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importance is or can be determined by amount of expenditure. Government ought to set an example of rating all things at their true value, and riches, therefore, at the worth, for comfort or leasure, of the things which they will o and ought not to sanction the vulgarity of prizing them for the pitiful vanity of being known to possess them or the paltry shame of being suspected to be without them, the presiding motives of three-fourths of the expenditure of the middle classes. The sacrifices of real comfort or indulgence which government requires, it is bound to apportion among all persons with as much equality as possible; but their sacrifices of the imaginary dignity de; pendent on expense, it may spare itself the trouble of estimating. Both in England and on the Continent a graduated property-tax has been advocated, on the avowed ground that the state should use the instrument of taxation as a means of mitigating the inequalities of wealth. I am as desirous as any one, that means should be taken to diminish those inequalities, but not so as to relieve the prodigal at the expense of the prudent. To tax the larger incomes at a higher percentage than the smaller, is to lay a tax on industry and economy; to impose a penalty on people for having worked harder and saved more than their neighbours. It is not the fortunes which are earned, but those which are unearned, that it is for the public good to place under limitation. A just and wise legislation would abstain from holding out motives for dissipating rather than , saving the earnings of honest exertion. Its impartiality between competitors would consist in endeavouring that they should all start fair, and not in hanging a weight upon the swift, to diminish the distance between them and the slow. Many, indeed, fail with greater efforts than those with which others succeed, not from difference of merits, but difference of opportunities; but if all were done which it would be in the power of a good government to do, by instruction, and by legislation, to diminish this inequality of oppor

tunities, the differences of fortune aris. ing from people's own earnings could not justly give umbrage. With respect to the large fortunes acquired by gift or inheritance, the power of bequeathing is one of those privileges of property which are fit subjects for regulation on * of general expediency; and I have already buggested,” as a possible mode of restraining the accumulation of large fortunes in the hands of those j. have not earned them by exertion, a limitation of the amount which any one person should be permitted to acquire by gift, bequest, or inheritance. Apart from this, and from the proposal of Bentham (also discussed in a former chapter) that collateral inheritance in case of intestacy should cease, and the property escheat to the state, I conceive that inheritances and legacies, exceeding a certain amount, are highly proper subjects for taxation: and that the revenue from them should be as great as it can be made without giving rise to evasions, by donation i; life or concealment of property, such as it would be impossible adequately to check. The principle of ...; o it is called,) that is, of levying a arger percentage on a larger sum, though its application to general taxation would be in my opinion objectionable, seems to me both just and exi. as applied to legacy and ineritance duties.

The objection to a graduated property-tax applies in an aggravated degree to the proposition of an exclusive tax on what is called “realized property,’” that is, property not forming a part of any capital engaged in business, or rather in business under the superintendence of the owner: as land, the public funds, money lent on mortgage, and shares (I H.” in joint-stock companies. xcept the proposal of applying a sponge to the national debt, no such palpable violation of common honesty has found sufficient support in this country, during the present generation, to be regarded as within the domain of discussion. It has not the palliation of

* Supra, book ii. ch. ii.

a graduated property-tax, that of laying the burthen on those best able to bear it; for “realized property” includes the far larger portion of the provision made for those who are unable to work, and consists, in great part, of extremely small fractions. I can hardly conceive a more shameless pretension than that the major part of the ". of the country, that of merchants, manufacturers, farmers, and shopkeepers, should be exempted from its share of taxation; that these classes should only begin to pay their proportion after retiring from business, and if they never retire should be excused from it altogether. But even this does not give an adequate idea of the injustice of the proposition. The burthen thus exclusively thrown on the owners of the smaller portion of the wealth of the community, would not even be a burthen on that class of persons in o succession, but would fall exclusively on those who happened to compose it when the tax was laid on. As land and those particular securities would thenceforth yield a smaller net income, relatively to the general interest of capital and to the profits of trade; the balance would rectify itself by a permanent depreciation of those kinds of property. Future buyers would acquire land and securities at a reduction of price, equivalent to the peculiar tax, which tax they would, therefore, escape from paying; while the original possessors would remain burthened with it even after parting with the property, since they would have sold their land or securities at a loss of value equivalent to the feesimple of the tax. Its imposition would thus be tantamount to the confiscation for public uses of a percentage of their property, equal to the percentage laid on their income by the tax.

That such a proposition should find.

any favour, is a striking instance of the want of conscience in matters of taxation, resulting from the absence of any fixed principles in the public mind, and of any indication of a sense of justice on the subject in the general conduct of governments. Should the scheme ever enlist a large party in its

support, the fact would indicate a laxity of pecuniary integrity in national af. fairs, scarcely inferior to American repudiation.

§ 4. Whether the profits of trade may not rightfully be taxed at a lower rate than incomes derived from interest or rent, is part of the more comprehensive question, so often mooted on the occasion of the present incometax, whether life incomes should be subjected to the same rate of taxation as perpetual incomes: whether salaries, for example, or annuities, or the gains of professions, should pay the same percentage as the income from inheritable property.

The existing tax treats all kinds of incomes exactly alike, taking its sevenpence (now sixpence) in the pound as well from the person whose income dies with him, as from the landholder, stockholder, or mortgagee, who can transmit his fortune undiminished to his descendants. This is a visible injustice : yet it does not arithmetically violate the rule that taxation ought to be in proportion to means. When it is said that a temporary income ought to be taxed less than a permanent one, the reply is irresistible, that it is taxed less; for the income which lasts only ten years pays the tax only ten years, while that which lasts for ever pays for ever. On this point some financial reformers are guilty of a great fallacy. They contend that incomes ought to be assessed to the income-tax not in proportion to their annual amount, but to their capitalized value: that, for example, if the value of a perpetual annuity of 100l. is 3000l., and a life annuity of the same amount being worth only half the number of years' purchase could only be sold for 1500l., the perpetual income should pay twice as much per cent income-tax as the terminable income; if the one pays 10l. a year, the other should pay o: 5l. But in this argument there is the obvious oversight, that it values the incomes by one standard and the payments by another; it capitalizes the incomes, but forgets to capitalize the payments. An annuity worth

3000l. ought, it is alleged, to be taxed twice as highly as one which is only worth 1500l., and no assertion can be more unquestionable; but it is forgotten that the income worth 3000l. pays to the supposed income-tax 101. a year in perpetuity, which is equivalent, by supposition, to 300l., while the terminable income pays the same 101. only during the life of its owner, which on the same calculation is a value of 150l., and could actually be bought for that sum. Already, therefore, the income which is only half as valuable, pays only half as much to the tax; and if in addition to this its annual quota were reduced from 10l. to 5l., it would pay, not half, but a fourth part only of the payment demanded from the perpetual income. To make it just that the one income should pay only half as much per annum as the other, it would be necessary that it should pay that half for the same period, that is, in Fo

The rule of payment which this school of financial reformers contend for, would be very proper if the tax were only to be levied once, to meet some national emergency. On the principle of requiring from all payers an equal sacrifice, every person who had anything belonging to him, reversioners included, would be called on for a payment proportioned to the present value of his property. I wonder it does not occur to the reformers in question, that precisely because this principle of assessment would be just in the case of a payment made once for all, it cannot W. be just for a permanent tax.

'hen each pays only once, one person pays no oftener than another; and the proportion which would be just in that case, cannot also be just if one person has to make the payment only once, and the other several times. This, however, is the type of the case which actually occurs. The permanent incomes pay the tax as much oftener than the temporary ones, as a perpetuity exceeds the certain or uncertain length of time which forms the duration of the income for life or years.

All attempts to establish a claim in favour of terminable incomes on numerical grounds—to make out, in short, that a proportional tax is not a proportional tax—are manifestly absurd. The claim does not rest on grounds of arithmetic, but of human wants and feelings. It is not because the temporary annuitant has smaller means, but '... he has greater necessities, that he ought to be assessed at a lower rate.

In spite of the nominal equality of income, A, an annuitant of 1000l. a year, cannot so well afford to pay 100l. out of it, as B who derives the same annual sum from heritable property, A having usually a demand on his income which B has not, namely, to provide by saving for children or others; to which, in the case of salaries or professional gains, must generally be added a provision for his own later years; while B may expend his whole income without injury to his old age, and still have it all to bestow on others after his death. If A, in order to meet these exigencies, must lay by 300l. of his income, to take 100l. from him as income-tax is to take 100l. from 700l., since it must be retrenched from that part only of his means which he can afford to spend on his own consumption. Were he to throw it rateably on what he spends and on what he saves, abating 70l. from his consumption and 30l. from his annual saving, then indeed his immediate sacrifice would be proportionally the same as B's: but then his children or his old age would be worse provided for in consequence of the tax. The capital sum which would be accumulated for them would be one-tenth less, and on the reduced income afforded by this reduced capital, they would be a second time charged with income-tax; while B's heirs would only be charged once.

The principle, therefore, of equality of taxation, interpreted in its only just sense, equality of sacrifice, requires that a person who has no means of providing for old age, or for those in whom he is interested, except by saving from income, should have th9 tax remitted on all that part of his income which is really and bonā side applied to that purpose. If, indeed, reliance could be placed on the conscience of the contributors, or sufficient security taken for the correctness of their statements by collateral precautions, the proper mode of assessing an income-tax would be to tax only the part of income devoted to exponditure, exempting that which is saved. For when saved and invested (and all savings, speaking generally, are invested) it thenceforth pays income - tax on the interest or profit which it brings, notwithstanding that it has already been taxed on the principal. Unless, therefore, savings are exempted from income-tax, the contributors are twice taxed on what they save, and only once on what they spend. A person who spends all he receives, pays 7d. in the pound, or say three per cent, to the tax, and no more; but if he saves part of the year's income and buys stock, then in addition to the three per cent which he has paid on the principal, and which diminishes the interest in the same ratio, he pays three per cent annually on the interest itself, which is equivalent to an immediate payment of a second three per cent on the principal. So that while unproductive expenditure pays only three per cent, savings pay six per cent; or more correctly, three per cent on the whole, and another three per cent on the remaining ninety-seven. The dif. ference thus created to the disadvantage of prudence and economy, is not only impolitic but unjust. To tax the sum invested, and afterwards tax also the proceeds of the investment, is to tax the same portion of the contributor's means twice over. The rincipal and the interest cannot |. together form part of his resources; they are the same portion twice counted: if he has the interest, it is because he abstains from using the Prior. if he spends the principal, he does not receive the interest. Yet because he can do either of the two, he is taxed as if he could do both, and could have the

benefit of the saving and that of the spending, concurrently with one another. It has been urged as an objection to exempting savings from taxation, that the law ought not to disturb, by artificial #: the natural competition between the motives for saving and those for spending. Dut we have seen that the law disturbs this natural competition when it taxes savings, not when it spares them; for as the savings pay at any rate the full tax as soon as they are invested, their exemption from payment in the earlier stage is necessary to prevent them from paying twice, while money spent in unproductive consumption pays only once. It has been further objected, that since the rich have the greatest means of saving, any privilege given to savings is an advantage bestowed on the rich at the expense of the poor. I answer, that it is bestowed on them only in proportion as they abdicate the of use of their riches; in proportion as they divert their income from the supply of their own wants, to a productive investment, through which, instead of being consumed by themselves, it is distributed in wages among the poor. If this be favouring the rich, I should like to have it pointed out, what mode of assessing taxation can deserve the name of favouring the poor. o income-tax is really just, from which savings are not exempted; and no income-tax ought to be voted without that provision, if the form of the returns, and the nature of the evidence required, could be so arranged as to prevent, the exemption from being taken fraudulent advantage of, by saving with one hand and getting into debt with the other, or by spending in the following year what had been passed tax-free as saving in the o: preceding. If this difficulty could e surmounted, the difficulties and complexities arising from the comparative claims of temporary and per manent incomes, would disappear; for since temporary incomes have no just claim to lighter taxation than per.

manent incomes, except in so far as their possessors are more called upon to save, the exemption of what they do save would fully satisfy the claim. Dut if no plan can be devised for the exemption of actual savings, sufficiently free from liability to fraud, it is necessary, as the next thing in point of justice, to take into account in assessing the tax, what the different classes of contributors ought to save. And there would probably be no other mode of doing this than the rough expedient of two different rates of assessment. There would be great difficulty in taking into account dif. ferences of duration between one terminable income and another; and in the most frequent case, that of incomes dependent on life, differences of age and health would constitute such extreme diversity as it would be impossible to take proper cognizance of. It would probably be necessary to be content with one uniform rate for all incomes of inheritance, and another uniform rate for all those which necessarily terminate with the life of the individual. In fixing the proportion between the two rates, there must inevitably be something arbitrary; perhaps a deduction of one-fourth in favour of life-incomes would be as little objectionable as any which could be made, it being thus assumed that onefourth of a life-income is, on the average of all ages and states of health, a suitable proportion to be laid by as a provision for successors and for old age.*

Of the net profits of persons in business, a part, as before observed, may be considered as interest on capital, and of a perpetual character, and the remaining part as remuneration for the skill and labour of superintendence. The surplus beyond interest depends on the life of the in

* Mr. Hubbard, the first person who, as a practical legislator, has attempted the rectification of the income tax on principles of unimpeachable justice, and whose well-conceived plan wants little of being as near an approximation to a just assessment as it is likely that means could be found of carrying into practical effect, proposes a deduction not of a fourth but of a third, in favour of industrial and professional incomes. He fixes on this ratio, on the ground that, independently of all consideration as to what the industrial and professional classes ought to save, the attainable evidence goes to prove that a third of their incomes is what on an average they do save, over and above the proportion saved by other classes. “The savings” (Mr. Hubbard observes) “effected out of incomes derived from invested property are estimated at one-tenth. The

savings effected out of industrial incomes are
estimated at four-tenths. The amounts
which would be assessed under these two
classes being nearly equal, the adjustment is
simplified by striking off one-tenth on either
side, and then reducing by three-tentiis, or
one-third, the assessable amount of indus-
trial incomes.” Proposed Report (p. xiv. of
the Report and Evidence of the Committee
of 1861.) In such an estimate there must be
a large element of conjecture; but in so far
as it can be substantiated, it affords a valid
ground for the practical conclusion which
Mr. Hubbard founds on it.
Several writers on the subject, including
Mr. Mill in his Elements of Political
Economy, and Mr. M'Culloch in his work
on Taxation, have contended that as much
should be deducted as would be sufficient to
insure the possessor's life for a sum which
would give to his successors for ever an in-
come equal to what he reserves for himself;
since this is what the possessor of heritable
property can do without saving at all : in
other words, that temporary incomes should
be converted into perpetual incomes of equal
present value, and taxed as such. If the
owners of life-incomes actually did save this
large proportion of their income, or even a
still larger, I would gladly grant them an
exemption from taxation on the whole
amount, since, if practical means could be
found of doing it, I would exempt savings
altogether. But I cannot admit that they
have a claim to exemption on the general
assumption of their being obliged to save this
amount. Owners of life-incomes are not
bound to forego the enjoyment of them for
the sake of leaving to a perpetual line of
successors an independent provision equal
to their own temporary one; and no one
ever dreams of doing so. Least of all is it
to be required or expected from those whose
incomes are the fruits of personal exertion,
that they should leave to their posterity for
ever, without any necessity for exertion, the
same incomes which they allow to them-
selves. All they are bound to do, even for
their children, is to place them in circum-
stances in which they will have favourable
chances of earning their own living. To
give, however, either to children or to others,
by bequest, being a legitimate inclination,
which these persons cannot indulge without
laying by a part of their income, while the
owners of heritable property can ; this real
inequality in cases where the incomes them-
selves are equal, should be considered, to a
reasonable degree, in the adjustment of taxa-
tion, so as to require from both, as nearly as
practicable an equal sacrifice,

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