Railroad Rebates: Exposé of illegal railway rebates in the early 1900s

Ray Stannard Baker, Railroad RebatesMcClure’s, December 1905, second of a five-part series. “One of the chief purposes of taxation is to build and maintain roads…. The railroad, by all the laws of the nation, is quite as much a highway as is a wagon road. But instead of levying direct taxes for keeping up the rail-highways…we Americans ‘farm out’ the power of taxation to private individuals organized as a railroad corporation….  The instrument tat conveys this power upon a railroad company is a ‘charter.’ It gives the railroad company the right to operate the rail-highways and to charge a freight-rate (a tax) for doing it.”

Excerpts from story:

In its essence a freight-rate is a tax levied upon the people: a tax upon every mouthful of food we eat, every garment we wear, every timber in the house we live in, every shovelful of coal we burn….

The first essential of a tax is that it shall be just…. In the present railroad agitation, the old, old question of equal taxation and the right of representation in levying taxes, is squarely before us again. The cry arises from every part of the country that the railroad ‘baron’ does not tax fairly and equally…. He is charged with secretly paying back part of the taxes to his rich favorites by a device called the ‘rebate.’… In other words, these railroad representatives of ours, appointed by us as tax-collectors, do not represent us–but work for their own personal interests. Strangely like some of our political representatives!…

What is a rebate? Strictly speaking, a rebate is a sum of money secretly paid back by a railroad company to a favored shipper as a refund upon his freight-rate…. But the people…use the word ‘rebate’ in a much wider sense. It means any sort of favoritism to one shipper that is not given to all shippers….

One of the very worst results of the payment of rebates to favored shippers has been the corroding growth of suspicion and distrust throughout the railroad business. It is a hard thing to say, but one cannot look into the question at all closely without reaching the conclusion that the honor of a promise, ‘the word of a man.’ has disappeared in the railroad freight business…. I have listened to these men telling with absolute glee how they got together–all promising, even swearing–a ‘gentleman’s agreement’ not to give a rebate to a certain shipper, and how, the moment they got out of the meeting, every man used his best wits to break his oath as quickly as possible. Surely, a system which produces such dishonesty is wrong, wrong from the bottom to the top….