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and merchants' and manufacturers' stock still remain chargeable, but there is a provision that receipts for taxes thereon may be used as cash in paying the income tax, so that virtually the trader pays whichever tax may be the higher ! Without attempting a detailed description of the system, we may touch upon the points of chief interest to British students. The assessment is upon a “total income return” in one sum according to a graduated scale. The family is taken as a unit, as the incomes of wife and children are included, but whereas the exemption limit is $800 for an unmarried individual, it is raised to $1,200 for husband and wife, and an allowance of $200 is made for each child under eighteen years of age. For each additional person for whose support the taxpayer is legally liable, and who is entirely dependent upon the tax-payer for his support, an allowance (analogous to the Prussian case, but not restricted by a total income limit) of $200 is given These exemptions are allowed from incomes of all amounts. For individuals the graduation is not effected by applying different rates to the varying total incomes (net after allowance for exempt sums, &c.), but by the following method :

The tax upon $5,000 would consist of

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$75.00 would be but 1} per cent. of $5,000. The true rate varies from 1 per cent. on the first $1,000 of taxable income to 2:95 per cent. on $12,000, and 6 per cent. on all sums above that-the composite rate, however, never reaching a full 6 per cent.

The return for trade, &c., in all cases is highly inquisitorial, since it shows the gross turnover, and all the expenses--it is, in fact, an abbreviated trading and profit and loss account, but on a basis of actual cash receipts and disbursements, and provision is made for accepting "earnings " for a basis rather as the exception than the rule. So the "inventory” or items of stock at the beginning and end of the year-so vital to the British conception of profits-is provided for at the end of the return, as a mere addendum, serving to furnish the taxing authority with the opportunity of adding any increase to the “cash " result; but it is by no means clear that any deduction would be allowed for a decrease!

The annual value of a residence occupied by the owner has

of course to be included as income, but, judging by the amount of paternal persuasion in explanatory literature that is necessary, the idea is not yet acclimatised.

The provisions for companies and corporations are highly ingenious. There is no attempt to apply graduation to the absolute amount of profit, and thus to penalise the large concern merely because it is large, nor is the German method followed of allowing an exempt percentage upon capital, but the device adopted seeks to tap the unearned increment. If the proportion which the taxable income bears to the assessed value of the property used in making the income is

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To illustrate by a concrete example : Suppose that a concern has a plant assessed at $200,000, and taxable income to the amount of $10,000. As $10,000 is 5 per cent. of $200,000, the rate would be 21 per cent., and the tax would be $250. If the assessed value of the plant was $400,000, the proportion would be 23 per cent., the rate 17 per cent., and the tax $150. If the assessed value of the plant was $50,000 the proportion which the taxable income bears to the assessed value of the property would be 20 per cent., and the rate of tax would be 6

per

cent. The general object is to adjust the rate of taxation upon corporations to their earning power. But such earning power is based upon the relation of the taxable income to the assessed value of the property owned by the Company in the State, and actively used and employed in the acquisition of such income. Thus the rate paid bears no direct relation to that for individuals. In so far as "assessed values" are fixed on a cost basis, or by a unit method such as superficial area or “so much per spindle," the method may give logical results, but in so far as market values and the element of “earning power" enter into them, the method moves in a vicious circle, and only transitory surpluses will be touched, for they cease to furnish an independent criterion by which profits may be judged to be large or small. Like other attempts to find an independent "faculty” in profit-dividing corporations, this tax will act as a differential favour (in the share market) on stocks of low yield, and conversely a burden upon those of high yield.

The arrangements for dividing the profits of concerns trading beyond the boundaries of the State are also notable. The common Prussian Communal System of division according to wages paid in the respective areas is not applicable ; the two deciding ratios are gross revenue and assessed values of property owned, not in a mean (or other proportion) between the results, following the German practice where various criteria are chosen, but in the following peculiar manner :

“Take the gross business in dollars of the corporation in the State and add the same to the full value in dollars of the property of the corporation located in the State. The sum so obtained shall be the numerator of a fraction of which the denominator shall consist of the total gross business in dollars of the corporation, both within and without the State, added to the full value in dollars of the entire property of the corporation, both within and without the State. The fraction so obtained shall represent the proportion of the capital stock represented within the State."

Taking the case of a concern which does business both within and without the State with a net profit of $34,200; the gross business done within the State is $50,000; the property located within the State is worth $20,000; the business done within and without the State is $150,000, and the total property within and without the State is $21,000. We have the formula

50,000 + 20,000 150,000 + 21,000

70,000 171,000

70

of 34,200 = $14,000 taxable. 171

The more one tests the method in relation to different proportions and classes of business the more of an arithmetical curiosity does it appear.

The individual is allowed to deduct from his gross income dividends from a taxed company, but if from a partially taxed company, such as the above, only a like proportion of the dividend is regarded as taxed, the remainder being treated as untaxed income from outside the State. There seems to be no provision whereby the individual is to be kept advised what this changing proportion is-evidently he must find out for himself.

Although the administration is central and unified, the revenue will go to the local areas, 20 per cent. to the county, 70 per cent. to the village, city, or town where it is collected, and only 10 per cent. to the State towards administrative expenses. The provisions for allocation of the tax from one payer are very elaborate, even more so than the following example published by the Commissioners would indicate :

No. 89.--VOL. XXIII.

L

“A person residing in the city of A, realises a net income (after making the deductions which the law permits) of $2,340, and also owns a hotel in the village of B, from which he receives a net income of $540, and a farm in the town of C, which yields a net income of $720, and his combined income is $3,600. He is a married man with no children. Deducting the exemption of $1,200, his taxable income is $2,400, and his income tax

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As the income was derived $2,340, or 65 per cent., from the city of A, $540, or 15 per cent., from the village of B, and $720, or 20

per cent. from the town of C, the tax should be redistributedsubject to the subsequent adjustments already indicated-in the same proportions, that is : 65 per cent. of $28.50 or $18.53 to the city of A, 15 per cent., or $4.27 to the village of B, and 20 per cent., or $5.70, to the town of C.

As a final feature of interest may be mentioned the effort made to secure returns complete in every particular, since the assessor is subject to a penalty of five dollars to be deducted from his salary “for each question unanswered”! The Britisher will think of his own forms, and his local assessor.

J. C. STAMP

NOTE.--Since the above was written some important details are to hand. The first year's yield is £700,000, or considerably more than the yield of the whole federal tax in 1863. In Milwaukee alone the entire proceeds of income taxation in any former year in all the States put together are oxcoeded. Two-thirds is assessed upon corporations, 5,535 in all, of which 3,977, or 72 per cent., are assessed at the highest rate (6 per cont.), not more than 200 being assessod at any one of the lower rates. Greater prominence is to be given in future to “stock” or “inventory” in computing liability,

OFFICIAL PAPERS

Departmental Committee on matters affecting Currency of the

British West African Colonies and Protectorates. Report.
[Cd. 6426.] 1912. Price 8!d. Minutes of Evidence.
[Cd. 6427.] 1912. Price 1s. 2d.

THIS Committee has recommended the establishment in the five Crown Colonies of West Africa of a gold exchange standard, with a specific silver coin, closely resembling the standard estab

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lished in India. Indeed, the details of the Committee's proposals have so little novelty in them as to call for small notice. The Colonial Office have accepted the Committee's recommendations, but have referred them to the authorities of the Colonies in question before actually carrying them out. The interest of the Committee's report for students of monetary affairs lies mainly in the evidence which they have collected of the currency arrangements existing hitherto.

At present the main media of exchange are silver coins of the United Kingdom. In 1911 the British Mint sent to West Africa no less than £874,850 in sterling silver, and the amount of our silver issued since 1901 for use in West Africa falls but little short of what has been issued for the United Kingdom itself; and in recent years the profits of the Mint have been greatly swollen by receipts from this source. This silver, although limited legal tender here, is in the peculiar position of being unlimited legal tender in West Africa. In the event of there being a flow of money out of West Africa at any time, no provision exists for its redemption in gold at par. The principal English joint stock banks have an arrangement with the Bank of England by which they may pay in a certain amount of silver coin in a given period, but if the Bank is asked to take silver in excess of this amount, the payment of a commission is required.

If the recommendations of the Committee are adopted, and a new specific silver coin in introduced, it will be necessary in the course of time to withdraw British silver from circulation. The Treasury have agreed to take back an amount not exceeding £100,000 in any year.

The Committee suggest that in the case of a new note issue, the introduction of which they propose, the coin reserve should amount to not less than three-fourths of the value of the notes in circulation. Most economists would probably agree that a system of legal reserve amounting to a fixed proportion of the circulation is nearly always vicious, because, as soon as the reserve has sunk to the prescribed ratio, the redemption of any further note involves a breach of the law. When the fixed proportion is so high as three-fourths this objection has special force, because the reserve actually held is not likely to exceed the legal reserve by any very great amount.

The Minutes of Evidence contain a good deal of interesting information relating to currency practice in semi-barbarous countries under civilised administration.

J. M. KEYNES

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