The general scope of the purposes which are public, and for which, therefore, the power of taxation may be exercised, can best be illustrated by stating some of the purposes which have been held not to be public and for which, therefore, taxes cannot be properly levied. It is well settled that the legislature cannot authorize cities and towns to levy special taxes or contract indebtedness in aid of the establishment of manufacturing enterprises; for although the establishment of manufactories may be in one sense beneficial to the public, and especially to the people of the locality where they are established, nevertheless, as they are private enterprises, the immediate benefit of any bonus or appropriation would enure to the owners, while the benefit to the public would be merely incidental (Loan Association v. Topeka). Of course money might legitimately be raised by taxation or by the incurring of indebtedness for the purpose of establishing municipal works, such as waterworks, lighting plants, and the like, to be owned by the city, for the money would then be used directly for a public purpose.

It is also settled that a statute would not be valid which should authorize a city to raise money by borrowing or by taxation, to be loaned to private property owners to enable them to improve their property. In one sense it is to the public benefit that property be improved and business be carried on, but this public benefit is incidental only to the private advantage which the property owners would derive from the use of the public money. This was the conclusion reached in the case of Lowell v. City of Boston with reference to a statute in Massachusetts, authorizing the City of Boston, after a large destruction of private property by a great fire, to borrow money for the purpose of loaning it to property owners to enable them to restore the buildings which had been destroyed. For similar reasons it was held by the Supreme Court of Minnesota in Deering v. Peterson, that statutes providing for the loaning of money by the state to farmers who had suffered from a general drought to enable them to purchase seed with which to carry on their business of farming, were invalid; for while it is incidentally to the public advantage that the people be enabled to carry on their private enterprises, the immediate benefit of such an arrangement is to the private persons to whom the money is loaned. It is true that taxes may be collected and expended for the relief of the poor, but this is regarded as a public rather than a private benefit. The maintenance of indigent persons, who are unable to earn a living, has always been considered as among the purposes for which, in the exercise of reasonable discretion, public money may be used, and however unwise public charity may be in particular cases, the power to give poor relief cannot well be denied, as not within the scope of the general legislative discretion.

On the other hand, there are many purposes for which money may properly be raised and used which are deemed public although incidental private advantage results therefrom. Thus bounties may be given for acts which are deemed advantageous to the public, such as enlistment in the military service, the killing of wild animals, or the like, from which a public advantage arises, although the money is paid to private individuals. Public money may be expended for internal improvements such as the creation or preservation of water power, the construction of canals, and the improvement of the highways; although the benefits of such improvements are not equally enjoyed by all persons. So public money may be raised and expended for the construction of levees, drains, and ditches, which promote the safety and health and welfare of great numbers of persons, although it may be that many of those required to pay such taxes are not personally interested in the improvement. (See Wurts v. Hoagland.) The power of the federal government to impose a protective tariff, that is, a tax by which money is raised although the rate of tax and the subjects of taxation are determined to some extent with reference to incidental benefits to manufacturers, is upheld on the ground that as the government has a right to raise money by taxes on imports, it may, in its discretion, so adjust those taxes as to foster or benefit particular industries.

An interesting example of the exercise of the power to levy taxes or create indebtedness for a public purpose but with incidental private benefits is that of granting public aid in the construction of railroads. Such enterprises are usually organized and carried on by private capital and for private profit; and yet a railroad when constructed is in some sense a public highway, a work of public improvement. The legislature may regulate the rates to be charged by the railway company, and it may authorize the company to take private property for its right of way, depot grounds, and other necessary purposes without the consent of the owner on making him just compensation, in the exercise of the power of eminent domain. Therefore, taxes voted or bonds issued by counties, cities, or towns in aid of a railroad are for a legitimate public purpose, although incidentally for the private advantage of those engaged in the enterprise. (See Perry v.Keene and Railroad Co. v. Otoe.)

Exemption from taxation in behalf of persons or organizations devoting their property to religious, charitable, or educational purposes rests on substantially the same ground. Exemption of private property owned and used for private benefit is objectionable, because a heavier burden is thereby thrown upon other property, but if the use to which the property is put is in some sense for the public advantage rather than for private gain, it may be proper to relieve it from the general burden of taxation which rests on other property.

Indeed, exemptions have been upheld as to property used for purposes for which taxes could not be properly levied or public indebtedness incurred. Thus property used for religious purposes is generally exempted from taxation, although the levying of taxes for such purposes would not be authorized. But attempts to grant exemptions to persons using their property for purely private purposes, even though such use may be incidentally beneficial to the public, have generally been held to be unauthorized.