37 



TAX, TAXATION. 



TAX, TAXATION. 



33 



income as his share of the general contribution. Such a tax, equitably 

 levied, would appear to agree in theory with all the four maxims of 

 Adam Smith ; but, practically, every tax upon income must abound 

 in inequalities, in uncertainty, and in great personal hardships and 

 inconvenience. 



The strongest of the objections to an income-tax is, however, the 

 inquisitorial nature of the investigation into the affairs of all men, 

 which id necessary to secure a statement of their incomes. This objec- 

 tion, indeed, is treated lightly by some ; but by the mass of the con- 

 tributors it is considered the most inconvenient and unseasonable 

 quality of an income-tax. Even if the exposure of a man's affairs 

 could do him no possible injury, yet as an offence to his feelings, or 

 even caprice, it is a hardship which is not involved in the payment of 

 other taxes. But apart from matters of feeling, injury of a real 

 character is also inflicted upon individuals by an exposure of their 

 means and sources of income. Mercantile men, from the dread of 

 competition, take pains to conceal from others, especially if in the 

 same business, the application of their capital, the rate of profit 

 realised, their connections, and their credit, all of which must be dis- 

 closed, perhaps to their serious injury, when there is an investigation 

 of their profits. 



For these reasons the mode of collecting the income-tax certainly 

 cannot be approved of as being " most likely to be convenient to the 

 contributor." Its general unpopularity when in operation is the best 

 proof of its hardship and inconvenience. Upon the whole, a tax upon 

 income is so difficult to adjust equitably to the means of individuals, 

 and the mode of collection is necessarily liable to such strong objec- 

 tion, that, if resorted to at all, it should be reserved for extraordinary 

 occasions of state necessity or danger, when ordinary sources of revenue 

 cannot safely be relied on. 



The English Atfetsed taxa have as few objections in principle as 

 modes of direct taxation. With an equitable assessment, and 

 special exemptions in certain cases, they are capable of being made to 

 bear a tolerably just proportion to the incomes of the individuals 

 paying them. They share, however, in the general unpopularity of all 

 direct taxes, and it cannot be denied that they often press unequally 

 npon particular persons. The window-tax was indeed in many respects 

 most objectionable, but it has happily been removed. The direct taxes 

 upon horses, carriages, hair-powder, armorial bearings, 4c., being paid 

 voluntarily by the rich to gratify their own taste for luxury or display, 

 are not likely to meet with many objectors. The use of such articles 

 generally indicates the scale of income enjoyed by the contributor, and 

 the tax is too light to discourage expenditure or to make any sensible 

 deduction from his means. 



linHrii'i J'ojcet. In preferring one tax to another, a statesman may 

 be influenced by political considerations as well as by strict views of 

 financial expediency, and nothing is more likely to determine his choice 

 than the probability of a cheerful acquiescence on the part of the people. 

 All taxes are disliked, and the more directly and distinctly they are 

 required to be paid, the more hateful they become. On this, as well 

 as on other grounds, " indirect taxes," or taxes upon the consumption 

 of various articles of merchandise, have been in favour with most 

 government*. " Taxes upon merchandise," says Montesquieu, " are felt 

 the least by the people, because no formal demand is made upon them. 

 They can be so wisely contrived that the people shall scarcely know 

 that they pay them. For this end it is of great consequence that the 

 seller shall pay the tax. He knows well that he does not pay it for 

 himself ; and the buyer, who pays it in the end, confounds it with the 

 price." (' Esprit des Lois,' livre xiii. chap. 7.) This effect of indirect 

 taxes is npt to be undervalued by writers on political economy ; but it 

 U undoubtedly a great merit in any system of taxation (which is but a 

 part of general government) that it should, be popular, and not give 

 rise to discontent. A tax that is positively injurious to the very 

 parties who pay it without thought, is certainly not to be defended 

 merely on the ground that no complaints are made of it ; but it may 

 be safely admitted as a principle, that of two taxes equally good in 

 respects, that is the best which is most acceptable to the people. 

 The very facility, however, with which indirect taxes may be levied, 

 makes it necessary to consider the incidents and effects of them 

 with peculiar caution. The statesman has no warning, as in the cases 

 of direct taxes, that evils are caused by an impost which is productive 

 and which every one seems willing to pay. When any branch of indus- 

 try is visibly declining, and its failure can be traced to no other cause 

 than the discouraging pressure of a tax, the necessity of relief is felt 

 at once ; but if trade and manufactures are nourishing, and the country 

 advancing in prosperity, it is difficult to detect the latent influence of 

 taxes in restraining that progress, which but for them would have been 

 greater ; and still more difficult to imagine the new sources of wealth 

 which might have been laid open if such taxes had not existed, or had 

 been leas heavy, or had been collected at different times or in different 

 ways. 



The government is directly interested in the increase of national 

 wealth, and taxes upon commodities should be allowed to interfere 

 with it aa little as possible. On this account, duties upon raw 

 ire objectionable. They increase the price of such materials, 

 and thus limit the power of the manufacturer to purchase them, and 

 ley labour in increasing their value, and in adding to the pro- 

 duction and capital of the country. They discourage foreign commerce 



and the employment of shipping ; for as the power of buying is 

 restrained, so also ia that of selling, and the interchange of merchan- 

 dise between different countries is checked. Moreover, by increasing 

 the price of the exported manufactures, they limit the demand for 

 them abroad and subject them to dangerous competition. 



Similar objections may be urged against taxes upon domestic manu- 

 factures, since by increasing the price they diminish consumption, and 

 consequently discourage the manufactures, which if left to themselves 

 would have given employment to more capital and labour, and would 

 have added greatly to the amount of national wealth and prosperity. 

 The object of a government should always be to collect its revenue 

 from the results of successful employment of capital and industry, and 

 not to press upon any intermediate stage of production. 



The British legislature has of late years very wisely repealed or 

 reduced various duties upon raw materials and upon manufactures. 

 Of customs duties, none now remain but on articles of large con- 

 sumption, such as tea, sugar, wine, tobacco, timber, &c., and all those 

 upon raw material, and upon articles of small consumption, where the 

 trouble and hindrance to the merchant exceeded the amount of income 

 produced, have been repealed. 



One of the chief recommendations of indirect taxes is, that, when 

 placed upon the proper description of articles, the payment of them by 

 the consumer is optional. If charged upon what may be strictly called 

 the necessaries of life, their payment becomes compulsory, and falls 

 with unequal weight upon labour. Competition generally reduces a 

 large proportion of the working classes to a state which allows them 

 little, if anything, beyond necessaries ; consequently a duty upon these, 

 as it will have no effect in diminishing the competition of labour and 

 in raising wages, must reduce the comforts and stint the subsistence of 

 labouring men. 



That class of articles commonly called luxuries, of which the con- 

 sumption is optional, is a fair subject of taxation. In principle there 

 is no objection to such taxes : they do not interfere with industry or 

 production, but are paid out of the incomes of the contributors, and 

 paid willingly, and for the most part without undue pressure upon 

 their means. But in laying on taxes upon particular articles of this 

 description, care must be taken to proportion the charge to the value 

 of the article. Excessive duties fail in the very object they have in 

 view, by rendering the revenue less productive than moderate duties ; 

 while the causes of their failure are injurious to the wealth of the 

 country by discouraging consumption, and to its morals by offering an 

 inducement to smuggling. 



High duties upon foreign articles imported into a country are liable 

 to all the objections which apply to immoderate taxes upon articles of 

 consumption, and they are chargeable with another they diminish 

 importation, and thereby restrict commercial intercourse and the 

 demand for and exportation of domestic produce and manufactures. 



The success of moderate duties upon articles of consumption, in 

 encouraging the use of them, placing them within the reach of a larger 

 number of persons, and at the same time augmenting the revenue, was 

 never better shown than in the article of coffee. In 1824 the duty on 

 British plantation coffee was la., upon East India 1. 6</., and upon 

 foreign coffee 2. 6rf. per lb., and the quantity cleared if or consumption 

 was 8,262.943 Ibs., producing a net revenue of 420,988/. In 18U5 

 those duties were reduced one half, and the consequence was consider- 

 ably more than a threefold increase in the consumption, while the 

 revenue in 1841 had been more than doubled. The duty is now 3d. 

 per lb., and the importation in 1859 was 65,353,029 Ibs., of which 

 34,292,947 Ibs. were entered for home consumption. There is no 

 difference between foreign coffee and that of the production of British 

 possessions. 



Thus reductions of existing duties may be proved by such examples 

 to increase the revenue ; but whether the effect of them be immediate 

 or deferred must depend upon a variety of circumstances. If the 

 reduction puts an end to extensive smuggling, the revenue will derive 

 immediate benefit, as both the demand and the supply of the article 

 already exist ; and the reduced tax, without affecting production or 

 consumption, acts as a police regulation, and at once protects the 

 revenue from fraud. But where there is little or no smuggling, and 

 the revenue can only be increased by means of additional consumption, 

 the effect of reduced duties may be deferred and even remote. The 

 article may have to be produced ; capital, skill, labour, and time may 

 be required, to provide it in sufficient quantities to meet the growing 

 demands of the consumer ; and even should the supply become 

 abundant, the habits and tastes of a people cannot be changed on a 

 sudden. The high price of an article may have placed it out of their 

 reach, and in the meanwhile they may have become attached to a 

 favourite substitute, or may be slow to spend their money upon a 

 commodity which they have learned to do without. These and other 

 causes may defer for a considerable time such an increase of con- 

 sumption as would make up for the reduced rate of tax, especially 

 when the reduction has been so great as to require an extraordinary 

 addition to the previous amount of consumption, before the sacrifice 

 made in the revenue can be redeemed. But where the article on 

 which it is proposed to reduce a tax is already in universal request, 

 and the supply immediate and abundant, and where the tax is so 

 heavy as to restrain consumption, no present loss need be apprehended 

 from a remission of part of the tax, and a very speedy increase of 



