It must be remembered that the chief elements of welfare are above government. All the kindly affections which make the chief bonds of society are to be cultivated by good government, but cannot be forced by any law, either positive or prohibitive. Individual character in all its proportions is individual growth, which can be fostered but not forced. All the catalogue of virtues is made up of elements of character, not one of which can be made by force. So government of every grade fosters the highest welfare of individuals by sustaining virtuous motives and restraining vicious ones, or rather by encouraging right action in its enjoyment of welfare and restraining wrong action by deprivation of welfare. Government, therefore, is best when its aims are distinctly confined to universal welfare. The distinctly personal wants can be best provided for by affording the best conditions for free exercise of individual powers. Governments can never wisely do favors for a class, since such favors weaken the power of government for promoting general welfare. What government does for any it needs to do for all. What it does for all it must secure to each in fair proportion. In any effort to extend the range of governmental action this natural limit of universal welfare for individuals must be considered.

For the same reason, that everybody needs it, the government is obliged to have control of the means of transit so far as ease and safety and economy to all require. Government must maintain highways suited to the needs of the community at all stages of its development. The question of city management of street car lines, beyond such control as secures safety and essential justice, is purely one of economy for all concerned; that is, for the entire community. This economy is not settled for one community by the conditions of any other. It must be decided in each community whose interests are to be served by the actual need and abilities of that community.

The propriety of governmental control of churches and religious training must rest upon the same basis of principle. Religion is of such a personal nature, so wholly a matter of conscience, that it cannot be said in any proper sense to be universal. Yet the need of religions sentiment and freedom in development of that sentiment is universal. The state does well to provide security for religious thought, practices and fostering influences in all governmental machinery. On this ground the civil law protects a Sabbath. The state church has had its apparent reason for existence, and still has in many parts of the world, from the close connection between religious training and popular education. Naturally state churches emphasize the educational side of religions institutions. The world is coming to see more clearly the dividing line between information or thought about religion and religious action in faith, its common basis, and can leave the latter for individual growth.

In dealing with the problem of personal wickedness, a community must still draw the line between universal and individual welfare. The criminal injures all; therefore all must constrain him, and effort is made to measure that constraint by the evidence of opposition to public welfare. Vices are more distinctly individual. They touch the universal welfare in those forms which propagate vice in neighborhoods. Governments universally fail to enforce laws against personal vices wherever the danger to upright character in other persons is not clearly perceived. All restrictive legislation upon vicious habits, like intemperance, gambling or other immoral practices, is naturally aimed first at the places contrived to foster such habits, and therefore to attack the innocent. The actual working of such legislation in preventing the growth of vice is the only final test of its wisdom. What it can do is what it ought to do. In general the actual public sentiment in local communities must be the main dependence for executing such laws.

Public responsibility.—The organization of community is best for the mass of the people when all desires are allowed to give their proper impulse to action, and when every enterprise is encouraged by freedom until it is seen to infringe upon the general welfare. Any system of government which checks natural impulses and hinders individual enterprise, without clear evidence that all must suffer from such freedom, is harmful. The genuine application of the phrase "laissez faire" is in giving honest efforts free course, because these efforts secure the largest good. It really means, leave humanity free until injury is attempted. In general, government has to deal with all necessities which are identical throughout the community. Provision for those necessities and those only it is bound to make.

None of the foregoing sources of revenue, unless it be the license, and this is sometimes a mere method of taxation, can serve to any great extent the purposes of government. All government expenditures for general welfare must finally be met by some system of distributing the burden over all the people. This method of distribution is called taxation. The principal revenue is raised by taxation of possessors and producers of wealth, in anticipation of current public needs.

Principles of taxation.—Since taxation in general is simply a way of distributing expenses to those for whose benefit expenditure has been made, the first question is one of fairness in distribution. The benefits from government expenditure ought to be universal, but are not necessarily equal. Like all the good things of nature, the benefits of the government are not appreciated by all alike. No one would probably suggest the possibility of distributing the expenditure exactly in accord with advantage received. Wherever the service is distinctly personal, as in the regular mail service, an attempt is made to charge each person the average cost of the service. Even the large miscellaneous mail distribution at less than cost may be fairly borne by those who use the mail for personal advantage, since this is likely to be in proportion to the intelligent activity shown in correspondence. Some few taxes upon special commodities of questionable advantage to the multitude, like liquors and tobacco, are supposed to be paid by those who gain the only advantage received by anybody in protecting their use.

To this first principle of equity we may add others, less fundamental, but equally important in practice. Taxes must be sufficiently definite to be understood and provided for by every taxpayer. This is needed for maintaining the interest of every citizen in both the necessity and the economy of public expenditures. Taxes must be so levied and collected as to be conveniently paid. This means that private enterprise shall be hindered as little as possible in making assessments, and that times and places of collection shall be suited to the convenience of taxpayers. The collection of taxes must be by such methods as will involve least outlay, either in salaries of officials or in machinery of the collecting process. These four principles of taxation were announced by Adam Smith more than a hundred years ago, and have commended themselves to students of the subject ever since. It is evident that the last three are more explicit methods for carrying out the first. Most briefly stated; they imply equity, definiteness, convenience of paying, and economy in collecting.

Direct and indirect taxation.—For convenience of study, taxes are spoken of as either direct or indirect; that is, a tax may be levied upon one whose property or earnings must be reduced by the amount of the tax, or a tax may be levied upon one whose property when sold, or whose service when rendered to another, will be worth as much more as the burden of the tax he has paid. A poll tax, an income tax, a tax on the farm, or a tax on household goods and jewelry, is assumed to be paid by the owner or user, without reimbursement. But a tax on stock in trade—like the farmer's live stock—or upon the machinery of production or service—like railroads, insurance companies and banks—is assumed to be transferred as an additional expense to the one who finally enjoys the wealth.

Assessment of direct taxes.—Assessment implies an enumeration of property in the possession of supposed owners and an appraisement of its value. The officer making the assessment is under constraint of an official oath to give a fair valuation. The market price is supposed to control his judgment, and is usually explicitly named in law.

If all property of stated kinds were equally and fairly valued, the burden of taxation would be most fairly distributed as regards property owners. Any tendency to undervalue is sure to oppress the weaker part of these property holders. If the price of a horse is fixed at twenty dollars, when the average price is sixty, the more wealthy owner of horses whose average value is above the general average has a larger part of his property exempt than the poorer owner whose horses are below the average. In the same ratio all household goods and even farms and buildings are under-estimated.

Indirect taxes.—The methods of indirect taxation by excise and custom duties have been familiar for ages. They are usually favored by politicians who dread the opposition of the people to taxation, because the collection is so incidental to ordinary expenditures as scarcely to be realized and never clearly measured. Few users of tobacco or strong drink have any distinct idea what portion of the cost represents the government revenue. Still less in drinking the cup of coffee, or sweetening it with sugar, does the person benefited weigh the tax he pays. It is doubtful if most of those who read this, actually know that sugar pays a tax, while tea and coffee do not, in our country.

Custom, or duty.—Duties are said to be either specific or ad valorem. Specific duties are a definite sum upon every pound, ton, yard or other unit of measure, applied to the article taxed. They are easily assessed, and misrepresentation or fraud is scarcely possible. Ad valorem duties are a certain rate per cent upon the invoice value of the goods. In these, frauds are abundant, and experts are required to prevent them. Specific duties are relatively heavy upon the consumers of goods of cheaper quality. A tax of 25 cents on each yard of cloth worth a dollar is five times as heavy as the same tax on cloth worth five dollars. Equalization is frequently attempted by combination of specific duties upon all goods of a certain character with ad valorem duties upon all such goods above a certain quality.

The heavy taxes laid upon the consumption of alcoholic liquors and tobacco illustrate another device for making so-called luxury bear the heavier portion of taxes. It looks both ways, attempting to check luxurious living or vicious practices by a penalty for indulgence, and at the same time to secure a revenue as the result of such indulgence. Evidently in so far as it prohibits indulgence it is not a revenue measure; and in so far as it secures the revenue it does not prohibit indulgence. It is borne somewhat patiently, because each person feels that he can avoid the payment by ceasing to indulge himself. The universal tendency is to make it purely a revenue measure by fixing the tax just where it will not retard consumption in any material degree, and in some instances will give a quasi dignity to the dealer through his official license.

In a similar way the taxation of any form of notes or bonds or stock doubles the assessment in form without increasing the abilities. The actual property in use will finally bear the burden of both assessments. The road-bed and rolling stock of a railway are property whose value is readily estimated. The actual ownership is in a corporation which may be distinctly taxed. Certificates of stock are individual titles in that corporation whose property has already been taxed. Its outstanding bonds are simply claims against that corporation, to be paid out of that property which has already been taxed. So every note, being evidence of debt simply, is not a representative of property, but simply a claim against property supposed to exist somewhere else. It may be an absolute fiction, in being a claim against property only hoped for. The result of all efforts to treat certificates of indebtedness as personal property are hardship to debtors and apparent fraud on the part of many creditors. Even though the creditor escapes taxation by hiding his possession of a mortgage, the possibility of its being taxed is always counted in his bargain with the borrower as an important element in interest. The experience of those states in which such taxation has been abolished proves that lower rates of interest are sure to follow.

Inheritance taxes.—A device much employed for making large accumulations of wealth bear a larger portion of the community's burdens is a heavy tax upon inheritance. Since such inheritance requires the guardianship of law for security of transfer, government is suffered to take a liberal fee for such transfer. Moreover, the inheritor is assumed to have no such property interest in what has been accumulated by another as to claim that he can be wronged if government takes a portion. It is defended also by socialists on the ground that large estates are dangerous to the general welfare.

Special taxes.—A multitude of minor devices are worthy of brief consideration. An occupation tax on business men is easily levied, but bears unequally upon the original payers, and in the end falls most heavily upon the poorest. A house tax, measured by the number of rooms, or the number of windows, or the number of fireplaces, has been supposed adjustable to actual income of the possessors. But it bears very heavily upon men in certain professions requiring house-room, and forces the poor into narrow and crowded quarters. The rent of the poor is necessarily a larger proportion of their living expenses than that of the well-to-do. It is a serious hardship when a tax is levied upon that which a man cannot possibly save.

These statements are somewhat inconsistent with each other. If rent is of such a nature, as assumed at the beginning of the argument, that it cannot directly affect all values because it depends upon those values for its existence, a tax levied upon it cannot be distributed but rests wholly upon the landholder. If, on the other hand, a tax on land is distributed among all consumers of its products, there is no economic rent, but the burden rests upon the consumers alone, according to the amount consumed, subjecting this tax to the objection against all indirect taxes that the poor bear the heavier burden.

Again, it provides no system of taxation in newly settled communities where land has practically no value except from improvements. Unless a fictitious value be given to such land for purposes of taxation, as sometimes happens with reference to non-resident land-holders, no government could be maintained.

Finally, since under this system government assumes a control over landed estates, from which it exempts all other forms of property, it tends toward the nationalization of land, which would necessarily destroy the system itself. For if government claims all increment from land production, land ceases to be property and does not pass from owner to owner at a market value: then government fixes arbitrarily the rental of space, and taxation is distributed upon a new principle. If a new principle were not to be assumed, there could hardly be a device conceived more likely to make the rich richer and the poor poorer. Farmers, of all men, are best situated to realize the unequal workings of a single land tax system.

Government debts.—An important part of government machinery is connected with its ability to make use of borrowed capital. Under the pressure of heavy expenditures in case of war, or in undertaking permanent improvements in a new country, or in carrying on various enterprises for common welfare, the demand for means is greater than the supply from ordinary modes of taxation. Not even the special devices of war taxes can meet at once the burdens of a defensive war. The rightfulness of such expenditures upon the credit of the government depends upon the object to be secured. The expense of the war which defends and preserves the future home of posterity may properly be borne in part, at least, by posterity. The court house, the water works, or the electric plant, whose benefits will be shared by the people for a hundred years, may properly be so constructed that all the people benefited may share in the burden. Good economy requires the foresight which builds beyond mere present need. The danger is that expenditure made under expectation that others will pay may be wasteful, and often other reasons than actual needs in the interest of private speculation control.