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14 Tax Mag. 473 (1936)
The Source of Taxes

handle is hein.journals/taxtm14 and id is 473 raw text is: LYLE OWEN
of Carnegie Institute of
Technology explores the
source of government rev-
enue and effects of taxes
The Source of
Taxes
HEN we start out to find the source of tax
revenue, the first thing to be noticed is the
inevitable entrance of the questions of the
shifting and incidence of taxation. \When we ask
where government revenue comes from, we are
asking the incidence of the burden of government,
i. e., Who really pays the taxes? From the stand-
points both of economic analysis and of good tax
policy, our problem remains still unsolved when we
have answered the questions, On whom or on what
are taxes levied ? We must discover on whom or on
what the taxes ultimately rest, and thus the ultimate
source of government income.
Revenue Sources
IT HAS been customary to think of the sources
from which the public revenue might be drawn as
many. For instance, to take just the case of automo-
biles alone, we think of revenue from gasoline taxes,
automobile licenses, the personal property tax on
automobiles, drivers' licenses, excise taxes on the sale
,if automobiles, and taxes on the manufacturers of
automobiles. In addition we think of a myriad other
sources from which the revenue of the state may be
derived, such as poll taxes, taxes on public service
companies, business taxes of many sorts, personal
income taxes, property taxes, etc. In these days of
great pressure for more money to support the grow-
ing activities of government, we very frequently read
or hear of searching for new sources of revenue.
Or we put research assistance to work in our uni-
versities and revenue offices with instructions to dis-
cover new sources of taxation. By this is customarily
meant either a new tax, or occasionally, increased
revenue from an existing tax.

Strictly speaking, however, can it be said that there
are new sources of taxation? Are not the things
spoken of above really merely new methods of taxing;
rather than new sources of tax revenue? We may
grant the convenience of the common use of the
words source of taxation, and still question the
accuracy of this use from the scientific standpoint.
Our problem is this: From the standpoint of eco-
nomic analysis, what are the possible sources of
revenue for the government? Where must the state
get its sustenance? And since the chief form of
this sustenance will be taxation, our question be-
comes: What are the possible sources of taxes?'
Nature of Wealth, Capital, and Income
N OW what are the sources of tax money? The
answer is that what the government uses, just
as what individuals use, comes from the wealth and
income of the nation as a whole. All production is
the result of the efforts of man, working with natural
resources and with the capital he has created from
nature in the past. Taxes, then, must be paid out of
the results of past production, that is, out of wealth
or out of recently accrued income, which is also
wealth as soon as it is created.
It is not necessary to undertake in this place an
extended analysis of the nature of income, capital,
and wealth. The term income is susceptible of
almost unlimited refinements in definition, and the
concept must be pursued out of economics into at
least the field of psychology, if any thorough under-
standing of it is to be had. But while this is true
from the standpoint of theoretical analysis, it may
not be necessary or even possible to make such re-
finements of the income concept for practical tax pur-
poses. In other words, when a tax policy is being
planned, and it is found necessary to have a definition
of income therefor, it may be that the definition
which will be best for this practical purpose will fall
far short of the ultimate theoretically perfect defini-
tion of income.
Throughout this paper, unless the contrary is spe-
cifically stated, the word income is used in the
customary way, to refer to income to the individual.
The term can be used in another sense, that of social
income. In the individual meaning, the mere trans-
ferring of title to existing wealth may constitute in-
come, even if no new wealth is created thereby, or
even if no net increase in utility (meaning the total
utilities of all parties to the transaction added to-
gether) is effected by the transfer. The receipt by
an individual of anything or any sum of money
which does not represent payment for productive
effort is a case in point. The receipt of a gift is a
g-ood example of what may be called income from
the individual's point of view, but is not social in-
come; for the transferring of title to a gift does not
represent from the standpoint of society as a whole
a net addition to the existing stock of goods and serv-
ices, and is therefore not social income. Or again,
In a state unlike the United States, the chief form  of government
income might not be taxation. For instance, a socialistic state would
depend much more on income from public industries than we do. A
feudal country in medieval times depended more on the income from
the king's domain and the services of vassals, than upon taxation. But
the present paper is concerned for the most part with a country like
the United States of today, not because of an unwillingness to consider
changes in our form of government or economic system, but because of
an unwillingness to encumber this paper with matters that are extrane-
ous to its central question.

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