A UNIVERSAL INCOME TAX.
THE proceedings in the House of Commons upon the Report stage of the Finance Bill point to the necessity for some public movement for a complete reform of the Income Tax. It is abundantly clear that in this respect, as in so many others, politicians wait to be pushed from outside. Left to themselves, they choose the line of least resistance, which generally means following the lead of their permanent officials. The history of Mr. McKenna's attempts to extend the Income Tax to wage- earners is most dispiriting. The obvious• course to pursue was to utilize the machinery of the Insurance Act for cs Heating an Income Tax from weekly wage earners. The willingness of employers to carry out this work was beyond question, and i.. the matter had been fairly put to the Trade Union leaders they would have co-operated in the scheme, preferring, as they rightly do on principle, direct to indirect taxation. Instead of adopting this simple plan, Mr. McKenna brought forward an elaborate and highly expensive scheme of his own. He began by requiring employers to make a quarterly return of the earnings of all their em- ployees. The second stage of the scheme involved the appointment of a vast new army of Inland Revenue officials, who, armed with the employers' returns, were to go to the houses of weekly wage earners, assess them there,, and collect what they could. Recognizing as an after- thought that the weekly wage earner is not prone to make quarterly payments, the Chancellor of the Exchequer further provided that when the Inland Revenue' officials had made their attempt to collect the money at the work- man's home and failed, they might go back to the man's employer—possibly a new employer—and demand that he should stop the sum• due out of the workman's future earnings. Against this proposal, which would have converted employers into collectors of arrears, various Employers' Associations indignantly protested, with the result that on Report this portion of the scheme was dropped. In addition, Mr. McKenna cut down his whole proposal fcr dealing with employed persons quarterly by limiting it to weekly wage earners. This apparently was intended as a concession to the Income Tax Commissioners in the City of London and elsewhere, who objected to having their work of making assessments transferred to Somerset House. They were appeased by the argument that, as they had never in practice assessed weekly wage earners, it would do them no harm if this particular job were taken over bythe Inland Revenue Department. Thus the City Commissioners and their officials are satis- fied, and Somerset House officials get a new job. The only sufferer is the public Exchequer, which will not secure the revenue.
In fairness, however, to the Chancellor of the Exchequer,, it must be admitted that any piecemeal reform of the Income Tax does present both political and administrative difficul- ties. His often repeated argument against the collection of Income Tax from weekly wage earners by the .employers with the Insurance Act machinery is that it would then be difficult to deal with claims for exemptions on the ground of children under sixteen or on the ground of total income. Standing by itself, this argument would be strong ; but it amounts to nothing when coupled with the system which Mr. McKenna proposes to establish ; for obviously it must cost less to deal with claims for abatements if the tax has been paid by the employer than to set up a totally new machinery to assess the wage-earner at his own home. Therefore, even if the present system of abatements had been kept intact, it would have cost less and yielded more money to have adopted the common-sense system of collecting from wage-earners week by week.
It may, however, be pointed out that if the tax on employed persons were put at a low figure there would be no necessity to allow any abatement upon that tax. It might be treated as an addition to the rest of the Income Tax. For example, a uniform tax of ld, on every com- pleted. payment of 15s. would involve very little clerical work to the employers, and would be so moderate a burden even on the poorest wage-earners that no claim for exemption or abatement need be entertained. The true relief from such a tax should lie in a reduction of indirect taxation.
, This statement brings us to the heart of the matter. The real conflict is between direct and indirect taxation. All Chancellors of the Exchequer are tempted when dealing with the masses of the population to rely upon indirect taxation, because they know that a tax which is unseen is less resented than a tax which is seen. That is exactly the reason why their policy should be reversed. The Govern- ment of this country, as probably of all Western European countries, is destined to pass more and more under the control of the masses of the people. If they are to exercise their power wisely, they must be made to feel responsibility for the power they exercise, and the very first step towards consciousness of that responsibility is consciousness of taxation. This is the conclusive Constitutional argument in favour of direct taxation. The social argument in its favour is almost equally strong. Indirect taxes on tea, sugar, cocoa, and other necessaries or quasi-necessaries of life inevitably press most heavily upon the poorest classes. The farm labourer earning 15s. a week will pay as much in Tea Duty and Sugar Duty as an artisan earning £3 to £5 a week. That is grossly unfair, and the unfairness ought not to be allowed to continue. The only way to meet the situation is to make the Income Tax universal, exempting nobody. This is a task which ought to be undertaken at once, both for the sake of securing additional revenue while the war is in progress, and of preparing the way for a rapid reduction of indirect taxation as soon as the war comes to an end.
As regards methods there are two conflicting courses. The one is the plan of collecting at the source, which has been followed in the case of dividends and rents with remarkably satisfactory results, so far as the Exchequer is concerned. If this plan were also applied. to wage-earners, we could be certain of obtaining results equally satisfactory from the financial point of view. On the other hand, it is argued with considerable force that the weekly wage earner would be less likely to feel the full responsibility of citizenship if his tax were deducted from his wages by his employer than he would do if he himself paid his tax at his own home. In support of this argument it is pointed out that the large body of small householders in towns, whose rates are paid for them by their landlords, are never conscious that the element of rates enters into the rent they pay, and consequently feel no responsibility for municipal expenditure. There is a further consideration that collection at the source involves a very elaborate system of refunds in order to meet the poor man's just claim for a lower rate of taxation. For example, it is quite right that a rich man should pay Income Tax at the present time on his dividends at the rate of 3s. 6d. in the pound, and bankers make that deduction from all dividends ; but it clearly would not be right to ask a man whose total income was only £200 to pay a tax at this rate. Therefore the smaller taxpayer from whose dividends 3s. 6d. in the pound has been deducted must be entitled to claim an abatement, and the work of dealing with these claims is very heavy. In the same way, if Income Tax upon all employed persons were levied at the source—i.e., from the employer—an immense number of claims would be pre- sented for abatement.
Bearing these various considerations in mind, it may be suggested that the objects aimed at can best be effected by a combination of the two systems of collec- tion. We ought to a considerable extent to main- tain the system of collection at the source and to extend it to wage-earners, partly for the sake of collecting a large revenue with very little cost, and partly for the sake of obtaining precise information on which to collect the remainder of the Income Tax from the tax- payer's home. With this object in view, it is suggested that there should be a universal tax of, say, 4d. in the pound upon all wages and salaries, to be paid by employers without any deduction whatsoever, and simultaneously a corre- sponding tax of, say, 6d. in the pound upon all dividends and rents, again to be raid at the source without any claim to abatement. These two primary taxes would alone yield a very large revenue collected at a minimum of expense. The information incidentally conveyed to the Inland Revenue Department would be of immense service in arriving at the actual incomes of all persons assessable. On the basis of this information, and of such other informa- tion as the Income Tax Commissioners now collect, indi- vidual assessments would be made, and these individual assessments would take full account of relative ability to pay, a poor man being charged at a lower rate than a rich man, and allowance also being made for the number of children. It is important to add that in order to secure economy in collection of the Income Tax upon individuals it is most desirable that the collection of Imperial taxes should be amalgamated with the collection of local rates. At present a vast amount of labour is wasted by maintaining two, and in some cases three, sets of officials to collect Imperial and local taxes respectively. What is required is one Revenue Office for each district, which would be responsible to the Imperial authorities for collecting Imperial taxes and to the local authorities for collecting local taxes.
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