PRINCIPLES OF TAXATION.*

Sra Jostan STAMP, who used to be the assistant secretary of the Board of Inland Revenue, has published an able and witty book—originally written as the Newmarch Lectures of 1919— on the fundamental principles of taxation. Some hard.pressed taxpayers may perhaps demur at the outset to the author's humorous asides, which they would liken to the jests of the professional experts who worked the rack for the Holy Inquisi- tion. For our part, we welcome the comic relief in a book which shows much hard thinking but in not lacking in humanity. Thus the author interjects :—

" When I was a Surveyor of Taxes I often felt inclined to put up a prominent notice in my office : 'Please don't say you would be pleased to pay the tax if you'd only got the income, because you wouldn't.'"

An economist who thus discards the traditional pose ef extreme austerity is at any rate likely to be listened to. The author begins by showing that the old principles laid down by Adam Smith and his successors -need re-examination andoloser analysis. The very weight of modern taxation, as compared with the burden that our fathers bore, compels fuller inquiry into the meaning of "ability to pay." Moreover, there is an ever- increasing tendency to transfer taxation from property to persons ---to make it " subjective " rather than "objective," with the necessary result that it must be administered for the whole of an economic community like the British Isles and cannot be safely divided up as the advocates of "Home Rule all round" seem to think. The author then proeeeds to consider taxation, especially Income Tax, from the several standpoints of the individual, the State, and the community in so far as it is affected directly and indirectly.

We can beet indicate the nature of the book by giving two or three examples of the author's method. He discusses, for instance, well-known theoretical objections to indirect taxes, which are not proportioned to the taxpayer's wealth. But he goes on to show that they are a useful supplement to direct taxation which does not reach the poorer citizens. As for the argument that the poor man cannot be taxed

" First, the theory assumes that the whole wage is wisely spent, and that prior to the imposition of the tax every penny is employedd, in making or keeping up efficiency. But -this is manifestly not so. Probably m the spending of every wage there is some part that is meffective and some part that is positively detrimental from the efficiency point of view. If we can succeed in pegging a tax at that point, and reduce the quantity of the commodity obtained, we may in the one ease leave efficiency unaffected, and in the second positively increase it. Suppose that a wage of 60s. is commonly spent so as to in-lude 1 lb. of tea, 4oz. of tobacco and, 14 pints of beer. Let us assume that if the fourth quarter of tea were forgone no harm would ensue, and that if the fourth ounce of tobacco were given up, efficiency would be unaffected, but that the giving up of the last 7 pints of beer left the worker more alert and competent and made the mother attend to the children better, while the remaining quantities of these commodities had certain virtues in maintaining well-being and contentment. Then the imposition of a tax on these commodities, putting up their price so that only these reduced quantities were obtain- able with the old outlay, would in two oases have no reaction upon efficiency, and in the other would probably increase it. In short, a wise selection of commodity taxes searches out the turn-functional surplus in spending, where an income tax cannot. . . . In so far as collective spending is wiser than individual spending, a tax may increase efficiency, and therefore not be thrown off. While so great a proportion, on the average, as one-sixth to one-fifth of a worker's income is spent in beer, it is idle to talk about taxation being thrown off because efficiency is reduced. This could only be the case if the worker insisted on having an unreduced quantity of beer, and the extra expenditure thereon, caused by the tax, curtailed other items of the household budget."

Again, the author points out that the distinction between " earned " and " unearned " income is often misunderstood as implying some difference of merit or social worth. He calls this " monomie priggishness." "The connotation of the word ' unearned ' as used in the phrase 'unearned increment' 'The Fundamental Principles of Taxation in the Light of Modern Deeekrposents. J13, Sir Joatah Stamp. London : Macmillan. (1.05. nd. net.]

has been quite wrongly lifted for its use here. It is the presence

or absence of capital resources that warrants the whole distinction for taxation purposes." The correction is not unnecessary,

though to any rational being it must seem absurd to suggest that the man who saves and gets interest on his savings is in any way morally inferior to the man who spends -every penny that he earns and has no savings and no " unearned " income stall.

The author's treatment of the question of double taxation is

particularly good. We hear of it in connexion with incomes arising from investments in the Dominions which are taxed there and also here, but the problem is world-wide. In America it gives infinite troublel-

" I have read of one instance where railroad stock of the deceased was subject to the tax of Wisconsin because this State was his residence ; in Illinois because the stock was physically in that State, being kept in a safety deposit box in Chicago ; and in Utah because the railroad company 1I3 a Utah corporation."

It is the conflict between " origin " and " residence " as the basis of liability to taxation. The author reminds us that this difficulty underlay the controversy about the taxable capacity of Ireland. What is the "taxable capacity" of a country?, "Is it what the residents in that country can afford to pay, or is it what the income produced in that country can justify ? Suppose that all the property in Ireland belonged to Englishmen resident in England, and all the property in England to Irishmen resident in Ireland, would the taxable capacity of Ireland be greater or less than that of England ? Are we considering the taxable capacity of a people or not ? We are back to the old contention that taxes are paid by persons and not things. If you want to see how deep-rooted is the instinct to tax on two principles, imagine the feeling of an Irish Government imposing a separate income tax. Would they refrain from taxing a property in Sligo merely because the income from it went abroad ? One imagines that they would feel it was specially chargeable. But suRpose that a millionaire settles down in Sligo who draws all his income from England, would they decide to exempt him ? Certainly not."

The author does not seem very hopeful of arriving at any satis- factory solution of this problem, although he points out that

under the federal constitutions of Germany and Switzerland "income from reel property is treated as left to the State where it arises and all other incomes follow the residence of the tax- payer." The difficult and contentious question of a capital levy as the alternative to a high Income Tax is cautiously dis- cussed from the purely economic standpoint, though, as the author says, that is not the only consideration. He concludes that on the whole a capital levy would tend to diminish the savings of the community. While denying that "taxation for revenue only" covers the whole ground, the author is by no means favourable to the idea, advocated especially by the Socialists, that taxation should be expressly designed to re- distribute wealth and correct inequalities. He is prepared to justify progressive taxation on purely economic grounds. But

"Unless we are going to deny that men differ in ability, in application, and in thrift, and that those differences are rightly reflected by some difference of fortune, we cannot carry the obligation of the State to rectify inequalities of fortune beyond that part of the inequality which we can confidently assert is not a proper reflection of the inequality of ability, application, and thrift."

Even in regard to taxes on liquor he shows that the taxation

is economically sound, apart altogether from the presumed advantages of discouraging the excessive consumption of strong drink. Finally, we may draw attention to Sir Josiah Stamp's lucid examination of protective tariffs, and the various reasons assigned for them. He is prepared to regard the protection of "key industries" and the special encouragement of agriculture as an insurance against the risks of war, but he is opposed to .

Protective tariffs of the ordinary kind. In general he holds that if the State wishes to amid any trade it should do so by a direct subvention, rather than by indirect or hidden methods. He commends, as the beet check on profiteering yet invented, the American boldness profits tax which is graduated according to the percentage of profits made and "can be urged to be a real dynamic force and a kind of monomie brake." We commend this wise and thoughtful book to our readers.