DISCUSSION

National Tax Association

DISCUSSIONSource: Proceedings of the Annual Conference on Taxation under the Auspices of the NationalTax Association, Vol. 10 (AUGUST 28-31, 1916), pp. 94-101Published by: National Tax AssociationStable URL: http://www.jstor.org/stable/23399473 .

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DISCUSSION

Me. W. H. Habt, of Indiana : I did not expect to enter into the discussion of this question, although Indiana seems to be the curtain-raiser for the program that is to follow. It was

my privilege during the Pan-American year, when this In diana law was in its infancy so to speak, to attend a tax con

ference at Buffalo. I think it was probably an unorganized organization; at least it did not have the pretension of this conference. The virtues of the Indiana law were explained

by our attorney general then, as now. The same questions

were being discussed that we have been discussing this eve

ning, and will be discussed on the other days of this confer ence. The law from Indiana was received with loud acclaim. It had been a success so far as it had experience, and I re

member when coming home that our state tax board had an

extra edition of the laws printed and I think they were sent

practically to every state in the Union. I have been a member

of the Indiana State Tax Board for eight years. I am filling now probably temporarily an unexpired term. I do not share

in the opinion that the state tax law of Indiana is a failure. I do affirm that what defects have come to the surface in the

state tax law have been because of its administration. All tax laws will fail if they are not administered according to law. I share in the opinion of my friend Professor Rawles as to the virtues of the income tax. I doubt whether it could be

adopted in Indiana—it has been adopted virtually in Wiscon sin—for the fear of administration. But be that as it may, I

contend here and now, although the sentiment of previous conventions and the thought of this convention and scholastic

thought upon taxation matters is that a general property tax

is a failure, that it has not been a failure in Indiana where it has been given a fair chance.

Take this matter of sequestration. In this county alone in the last two years there has been placed on the duplicate five

94



DISCUSSION 95

million dollars of taxables sequestered. There has not been a

proseeution for perjury. Would the United States govern ment stand for a thing of that sort? I have seen on the

streets of Indianapolis contentions between rioting men dur

ing strikes where violence was being used and passions were

aroused ; the United States mail wagon appeared in sight and

those men parted and gave way. Why? The United States was on that wagon. If the taxing officers of Indiana had

done their duty from the moment this tax law was inaugu rated into the fiscal system of this state there would have been no failure. The tax board of this state has simply advisory

powers. There is nothing cheaper in all lands than advice.

I know philanthropists who give to charity nothing but ad

vice. This state tax board ought to have something more

than advisory powers. It ought to have powers over town

ship assessors and county assessors. It has some homeopathic

powers over county assessors, but it ought to have the power

my friend Sims has said; we ought to have a corps of asses

sors that are selected upon merit, and they ought to be paid like men of merit—the assessor in every state in the Union

could make more money on the section and probably ought to

be there. If this law had been given the chance that any other law has been given, it would have sustained itself; and

it has sustained itself more than most laws would have been

sustained with the same measure of support. Now the asses

sor has been larruped here this evening; at Buffalo I heard

him get the cat-o'-nine-tails, just the same as here. In states

which have adopted this progressive legislation, with the ex

ception of Wisconsin, the burden of conference meetings has

been to get the assessors to do their duty. You cannot, in my

judgment, form any sort of tax law having these special fea

tures that have been spoken of and get very far from the

basic features of a general property tax.

Take our board of review. It has a great power when it is

legitimately used. To use the words of the ubiquitous Colonel,

there are too many pussyfooters among them. They do not

do their duty, and where men will not do their duty what is

the result of the administration of the law? It is not the

fault of the law. If every man sworn to do his duty had to



96 NATIONAL TAX ASSOCIATION

go before Judge Anderson of the federal court and make such

oath, and then failed to do his duty, he would get what is

coming to him. Now, what I plead for in Indiana is better

conditions. We cannot get better conditions under our con

stitution. We must have a constitutional convention, or else

constitutional amendments that will admit whatever is best in the many forms which have been suggested. We will not

get a constitutional convention in Indiana in twenty-five

years, I do not care how bad the tax situation becomes, until

we have a special election in order that the people may vote

on that directly. The liquor interests and the liberal inter

ests of this state would not support it—they would not sup

port it if they could—but they will use their influence against it when there is a call for constitutional amendment at a gen

eral election, and I can tell you the reason why. They know

that on the direct issue of a constitutional convention in this

state it would carry by 50,000. Under our law or constitu

tion, in order for a general election to carry it would have to

get a majority of votes. There are thousands of voters who

do not think enough about this important question to vote,

and consequently it is always lost. And so, for fear that a

constitutional convention would carry, somehow or other the

legislature has never given us the power to vote at a special

election, and the reason is that the liberal and liquor interests

are afraid of woman suffrage and prohibition. At the last legislature the state board of tax commissioners

had introduced three or four bills that would have given

power sufficient to make a very material change in the admin

istration of this law. The most homeopathic measure of those

proposed by the state board of tax commissioners had a peace ful journey through. The others were held up viciously, and

persistently imprisoned in the pigeon-hole until the last few

days of the session and then, at the behest of the special in

terests, they died and passed to that sleep that knows no

waking. I am violating no confidence when I say that if the

just and courageous governor of this state had known the

situation he would have sent a special message to the legis lature demanding or requesting, suggesting in his official way, that those very important amendments be brought out to see



DISCUSSION 97

the light of day. I do not believe that tax conditions under a

general property tax anywhere are so wretched that we ought

to call in the troops or organize a Boston Tea Party. This Indiana law has been fought to the supreme court on every

proposition affecting the assessment of corporate property.

It never lost a battle. Without a constitutional amendment the passage of any law by the legislature would come, in my

judgment, very seriously in contact with the proposition that

it might be unconstitutional. This law with proper enforce

ment is workable. If we had assessors who were free from

politics—the curse of public business ; if we had men selected for merit and if we paid for men of merit ; if we had a board

of review in every county that was bold and courageous and

did not pussyfoot around looking for pull and personality and politics, we would have different results. I think I know

what I am talking about when I say that there is not this

wide discrepancy in the averages that go with the much

abused term "equalization," as heralded about. I did not

expect to say anything. I was present at the birth of this

law. It was written by one of Indiana's most distinguished

jurists, who passed away a few days ago, and I think the state

of Indiana should, for his services as one of the justices of

our supreme court and for the writing of this law, erect a

memorial on the beautiful grounds of Notre Dame Institute,

an institution he loved so well. I do not care what sort of

statute you pass, you will in time have the objections that this

or any other statute has.

General property tax seems to be in such bad odor now

that, with many theorists, it is a death warrant to propose it.

But I believe firmly in the principle of the general property tax. Conditions may have outgrown it, but the law should

be amended to conform to the conditions. It has been said

again and again, educate the whole community. If you will

prosecute perjury just as the United States government does,

you will have a more wholesome respect for the law pertain

ing to sequestration of property. A few years ago a very

large taxpayer, a prominent citizen in one of our southern

counties, appealed to the tax board that his personal assess

ment was not just, and when he came before the board it was

7




apparent that he had sequestered probably fifteen or twenty thousand dollars of mortgages owned in the state of Illinois.

He appeared before the board. The board very promptly ratified the action of the assessor and the board of review of

the county below. The late Governor Mount was president

of the board. He said: "You are a substantial citizen, a

man of wealth ; you made oath to that affidavit. Why didn't

you answer that! Why did you commit perjury? Why didn't you answer that assessment as you ought to have done

under your oath ?" He studied a moment, then said : ''Gov

ernor, to tell you the truth, I did not think it was anybody's

blankety-blank business." That man went home and made

an honest return for a year or two; then the assessor found

property in Illinois, which was on the border of the county. He went to work and put him on for the mortgages discov

ered in Illinois. The prosecuting attorney got after him and

indicted him. They fined him $2,500, and that man never

again tried to sequester a dollar up to the day of his death.

I do not care what kind of tax law you adopt, if you do

not give it the proper enforcement you are going to have a

failure. I see, in reading over the conference reports in

other states where they have adopted this progressive legisla

tion, they still put the gaff to the assessor about provisions in

the law that provide for full cash values. They tell them

that this thing must not go on any more and all that, threat

ening them like mad all the time. I saw a circular from the

state of Maryland last week. I considered it a thoughtful

document, and the principle of it was that assessors must do

their duty. Maryland is a progressive state. Ohio is a pro

gressive state. I never heard a more caustic criticism on

modern law or modern features of the law than the state

auditor gave in his last annual report in the state of Ohio.

You cannot without proper administration administer any law. I am here to defend and uphold the Indiana law. It

has served its purpose faithfully and well up to the measure

of administration. Administer the law with officials who will

respect their oath. Given this law with agencies to carry it

out, that have the merit to do it, that have a working knowl

edge of the law, and that are free from the baneful influences



DISCUSSION 99

of pull, personality, and politics, and you are going to have a much different result. I recognize what Professor Rawles has

said; I agree with him heartily in the Wisconsin idea. The truth is, I admire very much the altruistic features of the

Henry George theory; but I think in both of them you will have to have a campaign of education, certainly in the Henry George theory. But what I plead for is this, that any law which this convention may adopt must depend upon its ad ministration. Dr. Ely was not far off when he said: "He who hopes a perfect tax to see, hopes for what is not and never will be."

Mr. A. E. James, of New Mexico: I listened with a great deal of interest to Mr. Rawles' paper outlining a possible tax on incomes for Indiana, which follows in all its substantial details the Wisconsin law. I would be the last to detract in

any way from the wonderful pioneer work Wisconsin did in an income tax, but it has always seemed to me that, in some features at least, important mistakes were made, mistakes which go to the very fundamentals of the thing that an in come tax ought to accomplish; namely, the taxation of the

person on the basis of the income that he enjoys. I refer

particularly to the taxation of corporations feature of the

Wisconsin law. At the present time substantially 60 per cent of the Wisconsin income tax is assessed not on individuals, but on corporations, is assessed not on the basis of ability to

pay, but is an excise upon corporation earnings, net earnings

if you please; but it bears absolutely no relationship to the

earnings of the individuals who put up the capital to finance those corporations. The individual may own stock in a Wis

consin corporation which is subject to the maximum rate

under the law, six per cent, or approximately that, he may not have a taxable income under that law at all, and yet he

will be forced to contribute his proportionate part of the in

come tax in that state.

Furthermore, the Wisconsin income tax is a long way from

a solution of our tax problems in the broader sense. The

maximum amount assessed there is about four millions of dol lars out of a tax of forty millions or more. It is a solution of




our tax on intangible property. It is not a solution of our

general property tax problems. The Wisconsin tax provides

for the exemption or substantial exemption of the tangible personal property of all persons who have taxable incomes.

That feature, it seems to me, is illogical. It grew historically out of the desire entirely to exempt tangible personal prop erty. After thinking about it ever since that law went into

effect, I have been wholly unable to see — and I know Mr.

Lyons of the Wisconsin commission feels the same way—any difference between tangible personal property and any other kind of property. I do not see any reason for exempting

tangible personal property if we are adhering to the principle of a personal property tax, or of the property tax. There is

a clear line of demarcation between tangible and intangible

properties, but I do not see the same line between tangible

personalty and tangible real property.

Mr. Nils P. Haugen, of Wisconsin : You have reference to

the offset provisions?

Mr. James: Yes. It does not seem to me that the income

tax, if we are going to try to put it into actual practice, should apply to anything but personal income, that the indi

vidual owner of the corporation should be assessed for every

thing that he gets, by corporate return or otherwise, but that

the corporation which is the mere intermediary should not be

subjected to the corporate income tax, thereby making the

owner of the corporation pay by indirection more than he

would pay if he were half owner or part owner of a partner

ship. That feature of the Wisconsin tax has always seemed

to me illogical and unreasonable.

The other provision, that is, the taxation of the income tax

payer on all his income within the state, excepting from prop

erty located without the state, and the taxation of a non

resident on the basis of his property located within the state, seems to me to violate the rule of personal taxation. Professor

Eawles recognizes that and says there is a combined tax ; but

the property tax meets the demand for the taxation of prop

erty, so why should you undertake to make the income tax



DISCUSSION 101

serve two functions when in all propriety it ought to serve

only one, the taxation of the person where he resides and to

which place he owes his economic allegiance ?

Mr. Lawson Purdy, of New York: There seem, to be in the

United States very few places where assessors are selected by

competitive examination. I suppose there may be some in

attendance here who do not know that in the city of New

York they are so selected, and it may be a matter of encour

agement to them to know that fact. For about thirty years assessors in the city of New York have been selected after

competitive examination, and the law requires that one out

of the first three who are rated highest in the examination

must be appointed. If more than one, three, for instance, are

to be appointed, three out of the first five must be appointed. For the last five or six years the mayors of the city of New

York, Mayors Gaynor and Mitchel, have issued executive

orders that appointments must be made in the order of eligi

bility on the list—one, two, three—unless reasons appear to

be very strong against it, and then only after the personal

approval of the mayor. No such approval has been given by the present mayor for appointments in my department. The

result is that in the main skilled men are appointed. They are under no fear of removal so long as they do their work

faithfully. There has been no removal in at least ten years for any cause other than a very grave dereliction, and those

cases have been exceedingly few. In the city of New York

there are about 100 men holding office today after appoint ment under the system which I described. I should think

that at least 20 of them have been deputy assessors, as we call

them, for twenty years or more, at least 20 more for fifteen

years or more, and fully one-half for ten years. There is this

to be said about those men. There are only a very few of

them who are delegated to that distressing task of attempting to assess persons for personal property. Most of them are

engaged in a man's job of assessing real estate.



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