The only deductions that may be made for either direct or indirect inheritances are the debts of the decedent and the expenses of administering the estate.

Sheer equity requires that there should be exemptions in inheritance taxes. A tax of 2 per cent. on a widow's estate of $500 is far heavier in proportion to ability to bear than is a tax of 2 per cent. on a widow's estate of $500,000. Then, too, the cost of collecting the tax from minor estates is as heavy as the returns. Exemptions should be provided to meet administrative necessities if for no other reasons. To take the tax from a small estate at a cost approximately equal to the tax received is a process that does no one good and does harm to all.

But there is need for more than an equitable exemption. There is need for a progressive tax both as to nearness of relatives and as to amounts. Taxes should be so levied as to keep in mind both social and economic incentives and ability to pay. The closer the kinship the stronger and the more desirable socially is the motive to create wealth for the protection of those properly dependent on one's efforts. And ability to pay is the one test that fair taxation now applies. For wealth brings its obligations as well as its opportunities.

Under the present inheritance tax law in New York State, which is typical of the best in inheritance tax laws, an exemption of $5,000 is allowed to direct heirs and $1,000 to collateral heirs. The rates are then as follows:

To get an inheritance tax law equitable in its applications a constitutional amendment will be necessary. The objections to such a constitutional amendment will come from those with large estates who would fear that a graded tax bearing more heavily on large estates would then be enacted into law. And such an assumption might well prove to be correct.

F. Conclusions

Our main conclusions then are:

(1) The tax system of Pennsylvania like Topsy, "just growed." It needs a complete overhauling.

(2) The exemption of manufacturing corporations from the capital stock tax is not justifiable in view of the State taxes now paid by other classes of business corporations.

(3) There is need for a constitutional amendment legalizing a progressive income and a progressive inheritance tax.

(4) An immediate need is for a scientific assessment of real estate as a more equitable source of local income.

(5) Until there is a thorough overhauling of our taxation system we will have to supplement our State income, if such proves to be necessary, by adding other classes of business taxes to the unique collection we already have.

THE THEORY OF STATE SUPPORT OF LOCAL SCHOOLS'

HARLAN UPDEGRAFF, University of Pennsylvania

Historical Background.-Originally local schools were supported entirely from local sources. State support arose from the distribution of the income from permanent State school funds or from distribution of special funds, or direct appropriations from the legislature. As the money from these sources became available the question arose as to how it should be distributed. Since local self government was strong throughout all the States at that time, naturally each community desired to obtain as large a share as possible. Various solutions were reached and in some States the first view taken was, that inasmuch as the people of the various communities had paid State taxes in proportion to the valuation of their properties, the school money now available for distribution should be returned to the local communities in the same proportion. In other States the plan adopted was to distribute the income on the basis of the total number of persons paying taxes. Both of these plans were based on the idea of the rights of local communities to share in State money.

Later it was proposed that such income be distributed upon the basis of the number of children of school age. Improvements upon this plan were represented in the distribution, (1) according to enrollment, (2) according to average number belonging, (3) according to average daily attendance, and (4) according to aggregate attendance. Each of these methods recognized the needs of the various districts rather than their rights, and was indicative of a stronger degree of State consciousness. They show that a beginning had been made upon the part of the State in its desire to promote the best interests of the schools in all the local districts of the State. The grants upon the basis of attendance incorporated an additional element in that better attendance in schools

1 The complete paper of which Dr. Updegraff's address was an abstract is printed herewith. Application of the principles set forth may be found in his volume of the New York Rural Survey, entitled "A Financial Study of the Rural Schools of New York," published by the Joint Committee on Rural Schools, Ithaca, N. Y., and also in the Joint Committee's "Rural Schools Survey of New York," Chapter XIII.

See also Schoolmen's Week Proceedings, Vol. 6, 1919, "Application of State Funds to the Aid of Local Schools," p. 134, and "Differences in Wealth of School Districts in Counties of Southeastern Pennsylvania"-Updegraff, p. 243.

was promoted and, in the case of aggregate attendance, longer terms of schools were established. Thus was recognized for the first time the principle of stimulating each district to higher efficiency in the conduct of its schools.

The teacher basis, or quota as it is commonly known, in the State of New York, differs from those of the previous group in that it recognizes the element of cost in the conduct of the schools. The expense of schools is not affected so much by the attendance of pupils or by the number of pupils enrolled as it is by the number of teachers employed. However, the teacher basis totally lacks the stimulation of districts to secure good attendance unless it is in some way combined with the attendance basis.

Both the pupil and teacher bases represent efforts to distribute the money in proportion to the needs of the schools without regard to any right which the citizens of the various communities might have by virtue of their membership in the State or by their paying taxes to the support of the central government.

Combinations of these various plans have been established in various States of the Union. The plan prevalent in New York previous to 1885, by which one-third of the State school monies was distributed on the basis of population, one-third on the basis of average daily attendance, and one-third on the basis of number of teachers, was a typical combination. The basis of population represents a remnant from the old plan which probably had to be retained so as to carry the newer elements of the plan through the Legislature.

In more recent years an account has been taken of the amount of property taxable for school purposes in the various local communities particularly with those school districts that have low valuations. Such a plan as this is found in a number of the New England States. The best thought at the present time favors the extension of the plan upward so as to include districts of higher valuations.

Another element of considerable importance, which has not yet been incorporated into the minds of legislators, is the amount of money that districts spend in support of schools. While the property valuation of a district represents "its ability" to support schools, it is not in any way an index of the quality of teacher employed, of the schoolhouse erected, or of the types of equipment furnished. It is possible for two districts to have equal ability but to expend widely different amounts in the support of schools-one will support schools liberally and the other in a niggardly fashion. Whether it is desirable that a State should take into account in the distribution of its funds "the effort" that districts make will receive attention in the further treatment of this question. It is desirable first to consider the theory and principle underlying school support.

Theory of School Support.-It has been found necessary to create States in order to secure protection, liberty and justice, and to promote individual welfare, but at the same time a very large measure of control has been given back by these States to the local communities in order that each individual may have the largest practicable control of those governmental affairs with which he comes in immediate contact. Control of the tax rate and of the expenditure of money raised in local communities is one of the most essential features of our democracy and is highly prized by all American citizens.

We must expect, therefore, as a principle of the financial administration of schools, that local support shall be fundamental in any system that may be established. It does not follow, however, that school support should be entirely local. There are certain reasons why it should not be so. First, there are great differences in the ability of various districts to support schools, and many of them with great difficulty maintain schools of even poor quality. In the second place, there are great differences among communities in their conception of the proper standard of a school for an American community. Some communities realize that the future of our nation depends very largely upon the character of education given in the schools, and that the future happiness and success of their children are likewise dependent upon the kind of schooling they receive. On the contrary, other communities, many of which are well-to-do, look upon the school merely as a burdensome institution imposed upon them from without; or, if they do accept the school as a worthy institution, their standards for such a school are so low that the interests of the State as a whole, the well-being of the particular community in which the school is situated, and the future happiness of the children living within it are all affected in a harmful manner.

Under such circumstances as these, when districts are unable to support schools, or if able, are not willing to support schools of a quality corresponding to their wealth, the question arises whether the State government representing all the people cannot and should not do something to improve the conditions in such districts. In case of invasion by foreign troops or in case of mob violence which cannot be controlled by the local authorities, all would say that State money should be spent in restoring peace and order, not only to benefit the communities in question, but also to insure the future well-being of the remainder of the State. While the effects of a poor school upon a particular community and upon the portions of the State lying outside of it are not so apparent nor so immediate as those of an invasion or mob, nevertheless the harm is just as certain and expenditure of State funds is as fully warranted in this case as in the former. It is also true that if State money can be

used to stamp out an epidemic of tuberculosis or hog cholera, it can likewise be used to prevent inferior teaching.

Furthermore, the advancement of the general welfare through the expenditure of State money has been just as generally recognized as has the maintenance of peace and order and protection from disease. State money is spent to promote State fairs, experiments in agriculture, and extension courses in a variety of subjects relating to farming. Through such expenditures as these the standards as to what constitutes good farming are constantly rising, and not only the farmers, but all who consume the products of the farm are benefited thereby. By the giving of instruction, it pays all the people of the State to stimulate farmers to obtain the most and the best from the land they possess. It pays also to grant rewards to those farmers and to those boys and girls of the farm who have done particularly meritorious work. The benefits that come from this sort of reward through the stimulation of all people of the State are much greater than the cost.

It is the same in education as in farming. The State should always do something to stimulate every school district to do its best. Rewards ought to be granted likewise to school districts, teachers, and pupils who do a particularly meritorious piece of work. The benefits that will result for the entire State, not to mention those that will come to the particular district, will be much greater than the cost.

It is now important for us to consider in what way State aid should be administered in order to promote the highest degree of efficiency in the machinery of State and local school administration. Support of schools and control of schools are closely inter-related and they should be made to strengthen each other. This phase of the subject has two aspects: (1) State agencies of control, and (2) local agencies. State aid should be distributed in such a way as to promote the efficient participation of citizens in the exercise of citizenship. The converse of this proposition is that it should not be so administered as to promote bureaucracy or autocratic control in either State, county, or local education offices. This can be accomplished if, on the one hand, the withholding of funds by State officers is exercised only in proportion to the seriousness of the shortcoming; and if, on the other hand, right action unfailingly meets its reward. The facts are that in a fairly large number of the communities of every State, we need a change in attitude on the part of the citizens toward the schools. These communities can be frequently led to change their vote and to substitute right action for wrong action over a sufficiently long period of years to bring about a fundamental change in their attitude toward the benefits of education. That which a citizen learns through the operation of his own action becomes established, while that which is forced upon him against his