It has sometimes been maintained that credits ought not to be taxed, but all assessments be made upon values, or property, personal and real. Taxes, it has been argued, ought not to be laid upon persons, but upon that out of which they can alone be paid; viz., property.

But credits are taxed as well as values. A holds a farm worth $10,000, mortgaged to B for $5,000. A pays taxes upon the whole valuation, and B upon $5,000, as money at interest. A, it is said, is doubly taxed. This is a practical question, that has puzzled legislators in every age and country. Let us therefore carefully examine it.

Suppose A and B aforesaid form an entire community, and that the whole tax of $150 is imposed on property. The whole valuation will then be $10,000 (A's farm), and the rate one and a half per cent, which A pays, and B goes untaxed. We will now change the principle, and have both property and credits taxed. The valuation will then be, A's farm, $10,000, and B's money at interest, $5,000; total, $15,000; and, with the same amount to be assessed ($150), the- rate will be one per cent, of which A pays one hundred, and B fifty, dollars. So, then, we discover that A is not doubly taxed, as assumed, but at the worst pays only twenty-five dollars, or one-third, more than his share. Such must, in principle, be the result of this kind of taxation, taking a whole community together. All the amount taxed upon credit is so much relief to taxation upon property. This seems to be clear; and the justice of the thing is established by the fact that A bought his farm knowing that it would be subject to a full taxation, and bought it cheaper, as we have shown in another place, on that account. B, on the other hand, accepted his mortgage on the same ground, knowing it would be subject to tax on the common valuation. Is either party, then, wronged?

But perhaps another reason may be given why A should pay taxes upon the whole value of his farm; viz., that, having the usufruct of the whole, he is entitled to all the profits on the farm. "But he don't own the whole of the farm." True, that is his misfortune: if he did, he would obtain a larger amount of net profits; but his obligation to pay tax on the whole is not impaired, because he has the use of a part of B's capital. As the owner of the farm, A has a chance for all the profits that can be made from the whole; while, by the taxation of B on the mortgage, the former saves a part of what he would otherwise pay in taxes. One pays taxes for the profits of business; the other, for the income on his capital.

In this case we find another very clear illustration of the correctness of the income-tax policy. If there were no other tax than upon income, the matter would stand thus: —

A's income from his farm, say..........$900

He deducts the interest he pays B.........300

A pays tax on his net income of.........$600

B's income is taxed upon............300

Total income to be taxed.........900

Amount to be raised, one hundred and fifty dollars: of this, A will pay one hundred dollars, and B fifty; and there would be no question as to the justice of the system by which both were thus taxed. If A's income should be more or less than nine hundred dollars, he would pay more or less, and B must pay less or more accordingly.

In the absence of the income-tax principle, what can be more equitable and just than the practice of taxing both mortgagor and mortgagee? If the former were allowed to deduct from his inventory the amount he owed the latter, it would often happen, that, the mortgagee not living in the same town or State, so much property would escape taxation altogether. This in some communities, especially our Western States, would be a great evil. "That much hardship may often result from taxing credits as well as property is undoubtedly true; but that only affords additional evidence that the income-tax principle is the only correct one. Next to this would be the levying of all taxes upon property exclusively; and if adopted at the very commencement of a social organization, as at the landing at Plymouth in 1620, it would secure a just taxation, because all property would be created, held, and transferred under that well-known condition.