THE INCOME TAX. F ROM time to time, but by no
means too often, the House of Commons discusses the Income Tax and various suggested schemes of reform. Such discussions at any rate have the merit of recognizing the tremendous value of this tax as an instrument of public revenue. In the last completed financial year the Income Tax yielded £239,509,000. To this enormous figure ought to be added, for the sake of statistical accuracy, the greater portion of the sum of £685,000 attributed to Land Value Duties. More than half this sum is derived from a special tax on mineral rights, which is a form of Income Tax, and levied as such. Thus the true yield of the Income Tax and Super Tax last year was, as nearly as possible, £240,000,000 out of a total revenue of £707,000,000. After the war, when the Excess Profits Duty, at all events in its present form, will have ceased to operate, the Income Tax will become proportionately an even more important item in our total revenue. It is amusing in this connexion to cast our minds back to the year 1874, when Mr. Gladstone, stern financier though he was, attempted to win an electoral victory for the Liberal Party by proposing the complete abolition of the Income Tax. This intended sop to middle-class electors happily failed in its effect. The Tories won the election, and Disraeli had been shrewd enough, while repeating in substance Mr. Gladstone's offer, to guard. himself with the condition that the state of the revenue must be such as to permit the repeal of the tax. The rate of the tax was, however, reduced under Disraeli's Ministry from 3d. to 2d: We have moved a long way since those days, and to-day the Income Tax is reckoned and accepted as a necessary and permanent part of our fiscal system. At the same time the scale of the tax has risen enormously. It stood at 2& in the years 1875 and 1876. In 1877 it rose to 3d., thence in later years to 5d., 6d.' and 7d., but down to the year 1900 the maximum rate was 8d. in the pound. In spite of the Boer War, the rate only reached Is. 3d. in the year 1903. The standard rate is now 6s. in the pound, though it is important to bear in mind that that rate only applies to incomes above £2,500 a year. A more moderate scale is levied on smaller incomes. In the case of the smallest incomes taxed the rate works out at only 2d. in the pound on an income of £131. This would be the tax paid by a bachelor. Special abatements are granted to married men at the rate of £25 for the wife and for each child. A man with a wife and two children and an income under £195 would, as the tax now stands, be exempt altogether ; with five children he would be exempt up to £270. There are also small allowances made for the cost of tools and working clothing, with the result that a man with four children, earning anything up to £5 a week, pays no Income Tax at all. This is one of the defects of the tax on which we have often commented in these columns, and we are glad to see that at any rate one Socialist in the House of Commons, namely Mr. Philip ' Snowden, is sufficiently consistent in the interpretation of his own democratic theories to recognise that it is an utterly unsound Constitutional principle to exempt a very large majority of electors from any direct form of contribution to the expenditure of the State which they themselves help to control.
The point, however, requiring consideration at this moment is the importance of making further adjustments in the tax for the relief of those persons on whom the tax at present falls too heavily. When the tax stood at 4d. or 5d. for everybody earning above £160 a year, a few minor injustices did not greatly matter ; but now that the tax for a large number of middle-class people is effectively 3s. or 4s. in the pound, inequalities in incidence become too serious to be neglected. The most striking inequality is that caused by the size of the family. In the past it has been clearly recognized that the State, in framing its fiscal system, should take into account the fairly obvious fact that the compulsory expenditure of a family man is very much higher than that of a bachelor. This is one of the most powerful reasons against taxes on the necessaries of life, and in favour of a tax on income rather than a tax upon expenditure. But the argument fails if, at the same time that taxes on necessaries are abolished, taxes on income are put up to a burdensome figure, and no effective abatement is made for the benefit of the man with a large family. On smaller incomes, as above mentioned, such abatements are made, and probably are sufficient. But until the other evening no recognition of the family status was made in the Income Tax law for persons earning above £700 a year. That figure has now been slightly extended ; namely, up to £800, and further up to £,1000 in families of more than two children. The extension up to E800 merely takes the form of allowing a man the same abatement for each child or for his wife that is allowed to a man with, say, £200 a year. Taking the facts of social life as they are, this cannot be called fair. A man with £200 a year probably sends his children to a public elementary school, and their education costs him nothing. A man with £803 a year bears out of his own pocket the expense of sending his boys to a Public School, and his girls perhaps to expensive Private Schools. To have an allowance of £25 for each child means very little to him ; it only represents a saving of £3 15s. in taxation on each child. Hence has arisen the proposal, which seems to have had its origin in a book written by Mr. Sidney Webb, that the family should be taken as the basis for taxation, and the total income divided by the number of members of the family. Thus a man with £800 a year and a wife and five children under twenty-one years of age would be responsible for the tax on seven separate incomes of £114 a year ; and as incomes under £130 are exempt, he would pay nothing at all.
This proposal is clearly impracticable. Not merely would it mean a very great loss of revenue, but it would also mean a real injustice. It is, of course, quite possible that a man with £600 a year and four children under twenty-one years of age might be spending as much as £100 a year on each child, though that is extremely improbable. But in any case the contrast between the man with four children in the nursery and the man with four children out at school would be glaring and intolerable. Age must -clearly be taken into account as well as numbers if equity is to be secured.
There is, however, a further and very difficult question to be considered. How fax is the State justified in taking into account social prejudices in its system of taxation ? It costs more to send a boy to Eton titan to let him attend a County Council secondary whoa. Is the State to make an allowance to the father for the difference between Eton fees and County Council fees ? One may, at any rate, answer with confidence that if the proposal were made in this crude form to the present House of Commons, or to any House of Commons which is likely to be elected in the future, it would be negatived without a division. The present democratic spirit is much more likely to decide that an Eton education is a form of luxury which ought to bear an additional tax as such rather than to form the ground for a reduction of Income Tax.
These considerations are sufficient to show the real difficulty of the problem. We are, in fact, face to face with two entirely different conceptions of family expenditure. In the wage- earning classes the child is a source of expenditure up to the age of fourteen or fifteen, when it begins to go out into the world and to bring some money back into the family. In the upper and middle classes the child actually costs less in the years of childhood than in the years of adolescence because of the heavy cost of education. Can the State in practice take account of this fundamental distinction without setting up what would certainly be denounced as class legislation Nobody at present objects to class legislation in the interests of the working class, but there is very great and effective opposition to legislation intended to take account of the special interests of the middle and upper classes. Possibly the problem could be solved, or at any rate partially• solved, by making a percentage allowance for each child under sixteen, instead of a fixed allowance. The present allowance is 125 for a wife and each child. This varies Front a 124- per cent. reduction on an income of £200 to 31 per cent. on an income of MOO. Probably rough justice would be met if every one were allowed to deduct 5 per cent. of his income for a wife and for each child. It must be remembered that the point aimed at in this allowance for children is not to adjust matters between rich and poor, but to adjust them between the man with a family and the man without a family. The adjustment between rich and poor is effected by fixing a higher rate of Income Tax for the rich man than for the poor man, and when that is borne in mind, it will be seen that probably the fairest way of making this totally distinct adjustment between the family man and the bachelor is by allowing a uniform but moderate percentage of deduction off all incomes for wife and child.
Previous page
