WORKING OF THE INCOME-TAX.
Tan act which first imposed a tax with reference to income was the 38th of George III. chapter 16, passed in 1798. By that act, Mr. Pitt, then Chancellor of the Exchequer, fixed his rates according to the amount which a person paid for assessed taxes ; and a total exemption was made of incomes under 601. a year. The tax at that time, therefore, was not, strictly speaking, an 'income-tax, but an expenditure-tax ; the income of persons and their payment of assessed taxes, having no necessary connexion with eaoh other. In that shape it yielded 1,855,996/. ; a sum so much less than was desired or expected, that the impost was deemed inoperative. In 1799, Mr. Pitt passed the 39th of George III. chapter 13, which for the first time required all persons to make a return of the whole of their incomes from whatever source, and then levied the tax on the assessment of all incomes above 601. a year. The guide-book issued to the tax-officials of that day, says that the Legislature had evinced its intention " to establish an equalityof taxation, as far as it is practicable by human means " ; the leading object being "the ascertainment, by just and fair rules, of each per- son's income," in order to give an assessment " proportioned to his means of contributing to the public service." The produce of this tax, in the first year, was 6,046,6241.
The next act, the 43d of George III. chapter 14 passed in 1803, made a material alteration as regards the returns to be re-
quired. It introduced the principle "of charging income upon realized property at its first source." Instead of the landlord, and the numerous claimants on him, the act now looked to the occupant of the land only' instead of to the creditor, it looked to the fund from which the debt is answered; and so on. Pro- visions were made fbr authorizing the apportionment of the original charge amongst those haviag a legal claim on the profits charged. The guide-book of 1799 says—" By these means, the object of the act was attained with more facility and certainty, and with less intricacy and disclosure ; diminishing the occasions of fraud by the means of execution." Into this new arrangement, however, the Public Funds were not yet brought; interests in them were returned by the owners like interests in other pro- perty ; and the tax on the 'dividends was paid by the first receiver of them, and not by the Bank of England itself.
In 1806, Lord Henry Petty introduced the act which chiefly
regulated the Income-tax for the rest of the period of its endurance by the people. That act brought the Public Funds within the principle of the last preceding change ; thenceforward the tax pa able from them was deducted from them at their source. But the most important change than made was the total abolition of ex- emptions on realized property. This change had been attempted by lir. Addington in 1803. It was then urged, that these exemp- tions gave great admission to fraud; and that they were most ex- pensively troublesome, from the necessity which they caused, ender any system of taxing income at its sources, of making _re-
payments in the multitude of eases where the person entitled in the second, third, or farther instances, to interests in the charged income, could claim exemption. But Mr. Addington was unable to effect in 1803 what Lord Henry Petty accomplished in 1806. The exemptions removed in 1806 were-all those which had applied
to incomes from realized property, except in some instances of the little properties of servants and similar persons, who still obtained the compassion of the Legislature. But profits from other sources than that of realized property still enjoyed the old. variety of ex- emptions. Yet even these received a blow : the limit of exemp- tion was lowered from 601. yearly to 501. yearly ; and the guide- book uttered a further threat in reference to the future- " It is notorious that persons living in easy circumstances, nay, even in apparent affluence, have returned their income under 601., although their annual expenditure has been treble that sum, and on whom there was no ground of imputing extravagance. The incomes of whole parishes have been swept away by this fraud, such persons generally bringing their incomes to a fraction below 60/. Hence it is that the Legislature found the necessity of confining the exemptions to 501., that their former returns may be made use of; and should the fraudulent practice continue, it may hereafter become necessary still further to restrain it" In the Select Committee on the Income-tax which sat last ses- sion, but whose proceedings have not yet been authentically pub- lished, much evidence of loss to the Exchequer through the exemption of incomes under 1501. by the-present act was received, and also much evidence of the trouble the subject has to undergo in proving -himself entitled to the benefit of the exemption. The immensely numerous class of persons receiving incomes of about 1601. strain every point and exert every ingenuity to escape. They endeavour by all means to evade assessment altogether : in 1849, 9687 persons were brought into charge who had thus endeavoured to escape soot-free. Then, when the assessor has thrown his net over them, they resort to every imaginable claim of deduction.: -in 1849, 69,893 claims of deduction were made. Mr. Fuller, one of the Special Commissioners of the Income-tax, is employed with twenty-nine clerks almost exclusively in the "exemption " de- partment ; and the annual labour of that department fills an average number of 290 folio volumes of official proceedings. In 1849, when the claims of exemption were 69,893, warrants were ultimately issued for the repayment of 73,8181. Upon all this lost amount a poundage had already been paid to the assessors and collectors. The keen perseverance of a portion of the taxpay- ing public in claiming exemptions and repayments is shown by the small amounts for which they go through the painfal routine of memorials and endless attendances. Sums of four shillings, three shillings, and two shillings a year, are habitually recovered ; and a Scotch application for sevenpeuce has been frugally urged, and rewarded with success.
In reference to the returns of the larger incomes, Mr. Welsh, the Surveyor of the London district, gives his opinion that they are generally very fair : the merchants more generally surcharge themselves than the contrary ; if their income is between-eight and nine thousand, they will put down ten thousand, and so on— "more from a feeling of generosity than anything else," and not merely to escape the chance of surcharge and inquiry. A curious list, however, is given by Mr. Welsh, of the instances in his dis- trict, since 1842, in which persons have returned themselves below par. The greatest number occurred in 1845. We note.instances of persons who returned their income at 15,0001., but who were surcharged at 30,0001., and afterwards compounded at 20,000/. a year for three years; at 88681., surcharged. at 16,0001., and com- pounded at 13,9141.;. at 55001., surcharged at 11,0001., and paid at the latter sum ; at 17,0001., surcharged at 24,0001., and paid at 24,000/. ; at 91601., surcharged at 15,0001., and compounded at 15,0001. for three years. Mr. Welsh thinks that these instances almost always result from inaccuracy rather than fraud—from the making of deductions not legally allowable, and the like.
The only direct attempt, by any Member of the Committee, to ascertain whether the inquisitorial character of the present mode of collecting the tax could not be nmelicirated, appears to have been made by Colonel Romilly ; who inquired what might be the effect of a system which, proceeding on the principle of the act of 1799, should call for a return,of income from all sources without a detail of the sources, and should not ask for de- tails and the proofs of them, or resort to: the machinery of sur- charging and checking fraud, till a suspicion should arise that the first return was inaccurate. Mr; Pressley,-Commissioner of Inionfl Revenue, gave generally his experienced opinion against the pos- sibility of such a plan : but he did not fully expose the grounds of his opinion. In reference to the profits of trade, he believed the Exchequer would lose the whole of the tax by that plan. The ex- perience of the past was against it; ""the Government haying found it necessary to alter that in so short a period after Mr. Pitt had brought in his bill of 1799, I take it for granted that it was impracticable to carry out that system."