Speculations from Political Economy

by Charles Baron Clarke

Wheat is now admitted to England free of duty. Tea pays a duty of about £4,000,000 sterling a year. This is called a duty for revenue, not for protection. Tea is an article of universal consumption; the tax on it is open to the objections against a poll tax or hearth tax, viz. that by it many a poor old woman is taxed as heavily as far richer people; indeed, owing to the poor consuming the lower-priced teas, they are by the present duty taxed at a higher rate than those who can afford the more expensive teas.

The reply in defence of these anomalies is, "We have to raise £4,000,000 sterling by a duty on something; on whatever we put it, it will no doubt be bad." Granting, however, this for a moment, the onus lies on the defender of the existing tariff to prove that it is better to raise the £4,000,000 required from tea than from wheat, or than to raise £2,000,000 from tea, £2,000,000 from wheat. Mr. Raban, a leading tea-planter in Assam, has observed that if the duty on tea was replaced by one on wheat to raise the same gross amount, the pressure on the English poor would be less; while an encouragement would thus be given both to tea-planting in India and to agriculture in England. I adduce this case of the duty on tea merely to bring out strongly the fact that Free Trade in wheat is not universal Free Trade. I do not recommend that the duty on tea should be replaced by other duties: I am going to raise the question whether it should not be replaced by direct taxation.

In the case of tea, the duty can hardly be said to be "protective," except so far as by raising the cost of tea it impels English drinkers to have more free recourse than they otherwise would to other drinks; but in a large number of cases a duty operates both as a revenue and as a protective duty. It is a curious fact that the fanners, after unanimously struggling FOR the duty on wheat because it was a protective duty, subsequently unanimously struggled for thirty years AGAINST the malt tax (involving a duty on barley) because it was a revenue duty. As soon, however, as the malt duty was repealed, they discovered that it had been a protective duty; barley fell in price (malting samples) about l2s. a quarter, and has never recovered, nor does any farmer now suppose it ever will. This is rather a complex case, because on the abolition of the malt tax an equal tax (in gross amount) was put on beer; and it might be supposed at first sight that this would not affect the price of barley. It has in several ways: Firstly, Many brewers now brew common beer with one-third malt, two-thirds molasses, cane sugar, etc. The tax being on the beer, Government no longer cares whether it is brewed from malt or from rubbish, and the consumers grow soon accustomed to the lowered taste of malt in their beer; Secondly, The admission of foreign malt and barley without duty has quickened the importation by removing those restraints and interferences which hamper trade out of all proportion to their expressed amounts in pounds, shillings, and pence.

In order to establish a Universal Free Trade and to make every port in England a free port, it would be necessary to raise by direct taxation about £40,000,000 annually, because the excise on beer, etc., would have to be abandoned with the Customs duties. We will consider the possibility of raising this £40,000,000 by direct taxation before we dilate on the advantages which would follow Universal Free Trade.

Ricardo, at the end of his masterly consideration of the effect of taxation variously levied, comes to the general conclusion that the best tax is that which is least in amount. Adam Smith and the older economists held that one test which a well-devised tax had to satisfy was that it should take the money from the taxpayer insensibly, indirectly. Now, all taxes that thus insensibly drain the taxpayers invariably take more in gross from them than reaches the Government. To raise £40,000,000 by customs and excise costs about £3,000,000; so that the people have to pay £43,000,000, while the Government gets £40,000,000. In direct taxes, as income taxes, property rates, the cost of collection is very small—about two-pence in the pound. In public as in private business it is much more economic to look payments in the face and make them with our eyes open than to let the money slip away in driblets. Moreover, modern politicians think, in opposition to Adam Smith, that it has a good moral effect on the body politic to be made to feel exactly what taxes they pay, so that they cannot help knowing whenever taxation is increased.

A serious objection to indirect taxation is that it always falls with unfair weight on the poor, as in the case of tea duties stated above. It may be urged that the existing duties are (except tea) nearly all on luxuries, as beer, spirits, tobacco. But the English have drunk beer for many hundred years; the taste for beer is largely fixed by inheritance; beer as supplying sustenance in a form that rapidly assists exhausted nature is, to very many at least, as much a necessary of life as tea is. Whether we believe tobacco to be injurious or not, we have no right to impose on an article so very largely consumed a duty which amounts to taxing the poor out of proportion to the rich.

If all the indirect taxes are removed, the poor (at least down to those earning £1 a week and upwards) must be made to contribute to direct taxes. It may be urged against Universal Free Trade that the poor are so ignorant that they would sooner pay sixteen-pence a week in taxes indirectly than eightpence directly. This might prove a fatal objection to carrying out Universal Free Trade at the first attempt; but one of the objects to be gained by direct taxation is the education of the people. It may also be urged that the whole political power being now in the hands of the masses, they are so selfish and unjust that if taxation is made a plain matter they will put all taxation on the rich and refuse to pay anything themselves. The reply to this is, If this is your estimate of the understanding and morality of the masses, you should not have put the whole political power in their hands.

We are only attempting at present to show that the £40,000,000 sterling (to replace duties and those parts of the excise which hang on duties) could be raised by direct taxation: we are not attempting to show the best way it could be raised by direct taxation; it will be seen hereafter that a portion of it might perhaps be better raised by a National Property Rate.

The £40,000,000 would be raised by an income tax of sixteen-pence in the pound—(I am underestimating safely—about a shilling in the pound would raise it really),—carried down to £156 a year without any reductions; while incomes of £1 a week paid eightpence weekly, and incomes of £2 a week paid twelvepence weekly. In the Crimean War the nation endured an income tax of sixteen-pence in the pound; it is certain that the nation is richer now, and better able to bear such a rate.

But this is not the strength of the argument. In the Crimean War England endured sixteen-pence in the pound extra, in addition to all existing taxes (some of which were raised too), and the capital thus taken from the people was destroyed (much of it) or dissipated in the Crimea. But the sixteen-pence in the pound here suggested would be in lieu of an equal amount of taxes taken off (it would be rather less in amount than the taxes taken off): the nation therefore, would not feel it at all, though individuals would feel it in different ways. A poor man would have eightpence a week deducted from his wages, but he would get his beer at three-fifths the present price, his tea at two-thirds the present price, etc. He would soon feel that he gained by the change. The rich would find that they lost; but that loss would, I believe, be made up to them over and over again.