278 REPORTS ON THE STATE OF SCIENCE, ETC. 
5. That a heavy income tax has a tendency to lower prices of commodities 
in general, just as an inflation of the currency increases them. 
6. That a graduated income tax, unlike most (if not all) other taxes, makes 
for greater equality of spending power.’ 
Dr. Dalton comments on point 5: ‘This seems to me a fallacy. You trans- 
fer purchasing power from income-taxpayers to beneficiaries of public 
expenditure, ¢.g. civil servants, holders of War Loan, old-age pensioners. 
‘otal purchasing power is not diminished. Why, then, should prices fall?’ 
Mr. Lavington also expresses a doubt about point 5 and asks, ‘ May not 
the most important effects of a heavy income tax be: (1) to compel an exten- 
sion of bank loans, and (2) to check productivity; in both directions tending 
to raise prices?’ ‘Che Sub-Committee contemplated a large reform in income-tax 
law and practice, of which the most important items were that the point of 
total exemption should be lowered until the tax was paid by all persons who 
could be considered as having any tax-paying ability, and that the tax should 
be collected at the source wherever possible—c.g. that in the case of salaries, 
wages, and other periodical payments the tax should be deducted by the 
person making the payment and that the taxpayer’s abatement and allowances 
should be taken into account at the time of deduction. On the question of 
prices, what the Sub-Committee, which was working while the Government still 
made no attempt to meet its expenditure out of genuine revenue, meant was 
that the payment of wages and salaries out of loans instead of taxes necessarily 
raised prices. If the income tax had been raised sharply at the outbreak of 
war, and had been applied to all recipients of income above some very low 
point (e.g. the annual value of a private soldier’s pay, keep, and allowances), 
the purchasing power of ordinary persons would have been reduced and prices 
would have been lower in consequence. As Dr. Dalton says elsewhere in the 
present report, the depreciation of the currency was equivalent to an income 
tax without graduations, abatements, or exemptions. 
A serious fact about the income tax is that it 1s paid by so small a propor- 
tion of the citizens who possess the Parliamentary vote. Exemptions and 
abatements, which allow a married man with three children to earn almost £5 
per week without being assessable to income tax, are barely compatible with 
democratic Government. If ‘ Taxation implies Representation,’ ought it not 
to follow that ‘Representation implies direct taxation?’ Citizens who, by 
their vote at Parliamentary elections, ultimately determine national policy, 
ought to have the responsibility which goes with power brought home to them 
by high taxes if they have voted for a costly policy, or low taxes if they have 
voted for a policy of retrenchment. 
Hardly any other tax can be adjusted to the ‘ ability’ of citizens, for ever 
death duties, although carefully graduated, only affect incomes from property, 
not the amount which individuals have to spend. Some taxes, e.g. those on 
tea and sugar, fall heaviest on the man (or widow) with a family and a small 
income. 
Sir Drummond Fraser writes: ‘In my opinion the bulk of the revenue 
should be raised by income tax. It forces the taxpayer to do without something 
else in order to pay the tax. In practice this is a transfer of purchasing power, 
and therefore prevents monetary inflation.’ 
Mr. Hirst replies: ‘I agree that the income tax, if it begins on very low 
incomes, ought to be relied upon as the mainstay of the national revenue. And 
if by raising it the yield per penny were greatly diminished, I should regard 
that as a sign that the limit of the taxable capacity of the nation had been 
reached.’ 
Sir J. C. Stamp, Mr. Hilton Yonng, Mr. Mason, and Mr. Hoare answer 
‘ Yes.’ 
Mr. Shaw also answers ‘ Yes: all of it. Include ‘“‘ability to work” and 
you may substitute poll tax for income tax. If it were not for the phenomenon 
of unearned income arising through the operation of the law of rent, income 
tax would act as a premium on idleness.’ 
Mr. Robertson replies: ‘ Yes; if we may include death duties in income 
tax, but there is much to be said for having some taxes which hit people 
in proportion to their expenditure (especially luxurious expenditure) rather 
than their income, and thus discriminate, to some extent, in favour of saying. 
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