Mr. Snowden and the Surtax
For several weeks we wondered, and so did every- body else. Last Saturday Mr. Snowden spoke, and though he has accepted the souffle as a legitimate and wholesome form of food, he has also declared that it is by no means certain that some other form of food would not have been much better, and that in any rase it is necessary to wait a little longer before deciding whether the soufflé can be put upon the table.
It is clear that if the Surtax had not been invented as an attractive electoral dish by the Independent Labour Party it would never have been invented by Mr. Snowden. Although Mr. Snowden is a Socialist, his finance is based on economic orthodoxy. He examines with a frigid scrutiny every proposal which is incautious or likely to stay the reduction of debt or to discourage public thrift. As the Surtax has been accepted by the Labour Party he makes the best of it—but not a very good best. He will not go further than to say that it is just in principle. He can unreservedly say as much as that without stepping into the region of, praise, for it is an essential part of his financial creed that direct taxation is the wisest kind of taxation, and that it should be levied in direct proportion to wealth—as, of course, it already is by the Income Tax.
The Surtax is only a higgledy-piggledy kind of Income Tax. It will tax people whose " unearned " income is already taxed under the Income Tax, but it will tax them more. It will be a great inconvenience to the financial administration of the country that a new complication should be introduced at the moment when it was hoped and believed that the Income Tax was at last to be simplified. When Mr. Snowden says that taxation is just if it falls on the broadest shoulders, he has only repeated a truism of orthodox economists. It is not the principle of the Surtax which is wrong, but the clumsy method which would make the tax in practice unfair to individuals, and would probably black out our dawn of national prosperity. Although Mr. Snowden does not say very much in praise of the Surtax, he says enough to give the Labour Party a pretext for declaring that he has come out in favour of it.
Now let us see what Mr. Snowden has to say against it. To begin with, he thinks that the estimated yield of £85,000,000 a year is grossly exaggerated. This estimate rests upon some statement which was made by Inland Revenue officials to members of the Colwyn Committee. But it has never, been clear whether the officials, in arriving at this figure, included- the reserves of. industrial companies as one of the sources of revenue. It is obvious that if they did include these reserves, the £85,000,000 could be raised only by delivering a staggering blow against industry, which depends for development upon its free capital. If industry -withered because the sap of fresh capital was not spreading through its branches, no class would suffer more acutely than that which the Surtax is explicitly designed to help.: Mr. Snowden's next point was that the objects for which the Surtax would be levied, namely, social services and the remission of indirect taxation on necessaries, are already sufficiently provided for. That is to say, nothing is preventing these benefits now but the lack of money. To get more revenue is the solution of everything. We always come back, therefore, to the question whether the State would really increase -its revenue in the long run by a surtax. Mr. Snowden, we gather, thinks that it would not.
Mr. Snowden did not mention national credit, but probably one of the first effects of the Surtax would be an all-round fall in the value of Government securities, and from this lower level the securities would not be likely to rise again for a generation.
Next, Mr. Snowden criticized the decision of the Labour Party that debt reduction should be considered as a minor matter—even if it could be considered at all. He unkindly pointed out that this decision was a com- plete reversal of the Minority Report written by the Labour members of the Colwyn Committee. That Report recommended such a surtax as is before us now —a tax on " unearned " incomes of over £500 a year-- but it added that the proceeds- must go exclusively to the reduction of debt. The Labour members of the Committee, in short, were thinking of a substitute for the Capital Levy, to which Mr. Snowden's own thoughts go back lovingly.
Finally Mr. Snowden, with such a frowning severity as that with which Mr. Gladstone used to denounce financial heresy, reminded his audience that it is quite impossible to dictate to a Chancellor of the Exchequer in advance. A Chancellor of the Exchequer must make up his mind in the circumstances of the moment. Then, and not till then, he must decide how much revenue he can raise, by what means he will raise it, and how it is to be applied.
The Labour Party will no doubt have a pleasant task in advising the country to tax the rich to pay for the poor, but, as a matter of fact, the distinction between " unearned " and " earned " incomes is largely fallacious. The distinction has proper and reasonable uses, but everybody knows that much " unearned " income is the result of intensive earning. The " earned " income of a fabulously prosperous professional man would go free of surtax, but the money which the industrialist has earned solely to put into his business, and without which the business would fail, would be taxed. To make the distinction in this case between " earned " and " unearned " is not only fallacious, but mischievous.
In this lamentably imperfect world the fact remains that Mr. MacDonald's version of the Surtax will be popular, and Mr. Snowden's will not. Mr. MacDonald displays rich and refreshing fruit on a tray ; Mr. Snowden' says that there are more abundant supplies of fruit in cold storage, and that the people can make certain of having plenty if they will do certain common-sense things. But will he be believed ? Everybody sees the tray. At all events, Mr. Snowden has had the courage to tell the truth, and we congratulate him upon that. -
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