Besides those expences which are necessary to the exiffence, or conducive to the comfort and enjoyment of private individuals, there are others of which the benefit is directly applicable to the whole society. These benefits indeed are chiefly of a negative kind, but they are not therefore the lefs essential. They consist in the preservation of person and property from that violence both internal and external, to which the irregular passions of human nature continually expose them. The regular administration of justice, and defence against foreign enemies, are so essential to the well-being of a people, that they can with no propriety hesitate, when necessary, to part even with a large portion of their income in order to provide for the proper accomplishment of these objects. A certain pomp and magnificence too, in those who are to take the lead in these departments, have been deemed both ornamental to the society, and necessary for securing respect and obedience from the body of the people. If, besides these grand and indispensible advantages of foreign and internal security, public funds can be applied to any other purposes, evidently tending to promote the national well-being, yet beyond the reach of private exertions,—to canals, high roads, or public institutions of any description,—there can be no doubt surely as to the propriety of such an application.
It is evident, therefore, that the money which is necessary for the above purposes, forms a perfectly necessary and proper part of national expenditure. The government of the country, indeed may, as elsewhere observed (Political Economy), economically speaking, be considered as part of its fixed capital, essential to the advantageous employment of the rest. Without the security which the labourer thence derives, of reaping the fruits of his industry, he would have little motive to action; every thing would be the prey of the strongest, and all impulse to activity ceasing, universal poverty would ensue. At the same time we may observe with regard to this as to other fixed capitals, that the expense is expedient only so far as it is necessary, and that if the same functions can be performed at a smaller cost, a decided gain arises to the public. It becomes therefore an important object to inquire in what manner the offices of government may be adequately performed, with the least burden on the people.
We have formerly, under the head of Political Economy, slightly illustrated some leading principles respecting public revenue. But as the subject is important, we shall consider it here in somewhat greater detail.
Taxes may be arranged in the following manner. 1. Affected taxes, or those which the subject is required to pay directly into the hands of the sovereign or commonwealth. Under this title are comprehended all the taxes which bear the above name; all income or capitation taxes, and every species of land taxes. These taxes are almost always intended to fall upon income. 2. Taxes upon commodities, which are paid, in the first instance, not by the consumer, but by the producer, or importer. These taxes fall upon consumption; the man who does not use the articles, pays no tax. They operate thus partly as sources of revenue, and partly as sumptuary laws. 3. Stamp duties, or duties upon those deeds which regulate the transference of property. These duties fall chiefly upon capital.
1. Affected Taxes.—Affected taxes, according to the above definition, seem to be the most simple and direct mode of raising a revenue. The money comes at once from the pockets of the people into those of the sovereign. No tax is so certain of yielding a revenue. The money is demanded, and must be paid. Where properly arranged also, they may probably be made to fall more equally than any other, upon the different classes, according to their ability. In absolute governments, therefore, and in governments little skilled in the science of finance, these taxes are commonly preferred, as those which can be levied with the least trouble. They have likewise this merit that they cost little in the collection, and consequently nearly their whole amount is brought into the treasury.
Affected taxes, however, are liable to many objections. None are so heavily felt. In other cases the tax is concealed under the price of the commodity with which it confounds itself; but here the money is paid directly without any thing in return. It must generally too be paid in a considerable sum at once, a circumstance which must often be productive of serious inconvenience, while the same sum, broken down into small portions, might have been paid without difficulty. For these reasons, much greater discontent is excited by these taxes than by taxes upon commodities. A double revenue perhaps, may, in the latter way, be raised with less murmuring. In popular governments, therefore, and in those where finance has been reduced to a system, the object has generally been to avoid direct affectment as much as possible. In this country, the greater part, by far, of the revenue had been raised by taxes upon commodities, till, within these last twenty years, the pressure of public wants made it necessary to have recourse to every mode of raising money which promised to be effectual, and thus the affected taxes have been raised to a very great amount. The most important of these taxes may be included under land tax, capitation taxes, house tax, and income tax.
Land Tax.—There is no class of men who may with more propriety be burthened with an extraordinary imposition, than the proprietors of land. They enjoy commonly a liberal income, without care or trouble of their own. Their property, being of permanent value, is much preferable to any source of income which expires with its possessor. From being local and immovable, it is peculiarly dependent on the protecting influence of government, and may therefore be reasonably called upon to contribute something more than the common share to its support. In almost all countries, therefore, the landholders, besides being liable to the same burdens with the rest of the society, are subject to a peculiar tax, called land tax.
In India and other great oriental empires, the principal revenue of the sovereign is derived from land. It arises, however, not properly in the way of tax, but of rent. The sovereign, in those absolute governments, is judged to be the sole proprietor of all the land in his dominions, which are let out by him or his deputy, to the farmers. This is also the principal source of the revenue which we derive from our East Indian possessions. It is otherwise, however, in all the European countries. There, almost all the land is private property, and the contribution which government draws from it is therefore a tax.
The adherents of the economical system have proposed to substitute a land tax in the room of every other. They maintain that all taxes must finally fall upon the produce of land, since it alone affords that surplus revenue, out of which public contributions can be drawn. Were this doctrine true, much trouble and expence would doubtless be saved, exchanging the present complicated and laborious system of taxation, for one so simple and easy. But we have already endeavoured to show, under the head of Political Economy, that the principles of this fact have no solid foundation; that manufactures and commerce are sources of wealth, as well as agriculture, though in a somewhat inferior degree. It will follow, therefore, that they are equally liable to be affected by taxation. It is in vain to urge that the merchant must have his profit, and the labourer his hire, and that otherwise they will not employ their capital and labour. Were a tax to be imposed upon any one branch of industry, leaving the rest untouched, there is no doubt, that wages and profit in that branch must rise, till the merchant or labourer is placed on a level with the rest of the community, otherwise he will transfer his capital and industry to some other branch. But where the imposition falls indiscriminately upon the different employments of labour and stock, there is no such refuge; the labourer and merchant must suffer a diminution of income; nor is there any proceeds by which he can throw this diminution upon the landlord.
Other persons of a much less informed character, are often heard urging, that we have only to lay the imposition upon the landlords; and that they will not be long of indemnifying themselves by raising the rent of their lands. Such arguments will make little impression upon those who have at all attended to the true principles of political economy. The value of lands, as of every other article, is determined by the demand and the supply. A tax upon the rent of land would have no tendency, either to increase the one, or to diminish the other, consequently no tendency to raise the value of land. Indeed, were we to suppose, according to this hypothesis, that proprietors have an unlimited power of raising their lands, whenever they are so inclined, it is quite contrary to common sense to suppose that they should not exert that power, without waiting for the stimulus of a tax.
For these reasons, land cannot, with any propriety, be made the sole subject of taxation; but it is very fair, as above observed, that it should pay somewhat more than other sources of revenue. A difficulty, however, arises from the variations to which its value is subject, sometimes on the decreasing, but more commonly on the increasing side. The rate which, at one time, is equitable, becomes quite otherwise at another. An attempt, on the part of government, to keep up a continual survey of all the lands in the kingdom, would be attended with very heavy expense, and would, after all, be probably fruitless. Besides, such a measure would operate as a discouragement to the improvement of land, when to large a share would go out of the hands of the improver. These objections have weighed so strongly with the legislature of this country, that they have not raised this tax, since its first imposition in the reign of King William. It was then meant to be at the rate of four shillings in the pound, though in fact, it was by no means so much. It was also very unequally distributed, even at the beginning; a serious evil, which, however, it might have required very great trouble to avoid. Since that time, a great and general rise has taken place in the value of land, which has made this tax much higher still, than when it was originally imposed. It has also rendered it, however, still more unequal. Although almost all the land in Great Britain has improved; yet this improvement has taken place in very different proportions, according as each district differed in natural advantages, and in the industry of the inhabitants. The land tax accordingly is, at the present moment, most exceedingly unequal; but as it fortunately happens, that there is scarcely a district in Great Britain which has not improved more or less, the general moderation of the tax has rendered its inequality less grievous.
A method has been proposed of obviating this disadvantage, by keeping a register, in which the landlord and tenant shall be jointly obliged to enter the rent which the land bears, a new entry being made at every variation. A valuation may be made of the lands which the proprietor keeps in his own possession. Something of this kind, it is said, actually takes place in the Venetian territory. The discouragement to improvement indeed still remains, but even this might be obviated by an equitable, and even liberal allowance being made, for any sums which the landlord may satisfactorily prove to have been expended in this way. The chief objection to the plan seems to be the danger of collusion between the farmer and landlord, who would have a mutual interest in representing the rent as less than it really was. The agreement indeed might, by law, be made obligatory on the farmer only to the extent of the sum registered; but it may be doubtful, whether even this regulation would always be an adequate security against fraud. The valuations would necessarily depend a good deal upon the discretion of the revenue officer; which, in an arbitrary government at least, might become a serious objection. The additional expense of such a plan would be considerable; but, provided it could be made to answer the purpose, this ought not to deter from its adoption.
Frederick of Prussia imposed a higher tax upon lands held by a noble, than upon those held by a base tenure. He conceived that the privileges and flattering advantages of nobility were such as to compensate for this additional charge. We are rather disposed to consider this proceeding as severe. A nobleman, with the same income, is poorer than a commoner, because he has a greater rank to support; and in the present state of Europe, a great proportion of the nobility are extremely poor. This extreme, however, is much better than that of France before the revolution, of the Austrian states, and of most of the old governments of Europe. There the nobility, possessing the chief influence in the administration, had obtained for themselves liberal exemptions, and thrown the principal weight of this, as of other taxes, upon the inferior orders. In Sardinia, and in some provinces of France, lands held by a noble tenure paid nothing whatever.
Some taxes upon land are proportioned, not to its rent, but to its produce. This is the case in the Asiatic countries. In China, a tenth, and in India, a fifth of the whole produce of the land, are claimed by government. In England and Ireland, the church is supported by a tax of this kind, which is called title.
These taxes are liable to two very great objections. They are, in the first place, unequal. It is rent only that can be the proper subject of taxation; that part of the produce which is necessary to pay the expense of cultivation, ought to remain untouched. But this expense is far greater in poor than in rich lands. In the former, perhaps, the produce may be little more than sufficient to pay the expenses incurred; while in rich lands, not only the necessity of labour is less, but the produce greater. If, by well employed capital, and costly cultivation, the farmer succeeds in extracting tolerable crops from an ungrateful soil, it is both cruel and unjust that he should be obliged to pay as much as if he had no such obstacle to struggle with.
But if this tax be objectionable on the ground of equity, it is still more so, on that of expediency. The first excitement to labour and improvements of every kind, must undoubtedly be the prospect of enjoying their fruits. Where the rate of taxation is fixed, this prospect remains unimpaired; for whatever addition the proprietor or farmer can, by such means, make to the produce of his land, is all his own. But the case is very different, when it must be so deeply shared in by persons who have done nothing to forward this increase of produce. A sovereign prince indeed may derive, from such an arrangement, some motive to encourage agriculture, and improve the means of communication, so as to raise the value of its produce. But this advantage, which will scarcely ever counterbalance the attendant evils, disappears altogether, when this imposition is to be paid for the support of an ecclesiastical body. These, being only life-renters, and seldom possessed of much capital, cannot be expected to co-operate in any measure for the improvement of the lands. The jars too, which are likely to take place between the pastor and his flock, form a moral argument against this mode of support.
It must not be concealed, however, that a permanent commutation of tithes would be a measure little favourable to the interests of the clergy. It seems both just to themselves, and advantageous to the public, that when the country is in a state of improvement, this body should not be left behind; it should be able to keep pace with the other members of the society. This it can never do, if it has merely a certain fixed sum allotted for its maintenance, without the possibility of augmentation. This evil has, in fact, been seriously felt in the church of Scotland, the income of whose members, notwithstanding all that has been done for their relief, is still very inferior to what it was thirty or forty years ago. A source of income, which rises or falls with the value of land, seems the most effectual mode of maintaining this proportion between the income of the clergy, and of the rest of the society; we need not, therefore, wonder, that the clergy should be so tenacious of it.
To reconcile these contrarieties, would certainly be attended with difficulty; yet it does not seem to be absolutely impossible. The first object would be, to transfer the tax from the produce to the rent. This might be done by forming a correct estimate, on an average of a few years, of the value of the tithe; and then assigning a claim to such a proportion of the rent, as would be equal to that value. This would remove all discouragements to the exertion of the cultivator. Those which press against the exertions of the landlord would indeed remain in full force, though without any increase. In most cases, these exertions would be of very small importance, when compared with those of the former. But, besides, a scheme might probably be contrived similar to that above suggested, by which the landlord might receive an adequate allowance for any improvements he might make.
The ground-rent of houses forms part of the rent of land. In remote country situations, it is often no more than the same land would yield, if employed for the purposes of agriculture. But in the vicinity, and still more in the heart of a great town, competition, and the value attached by convenience or fashion to some particular situations, raise this rent to a very extravagant height.
Ground-rent seems to be a still more proper subject of taxation than that of common land. It arises commonly from circumstances entirely independent of any care or attention on the part of the proprietor. Yet ground rents have never been considered as a separate subject of taxation. This has probably been from the difficulty of distinguishing them from the building rent. In every tax upon houses, however, part must fall upon the ground rent, provided that be able to bear it. By diminishing the demand for houses, it will diminish also the demand for ground to build them on.
Capitation or Poll Taxes,—afford one of the easiest and most obvious modes of taxation. To lay an assessment upon every individual without exception, seems the most effectual mode of preventing all trouble, and leaving no room for evasion. In most of the absolute governments, where the sovereign does not claim the sole property of the lands, as in Turkey and Russia, poll taxes are imposed in lieu of land tax.
The rudest form of this imposition is, when it is laid equally upon every individual. An equality of this kind is the most grievous inequality. To make the poorest subject pay as much as the richest, is palpably unjust. The only case, where such a tax can be proper, is where it falls upon slaves. In this case, it is paid, not by the slave, but by the master. The number of slaves forms the most accurate test of the value of his property; and accordingly, in Russia, an estate is described, not by the number of acres, but by the number of slaves which it contains. This tax has also the good property of encouraging manumission. In all other cases, such a tax can only be rendered tolerable by its extreme moderation.
Nations were not long of perceiving the preposterous nature of this arrangement, and of seeking to substitute some more equitable one in its place. Fortune was evidently the most correct standard to proceed upon; but a close inquisition into private concerns was conceived to be burdensome and oppressive. If each individual were to report his own fortune, could the report be trusted to? If, on the other hand, the assessment were to be regulated by the officers of government, according to what they supposed to be his wealth, a door was opened to vexatious and arbitrary proceedings. In order to avoid these opposite dangers, it has been common to regulate the contribution according to the rank of the contributor, which it is supposed will bear at least a certain proportion to his fortune. This was the case with the different poll taxes imposed in this country during the reign of King William. It was the case also in France with regard to that part of the taille which fell upon the nobility. It is extremely unequal; for many men of rank have no fortune corresponding; and where it so happens, their rank impoverishes them, by the expense which is requisite for its support. Yet, as rank affords a certain approximation to fortune, it is certainly better to fix it according to that standard, than to leave it to the arbitrary appointment of the officers of government. Inequality is a less evil than uncertainty.
In that part of the taille which fell upon the inferior orders, the latter mode was adopted. This tax was the subject perhaps of more grievous discontent, than any other which yielded an equal revenue. It cannot be supposed that the intendant should not be often swayed by motives of favouritism, private interest, or private resentment; and the very uncertainty to which the people were exposed, formed a severe hardship. They were tempted to conceal their wealth, and even to employ inadequate instruments of trade or agriculture, in order to deceive the watchful eye of the intendant.
House Tax.—In order to avoid the defects incident to the above modes of assessment, rent of houses has been fixed upon as affording the best criterion of the amount of a man's income. It certainly affords a tolerable criterion of his expenditure; and though this may often differ considerably from his means, yet as it is rather the object of government to discourage profuse expenditure, there may be no harm in such an inequality.
The most equitable mode of taxing houses, would evidently be in the proportion of their rent. In this country, accordingly, part of the land tax is made to fall upon the rent of houses. This branch of the land Taxation. tax is subject to the same inequalities, both original and acquired, as the other branches. The assessment, not upon each house, but upon each district, continues invariably the same. In general, it is still higher than upon land. The value of houses, however, has not risen so invariably as that of land; hence, in some districts where the population has decreased, the tax falls with considerable weight. Since that time another tax has been imposed upon houses which is in proportion to the rent, and varies with it. The heaviest tax upon houses, however, is now that which is regulated by the number of windows.
At the time of the original imposition of the house tax, it seems to have been considered difficult or impossible to ascertain and follow the fluctuations of the rent. Some obvious and undeniable circumstance, connected with the very form and construction of the house, was therefore selected. The most ancient is the number of hearths. Hearth money is a very ancient duty, and seems to have existed even before the Conquest. Under Charles II. a tax of two shillings on all hearths was granted to the crown for ever. This tax was grievous to the people, on account of the domiciliary visits to which it necessarily subjects them. It had besides the worst kind of inequality, pressing harder on the poor than the rich. A man of 20l. a-year may have two hearths; a man of 200l. not above four or five. A man of 1000l. will scarcely have ten. Hearth money, therefore, was abolished at the Revolution. In its stead was afterwards substituted the window tax, which could be ascertained without entering the house of the contributor. It was soon found, however, to be liable to the same inequality as hearth money. In consideration of this, the rate was greatly increased with the increase of the number of windows, and houses having less than six were entirely exempted. If, however, as would rather appear, the rent can be ascertained in a satisfactory manner, it would seem better to lay the whole of the house tax upon it directly, rather than by any circuitous and doubtful mode.
There are two parts of house rent; the ground rent, or that which is given for the use of the ground on which the house stands; and the building rent, which is paid to the builder, as a remuneration for his trouble and expence. The ground rent, as above observed, must pay a share of the tax; but the building rent cannot be affected by it. The builder must have his profit, otherwise he would turn his capital and industry into another direction. This rule, however, is somewhat modified by the very durable nature of the subject. When the tax is first imposed, it is very probable that the supply of houses may continue for some time nearly adequate to the demand; in which case the proprietor must lower his price in order to get his houses let. As the old houses decay, however, new ones are wanted, which will not be built without an adequate remuneration; and thus the general law will again operate.
Income Tax.—The object of all the different ascribed taxes is to make the subject contribute an equitable proportion of his income to the expenses of the state. But those which we have above enumerated, though they may procure an approximation to this point, can never attain it with perfect precision. If therefore an income tax, established on just principles, could be collected without any farther grievances, than the always unavoiable payment of the contribution, it would certainly be the most equitable assessment of any, and might with propriety supercede all other taxes of this description. Serious, however, are the difficulties which attend it. The correctness of the estimate must always depend, in a great measure, on the honour of the contributors; but all men are not honest; and the cheating of the king, is, according to the popular code, so venial an offence, that accurate returns cannot, in all cases, be expected. If, on the other hand, the collectors, as in the French taille, take upon themselves to farm this estimate, a door is opened to arbitrary and oppreive exactions. The impossibility also of escaping the tax by any species of privation, makes its weight more sensibly felt, than in those which are in any degree voluntary. For all these reasons, an income tax has hitherto been among the last resources to which a nation has had recourse in its extremest necessity.
Most of the capitation taxes, as formerly observed, partook more or less of the nature of the income tax. The subsidies, so frequent in our early finance, were, like the taille, composed, partly according to rank, and partly according to fortune. Among the nobility, alienation of estates was yet rare, and the disproportion between rank and wealth, much greater than in subsequent times. The estimate of income seems to have been made by the collectors. Such impositions, however, were ill brooked by a free and turbulent people; the subsidies became more and more unproductive; and at last were entirely given up. The first was imposed under Richard II. in 1370; the last under Charles II. in 1673.
In some small republican states, a tax of this kind is levied, the amount of which is entirely regulated by the good faith of the contributor. At Hamburg every citizen is said to have placed in the public coffers a sum, which is declared upon oath to be one fourth per cent. of his whole property, which, reckoning interest at five per cent, would be one twentieth of his income. It was not supposed that this mode of collection gave occasion to any fraud. The good faith of the people and their confidence in their government, supplied the place of compulsory laws. The freecry was considered necessary by a mercantile state; but in some of the small Swiss republics, every citizen declared publicly upon oath the amount of his income, and was assessed accordingly. Such unsupplied good faith could only exist in these small states, where patriotism was ardent, and the confidence of the people in their government entire.
Since the discontinuance of subsidies, nothing of this kind had been attempted in Britain, till the year 179, when the accumulating weight of public debt suggested to Mr Pitt the necessity of raising a large portion of the supplies within the year. For this purpose, there appeared a necessity for having recourse to an income tax; and so strong a sense was entertained by the nation of the preying nature of the exigency, that it was submitted to with less reluctance than might have been expected.
An attempt was at first made to connect this imposition with the former ascribed taxes. These were to be tripled; but if any person was able to prove, that this charge amounted to more than a tenth of his income, he was relieved from all which exceeded that proportion. At the same time, a voluntary subscription was opened; opened; but the produce, though honourable to national patriotism, afforded but a slender supply to public wants. These irregular and uncertain approximations towards an income tax were soon given up, and their place supplied by the tax itself, in its own shape.
To obviate the inconveniences of disclosure or arbitrary assessment, measures have been adopted, as effectual probably as any that could be devised. The commissioners of income tax are chosen by the freeholders of the county, or by the electors in a borough, in the same manner as a member of parliament, excepting that a smaller qualification is requisite. To the office of these commissioners, public opinion attaches a certain dignity, which makes it be performed gratuitously, and by the most distinguished persons in the district. These are, by oath, bound to secrecy. The statements are given, in the first instance, by the contributor; but if the commissioners are not satisfied with his return, they can require from him satisfactory explanations. According to the sources of income, the person is assessed at the amount of one year, or at an average of three years. The result of these regulations seems to have been such as to obviate, almost entirely, the chief inconveniences attached to this mode of taxation. The simple payment of the income tax indeed, is most grievously complained of; but the accretions of disclosure, or arbitrary assessment, which were considered as presenting unsurmountable obstacles to this measure, scarcely seem to be complained of at all.
The most important consideration in such a tax relates to the proportion in which it should be paid by the different members of the community. That the lowest orders, who subsist by the labour of their hands, ought to be exempted, seems universally agreed. This would produce the same effect as a tax upon the necessaries of life, the effects of which we shall discuss hereafter. But independent of this class, an equal imposition upon the higher and middling classes of the community would be extreme inequality. The larger the income, the less of it must be spent upon necessaries or common conveniences, and the more upon objects of mere show and ostentation. These last can certainly admit more easily of retrenchment; and as the opulent have a greater stake in the country, it seems reasonable that they should contribute somewhat more in a season of public exigency. A gradation continually augmenting, such as takes place in most of the other assessed taxes, seems to be strongly called for in this. The full proportion of ten per cent. was, from the first, imposed upon incomes of 200l. a-year, and though this was infinitely too low, yet at a subsequent period (in 1866) it was brought down to 100l. This sum, according to the present rate of expense, is the very lowest at which any family in the middling rank can possibly be supported. The whole of this class, therefore, a class which has so many claims to the favour of the legislature, is assessed to the very same amount as the highest classes. The first conveniences of life are taxed at the same rate as its most superfluous luxuries. Certainly 1000l. a-year ought to be the first income liable to the very heavy charge of 10 per cent.; and the deficiency hence arising might be very fairly supplied by an increase, gradually augmenting, upon incomes above that amount. Fifteen per cent. perhaps, ought to be the utmost that it ever rose to; but this charge might doubtless be more easily supported by an income of 10,000l. a-year, than half of it by one of 200l. or 300l.
Modifications ought also to take place, according to the source from which the income is derived. That which arises from capital is undoubtedly of greater value than mere professional income. It does not expire with its possessor; it relieves him from the care and anxiety of laying up a provision for his family, and allows him to spend his whole income, when, to another person, it would be the most culpable imprudence. Of all species of capital, land seems to be the most valuable and durable. It stands also most in need of the protection of the state. It generally, too, comes to its possessor by inheritance, and is not the fruit of his own industry. With regard to money, although its value is still much superior to salaries or professional profits, yet it seems rather to be the policy of government to favour its accumulation, which a very great addition of charge might discourage. Money besides is a more moveable species of property than land, or even than professional income. If heavily taxed, the proprietor might withdraw into another country, and his capital, with the industry which it supported, be thus lost to the community.
The present tax makes no distinction between income which dies with its possessor, and income arising from land or capital. Yet such a distinction, if it appeared eligible, might easily be made under the present system of collection, which demands a statement, not only of the amount of income, but of the source from which it arises. The propriety, however, of such a charge demands some consideration. Land, it is true, is well able to bear a considerable share of the public burthens. But land, in this country, and in almost every other, is the subject of a peculiar tax, over and above what is paid by income arising from other sources. If therefore it were also to pay a greater proportion of the income tax, the pressure might become unjustly severe. The land tax in this country amounts to about two millions. Were we to suppose the share of the income paid by land to amount to 5,000,000l. (a large allowance), land would then pay fourteen per cent. which seems as much as can reasonably be exacted. No such burden, at least in any sensible degree, falls upon stock; but for the reasons above stated, the propriety of taxing it heavily seems somewhat equivocal.
According to the original bill, as proposed by Mr Pitt, very liberal exemptions were granted on account of children. To encourage marriage and the rearing of families, has been generally considered by legislators as an important object. From some recent speculations, however it has appeared doubtful whether it be desirable to remove the obstacles to marriage which arise from the difficulty of subsistence. Whether from these views, or for the mere wish of rendering the tax more productive, this exemption has been gradually circumscribed. The last regulation made respecting it seems to be of a very capricious nature. An allowance of four per cent. is given, but only for the number of children exceeding two. This allowance besides is given, not out of the income tax itself, but out of the assessed taxes. It is difficult to conceive any motive for this last regulation; and, especially in the case of the middling classes, it may sometimes render the exemption nugatory.
Other Assessed Taxes.—A considerable revenue is raised Taxation. in this country by taxes on men servants, pleasure horses, carriages, dogs, &c. These are all luxuries, the use of which is confined to the most opulent classes; they form, therefore, extremely proper subjects of taxation. The income tax indeed, modified as above stated, might perhaps come instead of all such taxes; but while that tax favours the higher above the middling classes, those in question tend to remedy that inequality. One assessment, however, is of a different nature; that upon labouring horses. It is not likely, and certainly could never be intended, that this tax should refrain the use of these indispensable instruments of agriculture. Neither can the duty fall upon the farmer, who, in all cases, must have his profits. To secure this, he must pay the less rent, in proportion as he pays the more tax; and this duty will finally operate as a land tax. It does not seem, however, to have any advantage above a direct assessment of the same nature. It will bear hard upon the farmer who is in the middle of his lease at the time of its being imposed. If at all heavy, it may have some tendency to limit the use of such horses, and to encourage inferior substitutes. The tax was first laid at 2s. and was justified only by its extreme lightness. It was then gradually raised to 14s.; but a proposal to raise it still higher was thrown out by parliament, and has never been again revived.
2. Taxes upon Commodities.—The experience of the discontent excited by direct assessments, and of the difficulty of proportioning them equally, led to the imposition of taxes on consumable commodities. These being laid in the first instance on the commodity at the time of its production or importation, are finally paid by the consumer in the increased price of his goods. No taxes are so little felt, or excite so little discontent. The duty, mingling with the price of the goods, is confounded with it; and, unless when the tax is first imposed, and a sudden rise in consequence takes place, the great mass of the people are even ignorant, how much of what they pay goes to government, and how much constitutes the mere price of the goods. The payment is also made in the most convenient manner, and may be divided into the smallest portions. The power of not paying by ceasing to consume the article taxed, goes a great way in suppressing murmurs. Thus, indeed, those whose expense does not keep pace with their fortunes, pay an unequal share of the common contribution. But as the law is generally disposed to recommend economy, it will not perhaps consider this as a serious objection.
For these reasons, the modern system of finance, particularly in this country where it is so much an object to avoid discontent, has shewn a decided favour to this mode of raising a revenue. And perhaps, upon the whole, they are the best of any; yet the evils with which they are attended are by no means inconsiderable.
1. These taxes take more out of the pocket of the people, in proportion to what they put in that of the public, than any other. This arises from the extensive and minute superintendence which is necessary for their proper collection. For this purpose, a number of officers must be kept, whose salaries form a serious deduction from the produce. In Smith's time, this expense amounted to above \(5\frac{1}{2}\) per cent. on the duties of excise, and above 10 per cent. on those of customs. The great augmentation of revenue which has taken place since that time, has been produced more by an increase of duty on articles formerly taxed, than by the introduction of new subjects of taxation. The expence of collection, however, bears still a larger proportion to the amount collected, than either in the stamps or assessed taxes.
There is another way, in which the burden of these taxes is rendered heavier on the public. The merchant or producer advances the tax, often a considerable time before he can dispose of the article. He must therefore have not only indemnification to the amount of the duty, but also profit on the advance which he has made. It is universally observed, that when a new tax is imposed, the article rises more than in proportion to it. The public commonly murmur, and complain that the merchant has merely made the tax a pretence for this disproportionate increase in the price of his article. The truth is, however, that the merchant has a reasonable claim to receive the same profit on that part of his capital, which he has employed in advancing the tax, as upon that which he employed in the original purchase of the commodity.
2. Though the collection of these taxes is less grievous to the great mass of the people, yet it falls heavier on certain classes. These are the dealers in excisable commodities. As evasion is much easier here than in assessed taxes, a more grinding system of superintendence becomes requisite. The tax-gatherer must have continual access to every part, not only of the workshop, but even of the private house, of the dealer in them. No time, no place, can be exempt from his visits. The power with which he is invested may also, if he be so disposed, give occasion to insolence at least, if not to oppression. Now, as the dealers in these commodities form a part, and even a pretty numerous part of the society, any hardship falling upon them must be a considerable evil. It is felt, besides, though not directly, by the rest of the society. It has already been observed, under the head of POLITICAL ECONOMY, that every disagreeable circumstance attendant on any profession, necessarily raises the rate of wages and profit in that profession. It cannot be supposed, that the dealers in these commodities will submit to the hardships we have noticed, without claiming some indemnification in the price of their goods. Thus the first inconvenience will be augmented, and still more will be taken from the people, without any addition to the revenue of the public.
3. These taxes give birth to the trade of smuggling, a trade at once injurious to the public, and ruinous to the individual. Unfortunately the lax state of public morals, in regard to this point, offers a strong temptation to grasp at the extraordinary profits which smuggling affords; and from the same cause, the produce of such traffic, when successful, is always sure of a ready sale. This trade, however, in the end, generally ruins not only the fortune, but also the morals of him by whom it is pursued. It trains to the practice of falsehood, perjury, and other vices, without which it cannot be carried on with any chance of success.
4. Such taxes always alter more or less, the natural, and consequently the most advantageous direction of national industry. The tax upon wine must diminish the consumption of that article, and consequently the in- dustry employed in producing it. Wine indeed is not a commodity of British production; but it must be purchased with British commodities, and if the merchant cannot import it, neither can he afford a market for these British articles which were to be given in exchange for it. Dr Smith seems to imagine, that these taxes produce an absolute defalcation in the amount of national produce; a supposition in which we are inclined to differ from him. Although there is a diminution in the demand for this particular article; yet as the sum levied is not withdrawn from the national expenditure, but is merely transferred from one class of persons to another, it must still support a demand, if not for the same, at least for some other species of commodities. Thus the public will suffer chiefly from the inconveniences attendant on the change. Other restraints, however, for which there is no such compensation, are necessarily attendant on the collection of such duties. In order to render this efficacious, regulations must often be made, as to the manner in which the trade is to be carried on; and it is always to be apprehended, that governments will be more attentive to the security of the revenue, than to the ease of the public. In arbitrary and unenlightened governments, this propensity becomes often so powerful, as to throw the most formidable obstacles in the way of that free circulation of commodities on which the prosperity of trade, and of all industry, essentially depends.
The commodities on which these duties are imposed, may be either the necessaries or the luxuries of life. Between these two divisions the line is not easily drawn. Necessaries, strictly speaking, are confined to those things, without which life cannot be supported or health preserved. Yet, though the philosopher may reason thus, the sovereign cannot confine his people within such strict limits. In regard to food indeed, which is entirely a domestic arrangement, this definition may hold; but in clothing and lodging, the arrangements of which are in the eye of the public, long custom may impose obligations of decency and propriety, which fall little short of absolute necessity. Every thing, in this respect, must be considered as necessary, which a common labouring person of the lowest class cannot want, without incurring the reproach, or exciting the commiseration, of others in the same situation.
Taxes upon the necessaries of life have the same effect with taxes upon the wages of labour. Dr Smith, and most other writers, feel to conceive that the immediate effect of such taxes is to raise the wages of labour. But we do not see that such can be the case. Nothing can raise the wages of labour, except an augmentation of the funds destined for its support. But these funds, far from being raised by such taxes, are somewhat diminished. The employers of the poor, being themselves affected by them, will be less able to pay wages than before. It is quite a fallacy to urge, that the labourer, if he does not get sufficient wages, will refuse to work. This might be, if the tax affected only a certain class of labourers, and left the rest free. The labourer, if he could not, over and above the tax, obtain the regular standard rate, would withdraw to other employments. The consequence would be, a rise of the wages of the taxed labour, with a slight fall in those of every other, proportioned to the additional number who would thus be thrown upon it. But where the tax falls equally upon labour of every description, as taxes upon the necessaries of life must do, there is no new quarter to which the labourer can turn; there is nothing either to raise or to lower wages; the supply of and demand for labour continue the same. The effect of the tax is merely to diminish the subsistence of the labourer in proportion to its amount.
This, however, is merely the first effect; for the diminished subsistence will soon begin to act upon the population, which furnishes the supply of labour. Were wages at the time so low as to furnish merely the necessaries of life according to the first definition, that is, such necessaries as it could not subsist without, the inevitable consequence seems to be, that part of the labouring poor must perish for want. Such a calamitous effect seems actually to result, in the crowded population of some eastern empires, when a deficient crop produces a scarcity of subsistence. Happily, however, the labouring poor are seldom so wholly without resource. In general the wages are sufficient to allow them a portion of the other description of necessaries, and even of luxuries, by retrenching which, they can, in the event of such a tax, preserve themselves from absolute starvation. In the end, however, the discouragement to marriage, and difficulty of rearing children, will reduce the population. This reduction, diminishing the supply of labour, will increase wages, till they cover the amount of the tax. The same sum, divided among a smaller number, will make more to each.
High wages operate as a complete tax upon every species of manufactured produce. The manufacturer must charge upon the price of his goods the whole sum which he has paid to his workmen with a profit. In the market of the world, therefore, he must, ceteris paribus, be underfold by the manufacturer who resides in a country where labour is cheaper. When these high prices, however, are the result of national prosperity, when they improve the subsistence of the labourer, and lay a foundation for increased population, this disadvantage will weigh very light in the balance. But where they are the result of diminished population, and attended with no improvement in the condition of the labouring poor, they form one of the greatest evils with which a nation can be afflicted.
For these reasons, taxes upon the necessaries of life, though certainly productive, have always been found to be oppressive and ruinous to the prosperity of a state. Luxuries, therefore, form the proper objects of taxation. As every one, if unable to purchase his usual quantity, can either diminish it or abstain altogether, the rise of the article has no tendency to induce such a degree of want, as to check population, and thus cause a rise to the wages of labour. This power of abstinence may indeed lead to a certain inequality; but as this inequality is altogether voluntary, it can neither excite murmuring, nor be considered as a serious hardship. The greatest irregularity is in the case of absentees, by whom such taxes are evaded altogether.
It is not, however, we must observe, from the mere luxuries of these and ostentation that any important or permanent revenue is to be drawn. These are confined chiefly to persons of large fortune, who are few in number, and are always subject to the influence of fashion, so that little dependence can be placed on their regular consumption. The luxuries from which alone a great revenue can be drawn are those which, among the higher and middling classes, have come to be considered almost as necessaries, and which are extensively used by such as are in easy circumstances, even among the lower orders. The only drink necessary for supporting the human constitution in perfect health, seems to be pure water. Men, however, have an universal propensity for something more, both to gratify their taste, and to exhilarate their spirits. Fermented and spirituous liquors, tea, coffee, &c. are had recourse to with this view, and are habitually used in various forms and degrees, by almost every inhabitant of this country. Such articles form therefore the grand basis of this system of taxation.
Of all superfluities, tea seems to be one of the greatest. It affords neither nourishment nor strength, and is generally considered by physicians as injurious to the human constitution. Being imported besides from a remote country, the intercourse with which was, by the mercantile system, stigmatized as injurious, it was considered as every way a fair subject of taxation. Very high duties were accordingly accumulated upon it, which, in 1783, amounted to nearly 30 per cent. on the value, besides an excise of 1s. on every pound. It was found that so high a duty opened a wide door to the smuggling of a commodity of so small bulk, and which was then imported in large quantities by all the neighbouring countries. It was calculated, that though duty was paid on five or six millions of pounds, the consumption of Great Britain amounted to more than double that quantity. A plan was therefore brought forward by Mr Pitt to substitute in its room an additional tax on windows. Smuggling was no doubt checked, and the people were, on the whole, gainers; yet the new tax, being affixed, was more heavily felt by the public than its predecessor, which was only a duty on consumption. Since that time, the exigency of the times has made it again necessary to have recourse to this article; and the tax upon tea has been raised even higher than it was previous to the commutation tax. The diminution, however, of the Indian trade carried on by the other powers, joined to the stricter precautions against smuggling, has prevented its renewal to nearly the same extent as formerly. Tobacco is a still more complete superfluity than tea, yet its use is very extensive. It has therefore been justly considered as one of the properest of all subjects of taxation, and duties have been laid upon it, amounting to five or fix times the original value of the article.
Wine is the wholesomest of all fermented liquors, and is even pretty extensively used as a medicine. These circumstances might seem to entitle it to some favour, which, however, it has not experienced. Being entirely a foreign commodity, and being particularly cultivated by a nation long the object of our commercial jealousy, it has incurred the decided hostility of the mercantile system. Duties have been imposed, considerably exceeding the original value. A preference has also been thrown to the wines of Portugal and Spain, (though inferior in quality), which has rendered them the common drink of this country.
Spirits are an article extensively consumed in this country, and on which a high duty may, with the greatest propriety, be imposed, for the purposes not only of revenue, but of moral regulation. They afford no nourishment, and are in the highest degree liable to abuse. They are affected by the general tax on malt; but pay, besides, a considerable one when manufactured. In order to obviate the smuggling which was carried to a great extent in the making of spirits, it has been found advisable to lay the duty on the still, in proportion to its contents. It is paid by the month; and the distiller, when he chooses at any time to intermit his operations for that period, may, by giving due notice to the officers of revenue, avoid being charged. When this plan was first adopted, the duty was comparatively very low. But Mr Pitt soon found himself completely deceived as to the productiveness of this rate of duty. It was raised therefore successively to 162l. its present rate. This system lays the distiller under a temptation to work very rapidly, which is supposed to be injurious to the quality of the spirits. It obliges them also to work without intermission, which they did at first without even the exception of Sunday, till that practice was prohibited by the legislature. It may be proper to notice, that this mode of imposition is confined to Scotland, and that in England it is laid upon the wort or wash.
Fermented liquors from malt are much more useful. They are the most nutritive perhaps of any species of drink, and are on that account well suited to those who are engaged in hard labour. Neither do they offer the same temptations to excess; yet their extensive use, and the necessity of raising a revenue, have led the legislature to consider them as a staple subject of taxation, and they are now charged with a duty of nearly 100 per cent. Dr Smith advises the transference of the whole tax on beer to the malt tax. The latter appears to be less liable to smuggling, and it obviates the present exemption enjoyed by private brewers, which is evidently unreasonable and unequal. The only objection seems to be, that, being imposed at an earlier period of the manufacture, it obliges the manufacturer to lie longer out of his advance, and consequently to demand a greater profit; though this might perhaps be obviated by allowing him a longer credit. The additional taxes, however, imposed upon this article, have been all laid upon beer or porter. In general, it would appear that considerable unnecessary trouble is occasioned by taxing successively different stages of a manufacture. By laying the whole either upon malt, or upon beer, a considerable expence of collection might be saved, without any diminution of the produce.
There are many species of food which cannot, strictly speaking, be considered as necessaries of life, since their place can be supplied by some less expensive substitute. Butcher meat can be supplied by eggs, butter, and other products of milk; wheaten bread by other bread of inferior grains. It may be observed, however, that the imposition of a tax on the superior article would produce an increased demand for the inferior; and consequently raise its price. Accordingly, both butcher meat and wheaten bread are universally numbered among the necessaries of life; nor do we recollect, in the British system of taxation, an instance of solid food liable to duty. This is not the case in other countries, particularly in Holland. Heavy taxes are there imposed upon both articles. All butcher meat pays a duty of more than 7 per cent. of its value. All cattle, besides, pay about 5s. per annum. The tax upon ground corn is also very heavy and undistinguishing. Wheat pays 104 florins (nearly 9l.) per last. Nor are the inferior grains entirely exempted. Rye pays 42 florins (about 3l. 10s.); barley, beans, and oats, about 2l. Smith is not disposed to censure these heavy impositions, as they may have been rendered necessary by the long wars in which this people were engaged for the support of their independence; and when proper subjects of taxation are exhausted, recourse must be had to improper ones. Upon examining the list, however, of Dutch taxes, we do not find that the taxes upon articles of luxury are so very high, as to have reduced the legislators of that country to such an extremity. The excise upon the aan of wine, equal to 40 English gallons, is only 14 florins, or about 1l. 5s. Tobacco, so far an article of taxation, and so much used in Holland, is taxed only by a flight licence, estimated at little more than a halfpenny a pound. Beer and spirits are taxed still more moderately than wine. Besides, even supposing all the articles of luxury to be exhausted, we should conceive it more advisable to have recourse to affections upon income to the necessary extent, than to duties upon articles of necessity. Accordingly, in this country, a larger revenue in proportion to the population, is now raised than ever was raised in Holland, without having recourse to these ruinous resources.
Clothes and furniture are, to a certain extent, as much necessaries of life as food. The quantity of them, however, which comes under this description, is much less; by far the greater part of the expence which is laid out in this way being for the purpose of convenience at most, if not of mere show and ostentation. There seems therefore no reason for sparing any, beyond those plainest articles which decency demands from the lowest of the people. This class of commodities, however, has met with peculiar indulgence, in consequence of the favour entertained by the mercantile system for manufactures of every kind. Woollens and hardwares, the two staples of England, have been completely exempted. The same favour has been shewn to linen, the staple of the sister kingdoms. Yet, provided a corresponding drawback were allowed on exportation, there does not appear any good reason why the finer sorts of all these fabrics should not be made a subject of revenue. Printed linens and cottons, which have recently been so abundantly produced both in England and Scotland, have been made to pay a considerable tax.
But though the legislature of this country has been thus laudably attentive to avoid touching on the first necessaries of life, there are still several particulars in which it has failed. One of the most important of these is coal, an article of the first utility, the universal fuel of this country, and the material of many of its most important manufactures. It is the least able to bear any duty, because from its local and bulky nature, the expense of transport is often very heavy. London is supplied with coal from Newcastle, which is 300 miles distant. If a bounty could in any case be advisable, it would be in such a case. The legislature, however, has judged otherwise, and has imposed upon every ton of sea-borne coal, a duty of 3s. 6d. Coals carried by land or inland navigation are duty free. Through the exertion of Lord Melville, Scotland, to the north of St Abb's Head, has been freed from this duty; a circumstance which has materially contributed to her rapid prosperity.
Salt, though it may not be requisite for the support of life, has yet, by immemorial usage among civilized nations, been constituted a necessity of life. Notwithstanding this, the small quantity used by each individual, and the minute portions in which it is purchased, make a tax upon it be levied with less murmuring than most other taxes. Governments, taking advantage of this circumstance, have almost universally made it a source of revenue.
In this country the tax on this article presses with the greater severity, as salt is essential to the fishery, one of the most important sources of national wealth. It is true, the duty is drawn back, when salt is so employed: but the facility of smuggling by means of this drawback, produces the necessity of strict regulations, which cramp extremely this branch of industry, especially when carried on in that small scale which is peculiarly suited to it.
Leather, soap, and candles, are also necessaries of life taxed in this country. But though these articles are to a certain extent necessary, by far the greatest consumption of them is for purposes of luxury. Although therefore these taxes do press upon the poor, their weight is not very severe. It might seem easy enough, at least in the first and last of them, to exempt those coarser forms of the commodity, which are used by the lower classes, and thus the deficiency of revenue might be compensated by an increase on the more expensive forms.
Taxes may be imposed either upon exportation or importation. The duties of customs were at first levied on both indiscriminately; but as the mercantile system gained ground, and an anxious desire prevailed to encourage exportation and check importation, in the hope of increasing the specie in the country, all the new duties were laid upon the latter, while the former was more and more exempted. Although this system may not have taken its rise from the most enlightened views, yet no reasonable exception can be taken to it. The taxes imposed by any government ought to fall upon the consumption of its own people, not upon that of others; and as this is a maxim of justice, so it is equally recommended by policy. Were a government to tax its own exported commodities, these commodities would also have to pay the taxes of the country into which they were imported. Loaded with this double burden, they could not advantageously come into competition with similar articles, either the produce of that country, or imported from another which followed a more liberal policy. It is only therefore upon goods imported or produced for home consumption, that these taxes can with propriety fall. From similar views, the materials of manufacture have been generally exempted from duty. We have already observed, that, provided these manufactures be objects of luxury, there is no good reason why they should not pay a tax. But there is an evident advantage in levying the duty after, rather than before, the manufacturing process. In the latter case, the merchant being obliged to advance it so early, must have a profit on his advance, proportioned to the length of time which elapses till the commodity is fit for sale; and this profit must be paid by the consumer in the price of the goods.
Should we suppose indeed a nation to possess a monopoly of any particular commodity, such a nation might impose Taxation. impose a tax on its export, without danger of its merchants being supplanted in the foreign market. Still this could not but be considered as a somewhat illiberal system; and it would also bear hard upon the producer, who would still probably have a double system of duties to pay, since it cannot be supposed that the foreign country should regard these monopolized commodities with peculiar favour.
With the view of following up the principles of the mercantile system, importation duties have often been laid upon goods, so heavy as to amount to a prohibition. Such duties are not intended to produce any revenue, but to favour some home manufacture, or to injure that of some foreign nation, which is an object of commercial jealousy. In the same manner, bounties are given to forward the growth of some branch of industry, which is the object of peculiar favour. In both cases, the revenue is sacrificed, without any real advantage accruing to the public. The industry and capital of the nation are thus turned from their natural direction into one which is less advantageous, and the public is injured instead of being benefited.
It is an undoubted principle, that whether the tax be paid at the time of importation, or at manufacture, it ought to be paid only once. Some governments, profoundly ignorant of the true principles of political economy, have repeated the imposition at every successive sale of the property. This is obviously unequal. The value of property, and the frequency of its transference, are two things altogether distinct. One species of goods may thus come to pay ten or twelve times as much as another of the same value. But great as is its inequality, its impolicy is still more glaring. It forms the most powerful check to that free interchange of commodities which is the very soul of all industry. It tends to confine the consumption of every article to the place of its production, and thus to exclude all those benefits which arise from the extension of the market. Of this ruinous nature is the Spanish alcavala, which consists in an imposition, originally of 10, but now only of 6 per cent, on every sale without exception, whatever be the nature of the property, or however frequently repeated. The mere undistinguishing nature of such a tax must be a great evil; but it is rendered far more pernicious by the obstruction which it thus throws in the way of every species of commercial intercourse.
It may be established as a principle in regard to these taxes, that they ought to be as uniform as possible, and not to vary in different parts of the country. Such variations necessarily lead to restraints on the free circulation of commodities. Each province becomes as an independent kingdom, the frontier of which is guarded by customhouses and by chains of officers, through which whoever passes must submit not only to the payment of duties, but to the inconvenience and delay of having his goods searched. Such was the case both in France and in Spain, where each province having formerly been separate and independent, retained still its distinct system of taxation. The transporting of goods from one province to another was like exporting them to a foreign country; the same barriers of customhouses, duties, and revenue officers, obstructed their passage. One of the circumstances which has most contributed to the prosperity of Great Britain is the uniformity of taxation throughout, and consequently the entire freedom of commerce from one part of the island to the other. This was the principal advantage which Scotland derived from the union; and it has been such as fully to compensate for the increased burdens to which that measure subjected her.
Duties upon consumption, instead of being levied upon the trader, may be levied upon the person consuming, who may be made to pay a certain sum as a licence to use the commodity. Such a mode of levy has some of the advantages of affected taxes, in regard to the facility and cheapness of collection. It is still also in some degree spontaneous; but it must obviously be, in most cases, very unequal. Of two persons, who should pay the same sum for a licence to use wine, one might consume twenty times the quantity of the other. A licence has besides the disadvantage of being paid all at once, and of being more sensibly felt than taxes which confound themselves with the price of the commodity. In general, therefore, it is a much less eligible form. There are a few instances, however, of very costly and durable goods, such as coaches, plate, &c. where it is found to be the most convenient. Wine and other liquors, when consumed in taverns, may, it is supposed, be fairly required to pay more than when consumed in private houses. An attempt, however, to proportion this addition to the quantity consumed, would be attended with unsurmountable difficulties. A licence is therefore required to be taken out by innkeepers who deal in these articles. This tax falls with equal weight upon the great and small dealers; but it may be rather considered as desirable to check the multiplication of the last.
3. Stamp Duties.—Under the title of stamp duties, we would include all those which fall upon the deeds which regulate the transference of property.
The first of these duties, of which we find any mention, are those upon testamentary donations. A law of Augustus imposed the vicefima hereditatum, or twentieth penny, upon all inheritances. It was in Holland, however, which was pressed by the feverish necessity of raising a revenue, and not very discriminating in the mode of doing it, that the system of stamp duties first originated, and was carried to a formidable extent. Such were the difficulties of that state, that they are said to have publicly proposed a reward to any one who should suggest a new source of revenue. This plan was proposed and approved. From Holland it was, in 1671, imported into this country, and has since become one of the great sources of public income. In other countries, deeds regarding the transference of property are required to be entered in a public register, and the tax laid on the registration. A considerable revenue was thus raised in France. Auction duties upon the sale of property, both moveable and immoveable, though somewhat different in point of form, coincide exactly with these taxes in their essence and tendency.
Taxes of this nature are attended with considerable conveniences to the contributors. From the nature of the transaction, there must always be money in hand with which the tax can be paid; and the time of payment is thus the most convenient of any. In many cases, the sum to be paid at a time is small. It is only part of the society which is liable to them to any great extent, and these only occasionally; they are not felt as intrenching on daily and habitual comforts; nor do they excite that general murmur, which is alone formidable to government. It is not to be wondered at, therefore, if the latter should avail themselves of this passive disposition in the people for the extension of this source of supply. The truth is, however, that in all essential respects, these taxes are among the most improper of any.
1. They are unequal, inasmuch as the value of any property is altogether unconnected with the frequency of its transference. This inequality would subsist, even though the stamp duty were always in exact proportion to the value of the property. But this is, in general, far from being strictly the case. It may be noticed, however, that in the recent additions made to the stamp duties in this country, the principle of equality has been more attended to.
2. The greater part of such taxes fall not upon the income, but upon the capital of the country; not upon that fund which may be properly and safely expended, but upon that, the expenditure of which must be ultimately ruinous. This circumstance is peculiar to these duties; for though others, when very severe, may oblige the contributor to encroach on his capital, they alone fall directly and immediately upon that fund. An objection of this nature would alone be sufficient to dissuade their adoption.
3. Such taxes, when they fall upon moveable goods, have a direct tendency to check commerce, and through it every kind of industry. They are then a complete alcalada, differing from that ruinous impost only by being more moderate.
Thus we find, that the facility of collection, and the avoiding of discontent, which have tempted modern governments to extend so much this source of revenue, are altogether fallacious advantages, and bear no proportion to the ill consequences with which such taxes are necessarily attended. It would therefore be much better that the duties upon the transference of moveable goods should be laid upon their original production. They would thus pay only once, and no impediment would be thrown in the way of their free circulation. Duties upon the sale of land and other immoveable goods, ought to be converted into affected taxes, payable on their yearly use. In the present circumstances of this country indeed, it is perhaps too much to expect that taxes, which are paid without much murmuring, should be taken off; but the considerations now stated ought certainly to deter from any farther addition to them.
Legacies from any distant relation are a sort of accidental and unexpected advantage, and it is therefore to be supposed, that the person receiving will have secured a regular source of subsistence independent of them. He will not therefore, it is likely, be disposed to complain very grievously, if this extrinsic source of wealth be somewhat diminished by a duty to government. In this country, accordingly, such legacies are chargeable with a duty of 10 per cent. This tax seems one of the most unexceptionable of the kind, and only liable to the objection of falling upon capital. It is otherwise with money left by a father or other very near relation. The death of such persons commonly diminishes, instead of increasing, the wealth of the family; and the sum left forms often the sole dependance of a great part of it. Accordingly, in Great Britain, the duty on legacies to the nearest relations is very slight, and gradually increases as the consanguinity becomes more remote.
Receipt stamps, though they are formally paid by the feller, fall really upon the purchaser. The merchant, who must have his profit, will calculate the expense which he is likely to be at in stamps, and will lay a corresponding augmentation on the price of his goods. Such taxes, unless very heavy, will fall upon income only, not upon capital.
Bills of exchange, and policies of insurance, being necessary instruments of trade, seem as improper subjects of taxation as can well be. The only thing tolerable in these taxes, as imposed in this country, is their moderation.
Auction duties seem liable to every objection which can be stated against taxes of this description. They are the more severe, as they must fall often upon unfortunate persons who are reduced to the necessity of disposing, in this manner, of their property.
Stamps upon law proceedings tend to increase the expense of obtaining justice, which is already complained of in general as too heavy. They may indeed be supposed to be of some use in checking a litigious spirit; but this seems already to be done pretty effectually by the other expenses attendant on judicial proceedings.
Taxes upon indentures, or upon the entrance to any profession, produce a monopoly to the persons exercising that profession. They thus tend at once to raise the price of their labour and of its fruits, and to diminish the necessity of qualifying themselves for its performance. The chief weight of these taxes falls upon the persons exercising the profession of the law. The public are apt to regard such persons with a degree of hostility, which has probably induced government to believe it might tax them without danger of exciting any general murmur. The truth is, however, that these taxes fall not on the practitioners themselves, but on those who complain of them, on the persons engaged in litigation; so that their effect is precisely the same with that of taxes on law proceedings. It differs from them only as a licence differs from a duty upon commodities, and is less eligible, as falling more unequally. The persons who pay the same sum at entrance, carry on their profession with very different degrees of success.
Some impositions, which assume the form of stamp duties, are in reality taxes upon commodities. Such are the game duty, the duty on cards, hats, plate, &c. But most of these seem to be unexceptionable subjects.