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tax reformers recognize the justice of such a division, since the growth of wealth in cities is directly influenced by the entire population of the state.
In most of the Prussian systems the tax has a retroactive character. In determining the amount of accrued value the starting point is the last previous sale, even if this occurred some years before the system was adopted. Frankfort, however, does not go back further than five years for improved and ten years for unimproved property. Cologne rejected the retroactive feature altogether and counts only the increment that accrued after the law took effect. In all towns the rate of the tax is moderated by the lapse of time between two transfers; it is usual to remit one-third if ten or twenty years have elapsed, and two-thirds for longer periods. Rapid rises in value are hardest hit.
The point at which the various towns begin to collect the increment tax differs greatly. Most of them begin with 10 per cent., but the Berlin bill proposes to strike even a 5 per cent. increase. On the other hand, Gelsenkirchen does not tax anything less than a 20-per cent. and Frankfort a 30-per cent. accretion of value. The rate of taxation, too, varies. Dortmund and Gelsenkirchen take 3 per cent. as the minimum and then move up, by steps of 1 per cent. till a maximum of 15 per cent. is reached at Dortmund and 20 per cent. at Gelsenkirchen. In Frankfort the tax ranges from 5 to 25 per cent. Cologne begins with 10 per cent. and reaches a maximum of 25 per cent. when the increment has been as high as 160 per cent. These taxes are regarded as very moderate by the more radical reformers. Prof. Adolf Wagner, of the Berlin University, probably the foremost German authority on taxation, would like to see 90 per cent. of the increment taken, but he would be satisfied with 50 per cent.
Certain exceptions and deductions from the tax are made in all towns. From the foregoing paragraph it was seen that an increment of less than 10 per cent. is exempt. Cologne further excepts farm lands within the city limits worth less than $564 per acre. Sales to direct heirs in estate settlements are not usually treated as transfers. In determining the amount of the increment, too, deductions are generally made for taxes paid, for contributions toward street building and other improvements; and in most towns interest at 4 per cent. on unimproved property is deducted. The Saxon and Hessian
bills further proposed a singular reduction where coal, ores, or other deposits are found. Instead of reckoning their value as a legitimate part of the increase, those bills treated them as a part of the value in the land when previously acquired; hence their estimated value must be deducted from any future selling price in order to determine the increment. A most astonishing way to mar a good measure!
OBJECTIONS TO THE MEASURE.
It is needless to add that holders of city lands throughout Prussia are up in arms against the new tax. The great speculators, awaiting the advancing tide of population to enrich them, are indulging in strong talk about the sacredness of private property. To them the increment tax is "confiscation." Objections of a more serious character, too, have naturally come up. Some publicists think that large holders of real estate will find ways of avoiding the tax. In Berlin there are many large speculative companies organized to buy up unimproved suburban land, parcel it out, and sell it. Not less than thirty of these, with an aggregate capital of $18,000,000, have been formed within two years and a half. It is now pointed out that the increment tax will drive these companies into building houses upon their lands and holding them as a permanent source of revenue, each one thus becoming a sort of house trust." That would not be a bad thing for people wanting house room; but if the city should at some future time decide that the public is entitled to a part of the increased value of this property, it would have the example of Kiaochou for a periodical assessment of the increment tax, irrespective of any change of ownership.
The agitation for the increment tax, as well as the assessment of land at its market value, is carried on very effectively by the "Bund der Bodenreformer," with headquarters at Berlin. It was organized eight years ago and now has above 300,000 members. It issues a bimonthly, Deutsche Volksstimme, and has published an extensive series of pamphlets and many leaflets. Its president is Adolf Damaschke, the author of numerous books and pamphlets devoted to municipal problems and land-tax reform. His "Aufgaben der Gemeinde Politik " gives considerable attention to the matters treated in the present article. The reader will find a later and fuller treatment in "Die Wertzuwachssteuer," by Robert Brunhuber.
WHY NOT SAVINGS - BANK
BY LOUIS D. BRANDEIS.
ΟΝ N December 13, 1816, Massachusetts problem, and in a unanimous report, recentlaid the foundation for the admirable ly filed, has recommended that savings banks savings-bank system of the Eastern States, by be permitted to establish departments for the chartering the Provident Institution for issuing of life insurance in small amounts. Savings in the Town of Boston. Half a century later Massachusetts established for America the scientific practice of life insurance by the work of its insurance commissioner, Elizur Wright. Massachusetts seems determined to lead in another great paid for ordinary insurance; for in most forward movement for the development industrial policies will be found a clause through thrift of general prosperity, by ex- providing that if death Occurs within tending now the functions of savings banks the first six months one-fourth only of the to the issuing of life insurance in small face of the policy will be paid, and if death occurs within the second six months payment will be made of only one-half. So heavy are the burdens cast upon those least able to bear them.
The regular premium charge on industrial policies is about double that charged for ordinary level-premium life insurance. But in the initial periods the disparity is even greater, rising as high as eight times that
Amidst the revelations of the Armstrong Committee in New York, the greatest of life-insurance abuses, the present system of so-called "industrial insurance," escaped almost unnoticed. This class of insurance, which is merely life insurance in small amounts, the premiums on which are collected weekly at the homes of the insured, constitutes nearly three-fourths in number of all level-premium policies outstanding in the United States. On January 1, 1906, the number of such policies was 16,872,583, a number equal to one-fifth of our inhabitants. In the Eastern States the number of persons insured is particularly large. New York, with a population of 8,067,308, held 3,898,810 such policies. In Rhode Island they numbered 249,496, being more than one policy for every two of its 480,082 inhabi
The Armstrong Committee found that this insurance is furnished "at twice the normal cost by those least able to pay for it"; found that "a large portion, if not the greater number, of the insured receive no money return for their payments," and declared that the" enormous waste incident to the present methods "raises in connection with the lapse rate a serious economic question." But the Armstrong Committee did not suggest any remedy, and the New York Legislature adjourned without taking any action on the subject.
Then the Recess Insurance Committee of the Massachusetts Legislature took up the
The disastrous result to the policyholder of this system of life insurance may be illustrated from the following data, drawn from Massachusetts official reports:
In the fifteen years ending December 31, 1905, the workingmen of Massachusetts paid to the so-called industrial life-insurance companies an aggregate of $61,294,887 in premiums, and received back in death benefits, endowments, or surrender values an aggregate of only $21,819,606. The insurance reserve arising from these premiums still held by the insurance companies does not exceed $9,838,000. It thus appears that in addition to interest on invested funds about one-half of the amounts paid by the workingmen in premiums has been absorbed in the expense of conducting the business and in dividends to the stockholders of the insurance companies.
If this $61,294,887, instead of being paid to the insurance companies, had been deposited in Massachusetts savings banks, and the depositors had withdrawn from the banks an amount equal to the aggregate of $21,819,606, which they received from the insurance companies during the fifteen years, the balance remaining in the savings banks December 31, 1905, with the accumulated interest, would have amounted to $49,931,548.35,and this although the savings banks would have been obliged to pay upon these increased
deposits in taxes to the Commonwealth more than four times the amount which was actually paid by the insurance companies on account of the insurance.
So widely different is the result to the workingman, if he selects the one or the other of the two classes of savings investment which are open to him; and yet, life insurance is but a method of saving.
It is obvious that the community should not and will not long tolerate such a sacrifice of the workingmen's savings as the present system of industrial insurance entails; for the causes of this sacrifice are easily determined and a remedy lies near.
The extraordinary wastefulness of the present system of industrial insurance is due in large part to the fact that the business, whether conducted by stock or by mutual companies, is carried on for the benefit of others than the policyholders. The needs and financial inexperience of the wage-earner are exploited for the benefit of stockholders or officials.
The Prudential pays annual dividends to its stockholders equivalent to more than 219 per cent. upon the capital actually paid in. According to the testimony of its vice-president, Forest F. Dryden, a stockholder who, on October 13,1875, paid in $2200, has received in the aggregate a return upon his investment of $329,363.60, or about 15,000 per cent. The annual dividends of the Metropolitan are equivalent to only 28 per cent. on the capital actually paid in. But President Hegeman has testified that in fifteen years the company had earned and accumulated for its stockholders, in addition, a surplus of more than twenty-eight times the capital so paid in.
The excessive amounts paid in dividends or in salaries to favored officials account directly, however, for only a small part of the terrible shrinkage of the workingmen's savings. The main cause of waste lies in the huge expense of soliciting insurance, taken in connection with the large percentage of lapses, and in the heavy expenses incident to a weekly collection of premiums at the homes of the insured. The commission of the insurance solicitor is from ten to twenty times the amount of the first premium. The cost of collecting the premiums varies from one-fifth to one-sixth of the amount collected. And yet commissions for soliciting and collection are only a part of the expenses. The physician's fee, the cost of supervision, of accounting, and of advertising must all be added,
with the result that substantially no industrial policy "pays its way" until it has been in force about three years. In other words, if the policy lapses before it has been in force three years, not only does the policyholder lose (except the temporary protection) all that he has paid in, but the company (that is, the persisting policyholders) bears a part,— generally the larger part,-of the cost of the lapsed policy.
And only a small percentage of industrial policies survive the third year. A majority of the policies lapse within the first year. In 1905 the average payments on a policy in the Metropolitan so lapsing continued little more than six weeks. In the eight years ending December 31, 1905, the terminations of the industrial policies in New York State numbered 4,549,306, and only 427,635 (that is, less than one-tenth) were by death.
The results of the present system of industrial insurance establish conclusively that, in the conduct of the business, the interests of the insured are ignored. A life-insurance company for workingmen should, as to each policyholder, be conducted, like a savings bank, as a benevolent institution. No one should be induced to take out a policy unless it is advisable for him to do so in the interests of those whom he wishes to protect by it. No one should be lured into becoming a policyholder. No one should take a policy unless he will probably be able and willing to continue it in force. Furthermore, economy in the management of the insurance savings is as essential to satisfactory results as the economy on the part of the workingmen, which alone makes it possible to pay premiums.
The supporters of the present system of industrial insurance declare that a reduction of expenses and of lapses is impossible. They insist that the loss to the insured and the heavy burden borne by the persisting policyholders from lapses, as well as from the huge cost of premium collection, must all be patiently borne as being the inevitable incidents of the beneficent institution of life insurance when applied to the workingman. It is obvious that a remedy cannot come from men holding such views,-from men who refuse to recognize that the best method of increasing the demand for life insurance is not eloquent, persistent persuasion, but to furnish a good article at a low price. A remedy can be provided only by some institution which will proceed upon the principle that its function is to supply insurance upon proper terms
to those who want it and can carry it, and fication of proof of death are services that not to induce working people, to take insur- may be readily performed for the savings ance regardless of their real interests. To banks at no greater pro rata expense than for attain satisfactory results the change of sys- the existing insurance companies. But a tem must be radical.
State medical director should act as adviser and have supervision of the local physicians. The insurance department of the savings banks would, of course, be kept entirely distinct, as a matter of accounting, from the savings department; but it would be conducted with the same plant and by the same officials, without any large increase of clerical force or incidental expense, except such
Savings banks established on the plan prevailing in New York, and in Massachusetts, are managed upon principles and under conditions upon which alone a satisfactory system of life insurance for workingmen can be established. These savings banks have no stockholders, being operated solely for the benefit of the depositors. They are managed by trustees, usually men of large business ex- as would be required if the deposits of the perience and high character, who serve with- bank were increased. On the other hand, the out pay, recognizing that the business of col- insurance department of savings banks would lecting and investing the savings of persons open with an extensive and potent good will, of small means is a quasi-public trust, which and under the most favorable conditions for should be conducted as a beneficent and not teaching the value of life insurance,—a lesas a money-making institution. The trustees, son easily learned when insurance is offered the officers, and the employees of the savings at about half the premium exacted by the banks have been trained in the administration industrial companies. With an insurance of these savings to the practice of the strict- clientele composed largely of thrifty savingsest economy. While the expenses of manag- bank depositors, the expensive house-to-house ing the industrial departments of the Metro- collection of premiums could be dispensed politan, the Prudential, and the John Han- with, and more economical payments of cock companies have, excluding taxes, ex- premiums could probably be substituted for ceeded 40 per cent. of the year's premiums, weekly payments. Indeed, it is probable the $662,000,000 of deposits held in 1905 that the following simple, convenient, and in the 189 Massachusetts savings banks were inexpensive method of paying premiums managed at an expense of 0.23 of 1 per cent. of the average assets, or 1.36 per cent. of the year's deposits.
would, to a large extent, be adopted,-namely, making deposits in the savings department from time to time, and giving, when the policy is issued, a standing order to draw on the savings fund in favor of the insurance fund to meet the premium payments as they accrue.
Savings institutions so managed offer adequate means of providing insurance to the workingman. With a slight enlargement of their powers, these savings banks can, at a minimum of expense, fill the great need of The safety of savings banks would, of cheaper life insurance in small amounts. The course, be in no way imperiled by extending only proper elements of the industrial-insur- their functions to life insurance. Life insurance business not common to the savings- ance rests upon substantial certainty, differbank business are simple, and can be supplied ing in this respect radically from fire, acciat small expense in connection with such existing savings banks. They are:
A. Fixing the terms on which insurance shall be given.
dent, and other kinds of insurance. Since practical experience has given to the world the mortality tables upon which life-insurance premiums rest and the reserves for future B. The initial medical examination. needs are calculated, no life-insurance comC. Verifying the proof of death. pany has ever failed which complied with the The first is the work of an insurance actu- law governing the calculation, maintenance, ary, and the present pro rata cost of actuarial and investment of the legal reserve. service can be greatly reduced both by limit- causes of failure of life-insurance companies ing the forms of insurance policies to two or have been excessive expense, unsound investthree standard forms of policy to be uniform ment, or dishonest management. From these throughout the State, and by providing for abuses our savings banks have been practicalthe appointment of a State actuary, who, in ly free, and that freedom affords strong reaconnection with the insurance commissioner, son for utilizing them as the urgent need shall serve all the savings-insurance banks. arises to supply the kindred service of life The initial medical examination and the veri- insurance.
LEADING ARTICLES OF THE MONTH.
SHALL MILLIONAIRES RUN THE GOVERNMENT?
WEALTH'S dominance in political and public life nowadays has been the subject of numerous criticisms. So totally changed are present conditions from those of a former generation that small wonder is expressed at the thought that has arisen in some quarters, that the Government is passing into the hands of the wealthy. The United States Senate is no longer renowned for its scholarship, but for its wealth. Statesmen have gone and millionaires now fill their places. The "millionaire's club" is a facetious but truthful alias for our Upper House. Contending that none but men of vast wealth can represent the United States abroad, Senator Albert J. Beveridge, in Appleton's for March, pertinently asks if the Government's operations are going to pass into the hands of the country's millionaires, -that is, if the people are to be shut out from participation in the conduct of their own Government and hand over its destinies to the plutocrats. One cause in particular, says he, is largely contributing to such a result: The extravagant cost of living in Washington. In verification he cites the case of the late Senator Hoar, who once said to him on this question: "When I came to Washington I had accumulated about a hundred thousand dollars from my practice of the law. If I complete another term it will practically all be gone. It has been used up, in addition to my senatorial salary, in the common expenses of daily living." 'And yet it is well known that this most learned as well as one of the most useful of men in public life," says Senator Beveridge, "lived in extreme simplicity."
Nor did he stop with Senator Hoar. Several cases were referred to in which Senators lived in obscurity, if not meanness to eke out a living and do the full measure of their duty to their country. These are men of long experience in the Senate, upon whom the country may look with pride and admiration. One lives in a single room; another in two small rooms on the top floor of an apartment house. On the other hand, the millionaires indulge in elegance and sumptuousness, give elaborate entertainments, maintain costly equipages, and set a pace that the
Senator of slender means must forego. Hotel rates are extortionate: From $3 to $3.50 a day for the cheapest room, without meals, and no reduction for a monthly term. Meals are still more expensive, and together with. the cost of entertaining constituents, who are constantly "dropping in," make the lot of the struggling statesman far from happy. Hence, he says:
None of these things is known to the American people. All of them should be known by the American people. They are causes which are working an infinitely important change in our Government. I doubt whether any practical with more profound consequences to the Amerisituation exists more serious than this or fraught can people. The Government is passing into the hands of the rich; the poor man or man of moderate means is being crowded out of the people's service.
As to the unreasonableness of this extravresults, he remarks: agance and prodigality, with such pernicious
You will say at once that such a scale of liv
ing is absurd, and I say so, too; that it is fla-
The reason for this is found in the constantly increasing number of vastly wealthy men who have entered public life and are living at startling expense. Old-time simplicity is gone, and a régime of almost Roman luxury and splendor has begun. The late Secretary Whitney was the pioneer in this departure, and Calvin S. Brice and VicePresident Morton nobly "kept up the pace." Thirty thousand dollars a year is a modest estimate for one of this gilded class to spend, and $75,000 is the amount spent by one man in one year to maintain himself and wife!
Senator Beveridge contrasts this riotous spending with the sober tastes and simple economy of Conkling, Thaddeus Stevens, John A. Logan, Lot M. Morrell, Sumner, Wade, and Fessenden. Earlier, in the days of Clay, Calhoun, and Webster, living ex