TOPICS OF THE DAY.
TAXATION MADE EASY.
Ir is natural to the English people always to be talking about that with which they are so uncomfortably familiar as Taxation ; and at seasons of lull in home politics this perennial talk becomes the more audible. So it is now. Divers essays are afloat, with strictures and suggestions. Mr. M'Culloch rather recently re- viewed the whole state of our taxation ; censuring here and com- mending there, with an arbitrary taste in taxing, most provoking to smaller folks. The Westminster Review, professing to review Mr. M‘Culloch's book, puts forth a scheme of its own. And Mr. William Ray Smee has published a pamphlet, proposing an exten- sion of the Income-tax and the abolition of various other imposts.*
With all these schemes, as with many more, it is remarkable how perfectly easy and desirable each appears, and what equally sound objections are adducible.
Mr. M'Culloch inclines to taxes on consumption ; and a world of reasons may be advanced for them. They combine a certain amount of compulsion with a considerable degree of volition, play- ing together by a most elastic self-adjustment. With taxes im- posed on consumption, the very frugal or the very needy man can keep his tax-paying down to the minimum point ; yet he must accompany that economy with such a screwing self-denial that the Chancellor of the Exchequer has the very best guarantee that it will not be abused. Direct taxes stand out to be pilloried by popular odium, just at times when quietude and prompt pay- ment are most desirable. The following is a cognate and less hackneyed plea for indirect taxes. Direct taxes are demanded at longer intervals, and in comparatively large sums : with the poorer classes, the money to meet such demands must be saved out of the current expenditure; but those whose circumstances are very much pinched find that provident process difficult and irksome —it is in fact seldom performed—the tax becomes a debt, and is met in the lump by some great effort. Now, indirect taxes en- force the process of saving, by reserving for the state the due pro- portion out of every shilling as it is spent. Much more might be advanced in favour of taxes on consumption. But, says the Westminster Review, they are dishonest : they hide the operation of taxing from the jealous watch of the people, encourage corruptly lavish expenditure by officials, and interfere with the operations of trade by disturbing the relative proportions of prices. The Reviewer proposes to change the whole system. He takes as the basis of his plan the postulate, that taxation ought to be proportionate to the protection which the tax-payer derives from the state, and proportionate also to the meats of the payer. He therefore suggests three taxes, to supersede all others: a direct tax on the elective franchise, which we understand to be a kind of poll-tax on Parliamentary voters, to be avoided by those who consent to waive the franchise ; a tax on "fixed property" [funded capital, real property, and certain kinds of chattel pro- perty partaking of the nature of real]; and a heavy tax on move- able property, to be optionally incurred, but to convey the right to a further exercise of the elective franchise. All these taxes might be easy of collection, simple, justly imposed, economical, and leaving trade unimpeded. The first and greatest objection to the scheme is, that it would be impossible to reconcile the slow English mind to any innovating bouleversement so total and so vast. Another objection might be found in the doubt whether the proposed taxes would suffice unless they were made very large in amount, and thus proportionately odious ; a third, in the fact that such large imposts on property would league against them all the influences of property ; a fourth, in the prejudice which would be felt against virtually making the elective fran- chise a matter of sale ; a fifth, in the bonus offered to thrifty citizens to avoid all participation in public affairs, in order to evade the corresponding impost.
Mr. William Ray Smee has advanced a plan which may be considered more practical. It is generally acknowledged that the present Income-tax is most improperly arranged on one point —the arbitrary exemption of all incomes below 150/. a year. Mr. Since proposes, so far as the particular tax is concerned, simply to abolish that exemption ; thus extending the impost to all classes at its present rate. In the case of artisans, however, it is proposed to substitute for the Income-tax a fixed tax at so much a bead, calculated to be equivalent to a tax on the average income in each class of the working population. Mr. Smee computes that the produce of the tax, so extended, would exceed 14,000,000/. He also shows the bad working of certain taxes on consumption. In the case of the Malt-tax, for example, the impost enters into the cost of the article, and every dealer through whom it passes to the consumer charges a percentage on that cost as on part of his capital invested ; so that the tax, which, together with the Hop-duty, ostensibly yields about 5,500,000/. to the revenue, costs the public 7,000,000/. The same difficulty applies to all in- direct taxes. The Malt and Hop taxes alone are equivalent, on the poor man, to about 5s. a quarter; so that, with those duties repealed, he could afford to pay to the state directly a pound a year. With similar arguments, Mr. Since proposes to abolish the duty on licences for the sale of Beer, the Window-tax, the tax on French Wines, the tax on Bricks ; all that we have named • " The Income-tax: its Extension at the present rate proposed to all classes; abolishing the Malt-tax, Duty on Hops, on Licences to sell and make Beer, the Tax on Railways, the Excise on Bricks; and reducing the Duty on French Wints. By William Ray Smee.' amounting to about 7,760,000/. He would also abolish the duty of /d. per mile on Railway passengers. The whole of these re- ductions, he calculates, would still leave a surplus of about 1,000,000/. to cover any mistake in the reckoning of the Income- tax. Several objections to this scheme suggest themselves, be- sides the obvious and sweeping one which Mr. Smee summarily dismisses in his last page by exclaiming—" A direct tax on all classes may be unpopular. Unpopular ! what is unpopularity ? " Ay, what, indeed ! "Who's afraid?" as the saying, is. But the fixed tax on the working classes, though he avoids the odious name, is really a poll-tax ; from which any Chancellor of the Exchequer would be deterred by the mere tradition of Wat Tyler. Under whatsoever name, a tax upon the income of the poor would always be odious, and would often be cruel in its operation, be- cause all direct taxes fall with a concentrated pressure on par- ticular seasons. At times of "distress," such a tax would yield nothing but a heavy return of killed and wounded among tax- gatherers. And there is a strong prejudice against the use of an income-tax for any but emergencies ; wherefore most Ministers would hesitate to make it permanent.
It is to be observed, that although Sir Robert Peel continued to use it, he never gave the Income-tax any character of permanency : virtually and substantially as well as nominally, he used it as a temporary instrument. He imposed it in order to make up a defi- ciency in the revenue, which he expected to be made good in future by an improvement in the tariff: he continued the tax as a guarantee-fund while carrying out further improvements in the tariff. It therefore stands upon the tariff for an object which is in its very nature temporary : it is not an additional impost on the people, but a substitute for certain revenues which have accrued from taxes that have been abated, and which are to ac- crue from the greater fertility of reduced taxes: it is really an active means to the diminution of the imposts on the people, pro- posed and accepted for that purpose, and suffered only in the plea- sure of seeing that process actually make way. The gravest popu- lar prejudices against an income-tax of pretensions so modest and services so valuable are suspended ; but, no doubt, they would blaze up at any hint of making it a permanent item in the ordi- nary revenue. And the worst objections to it, on the score of its exciting immorality by acting as a premium on fraud and eva- sion, would be immeasurably aggravated by augmenting it.
Amid all this activity of discussion, one modest but not unpromising path to improvement seems neglected. Men of in- formation and ingenuity are busy in urging the repeal of this tax and the extension of that—suggesting duties on umbrellas, or pianofortes, or wine-coolers—or devising new schemes alien to all our habits and arrangements. It might be a more useful task, to see how far it would be practicable to improve our existing system, so as to remove all the weightiest objections to it, without jeopar- dizing the whole body of the revenue, altering our plan in essen- tials, or entailing a fiscal revolution. Possibly, more might be done in that way than has yet been imagined ; though it would need searching preliminary inquiry. Probably, much of the sound objections against indirect taxation might be neutralized if the system were viewed as a whole, instead of being considered in each separate item.
It is a truism, on which, amid every conflict, all are agreed, that each subject should pay according to his means. That would be accomplished by direct taxes on accumulated property and income : but these are so odious, from their inquisitorial na- ture, that they can only be imperfectly carried out ; and, as we have noticed, the very fact of directness has its inconveniences. Almost all income is expended, either in the cost of " living " or in some other way ; for very little money in this country is ac- tually hoarded. Expenditure is virtually the equivalent of in- ewe and property, and is in many respects a truer test of means than income is : a tax on expenditure would, therefore, be a nearer approach to a tax on means than any income-tax. It would not, indeed, reach actual savings ; but saving it is desirable to en- courage. All expenditure consists of payment for certain articles or uses : excepting payments of the nature of honoraria, the sum of the prices of commodities on which income is expended is the exact equivalent of expenditure ; a tax calculated ad valorem on each price, according to one uniform rate, would be equivalent te a tax of the same rate on the gross expenditure, and thus in the main equivalent to a tax on means. Now the question is, whether it would be possible or not to devise a system of indi- rect taxation retaining the advantages natural to the indirect method and possessing also the advantages of the other The objections to indirect taxes have been—the delay and trouble imposed on the commercial classes by customhouse and excise ; the interference with the natural movements of trade, by arbi- trarily disturbing the natural level of prices ; and the interference with individual tastes and convenience in consumption, by the same arbitrary disturbance of prices. The adverse effect of the indirect tax is augmented, as Mr. Smee and others before him have shown, by the additional percentage which the dealer in the taxed commodity charges on the tax that he has paid as vested capital. All these objections are seriously felt. The first, indeed, must stand good in any case: it is inherent in the very nature of taxes on consumption, and can only be mitigated, not removed. It is otherwise with the remaining objections. Each trade com- plains in turn that it is " unduly " taxed ; and as there is no uniform standard by which to test the complaint, there is always a disposition to afford " relief." But the revenue must be main- tained; the relief of one trade augments the burden of another, to judge of complaints about " undue " b would be proportionate. In like manner, as tax-payers or consumers, the tax would f weight on all classes according to their expen be liable to the added percentage which the des The tax that he has paid, as on vested capital; but Wag "ektdialt• in exact proportion all round, it would be neutralized by universal compensation ; and as the tax would fall with proportionate equality on all prices, it would press on none, and would leave the movements of commerce quite free. Like the atmosphere; its weight would be unfelt because of its universally equal pressure.
Such is the beau ideal of indirect taxation : it is not to be as- sumed that, without resortingto ideal niceties' a system of indi- rect taxation could not be devised, possessing the great essential and practical advantages of such a scheme. It would be estab- lished by some such process as this. The financier would de- termine, in the first place, what was the amount of revenue needed. He would procure a schedule of all articles consumed, with their average prices in the market, and average amount of gross consumption ; and the problem would then be, what rate of impost, spread over all the articles in the schedule, would pro- duce the requisite amount of revenue. The proper amount would be set against each article in the schedule as duty: the schedule would now be "the tariff." It would be. ,subject to periodical revision. There are strong objections to the levying of ad valorem duties, as they leave open questions between the collector and the dealer ; but in the case supposed, although the financier would calculate the duties on the value to the collector they would come as fixed duties, and he would dry them as such. The periodical revision of the tariff would not need to follow every nice fluctuation of price: probably an annual revision would an- swer all practical purposes of necessity. It is probable also, that under such a system most of the important items of taxation would remain so still. Some would perhaps have to be added ; but it would not be necessary to encumber the tariff with a vast quantity of petty articles of commerce : the test for the neces- sity of taxing any small article would be the answer to the question, whether that article could be substituted in use for some other already taxed ? if so, it must bear its equivalent. Instead of considering the separate merits of the tax on each par- ticular article, the questions would simply be, whether that article should be included in the tariff at all ; next, the average market- value. There would need no vast sacrifice of revenue, but only a shifting of duties. Finally, it would be quite possible to effect a, gradual revision of our tariff with this principle as a guide in the process of bringing it down to the Free-trade standard—the level of maximum revenue.
This might prove to be a problem worth the investigation of those who have the ability and opportunity for such a task.
and there is a new trial at shifting the burden. Voliv, .*6410-4, taxes commuted for one uniform rite ad valor
would cease. A uniform standard would \whites
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