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DISSATISFACTION EARLY MANIFEST

The existing method of assessing and taxing property was better adapted to the first half of the nineteenth century than to the second half, for property could then generally be found. Early in this century it should be remembered there were comparatively few banks; there was not a single railroad company, and of course none of that mass of easily concealed property based on railways, such as stocks and bonds; there was not a telegraph or telephone company, nor were there any traces of that property which consists of their evidences of indebtedness; there was not one gas company; and the manufacturing corporations of our day had scarcely begun to exist. Is not this sufficient to show the difference between the requirements of a rational system of taxation in the one period and in the other? Nevertheless, it appears, as so often happens, that while the end sought was commendable, and this end was the realization of democratic principles in taxation, the means used for the accomplishment of that end were inadequate. Dissatisfaction was soon manifest on account of inequalities in the adjustment of the burdens of taxation, and attempts were made to remedy

this.

This dissatisfaction has increased without interruption up to the present time, and every year renders our existing methods of assessing property and of taxing it more intolerable. The endeavors to improve upon actual methods have been frequent and are daily increasing in frequency, but they usually prove fruitless or render a bad matter worse, because those who make them have failed to go to the root of the evil, which is the system itself. The truth is, the existing system is so radically bad, that the more you improve it, the worse it becomes. This lies in the nature of things, and nothing any legislature can do, can alter this condition of things. Experience and reason alike teach this, and in my opinion place it beyond controversy for all those who have eyes to see what is passing about them every day of their lives.

There was comparatively little personal property in existence one hundred years ago. Only in the present century has that species of property, at first gradually, then very rapidly, assumed

the enormous proportions to which we are now accustomed. This growth has accompanied the development of cities, which are the home of invisible personal property. Where the population is chiefly rural, there can be comparatively little personal property, and a large part of what does exist is visible and easily found.

Personal property has increased relatively more rapidly than real property, until now it is regarded as its equal in value in most of our American commonwealths. This would seem, however, to be a low estimate, if we may regard the estimate of an English writer on finance, in regard to England, as at all trustworthy, for as early as 1869 he estimated the value of personal property in England at double that of real property.

THE NATURE OF THE DIFFICULTY

The reason why our present system of taxation does not operate satisfactorily can be stated in a word: although it is on the face of it fair and simple, it is found in practice to be an impracticable theory, for a large portion of property escapes taxation, and that the property of those best able to bear the burdens of government, namely, the wealthy residents of cities. On the one hand, it is impossible to find this property, and to force men to make returns under oath results invariably in perjury and demoralization, without discovery of property; on the other hand, federal laws, over which our states and municipalities have no control, enable many to escape taxation by investments, often temporary, in federal bonds, exempt from taxation.

Personal property is sometimes discovered in its entirety, but it is then nearly always the property of the comparatively helpless, namely, widows and orphans, whose possessions are a matter of public record. Less often a burden is imposed upon the conscientious. Thus, I happen to know of one wealthy town of a few thousand inhabitants, where three men of conscientious convictions with regard to a man's duty to the commonwealth, pay taxes on their personalty, although they have as good an opportunity to escape as others. This state of things naturally produces dissatisfaction on the part of farmers,

and other hard-working people, who feel that personalty ought to bear a share of the burden of taxation. On this account they suggest various things, like taxation of mortgages, and a more vigorous search for hidden property. Their aim, as I have said, is commendable; but to attempt to reach the desired goal by direct means, under existing laws, or any laws which do not imply a change of the system of taxation, is as Utopian as the dream of the most radical socialist.

41. The Report of the Massachusetts Commission of 1897.More recently a Massachusetts commission1 has presented a very careful statement of the working of the general property tax in that state. The extracts here presented relate, first, to the requirements of the existing laws, and, second, to the practical working of the tax system.

I. THE EXISTING LAWS 2

The commonwealth of Massachusetts subjects to taxation "all property, real and personal, of the inhabitants of the state not expressly exempted by law."

Real estate, for the purposes of taxation, includes all land within the state and all building and other things erected upon or affixed to it. It is taxable where it is situated, irrespective of the domicile of its owner.

For the assessment of real estate the law makes a somewhat different provision than for the assessment of personal property. The assessors are called upon to demand of the taxpayers a sworn list of their personal estate. But no such requirement is made by law as to realty. The assessors, when entering on the process of assessment, may or may not require the inhabit

1 The majority report of the commission, from which the extracts are taken, was signed by James R. Dunbar, Alvan Barrus, T. Jefferson Coolidge, and Professor F. W. Taussig. Report, pp. 5-13.

2

3 The principal exemptions are property of literary, benevolent, charitable, and scientific institutions; houses of religious worship; wearing apparel, farming utensils, and mechanics' tools not exceeding $300 in value; also certain exemptions for dependent and indigent persons. — ED.

ants to bring in a list of their real estate subject to taxation. If they make no such requirement, the taxpayer incurs no direct penalty for failure to list his realty. The assessors estimate its value and assess it accordingly; and in such case, although having made no return of his realty, the taxpayer, if dissatisfied with the assessors' valuation, may thereafter file a list and make his own valuation under oath, and will then be entitled to abatement if erroneously assessed.

An important part of the method of taxing real estate is the treatment of mortgaged property. It is often stated that mortgages on Massachusetts real estate are exempt from taxation; but this, while it may express the usual outcome of the statutes, does not state their exact provisions. Strictly, the legislation is designed to bring about one tax on the real estate, and one only, whether it be mortgaged or not. It applies, moreover, only to mortgages on taxable real estate; hence it does not apply to mortgages on realty situated outside of the commonwealth, or on real estate situated within it but exempt from taxation (as, for example, mortgages on church property). Mortgages on such real estate not taxable by the commonwealth are taxable as personal property to their holders. As to taxable realty, either the mortgagor or the mortgagee may bring to the assessors of the town where the mortgaged real estate lies, a statement of the amount of the mortgage and the name and residence of every holder of an interest therein as mortgagee or mortgagor. If this be done, the mortgage is taxed to the holder, usually at its face value, but not to an amount exceeding the fair cash value of the mortgaged premises. The mortgagor, however, is usually under no inducement to make a return, stating the mortgage on his property and the extent of his equity. He would have such an inducement only if taxes on the mortgage thereby became chargeable not to himself but to the mortgagee. Mortgage deeds, however, are invariably drawn so as to stipulate that the mortgagor shall assume all taxes. The mortgagor consequently has no inducement to declare the mortgage. The outcome of the legislation is thus that but one tax is levied on the real property, and that the mode of payment of this one tax is left to be adjusted between the mortgagor and the mortgagee in such manner as they may agree. In practice, the mortgagor

or borrower agrees to pay the one tax, and contracts his loan with the mortgagee or the lender on this basis. Whether the arrangement has proved to be expedient and just is a question as to the working of the tax system, which, in common with all other such questions, we shall postpone for examination in the second part of our report.

The total valuation of real estate assessed for taxation in 1896 was $2,040,200,644. The total amount of taxes assessed upon real estate in 1896 was $30,120,730.1

As to personal property, the mode of assessment is, under the letter of the statutes, different from that as to real property. The assessors are directed to require all inhabitants to bring in true lists of all their polls and personal estate. They are to give seasonable notice that they are about to make an assessment, and in such notice are required to demand lists of personal property. But if the taxpayer fails to comply with the requirement, he is subjected to no direct penalty. The assessors, in case of failure, are to ascertain as nearly as possible, according to their best information and belief, the particulars of the personal estate. The statute calls for no special pressure or punitive estimate by the assessors as to the taxpayers who have made no return; it calls only for an estimate at just value, according to best information and belief. From the tax assessed on this estimate, however, the taxpayer may be allowed an abatement only in case the tax exceeds by 50 per cent the amount which would have been chargeable if a return under oath had been seasonably made, and only the excess over this 50 per cent may then be abated. The penalty for failure to make a return thus is only the indirect one of a limitation of the amount of abatement if the tax by estimate proves to be heavier than the tax would have, been in case of a return.

It should be observed, further, that the assessments made by the assessors, whether on the basis of return or of estimate, are to be kept open to public inspection. Strictly speaking, they may be examined only by property holders (whether resident or non-resident), these having free access to them at all times. Practically, whatever assessments are made by the assessors, 1 For 1904 the total valuation of real estate was $2,555,300,000, and the taxes assessed upon it were $41,575,000. — ED.

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