TAXES ON HOUSES.
There are also other commodities besides gold which cannot be speedily
reduced in quantity; any tax on which will therefore fall on the
proprietor, if the increase of price should lessen the demand.
Taxes on houses are of this description; though laid on the occupier,
they will frequently fall by a diminution of rent on the landlord. The
produce of the land is consumed and reproduced from year to year, and so
are many other commodities; as they may therefore be speedily brought to
a level with the demand, they cannot long exceed their natural price.
But as a tax on houses may be considered in the light of an additional
rent paid by the tenant, its tendency will be to diminish the demand
for houses of the same annual rent, without diminishing their supply.
Rent will therefore fall, and a part of the tax will be paid indirectly
by the landlord.
"The rent of a house," says Adam Smith, "may be distinguished into two
parts, of which the one may very properly be called the building rent,
the other is commonly called the ground rent. The building rent is the
interest or profit of the capital expended in building the house. In
order to put the trade of a builder upon a level with other trades, it
is necessary that this rent should be sufficient first to pay the same
interest which he would have got for his capital, if he had lent it upon
good security; and secondly, to keep the house in constant repair, or
what comes to the same thing, to replace within a certain term of years
the capital which had been employed in building it." "If in proportion
to the interest of money, the trade of the builder affords at any time a
much greater profit than this, it will soon draw so much capital from
other trades, as will reduce the profit to its proper level. If it
affords at any time much less than this, other trades will soon draw so
much capital from it as will again raise that profit. Whatever part of
the whole rent of a house is over and above what is sufficient for
affording this reasonable profit, naturally goes to the ground rent; and
where the owner of the ground, and the owner of the building are two
different persons, it is in most cases completely paid to the former. In
country houses, at a distance from any great town, where there is a
plentiful choice of ground, the ground rent is scarcely any thing, or no
more than what the space upon which the house stands, would pay if
employed in agriculture. In country villas, in the neighbourhood of some
great town, it is sometimes a good deal higher, and the peculiar
conveniency, or beauty of situation, is there frequently very highly
paid for. Ground rents are generally highest in the capital, and in
those particular parts of it, where there happens to be the greatest
demand for houses, whatever be the reason for that demand, whether for
trade and business, for pleasure and society, or for mere vanity and
fashion." A tax on the rent of houses may either fall on the occupier,
on the ground landlord, or on the building landlord. In ordinary cases
it may be presumed, that the whole tax would be paid both immediately
and finally by the occupier.
If the tax be moderate, and the circumstances of the country such, that
it is either stationary or advancing, there would be little motive for
the occupier of a house to content himself with one of a worse
description. But if the tax be high, or any other circumstances should
diminish the demand for houses, the landlord's income would fall, for
the occupier would be partly compensated for the tax by a diminution of
rent. It is, however, difficult to say, in what proportions that part of
the tax, which was saved by the occupier by a fall of rent, would fall
on the building rent and the ground rent. It is probable, that in the
first instance, both would be affected; but as houses are, though
slowly, yet certainly perishable, and as no more would be built, till
the profits of the builder were restored to the general level, building
rent, would, after an interval, be restored to its natural price. As the
builder receives rent only whilst the building endures, he could pay no
part of the tax, under the most disastrous circumstances, for any longer
period.
The payment of this tax, then, would ultimately fall on the occupier and
ground landlord, but "in what proportion, this final payment would be
divided between them," says Adam Smith, "it is not perhaps very easy to
ascertain. The division would probably be very different in different
circumstances, and a tax of this kind might, according to those
different circumstances, affect very unequally both the inhabitant of
the house, and the owner of the ground."[15]
Adam Smith considers ground rents as peculiarly fit subjects for
taxation. "Both ground rents, and the ordinary rent of land," he says,
"are a species of revenue, which the owner in many cases enjoys, without
any care or attention of his own. Though a part of this revenue should
be taken from him, in order to defray the expenses of the state, no
discouragement will thereby be given to any sort of industry. The annual
produce of the land and labour of the society, the real wealth and
revenue of the great body of the people, might be the same after such a
tax as before. Ground rents, and the ordinary rent of land, are,
therefore, perhaps the species of revenue, which can best bear to have a
peculiar tax imposed upon them." It must be admitted that the effects of
these taxes would be such as Adam Smith has described; but it would
surely be very unjust, to tax exclusively the revenue of any particular
class of a community. The burdens of the state should be borne by all in
proportion to their means: this is one of the four maxims mentioned by
Adam Smith, which should govern all taxation. Rent often belongs to
those who after many years of toil, have realised their gains, and
expended their fortunes in the purchase of land; and it certainly would
be an infringement of that principle which should ever be held sacred,
the security of property, to subject it to unequal taxation. It is to be
lamented, that the duty by stamps, with which the transfer of landed
property is loaded, materially impedes the conveyance of it into those
hands, where it would probably be made most productive. And if it be
considered, that land, regarded as a fit subject for exclusive
taxation, would not only be reduced in price, to compensate for the risk
of that taxation, but in proportion to the indefinite nature and
uncertain value of the risk, would become a fit subject for
speculations, partaking more of the nature of gambling, than of sober
trade, it will appear probable, that the hands into which land would in
that case be most apt to fall, would be the hands of those, who possess
more of the qualities of the gambler, than of the qualities of the
sober-minded proprietor, who is likely to employ his land to the
greatest advantage.