The different tax classifications are almost as numerous as the individuals who have made classifications. The most significant failures at satisfactory classification have occurred, perhaps, where the attempt has been made to follow some natural lines. A little consideration will indicate the futility of such a basis of classification. Taxes are used for various purposes in different countries, while the same tax may be used for different purposes in the same country. The idea of a just measure for taxes varies widely, and different bases have always been used to attempt to arrive at that justice which an adopted theory might suggest. With such a diversity of fundamentals it is an idle waste of energy to attempt to place taxes into natural categories.

Tapes on Shares of Social Income. - Many attempts have been made to base taxes upon the shares into which the social income may be divided. Adam Smith pointed out that "the private revenue of individuals arises ultimately from three different sources - rent, profit, and wages. Every tax must finally be paid from some one or other of these three different sorts of revenue, or from all of them indifferently." Others have followed Smith in attempting to use this classification. If the present social income is not squandered, so that modern taxes must be paid out of past accumulations, then it may be said that taxes do properly fall upon the four shares of distribution: rent, interest, wages, or profits. As a workable classification, however, it has little value. A tax placed upon rent may be paid out of interest. The four shares are often so combined, moreover, that it would be impossible to determine what part of a $500 tax falls upon each share if it were placed upon the recipient of all of the four shares. For example, who could determine the part of a $500 tax, placed upon an Iowa farmer, which falls upon the separate items of rent, interest, wages, and profits?

Other Bases of Classification. - Other classifications are taxes upon persons, property, and income, and upon property in the process of getting, keeping, or spending. These may be used as long as they simply indicate the thing against which the tax is levied, but are valueless in indicating the source from which payment is made. Taxes upon persons might be levied upon the individual as such, or upon members of a particular class, designated by some particular mark, such as property, age, profession, or title. A general poll tax would be an example of the former, while a poll tax on males over twenty-one years of age, or upon all owners of land, would be examples of the latter. Where the tax is upon property or income, these are considered without reference to the individual. The tax is against the property or income rather than against the person. Taxes classified as against wealth in the process of getting (income), keeping (property), and spending (consumption) simply indicate the stage in this process against which the tax is levied. Of course all personal taxes must be paid from some other source than that against which the levy is made, while a tax on income might possibly be paid from property, and one on property will probably be paid from income.

Direct and Indirect Taxes. - One early classification, which has retained its importance to the present, is that of direct and indirect taxes. A common distinction is that the burden of a direct tax will remain where the tax is levied, while the burden of an indirect tax will be shifted to other than the place of levy. This statement, however, is too sweeping. It is more nearly correct to say that such is the intention or expectation of the authorities who levy the tax. A tax on mortgages, for example, is a direct tax, for it is expected that the holder will consider it as a part of his property and pay the tax assessed against it. What often happens, however, is that enough higher rate of interest is charged to the mortgagor to offset the tax burden. In this case the burden of a direct tax has been shifted. Taxes on monopolies, on the other hand, are generally believed to be shifted over to consumers in the form of higher prices, and are usually considered indirect. Modifying factors exist, however, which may cause the monopoly to bear the tax burden.1

Direct taxes are usually much more definite and ascertainable than indirect. This is because they are based upon a more definite fact. Authorities may be sure that land, buildings, incomes, and similar bases are going to continue to exist. They cannot be so certain, however, as to how stable the demand for a particular commodity is going to be, or how it will be affected by a tax. The best examples of direct taxes are poll, land, building, income, property, and inheritance taxes. The best examples of indirect taxes are the import duties and excise taxes, as well as a large number of license taxes. A few exceptions may be found to this classification, but in general it will hold. The Civil War income tax, for example, was held by the Supreme Court to be an indirect tax, although the same court some years later held a similar tax to be direct. Another exception is that the French government does not class its import duties as indirect taxes.

1 For a discussion of the effect of a tax on monopolies, see p. 170.

Direct and indirect taxes do not hold the same relative importance under different forms of government, or in the different political divisions of the same country. In general, direct taxes will be used more extensively in countries with a democratic form of government, while the indirect taxes will be more prominent in aristocracies. The control which the citizens have over revenues and expenditures under a constitutional government makes them more willing to contribute directly. Where the citizen does not have this control, or where the expenditure is likely to be made in opposition to public desire, resort must be had to the indirect method in order to conceal the tax burden. The more remote and immaterial the service which the state gives, therefore, the more difficult it is to get direct payments. This accounts for the almost exclusive use of direct taxes by local political units, while the Federal government uses a much larger proportion of indirect taxes.