THE INCOME-TAX.

Tan proposed increase of the Income-tax, the certainty of its continuance in some shape as all but admitted by the Chan- cellor of the Exchequer, and his faint denial as to the per- manence even of the five per cent, have turned attention to the principle of an income-tax itself. The " press " is dis- cussing the subject with more or less of reasoning and ability ; Mr. Babbage has published an ingenious pamphlet upon the question; and those who will have to pay the tax are talking about it with more feeling, if with less science, than those who discuss it upon paper. The experience gained during an apprenticeship to the working of the impost, the tolerable certainty that we may make up our minds to bear it "during our natural lives," and a consideration of its principles and prac- tice renewed from time to time since we discussed the question in 1842, induce us to recur to the subject in order to reinvestigate its principles with a view to a practical improvement. As a first axiom, we may repeat our opinion that equal justice to individuals is altogether unattainable. Even economists like Adam Smith and M'Culloch break down in their very terms. They use the word ability —" people should pay taxes in pro- portion to their ability "; but they mean in proportion to the value of their income—that is to say, its sure and permanent nature, as opposed to a fluctuating income of uncertain du- ration. It is clear that a " landlord " (the favourite illus- tration) with 1,0001. a year, a large family, and a certain dignity to support, has less " ability" to pay 501. a year than an unencumbered professional man has to pay 251. out of 500/. Justice to classes is somewhat more attainable, in theory ; though that looks easier than it is found to be when the subject comes to be closely and repeatedly examined. A percentage gra- duated in proportion to the amount of the income appears plausible ; but at the very best there is inequality, since the graduation can only proceed by jumps. In England, and indeed in all countries where an income-tax is likely to be resorted to, there are classes whom opinion compels to an expenditure from which other classes are freed ; and this without reference to family claims upon individuals. The trouble and difficulty of working a gra- duated income-tax is so great, and its pressure upon the powerful classes would be so comparatively heavy, that it maybe-put out of consideration as impracticable at present, and certainly not so just as it at first appears. We still, upon reflection, believe that there is an inherent dis- tinction between income derived from invested property and from industry ; but we formerly overlooked this essential ele- ment of comparison—the invested incomes ought all to be of equal value. At the first views and probably for some time, the mind, we think, overlooks this element, and, while it reasons upon 'the confessed uncertainty of trading and professional in- comes, ever comfreearesh them with the perpetual income of the annuitant - and freehold landlord. This assumed equality of duration, however, does not exist in incomes arising from in- vested property : they vary, from leases terminable in a year or two, up to the perpetuity of the Funds, or the fee-simple of land in the carse of Gowrie, Grosvenor Square, or Cheapside, where the full rents can always be obtained both in promise and payment. There is a similar difference in the value of the in- comes, especially in the element of certain receipt. No doubt, by taking the hardest cases of incomes derived from industry and the best cases of incomes arising from property, the reverse May be made to appear : the scanty, precarious, and hard-earned galas of the struggling professional man or trader, are a very dif- ferent kind of income from an investment in the Public Funds or the punctually-paid rents of the class of property just alluded to. But there is a reverse to the medal. The income derived from the inferior kinds of property, with its troubles, its expenses, and its losses, is a very different affair from the steady profits of the old- established tradesman, merchant, banker, and attorney, or in some sense, the successful barrister and medical man. In short, the difference of incomes, both in duration and certainty of re- ceipt, is so great in each class, that it may be doubted, on a close examination, whether equal justice can be attained without an inquiry into each particular class, if not into each particular case.

Proposals have been made to render the principles of life-assu- rance available towards attaining a greater equality. We formerly threw out an idea that the value of a professional income might be calculated as if it were a life-annuity, and then, the years' pur- chase of that annuity being taken, the capital might be esti- mated against that of a perpetual annuity at an equal rate of in- terest—thus : ArnaTAL Lwow!

TO BE TAILED.

An annuity of 5001. a year at the age of thirty is, at 5 per cent, worth 6,5361.; the income on which, at the same percentage, is (without shillings) £ 326 A perpetual income of 5001. a year from property is of course worth 10,0001. at 5 per cent, and yields at the same

rate of interest 500

Mr. M'Culloch intimates that a lawyer ought to be allowed to deduct from his income-tax enough to insure his life for a sum equivalent to the present value of his income, in order to be on a par with a landlord. We think the oversight we have already pointed out lurks in these and all such proposals. The owner of the income derivable from property is assumed to have it ab- solutely and in perpetuity ; whereas many have an annuity which, even if a perpetuity in itself, passes into another family on the death of the annuitant; a large mass of property, perhaps the bulk of the household property of the country, is held on terminable leases; the security of a mortgage may fail and part of the capital be lost ; while shares in joint-stock companies fre- quently diminish in value, or in some classes—as in mines or canals—return no income. There seems no reason why the class of professional men, &c. should be furnished by the state with the means of insuring their lives, while the same means should be de- nied to landlords and annuitants in similar circumstances. The ele- ment of health is in favour of the landlord or annuitant ; and in this element lurks, perhaps, a main source of the popular feeling against taxing incomes derived from industry. Here too, probably, hes the pinch of the case. The house may be unlet, the source of an annuity may fail, the income of a joint-stock company may fall off, just as a business income may fluctuate ; and they must all be borne with. But when ill health overtakes the professional man or trader, the income declines or vanishes ; the income from property, whether terminable or perpetual, goes on alike in sickness or in health. Yet the principle of health is not invariable ; there are practical differences even in schedule D. Some kinds of business can be carried on when the principal is absent ; so can the profession of a solicitor ; but not of an artist, a barrister, or a medical man. Pitt's axiom, after all, may be a finan- cial truth—" Income is income ; I will tax it wherever I find it, and I will tax it as long as it lasts ; when it ceases to be, I cease to tax ": but " goodness moves in a larger sphere than justice," and if this be fiscal philosophy it is felt to be very hard philosophy. We suspect that the element of health decides that the class of incomes derived from industry is entitled to some reduction of rate compared with incomes derived from property. The calculation just presented (though highly favourable to property, as assuming the certainty of the industrial income) gives the difference as 3,i to 5.

But is income fairly taxed ? is it fairly found ? We suspect not. The evil effects of the inquisition which we looked for in 1842 have not generally occurred. The tax, we believe, has been :assessed with great liberality and tenderness ; its first troubles arose from the novelty of the working, rather than from any over-grasping or inquisitive spirit in a general way. It may be -doubted much whether this lenity has not been abused to de- fraud the revenue, and unfairly to place burthen on those who have truly returned their incomes, while false and confident fraud escapes at their expense. The last return we have at hand ex- hibits the following net receipts under the different schedules.

• TALBLE OF THE NET PRODUCE OF THE INCOME-TAY IN GREAT BRITALN, FOR THE YEAR ENDING 6TH APRIL 1845. Schedule A. Rent of Land and Houses, Tithes, Shares

in Railways, Mines, &c. X2,366,047 B. Income of Farmers, taken at one-half of the rent which they pay 315,607 C. Public Fonds 766;366

••• D. Incomes arising from Trades and Professions 1,541,970

••• L Income of Official Persons, Pensions, 313,900 X5,903,590

It is needless to comment on the gross favour shown to the agriculturists, whose incomes throughout Great Britain appear as only equalling those of official persons ; while the tax is levied in the easiest and least troublesome manner to the farmer. The most extraordinary fact in the table, however, appears to us to be, the difference in amount between income arising from property and from professional and trading industry. The tax on rents, tithes, shares in companies, and the Public Funds, is upwards of three millions ; while that upon the industrial incomes of the country only yields a fraction beyond a million and a half,—in other words, the income arising from realized in- vestments is more than double that from industry. The a priori calculation of Sir Robert Peel may be said to lend countenance to some difference : he estimated the produce of schedule A at 1,600,0001., and of schedule D at 1,220,000/. ; the increase, how- ever, upon real property has been nearly one-half, that upon in. dustrial incomes only one quarter; which shows the looseness and error of the estimate. But it does not require this evidence of mistake to prove the falsehood ; nothing short of demonstration will convince common sense that the persons in this country with incomes of 1501. a year and upwards arising from property are double the number of those with incomes arising from profes- sional and trading industry. No doubt, schedules A and C are unjustly swelled, as we said they would be, by the charge upon persons who though legally exempt will not be at the expense of the time and trouble necessary to establish their exemption. This injustice of practically forcing men to pay what they are legally exempted from will not, however, explain the discrepancy. There is no other resolution than that of fraud : many must return considerably less than their real income, a still greater number must evade the tax altogether though really bound to pay it as being in the receipt of 1501. a year. For reasons already alluded to, the case between income from property and from industry does not seem quite so clear as it is commonly assumed to be; the element of health being the only conclusive one that we see. But this startling inequality between persons of the same class, and bot- tomed as it must be on fraud and falsehood, renders it sheer injustice to those who really pay, to levy a tax which large numbers of those who ought to pay do more or less evade; inde- pendently of the fraudulent.disposition it engenders in the com- munity. Yet the only remedy for this evil is one which would not be borne—a rigorous inquiry into every case where the local officials suspect an improper return. Whatever doubts, therefore, may be entertained about the ab- stract justice of the principles of the Income-tax, it seems clear that schedule D cannot be justly worked ; or if the attempt be made, that it will not be borne. This objection does not apply to incomes arising from property : so far from being able to escape at all, they are taxed when the law says they ought not to be. We therefore are forced to land in the conclusion, that schedule D should be left at its present rate of 7d. in the pound, and the five per cent levied on schedules A and C. That the farmers might well bear an additional tax, is self-evident ; the notion that the agricultural incomes above 1501. a year can only yield 315,0001. is ridiculous—the return for all Scotland is only 22,9611.1 The placemen and pensioners we say nothing about ; a pension or half-pay is at all events as much an annuity as a life income of the same amount derived from the Funds.

This proposal may be only a rough kind of justice, though we believe in principle very near accuracy : but the true question is, whether it is not better than the injustice we have at present. In a financial point of view, which of course must not be overlooked, this plan seems as little objectionable as any. Five per cent on schedules A and C will yield upwards of two millions. According to Lord John Russell, nearly two millions of the deficiency of 2,900,0001. is owing to past or accidental causes, leaving the real deficiency at less than a million. The increased estimates for the Army, Navy, and Ordnance, do not exceed 453,0001.; leaving us still with a surplus from the two millions that might be drawn from property alone. Why, then, subject the trading and profes- sional world to so severe and in practice to so unjust a pressure, when the million, which is all that schedule D will yield under the present tender mode of levy, is not absolutely needed?* Sir Robert Inglis intends to renew his former proposal, the principle of which consists in taxing only the excess of income above a certain exempt minimum : thus, say that all incomes below 1001. are exempted, the recipient of 1501. a year would only pay upon 60/. The establishment of this principle would be a great improvement upon schedules D and E, where parties are called upon to do some act, whether they pay or escape. One great objection—the hardships to which even the present tax, much more its proposed increase, subjects a young and struggling professional man or tradesman—would be materially lessened; since he would escape about two-thirds of his present payment. It would also bring many more persons to charge : for a man will resort to arts, not to say frauds, if he can altogether escape a tax involving a payment of five pounds or more, who might not care so much about a pound or two, nor would his conscience so well bear him out. If the exemption is to stand as high as 1501., there will be a great loss. There does not, however, seem to be any valid objection to begin with 1001. This income is above anything like pauperism, and the excess up to 1501. could only be 21. 10.s. The alteration would not, perhaps, involve any great loss, if it did not even produce a gain from the increased num- bers brought to charge ; while the bonus of 31. or 51. to every one • It was required for the expenses of the Cairns war, -setAownsat •4.190$001.- at present paying the tax would be a little encouragement—a sort of gilded pill. There is a practical obstacle, however, in this extension. Without hinting that such was Sir Robert Peel's de- oign, Mr. Babbage in his pamphlet intimates an opinion that the mass of the electors now (and most improperly) escape the tax. There is no doubt but that the extension to 100/. would enmesh s large number of ten-pound householders and agricultural " te- nants at will," who are now exempt ; and we doubt whether any ministry, especially a very weak Ministry, has the resolute deter- mination to offend those men, however just the quarrel, unless upon a much greater necessity than now exists. Mr. Babbage also discusses the subject of protection, in order to show that industry needs it more than property. But in this we think he is clearly wrong. However, we so fully argued the point in 1842, that we need not repeat it now.

To resume. Only two practical modes of meeting the hard- ship and ill-feeling connected with the Income-tax appear open. 1. To leave schedule D at its present rate, increasing the tax on schedules A and C to five per cent, and modifying the other two schedules, or leaving them as they are. 2. To adopt the principle of Sir Robert Inglis ; dropping the exemptions from the tax to 1001. We will not pause to discuss the respective abstract merits of these two proposals ; but the first is by far the easier, surer, and more practical. By one negative vote against increasing the rate of schedule D, the business is settled ; the proposed tax is reduced by one million, which can be dispensed with ; and there the matter ends. The second proposal will meet quite as much resistance as the first ; it has to be carried through successive stages; it introduces a new element into the working of the collection; it will probably offend many electors ; and its pro- duce is uncertain. For these reasons, we should recommend the first proposition, because if two or more are pressed upon Government, they will be able to harp on their differences, or to scout them as " schemes."

Another thing is quite certain : whatever the Income-tax-pav- ing public wants, it must determine to get. Nothing will Tie given, either by Ministers or Members. The Government is not famed for skill and resolution ; and men beset by difficulties and surrounded by clamour naturally lose what energy they had. A large portion of the Members pay nothing under schedule D ; they care nothing, and will do nothing : we may hear some mouthing speeches, "full of sound and fury," from demagogues

whose seats depend upon their "smartness furry,"

but votes are what is wanted. These can only be gained by addresses from con- stituents requesting their Members to resist the increase of the percentage on schedule D ; and those who resolve upon this course have no time to lose.