The tax affects the interest on all investments, not simply on corporate securities. The investor, whose interest was cut down in our supposed case to four and a half per cent, will not find any non-taxable securities of equal desirability from which he can obtain five per cent. Thus the whole reasoning of the case falls away. In such a case, therefore, the tax on the corporation is a tax on the investor. To tax both corporation and individuals on their income would hence really be double taxation. But on the other hand, if the corporation tax is a partial tax, -i.e. if only corporate securities and not the other securities are taxed, as in France, or if only a few classes of corporations are taxed, — then the taxation of the corporation is not sufficient to reach the purchasers. The purchaser will practically escape the tax because the freedom of investing in non-taxable securities will enable him, as explained above, to discount the tax in the price he pays. To tax both corporation and shareholder in such a case is hence not unjust taxation or double taxation. To tax the corporation alone would in reality exempt the shareholder who has purchased after the tax was imposed. And with the lapse of time this class will include all shareholders.

Thus far we have been discussing the incidence of the corporation tax in a scheme of income taxation. How does the matter stand in the case of the property tax?

The principle is identically the same. Let us assume that in addition to the corporation tax a general property tax is actually levied on all individuals. In such a case the corporation would pay the tax assessed upon it, and the individual would pay upon the corporate shares and bonds. This would indeed be duplicate taxation, but only on the assumption that the corporation tax is imposed on all corporations in general, and that the property tax is actually assessed on all kinds of property. In such a case it would be unjust to tax both corporation and shareholder. This is the assumption made by most of the American commonwealths, which, as we know, generally exempt the shares when the corporate property or franchise is taxed.

But the assumption is incorrect.

In the first place, only

special classes of corporations are usually taxed. Secondly, the general property tax we know to be so only in name. By far the larger part of personal property or investments in the hands of individuals escapes taxation. Under these conditions the matter is entirely different. The corporation tax will now be discounted in the lower market value of the shares, because, other things being equal, the value of new investments will vary in proportion to the net profits to be derived therefrom. Although the corporate tax reduces the dividends, yet the reduced dividends on the reduced value will, as an investment, still equal the larger dividends on a property of greater value-— greater because untaxed. Although the sums are smaller, the percentage is the same. Thus where there is only a partial tax on personal property the corporation tax puts the new purchaser of shares in the same position as if he owned non-taxable property, ie. it practically exempts all the shareholders except the original owners. In the case of bondholders where the corporation tax is deducted from the coupons, this is equally true. And when the corporation tax is assumed by the corporation and not deducted from the coupons, the almost universal rule in this country, then the bondholders are certainly not reached at all, except in the very indirect way that they may be exposed to an ultimate diminution in the security of their lien. But the tax as such does not strike them at all. Their property, consisting of corporate bonds, goes scot free. A property tax or franchise tax on the corporation, under the given conditions, is not a tax on the individual holder of corporate securities.

The practical conclusion applicable to the United States to-day is as follows. It is frequently proposed that the general property tax be abandoned, and that it be replaced by a tax on real estate. This is not the place to enter into a discussion of the incidence of such a tax. But it may be declared a gross mistake to believe that such a tax will shift itself equally over the whole community, so as to produce practical equality of taxation. This Physiocratic, complacent, easy-going doctrine has been abandoned, for reasons not to be discussed here, by all scientists and even by many practical reformers in this country.

Their plan now is to supplement the real property tax by a tax on corporations, on the assumption that it will be possible to reach in this way on the one hand the owner of realty, and on the other the owner of personalty.

But if the preceding analysis is correct, the imposition of a corporation tax together with the real-estate tax on individuals is still inadequate to realize the principles of uniformity and equality. If the personalty of individuals is exempt, then a corporation tax, however assessed, is insufficient to reach the owners of personalty. For it would at best, even in theory, reach only the owners of a limited class of personalty, i.e. of corporate securities. And in actual practice, as has been shown, it would not reach even these, because the tax would be discounted in the depreciation of the corporate stock or bonds. The new purchasers - that is, after a short time all the possessors would still go virtually untaxed, together with all those individuals whose personalty consists in non-corporate investments. To continue the general property tax in its present shape is rank injustice. To abolish the personal property tax and to replace it by the corporation tax is indeed an easy method of securing revenue for the state. It constitutes an undeniable step in advance. But it is still inadequate to attain justice as among the taxpayers. The corporation tax, in other words, if it be assessed on the correct principles laid down in these essays, is a step forward in reform and deserves on that account our hearty good wishes. But it is not the ultimate

solution of the problem of equitable taxation.

EDWIN R. A. SELIGMAN.

AMERICAN BIBLIOGRAPHY OF THE CORPORATION TAX.

[In addition to the commonwealth tax-commission reports printed in POLITICAL
SCIENCE QUARTERLY, V, 1 (March, 1890), p. 63.]

ABBOTT, W. G. Objections to the Taxation of Savings Banks. New York, 1880.

ADAMS, C. F., Jr., WILLIAMS, W. B., and OBERLY, J. H. (A committee appointed at a convention of state railroad commissioners to examine into and report the methods of taxation as respects railroads and railroad securities now in use in the various states of the Union, as well as in foreign countries; and further, to report a plan for an equitable and uniform system of such taxation.) Taxation of Railroads and Railroad Securities. New York, 1880.

AMES, JOHN H. The Taxation of Real Property and Corporations. Des Moines, 1878.

ATKINSON, EDWARD. Argument for a Change in the Law in regard to Taxing Foreign Corporations. Boston, 1877.

COLEMAN, JAMES H. Letters on Corporations and Taxation. New York, 1878.

FOSTER, ROGER. The Taxation of the Elevated Railroads in the City of New York. New York, 1883.

HILLHOUSE, THOMAS J.

New York, 1880.

Taxation of Banks by the State of New York.

HOPKINS, S. M. Speech on the Subject of Taxing Bank Stock. Albany,

1822.

MOORE, EDWARD C., Jr. Corporate Taxation. In American Law Review,

1884.

STEVENS, B. F. The Taxation of Life Insurance Companies. Boston, 1875.
STEVENS, W. B. The Taxation of State Banks. Boston, 1865.
WILLIAMS, CHAUNCY P. The National Banks and State Taxation.

York, 1887.

WRIGHT, JOHN A.

New

Memorandum of a System of Taxation, submitted to the Committee for Revision of the Revenue Laws of Pennsylvania. Harrisburg, 1890.

The State and National Banks. The Question of Taxation. Albany, 1864. Report of the Committee of Bank Officers of the City of New York in relation to Bank Taxation. New York, 1875.

[Seven] Reports of the American Bankers' Association upon Bank Taxation. New York, 1875-1889.

"I

HERMANN VON HOLST.1

CAME to the United States as an emigrant, and one of

the first things I did was to have my declaration of intending to become a citizen registered in the City Hall of New York. I, in fact, felt with the people of the United States before I commenced to study them and their institutions." Such is the statement of Professor von Holst in the preface to the first volume of his constitutional history, issued in 1873. Let us consider how far his life and his work during the last seventeen years prove that he feels with and understands the people of the United States.

Hermann Eduard von Holst was born June 19, 1841, under conditions calculated to lead to sympathy with a free people. He was the son of a poor German parson in Livonia. His circumstances were so narrow that his university education was obtained only with great difficulty, first at Dorpat, in his native province, later at Heidelberg, where he took his doctor's degree. In 1866 he became a tutor at St. Petersburg. The publication of a political article caused his exclusion from the Russian dominions, and having resolved to emigrate to America, he arrived in New York as a steerage passenger in 1867.

In America as in Europe he learned to feel with the people through personal privation. At last he got a foot-hold as a teacher of German and as a tutor, and in the campaign of 1868 he made political speeches which attracted attention. He was for some time engaged as an editor of the valuable but little known Deutsch-Amerikanisches Conversations-Lexicon. Several Bremen gentlemen about this time combined to offer inducements to some author to prepare an account of the workings of

1 The Constitutional and Political History of the United States. By Dr. H. von Holst, Professor at the University of Freiburg. Translated from the German by John J. Lalor. [Vol. VI] 1856-1859. Buchanan's Election - End of the Thirty-Fifth Congress. Chicago, Callaghan and Company, 1889. — Large Svo, 352 pp.