The Constitution of the United States is rather insistent upon a separation of sources of revenue for the Federal government and for the states. Thus customs duties were reserved entirely for the use of the central authorities, while close restrictions were placed upon the use of direct taxes. Excise taxes were allowed and have been used extensively since the Civil War. The states are not forbidden to use this source of revenue, but they have left it to the almost exclusive use of the Federal government for so long that the presumption has been against their entering this field. Direct taxation of property was looked upon as the primary legitimate source of revenue for the states and local political units, and for many years the systems remained almost true to form.

Overlapping of Sources. - The changed economic and industrial conditions and the enlargement of the functions of the government called for changes which have taken place very rapidly in the last few years. These have taken two opposite directions - one toward an overlapping of sources of revenue, and the other toward a separation of these sources. The first can be noticed in the case of the Federal government. It has not been content to secure funds to meet its increased needs by an extended use of customs and excise taxes, but has continued to reach out to other fields. This has taken place until the net income and profits of corporations, inheritances, and the income of individuals are called upon to help supply the bases for the funds.

The state authorities have looked upon this expansion with no little concern, and have frequently voiced strong objections. Some of the sources, as profits and inheritances, were tapped to supply the extraordinary demands of war, and may be given up quickly, yet no one expects but that income taxes will be a permanent feature of Federal fiscal machinery. Even before the Federal government began its expansion of sources, the states had ceased to place entire reliance on property taxes. The other sources of importance which have been adopted are taxes upon corporations, inheritances, and various classes of licenses. Incomes are taxed in some states, and it is likely that this source will become more popular as a method of state levy. Thus there has developed an overlapping of the sources of Federal and state revenues which is likely to continue.

Separation of Sources. - There has been much agitation, on the other hand, for a separation of the sources of revenue for states and localities. It has been suggested that the property taxes should be left to the localities, while the state seek its revenue horn such sources as corporations, inheritances, licenses, and incomes. Some progress has been made in this direction, but in most states, while the local governments rely upon property as the chief source of revenue, the state governments have not entirely removed property taxes from their category of revenues. Recently, moreover, local political units have shown a tendency to expand their source of revenue to include a number of licenses, many of them upon the same objects which have been the basis of license taxes imposed by the states. The licenses which are levied against automobiles and against various occupations by both states and municipalities are good examples of this tendency. Duplication of taxes upon the same base by the different political units, even though it may involve a form of double taxation and make the shifting of taxes more difficult to trace, appears to be gaining a stronger foothold in our fiscal system, and will doubtless be a permanent feature.