The Cost of Government.—The cost of maintaining the national government and all its activities is now about four billion dollars per year, in other words about forty dollars per annum for every man, woman, and child in the country. The cost of maintaining state and local government varies in different parts of the country, but it would be safe enough to put it down as three billion dollars more, or thirty dollars per head. In round figures, therefore, the average tax payment every year for each individual in the United States is at least seventy dollars.^[211]

Bear in mind, however, that only a small part of the whole population is earning the income which enables these taxes to be paid. When we eliminate all the children, all the women who are not employed in any income-earning occupation, all the public officials who are paid out of taxes, all the delinquents, cripples, paupers, unemployed, and so on—when we subtract all these from the total it will be found that only one person in five is an actual income-earner. From the earnings of these twenty million people the entire seven billions in taxes must be paid; there is no other source from which the taxes can come. A little mental arithmetic will readily demonstrate, therefore, that every income-earner in the United States pays, on the average, at least $350 per year in taxes of one sort or another, in other words about a dollar a day.^[212]

Who Pays the Taxes?—“Oh yes”, someone will say, “but most people earn small incomes and pay no taxes at all, or almost none. The heavy taxes are paid by wealthy men and women who own property and have large incomes.” That is misleading. People who own property and earn large incomes are the ones who actually hand the collector his tax-money, to be sure; but they merely give him, for the most part, money which they have collected from others. The owner of an apartment house collects taxes from his tenants in the form of rent; the storekeeper collects taxes in the price of his goods; the lawyer and the doctor collect taxes when they charge fees. Taxes are an element in the cost of everything, an element just as certain as interest, wages, or profit. Everyone who rents a house, buys goods, or hires any form of service pays taxes. If you analyze the various items which make up the price of a suit of clothes, for example, you will find that they usually come in this order of importance; wages, cost of materials, taxes, profits, interest.^[213] The chief factors which make up the rent of a house are interest, taxes, and profits in the order named. Hence it is that while landlords, merchants, manufacturers, and others make the direct payment of taxes to the government, they in turn pass the burden to tenants and consumers.^[214]

The Incidence of Taxation.—Taxes, therefore, do not usually stay where they are levied. They are shifted from one shoulder to another until they finally reach someone, usually the ultimate consumer, who cannot unload the burden upon anybody else. This ultimate resting-place of a tax is called its incidence, and an important thing about any tax is to discover just what its incidence is; for the justice or injustice of taxation depends upon the ability of the actual taxpayer to bear the burden and not upon the wealth of the ostensible taxpayer. If the government were to levy a tax of one cent per loaf upon bread, there would be a storm of protest because everybody would recognize it as a direct tax upon one of the necessities of life. But a tariff duty on wheat, or a property tax on flour mills or bakeries, is just as certainly a tax on bread and is paid ultimately by those who buy it. The chief difference is that in the latter case the payment is made by the consumer without his knowing it.

Most people pay taxes unknowingly. Their taxes are concealed in rents or prices, and they complain bitterly that these things are high. It does not occur to the average American wage-earner that if taxes were lower, rents and prices would be lower, and that if there were no taxes, it would be exactly the equivalent to finding every morning, on coming down to breakfast, a crisp, new dollar-bill on his plate. Demagogues tell us that trusts, and profiteers, and other forms of organized avarice are responsible for high prices; but one of the biggest factors in the high-cost-of-living is the high-cost-of-government.

If this enormous flow from the nation’s earnings into the public coffers were wholly, or even largely, used to promote and encourage production, it would not be so bad. Much of it is wasted, or spent without adequate return. This takes place because the people do not keep close watch on the officials whom they elect to public office and do not hold them to a strict accountability when public money is squandered. More than a hundred years ago the most eminent of American jurists, Chief Justice John Marshall, pointed out that “the power to tax involves the power to destroy”. He was right; the power to tax is the most far-reaching power that any government can possess. By the use of the taxing power a government can take from the people what they would otherwise save, thus preventing the increase of the nation’s wealth and ultimately breaking down its prosperity.

How Taxes Differ from other Payments.—Taxes differ from most other payments in two respects. |(a) compulsory.| First, they are compulsory. No one need pay interest, rent, wages, or prices unless he bargains to do so; but the payment of taxes is not the result of any bargain. Taxes are levied without any reference to the initiative or wishes of the individuals upon whom they may fall, except, of course, in so far as these individuals by their votes may have an influence in determining the general taxing policy of the government. |(b) levied without reference to service rendered.| Second, taxes are not payments made to the government by individuals and corporations in return for services rendered. The man who rides a hundred miles on a railroad pays twice as much as one who goes half that distance, because he gets twice as much for his money. But the man who pays a thousand dollars in taxes does not get twice as much in benefits from the government as the one who pays only five hundred dollars.

Nearly all payments that we make are in the form of a quid pro quo; they are in proportion to the benefits which we receive. This is the case in payments for all forms of goods or services—the one great exception is the payment of taxes. Taxes have no direct relation to benefit; those who pay very little in taxes, either directly or indirectly, sometimes receive a large return in the form of public services. Take for example the taxes that support the public schools. The fact that a wealthy man has no children, or prefers to send his children to a private school, does not relieve him of the obligation to pay his full share of what public education costs the community. On the other hand, a man whose contribution in taxes is very small may send a dozen children, one after another, through the public schools without any extra cost.

It would not be possible to base taxation upon service, because there is no way of knowing how much benefit each individual receives from the government’s work. Do some individuals, for example, obtain more benefit than others from the maintenance of law and order or do all derive benefit alike? Who gets the greater benefit from clean streets, the rich man who drives his motor car over them, or the poor man whose children use the streets as a playground? Taxes could not be adjusted to benefit. Even if they could be so proportioned, it would be unwise to do so. The general interest requires that everyone should enjoy the benefits of police protection, the public schools, the parks, the playgrounds whether they are able to pay for them or not.^[215] So taxes are levied in order to pay for these things, not on a basis of individual benefit, but simply by putting the heaviest burden in the first instance upon those who are best able to pay it, letting them shift it if they can.

Principles upon which Taxes are Levied.—How is the ability of individuals to pay taxes estimated? It is done by taking some such thing as property or income as the basis. Those who have more property or income are called upon to contribute more than those who have less. |The basic principles of taxation according to Adam Smith.| About a hundred and fifty years ago a famous writer on economics, Adam Smith, laid down four principles to which all taxation should conform. These maxims of taxation are now everywhere recognized as valid and are worth remembering. Briefly stated, they are as follows: People should be taxed according to their ability to pay; all taxes should be definite and not uncertain or arbitrary; they ought to be levied at the time and in the manner which causes the least inconvenience to the people; and they should be so contrived as to take out of the pockets of the people as little as possible over what is needed by the public treasury. Those who make the tax laws do not always heed these maxims, and taxes are sometimes levied on the principle of getting the most money with the least trouble.^[216]

Local Taxes.—The greater portion of the taxation levied by cities, counties, towns, and villages is in the form of taxes on property. This is a direct tax and as a rule it is levied on all private property, of whatever sort, at a uniform rate of so much per thousand dollars of valuation. |The general property tax.| A tax levied in this uniform way on all private property is called a general property tax. In some states, however, provision has been made for classifying the various kinds of property and taxing each kind at a different rate. Property is first classified into two divisions, real property, and personal property.^[217] Real property (or real estate) consists of land, buildings, and other fixtures established on the land; personal property consists of, first, tangible things of a movable nature such as household furniture, machinery, merchandise; and second, intangibles such as bonds, mortgages, and bank deposits. |The classified property tax.| Where there is a classified property tax, each of these three forms (real property, tangibles, and intangibles) is taxed at a different rate. One reason for taxing them at different rates is that real estate requires a great deal more in the way of public services (for example, in paved streets, water supply, sewerage, etc.); another reason is that while real property cannot evade taxation intangibles can usually do so when the tax is too heavy.^[218] If the rate of taxation on intangibles is lowered, the temptation to evade is not so great. It will usually be found that more money will come into the public treasury from a moderate rate of taxes on stocks and bonds than from an oppressively high rate.

A few communities also obtain some revenue from another direct tax, the poll tax, which amounts to one or two dollars per year on each adult. In some cities franchise taxes are laid upon public service companies (such as gas, electric lighting, and street railway companies). The proceeds from these sources do not form any large proportion of the total revenue.

All collecting of taxes is preceded by a formal step known as assessment. No tax can be legally collected unless it has been assessed in ways prescribed by law. Property of all kinds is valued for taxation by officials known as assessors. Usually they are county or city officials, sometimes appointed, sometimes elected. They re-value property at stated intervals and set their assessment at what they believe to be the market value (unless they are instructed to assess at a percentage of the market value as is the case in some states). Income taxes, corporation taxes, and inheritance taxes are assessed by the tax officials on the basis of sworn statements made to them by the taxpayers.

In the case of such public improvements as sewers, street pavements, and sidewalks it is the custom in many cities to levy a special assessment upon the owners of the property that is benefited. These special assessments are levied in proportion to the benefit received; they are not taxes in the ordinary sense. |Taking property for public use.| When the nation or state or city requires land for public improvements it has the right to acquire it from the owner, even though he be unwilling to sell. The public authorities, by their right of eminent domain, can take land or other property for public use at any time, but must give the owner just compensation. If the amount of compensation cannot be agreed upon between the government and the private owner, it is fixed by the courts.

State Taxes.—The states obtain their revenue in various ways. One common method is by requiring the cities, counties, or towns to pay over to the state a certain fraction of the sums which they collect on property. Thus, when the citizen gets his bill for local taxes he finds it itemized—so much for state taxes, so much for county taxes, and so much for city or town taxes. Most of the states also levy taxes on corporations, including railways, telephone companies, insurance companies, and banks. These taxes may be calculated upon capital or net earnings or deposits or upon some other basis. A few states tax inheritances and a few levy a state income tax. Taxes on inheritances are usually progressive, that is, the rate is higher in the case of large inherited fortunes. State income taxes are levied upon the net earnings of individuals or partnerships, a certain minimum income being left exempt. Most of the states have other miscellaneous sources of revenue, some of them important, as, for example, the annual license fees imposed upon all owners of motor vehicles.

National Taxes.—The national government, by reason of its need for larger revenues in recent years, has resorted to many forms of taxation. At the present time the principal sources of national revenue are the taxes on the incomes of corporations and individuals, the customs duties, the excises, and the inheritance taxes. The national income taxes are levied upon the net earnings of all individuals, partnerships, and corporations above a certain minimum. The rate of taxation, in the case of individual incomes, is progressive—a normal tax is laid upon all incomes up to a certain figure and surtaxes are levied upon incomes above this amount.^[219] Under the original provisions of the constitution, the national government could not levy direct taxes unless it apportioned them among the several states according to their population, and according to a decision of the Supreme Court in 1894 an income tax is a direct tax.^[220] But the Sixteenth Amendment, adopted in 1913, now gives the national government authority to tax incomes “from whatever source derived” without the necessity of apportionment among the states. Once a year every person or corporation earning a net income above the prescribed minimum must make a sworn statement setting forth the exact amount of such earnings, and upon this “income tax return” the legal rate is assessed.

Duties on imports still yield a large revenue, as they have done every year since 1790. No duties may be laid upon exports, such duties being forbidden by the constitution. This is in some respects unfortunate, because duties on exports go into the price of the exported goods and thus fall upon the foreign consumer. A tariff on exports (such as lumber, coal, and ore) would not only yield a considerable revenue but would help to conserve the natural wealth of the United States. The excises are levied upon tobacco, theatre tickets, and other things which are rated as luxuries.^[221] The national government also levies an inheritance tax, the rate of the tax depending upon the value of the property inherited. These various taxes bring in between three and four billion dollars per year.

The Two Purposes of Taxation.—The main object of all taxation is to produce a revenue. But this is not the only object. Taxation may also be used to bring about such social reforms as the nation or the community may deem desirable, and taxes are sometimes adjusted to this end. For example, the manufacture of goods by the use of child labor can be checked by placing a heavy excise tax upon such products.^[222] It is believed that the growth of large fortunes can be checked by the imposition of heavy surtaxes on large incomes and on inheritances; the present national taxes on incomes and inheritances have been framed with this end in view to some extent. In other words the system of taxation can be used and is being used in some measure to secure such economic and social readjustments as Congress and the state legislatures think desirable. The question is: How far should the law-making bodies go in this direction? Many people believe that “swollen fortunes” are an evil in a democratic society and that all earnings above a certain point should belong to the community. Others feel that heavy surtaxes place a damper upon ambition, that they lessen the amount of money saved by the whole people, thus reducing the amount of capital available for industry, and that they give the government large sums which are spent wastefully.^[223]

Tax Exemptions and Extravagance.—When taxation is regarded as a means not only of raising a revenue but also of redistributing wealth it takes on grave possibilities of abuse. The majority among the voters can always find reasons for increasing the burdens on the minority; the wage-earners urge that more taxes ought to be placed on the rich and insist that they themselves be exempted from taxation upon their incomes. The chief evil in all this is not the injustice to the rich, for they usually manage to shift the burden down the line till it comes back upon the wage-earner; the unfortunate part of it is that the masses of the people, proceeding under the delusion that they pay none of the taxes, are quite unconcerned when they see large sums of money being collected by the government and spent wastefully. They do not realize that it is their money; that they earned every cent of it before the government obtained it to spend. If they could be induced to see matters in this light, they would never permit their representatives in Congress, in the state legislatures, and in city councils to throw money around with such a lavish hand. Tax exemptions and extravagance are twin brothers.

Proposed Reforms in Taxation.—Various new forms of taxation are proposed from time to time. Many years ago a well-known American social reformer, Henry George, advocated the placing of all property taxes on land alone, allowing buildings and personal property to go untaxed altogether. His argument was that the high value of land in cities and towns is created by the community, not by the owner. Vacant land in the downtown portion of a large city is sometimes worth many hundred dollars per foot. What gives it this high value? Not the owner, for he has done nothing to improve it. The growth of the city round about this land has made it valuable. This “unearned increment” of value, therefore, Henry George proposed that the community should take by levying a very heavy tax upon it.^[224]

The single tax proposition, as above outlined, has many earnest advocates; but it has made very little progress as a practical policy in this country. The objection commonly raised against the proposal is that it would be an outright confiscation of a certain form of private property, namely, vacant land; that the single tax on the site value of improved land, like taxes on buildings used for industrial or mercantile purposes, would merely be shifted to the tenant and by him transferred in the form of higher prices to the consumer; and that the amount derived from the single tax would not yield enough to relieve the people from paying other forms of taxation.

More recently a good deal of discussion has taken place concerning the desirability of a general tax on sales at a uniform rate. It is argued that such a tax would fall directly and proportionately on all the people; that it would be so small as to have only the slightest effect upon prices; that it would be easy to collect and hard to evade. Such a sales tax at one per cent would probably yield nearly a billion dollars per year to the national treasury. On the other hand the objection is made that a tax of this sort would be a real hardship upon masses of the people who have small incomes and would be felt much less severely by the well-to-do.^[225]

The Spending of Public Money.—When taxes are collected they go into the public treasury of the nation, state, or community. Once in the treasury the money cannot be spent until it has been finally appropriated by Congress, by the state legislature, by the county board, by the city council, or by whatever body possesses the power to make appropriations. Appropriations are usually made once a year in the form of a budget, and the manner of making a budget is as follows: On or before a given date the various administrative departments (such as the parks department in cities or the departments of highways in states) make their estimates of expenditure for the next twelve months. Along with this, for purposes of comparison, a statement of probable revenue from taxes and other sources is prepared by the financial officers of the state or local government.

The estimates are put together and submitted to the mayor, the governor, or some other designated officer, who transmits them to the council or legislature as the case may be. The lawmaking body then considers the estimates, item by item, and finally votes the entire list after making such changes as it finds desirable. This budget, in cities and states, usually requires the approval of the mayor or the governor and may be vetoed like other measures. In some states the governor may veto individual items in the budget while letting the others stand, but as a rule he is required to accept or reject the appropriation bill as a whole. The general tendency is to give the executive branch of the state and local governments larger powers in budget-making so that the responsibility for any extravagance may be better centralized.

The National Budget System.—Until 1921 the national government made its large annual expenditures without any regular budget system at all. Each department (war, navy, agriculture, and so on) prepared its estimates and sent them to the Secretary of the Treasury, who presented them to the President for transmission to Congress with whatever recommendations he might choose to make. In addition to this every senator and representative had the right to propose appropriations, and hundreds of such proposals were made in Congress at every session. The practice, prior to 1921, was to refer all the departmental estimates and all the individual proposals to various committees. All estimates and bills for army expenditures went to the Committee on Military Affairs; all such measures relating to the postal service went to the Committee on Post-Offices, and so on. Eight or nine committees each took a hand in considering these proposals to spend money; each did its work without reference to what the other committees were doing; and each made its own recommendations to Congress.^[226]

The result of this procedure was that no general plan for keeping down the expense could ever be effectively put into force, there being too many independent committees to deal with. In 1921, however, Congress passed an act providing for the establishment of a national budget system and the rules of both chambers in Congress were altered so as to carry the new plan into effect. |The new budget system.| The departmental estimates now go to an official in the Treasury Department known as the Director. He puts them together into a budget and with the President’s approval submits them to the House of Representatives. Here they are considered by a single large committee, known as the Appropriations Committee, and all proposals of expenditure made by individual congressmen (after they have been approved by the committees directly concerned) are also submitted to this committee. The latter then lays before the House a complete budget or plan of expenditures for the ensuing fiscal year. When this budget, with or without changes, passes the House, it is forwarded to the Senate, where it is likewise considered by a single committee. After it has been passed by the Senate it goes to the President for his approval. The President cannot veto individual items in the budget but must accept or reject it as a whole. This is a serious handicap because the rejection of the entire budget would leave the departments without funds with which to carry on their work. The great advantage of the new budget system is that it enables Congress to make a comprehensive plan of expenditure for the year and thus to hold the expenses within the estimated revenues.

Public Debts: Why Governments Borrow Money.—Nearly all nations, states, counties, cities, and even villages have debts. Why do they find it necessary to borrow money? Why should they not, like wise individuals, adopt a pay-as-you-go policy? The reason is that such a policy would be very unfair to the present taxpayers.taxpayers. Suppose, for example, that a town or city builds a new high school. The building will cost a great deal of money and may reasonably be expected to serve its purpose for twenty, thirty, or even forty years. Now there are two ways in which the community can defray the cost: It can levy a heavy tax rate upon the property of the people at once, doubling or trebling the usual tax rate if necessary, and thereby obtaining the money with which to pay cash for the school. Or, on the other hand, it may borrow the money and arrange that this amount (with interest) shall be repaid in annual installments over twenty or more years, thus spreading the burden over the whole period in which the building fulfils its purpose.

Which of these is the fairer method? The latter plan has the merit of placing the burden upon all those who get the benefit; but it has the defect of saddling the taxpayers of the future with a debt which they have had no share in creating. Governments, however, are much more concerned with the present than with the future, for it is the present taxpayer who decides the elections. Wherever practicable, therefore, they endeavor to finance public improvements by selling bonds rather than by increasing the present tax rates. State roads, public buildings, bridges, and other costly enterprises are financed by borrowing. The construction of the Panama Canal by the national government was not paid for at the time; the money with which to build it was borrowed by issuing long-term bonds. Governments sometimes go further and borrow money to make good a shortage in current expenses. This is an unwise policy; not one honest word can be said in favor of it. Current expenses should be paid from the taxes of today, not from the taxes of ten years hence. When a government borrows money to pay current expenses it usually defends its action by saying that the people approved it at the polls. Of course the people will usually approve things of this sort. When you ask a man whether he prefers to pay for a thing himself or let somebody else pay for it, there is little doubt what his answer will be.

War is the greatest cause of borrowing. During the Civil War the United States government borrowed about three billion dollars, most of which was repaid within thirty years. During and immediately after the World War it secured, by the issue of Liberty Bonds and Victory Notes, about twenty-six billion dollars, all of which becomes repayable at various dates before 1950.^[227]

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How Borrowing Takes Place.—When governments decide to borrow money there are two ways of doing it. If the money is needed for a short time only, for example, to pay expenses until the taxes come in, it can be borrowed from the banks on short-term notes. The national government, for its short-term borrowing, issues treasury notes, running for a year or less. These bear interest and are sold to the banks which re-sell them to private investors. But if the money is needed for a longer period, the usual plan is to issue bonds. These bonds, as already pointed out (p. 445) are promises to pay, and the government pledges its credit to repay them promptly when they mature, with interest every year or every half-year meanwhile. National, state, and local bonds are for the most part exempt from taxation.^[228]

The Burden of the Public Debt Today.—The borrowing power of the national government is not limited by any provision of the constitution. Congress may borrow money up to any amount. The national debt today is about twenty-three billion dollars, as against only one billion before the war. The yearly interest on the present debt, in fact, is about as large as the whole of the old debt. Arrangements are being made, however, to lessen this interest-burden by obtaining interest payments from foreign countries upon the loans made to them by the United States during the war.

In the case of the states and cities the power to borrow money is not unlimited. The state constitutions usually contain provisions as to how much money may be borrowed and for what purposes. Sometimes they provide that state debts may not be created except by vote of the people. Cities are also, in most cases, bound by debt limits which are fixed by the state constitution or by state laws. The limit, as a rule, is flexible; it enables the city to borrow money up to a certain percentage of its assessed valuation, so that when the value of property goes up the borrowing power becomes enlarged. State and city debts have been increasing at a rapid rate; on the whole more rapidly than population or wealth.^[229] The tendency is to put a large share of the burden on the shoulders of the next generation. It is right that future taxpayers should bear their share, as has been said; but they should not be called upon to do more than that.^[230] It is probably within bounds to say that thirty to forty cents out of every dollar which we pay in taxes today goes for interest and debt repayments. Before long, if we keep on, half the taxes will go to pay for past obligations. The large cities are the worst offenders; some of them are mortgaging the future at an alarming rate. Stricter laws relating to local borrowing are needed, but more essential still is the awakening of public opinion to the realities of the situation.

How Public Debts are Repaid.—When bonds are issued by the public authorities some provision ought to be made for paying them at maturity; but this is not always done. |Refunding.| The national debt, when portions of it become due, is sometimes refunded, that is, paid off by issuing new bonds. |Sinking funds.| In the states and municipalities the usual plan has been to establish a sinking fund when the bonds are issued, and then to pay a certain installment into this fund out of each year’s taxes. By this process the sinking fund grows year by year until it is sufficient to pay off the bonds when they become due. |Serial issues.| A better plan is to issue the bonds in such form that they will fall due serially, that is, one or more bonds coming due in each successive year of the loan period. Then, instead of creating a sinking fund to pay off the whole debt at one time, the bonds are paid off one by one. The serial bond plan does away with the necessity of holding large sums in hand awaiting the maturity of the debt, and thus diminishes the risk of loss through poor investment or corruption.

Are Public Debts a Public Evil?—Alexander Hamilton, who was Secretary of the Treasury in Washington’s first cabinet, propounded the doctrine that a public debt, if not too large, is a source of strength to the government. He argued that when government bonds are widely held by the people, all those who own the bonds are interested in the stability and prosperity of the nation. Other noted financiers at various times have contradicted Hamilton and have declared all public debts to be public evils in that they impose burdens on the people without giving them anything tangible to show for it. But the truth is that public debts do not fall entirely in either class. They are benefits in one sense and evils in another. The power to borrow, like any other power, may be used wisely or unwisely. In times of great emergency, or for public improvements of permanent value, money may very properly be obtained by borrowing; always provided, however, that arrangements are made to pay off the debts within a reasonable time. The evil comes when governments borrow money in order to pay current expenses or to defray the cost of improvements which are not needed, and when they complacently allow the debt to pile up, year after year, with no thought of reducing it. “Sufficient unto the day is the evil thereof”, it is said; but we can also make the evil sufficient unto the future as well.

C. A. Beard, American Government and Politics, pp. 358-378; Ibid., Readings in American Government and Politics, pp. 323-342;

F. W. Taussig, Principles of Economics, Vol. II, pp. 483-561;

Everett Kimball, National Government of the United States, pp. 445-479;

W. B. Munro, Government of the United States, pp. 233-245; Ibid., Principles and Methods of Municipal Administration, pp. 403-478 (Municipal Finance);

C. F. Bastable, Public Finance, pp. 261-280pp. 261-280;

E. R. A. Seligman, Essays in Taxation (9th edition), pp. 66-99 (The Single Tax);

C. J. Bullock, Selected Readings in Public Finance, pp. 39-49; 143-157; Ibid., Introduction to the Study of Economics, pp. 493-520;

C. C. Plehn, Introduction to Public Finance, pp. 310-327;

American Academy of Political and Social Science, Taxation and Public Expenditures, pp. 1-283 (Annals, Vol. XCV, May, 1921).

1. Should the present rate of national income taxes and surtaxes be raised or lowered? The Income Tax Law of 1913. The increase in rates during the war. The changes made in 1921. Are the present exemptions fair? How do the surtaxes operate? Are they shifted by the taxpayers to others? How? The flow of investments into non-taxables. Examples. Is a progressive rate justifiable in order to promote a greater approach to equality in net incomes? Conclusions. References: C. C. Plehn, Introduction to Public Finance, 4th ed., pp. 270-309; G. N. Wilson, The Income Tax, pp. 1-11; F. R. Fairchild, Federal Taxation of Income and Profits (American Economic Review, Vol. XI, No. 1, Supplement, pp. 148-159); R. M. Haig, The Federal Income Tax, pp. 1-25; J. A. Hobson, Taxation in the New State, pp. 95-110; American Academy of Political and Social Science, Taxation and Public Expenditure, pp. 180-187 (Annals, Vol. XCV, May, 1921).

2. How public budgets are made. H. J. Ford, The Cost of Our National Government, pp. 11-21; S. G. Lowrie, The Budget, pp. 11-30; F. A. Cleveland, Chapters on Municipal Administration and Accounting, pp. 67-81; Cyclopedia of American Government, Vol. I, pp. 181-184; Massachusetts Constitutional Convention, 1917-1918, Bulletins, No. 2 (State Budget Systems in the United States); American Academy of Political and Social Science, Public Budgets, pp. 36-46 (Annals, Vol. LXII, No. 151); Ibid., Taxation and Public Expenditure, pp. 228-250 (Annals, Vol. XCV, May, 1921); U. S. Bureau of the Census, Financial Statistics of States; Financial Statistics of Cities. (Each is published annually.)

3. A study of the per capita cost of selected administrative departments in your own state or community compared with those of other states or communities. (Adequate data for this study can be found in two annual publications of the U. S. Census Bureau, namely, Financial Statistics of States, and Financial Statistics of Cities. For an example of such a study, in brief form, see W. B. Munro, Principles and Methods of Municipal Administration, p. 457.)p. 457.)

1. The principles underlying taxation. F. W. Taussig, Principles of Economics, Vol. II, pp. 483-496.

2. The power of Congress to tax. W. B. Munro, The Government of the United States, pp. 221-227.

3. Income taxes in foreign countries. E. R. A. Seligman, The Income Tax (2d ed.), England, pp. 167-218; France, pp. 273-328; Germany, pp. 223-272.

4. How the Civil War was financed. D. R. Dewey, Financial History of the United States, pp. 298-333.

5. The mobilization of American finances during the World War. W. F. Willoughby, Government Organization in War Time and After, pp. 50-66; E. R. A. Seligman, Essays in Taxation (9th ed.), pp. 750-782.

6. Excises as a source of revenue. C. J. Bullock, Selected Readings in Public Finance, pp. 449-472.

7. The general property tax. F. W. Taussig, Principles of Economics, Vol. II, pp. 528-549.

8. The tariff as a source of revenue. C. J. Bullock, Selected Readings in Public Finance, pp. 425-448.

9. The single tax. E. R. A. Seligman, Essays in Taxation, pp. 66-99.

10. The wastefulness of the old appropriation system. P. S. Reinsch, Readings on American Federal Government, pp. 355-361.

11. State debts and debt limits. Massachusetts Constitutional Convention, 1917-1918, Bulletins, No. 15 (Constitutional Restrictions on State Debts).

12. Municipal debts and debt limits. Ibid., No. 14 (Constitutional Restrictions on Municipal Indebtedness).

13. Methods of borrowing: sinking funds vs. serial bonds. Ibid., No. 21 (Methods of Borrowing: Sinking Funds vs. Serial Bonds).

14. The classification of property for taxation. Ibid., No. 20 (Classification of Property for Purposes of Taxation).

15. The new national budget system. F. A. Cleveland and A. E. Buck, The Budget and Responsible Government, pp. 371-381.