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Finally, equalization is regulated by a few constitutions, and most of them have something to say about the collection and payment of taxes."

In conclusion it may be said that no one attempts to defend the taxation systems of American states. As has already been intimated, however, "what we do not like is that we are taxed,not that we are stupidly taxed," and not until recently has the burden of taxation been sufficiently weighty to emphasize the injustices of our methods. The very sincere and genuine study of the situation by state commissions and university classes during recent years, encouraged by some forward steps on the part of our law-makers, renders the outlook, however, decidedly hopeful.

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TENNESSEE NOTE.-The distinguishing feature of the Tennessee system of taxation, says the federal report on the revenue systems of the states, "is a carefully worked-out system of privilege taxes upon the exercise of various occupations which supplement the general property tax." The constitution3 makes mandatory the taxation of all property at the same rate, according to its value, "so that taxes shall be equal and uniform throughout the state." The legislature is permitted to tax merchants, peddlers, privileges and the incomes from stocks and bonds that are not taxed ad valorem.

One thousand dollars' worth of personal property must be exempt to each taxpayer and the "direct product of the soil" must be exempt in the hands of the producer and his immediate vendee. The legislature may exempt the property of the state, counties and municipalities used exclusively for public purposes and that of religious, charitable, scientific or literary institutions. Goods manufactured of the produce of the state must not be taxed otherwise than to pay inspection fees. The courts have been very strict in construing the provisions of the constitution that all property must be taxed. Even public bonds cannot be exempted."

Adult male citizens of the state, unless exempt by law on account of age or other infirmity, are required to pay a small poll tax.

se. g., Cal., XIII, 9; Colo., X, 15.

e. g., Colo., X, 3; La., 48, 233, 243; Okla., X, 30; Tenn., XI, 11; W. Va., XIII, 6.

1Wilson, Congressional Government, 131.

2Wealth, Debt and Taxation, 660.

3II, 28, 29, 30.

4See Railroad v. State, 55 Tenn., 663; Memphis. Etc., Ry. Co. v. Gaines, 3 Cooper's Chy., 604 (611); see, also, Reelfoot Lake Levee Dist. v. Dawson, 97 Tenn., 151.

Keith v. Funding Board, 127 Tenn., 441.

The system of taxation actually in force includes all of the kinds of taxes named. There are over one hundred taxable privileges, including the inheritance of propertys and a number of special corporation taxes.9

The administration of the taxation system is left principally to the assessors elected by the voters of the counties,1 and to the county court clerks. There is some ineffective supervision by the comptroller's office and boards of equalization appointed by the county courts and mayors of cities review the assessment of property. The property of railroad, telegraph and telephone companies is assessed by the railroad commission. There are two ex officio state boards of equalization, one for reviewing the assessment of the railroad commission, the other for the assessments of the county assessors.3

Dissatisfaction with the widespread under-assessment of property and. also with the law governing back assessments led to the appointment by the governor in 1915, of a special tax committee composed of six citizens who served without pay. They made a number of recommendations, among them (1) the creation of a permanent tax commission with stringent supervisory powers over the local assessors, including power of removal from office; (2) the taxation of the income of certain kinds of intangible property in lieu of the property itself, and (3) the nearly complete abolition of back assessment. The bills in which they embodied their proposals were not considered by the legislature, but a separate act was passed changing the back tax law somewhat in accordance with their recommendations.

Incomes from stocks and bonds not taxed ad valorem must be listed as personal property

"Acts of 1915, ch. 101.

sib., sec. 20; Acts of 1893, ch. 174. State v. Alston, 94 Tenn., 674.

The tax law as in force in 1907 is compiled in R. T. Shannon's Tax Digest and Criminal Cost Laws, obtainable from state comptroller.

1Acts of 1907, ch. 602.

2Acts of 1897, ch. 5 and ch. 10.

Memphis, Nashville and a few small towns assess the property of the city for city purposes; the county assessor assesses the same property for state and county purposes.

*Acts of 1915, Senate Joint Resolution No. 27.

"Lien and mortgage notes were defined as bonds and it was hoped that under the clause of the constitution permitting the taxation of the income from bonds not taxed ad valorem, this exception to the general property tax might be valid.


Acts of 1915, ch. 124. The Committee's report was published separately and also in the Appendix to Legisaltive Journals, 1915, No. 6. For a brief account of the work of the committee, see article by present writer in Proceedings of the Ninth National Conference of the National Tax Association, p. 272. brief account of current Tennessee conditions, see, in addition to the Committee's report, Official Report, first annual convention of Tenn. Manufacturers' Association (1913), p. 20; Publications of Public Efficiency League of Knoxville, I, 1.



232. Explanation of the Use of Public Credit.

THE custom of using public credit as a means of financing public expenditures, though of mediaeval origin, did not attain to the hugeness of its present proportions until the nineteenth century. It is made possible by the constitutionalism in government that has grown up during the last two hundred years. "The broad theory of constitutional liberty," says Professor Adams,2

is that the people have the right to govern themselves; but the historical fact is that, in the attempt to realize this theory, the actual control of public affairs has fallen into the hands of those who possess property.

It follows from this that when property-owners lend to the government, they lend to a corporation controlled by themselves. The confidence which they repose in government does not rest upon sentiment or patriotism, nor does it show greater integrity on the part of people now than in former times; its simple interpretation is that the possessing classes have made their conception of rights and liberty the efficient idea of modern times, and that in some way the moneyed interest has captured the machinery of government. Our modern political society is properly characterized as commercial constitutionalism, and out of this fact arises such guarantee as exists that moneys borrowed by governments will be repaid.

While admitting the truth of these statements students of finance lay equal stress upon the modern custom of making use of credit in the conduct of all business as explanatory of the expansion of public credit. It is doubtless true also that when states, like individuals, find that their credit is good, the temptation to use it is likely to wait only for a special occasion to prove irresistible. The occasion in Europe was the vast need for funds to prosecute the Napoleonic wars. The occasion in the American states was the great enthusiasm for internal improvements, for the quick attainment of desired means of com

1General References: Adams, H. C., Public Debts; also Science of Finance, Part II, Book III; Bullock, C. J., Selected Readings in Public Finance; ch. 20, 24; Plehn, C. C., Introduction to Public Finance, Part III.

2Public Debts, 9.

munication, which the Jacksonian Democracy decreed should be met by the states instead of by the federal government.3 The occasion in American cities was the progressive increase of necessary expenses incident to their phenomenal growth in the latter half of the nineteenth century. These expenditures were enormously augmented by the insistence upon unnecessary outlays by owners of suburban real estate who saw in public improvements, such as streets and boulevards, paid for with borrowed money, a means of rapid increment in land values without the corresponding decrement which a high tax rate would entail.



Such a practice invited disaster-which was made inevitable 233. by ignorance and neglect of correct administrative methods. Against Careless administration is usually incident to popular govern- Indebtedness. ment, and was in the United States of that time at least, countenanced by a none too strict ideal of care and honesty in private business dealings. Furthermore, there was a deplorable lack of judgment in many of the public improvement schemes which were conceived and undertaken. Naturally reaction followed.* Constitutional clauses framed in the thirties requiring the legislatures to provide internal improvements gave way to or were supplemented by severe restrictions upon the borrowing power. In the constitutions as they stand today prohibitions of indebtedness are very prominent.

. One state forbids the loan of its credit "for any purpose whatever," and the issuance of "any interest-bearing treasury warrants or scrip;" and fifteen others' prohibit the creation of debts by the state except for specified purposes,-with reference to liabilities previously incurred; in order to supply deficiences of revenue or expenses not provided for1 or of any extraordi

The bond issues for the benefit of private companies were, of course, expected to be repaid by those companies.

Concerning the repudiation measures which have been enacted in the states of Ala., Ark., Fla., Ga.. La., Mich., Minn., Miss., N. C., S. C., Tenn., Va., see W. A. Scott, The Repudiation of State Debts.

"See, e. g., Mich. Const., 1837. For provision of Tenn. Const., 1834, see Art. XI, sec. 9.

"Ark., XVI, 1.

Ala., XI, 213; Colo., XI, 3; Fla., IX, 6; Ga., VII, sec. III, 1, sec. XII, 1; Ind., X, 5; La.. 46; Mich., X, 11; Minn., IX, 7; Mo., IV, 44; O., VIII, 3; Pa., IX, 4; Tex., III, 49; Va., XIII, 84; W. Va., X, 4; Wis., VIII, 4, 9.

Ala., Fla., Ga., Ind., La., Mo., O., Pa., Tex., Va., W. Va. Several constitutions expressly provide for the assumption of pre-state debts,-e. g., Okla., I, 4.

Ala., XI, 213; Colo., XI, 3; Ga., VII, sec. III, 1; Ind., X, 5; Mich., X, 10; Mo., IV, 44; O., VIII, 1; Pa., IX, 4; Tex., III, 49; Va., XIII, 184; W. Va., X, 4. 10., VIII, 1.

234. Debt Referenda.

235. State Aid Forbidden.



or for

nary kind, or to meet some "unforeseen emergency,"
defence in time of war or insurrection. Colorado, furthermore,
makes the unique exception of allowing indebtedness for the
erection of public buildings.

About one-third of the states prohibit the creation of any debt without a referendum to the electorate, but here, also, there are several exceptions, for the most part similar to those above given. With analogous. exceptions, also, Delaware' requires for the passage of a law authorizing a state debt the concurrence of three-fourths of the members elected to each house of the legislature, and North Carolinas prohibits the creation of any new obligations unless in the same bill a tax is provided to pay the annual interest. New York' excepts from the referendum the amount of fifty million dollars for the improvement of highways.

State aid to local communities, especially cities, is frequently forbidden1 as is also the assumption by the state of local indebtedness.2

Forty states prohibit the use of the state's credit in aid of private or corporate enterprise, but some of these make exception for educational or charitable purposes. Likewise, the assumption of private, or corporate debt is sometimes forbidden.* The aid of state credit for specific kinds of enterprise, as rail

2Minn., IX, 5; Wis., VIII, 9.

3Mo., IV, 44.

4Ala., XI, 213: Colo., XI, 3; Fla., IX, 6; Ga., VII, sec. III, 1; Ind., X, 5: La., 46; Mich., X, 10; Minn., IX, 7; 0., VIII, 2; Pa., IX 4; Tex., III, 49; Va., XIII, 184; W. Va., X, 4; Wis., VIII, 9.

5XI, 3.

e. g., Ill., IV, 18; Iowa, VII, 5; Ky., 50; N. M., IX, 8, 15; N. Y., VII, 4; Okla., X, 25; S. C., X, 11; Wash., VIII, 3. See, also, R. I., IV, 13,—Legislature not to "pledge the faith of the state for the payment of the obligations of others" without the consent of the people; but this does not apply to money deposited with the state by the United States. See, also, Ariz., VII, 13; Utah, IV, 7; Mich., III, 4.

VIII, 3.
SV, 4.

9VII, 12.

1Cal., IV, 31; Colo., XI, 1; Ida., VIII, 2; II., IV, 20; Ky., 177; La., 58; Mich., X, 12; Mo., IV, 45; N. M., IX, 14, 15; Okla., X, 15; Tenn., II, 31; Tex., III, 50; Va., XIII, 185; W. Va., X, 6. Del. requires vote of three-fourths the members elected to each house, VIII, 4.

2Colo., XI, 1; Ill., IV, 20; Ind., X, 6; La., 58; Utah, XIV, 6; Va., XIII, 185; W. Va., X, 6. Excepting indebtedness for purposes of defence, Ark., XII, 12; Ga., VII, sec. VIII, 1; Ida., XII, 3; Ky., 176; Me., IX, 15; Nev., IX, 4; O., VIII, 5; Okla., X, 14; Ore., XI, 8; also Pa., IX, 9 (further exception of assisting state to discharge "present" debt). See, also, Ill., Sched. 24.

se. g., Ind., XI, 12; La., 58; Tenn., II, 31; see, also, Del. VIII, 4; N. C., V, 4. 4e. g., Ind., X, 6; Ia., VII, 1; S. D., XIII, 1.

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