profit in the hands of the improver, and rent in the hands of his heir, whilst it would be profit in the hands of a purchaser. In the latter case, the perfect income tax does complete justice; for whilst the original improver or the purchaser would only pay an income tax on the annual produce of the improvements, the heir would pay, first, a per centage on the entire value of the improvements, and then a per centage on the annual produce.

There is one limit to an income tax which ought always to exist, but the reason for which is commonly misunderstood. When the cost of collecting an income tax in individual cases approaches the amount collected, as it does in the cases of very small incomes, it is mere pedantic cruelty to collect it. For a tax should take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. Therefore, in all such taxes, incomes below a certain amount ought to remain untaxed. In England, the limit for our present property tax of 3 per cent. is fixed at £150,* and for the probate and legacy duties is £20; and from the principle I have stated, you will at once perceive that the higher the per-centage of income tax, the lower the limit ought to be fixed.

If the limit were fixed on the principle I have stated, it would leave the cases of paupers, and all those verging on pauperism, exempt from taxation, as it would be found that the cost of collecting a tax from such classes would be greater than the amount collected; but if we except these classes, there is no reason why any other class should be exempt from taxation, except on the grounds I have stated. The notion that taxation should only encroach on luxuries, and never on the necessaries of life, seems a most mistaken one, and is founded on the idea of looking on government as an expensive luxury, instead of considering the security it affords as one of the greatest necessaries of life. In a time of public danger, the duty of sacrificing even necessaries to the safety of the state is universally recognised and praised.

The necessity of a limit below which incomes should not be taxed has been generally admitted. But some people, misled by a fanciful notion of justice in such matters, or by the alleged principle of taxation falling only on luxuries, have proposed that in imposing the tax on incomes above the limit, the tax should be on the excess, and not on the entire income; in fact, that at present [1850] an income of £160 should pay only ten sevenpences instead of 160; or 5s. 1od. instead of £4 13s. 4d. But they overlook the fact that it would, probably, cost more than 5s. 1od. to collect that amount from the person taxed, whilst the sum of £4 13s. 4d. could be collected for exactly the same cost, as all the checks and investigations would be the same in the one case as in the other.

The suggestions that I have elsewhere made for a perfect register of debts, and a system of legislation leading to a complete separation of the trade of lending money from the trade of selling goods, is of great importance in connexion with the question of a perfect income tax. For the great difficulty that private indivi

duals have now in calculating accurately their income and expenditure, arises in a great degree from the system of general credit. If each individual borrowed from one or two persons only, and paid cash for all his commodities, he would find it very easy to calculate his income accurately, and to keep accurate accounts. This desirable object would also be much facilitated by having bookkeeping by double entry made a necessary part of general education. The effect of the division of trade I have pointed out, and of a perfect income tax, would have a most salutary influence in stopping numerous insolvencies. For it has been observed by an intelligent writer, that one of the principal sources of insolvencies is the neglect of traders to keep proper accounts.

I cannot conclude my observations on a perfect income tax, without noticing a substitute proposed for it by Mr. Mill, and without directing your attention to one of the most injurious of our indirect taxes-the tax on law proceedings.

Mr. Mill says, "a house tax, if justly proportioned to the value of the house, is one of the fairest and most unobjectionable of all taxes.' But if we compare the value of the houses occupied by persons of the same or different incomes, we shall at once perceive that a house tax is a most unequal tax-that is, most unfairly proportioned to the means of paying it. The limits of house rent in Dublin probably range from £10 to £400, whilst the limits of income range from £10 to £20,000.

The most injurious of our indirect taxes is thus noticed by Mr. Mill: "In the enumeration of bad taxes, a conspicuous place must be assigned to law taxes, which extract a revenue for the state from the various operations involved in an application to the tribunals. Like all needless expenses attached to law proceedings, they are a tax on redress, and therefore a premium on injury. Although such taxes have been abolished in this country as a general source of revenue, they still exist in the form of fees of court, for defraying the expenses of the courts of justice; under an idea, apparently, that those may fairly be required to bear the expenses of the administration of justice who reap the benefit of it. The fallacy of this doctrine was powerfully exposed by Bentham. As he remarked, those who are under the necessity of going to law are those who benefit least, and not most, by the law and its administration; to them the protection which the law affords has not been complete, since they have been obliged to resort to a court of justice to ascertain their rights, or maintain those rights against infringement; while the remainder of the public have enjoyed the immunity from injury conferred by the law and the tribunals, without the inconvenience of an appeal to them."*

It would be almost as unreasonable to require the police to be paid by a tax on the parties who were robbed, as to require the courts of justice to be supported by those who resort to them. Suppose a new act of parliament be passed, like the Leasehold Conversion Act, containing a doubtful clause; on the first case brought before the court, the doubt is argued at the expense of the

parties concerned, the decision of the court puts an end to the doubt, and every one who has afterwards to act under that act of parliament gets the benefit of the decision. Now why should the parties to the first case pay not only their own expenses, but a tax for the decision, which is a general benefit?

There is one view of taxes on law proceedings and taxes on contracts not stated by Mr. Mill, and that is, that they impose a heavy burden on the legal professions, and present a great impediment to all improvements in the mode of carrying on legal business.

Those engaged in the legal professions are really carrying on a trade of selling legal knowledge and ability-a trade which has its origin in the natural division of labour, so that under any sys tem of laws there will always be a legal class. Now in every other trade, it is found that whatever diminishes the price to the consumer, without encroaching on the profits of the producer, increases the sale in such a manner as to benefit the producer: so that it is really the interest of lawyers that law proceedings should be cheapened by the abolition of law taxes. It is the interest of that part of the profession engaged in conveyancing business that taxes on contracts should be abolished. And these changes are especially the interest of those at present in the legal profession; for as the numbers cannot be increased rapidly, they would derive the entire benefit of the increased business consequent on the change.

The same mode of reasoning which proves that the members of the legal professions are interested in cheap law, proves that Mr. Mill is entirely mistaken when he says, "that every imperfection in the law, in proportion as it is burdensome to the community, brings gain to the lawyer." This is a short-sighted view of the interest of a lawyer; for as there will always be business for the legal professions, it is the interest of those engaged in them to make their services as valuable as possible to the community; and if we compare the legal professions in England with those in less civilised countries with more imperfect laws, we shall see that these professions have a higher and a nobler function than being, as they were recently described by an eminent queen's counsel, "the scourges of the community;' and that the interest of lawyers, rightly understood, is the same as that of the community at large.

But if taxes on law proceedings are to be removed, some other tax must be substituted in their place.

What shall that tax be?

From what has been already said, plainly an income tax, so that the basis of all improvement in this, as in other cases of unwise taxation, rests in the adoption of the conviction that a perfect income tax is the best of all taxes.

APPENDIX A.

[The following paper on the Income Tax was written in October, 1852, at the request of the Archbishop of Dublin, in reply to an application from the late Joseph Hume, Esq., M.P., for his Grace's opinion on the questions raised by the select committee of the House of Commons on the Income and Property Tax. The observations having met with his Grace's concurrence, were sent to Mr. Hume, and were published by him with an intimation that although he differed in many points from the writer, he thought the statement would amply repay perusal.]

Ir is obvious that the full development of the free-trade policy must lead to the progressive substitution of direct for indirect taxation. And hence the importance of the question raised by Mr. Hume, which may be stated in the words of Adam Smith:-"How can the subjects of a state contribute to the support of the government as nearly as possible in proportion to their respective abilities?" The three modes which have been proposed to effect this object are-by taxes on the production and importation of commodities, by taxes on property, and by taxes on income.

As to the first class of taxes, "those on the production and importation of commodities," the great objections are that they interfere with internal or external trade, that they enhance the price of commodities far beyond the net amount actually received from them, and that they lead to extensive smuggling and fraud.

As to "taxes on property," the objection is, that in the case of the largest class of the community, those who live by labour alone, their ability to pay taxes is not measured by the amount of their property; inasmuch as many, living from day to day on large earnings, have no property at all. And this objection cannot be removed by any of the plans for considering wages as a species of life property, which can be valued like an annuity; it being well known that the wages of individuals and of trades undergo changes according to laws entirely different from those by which the value of an annuity is determined. .

A "tax on income," rightly conceived, is the real solution of the proposed question, and is the solution suggested by Adam Smith himself, for he says::-"The abilities of the tax-payers are in proportion to the revenue which they respectively enjoy under the protection of the state."

Now, the revenue or income of a tax-payer, which is the real measure of his ability to pay taxes, can be reduced to four distinct elements:-

Ist. The wages a man receives for his labour.

2nd. The profit he derives for the use of his capital.

3rd. The rent he gets out of his land.

4th. The value of any property, whether real or moveable, which he obtains by gift or succession, during the year.

Such is the scientific conception of income; such also is the meaning attached to it by any person who prepares with any skill an annual "profit and loss" account, or an annual account of "income and expenditure." It follows, therefore, that a perfect income

tax includes a tax on gifts and successions, as well as a tax on wages, profits, and rents.

When it is asked, "How can Sir Robert Peel's partial income tax (absurdly named an income and property tax) be made more equitable?" the answer is plain: By extending it so as to include all classes of incomes; viz. :

Ist. By extending it to all incomes from wages, profits, and rent, below £150 and exceeding £20 a year.*

2nd. By extending it to incomes from wages, profits, and rent in Ireland.

3rd. By extending it to the succession to freehold property in land.

The succession to personal property is already taxed at a higher rate than any other species of income in the United Kingdom, by the probate and legacy duties. But these duties, which are really taxes on income, ought to be consolidated with the income tax, and the rate of taxation equalised; and then the extraordinary exemption [1852] of succession to freehold property would have to be abolished, or would be put in such a plain point of view as to expose the hollowness of the landlord's complaints of peculiar agricultural burdens.

The extension of Sir Robert Peel's income tax to all kinds of income would remove the complaints which are now in some cases justly made against it in its present state. Thus, a person who succeeds to an estate of £1,000 a year in fee simple now pays only the same amount as an official with an annual salary of £1,000, namely, £30 a year; and this is justly complained of. But, under a perfect income tax, he would pay in the first year of his ownership 3 per cent., on £30,000, the value of his estate, or £900; and in every subsequent year 3 per cent on the rent, or £30, equal to a perpetual payment of £60 a year, if he lived for ever, as the interest of £900 would be £30. In the case of the longest life, the person succeeding to the freehold estate would pay a great deal more than double the amount paid by the person receiving £1,000 a year as wages.

None of the proposed modifications of the existing tax, such as Mr. Sotheron's plan of taxing incomes under Schedule (D.) at three-fourths of the amount levied upon all other kinds of property, would be so favourable to incomes arising from wages as the perfect income tax.

The objection that persons on salaries are now unfairly taxed, as compared with fundholders and other capitalists, has no foundation, as it arises from overlooking that such capitalists are liable to probate and legacy duties, which impose a greater burden on incomes arising from succession than a perfect income-tax would impose.

Nearly all the other difficulties which have been suggested as objections to Sir Robert Peel's income-tax could be shown to be entirely inapplicable to a perfect income-tax.

He

* Mr. Gladstone in his budget extended the Income Tax Bill, but at a different scale, to incomes below £150 and exceeding £100. He also extended it to Ireland. also imposed the Succession Tax upon the succession to real property.