On the other hand, the farming of proportional taxes is not liable to so many inconveniences. The farmers there are principally employed in watching over those who advance the taxes, and who are themselves, as has been said, in reality the tax-gatherers over the people.
When therefore circumstances permit, without inconvenience, the fabrication of exciseable goods to be incorporated with the farm, this of all others is the best method of levying taxes. Examples of this are familiar almost every where. The farmers of the salt and of the tobacco in France are in this situation. In retailing those commodities, they collect the price they pay for the composition; that is, for the farm of them. It is not the same of the aids in France. There the farmer superintends the immediate tax-gatherer, to wit, the retailer of spirituous liquors, or of other things subject to the tax. The circumscribing the number of places where exciseable commodities are fabricated, and the shutting them up within inclosures, would greatly facilitate the levying of all excises, whether by farm or by management.
In order therefore to decide whether the preference ought to be given to the management or to the farm, circumstances are to be weighed. When a tax is new, or has been ill managed, or has fallen, without any visible cause, below what it formerly produced, or ought to have done; when the amount is unknown, by being of an extensive collection: in such cases, short farms, and even several subdivisions of them in a country, may be of use. But when a tax is well understood, and a good plan of levying it laid down, it may be well raised, and perhaps better improved, under a management; as also, when it is of a nature to be easily understood, and when the very exercise of levying it points out all the frauds possible to be committed.
Davenant, who well understood this question, in his 4th Discourse upon revenues, recommends farms which are not absolute, but limited, as the best. By limited, he understands, that the farm should first be given for a fixed sum; that the farmers should carry on an open administration, liable to the government’s inspection in every particular; that in case the profits of the farm should exceed the rent stipulated, a certain sum should be ascertained for the charge of management, and the surplus should belong to the King, allowing a certain poundage to the farmers to animate their diligence[[52]].
[52]. This plan of Davenant’s was carried into execution in France by Monsieur Silhouëtte, in 1759.
He very justly observes, that a tax, when farmed, in order to be improved, will naturally draw, at first, a less rent than the sum liquidated as a free profit by the former management; because the farmers will be willing to secure to themselves a good profit; and next, because they will be obliged to make a considerable advance, as a security for fulfilling their engagement, which must also be considered as a deduction out of the produce of the tax.
All the advantage therefore in farming must be looked for after the expiration of the lease; for which reason, the shorter the term is, the better: three years, it seems, was the common term in England, in Davenant’s time.
All new imposed taxes ought to be raised with the greatest lenity, not to revolt the minds of the people: the first year’s deficiency is well bestowed, if government can but discover the different ways which may be fallen upon to defraud the tax, and form a good judgment how far the amount of it may go in time, when the management is brought to perfection. As long therefore as a management continues to improve a tax newly laid on, I should not think of farming it: but when, either from the extent of the imposition, or the nature of it, frauds begin to multiply, and management begins to become more and more difficult, then is the time immediately to put it into farm, either for different districts of a country, or in sub-farms. If this be delayed, frauds will daily increase; and the difficulty of preventing them will carry government to the expedient of imposing penalties, severe in proportion to the frequency of the crime. Commissioners will constantly put these in execution with reluctance; the management will become slack; or if penalties are rigorously exacted, they will become a handle for oppression; and even though justice be done, and none but delinquents be punished, yet still the people will be ill affected with the punishment of an action which in itself they are too apt not to consider as a crime: whereas in farming, frauds will be prevented by vigilance more than by fear of punishment; and this is by far the better expedient. Thus instead of feuds daily increasing, they will daily diminish, and the tax will improve yearly.
Here Davenant well observes, that nothing but divine wisdom can at first create perfect order; but in all human affairs it must be the work of time, and the result of much labour and application.
One good reason for managing a tax before it be farmed, is to learn the nature of it, and of the frauds it is liable to. When these are not rightly known, the farmer can more easily surprize the government, and obtain from it new regulations, under the pretext of preventing frauds; which regulations they may abuse, and turn to other purposes than those intended.