There were very large elements of injustice in the proposed tax, and the only argument advanced in favor of retaining the tax on the oil and sugar trust was that they were monopolies. The tax is not severe. It will not be above one and a quarter cents per hundred pounds of sugar nor above one and a half cents per hundred gallons of oil at the prevailing wholesale rates, so that there will be little temptation to shift the tax even if the companies would not lose more by reduced sales from an attempt to raise prices than they would gain by shifting the tax. There is little likelihood that the tax will affect retail prices.

A very large number of transaction taxes and of business taxes was levied in the form of stamp taxes on business documents and on the means of communication. These taxes are usually known as stamp taxes, but the name indicates merely the means of collection and shows nothing of the nature of the tax. In general these taxes are based upon recognition of the fact that when wealth is transferred from one person to another, its existence is manifested and a convenient moment occurs for the imposition of a tax. When such a transfer is accompanied by a document which is legal evidence of the title of the new owner, it is easy for the government to refuse legal recognition to such a document unless accompanied by the evidence that the tax has been paid. It is, therefore, practically impossible to evade such a tax. The most convenient way of collecting these taxes is by the sale of stamps which are to be attached to the documents as evidence of payment. There are two features of these taxes which commend them as emergency taxes. In the first place, even at a low rate they can be made to yield a considerable income, and the return is a quick one, as large the first month as at any time afterward. In the second place they are very inexpensive to administer: the taxpayer himself acts as tax collector and when he goes to the office to purchase the stamps, brings in the revenue. He cannot omit to pay his tax lest his document prove illegal. During the Civil War and for many years afterward stamp taxes of this sort were in use. Many of the provisions of the old law were transferred to the new law, and the changes and omissions are rarely for the better.

It would be tedious to enumerate all the transactions which

are taxed in this way, nor is it necessary, as I can comment on but few of them. The first thing that strikes one who carefully scans the long schedules of these taxes is that they are frightfully unequal. Only here and there are they graded according to the value of the thing taxed. Thus the tax on the issue of corporation stocks is five cents on each $100 of the par value, and on the transfer of the stock is two cents on each $100 of the par value. But the par value of a stock is a perfectly arbitrary thing, a mere name. It is usually $100, but the true value may be anywhere from one cent to $1000 or over, according to the success of the enterprise. So, too, with checks and drafts; whatever the value may be, the tax is always two cents. Indeed, in this particular case the form of the tax defeats its end as a revenue measure, for it has simply resulted in the writing of fewer and of larger checks, and more has been lost to the postal revenues through less frequent remittances than has been gained from the tax on checks.

All of that part of the law which deals with drafts and bills of exchange is so faultily drawn as to be practically unintelligible. The technical terms of banking are used in strange and unusual senses, and totally incongruous things, such, for example, as inland bills of exchange and certificates of deposit bearing interest are grouped together. These provisions should have been drawn by a practical banker. Had the new tax law not been supported by that patriotic sentiment which so largely aided its enforcement, this particular part of the law would have given rise to more lawsuits than revenue.

Included under the stamp taxes are certain taxes directed more or less vaguely at certain classes of corporations. These are the taxes on freight bills, express receipts, parlor and sleeping car tickets, telegrams and telephone messages, and passage tickets to foreign countries. The rates on the last are graded according to value, but on all the others are uniform at one cent each, except that no tax falls on telephone messages below fifteen cents. The tax on telephone messages is not collected by stamps. It is easy to see that this is a most unequal system. There has been much discussion as to whether it was the intention of the law that the stamp should be furnished by the companies or by their patrons. This is really a matter of little

moment. In some cases the tax is so slight as to be entirely immaterial. In such cases the companies have furnished the stamps themselves to save their patrons any annoyance, and have not changed their rates. In other cases the tax is so severe that if the companies furnish the stamps, they will be obliged to shift the tax by raising their rates, in order to live. If the tax were paid by the express companies, it would vary from 4 per cent of the gross receipts down to practically nothing. For doing a twenty-five-cent errand the express company would pay one cent, and no more for a shipment of $1,000,000 in gold. The express companies have asserted that if they have to pay the tax, it will take half of their profits. The tax is also very severe on telegrams. The average telegram, it has been estimated, costs 24.3 cents and the average profit is six cents, of which the tax is 16 per cent. Whatever may have been the intention of the law as to who should furnish the stamp in such cases, it is clear that the tax will be shifted to the patron of the company. If it is finally decided that the company must furnish the stamp, then the rates will have to be raised, and the patron will have to pay the tax just as much as if he furnished the stamp himself. Taxes which appropriate for the use of the government from 10 per cent to 50 per cent of the net profits of any business are bound to be shifted. Still the companies cannot escape considerable loss even by shifting the tax. If they raise the rates in order to cover the tax, their business will fall off, while the expense of doing it will not decrease in like measure. If they could raise their rates without loss of business, there is every reason to suppose they would do so, tax or no tax. On the other hand the public is the loser as well as the companies. In the first place it is obliged to pay the tax, or at least a part of it, and in the second place it is obliged by the increased cost to curtail its use of the facilities which the companies furnish. When taxation approaches confiscation, it strikes directly at the welfare of the whole people.

Among the miscellaneous taxes there was also inserted one upon mixed or adulterated flour. The imposition of this tax is not mainly for revenue. It is for the purpose of regulation and to protect the public from unknowingly using inferior flour. On

oleomargarine there is a similar tax that has been in use for some time. It was asserted in Congress that as much as 75 or 80 per cent of all flour sold is adulterated by the use of ground clay, ground rock, "mineraline," or corn flour bleached by sulphuric acid. It is not claimed that all of the articles used for the adulteration of flour are injurious to health, but some of them are, and none of them has the same value for nutrition as wheat flour. The law requires these flours to be properly labeled, and by imposing a stamp tax on them the government can enforce this regulation. Without such a tax the federal government would not be competent to invade this sphere of state activities. A number of penalties are imposed for failure to comply with all the regulations. From now on it will be dangerous for any person to sell mixed flour under the guise of pure flour.

The general system of taxation imposed by this law is not particularly burdensome as a whole. In some instances individual parts of the system run very close to confiscation, and the system is frightfully unequal. At the same time most of the unequal taxes can be wholly or partly shifted and the severity of the burden is thus lightened by diffusion. The inequality and injustice of the system which we have noted all through the law is, perhaps, a necessary feature of any system that is adopted in an emergency, when the time is lacking for the full discussion of a logical and just system. It emphasizes the necessity, so often referred to, of arranging in time of peace a just and equitable system which can be readily expanded in time of war. During a war no nation can afford the luxury of tax reform for reform's sake. That is an enjoyment which belongs to times of peace.1

1 Statistics showing the productivity of the various internal taxes at different times are given in the Appendix. — ED.

CHAPTER XX

THE EARLY DEVELOPMENT OF PUBLIC BORROWING

70. The Views of David Hume. In 1752, at a time when the rapid growth of public debts was alarming many persons, David Hume published his celebrated Essay on Public Credit.1 In this essay he draws the following unfavorable contrast between the practice of public borrowing and the earlier policy of accumulating state treasures in order to meet unusual emergencies:

It appears to have been the common practice of antiquity, to make provision, during peace, for the necessities of war, and to hoard up treasures beforehand as the instruments either of conquest or defence; without trusting to extraordinary impositions, much less to borrowing, in times of disorder and confusion.2 Besides the immense sums above mentioned, which were amassed by Athens, and by the Ptolemies, and other successors of Alexander; we learn from Plato, that the frugal Lacedemonians had also collected a great treasure; and Arrian and Plutarch take notice of the riches which Alexander got possession of on the conquest of Susa and Ecbatana, and which were reserved, some of them, from the time of Cyrus. If I remember right, the scripture also mentions the treasure of Hezekiah and the Jewish princes; as profane history does that

1 In his Political Discourses, (1752).

2 The earliest writers on finance believed that a prince should thus accumulate treasure. Bodin, for instance, after treating of public revenues and expenditures, devoted the remainder of the chapter to "the reserve that should be accumulated for time of need." The German cameralists strongly advocated this policy. In England, also, state treasures were advocated by such a writer as Thomas Mun, who declared that "a Prince that will not oppress his people, and yet be able to maintain his Estate and his Right, that will not run himself into Poverty, Contempt, Hate, and Danger, must lay up treasure, and be thrifty.” . . . England's Treasure by Foreign Trade, ch. 17. (Published 1664; written prior to 1641.) — En.