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 8½ 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 £150; if their incomes are between that sum and £400, the tax is paid upon £120 less than the correct figure; while if they exceed £400 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 £100—a deduction of £80 being allowed—and there is no reason why it should not begin at £50, 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 £10,000 of capital; he gets £500 a year interest, and £500 more for his skill and industry. Is this man’s £1000 a year to be mulcted in the same amount with £1000 a year derived from a real property capital of £25,000? 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 £400 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 £20 that are liable to inhabited house duty; houses of less than £30 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 £150 are exempt, while those between that sum and £400 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 £100 to £150 (£100 being the then initial point) should pay only 1½d. 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 £150 because that sum will make him liable to Income Tax, or £400 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.