Davenant has a very good remark, p. 154. That a new tax, imposed upon consumption, and ill levied, equally raises the price upon the consumers, and the whole profit centers in the hands of those who retail. That when an old excise becomes ill levied, the profit is divided between the inferior officers (who collect it) and the retailers. The reason is, that a branch which is well understood, is not so liable to frauds as to collusion. This shews that in every case, such a duty should never be imposed without exerting every endeavour to have it rightly collected. The state should also keep a watchful eye upon the augmentations made in the price of exciseable commodities, in order to keep the augmentation justly proportioned to the duty. If this be neglected, the overcharge hurts consumption, diminishes the produce of the tax, and enriches the retailers only. Here competition is necessary to be introduced: the public may even erect a manufacture which may regulate prices, and so soon as they are properly ascertained, the selling price may be fixed by an assize.
An ill levied imposition is attended with this additional inconvenience, that it establishes inequality among the industrious of the same class; consequently, an unequal competition. This happens when particular officers are diligent and exact in doing their duty, while others are remiss. The profits of retailers are high in proportion to the negligence of the officers of the revenue; and their extraordinary profits, enable them to undersell and to ruin those who are exactly looked after: the consequence of this is, to diminish the number of retailers; to introduce hurtful monopolies; and in general, to hurt the whole branch of the manufacture. All remissness, therefore, in collecting an excise, draws along with it a prejudice to the Prince and his people: and the relative profit, which balances this loss, falls into the pockets of the fraudulent manufacturer, and the corrupt and negligent collector. This is not all: the deficiency must be made up in another way; for taxes must produce the sums wanted. Thus the remissness in collection occasions a new additional burden to be laid on the people.
Quest. 3. What is meant by income, when applied to individuals, and to a state, and what is the nature of the expence which must diminish it, when it is considered as the object of taxation?
The great intricacy of this question proceeds from hence, that what is really an expence to one is the income of the other: so that without applying our reasoning to every particular fact, no general explanation can be rendred intelligible. My reason for proposing it in this place, is, that in commenting upon some passages of Davenant, in his discourses upon the revenues of England, I may have an opportunity of illustrating some things which have been already examined.
Davenant was an admirable writer; he had a remarkable genius for political theory, and his sentiments upon many things are very generally adopted. My intention here is not to refute opinions, but to avail myself of his combinations, in order to explain my own ideas.
In his first discourse upon revenues, we find the following passage.
"The number of the people leads us to know what the yearly income may be from land, and what from mines, houses, and homesteads, rivers, lakes, meers, ponds, and what from trade, labour, industry, arts and sciences: for where a nation contains so many acres of arable land, so many of pasture and meadow, such a quantity of wood and coppices, forrests, parks and commons, heaths, moors, mountains, roads, ways, and barren and waste land; and where the different value of this is computed, by proper mediums, it is rational to conclude, that such a part of the people’s expence is maintained from land, &c. and such a part from mines, houses, &c. and that such a part is maintained from trade, labour, &c. and the poor exceeding so much the rich in numbers, the common people are the proper medium by which we may judge of this expence.
“There is a certain sum requisite to every one for food, raiment, and other necessaries; as for example, between 7 and 8l. per annum; but some expending less, and some more, it may not be improper to compute, that the mass of mankind, in England, expend, one with another, near 8l. per annum: from whence it may be concluded, that an annual income of so many millions is needful for the nourishment of such and such a number of people.”
The reasoning here takes a wrong turn. It is of no consequence to compute the value of things consumed without alienation. It is of no use to know that the value of the physical-necessary of an Englishman is 8l. a year; because if this sum is supposed to be an exact quantity of income, no one farthing of tax can be imposed upon it. So that imposing, for example, 5 per cent. upon this article would only be raising the physical-necessary to 8l. 8s. which 8s. must be paid, not by the physical-necessarian, but by some body having superfluity who employs him: and if there was not superfluity enough in England to answer to 8s. a head, such a tax could not be levied.
He afterwards supposes that the income of this class may amount to about twenty millions a year, which at 8l. each, answers to two millions and a half of people. He states the income of lands at fourteen millions, and the income of trade at ten millions, in all at forty four millions a year: and hence he concludes, that taxes ought to be imposed in some proportion to this total.