The taxes we have already considered cover most fixed capital. Circulating capital also, in all of its many forms, has been subjected to separate taxes. This is as true of those countries which have the general property tax as of those which attempt to accomplish the desired results by the taxation of the various elements of revenue. How to reach this kind of revenue and to make the faculty which it represents

bear its share of the public burden, is one of the most difficult practical problems of taxation. The chief difficulties arise from the elusive nature of circulating capital and the intimate way in which it is connected with many of the processes of industrial life. Justice and equality demand its taxation. But various pleas of expediency are against it. Capital is hard to reach, and if it is not fairly taxed the result may be injurious to trade. There are two forms in which this tax has been applied with some effectiveness. One is that of a tax on mortgages, the other that of a tax or taxes on corporations and banks. Some results have also been attained by the attempt to tax stocks and bonds. Public stocks are especially easy of assessment. But there is an objection to taxing them when the other forms of investment escape, because of the bad effect on public credit. If it is distinctly declared beforehand that the bonds are to be taxed, their selling price is lowered. If it is not so declared, at the time of issue, and the tax is subsequently assessed, the process is regarded by the holders as equivalent to a partial repudiation of the debt, and subsequent loans are looked upon askance. When, however, all forms of revenue-yielding capital are, nominally at least, subject to taxation, this objection to taxing public securities disappears. If the tax is not to have the effect of reducing the capital value of the stock, bond, or other security, it must fall upon every form of capital. But so great are the difficulties of making it thus universal that, as a general rule, such a tax affects the rate of interest on all new investments in the taxed form. This question will receive further attention under the head of incidence.

Where there is a complete system of public records for deeds, mortgages, and contracts, necessary to their validity, it is comparatively easy to tax these recorded securities. Thus it is that mortgages are generally easily taxable. This, however, results in inequality if the tax is not extended beyond the recorded contracts. When the mortgage is upon property already taxed, as, for example, by the building tax or a general property tax, the question arises whether both the borrower and the lender should be taxed, or only one, and if so which one. An able writer says on this point, "Tax the mortgagee on the amount of the mortgage, and the mortgagor on the value of the property minus the mortgage. That is the only rational system."1 Indeed, it would be, if every other form of capital were taxed; but when that is not the case, the result is in every respect the same as though the owner were taxed alone. Generally he pays more.

Taxation at the source has been warmly recommended for reaching interest on capital ; i.e. to have the debtor advance the tax and shift it if he can to the lender or share it with him.

1 Political Science Quarterly, V., 35.

In the case of corporations, this method is applied to the dividends. As Bastable has well shown,1 such a tax is a combined tax on interest and

on profits, and is therefore partly outside our present purpose. The taxation of corporations is not always the taxation of circulating capital merely. Corporations often own other taxable property, — land, buildings, etc. But in the United States, one of the main objects of the introduction of taxes on corporations was to reach forms of personal property that generally escaped. The other object was, of course, to extend the general property tax to cover all property. We find that the basis of the corporation tax is, in many instances, the capital stock at its par value, or at its market value ; and in a good many instances, the bonded indebtedness is also included. When the nature of the business is such that the capital stock and bonds do not represent all the capital concentrated in the hands of the corporation, as, for example, in the case of banks and insurance companies, then the business transacted, the gross earnings, the dividends, or the net earnings become the basis. But no clear line is drawn between the taxation of interest and profits, so that corporation taxes often approach, in character and operation, business taxes.2

1 P. 422.

2 The best discussion of this interesting field of taxation is contained in Chapters VI., VII., and VIII. of Seligman's Essays on Taxation.