipalities to exempt improvements if they wished, and several deputations have waited on the Provincial Government with this request. Their request, however, has been denied as radical and dangerous, and, if reports are true, as likely to lead to anarchy, the dissolution of the home and destruction of the marriage tie. The connection between^ the marriage tie and the taxation of improvements is not very obvious, of course, and it may be that the reports given to the public were more or less exaggerated. But the requests were denied, and a circular, instructing assessors to tax improvements at what they would add to the selling value of the land on which they stand, has been issued. This is a definite policy of taxation. Let us see how it works out in encouraging industry and discouraging idleness or injurious speculative activities.
I think it will be generally admitted that the man who improves a farm, builds a barn or house on it, drains it, or plants an orchard on it ; or in a city or town, builds a factory, store or residence on a vacant lot, is doing a service to the public as well as to himself. Wealth, that is, those things that increase the efficiency and happiness of life, comes, it is true, from the land in one form or another but from the land improved, not unimproved. The savage cowers, shivering and hungry, in his wigwam, in the midst of unlimited land, which could yield many times over, all he could possibly need, had he the industry or knowledge necessary to improve it. He who improves land, creates wealth, not only for himself, but for the whole community. All our national wealth and all the advantages of civilization have their origin either directly or indirectly, in the improvement, the use, of land. Yet, how do our laws reward the improver of land? By inflicting on him a heavier burden of taxation.
Let us illustrate. Here is a schoolsection of four thousand acres in, say,
New Ontario. Let us suppose the land is worth, when the section is opened for settlement, $5 per acre. Of the four thousand acres, two thousand are held by actual settlers, and two thousand by absentees who are holding the land for speculative purposes. There are twenty settlers, each holding one hundred acres of land, originally worth $500. The settlers proceed to improve their land. They build houses and barns, clear, drain, and fence the farms, each putting $1,000 worth of improvements on their farms. Their investment is now $1,500 each, $500 in land, and $1,000 in improvements. But meantime their industry has made the section more desirable as a place of settlement. The values of land have risen. Unimproved land is now worth $10 per acre, instead of the original $5. Each hundred acres held by a settler is, on this basis, worth $2,000, while the speculator’s hundred is worth $1,000. The rise of land values, due to the enterprise and industry of the settlers, has increased the value of their investment by 33 1-3 per cent., while the investment of the speculator has increased 100 per cent., for which he has done absolutely nothing, nay more, he has been a hindrance and a clog to his industrious neighbors.
But now a school must be built. Fifteen hundred dollars is required for this purpose. The land and improvements, under our present system, are assessed to raise the money required. On this basis the twenty settlers, each holding one hundred acres, valued at $2,000, each are taxed $50 for this purpose. The twenty speculators are taxed $25 apiece. But the presence of the school again raises land values, say one dollar per acre. The settler, who has paid $50 toward the school, finds his holding increased in value by $100, by its erection. The speculator’s land has also increased $100 in value, while he has paid but $25 toward the school. And so with every municipal improvement which increases land values, the settler receives proportionately less value for the amount paid, than the speculator, for land values are increased by municipal enterprise, while the values of improve-
ments are not so increased. And thus
our present system of direct taxation discriminates against the land improver, the maker of wealth, in favor of the land holder, who is not in any sense a maker of wealth, but merely a taker of the wealth which others have, by their industry and enterprise, made.
WE EXEMPT SPECULATIVE CUNNING.
It may be said that this is an extreme instance. I am not at all sure that it would be extreme in very many of our pioneer sections. But, granted that it is, the principle illustrated holds good, not only in pioneer farming settlements but in older localities, and in towns and cities. We tax industry, skill and foresight. We exempt idleness, thriftlessness and speculative cunning. One would think that the activity of the land-speculator was that most valued by the state, and must be encouraged, while that of the land-improver must be discouraged. Nothing more grotesque or foolish could be found in the entire kingdom of Topsyturvydom.
Nor can this system be defended on the ground that it taxes men according to their wealth. Quite as often, perhaps oftener than not, it exempts the wealthy and taxes the poor. That land is improved does not necessarily mean that its owner is rich. Quite generally, improvements are made with borrowed, capital, while unimproved land is held by the rich as an investment for their surplus money. There might, of course, be individual instances where the introduction of the only sensible system, that of exempting improvements and taxing land values only, would result in a poor man paying a larger share on his unimproved land than he now does, but in general it would undoubtedly be found that more often it would result in the rich man paying a fairer share on his idle holdings. The best that can be said for the present system is that it is a survival of a past age of ignorance, unscientific and inefficient and that in its operation it discourages all good citizenship, and encourages all bad. It surely is not ideal.