money borrowed and wages for protection and service. The fact that they
are called by a name which is to many obnoxious, or that they are handed
to the State instead of to an individual, ought not to blind us to their
real nature--that they are the price of services rendered. The name is
nothing. In churches the money we pay is called a pew-rent or an
offertory; in clubs it is a subscription; to doctors or lawyers a fee;
to tradesmen a price; to railway companies a fare; for personal services
wages; for the loan of a house rent; for life or fire insurance a
premium; and for water a rate. All are in a measure taxes; and if it be
answered that the difference is that these payments are voluntary, may
not the same be said of much that is called "indirect taxation"?
When the subject is considered, there are three questions which
naturally demand reply.
1. Why are we taxed?
2. How are we taxed? and
3. How ought we to be taxed?
To the first question some answer has already been given. Put in the
simplest fashion, the reply would be that it is cheaper to pay taxes and
be taken care of than not to pay them and have to take care of
ourselves. As members of an organized society, we have to provide for
external protection and internal service--for the army and navy as a
safeguard against enemies from without, for the officers of the law as a
safeguard against depredators within, for the means of government, for
education, and for a large number of other matters designed for the
security of our persons and property and for the welfare and advancement
of the community. We have further to pay the interest upon the National
Debt--money borrowed by the State at times of emergency to prosecute
such wars as Parliament had sanctioned.
In point of fact, taxes are a substitution for personal service. The
State in England once compelled this as a means of raising an army; and,
though this form of personal service was long ago commuted by the
payment of a sufficient sum through taxation for the maintenance of a
standing force, the State has only waived, not abrogated, the right.
Even as lately as the last century people in our country districts had
to give six days in the year to the repair of such highways as were
under the management of the justices of the peace. In the one case the
personal service has been commuted into a tax, in the other into a
rate--the difference being that a tax is imperially and a rate locally
levied--it being found that forced labour of the kind indicated is more
wasteful and less efficacious than hired labour; and, if any want to
know how wasteful and how inefficient, they can find abundant
illustrations in the history of the old _regime_ in France, or that of
the Egyptian fellaheen.
There has been indicated the difference between imperial and local
taxation--the one being a tax imposed by the State and the other a rate
levied by a local authority. The object in each case is similar; but,
while the cost of the central administration, the army and navy, and the
superior courts of justice, with the interest on the National Debt, is
paid by taxes, that of lighting, draining, and other purely local
matters is defrayed by rates, and that of the police, the poor, the
highways, and education comes out of taxes and rates combined.
So much for the _why_ of being taxed; let us now consider the _how_. At
present the receipts of the State are derived from direct and indirect
taxation, together with a form which may be said to come under both
these heads. The most familiar mode of direct taxation is the Income
Tax; of indirect, the Customs and Excise; and of that which savours of
both, the stamp duties and the profits from the Post Office.
These methods of taxation are, as far as England is concerned,
comparatively modern. In the earlier days of settled government in this
country, the mode of taxing was different and somewhat fitful, causing
much trouble in the collection, and sometimes forming the pretext for
revolt. "Aids" to the King were a frequent means of oppression long ago;
and as far back as the time of John they were felt as a grievance, Magna
Charta providing that the King should take no aids without the consent
of Parliament, except those for knighting the lord's eldest son, for
marrying his eldest daughter, and for ransoming the lord from captivity
(the lord, it being remembered, holding at that time his land direct
from the sovereign). "Benevolences"--a charming name for an unpleasing
idea--were also in vogue in the Middle Ages, and, although specifically
declared by an Act of Richard III. to be illegal, were levied in a
fashion which caused much discontent. "Loans" were another form of
raising money which the nation resented, as Charles I. found to his
cost; while a "Poll Tax," as all men know, drove Wat Tyler into
rebellion. "Subsidies" and "Tenths" and other taxing devices equally
failed in the long run to answer the desired purpose of filling the
National Exchequer; and after the Restoration all such gave place to a
system by which the Customs, the Excise, and the Land Tax provided most
of the money required.
Gradually the proceeds of the Land Tax dwindled, and direct taxation was
almost extinct when, in the throes of the great war with France, which
lasted, with slight intervals, for twenty-two years, the younger Pitt
revived it in an Income Tax, the form in which it is now mainly known.
With the end of the war this ceased, and the proceeds of indirect
taxation were again chiefly those upon which the State relied. What the
result was, how in every direction trade was hampered and public comfort
destroyed, has been summed up for all time in one of Sydney Smith's
essays; and the quotation is worth re-perusal by everybody interested in
the subject, and especially by those who to-day are wishing to get rid
of the main form of direct taxation we possess--the Income Tax, as
revived by Sir Robert Peel.
Uttering, in 1820, a warning to the United States to avoid that spirit
which we now call "Jingoism," Sydney Smith wrote--"We can inform
Jonathan what are the inevitable consequences of being too fond of
glory--TAXES upon every article which enters into the mouth, or covers
the back, or is placed under the foot; taxes upon everything which it is
pleasant to see, hear, feel, smell, or taste; taxes upon warmth, light,
and locomotion; taxes on everything on earth and the waters under the
earth--on everything that comes from abroad or is grown at home; taxes
on the raw material; taxes on every fresh value that is added to it by
the industry of man; taxes on the sauce which pampers man's appetite,
and the drug that restores him to health; on the ermine which decorates
the judge, and the rope which hangs the criminal; on the poor man's
salt, and the rich man's spice; on the brass nails of the coffin, and
the ribands of the bride--at bed or board, couchant or levant, we must
pay. The schoolboy whips his taxed top; the beardless youth manages his
taxed horse, with a taxed bridle, on a taxed road; and the dying
Englishman, pouring his medicine, which has paid 7 per cent., into a
spoon that has paid 15 per cent., flings himself back upon his chintz
bed, which has paid 22 per cent., and expires in the arms of an
apothecary who has paid a licence of a hundred pounds for the privilege
of putting him to death. His whole property is then immediately taxed
from 2 to 10 per cent. Besides the probate, large fees are demanded for
burying him in the chancel; his virtues are handed down to posterity on
taxed marble; and he is then gathered to his fathers--to be taxed no
more."
Ludicrous as the picture seems, it was correctly painted for the time it
depicted; and it is first to Sir Robert Peel and next to his greatest
pupil, Mr. Gladstone, that we owe the change from the harassing indirect
taxation of the past to the comparatively innocuous forms of it we have
to-day. But it is still from indirect taxation that most of our revenue
is derived. The heads of that revenue, as given officially, are--(1)
Customs, (2) Excise, (3) Stamps, (4) Land Tax, (5) House Duty, (6)
Income Tax, (7) Post Office, (8) Telegraph Service, (9) Crown Lands,
(10) Interest on Advances for Local Works and Purchase Money of Suez
Canal shares, and (11) Miscellaneous. Of all these, Excise stands first
by several millions, while Customs are far ahead of any of the rest,
Stamps and Income Tax being the next best paying sources of revenue.
And, in some form or other, every one among us--the peer who smokes a
cigarette, the peasant who drinks a pint of beer, and the very pauper
who sends a letter to a friend--has indirectly to contribute his quota
to the Exchequer, while all who earn more than L150 a year have to pay
Income Tax; and those who inherit property, probate, legacy, or
succession duty.
XXIV.--HOW OUGHT WE TO BE TAXED?
It being certain that, as long as we are citizens of any sort of State,
we shall be called upon to pay for its maintenance, the question "How
ought we to be taxed?" is one of considerable moment to all. Grumble we
may, but pay we must.
Some think they would solve the problem at a stroke by substituting
direct for indirect taxation. They argue that people should know exactly
what they are paying for the service of the State; and that direct
taxation is not only a more logical but a more economic method of
raising the revenue. They show that the consumer of duty-bearing
articles pays not only the duty but a percentage upon it as interest to
the middleman; and a striking instance of this was afforded in the fact
that when, in 1865, Mr. Gladstone, as Chancellor of the Exchequer, took
sixpence a pound off the tax on tea, the retail price of that article
immediately fell eightpence.
But it may be feared that those who argue in favour of entirely direct
taxation make small allowance for the weaknesses of human nature. I may
prove to demonstration to the first person I meet that he is paying more
than he ought to do because of the working of the indirect system, and
that to this wastefulness is added the sin of ignorance as to what he
actually does pay; but the chances are ten to one that he will reply
that, hating all taxation as the natural man does, he would rather not
know to what extent he was being mulcted, and that, if the whole amount
were annually and in a lump sum presented to his view, he would never
find it in his heart or his pocket to pay it.
To the sternly logical this attitude will appear sad, if not absolutely
sinful; but we have to take man as we find him, and it is of little use
attempting to run straight athwart his deepest prepossessions for so
small a result as even the substitution of direct for indirect taxation
would attain. But there is a further point, which even the political
logician must bear in mind, and that is what the practical effect would
be of sweeping away all duties of Customs and Excise.
If we could secure a "free breakfast table" by liberating from toll tea,
coffee, cocoa, currants, raisins, and other articles of domestic
consumption, all would rejoice--though, in the present state of our
finances, no Chancellor of the Exchequer is likely to sacrifice the five
millions of revenue now raised from those commodities. But the English
people will think a good many times before striking tobacco, spirits,
and wine off the Customs list, with the more than 13 millions they
produce, or spirits and beer off the list of the Excise, with the 13
millions in the one case and the 81/2 millions in the other that we now
receive from them. Even if any one can imagine for a moment that the 27
millions here involved could be made up by some new direct tax, it does
not need an extensive acquaintance with our social history to be aware
that the result of removing the duties from the various intoxicants
would be widespread national demoralization.
The taxation of the future, therefore, as of the past, will certainly
include Customs and Excise. Some items may be struck off both; that a
free breakfast table can be secured should be no dream; and it may be
fairly hoped that the hindrances to trade involved in such licences as
those for auctioneers and hawkers--who ought no more to be fined by the
Government for practising their employment than butchers, bakers, or
other traders--will soon be swept away. But upon beer, wine, spirits,
and tobacco--their importation, manufacture, and sale--the tax-gatherer
will continue, and rightly continue, to lay his hand.
Similarly, there will be no disposition to abolish the probate, legacy,
and succession duties, but every disposition to strengthen them, and
especially the last of them. The "Death duties" at present are
inequitably levied; great fortunes do not pay as large a proportion as,
relatively to small ones, they ought to do: and landed property is
lightly let off compared with other forms.
But it is a comparative few who will be touched even by this much-needed
reform; and taxation, to be fair, must touch all round. The Income Tax,
obnoxious as from some aspects all will admit it to be, has almost
infinite capacities of being made useful to the State; and the question
which practical statesmen will soon have to consider is the direction in
which that usefulness can best be developed.
As at present levied, this tax does not affect those whose incomes are
below L150; if their incomes are between that sum and L400, the tax is
paid upon L120 less than the correct figure; while if they exceed L400
the full tax is levied.
Now these regulations act unfairly in various directions. In the first
place, the tax starts at too high a figure. Until a few years ago it
began at an income of L100--a deduction of L80 being allowed--and there
is no reason why it should not begin at L50, so that every man earning a
pound a week in wages should be made to see as by a barometer how the
national expenditure was rising or falling--though it never falls. And,
however little he might be called upon to pay, there would be a distinct
gain in so many additional capable citizens knowing from experience what
an extra penny on the Income Tax means, for they would thereby be taught
more closely to watch how the national money is got rid of, and their
pockets consequently made the lighter.
In the next place, the regulations now in force make no distinction
between a precarious and a settled income, causing the tradesman or
professional man, whose revenue dies with him, to pay as heavily as his
neighbour who has inherited or acquired property, of which those
dependent upon him will not be deprived by his decease. As the point was
put in a motion made many years ago in the House of Commons by Mr.
Hubbard (now Lord Addington), "the incidence of an Income Tax touching
the products of invested property should fall upon net income, and the
net amounts of industrial earnings should, previous to assessment, be
subject to such an abatement as may equitably adjust the burden thrown
upon intelligence and skill as compared with property." Upon this point,
it is true, Mr. Gladstone has been antagonistic to the view here held;
he opposed this very motion, and years before it was introduced he
declared that it was not possible for him to conceive a plan which would
secure the desired end. But it is also true that more than thirty years
ago, and in his very first Budget speech, he intimated that "the public
feeling that relief should be given to intelligence and skill as
compared with property ought to be met, and may be met"; and that as
plans he could not conceive in 1853 have become realized achievements
with him before 1888, this concerning a differentiated Income Tax may
yet be added to the number.
The words of Cobden upon the point are as true to-day as when they were
uttered. Speaking upon the Budget of 1848, he dwelt upon the
inequalities of the Income Tax, which was then still talked of by
Chancellors of the Exchequer as a temporary measure. "Make your tax
just," he said, "in order that it may be permanent. It is ridiculous to
deny the broad distinction that exists between incomes derived from
trades and professions, and those drawn from land. Take the case of a
tradesman with L10,000 of capital; he gets L500 a year interest, and
L500 more for his skill and industry. Is this man's L1000 a year to be
mulcted in the same amount with L1000 a year derived from a real
property capital of L25,000? So with the cases of professional men, who
literally live by the waste of their brains. The plain fair dealing of
the country revolts at an equal levy on such different sorts of
property. Professional men and men in business put in motion the wheels
of the social system. It is their industry and enterprise that mainly
give to realized property the value that it bears; to them, therefore,
the State first owes sympathy and support."
There is a further injustice under the present system, and that is that,
when a man has passed the L400 limit, he has to pay as heavy a
percentage upon his income, precarious or permanent, as the wealthiest
millionaire among us. The struggling tradesman, the hardly-pressed
professional man, every one who depends upon his brains for his living,
has to pay as heavily as the Duke of Bedford, the Duke of Westminster,
and the Duke of Portland, to whom the brains they possess makes no
difference to their income, and whose property has been secured not by
efforts of their own, but of others.
Is it any wonder, then, that the demand should be growing for a
graduated Income Tax? It is one upon which Mr. Chamberlain has spoken
plainly. At Ipswich, in January, 1885, he said--"Is it really certain
that the precarious income of a struggling professional man ought to pay
in the same proportion as the income of a man who derives it from
invested securities? Is it altogether such an unfair thing that we
should, as in the United States, tax all incomes according to their
amount?... Prince Bismarck some time ago proposed to the Reichstag an
Income Tax, to be graduated according to the amount of the income, and
to vary according to the character of the income. We already have done
something in that direction in exempting the very smallest incomes from
taxation. But I submit that it is well worthy of careful consideration
whether the principle should not be carried a little further." And at
Warrington, eight months later, he observed--"I think that taxation
ought to involve equality of sacrifice, and I do not see how this result
is to be obtained except by some form of graduated taxation--that is,
taxation which is proportionate to the superfluities of the taxpayer.
When I am told that this is a new-fangled and a revolutionary doctrine,
I wonder if my critics have read any elementary book on the subject;
because if they had, they must have seen that a graduated Income Tax is
not a novelty in this country. It existed in the Middle Ages, when those
who exercised authority and power did so with harshness to their equals,
but they knew nevertheless how to show consideration for the necessities
of those beneath them."
The first answer to the demand for a graduated Income Tax will, of
course, be that it would be "confiscation"--a word by which the rich are
ever striving to frighten others from making them pay their proper share
to the State; and one may be content to rest in this matter upon the
apparent paradox of Disraeli: "Confiscation is a blunder that destroys
public credit; taxation, on the contrary, improves it; and both come to
the same thing." The fact, as has before been stated, is that taxation
is the price we pay for protection; and the more we have to protect, the
more we ought to pay.
And, as Mr. Chamberlain observed, this suggestion of a graduated tax is
no new-fangled or revolutionary idea: it is one for instances of which
it is not even necessary to go back with him to some vague reminiscences
of the Middle Ages, for it exists in various degrees at the present
time. It is only dwellings of over the annual value of L20 that are
liable to inhabited house duty; houses of less than L30 rateable value
have in various districts certain water privileges for nothing which
those of greater value have to pay for; and the difference in the death
duties, according to the degree of relationship of the legatee,
indicates that the law recognizes the reasonableness of graduating the
burden according to the shoulders which have to bear it. And when we
come to the Income Tax itself, we find not merely that incomes under
L150 are exempt, while those between that sum and L400 are subject to
reductions which lessen the percentage of the tax to be paid compared
with those above the last given figure, but that no other a Chancellor
of the Exchequer than Mr. Gladstone has acknowledged the principle of
graduation, and that in the most practical way; for in his Budget of
1859, when the rate of the tax stood at 5d. and he proposed to add
another 4d., he coupled with it the proviso that incomes from L100 to
L150 (L100 being the then initial point) should pay only 11/2d. extra.
The argument sometimes used that the heavier taxation of large incomes
would tend to discourage thrift by putting a penalty upon its results is
disposed of by every-day experience. Does a man cease to wish to earn
L150 because that sum will make him liable to Income Tax, or L400
because that will bring him fully within its scope? We know such a man
does not exist, and why should the conditions be changed if the
graduation went further than at present?
Here, then, is the claim for a graduated Income Tax, and, after the
examples which have been given, it cannot honestly be argued that such a
system is either immoral in design or impossible of execution. What is
wanted is that the burden of taxation shall be equalized by fixing the
greater weight upon the shoulders that ought most to bear it. No single
citizen should be exempt from a share, and by preserving indirect
taxation upon luxuries and starting a direct tax at the lowest
reasonable point, every one will have to pay something. But by
rearranging the death duties and graduating the Income Tax we shall
secure that those who have most to lose, and, therefore, who demand most
from the State, shall pay the State in proportion to their demand.
XXV.--HOW IS TAXATION TO BE REDUCED?
At no moment in recent years was it more desirable to urge a demand for
retrenchment in the national expenditure, and probably at no moment
could such a demand be urged with more chance of good result. For the
recent revelations made upon the highest authority as to the
wastefulness which characterizes our Government departments have aroused
in the public mind not merely indignation at the spendthrifts who rule
us but determination to put an end to much of their extravagance.
The only way in which taxation can be reduced is to lessen the need for
taxes, and that can be done in no other fashion than by reducing the
expenditure. Ministry after Ministry has entered Downing Street with the
announced determination to exercise retrenchment, and Ministry after
Ministry has left that haven for office-seekers with the expenditure
higher than ever. The stock excuse for this state of things is, that as
the national needs increase, the national expenditure must increase with
them; but, allowing that this will justify a rise upon certain items,
the question which will have to be pressed home to every Minister and
would-be Minister, to every member of Parliament and would-be member, is
this--"Is the money that is disposed of spent in economical fashion and
to the best advantage?" And he will have to be a very thick-skinned
specimen of officialdom who will venture to reply "Yes" to the question.
In the estimates for the navy, the army, and the Civil Service, there is
abundant room for the pruning knife, while to the principle which
underlies the granting of many of the pensions there ought to be
applied the axe. Of course, as long as we possess an empire which
exceeds any the world has ever seen for the vastness of its extent and
its resources, so long must an army and navy be maintained; and even if,
by a reverse of fortune, every one of our colonies were cut off from us,
an army and navy would still be needed for our own protection. They are
as necessary to a nation, situated like our own, as a fire-brigade to a
town; and it would be folly, and worse, to starve them into
inefficiency. What money is needed, therefore, to place the defences of
the country--whether those defences be men, ships, forts, or coaling
stations--in such a state of efficiency as shall avoid the chance of
national disaster should war burst upon us, ought to be definitely
ascertained and cheerfully granted.