HOUSE-TAX v. INCOME-TAX.
AMONG the various and conflicting political rumours of the hour, a notion that Mr. Gladstone intends to make the repeal of Schedule D of the Income-tax the most prominent feature in his Budget for 1874 has obtained a certain amount of popular acceptance. The report has been contradicted, and, indeed, it is hardly through Conservative newspapers that we should expect to get the first news of Mr. Gladstone's financial projects in the office that he has resumed. The notion, however, whether unreasonable or otherwise, appears
to be rather widely spread that the burden of popular odium which Schedule D of the Income-tax has got to bear, more than outweighs its advantages as a fiscal resource. It is natural, therefore, that speculative financiers should endeavour to forecast Mr. Gladstone's probable schemes for supplant- ing this objectionable impost. Professor Leone Levi has published a vigorous letter, in which he proposes a re- organisation of the House-tax, as a permanent substitute for the present charge upon incomes derived from the profits of trade and from various professions and services. Apart from the details of Mr. Levi's proposal, the principle of it is likely in time to come to be very generally discussed. The Income- tax, especially that part of it which falls upon fluctuating and temporary incomes, is not only very unpopular among those upon whom it falls, for this might be said of every heavy tax, but it is open to some serious objections both of an economical and of a moral bearing. It is quite true that against these objections we have to weigh not only the immediate importance of the Income-tax as it exists, but its far-reaching capacity of development. In Mr. Gladstone's first and most famous financial statement of April, 1853, a statement, be it remem- bered, intended to lead up to a scheme for the ultimate ex- tinction of the Income-tax, he endeavoured to impress upon the House of Commons the power and, above all, the reserve of power, of this " colossal engine of finance." To the Income- tax, as Mr. Gladstone pointed out, we owe it that we were able to sustain our life-and-death struggle with Napoleon. To the Income-tax, again, we turned when Sir Robert Peel took in hand the reconstruction of our fiscal system, and in this emergency again it carried us through safely. And since that time, in Mr. Gladstone's hands it has done the State good service. For our own parts, in spite of all that may be said against it, we doubt extremely the desirability or financial possibility of any beneficial change. But there has always been in the popular mind a rooted dislike of its operation. Its unequal incidence, falling as heavily upon the hard-working professional man or on the pre- carious profits of the trader as upon the settled incomes of the landowner and the fundholder, has caused constant dis- satisfaction. Its inquisitorial character has irritated the ingrained reticence and secretiveness of Englishmen. But to those who cannot dissociate financial expediency from moral considerations, a tax upon trading and professional in- comes has been chiefly objectionable because it has offered a direct premium to deception and fraud.
A House-tax as an instrument of direct taxation has obtained the approval of Mill, who speaks of it as one of the fairest and most unobjectionable of all taxes. It is not perhaps true that a House-tax takes the measure of a man's income so fairly as an impost which depends, like the ordinary Income- tax, upon the assessment of the persons who are taxed, them- selves, or on the intrusive zeal of a public assessor. But yet, it would not be easy to estimate the amount of loss to the State, and the excessive charge imposed upon those who assess themselves fairly, by evaders and defaulters under Schedule D. A House-tax cannot be evaded, nor so long as a man is able to pay his way at all can default be made under it. A good house is one of the primary luxuries that wealth or competence claims. But the test, though tolerably fair when applied to grades of income as a whole, ceases to be even tolerably fair in its application to some small classes, whom in part it would allow to go well nigh free from direct taxation, and in part would amerce with rigorous severity. The merchant or manufacturer, who does not care to ape the fading splendours of county people, may have an income of £40,000 or £50,000 a year, and may live in a suburban villa or a town house of which the rental at the most would be £300 or £400. No conceivable house-tax could draw from such a man a fair proportion of his income, when compared even with the inadequate payments made under the present system, without pressing in an intolerably severe way upon other incomes of a very different class. Thus the young physician, who for professional purposes takes a house in Mayfair, will probably pay as much for it as the merchant whose case we have instanced will for his suburban villa. Again, some great business Companies could well afford to exchange their present rate of contribution to the Income-tax for a direct charge even upon their highly rented City offices ; while, on the other hand, the small tradesman who pays a heavy rent for a shop in Regent Street would find himself grievously mulcted at the outset. Some of these inequalities would right themselves after a short time, but others, we are afraid, are inherent in the nature of a house-tax. At any rate, some mode of assessment more satisfactory than that which prevails at present would certainly be devised for those great palaces of the nobility which strictly pay no rental at all, if this expedient be ever seriously thought of as a substitute for Schedule D. It is absurd and iniquitous that Knowsley or Trentham should be assessed at less than the annual rental of a second-class town house, and this on the ridiculous pretence that because they are so costly, they could not be let for more. Applied in this way, a house-tax fails altogether as a test of income, and indeed the more costly an estab- lishment, the lower it must be assessed. In Mr. Mill's com- parison of a House-tax with an Income-tax, he contemplated in the former case an equal assessment upon all rentals, and we doubt whether his economical orthodoxy would have tole- rated Professor Levi's proposal of a graduated scale rising with the amount of the rent. The problem, it must be remembered, which is to be solved is how to deal with the existing house- duty, which is imposed on all buildings rented at £20 a year and upwards, at the rate of 6d. in the pound on shops, &e., and 9d. in the pound on ordinary dwellings, so as to raise the yield of the impost from £1,300,000 to £1,000,000, or so, per annum. A uniform rate of ls. 6d. in the pound on all occupied houses would bring in a gross revenue of £4,875,000 a year, the total annual rental of houses in England above the £10 limit being £65,000,000. And this would appear to solve the financial problem so far as such a tax can solve it at all.
This, however, for some reason, is not the plan which Professor Levi adopts. He fixes a scale commencing at 4d. in the pound on the houses between £10 and £20 rental, rising to ls. between £20 and £50, to is. 6d. between £50 and £100, to 2s. 6d. between £100 and £300, and to 3s. on rentals of £300 and upwards. An assessment on this very arbitrary scale gives an estimated revenue of £4,100,000 a year, and Professor Levi contends that such an arrangement will relieve all incomes below £2,000 a year, and will relieve the smaller incomes, from £100 say to £500, very considerably. So probably would the non-graduated house-tax, though the relief in this case would be less for the working-class incomes, which, to say the truth, have received their full share of the exemptions and mitigations of modern taxation ; and would most liberally benefit those middle-class incomes on which the increased cost of living has borne so severely. Professor Levi appears to rate the proportion of house-rent to income rather low, but this may be accounted for by his averaging the practice of town and country. He reckons, for instance, that out of an income of £200 a year, £25 will go for rent ; out of a £300 income, £37 10s. ; out of a £500 income, 160 ; and thence on in proportion. In com- paring the incidence of the Income-tax with the House-tax, as proposed to be increased by Professor Levi, we have to deduct the present rate of 9d. in the pound on inhabited dwellings. Making this allowance, the £200 income, which pays £2 10s. Income-tax, would pay only Os. 3d. additional House-tax ; the £300 income, now paying £3 15s., would then pay 9s. 411 ; the £500 income, now paying £6 5s., would then pay £2 5s. The advantage would be less upon the incomes which expend habitually less than £300 a year in rental, and those which spend more would contribute rather more largely than at present to the revenue. We may compare this with the incidence of an equal non-progressive rate of Is. 6d. in the pound,—that is to say, 9d. additional House-tax on all tenements. The £200 income above stated would pay 18s. 9d. ; the £300 income, 28s. ; and the £500 income, £2 5s. In all these cases the relief, as compared with the present incidence of the Income-tax, would be con- siderable, though not on the smaller incomes so considerable as on the graduated scale. But the incomes that may be called large would also share in the benefit, and would certainly contribute no increased proportion to the National Exchequer. It is a matter for argument whether it would be possible to impose upon the lowest class of rentals, which, however, in the aggregate, amount to £20,000,000 a year, an equal proportion of the increased House-tax. Professor Levi's graduated scale assesses them at the low rate of 4d. in the pound, and on a £10 house a yearly charge of 3s. 4d. would not be a grievous impost. A workman, however, living in such a house, might find 15s. a burdensome addition to the periodical calls upon his pocket. At present we are by no means prepared to believe in the feasibility either of Professor Leone Levi's or of the more natural House-tax scheme, but whatever arrangements may finally be made, we trust it may include some provision for making the workmen, who are gradually escaping from indirect taxation, contribute directly to the national revenue.
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