274 REPORTS ON THE STATE OF SCIENCE, ETC: 
Dr. Dalton agrees with (e). 
Sir Drummond Fraser writes: ‘The taxable capacity of a nation is surely 
reached when taxpayers are forced to borrow from the banks to pay the 
taxes. Excessive taxation for the heroic repayment of debt can be reduced 
if the Government provide for the annual redemption of debt by a statutory 
sinking fund of one-half per cent. in addition to the interest. This would 
necessitate a bond continuously on tap to replace bonds falling due or bonds 
accepted in payment of taxes. Thus the time for repayment would be spread 
over a longer number of years, and the Government debt would be spread over 
a larger number of people. Lancashire and Manchester give a striking example 
of the advantages of this financial policy. The cotton mills for forty years 
have been mainly financed by the short-term loans of the people. The Man- 
chester Corporation for thirty years has also been financed in this way. All 
the money required has been obtained, in spite of strikes and other handicaps, 
and in spite of spectacular stunts for Government war borrowing at a higher 
rate of interest! The atmosphere thus created not only adds to public interest, 
but secures efficiency.’ 
QueEstIon 5.—Is there any economic basis for the old idea of a balance 
between direct and indirect taxation? 
Our members and correspondents are almost unanimous in saying, as Sir 
Edward Brabrook puts it, that ‘there is no necessary relation between direct 
and indirect taxation.’ Dr. Cannan, Dr. Dalton, Mr. Hirst, Mr. Hoare, Mr. 
Pethick Lawrence, Mr. Mason, Mr. Robertson, all say ‘ No.’ 
Sir J. C. Stamp answers: ‘In theory, No; but in the practical collection of 
taxes from the less wealthy classes, Yes.’ Mr. Hilton Young replies: ‘It was 
a good enough way of distribution over all classes before the War. No scientific 
justification, nothing but a rough approximation.’ 
Dr. Dalton writes: ‘Those who speak of a ‘“‘balance’’ generally assume 
(a) that direct taxes are paid by the rich and indirect by the poor, and (6) that 
the totals paid by the rich and poor should remain in some constant proportion. 
But (a) is not necessarily true, for, e.g. an income tax on small incomes is 
paid by the poor, and taxes on luxuries are paid by the rich. As to (6), even 
if (a) were true, the proper distribution of the burden of taxation, whatever 
that may be, may require a change to be made in the previously existing — 
proportion, even if the relative number and wealth of rich and poor do not : 
change, and a fortiori if they do.’ : 
Mr. G. B. Shaw replies: ‘No; only a psychological basis. If men will 
revolt against a direct tax of threepence, and will without protest pay 1s. for 
three-halfpence worth of tobacco, direct and indirect taxation must be balanced 
accordingly.’ 
Mr. Gibson thinks that ‘the theoretical proportions must necessarily vary 
with changing economic conditions and changes in the distribution of the 
national income. The fixed-income class suffers least by additions to indirect 
taxation. If taxation be direct, producers, manufacturers, and traders pass 
part of it on to the consumer; consequently the fixed-income class receives 
double doses.’ 
Dr. Dalton disagrees with Mr. Gibson’s last sentence, and has some doubt 
whether the distinction between direct and indirect taxation has any use. 
Mr. Allen writes: ‘Is not this an inversion of the usual law, which says © 
that direct taxes stick where they fall, while indirect taxes are passed on to 
the consumer? It is not easy to say whether some taxes—e.g. the Excess 
Profits Duty—are direct or indirect, and it is possible that wage-earners and 
the salaried class would make an addition to their income tax a ground for 
claiming higher pay. In a primitive or partly-developed country it is natural 
for a Government to raise its revenue by taxing commodities. In the highly 
developed civilisation of to-day taxes on ordinary articles of consumption seem 
out of date; they can have little relation to the ability of the taxpayer, and 
among people with small incomes they become a tax on families.’ 
Mr. Lavington writes : ‘I imagine that Mr. Gibson is right in holding that 
producers may shift a part of direct tax; but I greatly doubt if this is of any 
practical importance. Fixed-income classes could also shift such tax a little 
by restricting their savings and so slightly raising the rate of interest.’ 
Mr. Sykes observes: ‘I think that there is no foundation for this law; it 
