TOPICS OF THE DAY.
MR. COBDEN'S DIRECT TAXATION FALLACY.
Mn. COBDEN should reconsider his own statement on the subject of direct and indirect taxation. He should conduct the re- consideration by the light of his own intelligence and not by borrowed lights ; and should give the public the benefit of this review. In his second speech at Rochdale, on Thursday last week, he expressed opinions which we know to be well received amongst the most intelligent class of economists, but which we believe to be as fundamentally erroneous as they would be mischievous in practice ; and Richard Cobden, we imagine, is not a man to in- sist upon any opinion on the simple ground of authority, although the authority may be that of the newest and most advanced school. The passage to which we allude is this-
" If the votes of the people removed to a large extent the taxes that now press upon articles of consumption,, such as tea,. sugar, paper, and other ar- ticles, taxed at our customs and excise offices, still I do not believe that would prove injurious to the country. If the working people who are added to our electoral- list should instinctively replace a large portion of our in- direct taxes by taxes on property or ;AMMO, it would have a beneficial alive on the commerce of this country, and the working claasee, urged, you may say, by their natural instincts of selfishness, would in fact be carrying out the most enlightened principles of political economy. I do not know any result of the extension of the franchise that would be more likely to benefit the upper class as well as the lower, if I may use the term, than a change in our fiscal system, which would very largely remove those imposts that are now paid in the consumption of the working class, and transfer that re- venue to income and proiaty." Here Mr. Cobden something more than endeavour to re- assure us against the fear of such measures; on the contrary, he rather advocates the measures, and therefore induces us to be- lieve that if persons so intelligent as he describes the working classes to be, were to come into power,—and if in the exercise of their intelligence they were to place our most popular economical statesman at the head of our Board. of Trade,—we should pro- bably, have those very measures which he indicates. He is, therefore, reviving sound apprehensions against any extension of the franchise, unless by further explanation he can show us the propoeed measures will be really advantageous..
The doubts upon the subject are perhaps more practical and less connected with the old. bigotries of protection than Mr. Cob- den imagines. In. the latter part of the passage lie appears— perhaps further explanation would remove the appearance-10 favour the notion that taxes should be chiefly imposed upon realised capital; in other words, that we should pay taxes out of capital, and not out of current income. Of course so sound. an economist must perceive that this would be a proposal to pay our taxes by diminishing our property, leaving to ourselves the en- joyment of our annual income undiminished by the taxee, of the year. Thus, while we are instructed to pay our way in. our pri- vate expenditure, we are told by the leading economist of the day to pay the public demands of the year not out of the year's revenue, but out of capital. We oannot suppose that Mr. Cobden intends any advice of the kind, and therefore we cannot help de- siring some further explanation. The whole tendency of the passage appears—perhaps we inter- pret it erroneously—to suggest that the payment of the public expenditure should be removed from the " working people," and imposed only upon those who are in possession of " property or income." Now what is " income ?" In the genuine English meaning of the word it includes, of course, wages ; according to that which is generally considered the soundest view, the national public expenditure ought to be met by a percentage laid with all practicable equality on the whole revenue of the entire com- munity, without exception; and although it is the custom to speak of the working classes as paying an undue proportion of the annual taxes, that is of the annual public expenditure, we believe that there is a very serious misconception under this head. At present wo have no protective taxes ; taxes being raised upon as many forms of expenditure as appear convenient to the public. The inconvenience is tested by a decline in the produce of the taxation : if the tax is too high, the public tries to avoid it, the revenue from that source falls off, and the Chancellor of the Ex- chequer has a. practical hint which in these days is seldom over- looked. Although not guided. by any very abstract theoretical idea, the working principle upon which taxes are imposed at pre- sent is to spread them as widely as possible, so that they may cover the general broad body of expenditure throughout the com- munity ; only sparing such commodities as are too essential to the life of the poorest and most helpless classes, or those which are so paltry in their nature as to render the produce of the tax small in comparison with the cost of levying it. By the rule of thumb, the public financier has arrived at the practice of spreading the burden of taxation, as much as possible in propor- tion to the outlay, upon articles of general consumption. The exception consists of what is not in all cases very accurately called direct taxation ; according to the idea of which, the tax- gatherer goes straight to the sources of property, and takes away
a certain proportion of it. Empirically, therefore, the tax- gatherer levies a certain percentage upon the expenditure of the public ; but we have yet to learn that the working people pay of this taxation a larger proportion than the ratio which their aggregate income bears to the aggregate income of the other classes. We do not assume the fact either way ; we only protest against other persons' assuming it. If the percentage is levied with tolerable evenness upon the general expenditure, irre- speetively of the classes that make the expenditure, the result in consistent with the principle that wo should regulate our annual income according to income and profit, and not dtaw it from the- capital. It is a common assumption that it is better to assess taxation upon income than upon expenditure ; it will be observed, how- ever, that in the case of income it is very difficult to discriminate between that part which is converted into capita', and that part which really represents the current means of the community. No sound economist will for a moment, we imagine, pretend that miser- liness, or "hoarding" as it used to be called, is a common vise in England, or that it prevails extensively enough to merit the ate tention of any practical financier. Income reappears either in the- form of capital, which in this country more than any other is ac- tively employed, or of expenditure. L rider the head of expenditure, we have therefore the purest correlative of income separated from capital. With regard to large proportions of the community, the very largest proportions, it is difficult by public means, withent processes of inquisition which are as injurious to the state as they are odious to the people, to arrive at any accurate knowledge of income during its receipt. Without systems of taxation that are not found convenient by us English people,—the levying of taxes in very minute driblets,—it is nearly impossible to extract a due percentage out of the humbler classes of incomes. Hence all forms of direct taxation are in this country practically incom- patible with the most accurate apportionment of taxation to the annual revenue of the entire community ; an apportionment, we suppose, which would be generally admitted as the very beau ideal of public economy. It is this view which has of late years suggested doubts whether direct taxes, as they are not always accurately called, are not less convenient for purposes of a completely even adjustment of taxa- tion, than indirect taxes. The less wealthy grades of the classes that pay them feel the exaction very severely. We know well that amongst the needier portions of the middle class, whose cure- reht weekly expenditure is with great difficulty kept down to the level of the current weekly income, the exactions of the tax- gatherer in the lump prove to be the most inconvenient if not ter- rible visitation of the year ; although the levy is always adminis- tered with great consideration and tenderness for the difficulties of the classes in question. On these subjects, a financier and eco- nomist like Mr. Cobden ought not to adopt notions in lieu of well worked out opinions ; and it would undoubtedly contribute to elucidate the whole subject, either in reconciling us to the exten- sion of direct taxation, or in defending us from that doubtful re- form, if a man of so practical a judgment and so popular an in- fluence would vouchsafe to handle this question somewhat more closely and explicitly.
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