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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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