Philip Dru: Administrator/Chapter XXXI

Chapter XXXI The Question of Taxation

The question of taxation was one of the most complex problems with which the Administrator had to deal. As with the legal machinery he formed a board of five to advise with him, and to carry out his very well-defined ideas. Upon this board was a political economist, a banker, who was thought to be the ablest man of his profession, a farmer who was a very successful and practical man, a manufacturer and a Congressman, who for many years had been the consequential member of the Ways and Means Committee. All these men were known for their breadth of view and their interest in public affairs.

Again, Dru went to England, France and Germany for the best men he could get as advisers to the board. He offered such a price for their services that, eminent as they were, they did not feel that they could refuse. He knew the best were the cheapest.

At the first sitting of the Committee, Dru told them to consider every existing tax law obliterated, to begin anew and to construct a revenue system along the lines he indicated for municipalities, counties, states and the Nation. He did not contemplate, he said, that the new law should embrace all the taxes which the three first-named civil divisions could levy, but that it should apply only where taxes related to the general government. Nevertheless, Dru was hopeful that such a system would be devised as would render it unnecessary for either municipalities, counties or states to require any further revenue. Dru directed the board to divide each state into districts for the purpose of taxation, not making them large enough to be cumbersome, and yet not small enough to prohibit the employment of able men to form the assessment and collecting boards. He suggested that these boards be composed of four local men and one representative of the Nation.

He further directed that the tax on realty both in the country and the city should be upon the following basis:--Improvements on city property were to be taxed at one-fifth of their value, and the naked property either in town or country at two-thirds of its value. The fact that country property used for agricultural purposes was improved, should not be reckoned. In other words, if A had one hundred acres with eighty acres of it in cultivation and otherwise improved, and B had one hundred acres beside him of just as good land, but not in cultivation or improved, B’s land should be taxed as much as A’s.

In cities and towns taxation was to be upon a similar basis. For instance, when there was a lot, say, one hundred feet by one hundred feet with improvements upon it worth three hundred thousand dollars, and there was another lot of the same size and value, the improved lot should be taxed only sixty thousand more than the unimproved lot; that is, both lots should be taxed alike, and the improvement on the one should be assessed at sixty thousand dollars or one-fifth of its actual value.

This, Dru pointed out, would deter owners from holding unimproved realty, for the purpose of getting the unearned increment made possible by the thrift of their neighbors. In the country it would open up land for cultivation now lying idle, provide homes for more people, cheapen the cost of living to all, and make possible better schools, better roads and a better opportunity for the successful cooperative marketing of products.

In the cities and towns, it would mean a more homogeneous population, with better streets, better sidewalks, better sewerage, more convenient churches and cheaper rents and homes. As it was at that time, a poor man could not buy a home nor rent one near his work, but must needs go to the outskirts of his town, necessitating loss of time and cost of transportation, besides sacrificing the obvious comforts and conveniences of a more compact population.

The Administrator further directed the tax board to work out a graduated income tax exempting no income whatsoever. Incomes up to one thousand dollars a year, Dru thought, should bear a merely nominal tax of one-half of one per cent.; those of from one to two thousand, one per cent.; those of from two to five thousand, two per cent.; those of from five to ten thousand, three per cent.; those of from ten to twenty thousand, six per cent. The tax on incomes of more than twenty thousand dollars a year, Dru directed, was to be rapidly increased, until a maximum of seventy per cent. was to be reached on those incomes that were ten million dollars, or above.

False returns, false swearing, or any subterfuge to defraud the Government, was to be punished by not less than six months or more than two years in prison. The board was further instructed to incorporate in their tax measure, an inheritance tax clause, graduated at the same rate as in the income tax, and to safeguard the defrauding of the Government by gifts before death and other devices.