their relation to the object of the present discussion has not hitherto received that degree of consideration to which it is entitled. It is an admitted principle that taxes should press equally on the members of the community in general, and not on a portion of them alone; and if we find that consistently with this, a large increase to the public revenue cannot be acquired immediately, we establish a very strong objection to the practice of always raising the supplies within the year (as it is called) no matter how great may be the demands on the national resources. Were all the public revenue derived from direct taxation, and were this adjusted on a satisfactory basis, it might be increased or diminished as required, without any one having just reason to complain he was treated worse than his neighbours; but our financial system is not of this simple nature, and there are very good reasons why it should not be so, which will be mentioned farther on. Our system is a mixed one, the public revenue being partly derived from taxes levied directly, such as the incometax, probate and legacy duties, and some others; and partly from those imposed indirectly, the principal of which are the customs and excise. So much of it as is derived from the income-tax and other direct taxes might be increased at once to any given amount, by raising the rate in a corresponding proportion. The expense of collection becomes little, if anything, greater than before; and as the chief part of the duty is derived from property whose value can be pretty accurately tested, the temptation to evasion, which is naturally augmented when the rate is made higher, is not likely to cause a considerable loss to the revenue. It can only cause any in that portion of the income-tax which comes from the profits of trades and professions, and that is small compared with what is derived from realised property, salaries, and other classes of revenue whose amount it is equally easy to ascertain.* But unless we can increase at the same time and in the same proportion the produce of indirect taxation, we violate whatever equality had been originally approximated to by the combination of direct and indirect taxes; and make such persons as pay income-tax bear much more than their fair share of the expenses of the war. Let us see, therefore, if the revenue furnished by the customs and excise can be increased with that certainty and rapidity which the wants of the public service in time of war may render necessary. * The returns for 1853 show the annual value of the property assessed to the income-tax in England and Scotland to be as follows:- Hence those persons assessed under Schedule D, who alone have any facility for defrauding the revenue by representing their means as smaller than they are in reality, pay but about a fourth of the entire income-tax. I am not aware that this proportion has been sensibly altered by the recent extension of the tax to Ireland, and to all persons whose incomes range from £100 to £150 per annum. It is an old saying that in the arithmetic of the customs two and two don't always make four-an adage which applies equally to the excise, the common effect of raising the rate of taxation in either case not being to augment the public revenue in a corresponding degree, but even to diminish it in some instances, the resulting advance in price checking the consumption of the taxed article and encouraging smuggling or illicit production; and rarely, if ever, to increase it to the same extent as the rise in duty, or to any extent which can be calculated on with precision beforehand. It is a nice problem in financial administration to ascertain the rate of duty which will produce the maximum amount of revenue from any commodity, or indeed, any fixed amount which it may be desired to raise. The process by which either can be ascertained is chiefly experimental, and requires much time for its completion. Hence we cannot by indirect taxation easily raise much of the revenue which may be required to meet the heavy, sudden, and urgent demands of war, unless the duties previously had been at a very low rate indeed; and if any doubt were entertained on this head, I might refer to the financial annals of the country during the early part of the present century, when the successive augmentations in the customs and excise, introduced from time to time by different chancellors of the Exchequer, Mr. Vansittart in particular, were attended not only without any increase of revenue, but often with a positive diminution. And when the attempt to raise supplies in this manner turns out a failure, it gives rise to additional evils both moral and economical. For if the revenue be not augmented in proportion to the rise in duty, it can only be because less of the taxed article is produced, or part of what is consumed escapes the collector. Hence part of the capital previously employed in its acquisition must either remain idle, or be transferred to some other occupation-a proceeding necessarily attended with trouble and loss; or we call into activity the smuggler, the illicit distiller, and the like; or, what is most probable, we occasion a combination of all these evils. It is true, that were the taxes of a country adjusted at a very moderate rate, a considerable increase of revenue from the customs and excise might be obtained by raising the duties, and no great danger incurred of checking consumption, interfering with capital, and encouraging smuggling and illicit production; but the financial necessities of the United Kingdom do not permit the arrangement of our taxes on such a footing. And even if they did, it may be questioned if, in time of war, when the demands of the army, navy, and militia interfere with the labour market, and a partial cessation of commerce between the belligerent nations causes a certain amount of stagnation in trade, the pecuniary circumstances of the people are in such a condition as to render it advisable to subject them to very heavy extra burthens. But, independently of this last objection, which applies to every species of tax, it is tolerably plain from the preceding, that situated as we are we cannot safely calculate on any very great increase of revenue from customs and excise to enable us to carry on an expensive war. And since these are the duties which fall on the people generally,-while the income tax and other direct taxes, which alone are susceptible of affording a rapid increase, affect comparatively but a small number of people, the question between raising the supplies within the year and adopting the loan system is really narrowed to this are the expenses of the war to fall entirely, or almost so, on the few who pay income-tax, or should they not, on the contrary, be borne by the people at large? There can be no hesitation, I imagine, as to how this question should be answered; and accordingly we are justified in concluding, that while our present mixed system of direct and indirect taxation is continued, and the necessities of the state require that the revenue on ordinary occasions should press so heavily as it does on the national resources, the cost of an expensive war must be met, at least partially, by raising loans. SHALL WE CONTINUE A MIXED SYSTEM OF DIRECT AND INDIRECT TAXATION, OR ENDEAVOUR TO RAISE ALL THE REVENUE BY MEANS OF AN INCOME TAX ?-This question suggests the consideration as to whether our financial system might not be thoroughly altered, all existing taxes abolished except the income-tax, and the latter so extended and modified as to embrace every kind of property, and reach every individual who at present contributes to the support of the state. Of late years, many have recommended a plan of such a nature, and among those who do so are several for whose opinion I entertain the highest respect. But the more I reflect on the subject, the stronger the difficulties appear to me of devising a general income tax which should be fair, and of collecting it afterwards from all classes of the community. The practice of nations, from the most democratic to the most despotic, affords no precedent for such a system of taxation, and the standard writers on political economy are also found opposed to it. Adam Smith* condemns it generally and unequivocally, under the name of a capitation tax proportional to the means of each contributor; and Mr. M'Culloch,† and Mr. J. S. Mill,‡ who treat of the subject of direct taxation at pretty considerable length, arrive at the conclusion that an incometax should not be adopted as the sole instrument of finance. A few years ago the question of financial reform was very much agitated, and of those who wrote or spoke on the subject very few were to be found agreed as to the mere conception of a fair income tax. § This raises a formidable obstacle in the way of the proposed change in our financial system, as while the advocates of direct taxation are divided into so many sections, it can hardly be expected the public will defer to any one of the various theories they propound. And even supposing no such diversity of opinion existed, and that reasonable people were agreed as to what constitutes a fair * Wealth of Nations, b. 5, chap. ii. art. iv. †Taxation and the Funding System, part 1, chap. iv. Principles of Political Economy, b. 5, chap. vi. s. 1, 2nd edition. A great number of the plans proposed for a perfect income or property tax are to be found in the Report of the House of Commons on the subject which appeared the year before last. To that of the actuaries, Mr. Gladstone assigns pre-eminence in impracticability. See pamphlet containing his financial statement of April 18th, 1853, p. 24. (Parker and Son, London.) It is also exposed to grave objections on the score of justice; but in this respect it has many rivals. income-tax, I contend, nevertheless, it should not be made to serve as the sole instrument of finance, since it would be found impracticable to collect it from persons of small means, such as are the majority of the population. But the aggregate amount of these small incomes is, as it is well known, very considerable; so that were they to be exempted, a great portion of the national wealth would be withdrawn from taxation, and the remainder over-taxed in a corresponding degree. In order to make an income-tax reach the labouring classes generally, it has been proposed that employers should deduct it when paying them. Now any one on reflection can hardly fail to perceive how very inexpedient it would be to introduce this additional element of discord into the relations, not always of the most friendly or confidential character, which actually subsist between masters and men. Neither could this plan be adopted with respect to persons such as cottier tenants and tradesmen of various classes, who work principally on their own account and not for any master, receiving at once in the price of what they produce the wages of labour and profits of capital. But to levy the tax immediately from the poorer and more numerous members of the labouring classes, in the same way as we now do from persons whose incomes exceed £100 per annum, would not answer either. Very many of these live, as the expression is, from hand to mouth, spending a little more or less according to the fluctuations in their income, and living in general quite up to it. Weekly earnings and weekly expenditure are the rule among the working classes; and to seek to subject them to half-yearly, or even quarterly bulk payments, to meet the calls of the Chancellor of the Exchequer, would be an invasion of their fixed habits such as they would not patiently submit to. Indirect taxes, falling on them as they do in the shape of the enhanced prices of some of the articles they consume, are not exposed to this objection. They are levied pari passu with expenditure, and enter, as it were, unconsciously into the weekly or even daily calculations of the labouring classes. This difficulty it might be attempted to get over by calling on the workman for the income-tax weekly and not half-yearly. But this would increase enormously the cost of collection, and so remove one of the principal arguments in favour of direct taxation. Besides, these weekly payments would involve the necessity of weekly investigations into the pecuniary affairs of the contributors, which could hardly fail to generate feelings of irritation on the part of those subjected to them, extremely dangerous to the peace of the country. The difficulty of ascertaining a workman's income, should he not wish to disclose it, is another circumstance not to be lost sight of. The rate of wages in any particular locality may be known pretty accurately, but who is to tell how long each labourer has been at work, and how long out of employment? The person or persons with whom he has worked might be applied to for information if he chose to name them; but they might not be able to give it, and certainly in cases where the same man has been employed by several, no one of them could tell how long his labourer had been working for others, and how long on his own account without having any employer over him but the public at large. In case of collusion between masters and men, it would, of course, be all but impossible to discover the rate and amount of wages. And it is to be feared there are many employers who would collude for such a purpose, rather than increase the difficulty of dealing with their labourers by placing themselves in the obnoxious position of rigid assistants of the tax collector. Again, the roving habits of many of the working classes, and the want of publicity attending their movements, are also to be taken into account when deciding the feasibility of reaching them by an income-tax. There are some who might be assessed at one place to-day, and when the time of payment arrived, might be far enough off, without leaving the collector any clue to discover the railway, canal, harbour, drainage works or buildings, at whose construction they might then happen to be engaged. From these considerations it is manifest that an income-tax is ill adapted to serve as an exclusive instrument of finance. If it be extended to all, it must prove extremely expensive to collect, and besides be so very vexatious to the majority of the working classes as to endanger the peace of the country, or at least accelerate fearfully the rate of emigration, which already, without any such incentive, is proceeding so fast as to excite considerable alarm. But if it be not extended to all, and still the entire revenue be raised by it, the incomes exposed to it will be greatly over-taxed, in violation alike of justice and expediency; and the danger of driving labour from the country be exchanged for the equally formidable evil of making capitalists and capital depart for other lands, where a less oppressive system of finance may be in operation. There are instances in history of states having gone to decay, or, at least, been fearfully injured, owing to the removal of the most intelligent and wealthy of the inhabitants, driven from the country by political injustice. A similar effect would doubtless be produced by financial injustice if carried to a great extent; and it behoves us, therefore, to take care not to introduce a system of taxation which might lead to so disastrous a consequence. COMMON OBJECTIONS AGAINST CONTRACTING NATIONAL DEBTS.-We have next to consider if the loan-system be so objectionable as it is usually represented. One of the faults most commonly found with the practice of contracting national debts is, that by so doing we take from the capital of the country what we want for the war, and thereby check production, and lessen the means of paying wages. In other words, that by raising loans we do not really avert in the slightest degree the inconvenience which would be felt were the supplies obtained at once by increase of taxation, but merely shift the burthen on those least able to bear it-the men who live by the sweat of their brow. But in this there are two errors. In so far as the objection applies to the loan system, it is not peculiar to it, but extends likewise to every mode of providing for government expenditure on a large scale.* If a man lends £100 to Government, * "That taxation should not encroach upon the amount of the national capital, is K |
