§ 11. Various standards of justice suggested. There have not been lacking earnest attempts to arrive at some general principles. Various standards have been suggested to measure the distribution of the burden of taxation, the chief being benefit, equality, ability, sacrifice, and social welfare. Each of these terms is capable of various interpretations which have changed from time to time. The benefit derived by any citizen from most of the public services evidently cannot be applied in any literal sense to strong and weak, to rich and poor. It is possible, however, to interpret equality with reference not to objective goods, but to the psychic sacrifice occasioned by taxation. Ability is of many kinds and may be differently understood. Some think ability to bear taxation is "in exact proportion to the money income"; others believe that it increases at a greater rate than money income, and favor, therefore, progressive taxation, that is, higher rates on the larger incomes. The standard of sacrifice is closely related to that of ability, looking, however, to the psychic effect of depriving the taxpayer of his income. It lends itself even more readily than does the standard of ability to the application of the marginal principle of valuation, and results in progressive taxation.

§ 12. Social welfare as the aim. The conflicting interests of the various classes of taxpayers in each period are to some degree softened by the prevailing public opinion, sometimes called the social conscience, and taxes are adjusted according to a vaguely held ideal of the social welfare. Social expediency, more or less broadly interpreted, determines who shall be taxed and what social results are to be sought. The exemptions from taxation in feudal times were great and, viewed from our standpoint, were inequitable, for the upper classes escaped while the peasants bore most of the burdens. The landlords and nobility, who were assumed to be performing important social functions, generally had outgrown their usefulness in the period preceding the French Revolution, which swept away many of these abuses.

Exemptions from taxation are granted liberally in most states to-day on some kinds of wealth and to some classes of citizens, because of their supposed relations to the public interest. Real estate and equipment devoted to educational, religious, and charitable purposes, the homes of priests and ministers, homesteads purchased with pension money, as well as all public lands, buildings, and equipment, are exempt.

The social interest requires that taxes be both elastic and productive, so that the needs of the government shall be amply provided for. The harmonizing of these needs in the laws of taxation requires a high degree of wisdom, of foresight, and of integrity in the legislator and in the citizen. No hard-and-fast rule for the apportioning of taxes can be laid down. The decision must be made in each generation by the public opinion as to what is most expedient for the general welfare.

§ 13. Principles of administration. Whatever forms of taxes are adopted, whether on property or income, whether at proportional or at progressive rates, their justice and expediency depend largely on their administration. Principle and practice in this, as in most affairs, may go far apart. The administration of taxation should be economical, certain, and uniform. (1) Some laws are more easily and economically executed than others. The time of collection should be as convenient as possible for the citizen, and the mode of payment should be the most simple. (2) The utmost certainty is desirable as to the time, method of payment, and amount. Taxation that, in its principle, is variable, shifting, or dependent on personal whim and favoritism, is despotism. (3) But the greatest evils, in practice, result from failures in uniformity as between individuals. The assessment of taxes has to be intrusted to men with fallible judgment, imperfect knowledge, and selfish interests. The assessor is as near a despot as any agent of popular government to-day. Not infrequently men of proved incapacity in every private business they have attempted are, for partizan or corrupt reasons, selected as assessors, and are given the power of passing judgment on the value of millions of dollars' worth of property. Under the circumstances, evils are to be expected, and they occur. The small owner often is crushed under the unequal assessment, while the large owner comes off lightly. Political friends are favored, political foes are made to suffer. Even the most honest and capable of assessors find in the imperfections of the tax laws4 an insuperable obstacle to even-handed justice.

§ 14. Shifting and incidence. The person paying a tax into the public treasury is not always the one whose income is reduced in the long run. This is most clearly seen in the case of taxes paid by middlemen. In most cases the final and regular burden of the tax is distributed over a number of incomes. The passing on of the burden is called the shifting of the tax; the final location of the burden is called the incidence of the tax. The lawmaker cannot tell exactly where the weight will fall. The principles of value give some guidance in the inquiry, but the workings of the principle are difficult to follow.

* Particularly the difficulties noted in the next chapter, §§ 2-5.

Consider a situation where certain taxes have been for some time levied. They have become a part of the general adjustment of prices. If paid by any one in business they may be looked upon as a deduction from the gross proceeds or product of the business, prior to cost, or as a part of cost.5 In either case, every one choosing that business does so in the light of this fact. Unless the business promises to yield as good incomes (wages, profits) as other lines, the number engaging in it, and the output, must diminish, and thus the price of the product rises, or the cost of the factor falls, or both in some proportion. The tax on any durative agent or on any established business thus becomes incorporated after a time in its price and in the prices of the products, and any purchaser pays a price based on the net income remaining to the owner of the wealth after the tax is paid. Viewed in this way, taxes are seen to be borne to some extent by every one, by those who do not as well as by those who do actually meet the tax-collector face to face. The citizen with no taxable property is affected, far more than he realizes, by extravagance of government and by inequities in taxation, for the effects of most taxes are diffused so that every self-sustaining member of the community has some share in them.

5 See Vol. I, p. 374.