CHAP. III.
How proportional Taxes are drawn back by the industrious, and how that drawing back is the only reason why Taxes raise the Prices of Commodities.
What perplexes our notions in the theory of proportional taxation, is, that the industrious man, instead of bringing his surplus to market, is obliged to bring the whole of his work.
Let me, therefore, suppose him to be creditor upon one part of his work, and proprietor of the other. This will divide it, as it were, into two parts, which I shall call (A) and (B).
(A) represents that part upon which he is creditor, and answers to all the expence he has already been at; that is, to his physical-necessary, as we have called it. This we have said ought to be considered as virtually consumed by the workman, and if a tax be raised upon it, it must not affect him; that is, he must draw it totally back from the person to whom he disposes of it. (B) on the other hand, represents that part of which he is proprietor, to wit, his profit; and therefore may either be taxed or not, as the state shall think it.
If it be taxed in the hands of the industrious man, without suffering an alienation, the tax will be of a cumulative nature. If it be left free to him, and taxed to the person who buys it, it will be of the proportional kind, as we shall see afterwards. Again,
In the first case, it will check the growing wealth of the industrious man; in the second, it will accelerate the dissipation of the buyer.
Taxes, therefore, of the first kind, are proper to be imposed in countries where the state is jealous of growing wealth, as we have observed in the 25th chapter of the second book. If the tax, again, be laid upon the buyer, then the balance turns in favour of the industrious man, in proportion to the full amount of (B), and produces no other effect than to accelerate the dissipation of the buyer.
Let us now take in a new combination.
If, when the work is brought to market and sold, the price shall not exceed the value of the industrious man’s (A), then he is of the class of those we call physical-necessarians, who accumulate no profits. If the price of it be less than (A), he becomes a load upon the state, a bankrupt to those who have fed him upon credit, and will die for want, unless he be supported by charity.