We thus go behind the backs of small tax-payers to their employers, and compel the divulgence of incomes which are usually the total incomes of the employed. Yet the employer who, by our direction, hands his employee over to the tax-collector, is not compelled by us to declare his own total income, unless (1) he has no other income than his Schedule D income, or (2) he is a payer of Super-Tax.
Given a Census of Incomes it would become possible to arrive at a practical and just Income Tax.
We could set up a plain graduated scale of taxation, differentiated up to a certain point as between earned and unearned incomes, making it quite clear to the tax-payer what is demanded from him and revealing to him the justice or injustice of our methods by enabling him to compare his rate of taxation with that of those richer or poorer than himself.
We need not abandon taxation "at the source." We could levy on property incomes at the source a certain rate of tax, say 1s. in the £. Then when the total income was declared, the tax-payer would point out upon what items, if any, 1s. in the £ had been deducted at the source and pay the balance of the tax.
Let us take a hypothetical case—that of a barrister earning £2,000 a year, and deriving a further £1,000 from rents and a further £300 from Consols. The total income, £3,300, let us suppose taxed under the graduation scheme at 14d. in the £. The Income Tax on the £1,000 of rents would be paid by his tenants and deducted from the rents paid him, while the Bank of England would deduct 1s. in the £ from the interest on the Consols. Declaring his total income at £3,300 he would pay the balance due, thus:—
| Total Declared Income. | £ | s. | d. | ||
| £3,300 at 14d. | 192 | 10 | 0 | ||
Taxed at the source:— | |||||
| (1) Schedule A. 1s. in the £ on £1,000 of rent, deducted by tenants | £50 | ||||
| (2) Schedule C. 1s. in the £ on £300 of interest deducted by Bank of England | £15 | ||||
| 65 | 0 | 0 | |||
Balance of Tax Payable— | £127 | 10 | 0 | ||
If, upon the introduction of such a system, local assessors were empowered to ask every householder assessed for local rates at £20 a year and upwards to declare his income in the place where he resides, there would undoubtedly be a great increase in the Income Tax assessments. A great part of the evasion of Income Tax results from persons being taxed at their places of business, where there is often little evidence of means. In a man's own neighbourhood it is difficult grossly to understate income.
For several years I put down in the House of Commons the following suggested amendment to the Finance Bill:
Every person upon whom notice is served in manner prescribed by section forty-eight of The Income Tax Act, 1842 (which section relates to the delivery of notices by assessors), requiring him to make a return of his income chargeable to duty under any and every schedule of the Income Tax, shall make a return, in the form required by the notice, which shall show the amount of his aggregate income from all sources, whether he is or is not chargeable with duty, and upon what part or parts of such aggregate income, if any, Income Tax has already been paid under the Income Tax Acts by deduction at the source, and in default shall be liable to a penalty under section fifty-five of The Income Tax Act, 1842.