PRACTICAL EXPOSITION OF THE PRINCIPLES OF TAXATION.
THE following qualities form the beau ideal of a tax. It should be equal in its pressure, cheaply collected, and convenient in the man- lier and times of payment. It ought not to be capable of evasion; should take as little as possible from the pockets of the people over and above what it yields to the public revenue; whilst neither by prescribing the process of manufactures, nor by a general in- terference with the exertions of industry, should it prevent the pro- duction of more wealth than it actually abstracts. It would seem scarcely necessary to say that it should be certain; but the re- venue-officer, even in England, frequently possesses the power, not perhaps of making a man pay more than is strictly due, but of allowing him to pay less. Every alteration we shall propose will be in accordance with these principles ; by their standard we shall test our existing taxes as we successively review them. In the mean time, let us briefly apply the principles thus laid down to the two most obvious divisions of the subject, Direct and Indirect Taxation.
DIRECT TAXES.
One great advantage of Direct Taxes consists in their taking no more money from the people than they 'yield to the State, except the cost of collection, which is comparatively low. The Stamps, for instance (some of which, and those the most ex- pensive to collect, are indirect taxes), yield upwards of seven mil- lions, and the cost of collection is little more than 24- per cent. The " Taxes " produce nearly five millions and a quarter, and the cost of collection is not much above 5 per cent. The Customs, yielding upwards of eighteen millions, are collected at an expense of 7 per cent.; the Excise, producing upwards of seventeen mil- lions and a quarter, costs nearly 6 per cent. A direct tax is also finite in its operation : whatever inconvenience or evil it may cause, is confined to the individuals paying the impost, and does not extend to the rest of the community. It is also more difficult to evade. Equality is not essential to its nature, it may be as un- equal as any indirect tax. The Auction-duty, for instance, falls only upon those unlucky persons who are compelled to sell by the hammer; but upon this class its graduations are equal. The Mortgage-duty is not only confined to a particular,class of bor- rowers, but it falls unequally upon them. Thus, a mortgagee bor- rowing less than 100/. will, on an average, pay a duty of 21. per cent. This ratio gradually diminishes up to 20,0001., when the duty is only 2s. per cent. Beyond this amount the duty is sta- tionary ; its percentage may therefore sink to 6d. per cent. or even lower. The payment of a direct tax is frequently as convenient in point of time as an indirect impost (at all events to persons above poverty); but being a payment for which nothing appears to be received in return, it is rarely so convenient in point of manner. Though not in their nature free from objection on the score of cer- tainty, it is only by legislatorial negligence that they admit the exercise of such discretionary power on the part of the officer as indirect taxes.
But although direct taxes are not of necessity equal, it would seem that they alone can be made so. This equality appears to be attainable only by directly taxing the income of each individual. Thus, a Poll-tax, by which every person should pay in proportion both to the amount and permanency of his income, would be the fairest of taxes. It would still more nearly approach equality, if— excluding married women, minors, &c. from the operation of the tax—an allowance were made for these incumbrances to a family, man. But the income of individuals (especially in the humbler classes) is so fluctuating—to ascertain its annual average, or its amount for any given year, would be in itself so difficult, and in- volve inquiries of-such a vexatious nature—whilst correctly to pro- portion the deductions for the uncertainty of its nature and for wives and children would require such complex and troublesome calculations, that, independent of its vexation, to levy it would al- : most become the business of each individual. A graduated duty upon incomes above a certain amount, with some allowances for the certainty or uncertainty of their nature, and some exemptions (as in the case of the Militia) for a certain number of children, makes the next approach to equality. But its inquisition into pri- vate affairs—at all events in a complex state of society—appears to be so vexatious, and is often so mischievous, that, under the semblance of equality, a tax of this kind would be one of the most unequal ; many, and those least able to afford it, paying more than their due to escape the inquisition. In the present state of our finances, such a tax, if intended to supersede all others, would in appearance be so oppressive, that it is questionable whether it would be borne. Pure equality, or even a close approach to it, seems therefore impracticable. We must content ourselves with an approximation ; and we may observe once for all, that when we speak, in the course of this exposition, of an equal tax, we mean an attainable, not an 'Utopian equality. Supposing a considerable portion of the revenue to be raised from unobjectionable taxes upon consumption, the next step to- wards equality appears to be a Property-tax, or a tax upon Income which arises from inert or invested capital, as rents, the interest of money, &c. Such incomes can only be created under a tolerable government : whilst they are received without much trouble on the part of the individual, they are greatly beholden to law for enforcing their payment ; and they are among the first to suffer in times of convulsion. It therefore seems but equitable that they should con- tribute in (what at first sight appears) somewhat more than a full proportion, to the wants of the State. The levy, too, creates less hardship than a tax upon income arising from personal exertions or mercantile profits. A hundred a year, indeed, is still but a. hundred a year, whether it be derived from rent or labour. But the latter is subject to continual fluctuations, the former is more permanent. The labourer (no matter of what kind his labour may be) is of necessity subjected to expensed from which a man living upon his property is free. In case of accident or sickness, the in- come derived from exertion ceases ; the income arising from pro- perty is receivable whether in sickness or in health. A tax of this kind is cheaply collected, and it interferes not at all with the exer- tions of industry. Its mode of payment is more convenient than that of many direct taxes, for it can scarcely be said to be paid. The tenant, for instance, would stop the tax from his landlord, the borrower from his creditor, the Bank from the fundholder, &c. There is a risk, indeed, of its nature being sometimes altogether overlooked, and its weight supposed to fall upon those who pay it in the first instance ; as we shall have occasion to show in the course of our examination.
INDIRECT TAXES.
The advantage of an Indirect Tax consists in the convenience of its payment. The duty being mixed up with the price of the article, it can be paid by the consumers in very minute amounts, and at the time which is most convenient to themselves. This convenience seems to be its sole advantage. For the duty to be productive, it must usually be laid on commodities which are con- sumed by the bulk of the people,—in other words, upon some of the necessaries of life. Upon necessaries the whole income of the people must be spent; the greater part of the incomes of the rich is expended upon luxuries. It follows that when the duty is even equal upon the commodity (which is not always the case), it falls unequally upon the people. Indirect taxes are generally, there- fore, the most unequal in effect. From the comparative ease with which they are evaded, the evasion becomes a regular trade. This is not only a loss to the revenue and an injury to the fair dealer, but is mischievous to the community at large; not merely by the lawless and predatory habits which it engenders in the smugglers, but by the diversion of their capital and labour from more legiti- mate employments, as well as by the total destruction of the capi- tal which sometimes ensues. Being levied on the value of the article, which is in a great measure abitrary, or upon the quantity in existence at a particular time, which is constantly changing, the Revenue-officers have the power, either from corrupt or friendly motives, virtually to remit a part of the tax in favour of some particular traders. But the chief objection against indirect taxes is, that they take out of' the pockets of the people a great deal more than they yield to the revenue, and prevent the creation of more wealth than they actually abstract. This arises in part from the expenses of collection ; from the duty acting as a virtual mo- nopoly in favour of the large capitalist, and thus restricting freedom of competition; and from the check to production, both at home and abroad, which follows the rise of price consequent -upon the duty. The chief injury, however, arises from the succes- sive profits which each trader charges upon the tax—from the general derangement which is caused by heavy and numerous duties upon commodities—and from the mischievous interference with the manufacturer's skill, and the fatal bar to all improvement which follows, when, in order to collect a duty, it is necessary to prescribe one regular routine for every operation, without regard to the manufacturer's convenience, or to the certain prevention of improvement in the trade. The frequent reference we shall have to make hereafter to these three latter points, and their importance in an extensive modification of our existing system of taxation, may excuse our dwelling a little longer upon Indirect Taxes. They may be arranged into three classes,—a tax levied on a com- modity in the latest practicable stage of its progress to the con- sumer; a tax upon an article in the process of its manufacture ; a tax upon the raw material. The first, which is generally a Cus- tom-duty, is obviously the least mischievous of the three, from the fewer hands through which the commodity passes, and from its slight interference with industry. Thus, in the case of tea or raw sugar, if the gross profits of the trade be 10 per cent., and the article pass through the hands of two dealers before it reaches the con- sumer, 20 per cent, or one fifth only will be added to the real weight of the tax; to the poor, or to consumers dwelling at a dis- tance, the gratuitous burden will be increased, perhaps doubled, owing to the necessary intervention of more distributors. The weight created by the mere succession of profits in a manufac- tured article subject to taxation, is not, probably, very much heavier than upon the class of foreign productions first alluded to. The principal evil in this case, is the addition to the price caused by the vexatious interference, and the check which it imposes upon improvements. The latter cannot of course be measured; the amount of the former it is very difficult to tell ; and the pressure varies in different cases, according to the nature of the Excise-law. In the case of Oil-cloths, it seems to have been nearly equal to the amount of the duty, though the interference was by no means considerable, and rather vexatious to the manufacturer than very injurious to the manufacture. Putting the effects of interference out of the question, a duty on the raw materials of manufacture is the most mischievous of all; not only from its tendency to divert the manufacture to other countries, where the raw material can be procured duty-free, or to drive the country producing the raw material to force manufactures of its own, but from the number of successive profits which are accumulated upon the duty, as well as from the possibility that the raw material may be decreased in quantity during the transmutation, as in the case of Refined Sugar. It seems unnecessary to add, that when the two most injurious elements are combined together—when a tax is laid upon the raw materials of a manufacture and afterwards upon the manufacture itself, as is the case with Soap—the mischief is greatly aggravated. The actual extent of the various evils of indirect taxation it is impossible to measure. An idea may be formed of the sum which is drawn from the consumer by the mere succession of profits upon taxes. The produce of indirect imposts is not much under forty millions. If we add only 25 per cent.—a very moderate compu- tation—for the gross profiti of all the different dealers through whose hands the commodities pass, we have nearly ten millions uselessly abstracted from the people. In a scientific disquisition, many other points would require dis- cussion. For practical purposes, the present brief exposition is sufficient. From the principles we have laid down, it may be con- cluded that no safe deduction can always be drawn a priori merely from the nature of a tax. The comparative advantages or disad- vantages of an impost must be determined from a close investiga- tion of its operation. This Anatomy we shall undertake at length, after we have exhibited-1. The Sources of the Public Income. 2. The Protective System both on British and Colonial Produc- tions. 3. The Expense of Collecting the Revenue. This inquiry will be somewhat more dry than a romance, but it will not be altogether without interest, if that which concerns all is interest- ing to all.
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