TOPICS OF THE DAY.
ADVANCEMENT OF THE INCOME-TAX QUESTION. THE failure of Disraeli's Budget, and the accession of a new Go- vernment immediately before the commencement of the ordinary Parliamentary season, and under circumstances of difficulty arising from the composition of the Government, seemed three months ago to justify the postponement of a final settlement of the Income- tax for another year, and, as one means towards that settlement, the reconstitution of the Committee which had sat to hear evidence for two sessions without reporting. Within the interval of time, however, that has since elapsed, the question has been so thoroughly ventilated in pamphlets, newspapers, and other periodicals, that it may be doubted whether any fresh light could be thrown upon it by evidence taken orally before a Committee of Parliament, in reply to random questions proposed by gentlemen anxious to get answers in accordance with their preconceived opinions, and subject to the interpellations of other gentlemen somewhat slow of appre- hension and not very apt in the investigation of scientific prin- ciples. The two volumes of evidence, with the draft report pro- posed by the Chairman, Mr. Hume, remain as a valuable portion of the data on which Parliament and the public must form an ulti- mate decision; and next week we presume that a discussion on the Income-tax will form the most important and interesting division of the general discussion on the Budget. In anticipation of that discussion, it may be useful to note the leading points likely to be salient in the debate.
The most important of all—the one upon which all others must hinge—will be the question whether the tax is to be permanent or not, so far as it is within the competency of any one Parliament or any one generation to decide. This, indeed, will itself be made partly to turn on the question, whether it is possible to frame the schedules of the tax, and to constitute its principle, in a manner at once satisfactory to the public and in harmony with sound prin- ciples of taxation. But the first thing to know is, whether the experience of ten years of this form of direct taxation is such as to induce our statesmen to regard it for the future as a desirable permanent item of our ways and means. If it is to be so re- garded, men will have more interest in seeing that it is establish- ed on equitable principles, and that its details are made as little inconvenient, oppressive, and inquisitorial, as is consistent with a due regard to the interests of the revenue and justice of distri- bution; as, on the other hand, they will see and acknowledge that such inequalities as are inherent in any direct tax have a natural tendency to compensate themselves, if the tax is permanent, by the spontaneous corrective powers of society. The settlement of this question, then, we regard as the most important point in the coming discussion.
Supposing, as is probable, that the Chancellor of the Exchequer will not be willing to abandon this great experiment in direct taxation, or to give up so productive a source of revenue, three main questions will have to be settled,—the principle on which the tax is to be levied ; the mode of its assessment and collection ; and the exemptions from it to be allowed. Taking the exemptions first,—we can hardly doubt that the House will consider the pre- sent exemptions, framed when the tax was imposed for a limited period and for a definite financial purpose, far too extensive to be allowed from a tax that is to be permanent and to form part of the ordinary revenue of the country. Exemptions from compulsory taxation may be considered either to be confiscation as regards those who pay the tax, or to be national almsgiving as regards those who are exempted. They are a violation of that grand rule of equality that every citizen is to contribute to the support of the State in proportion to his ability ; and ability must certainly not be construed to include less than a man's whole means above what is necessary to support him and those dependent on him without recourse to charity. It is policy rather than justice which allows even of this limitation, for government is undoubtedly the first necessary of civilized life, as that which is the foundation of all the others. Another limitation due to policy would be the exemp- tion from direct taxation of such incomes as would not furnish a contribution large enough to pay for its collection. These two principles will, we imagine, guide the House of Commons in its determination of the limits within which the Income-tax shall in future be levied.
The most valuable portion of the evidence taken before the Com- mittee consists in the statements of inequalities and injustice in the present mode of assessment ; which may be divided into three groups. It appears that property taxed for income under schedule A is valued on different principles in different parts of the coun- try; owing, it seems, to the valuation for local taxation not being uniform, and all) to the want of uniformity in the practice of dif- ferent surveyors under the Income-tax. In schedule B, the profits of occupiers are estimated at a fixed proportion of the rackrent ; whereas both the proportion fixed and the fixity of proportion serve as undue exemption to some and undue imposition on others. The latter are relieved by a right of appeal under a recent act; but the former injustice remains, and of course acts as an undue im- position on all other contributors to the tax. But the third group is by far the largest and most important. It embraces a wide and multifarious range of cases in which the gross annual returns of certain forms of investment are taken for assessment, instead of the netreturns ; so that capital is to this extent taxed under the name income, ncome, and the tax becomes, in quite a different sense from that in which it is generally applied to this act, a property-tax. Now, whatever ground there may be in equity and in the general system of our taxation for imposing a tax on realized property, it
is unquestionable that under this act income alone in its true sense, as the annual increment of capital, or the annual reward of skill and labour, was intended to be taxed ; and this tax on pro. perty is a mere accidental consequence of carelessness in the framing of the act, or of error on the part of those who make the assess. meats. In either case, if the Income-tax is to be permanent, the House will doubtless see fit to make it purely an income-tax; and if they choose to levy a property-tax, to effect their object by direct enactment, and so as to reach all property indiscriminately. Of course the consequence of levying a tax only by a sidewind, and partially, on certain forms of investment, is to reduce the value of those forms of investment, and consequently not to tax future buyers of such investments but, by lowering their selling value, simply to confiscate a certain portion of the property of those who were holders when the tax was first so levied.
We should not anticipate violent differences of opinion on either
the extent of exemptions or the modes of assessment to be in future applicable in the levy of income-tax ; though we suppose the new payers of the tax will cry out at the loss of exemption, and the collectors of the tax at new refinements and further complica- tions of calculation. The real battle royal will be upon the prin- ciple of the levy ; and he would be a presumptuous man who would prophesy its result. Speaking roughly, there are three parties in the field, whose principles we shall concisely state. First, and lat- terly loudest, are the actuaries. On the well-known principle of nothing like leather, these gentlemen whose chief business it is to estimate the present value of all kinds of future contingencies, un- dertake to apply their professional and technical rules to the taxa- tion of the country, and proceed to estimate each man's liability to contribute to this taxation on the basis of what his present pos- sessions and future contingencies are worth in the market. They would by their tables of averages calculate the capitalized value of incomes derived from all the various sources known among us, and according to the number of years' purchase the income was worth would they multiply the payment to the income-tax. Thus if a man whose income was not certain beyond the year pay 71. in the pound on that income, the man whose income was on a per- petuity, and so worth 331 years' purchase, would have to pay 331 times 7d. Mr. Mill exposed one fallacy in the arithmetic of this precious scheme a long time ago, and showed, both in his treatise on Political Economy and in his evidence before the Committee, that to make this scheme even arithmetically correct according to the principle of its authors, the tax must be capitalized as well as the income. But a writer in the current number of the Edinburgh Review has given it a blow that will tell with persons to whom Mill's mode of looking at it might be caviare. He points out, that if 7d. in the pound be the unit of taxation from which we start, on the supposition that the precarious income of one year's purchase pays the present rate of tax, about a shilling in the pound will be left to the owners of all realized property in the country, where- with to pay their annual expenses the charges upon their estates, and the rest of their taxation; while, on the supposition that 7d. in the pound instead of being the rate at which incomes for the year pay is the maximum limit, the lowest income worth one year's purchase from which income-tax will be levied, provided it be collected in sums no smaller than at present, would be 5250/.,—the lowest rate of tax being of a penny in the pound. A more perfect scheme of confiscation than is veiled in the preten- tiously precise arithmetic of the actuaries, it would be difficult to imagine; • and the writer in the Edinburgh has done admirable service to the cause of honesty and sound principle by exhibiting its results in this startling manner : and this service is the more important, that the advocates of the scheme are disposed to modify all the taxation of the country, and, so far as they can, to apply their principle of direct taxation to raise the whole revenue of the country ! We shall be curious to see whether, after this exposure, the House of Commons will hear anything of the capitalizing scheme.
Mr. Warburton represented before the Committee the extreme
opposed to this capitalizing plan, and strongly urged the perfect justice of the present principle, supposing the Income-tax to be made permanent. He considers all the various forms of income as corresponding to annuities of different lengths,—so far agreeing with the actuaries ; and that exactly the same amount of tax is paid by the annuitants under the present system as would be paid supposing the present value of their annuities laid out in the pur- chase of perpetuities, and so liable to income-tax for ever. The test, according to Mr. Warburton, of a fair income-tax, is that the whole values of the taxes paid by annuitants whose annuities are of different terms should bear to each other the same ratio that the purchaseable values of the annuities bear to each other. Or, to put a case in figures, supposing one man to have 300/. a year in perpetuity, worth 10,000/., and another man to have 300/. a year for ten years, worth 26591., the whole income-tax paid by the former should bear to the whole income-tax paid by the latter the ratio of 10000 purchaseable value of one annuity
d th this 2659 — purchaseable value of the other annuity' an at
equality of ratios is secured by levying the income-tax at the same rate on the perpetuity for ever, and on the terminable annuity so long as it lasts. Mr. Warburton's reasoning is, it appears to us, iden- tical with that of the actuaries, only that he applies the important correction which Mill pointed out, and thus avoids the practical injustice into which they fall. But we doubt whether the public will be disposed to estimate a man's taxable liability by the pre- sent worth of his future contingencies as calculated by the average tables of insurance-offices ; and we prefer to rest the defence of the present system not so much upon arithmetical calculations, and present values of future chances, which seem to have nothing to do with the question, as upon the broad and intelligible principle that the Government is the cooperator in the production of every man's income from whatever source it may be derived, and that for that cooperation the most equitable rate of payment that can be de- vised is an equal percentage on the income produced. It is not for pinient protection to future income that the taxes of the year are raised, since such protection is impossible ; while supposing the income-tax to be permanent, all past income will have paid tax durine,° its year of production, and must not be charged with it again simply because it has not been spent in per n
is able commodities, but either changed into articles of perma- nent utility or ornament or converted into capital for productive employment. It seems to us, therefore, plain and uneontrovertible, that, always supposing the permanence of the tax, a gross injustice would be committed by taxing either a man's past savings they having been already taxed, or his future income as certain to be taxed when it becomes income, and as subject till that time to no beneficial action of the Government. What the taxes of the year are spent upon is, the protection of the property, skill, labour, em- ployed in producing the income of the year : each person benefits by the expenditure of the taxes exactly in proportion (so far as property is at all concerned) as it enables him to produce an income from his capital, skill, or labour ; and out of the income so pro- duced the taxes ought in all common sense to be provided. We hope to hear very little of any arithmetical or mathematical ar- guments during the coming discussion as utterly irrelevant, and likely to mystify the House and lead it from the real question.
And herein we agree with Mr. Mill, who may be taken as the representative of the third party. He, with his usual breadth and true political feeling, looks at the question quite apart from techni- calities, and rests his argument on common sense. He thinks that a man should not be called upon to pay income-tax except on that portion of his income which he can afford to spend ; that an ex- emption should be made for that portion which as a prudent man he ought to lay by for old age or employ in insuring his life : and he would tax temporary incomes at three-fourths of their gross value ; and to those which are precarious besides he would allow a reduction in their rate of taxation, as well as in the amount subject to taxation. But we confess with all our respect for Mr. Mill's authority, we perceive neither equity nor wisdom in this proposal. Let such exemptions be made as are necessary on the principles before stated; but beyond these, we know of no duty of provision for old age or for life-insurance so valid as the duty of bearing a due share in the burdens of the State ; we know no payment so binding as the payment due to the State ; and if the pay- ment is relaxed in favour of any class, such relaxation is simple alms- giving, and the result is undue imposition upon all other classes. If property is at present unduly exempted from contributing to local and national burdens, (for both must be taken together,) let the in- equality be corrected, but not by the arbitrary introduction of a now inequality into a direct tax. It cannot be too often re- peated, that it is not the business of the State to provide for the accumulation of fortunes or the securing of life-insurances for any class : this belongs to individual foresight and self-denial ; and any attempt to escape the contributions due to the State, and to vio- late the principle of equality of contribution according to the in- come produced within the period for which the tax is raised,—how- ever admirable in themselves the purposes for which the wrong is done' —such attempt is thoroughly objectionable in principle, and may if used all a precedent justify any extent of confiscation on the propertied in favour of the so-called industrial classes.
The subject of Legacy and Probate duties would require a se- parate consideration. Our paper has already grown to unusual length ; but, having hitherto only watched the controversy that has been raging around us, we wished, before the Income-tax dis- cussion come on in Parliament, to state briefly the points of the question, and our own conviction on the principles involved in it.
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