TOPICS OF THE DAY.
A UNIVERSAL INCOME-TAX.
we pointed out some three weeks ago, the Govern- ment, owing to the financial necessities of their policy of old-age pensions and social reform, added to the increased naval expenditure forced upon them by German competition, will need to impose some sixteen millions of new taxation next year if they honestly meet their obligations, and probably in succeeding years some- thing more like twenty millions a year. How is this to be accomplished? If the Government remain staunch to Free-trade it will be their duty to devise some system of direct taxation so sound and so secure that their opponents, when they are in power, will have no excuse for upsetting it and substituting a system of indirect taxation,—that is to say, Tariff Reform. lip till now there has been no indication that the Government have seriously considered how to raise more money by direct taxation. All that we have been told is that they mean to take money which has hitherto been devoted to the Sinking Fund. Last year they paid off some fifteen millions of Debt. But this very large payment was due to the exceptional circumstances, and to the fact that last year's taxes were for the most part collected at a time when trade was booming. How much of this sum could be used to meet fresh expenditure next year is discussed by Mr. Harold Spender in his article on "Next Year's Finance" in the Contemporary Review for August. In his opinion, and he is a strong party Liberal anxious to put the best face upon things, not more than two millions can safely be obtained from the Sinking Fund. Accepting the figure, and assuming that the Government will want sixteen millions a year from new taxation, we see that there will still be fourteen millions to be raised by new direct taxes. Let us also assume with Mr. Spender that it may be possible, by increasing the death-duties, to get another two millions a year, though personally we doubt the wisdom of that. We next come to the question of the graduation of the Income-tax. Will it be possible to obtain any large sum of money by some form of super- tax,—by an increased tax upon the rich man, or to be specific, on incomes over £5,000 a year ? Mr. Harold Spender discusses this, but comes to the conclusion that taking all things together, the evidence laid before the Income-tax Committee would lead one to doubt the wisdom of expecting from this source more than two or three millions a year. In our opinion, two millions Would be the safer figure, for estimates from graduated taxes almost always turn out to be exaggerated. Looking at the matter as a whole, it is very unlikely that increased death-duties and a super-tax could together be got to yield more than four millions a year.
If that be so, there will be still some ten millions a year to be found. How is this to be obtained ? In our opinion, by far the safest way of obtaining it, granted again that the Government is in earnest in desiring to build up a financial bulwark against a general tariff, would be to institute a universal Income-tax, thus making every man in the country contribute something directly, as he now of course does indirectly, towards the national expenditure. Before, however, considering a universal Income-tax in detail, let us say plainly that such a proposition is not favoured by us in the abstract, and we only suggest it as the best means out of an intolerable financial situation, —a situation which would not have been created, had the Government been the true friends of the poor and of Free- trade, as they profess to be. We are not Socialists, and we are not, to use Cobden's phrase, "parasites of the poor," but at the same time we are most anxious that the State should do what it can to help the poor wisely and to relieve them from the pressure of their poverty. For this reason we have always been in favour of placing extra taxation upon the rich rather than the poor, provided that this can be done without gross injustice and without drying up the sources of industrial wealth upon which the poor depend for their subsistence. Unfortunately, however, when it comes to raising vast sums of money it is absolutely necessary to have recourse to the taxation of the poor. The rich are not rich enough, and there are also not enough of them to make it possible to get the money from them. You may, no doubt, do a great -deal in the way of taxing the rich if your object is to punish them and harry them ; but if you want to fill the Treasury such penal finance is of very little use. The millionaire goose that lays the golden eggs is very soon and very easily killed. But if it is necessary, as it unquestionably is, to tax the poor in order to get large sums of money, we have no doubt that it is better, juster, and less wasteful to get it from them by direct than by indirect methods. A general tariff would tax the poor far more harshly than a universal Income-tax. The only difference would be that in the one case the poor would be taxed in the dark, and a great deal of the tax would go into private pockets, while in the other case the taxation would be in the light, and the money would at any rate be all secured for the Treasury. For this reason, though we are most anxious to do nothing to make the burden of life harder for the poor, we hold that as the money must be found somewhere, it will be most in the interests of the poor to obtain it by a universal Income-tax,—by an Income-tax which will fall upon all classes in the community.
Let us say, to begin with, that there is no physical obstacle in the way of a universal Income-tax. Plenty of modern States collect such imposts. In Germany, for example, there are not only State Income-taxes which go practically down to the bottom, as in Prussia, but there are also local Income-taxes which have the same universal character. Though no doubt the collection of money in small sums is always expensive, the imposition of a universal Income-tax is from some points of view very easy. The leading principle of our Income-tax is to collect the tax at the source,—not to take it from the man on whom it actually falls, but to stop the sum required for Government out of the income due to the taxpayer before that income reaches his hands. But in Britain there is almost always somebody who pays the incomes over to those who are at present among the non- Income-taxpaying classes. The latter are, in fact, wage- earners. In imposing a universal Income-tax, all we should have to do would be to collect the money from the wage- payer before it reached the wage-earner, just as we cut the Income-tax off a dividend before the dividend is paid to the stock-bolder, or off an official salary before it is paid to a Government official. The employer who employs a hundred men at £1 a week would be required to deduct the Income-tax from the weekly wages of his employees and pay it to the Government tax- collector. Again, the householder would pay his servants their wages, minus Income-tax.
Let us next consider, though it can only be very roughly, what amount might be obtained by a slight universal Income-tax. It has been calculated that the income of the non-Income-taxpayers—that is, of persons who have less than £160 per annum—is somethina over a thousand millions a year. Let us suppose that an income-tax of half a farthing in the shilling were imposed under the new universal income-tax upon those who are now exempt. Such an impost would be roughly one per cent. To levy a tax of one per cent. on a thousand millions would mean, if everybody could be reached, ten millions a year. It will be urged, perhaps, that a good many people would not be reached, and also that the cost of collection would be very heavy, and therefore that such a tax as we have suggested would not get the whole ten millions required. Very probably this is so. We will assume, however, for the moment and for the sake of argument, that a one per cent, tax would be enough for the immediate purposes of the Treasury. We have next to ask whether the burden on the taxpayer would be too great. Let us take what may be called the man of the middle term in the wage-earning class,—that is, the man with £1 a week. His income is £52 a year. Therefore at a one per cent. rate he would pay a little over 10s. 4d., or if we take the half a farthing in the shilling basis, his employer would deduct 20. a week from his pay. Again, a man who was earning only 10s. a Week would suffer a deduction of 11-d. per week. One would, of course, much prefer that the very poor man should not be mulcted even of such small weekly sums as this, but "needs must when the Devil drives. The money has to be got somewhere and somehow.
It will no doubt occur to many of our readers to suggest that the universal tax ought to be graduated. A little reflection will show, however, that it would be a mistake to do this, because in that case it would be necessary to go through most difficult calculations as to the amount of a man's total income. If the deduction of a fixed percentage per week is made by the employer, whether the weekly wages paid by him are .£3 or 3s., such calculations are not needed. The tax automatically stops when a, man is sick or out of work, and therefore off the pay-sheet. For example, if men paid only 75 per cent. of the tax if they were earning less than £30 a year, the most complicated calculations would have to be made as to what the total of their income had been in a particular year. We have suggested that the employer and wage-payer should hand over the half-farthing in the shilling every' week ; but, of course, this would be a, matter of arrangement. In many cases the Government might prefer to collect the tax once a month or once a quarter. But though graduation would not be wise finance, it would probably be wise to make the rate for domestic servants higher than half a farthing in the shilling. And for this reason. A butler's wages are nominally, say, £70 a year ; but in reality they are much higher, because he is housed and fed free. In many cases the employer's expenditure for such housing and feeding is £50 a year, and in very few cases is it less than £26 a year. There- fore in reality the butler's income is £96 a year. Since, however, it would be exceedingly difficult to calculate how much of the board and lodging ought to be considered as income, the best plan probably would be to put the Income-tax on domestic servants at, say, a farthing in the shilling, but charge it only on the wages paid in cash.
Na doubt in our necessarily hasty summary of the case for a universal Income-tax we have omitted to discuss many points. Taken as a whole, however, we are sure that the proposal is a perfectly practical one. That it is a just one in the abstract we are very far from saying, because, as we have stated above, our ideal is to exempt the poor from new taxation as far as possible. If, however, those who profess to speak in the name of the poor insist upon a bloated expenditure, especially at a time when the national safety makes an increase of expenditure on armaments a matter of vital importance, there is nothing for it but taxation which will affect the poor. In any case, it is better to tax the poor openly and directly than in the dark, and under the weakening and wasteful guise of a general tariff.
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