By the Late Hon. DAVID A. WELLS.
XX.—THE LAW OF THE DIFFUSION OF TAXES.
PART II.
Attention is next asked to an analysis of the incidence of taxation, what is mainly direct, on processes and products, and on the machinery by which one is effected and the other distributed, and at the outset the following propositions in the nature of economic axioms are submitted, which it is believed will serve as stepping stones to the attainment of broad generalizations.
Thus, property is solely produced to supply human wants and desires; and taxes form an important part of the cost of all production, distribution, and consumption, and represent the labor performed in guarding and protecting property at the expense of the State, in all the processes of development and transformation. The State is thus an active and important partner in all production. Without its assistance and protection, production would be impeded or wholly arrested. The soldier or policeman guards, while the citizen performs his labor in safety. As a partner in all the forms of production and business, the State must pay its expenses—i.e., its agents, for their services; and its only means of paying are through its receipts from taxation. Taxes, then, are clearly items of expense in all business, the same as rent, fuel, cost of material, light, labor, waste, insurance, clerical service, advertising, expressage, freight, and the like, and on business principles they find their place on the pages of profit and loss; and, like all other expenses which enter into the cost of production, must finally be sustained by those who gratify their wants or desires by consumption. Production is only a means, and consumption is the end, and the consumer must pay in the end all the expenses of production. Every dealer in domestic or imported merchandise keeps on hand, at all times, upon his shelves, a stock of different and accumulated taxes—customs, internal revenue, State, school, and municipal—with his goods; and when we buy and carry away from any store or shop an article, we buy and carry away with it the accompanying and inherential taxes.
Any primary taxpayer, who does not ultimately consume the thing taxed, and who does not include the tax in the price of the taxed property or its products, must literally throw away his money and must soon become bankrupt and disappear as a competitor; and accordingly the tax advancer will add the tax in his prices if he understands simple addition. How rapidly bankruptcy would befall dealers in imported goods, wares, and merchandise in the United States who did not strictly observe this rule will be realized when one remembers that the average tax imposed by its Government (in 1896) on all dutiable imports is in excess of fifty per cent.
When Dr. Franklin was asked by a committee of the English House of Commons, prior to the American Revolution, if the province of Pennsylvania did not practically relieve farmers and other landowners from taxation, and at the same time impose a heavy tax on merchants, to the injury of British trade, he answered that "if such special tax was imposed, the merchants were experts with their pens, and added the tax to the price of their goods, and thus made the farmers and all landowners pay their part of the tax as consumers."
Taxes uniformly levied on all the subjects of taxation, and which are not so excessive as to become a prohibition on the use of the thing taxed, become, therefore, a part of the cost of all production, distribution, and consumption, and diffuse and equate themselves by natural laws in the same manner and in the same minute degree as all other elements that constitute the expenses of production. We produce to consume and consume to produce, and the cost of consumption, including taxes, enters into the cost of production, and the cost of production, including taxes, enters into the cost of consumption, and thus taxes levied uniformly on things of the same class, by the laws of competition, supply, and demand, and the all-pervading mediums of labor, will be distributed, percussed, and repercussed to a remote degree, until they finally fall upon every person, not in proportion to his consumption of a given article, but in the proportion his consumption bears to the aggregate consumption of the taxed community.
A great capitalist, like Mr. Astor, bears no greater burden of taxation (and can not be made to bear more by any laws that can be properly termed tax laws) than the proportion which his aggregate individual consumption bears to the aggregate individual consumption of all others in his circuit of immediate competition; and as to his other taxes, he is a mere tax collector, or conduit, conducting taxes from his tenants or borrowers to the State or city treasury. A whisky distiller is a tax conduit, or tax collector, and sells more taxes than the original cost of whisky, as finds proof and illustration in the fact that the United States imposes a tax of one dollar and ten cents per gallon on proof whisky which its manufacturer would be very glad to sell free of tax for an average of thirteen cents per gallon. The tax, furthermore, is required to be laid before the whisky can be removed from the distillery or bonded warehouse and allowed to become an article of merchandise. Tobacco in like manner can not go into consumption till the tax is paid. In Great Britain, where all tobacco consumed is imported, for every 3d. paid by the consumer, 2.5d. represents customs duties or taxes. In Russia it is estimated that the Government annually requires of its peasant producers one third the market value of their entire crop of cereals in payment of their taxes, and fixes the time of collecting the same in the autumn, when the peasant sells sufficient of his grain (mainly for exportation), and with the purchase money meets the demands of the tax collector. Can it be doubted that the sums thus extorted enter into and form an essential part of the cost of the entire crop or product of the land? It is, therefore, immaterial where the process of manufacture takes place; the citizens of a State pay in proportion to the quantity which they consume. The traveler who stops at one of the great city hotels can not avoid reimbursing the owner for the tax he primarily pays on the property; and the owner, in respect to the taxation of his hotel property, is but a great and effective real-estate and diffused tax collector. Again, the farmer charges taxes in the price of his products; the laborer, in his wages; the clergyman, in his salary; the lender, in the interest he receives; the lawyer, in his fees; and the manufacturer, in his goods.
The American Bible Society is always in part loaded with the whisky and tobacco taxes paid by the printers, paper-makers, and book-binders, or by the producers of articles consumed by these mechanics, and reflected and embodied in their wages and the products of their labor according to the degree of absence of competition from fellow-mechanics who abstain from the use of these and other taxed articles.