TAXATION.
#95. There must be Taxes.# Whether governments undertake more or less
functions, it is certain that we must have some kind of government, and
that this government will spend a great deal of money. This money, too,
can very seldom be obtained in the form of real profit on the work done,
so that it must be raised by taxation. We generally apply the name tax
to any payment required from individuals towards the expenses of the
local or general government. We may easily indeed be taxed without being
aware of it; thus, nearly the half of every penny paid for posting a
letter is a tax, and a town may be taxed through the price of gas or
water.
At one time or another, and in one country or another, taxes have been
raised in every imaginable way. The #Poll Tax# was a payment required
from every poll or head of the population, man, woman, or child. This
was considered a very grievous tax and has never been levied in England
since the reign of William III. The #Hearth Tax# consisted of a payment
for each hearth in a house; then a rich family with a large house and
many hearths paid far more than a poor family with only one or two
hearths. But as people did not like the tax-gatherer coming into the
house to count the hearths, the window tax was substituted, because the
tax-gatherer could walk round the outside of the house, and count the
windows. Now, in England, we do not tax the light of heaven at all, but
we fix a man's payments by the rent of his house, the amount of his
income, or the quantity of wine and beer he drinks.
#96. Direct and Indirect Taxes.# Taxes are called #direct taxes# when
the payment is made by the person who is intended to bear the sacrifice.
This is the case generally with the assessed taxes, or the charges made
upon people who have menservants, private carriages, &c. As most people
keep carriages only for their own comfort, they cannot make other people
repay the cost of the tax. But if a carrier or tradesman were taxed for
his carts, he would be sure to make his customers repay it; thus the tax
would not be direct, and carriages employed in trade are therefore
exempt from taxation. Other taxes in England, which are generally direct
ones, are the income-tax, the dog-tax, the poor-rates, the house-duty;
but a tax which is usually direct, may sometimes become indirect, and it
is often impossible to say what is really #the incidence of a tax#, that
is, the manner in which it falls upon different classes of the
population.
#Indirect taxes# are paid in the first place by merchants and
tradesmen, but it is understood that they recover the amount paid from
their customers. The principal part of such taxes in England consist of
the #customs duties# levied upon wine, spirits, tobacco, and a few other
articles, when they are imported for use in this country. #Excise
duties# are similar duties levied upon like goods produced within the
kingdom. These were called #excise#, because it was originally the
practice actually to cut off a portion of the goods themselves, and take
it as the duty. In England, excise duties are now levied on a few things
only, such as spirits and beer; and care is taken to make the excise
duty as nearly as possible equal to the customs duty on the same kind of
imported goods. English brandy pays a duty equivalent to that on French
brandy, and the matter is arranged so that the duty shall neither
encourage nor discourage the making of English brandy. Thus the trade is
left as free as it can be, consistently with raising a large revenue.
Another important class of indirect taxes consist of #the stamp duties#,
which are payments required from people when they make legal agreements
of various kinds. According to law, deeds, leases, cheques, receipts,
contracts, and many other documents are not legally valid unless they be
stamped, and the cost of the stamp varies from a penny up to hundreds or
even thousands of pounds, according to the value of the property dealt
with. Stamp duties are probably in most cases indirect taxes, but it
would be very difficult to say who really bears the cost; this must
depend much upon circumstances.
#97. Maxims of Taxation.# Adam Smith first stated certain rules, or
maxims, which should guide the statesman in laying on taxes; they are
such good rules that everybody who studies political economy ought to
learn them. They are as follows--
(1) The subjects of every state ought to contribute towards the support
of the government, as nearly as possible, in proportion to their
respective abilities; that is, in proportion to the revenue which they
respectively enjoy under the protection of the state.
This we may call the #maxim of equality#, and equality consists in
everybody paying, in one way or another, about an equal percentage of
the wages, salary, or other income which he receives. In England the
taxes amount to something like ten per cent., or one pound in every ten
pounds, and this is pretty equally borne by different classes of
society. It is probable, however, that the very rich do not pay as much
as they ought to do. At the same time those who are too poor to pay
income tax, and who do not drink nor smoke, are almost entirely free
from taxation in this country; they pay very little, except poor rates.
It would be impossible to invent any one tax which could be equally
levied upon all persons. The income tax is a tax of so many pence in
every pound of a person's income, but it is impossible to make people
state their income exactly, and poor people could never be got to pay
such a tax. Hence it is necessary to put on a certain number of
different taxes so that those who manage to escape one tax shall be made
to pay in some other way.
(2) The tax which each individual is bound to pay ought to be certain,
and not arbitrary. The time of payment, the manner of payment, the
quantity to be paid, ought all to be clear and plain. This is the #maxim
of certainty#, and it is very important, because, if a tax is not
certainly known, the tax-gatherers can oppress people, requiring more or
less as they choose. In this case it is very probable that they will
become corrupt, and will receive bribes to induce them to lower the tax.
On this account duties ought never to be levied according to the value
of goods, or _ad valorem_, as it is said. Wine, for instance, varies in
value immensely according to its quality and reputation, but it is
impossible for the custom-house officer to say exactly what this value
is. If he takes the statement of the people who import the wine, they
will be tempted to tell lies, and say that the value is less than it
really is. And as it would not be easy to prove the guilt either of the
customs officer or of the importers, it is to be feared that some
officers will receive bribes. But if the wine is taxed simply according
to its quantity, the amount of duty is known with great certainty, and
fraud can easily be detected. The same remarks apply more or less to
every kind of goods which varies much in quality.
(3) Every tax ought to be levied at the time, and in the manner, in
which it is most likely to be convenient for the contributor to pay it.
This is #the maxim of convenience#, and the reason for it is
sufficiently obvious. As government only exists for the good of the
people at large, of course it ought to give the people as little trouble
as possible. And as the Government has immensely more money at its
command than any private person, it ought to arrange so as to demand a
tax when the taxpayer is likely to be able to pay it. Thus there seems
to be no sufficient reason why the government should make people pay the
income-tax in January, when they are likely to have plenty of other
bills to pay. In respect of this maxim, the customs and excise duties
are very good taxes, because a person pays duty whenever he buys a
bottle of spirits or an ounce of tobacco. If he does not want to pay
taxes, let him leave off drinking and smoking, which will probably be
better for him in every way. At any rate, if he can afford to drink
spirits and smoke tobacco, he can afford something for the expenses of
government. The penny receipt duty, again, is in this respect a good
tax, because when a person is receiving money he is sure to be able to
spare one penny for the State, and he is generally so glad to get his
money that he thinks nothing of the penny.
(4) Every tax ought to be so contrived as both to take out and to keep
out of the pockets of the people as little as possible over and above
what it brings into the public treasury. This is the #maxim of
economy#. Thus, a tax ought not to be imposed if it would require a
great many officers to collect it, and thus waste much of what is
collected, or if it disturbs trade and makes things dearer than they
would otherwise be. Again, the government ought not to cause people to
lose time and money in paying the taxes, because this is just as bad for
them as if they paid so much more taxes. In this respect the
stamp-duties are very bad taxes, because in many cases it is requisite
for a person to take his deeds and other documents to the stamp-office
and lose his time, or else employ lawyers and agents to do it for him,
who charge considerable fees. So troublesome are some of the
stamp-duties that in many cases people neglect to have their agreements
stamped, and prefer to trust to the honesty of those they deal with.
Such agreements are thus often rendered of no legal value, and the
government, for the sake of sixpence or a shilling, practically denies
law to the people.
#98. Protection and Free Trade.# Almost every government has employed
taxation at one time or another, for the purpose of encouraging industry
within the country. It is often supposed that if purchasers are
prevented from buying foreign goods, they will have to buy home-made
goods, and thus manufacturers at home will be kept busy, and there will
be plenty of employment. This is altogether a fallacy, which we may call
the #fallacy of Protection#, but it is one which readily takes hold of
people's minds. No tradesman or manufacturer likes to see himself
underbid by those who offer better goods at lower prices. When foreign
goods, then, are preferred by purchasers, the home manufacturers of such
goods complain bitterly, and join together to persuade people that they
are being injured by foreign trade. There is still so much national
pride and animosity, that a nation does not like to be told that it is
being beaten by foreigners. The manufacturers, misled by their own
self-interest, use all kinds of bad arguments to show that if foreign
products were kept out of the country, they could make as good ones in a
little time, and then they could employ many people, and add to the
wealth of the country. They fall, in fact, into #the fallacy of making
work# before described (section 55), and argue as if the purpose of work
was to work, and not to enjoy abundant supplies of the necessaries and
comforts of life.
Now it is impossible to deny that certain owners of lands and mines and
works may be benefited by putting duties upon foreign goods of the kind
which they want to produce. Those who are already enjoying the advantage
of such improper duties may, of course, be injured when they are
removed. But what we have in political economy to look to, is not the
selfish interests of any particular class of people, but the good of the
whole population. Protectionists overlook two facts--(1) that the object
of industry is to make goods abundant and cheap; (2) that it is
impossible to import cheap foreign goods without exporting home-made
goods of some sort to pay for them.
We have already learnt the obvious truth that wealth is to be increased
by producing it in the place most suitable for its production. Now the
only sure proof that a place is suitable is the fact that the
commodities there produced are cheap and good. If foreign manufacturers
can underbid home-producers, this is the best, and in fact the only
conclusive proof that the things can be made more cheaply and
successfully abroad. But then it may be objected, what is to become of
workmen at home, if all our supplies be got from another country. The
reply is, that such a state of things could not exist. Foreigners would
never think of sending us goods unless we paid for them, either in other
goods, or in money. Now, if we pay in goods, workmen will of course be
needed to make those goods; and the more we buy from abroad, the more
we shall need of home produce to send in exchange. Thus, the purchase of
foreign goods encourages home manufactures in the best possible way,
because it encourages just those branches of industry for which the
country is most suited, and by which wealth is most abundantly created.
#99. The Mercantile Theory.# Perhaps, however, it will be objected that
our foreign imports will be paid for not in goods but in money; thus the
country will be gradually drained of its wealth. This is #the old
fallacy of the Mercantile Theory#, which was to the effect that a
country becomes rich by bringing gold and silver into it. It is an
absurd fallacy, because we can get no benefit by accumulating stocks of
gold and silver. In fact, to keep precious metals causes a loss of
interest upon their value; people who are rich may afford to have costly
plate, and the pleasures they derive from it may be worth the interest.
But to have more gold, or silver money than is just sufficient to make
the ordinary payments of trade causes dead loss of interest. Nor is
there any fear that the country will be drained of money entirely. For,
if money became scarce, its value would rise according to the laws of
supply and demand, and prices of goods would fall; then imports would
decrease, and exports increase. It is only a country like Australia or
North America, possessing gold or silver mines, which could go on paying
money for its imports, and then it is quite right it should do so, the
metal being a commodity which can be cheaply produced in the country.
Gold and silver must be got out of mines, and therefore a country which
buys goods with money must either have such mines, or else get the metal
from other countries which possess mines. In no case, then, can we
import foreign commodities without producing at home goods of equivalent
value to pay for them, and thus we see beyond all doubt that foreign
trade is a means of increasing, not decreasing, the activity of
industry at home.
#100. Is Political Economy a Dismal Science?# This is only a Primer, a
very brief and elementary account of some parts of political economy,
and it is evidently impossible to argue out the subjects of such a
science in so small a compass. But the purpose of this little treatise
will be fulfilled if those who begin with the primer can be persuaded to
go on and study larger works on the science. But even he who has read
only thus far must know that political economy is no cold-blooded or
dismal science, as people say. Is it a dismal thing to relieve the
labourer of his load, or to spread his table with the most nutritious
food? No doubt the science is dismal enough so far as it leads us to
reflect upon the needless misery existing on every side. It is dismal to
think of the hundreds of thousands who lengthen out a weary life in
workhouses and prisons and infirmaries. Strikes are dismal; lockouts are
dismal; want of employment, bankruptcy, dear bread, famine, are all
dismal things. But is it political economy which causes them? #Is not
our science more truly described as that beneficent one, which, if
sufficiently studied, would banish such dismal things, by teaching us to
use our powers wisely in relieving the labours and misery of mankind.#
END.