by them. You will find the latter is not over 15 per cent or 20 per cent of the first figure you have.

I have to admit that these are estimates only, and, unless our plan can be accepted on the judgment of men able to estimate fairly correctly, or upon its merits only, it may be necessary first to have a commission of experts fully appraise all tangible property in a few districts and make a detailed estimate of all intangible property that should be found, and thus furnish the legislature some definite figures of what the possibilities are for revenue from our proposed low-maximum rate. In any event, the authorities should be content to demand only what is easily collectible and presume that those from whom they collect it will be honest; and not as now make a demand that they know will not be paid by all in the same proportion and which results in making each inhabitant a more or less immoral person. The authorities, knowing the result, are more immoral and more to blame than are the owners of the property.

It is only natural that the authorities should fear that such an extreme cut in the tax rate would reduce their revenue, at least for a year or two. It would in any event take one or two years properly to train men for assessors, to educate the people to a new order of things, and to perfect the machinery, and, unless this were done before any new order went into effect, a loss of revenue might be expected. To take care of this the authorities might be given authority to issue bonds to make up the difference between the amount collected and the revenue of the year before. Then they could put the more expert or extra men on the work of checking over the returns and obtaining the missing and undervalued property, applying all so collected to the payment of bonds thus issued. Any remedy would have the same difficulty at first. However, this is looking rather far ahead. I take it we should first find a remedy for present conditions that will be equitable and just to the property owner as well as fair to the authorities and one that can, with the tools with which we have to work, be fashioned into a fairly simple working proposition. The question of revenue is secondary, though important. You will note I have again reversed the usual order

of approaching the question; viz., conditions first, revenue second.

The second part of our plan is not new and it is decidedly only supplementary to the first part, for we do not wish to ask for more strength to the arm of authority until its demands are reduced to what can be considered reasonable.

In our state the authorities have the power, but, as we believe, because of the high rate there is no public opinion behind the powers, and laws without such backing are never enforceable.

To summarize: We assert that when, for the purpose of determining its contribution to the revenue, a property has been reduced to the owner's investment of money therein, i. e., appraised at its full market value, its power of earning for the owner can be computed as being not more than the current interest rate of the money investment so found. Therefore, the tax rate on such invested funds so found should not be greater than what is considered proper for and collectible of money itself. And because the tax rate has been made four to six times this proper and collectible rate we have all the well-known absurd yet deplorable conditions found in our property tax system. Our remedy is: With this principal compute and fix a rate that is reasonable and just, and then by ordinary methods the same or more revenue will be collected, the absurd and deplorable conditions will not occur, except where they can be easily controlled and managed with the power that will be given. We assert that no power that might be given would better the conditions unless the rate were first reduced by three-fourths to five-sixths of the present rate.

In conclusion, I would ask you to believe that in putting out this plan we had no other thought than to find a remedy for our present conditions, one that would be within our state constitution. We had no thought of defeating classification that so many of you have so ably advocated, nor to defeat any other tax system, for instance, single tax. Either of these may be a better system of obtaining revenue, but they are not yet engrafted into our constitution. And we do not think we should wait for that to be consummated before we can

and should better our present deplorable conditions. If by coming here I can enlist experienced men in the work to be done in our state of having our plan discussed, we shall consider we have done well so far. In any event I appreciate the honor of being asked to lay our plan before you, and I trust it may at least be of some use in precipitating the best remedy the aim we are all seeking.

THE STATE INCOME TAX AND THE CLASSIFIED

PROPERTY TAX

CHARLES J. BULLOCK

Professor of Economics, Harvard University

I

DURING the past decade two plans for the reform of state and local taxation have gradually forced themselves to the front: the classification of property and the substitution of income for property taxes. Both have now passed beyond the stage of mere discussion, and have been subjected to the acid test of experience. Both have a record of successful achievement, but neither can claim to have solved all taxation problems. Both have advocates and both have critics. It would seem, therefore, that the time has come when a comparative study of the classified property and state income taxes can be profitably undertaken.

The classified property tax was first in the field. When it was seen to be impossible to enforce the uniform taxation of all classes of property at the high rates prevailing in the United States, it was natural that some of the commonwealths should diversify their practice by classifying some kinds of property for taxation by special methods and at lower rates. Prior to the present decade this was undoubtedly the line of least resistance for the average state. Our people had always been accustomed to the taxation of property, and were inclined to regard the income tax as inquisitorial. Then, too, taxation of incomes had been tried by a few states, and had always proved a signal failure; so that it had come to be generally agreed that the states could not, and should not, impose taxes upon incomes. Prior to the discussions attending the ratification of the sixteenth amendment of the Federal Constitution, the income tax would have been the line of greatest resistance in the average state. But the coming of a federal income tax and the successful inauguration of a state tax on

incomes by Wisconsin have wholly changed the situation. Oklahoma and Massachusetts have recently enacted income taxes, New York has had such a measure under consideration, Connecticut has imposed an income tax on certain classes of corporations, and much interest has been aroused in several other states. Today the income tax appears to enjoy at least a large measure of popularity, and may prove in many states to be the most practicable method of remedying the evils of the general property tax.

II

Comparative study of the two plans of taxation requires first of all some consideration of the results so far achieved, and I begin with the classified property tax.

Intangible property is now classified for taxation at flat rates, ranging from two to five mills in the dollar, in six states, namely, Pennsylvania, Maryland, Minnesota, Iowa, Rhode Island, and North Dakota. In the last state the law is of such recent date that no statement about the results is possible; but in all the others except Iowa the flat tax has been a financial success. In Iowa the experiment was made under the worst possible administrative conditions, and the immediate result was a loss of revenue, though not so large as has been represented by opponents of the flat tax; but subsequently the assessment of intangibles materially increased, and the present prospect is that, even under unfavorable conditions, the new law will give a better financial result than the old.

To form a just estimate of the working of the flat tax it is very necessary to observe the exact scope of the tax in each state before making comparisons with others. This the few critics invariably fail to do. Not all kinds of intangible property are subject to the flat tax in any of the six states.

1 In 1915 Virginia imposed a state tax of 65 cents per $100 upon intangible property, and limited local levies to 30 cents; with the result that the maximum rate on intangibles is now 95 cents per $100, or nine and one-half mills. I am not sufficiently informed about the results of this legislation to justify an expression of opinion on the subject. In 1916 a four mill tax on intangibles was established in the District of Columbia where such property had been exempt from all taxation since