What in the opinion of nations constitutes the ideal of correct or just taxation ? The answer to this question is to be sought in the theories of taxation that have found favour, and are generally contained in the writings of economists and financiers. The Physiocratic answer was, we have seen, inadequate. The benefit theory would say that each citizen should pay according to the benefit he receives. What is the benefit and how is it measured? The common benefits are, clearly, the peaceful enjoyment of life, liberty, and property. The protection the Stateaffords to life and liberty is theoretically equal for all, that to properties variesdirectly as the property varies.1 A uniform tax on each poll for the first two benefits, and a proportional tax on property, would seem to answer the requirements of this theory with sufficient accuracy. But the relatively small returns from the poll taxes and the great expense and friction of collecting them soon led to their partial abandonment. Property then remained the basis. The value of property seemed clearly to depend on its revenue-yielding power. It is a matter of comparative indifference which is taken. Hence the idea embodied in the famous dictum of Adam Smith: "The subjects of every State ought to contribute toward the support of the government, as nearly as possible, ... in proportion to the revenues which they respectively enjoy under the protection of the State.

1 The benefit theory has been illogically developed into a defence of progressive taxation. See Seligman, Prog. Tax., pp. 110 ff. I have not included this illogical side in the discussion.

"1 But here again as the industrial population separated from the soil and a large body of citizens arose, who had no land and little personal property, and who could ill afford to part with any of their earnings, humanity and expediency urged the exemption of the minimum of subsistence. It cost too much and caused too much bitterness to collect taxes upon those having only the bare necessities. Then came Ricardo's suggestion, "the power of paying taxes is in proportion to the net, and not in proportion to the gross revenue." The items that were to be deducted were the costs of production, among which were then counted the bread and meat for the labourers, which were regarded very much as so much fuel shovelled into the furnace of a human machine. Hence it was argued that it would be too burdensome to production to tax what was necessary to maintain the productive power of the workers. A certain amount of income, therefore, should be exempt ; for if taxed, the tax would certainly be shifted. Fortunately, according to the prevalent theory of wages, the amount to be exempted would remain fixed, or nearly so, advancing, if at all, very slowly. So that all incomes over a fixed amount were to be taxed proportionally; since the benefit to such individuals as possessed incomes above the chosen minimum was supposed to be in exact proportion to the amount in excess of the minimum.

1 Bk. V., Chap. IL, Part II. On the various interpretations of this passage see Seligman, Prog. Tax., p. 94.

Stated broadly, this theory was as follows. All taxes must be proportioned to benefit. Certain classes only are benefited, namely, those having income over a certain amount; that is, over the minimum of subsistence. They should be taxed on the amount above that minimum of subsistence. It would seem, then, that the money spent in protection of the workers who lived on the minimum of subsistence was to be treated as if of benefit to the other classes. This puts the worker in the same category with the pauper for whom the State, from reasons of humanity, decides that it is worth while to care. With a clearer perception of the character of production and a realisation of the fact that the worker was a man the satisfaction of whose wants, even if they did not exceed the minimum of subsistence, was yet as important as the satisfaction of the higher wants of other classes, came a realisation of the inadequacy of this theory. It is now quite generally abandoned, except as the legal theory in America.

Perhaps the best statement of the United States legal theory of what constitutes the just measure of taxation is given by Judge Cooley.1" If it were practicable to do so, the taxes levied by the government ought to be apportioned among the people according to the benefit which each receives from the protection the government affords him ; but this is manifestly impossible.

1 Taxation, p. 24.

The value of life, liberty, and of the social and family rights and privileges, cannot be measured by any pecuniary standard; and by the general consent of civilised nations, income or the sources of income are almost universally made the basis upon which the ordinary taxes are estimated. This is upon the assumption, never wholly true in point of fact, but sufficiently near the truth for the practical operations of government, that the benefit received from the government bears some proportion to the property held, or the revenue enjoyed under its protection; and though this can never be arrived at with accuracy, through the operation of any general rule, and would not be wholly just if it could be, experience has given us no better standard, and it is applied in a great variety of forms, and with more or less approximation to justice and equality. But, as before stated, other considerations are always admissible ; what is aimed at is, not taxes strictly just, but such taxes as will best subserve the general welfare of political society."

Benefit as a measure of taxation is therefore according to the admission of one of its strongest advocates inadequate. Only in special instances can benefit be directly measured. There, of course, it has been and will remain the basis of taxation, at least until the State shall decide that the special benefit has been merged in the common benefit.