Sir James Steuart (1767)
The subject of taxes is so closely connected with every branch of political oeconomy, that I have not been able to avoid anticipating a subject, which, according to my plan, is left for the conclusion of this work.
What has been hitherto introduced concerning taxation, in treating of industry, trade, money, credit, and debts, relates principally to the effects of taxes upon circulation, prices, and several other things relating to those subjects.
What therefore remains, not as yet touched upon, chiefly concerns the principles which determine the nature of every tax, relatively to the interest it is intended to affect.
To investigate the different consequences of taxes when imposed upon possessions, and when upon consumption, are questions which relate directly to the principles of taxation. But in this book I shall also have occasion to trace out, farther than as yet I have done, certain combinations concerning the effects which taxes have in multiplying the fund of circulation: and as the augmentation of taxes tends greatly to increase money, I am thence led to examine, how far the advantage gained by the suppression of taxes may not be more than compensated to a nation, by the inconveniences proceeding from so great a diminution of circulation.
Taxes have all along been supposed to enhance the price of living; we shall therefore have an opportunity of investigating the proper extent to be allowed to that general proposition.
Taxes have been established in all ages of the world, under different names of tribute, tithe, tally, impost, duty, gabel, custom, subsidy, excise; and many others needless to recapitulate, and foreign to my subject to examine.
Though in every species of this voluminous class, there are certain characteristic differences; yet one principle prevails in all, upon which the definition may be founded.
I understand therefore by tax, in its most general acceptation, a certain contribution of fruits, service, or money, imposed upon the individuals of a state, by the act or consent of the legislature, in order to defray the expences of government.
This definition may, I think, include, in general, all kinds of burdens which can possibly be imposed. By fruits are understood either those of the earth, of animals, or of man himself. By service, whatever man can either by labour or ingenuity produce, while he himself remains free. And under money is comprehended the equivalent given for what may be exacted in the other two ways.
I have no occasion to consider the nature of such taxes as are not in use in our days. Tributes of slaves from conquered nations are as little known in our times, as contributions of subsistence from the subjects of the state.
I divide, therefore, modern taxes into three classes. 1. Those upon alienation, which I call proportional: 2. Those upon possessions, which I call cumulative or arbitrary: and 3. Those exacted in service, which I call personal. These terms must now be fully explained, that I may use them hereafter without being misunderstood.
A proportional tax presents a simple notion.
It is paid by the buyer, who intends to consume, at the time of the consumption, while the balance of wealth is turning against him; and is consolidated with the price of the commodity.
Examples of this tax are all excises, customs, stamp-duties, postage, coinage, and the like.
By this definition, two requisites are necessary for fixing the tax upon any one: first, he must be a buyer; secondly, he must be a consumer. Let this be retained.
A cumulative or arbitrary tax, presents various ideas at first sight, and cannot well be defined until the nature of it has been illustrated by examples.
It may be known, First, By the intention of it; which is to affect the possessor in such a manner, as to make it difficult for him to augment his income, in proportion to the tax he pays.
Secondly, By the object; when instead of being laid upon any determinate piece of labour or article of consumption, it is made to affect past and not present gains.
Thirdly, by the circumstances under which it is levied; which imply no transition of property from hand to hand, nor any change in the balance of wealth between individuals.
Examples of cumulative taxes are land-taxes, poll-taxes, window-taxes, duties upon coaches and servants, that upon industrie, in France, and many others.
A personal tax is known by its affecting the person, not the purse of those who are laid under it.
Examples of it are the corvée, in France; the six days labour on the high roads, and the militia service before pay was allowed in England. (1)
Having thus explained what I mean by proportional, cumulative, and personal taxes, it is proper to observe, that however different they may prove in their effects and consequences, they all agree in this, that they ought to impair the fruits and not the fund; the expences of the person taxed, not the savings; the services, not the persons of those who do them.
This holds true in every denomination of taxes. In former days, when annual tributes of slaves were made, and even at present among the Turks, where it is customary to recruit the seraglios of great men by such contributions, I consider the young women who are sent, as part of the fruits of the people who send them. This is a fundamental principle in taxation; and therefore public contributions, which necessarily imply a diminution of any capital, cannot properly be ranged under the head of taxes. Thus when the Dutch contributed, not many years ago, the hundredth part of their property towards the service of the state, I cannot properly consider this in the light of a tax: it was indeed a most public spirited contribution, and did more honour to that people, from the fidelity with which it was made, than any thing of the kind ever boasted of by a modern society. (2)
Whatever exists for the use of man, so far as it is considered as a fund for taxation, may be classed under the following heads:
1. The produce or fruits of the earth;
2. the produce of the industry of man; or
3. his personal service.
Farther, Fruits cannot be obtained without the necessary labour of man and cattle. As this labour presupposes all the necessary consumption of maintenance, &c. the produce of the land must be understood, relatively to taxes, to be that part only of the fruits which remains after deducting an equivalent for all necessary expences in making the earth produce them. The net produce alone of the earth is to be considered as a fund liable to taxation; and every contribution which bears not a just proportion to this quantity, is wrong imposed, as shall be shewn as we go along.
Again, as to the produce of work: this cannot be brought into existence without some expence, viz. the maintenance of the workman; that is to say, his food, raiment, fire, lodging, and the expence he is at for tools, and every other necessary. This we shall, for the future, call his physical-necessary. The value of the work, over and above an equivalent for these articles, is the only fund to be taxed with regard to the workman.
As to work itself, we have seen above (Book II. chap. 26.) in the general distribution of things which may be purchased with money, how it was ranged under the class of things incorporeal. For this reason, the work performed cannot come under taxation; and therefore the person working, who by work acquires a balance in his favour, is brought to be affected by proportional taxes upon the articles of his consumption; and when it is found that these articles suffer no alienation before they are consumed by him, and consequently escape taxation, then he may either be laid under the cumulative taxes, which will affect his wealth, or under the personal, which are paid in work itself, and in this respect may be considered as the fruit of the man.
Nothing would be so easy as a general rule for imposing proportional taxes, did the labourers of the ground actually consume a part of the fruits of the earth, and the other industrious classes a part of their own work, in lieu of the whole of this physical-necessary. In this case, nothing but what remained of fruits and work, not already consumed by the immediate producers, would come to market for the use of those who do not work; but who have an equivalent to give for it, out of the produce of past industry. Were this, I say, the case, then at the time of alienation (or, as we expressed it in the 26th chapter of the second book, at the time when the balance of wealth is going to turn in favour of the industrious, against the idle consumer) a tax proportional to the value of the alienation might, with the greatest propriety, be imposed, as we shall presently discover.
This, I hope, will recall to mind the principles deduced in the chapter above cited, where we made it appear, how the industrious classes, who furnish consumable commodities for the price of their overplus, must constantly have the balance of wealth turning in their favour: and when once they arrive at a certain degree of ease, proportional to their ambition, then they give over working, and become incorporated into the class of those who have enriched them.
Thus matters go on in a perpetual circle. The industrious become easy, and the public lays the consumers under a perpetual contribution in proportion to their expence.
The hypothesis we have made, is not entirely agreeable to matter of fact; because the operation of taxes is far more complex than we have described it to be; but by simplifying it, as I have done, it serves to give an idea of the result, or general consequence of proportional taxes, which, when properly imposed, do affect the idle only, but never the industrious.
Were, I say, the operation of taxation as simple as we have represented it, nothing would be more easy than to deduce its principles. Nothing would come to be refunded to the labourer or workman, at the sale of his surplus. This surplus would be equal to the whole produce of the earth, and whole industry of the country, deducting the physical-necessary of all the industrious; and this physical-necessary need not then be deducted; because it is supposed to be consumed in the very production of the surplus, as the aqueous part of sea water is consumed before you can have the salt.
This illustrates what has been said, viz. that the fruits of the earth are only to be reckoned to exist, after deducting the necessary expence of providing them. For though in fact a farmer possesses all his crop after harvest, yet part of it, as to him, is virtually consumed either out of his own stock, or that of others, who have furnished him food and necessaries all the time it was coming forward; this part consequently, can neither belong to the ground, or to the farmer.
If it be urged still, that the whole must be supposed to exist with regard to the state, I agree to the proposition; but according to our argument, it cannot be supposed to exist in favour of the state, to the prejudice of the farmer; because the total of the farmer's expence must be understood to have been taken from the surplus of other people's industry, and therefore if the crop be supposed to exist with respect to the state, because it is in the farmer's yard, the surplus of other people's industry which he has consumed must not be supposed to exist in favour of the state, at the same time. But as the farmer is supposed to have paid the tax upon what he has borrowed and consumed, he must draw it back from those who, in their turn, are to consume his crop: and if he draws it back, he cannot be said to pay it, although the state profits of it as much as if he did.
Does it not appear from this analysis, that a state can take gratuitously and proportionally out of the surplus only of fruits and industry? Now what is here called surplus, relatively to the industrious, is the necessary fund of consumption for all the rich and idle; consequently, were the state to diminish any part of the quantity, the idle and the rich would be deprived of a sufficiency: but in regard that those who do not work give money, which is the price of all things, in exchange for what they consume, the state steps in at the time of this exchange, and says, we ask nothing of those who have nothing but their physical-necessary, this they have been allowed to take; we take none of their surplus from them, this we allow them to sell to you: but as for you, who do not work, and have in your coffers wherewithal to purchase the labours of your industrious brethren, this labour you shall not profit of, unless you give the state a certain value out of your wealth, in proportion to the work and fruit you are going to consume, although you have contributed nothing towards the production of it.
Hence it appears evident, that without money there could be no tax imposed: for were the state to take their proportion of the real surplus, and dispose of it out of the country, a part of the inhabitants would be starved. But by an equivalent's being found, quite different from the surplus itself, of no use for subsistence, the whole produce of industry is left for the use of those who have it; the state takes what part of the equivalent they please from the idle; and nobody starves, except such as have neither money, nor industry, nor the talent of exciting the compassion of the charitable.
By this simple representation of a most complicated operation, I have been able to deduce the capital principle of proportional taxation. If the reasoning be found solid, it may be retained: because we shall have occasion to recur to it, at almost every new combination.
What perplexes our notions in the theory of proportional taxation, is, that the industrious man, instead of bringing his surplus only, to market, is obliged to bring the whole of his work.
Let me therefore represent him as being 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 any tax be raised upon it, it must be done in such a manner as not to 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 fit.
If this be taxed in the hands of the industrious man, before it suffer 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 will turn in favour of the industrious man, in proportion to the full amount of (B), and will produce no other effect than to accelerate the dissipation of the buyer.
Let us now take in a new combination.
If, when the whole 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.
So far with regard to the seller: next as to the buyer.
The buyer appears at market with his money. When he comes there he must give, first, an equivalent for the prime cost of the merchandize: that is, he must refund every expence necessarily incurred in producing it; that is, he must refund the value of (A). Next, the industrious man has a claim upon him for his profits, viz. his (B). Then comes the state, who claims a part of his wealth, in regard that he is going to purchase what his own industry has not produced. This is the tax; I shall call it (C). This tax will be found of the proportional kind. It will not affect the growing wealth of the seller, but it will accelerate the dissipation of the buyer; and will pull down the scale against him, in favour of the industrious. This is a proper tax, in countries where the state observes the maxim of sharing the wealth of those who dissipate.
Let us now take in another combination. Let us suppose this buyer to be an industrious person, and the thing bought to be a necessary material for the manufacture in which he is employed. It is not plain, that when the second industrious man comes to market to sell his work, which I also suppose to be composed of his (A) and his (B), that his (A) becomes a still more compounded body? It first includes his own physical-necessary, as above: Secondly, the (A) and (B) of the man from whom he bought the materials: and, Thirdly, the (C) which he paid to the state for the libertY of acquiring what he himself had not produced.
Whoever therefore buys from the second industrious man, must, in like manner, refund to him his full (A); he must also pay him his (B); and then he will find the state claiming their (C), as in the former operation.
This being done, let us examine the interests of all parties. The first industrious man has no reason to complain of the tax; because he was paid his necessary expence (A), and also his (B) for his profit; and the state realised the tax at the expence of the second industrious man, who paid it. Now we said that the dissipation of his wealth was accelerated in proportion to the value of what he paid for (C); but as he is none of the idle, and as the thing he bought was a material necessary for his manufacture, the second buyer finds himself obliged to refund the whole amount of the first (A), (B), and (C); because the sum of them makes a part of the second man's (A). Now it is the refunding of this (C) to the industrious man which is the only circumstance, from which proceeds the rise in the price of commodities, in consequence of proportional taxes. Moreover, the second buyer must pay the second industrious man's (B), in favour of the balance which is going to turn against him; and last of all, he must pay the second (C), which is the share the state requires of him, in order to accelerate his dissipation.
Now let us observe, that if the commodity bought by the second industrious man, be not necessary for the existence of his manufacture, it cannot enter into his (A), and therefore must be diminished upon his (B); and if his (B) cannot pay it, then he will owe it to some body, and for the future must either abstain from such expences, or leave off working, in favour of those who can live without them.
Let me illustrate all this by an example.
A tanner sells his leather to a shoemaker; the shoemaker in paying the tanner for his leather, pays the tanner's subsistence and profit, and the tax upon leather.
The man who buys the shoes for his own consumption, refunds all this to the shoemaker, together with his subsistence, profit, and the tax upon shoes; consequently, the price of shoes are raised, only by refunding the taxes paid by the industrious.
But if the shoemaker's subsistence shall happen to include either tavern expences, or his consumption on idle days, he will not draw these back; because other shoemakers who do not frequent the tavern, and who are not idle, will undersell him; he must therefore take his extraordinary expence out of his profits; and if his profit be not sufficient, he must run in debt to the tavern-keeper.
The extravagance and idleness, therefore, of particular workmen does not check industry, nor raise prices; for these will always be in proportion to demand, and there is no reason why demand should either rise or fall, because a particular workman is extravagant, or consumes a commodity not necessary for his manufacture or subsistence.
From this example there arises a new combination: that in proportion as the industrious do not consume of the produce of their own industry, but come to market with the whole, and then purchase the work of others, they are considered, as to taxes, in the light of idle consumers, who do not work, but who purchase with money the fruits of the industry of others. By this operation, the taxable fund is augmented beyond the extent of the general surplus called (B). The reason is plain. Whatever is brought to market is supposed to be surplus, as it may there be bought by the idle, as well as the industrious. The only difference is, that the first do not draw back the tax, and that the second do, as we have already shewn.
From this reasoning we may conclude, that the way to carry proportional taxes to their utmost extent, is to draw all commodities to market, to engage every one to carry thither the whole produce of his industry, and there to buy whatever he stands in need of.
But which way will you engage either a farmer to sell his crop, and buy subsistence from another; or a shoemaker to sell his own, and buy his neighbour's shoes? The thing is impracticable; and were it attempted, it would prove an arbitrary proceeding, and a cumulative tax laid upon their industry: a tax which, by the nature of it, they cannot draw back, as we shall presently see, and from this circumstance alone proceeds the whole oppression of it.
Let me next analize the price paid by the last buyer, whom we have called the rich and idle consumer of the manufacture, who can draw nothing back from any body.
Is it not composed of the whole value of the subsistence, of the work, of the profits, of the tax? The whole reimbursement of all former payments and repayments comes upon him. Those who have been at all the expence, appear in the light of his servants and agents, who have only advanced money upon his account.
How absurd, therefore, is it either to say, that all taxes fall ultimately upon land; or as others, for no better reason, pretend, that they fall upon trade. I say, that this class of taxes which I have now been describing, and which I shall still more fully explain in a subsequent chapter, never can fall either upon, or affect any person but the idle; that is to say, the not industrious consumer. If there be found a possibility for any consumer to draw back the tax he has paid, I say he is of the class of the industrious, in one way or other: and farther I say, that such a tax raises the price of the commodity. But by drawing back, I understand, that the repayment is an inseparable consequence of his having paid the tax. I do not, for example, say that a place-man draws his taxes by the emoluments of his office: but I say a brewer draws back his excise by the sale of his beer.
Let this principle also be retained, that with respect to the consumption of superfluities by the manufacturing classes, they also must be considered as being of the class of the rich and idle, as much as the first Duke in England. When therefore the extravagance of the manufacturing classes becomes general, and when the rate of the market can afford them great wages, relatively to the price of necessaries, such profits consolidate into the price of the manufacture, according to the principles laid down in the 10th chapter of the second book. The statesman then must endeavour to create a competition among them, by introducing fresh and untainted hands into such branches. This will be a sure check upon the dissipation of the industrious, and, if rightly applied, will prevent all frauds, all pretences for the rise of the price of labour on account of taxes: and, if carried to its full extent, will prevent any industrious person from enjoying either a day's idleness, or the smallest superfluity; except in consequence of his peculiar dexterity, or extrinsic advantages.
I shall not here repeat what I have already said concerning the characteristics of this kind of imposition; but after citing some examples, I shall examine it more closely, as to its nature and consequences.
The most familiar examples of it to an Englishman, are tithes, land-tax, window-tax, and poors-rates.
The most familiar examples to a Frenchman, are the Taille, Fourage, and Ustencil, (which go commonly together); also the Capitation, the Dixieme, the Vingtieme, and the Industrie. (3)
The nature of all these taxes, is, to affect the possessions, income, and profits of every individual, without putting it in their power to draw them back in any way whatever; consequently, such taxes tend very little towards enhancing the price of commodities.
Those who come under such taxes, do not always consider that their past industry, gains, or advantages of fortune, are here intended to suffer a diminution, in favour of the state; for which out-going they have, perhaps, made no provision.
When people of the lower classes, instead of being subjected to proportional taxes, are laid under such impositions, there results a great inconvenience. They are allowed to receive the whole profit of their industry, which in the former chapter we called their (B), the state however reserving to itself a claim for a part of it: this, instead of being paid gradually, as in a proportional tax, is collected at the end of the year, when they have made no provision for it, and consequently, they are put to distress.
Besides, how hard is it to deprive them of the power of drawing back what they pay? And how ill judged to trust money with those who are supposed to gain only an easy physical-necessary? An equivalent for procuring the articles of ease and luxury, should not be left in the hands of those who are not permitted to enjoy them.
From this we may conclude, First, That the more such taxes are proportional to the subject taxed; Secondly, the more evident this proportion appears; and Thirdly, the more frequently and regularly such taxes are levied; the more they will resemble proportional taxes, and the less burden will be found in paying them. Let me illustrate this by some examples.
The stoppage upon a soldier's pay, either for the invalids, or Chelsea, is a cumulative tax; but the method of levying it gives it all the advantages of one of the proportional kind. First, It bears an exact and determinate proportion to the value of his pay. Secondly, This proportion he knows perfectly. And Thirdly, Instead of receiving the whole into his own possession, and paying the hospital at the end of the year, it is regularly and gradually retained from him at every payment.
Tithes are a cumulative tax; but they are accompanied with all the three requisites to make them light; although in other respects they are excessively burdensome. First, They bear an exact proportion to the crop. Secondly, This proportion is perfectly known. Thirdly, Nature, and not the labourer, makes the provision. But they fall upon an improper object: they affect the whole produce of the land, and not the surplus; which last is the only fund that ought to be taxed, as has been said.
The land-tax in Scotland bears, First, a very determinate proportion to the valuation of the land; and has, Secondly, the advantage of being well known to every contributor., so that provision may easily be made for it. But the third requisite is wanting: the proprietor having the public money in his hands, often applies it to private purposes; and when the demand is made upon him, he is put to distress.
The taille, in many provinces of France, bears, first, a very exact proportion to the value of the land. (4)
But in the second place, the proportion is entirely unknown to the man who pays it; being nowhere to be seen but in the offices of the intendant and his deputies.
And in the last place, the whole payment comes at once.
What hides, and consequently destroys this proportion with respect to the French taille tariffée, is, that if after the first distribution is laid on, as in Scotland, at so many shillings in the pound of valuation, the full sum intended to be raised do not come in; either because the intendant has given exemptions to certain parishes, on account of the accidents of sterility, hail, mortality among the cattle, and the like; or because the property of a part of the parish has fallen into the hands of people exempted from the taille; or lastly that others, who were really bound to pay a part of it, are become insolvent. The intendant must then make a second, and perhaps a third general distribution of the deficiency upon all the former contributors, in the most exact proportion indeed to the valuation of the lands, but yet by the nature of it impossible to be foreseen. It is for these reasons chiefly that the taille in that kingdom is so grievous.
These second distributions of the tax, First, destroy the proportion between the tax and the revenue taxed. Secondly, They make it impossible to judge of the amount of them. And lastly, the demand comes at once, when, perhaps, the money has been otherwise applied.
The French tax upon industry is more grievous still; because none of the three requisites above-mentioned are allowed to operate.
This tax is supposed to be proportional to the profits made upon trade, and other branches of industry, not having the land for their object. All merchants and tradesmen, in cities, and in the country, pay the tax called Industrie; and the reason given for establishing this tax, as I have said in another place, is in order to make every individual in the state contribute to the expence of it, in proportion to the advantages he reaps. Nothing would be more just, could it be put in execution, without doing greater hurt to the state, than the revenue drawn from it can do good.
I shall now shew how, in this tax, all the three requisites we have mentioned are wanting.
First, by its nature, it can bear no exact proportion to the profits of the industrious man; since nobody but the person taxed can so much as guess at their extent.
Secondly, It cannot possibly be provided for, as no check can be put upon the imposer, unless as far as general rules are laid down for each class of the industrious; and from these again other inconveniences flow, as shall be observed.
Thirdly, It comes at once upon poor people, who have been frequently forced to beg for want of employment before the tax-gatherer could make his demand; and those who remain, frequently become beggars before they can comply with it.
I say, that from the general rules laid down for regulating this tax, as to every class, a workman who has a large family to maintain, is no less taxed than one who has no charge but himself: and it will be allowed, I believe, that the profits of one industrious person of the lower classes, is in no country sufficient to pay any considerable tax, and maintain a large family, much less a sickly one. I therefore imagine, that cumulative taxes never should be raised upon such classes of inhabitants as have no income but their personal industry, which is so frequently precarious.
Merchants also ought not to be subjected to any tax upon their industry. They ought to be allowed to accumulate riches as fast as they, can: because they employ them for the advancement of industry; and every deduction from their profits is a diminution upon this so useful a fund.
When cumulative taxes are laid upon any of the industrious classes, they tend to check growing wealth; and are most commonly imposed in monarchical states, where riches are apt to excite jealousy, as has been observed.
But as to the class of land proprietors, that is to say, the more wealthy inhabitants, who live upon a revenue already made, the impropriety of cumulative taxes is much less. They are however burdensome, and disagreeable in all cases, and ought to be dispensed with, when the necessary supplies can be made out by proportional taxes, without raising the prices of labour too high for the prosperity of foreign trade.
From the examples I have given of this branch of taxation, I hope the nature of it may be fully understood, and that for the future no inconvenience will arise from my employing the term of cumulative tax.
I shall now subjoin its definition. A cumulative tax, is the accumulation of that return which every individual, who enjoys any superfluity, owes daily to the state, for the advantages he receives by living in the society. As this definition would not have been understood at setting out, I thought it proper, first, to explain the nature of the thing to be defined.
A proportional tax, as I have said, is that which is levied upon the idle consumer, at the time he buys the commodity. and while, by consuming it, the balance of wealth is turning against him, in favour of the seller. This tax is consolidated as it were with the price of the commodity, and must of necessity raise the price of it.
I say, it is levied at the time of buying, and affects the buyer, in consequence of his consumption; because we have seen, that when the commodity is not consumed by the purchaser, then upon a subsequent alienation he is refunded all he paid. I consider him therefore, in this case, not as paying, but as advancing the amount of the tax for another; and while any part of the commodity remains unconsumed, there still remains the equivalent for a proportional part of the tax in the hands of him who advanced it.
I shall now proceed, as in the former chapter, by giving some examples of such impositions; and in examining them, endeavour to shew their nature and consequences.
The most familiar to an Englishman are, excises, customs, malt-tax, stamp-duties, and the like.
To a Frenchman the gabelle, the traittes, the aides, tobacco, etc. (5)
In all kinds of this imposition we find the tax regularly reimbursed from hand to hand; it adheres so closely to the commodity, that it becomes as essentially a part of the value, as carriage, packing, and the like incident charges, enter into the prices of goods. It never can affect the industrious person who does not consume; and never can be avoided by him who does. Such taxes therefore necessarily raise the price of the commodity taxed.
Having already pointed out the principal advantages of proportional taxes, which is to throw the whole of the burden upon the rich, whom we have called the idle consumers, the better to distinguish them from the opulent class of the industrious; I must now enumerate the principal inconveniences complained of, from this mode of taxation, and trace out the principles from which they may be ascertained and removed.
The principal inconveniences alleged against proportional taxes may be reduced to three:
First, That they have the effect of raising the price of labour, and the produce of industry, and thereby prove hurtful to the prosperity of foreign trade.
Secondly, That they discourage consumption, by carrying the prices of many things too high for people of a middling rank in life.
Thirdly, That they are both expensive in the collection, and oppressive, from the many restrictions put upon liberty, in order to prevent frauds.
In analyzing every one of these inconveniences, it will be proper to inquire, how far the conclusions against those taxes are drawn from, and so far as matter of fact; how far from plausible appearances only; they are real, not imaginary, to discover the methods of removing them.
As the first inconvenience arises from the rising of the price of all kinds of labour, and consequently of manufactures, I must distinguish between the consequence of raising prices at home, and of raising them upon articles of exportation; and I must consider the one and the other relatively to the collective body of a state, and not to some few individuals in it.
High prices at home are no discouragement to the industrious, most certainly, however disagreeable they may prove to consumers; and while they stand high, it is a proof that the demand of the consumers does not diminish.
High prices upon goods to be exported, are to be judged of by the proportion they bear to those in other countries.
Now the price of a manufacturer's wages is not regulated by the price of his subsistence, but by the price at which his manufacture sells in the market. Could a weaver, for example, live upon the air, he would still sell his day's work according to the value of the manufacture produced by it, when brought to market. As long as he can prevent the effects of the competition of his neighbours, he will carry the price of his work as high as is consistent with the profits of the merchant, who buys it from him in order to bring it to market; and this he will continue to do, until the rate of the market be brought down.
It is therefore the rate of the market for labour and manufactures, and not the price of subsistence, which determines the standard of wages. Were proportional taxes to raise the price of subsistence, and by that circumstance to discourage manufactures we should see the generality of workmen living with sobriety, depriving themselves of superfluity, confining themselves to the plain but sufficient physical-necessary, working with all the assiduity a man can support, and still not be able to supply the market at the ordinary rates.
When in any country the work of manufacturers, who live luxuriously, and who can afford to be idle some days of the week, finds a ready market; this circumstance alone proves beyond all dispute, that subsistence in that country is not too dear, at least in proportion to the market prices of goods at home; and if taxes on consumption have, in fact raised the price of necessaries, beyond the former standard, this rise, cannot, in fact, discourage industry: it may discourage idleness; and idleness will not be totally rooted out, until people be forced, in one way or other, to give up both superfluity and days of recreation.
People are very apt to draw conclusions from what they think ought to be, according to the particular combinations they form to themselves; and for this reason it is generally thought, because taxes are higher in England than in some other countries, that foreign trade should therefore be hurt by them. But the sloth and idleness of man, and the want of ambition in the lower classes to improve their circumstances, tends more, I suspect, to lessen the productions of industry, and thus to raise their price, than any tax upon subsistence which has been hitherto imposed in this kingdom.
The whole of this doctrine is proved by experience, and is confirmed by our natural feelings. Many have been amazed to see how well the manufacturing classes live in years of scarcity, which frequently have the effect of doubling the price of the most necessary articles of subsistence. Are they not found, in bad years, more assiduous in their labour? Do they then frequent ale-houses, as in the years of plenty? Are they found idle one half of the week? Why should a tax laid on by the hand of nature prove such a spur to industry; and another, similar to it in its effect, laid on by the hand of man, produce such hurtful consequences? Were a course of bad years, I dare not say an increase of taxes, to continue long enough to bring manufacturers to a habit of sobriety and application, a return of plenty, and low prices, would throw into their coffers, what many of them dissipate in riot and prodigality.
Even this conclusion will be too general, if every circumstance be taken in. Manufacturers there are, who work hard, and live soberly six days of the week, and who at the end find little superfluity, notwithstanding the high price of labour. Alas! they have many mouths to feed, and two hands only to supply the necessaries. This is the fatal competition so much insisted on in the first book, and by which a door is opened to great distress. Either the unmarried gain what the married should do, and become extravagant, or the married gain no more than the unmarried can do, and become miserable.
The average between the two ought to determine the rate of wages in every modern society.
The remedies for this unequal competition, flowing from the happy liberty we enjoy, have been considered in another place.
The inconvenience here under examination will not be removed by an abolition of taxes; nor will it increase by the augmentation of them, as long as manufacturers, upon an average, enjoy superfluity and idle days.
Under these circumstances I conclude, that if foreign trade suffer by the high prices of commodities in our markets, the vice does not proceed from our taxes, but from our domestic luxury, which swells demand at home. Were we less luxurious, and more frugal in our management in general, all classes of the industrious, from the retailer down to the lowest manufacturer, would be satisfied with more moderate profits. Let not, therefore, a statesman regulate his conduct upon suppositions, nor conclude any thing from theory, nor from arguments à priori, drawn from the supposed effects of taxes; but let him have recourse to information and experience concerning the real state of the matter.
Let him inquire what are the prices abroad; what are the prices at home; how those who work in exportable commodities live; what superfluities they enjoy. and what days of idleness they indulge in.
If he find that goods are not exported, because of high prices, while manufacturers are enjoying superfluity, and indulging themselves in idleness, let him multiply hands, and he will reduce them all to their physical-necessary; and by thus augmenting the supply, he will also reduce the prices in his markets at home.
If he want to reduce prices still lower, in favour of exportation, but find that he has occasion for the amount of certain taxes, which enhance the value of this physical-necessary to which he has reduced his industrious classes, then let him grant a bounty upon the quantity exported, more than equivalent to compensate the rise of prices occasioned by the taxes paid by those who provide it; and let the people at home continue to pay dearer than strangers, in favour of the state. If by lowering prices you wish to promote exportation only, there will be no occasion to lower them universally, any more than there is occasion to put a large plaister over the whole body, to cure a small wound on a particular part of it.
I have said, that while the rate of the market remains the same, so will the prices of every part of labour and industry, which enters into the composition of the thing brought to market. This is consistent with reason, and experience proves the truth of it; because we do not see wages fluctuate with the price of living. If they do not fluctuate in that proportion, how can we conclude that a rise in the price of subsistence, occasioned by taxes, should raise wages more than when the price is raised by a natural scarcity. It may be answered, that the imposition of a tax gives a general alarm; the effect it must have upon prices is immediately felt; and manufacturers then insist upon an augmentation of their wages: whereas, when nature either produces the same, or even a greater effect, people submit to what they think comes from the hand of God, and content themselves with the hopes of better times. I shall allow to this argument all its force.
But I must observe, that when manufacturers can thus capitulate with their employers, and can insist upon an augmentation of their wages, the demand of the market must be greater than the supply from their work. This is the circumstance which raises the price of labour. Let the demand of the market fall, the prices of labour will fall, in spite of all the reasons which ought naturally to make them rise. The workmen will then enter into a hurtful competition, and starve one another, as has been often observed. Let the demand of the market rise, manufacturers may raise their wages in proportion to the rise of the market; they may, in the cheapest years, enjoy the highest wages; drink one half of the week, and laugh at their employer, when he expects they should work for less, in order to swell his profits in the rising market.
I have endeavoured to throw this question into different shapes, the better to apply different principles to it; and upon the whole, I must determine that proportional taxes will,
First, Undoubtedly raise the price of every commodity upon which they are properly and immediately imposed; and if they be laid upon bread, and other articles of nourishment, they will directly raise the price of these articles in proportion; but the price of labour will be raised consequently only, and according to circumstances.
That if taxes be laid upon the day's labour of a man, they will raise the price of that day's labour. What I mean by this, is, that if every one who employs a man for a day, were obliged to pay a penny to the state, for a permission to employ him, the employer would charge a penny more at least upon the day's work performed by the labourer. Were a tax equivalent to it laid on the labourer by the year, it would be of a cumulative and arbitrary nature, and would not raise the price of his wages in proportion; but were it laid upon the workman at a penny a day, and levied daily, in this case, he might raise his wages in proportion. But this is not the practice any where.
Secondly, The price of subsistence, whether it be influenced or not by the imposition of taxes, does not determine the price of labour. This is regulated by the demand for the work, and the competition among the workmen to be employed in producing it.
Thirdly, If wages rise beyond the physical-necessary of the workman, they may be brought down by multiplying hands, but never by lowering the price of necessaries; because every man will make a profit of the low price, but will regulate his gain by the rate of demand for his labour.
Fourthly, If, therefore, the price of his physical-necessary be raised upon him by the effect of taxes, he must work the harder to make it up.
Fifthly, If hands increase, after he is reduced to his physical-necessary, the whole class of the manufacturers will be forced to starve.
Sixthly, The increase of hands means no more than the augmentation of the quantity of work produced. If, therefore, the same hands work more than formerly, it is the same thing as if their numbers were increased.
From these positions it seems to result, that when ever it is found that manufacturers enjoy wages more than in proportion to their physical-necessary through the year, reckoned upon the general average of married men and batchelors, the method for reducing them to the proper standard, is either to multiply hands, if you want to reduce prices in your own market, or to augment the price of their physical-necessary, if you would have them remain the same. When the hands employed are really diligent, and prices still too high, then it may be expedient to increase their numbers, provided they enjoy considerable profits. This will cut off consolidated profits, and lower the price of commodities; because it will augment the supply.
When the hands employed are not diligent, the best expedient is to raise the price of their subsistence, by taxing it. By this you never will raise their wages, until the market can afford to give a better price for their work. If, when they are brought to be fully employed, you would have the price of labour to sink universally, you must take off some of the impositions which affect subsistence, and at the same time gradually throw in fresh hands, in order to promote competition, which alone will force them to lower their prices in proportion. The whole delicacy of this operation is to prevent competition among the industrious from taking place after they are reduced to moderate profits; and to promote competition among them, or to raise the price of their subsistence, until they be brought to the proper standard. Having insisted so fully upon these principles in the xviiith chapter of the second book, I here refer to it.
I have said, that the price of work is not regulated by the price of subsistence, but by the price of the market for the work. Now I say, that the price of the market may in a great measure be influenced by the price of subsistence. This is a new combination.
The first proposition is undeniable. The price of the market at all times regulates the price of work; because it regularly makes it fluctuate, in proportion to its own fluctuations. The price, again, of subsistence influences it only; because two circumstances may destroy its effect. A high demand for work will raise the price of wages in years of plenty; a low demand will sink the price of wages in years of scarcity. When therefore it is said, that the price of subsistence influences the rate of markets, we only mean, that the average price of subsistence, when good and bad years are taken together, have a certain influence in regulating prices. But this average price of subsistence cannot every where regulate the value of work, as the average price of a ship's cargo can regulate the price of every part of it; because the variations in the price of subsistence have not efficacy sufficient to overbalance the variations in the state of demand.
Could a plan be concerted, either to preserve the price of grain at one uniform standard, or within the limits of 15 or perhaps 20 per cent at all times; and were this to be executed by the assistance of a tax at one time, and a bounty as it were at another; it would certainly have an admirable effect in every industrious nation. It would in a manner take away the difference between good and bad years. The industrious finding themselves subsisted at all times nearly at the same expence, would not feel those alternate motives to be idle and extravagant at one time, and diligent and sober at another.
I have enlarged so much upon the nature of this first inconvenience proceeding from proportional taxes, that I have left myself very little to say as to the second, which is,
Secondly, That they discourage consumption, by raising prices too high for people of a middling rank in life.
In answer to this, I must observe, that all the amount of proportional taxes is refunded to the industrious consumer, so far as they are raised on articles necessary for his subsistence; and when he is either idle, or consumes a superfluity, he is classed along with the idle and rich. Now if the rate of market prices be high, relatively to the income of certain individuals, it can only be because the supply of the things they want to consume is not above the proportion of the demand of those who are richer.
If, therefore, the rate of the market afford such profits to manufacturers as to render them idle and luxurious, how can the augmentation of these profits, by the abolition of taxes, and consequent diminution of the price of subsistence, ever diminish the competition of the rich, unless the supply be augmented?
But if the high prices of our own markets cut off the demand of strangers, then every principle laid down in the 1oth and 18th chapters of the second book, must be applied to bring them down: and as far as taxes, which are imposed either to supply the exigencies of the state, or to cut off consolidated profits, enjoyed by manufacturers in consequence of our own extravagance, have contributed either to raise them, or to support them when raised, above the foreign standard, a full equivalent, in the way of bounty, must be given for them, in order to bring the exportation price of goods below the level of foreign competition.
I come now to the last inconvenience alleged against proportional taxes, to wit, the expence of collecting them, and the oppression which is a consequence of the many restrictions laid upon liberty, in order to prevent frauds.
As to the expence of collection, it is entirely in proportion to the disposition of the people to defraud the public.
In France, the collecting of the branches of cumulative taxes, such as the general receipts, comprehending the taille, poll-tax, &c. costs the state no less than 10 per cent or two sols in the livre, which is superadded to those impositions, in order to defray that expence. Whereas in England the expence of collecting the excise administered by commissioners, who act for the public, not by farmers who act for themselves, does not cost above 5 l. 12s. 6d. in the 100 l.
This matter of fact is sufficient to prove, that excises, when under a proper administration, are not so very expensive in the collection as is generally imagined; and they would still be attended with less expence, were some proper alterations made in the present method of imposing them. This will appear as we go along.
The oppression of levying excises does not, in any proportion, so much affect those who really pay them, as those who advance them only for the consumers.
This distinction which we have already made, will appear well founded, upon examining the complaints which are commonly made against the collectors of this duty.
We have seen how in the taxes upon salt and tobacco in France, there are no duties collected upon the people; the farmers of the salt have all the salt marshes and salt pits assigned to them by the King; no person, not privileged, is allowed to make salt for the consumption of those provinces which are subjected to the Gabelle.
In like manner the distribution and sale of tobacco is exclusively vested in the hands of the farmers: they buy it either from Great Britain, or from the Dutch at second hand; they manufacture it themselves, and sell it over all France, at the price set upon it by the King; and we saw, that during the last war, they paid thirty millions down, for a permission to raise the price of it 10 per cent during ten years. This price fixed upon the sale of tobacco, answers exactly to what we know under the name of assize, which ought constantly to attend all excises: (6) for want of observing exactly this regulation, the publicans and victuallers in England raised the price of their strong beer one half-penny per quart, in consequence of an additional duty of three shillings per barrel imposed anno 1761, which is at the rate only of one farthing per quart. (7)
When the sale of an exciseable commodity is vested in a company who manufacture it, by exclusive privilege, the whole oppression of collection is avoided; because the company itself then pays the duty, and they draw their reimbursement from proportional profits on the sale of the goods.
This is the greatest advantage of the farm above the public management of a tax.
When excises are levied upon those who manufacture the commodity excised, the oppression of the laws falls upon the manufacturers, although they advance the tax only, and draw it back from the consumers upon the sale of the commodity.
Were people to reflect a little, they would soon discover how greatly it is for the advantage of every consumer in the kingdom, that no fraud in the collections should pass unobserved; because all the profits arising from frauds belong to the manufacturer, who in reality is the tax-gatherer, as much as the farmers in France are tax-gatherers, when they sell their salt and tobacco. But as the farmers appear in the light of King's officers when they prosecute offenders, and our collectors seem to bear hard on those with whom we live, people foolishly imagine, that were brewers, for example, more gently dealt with, beer would come the cheaper to themselves. This is a mere delusion; because no brewer whatever will sell his beer cheaper than either an assize, or the ordinary rate obliges him to do, let his profit, from frauds, be ever so great, and his address in committing them ever so successful; and the less productive the tax turns out to be in the end, the more the other impositions upon the people must be augmented, in order to make up the deficiency.
If we compare therefore the oppression of excise-laws felt by those who advance these impositions only, with the ease which the consumers find who really pay them, we may judge of the advantages which the proportional taxes have over the cumulative.
The excise, as paid by the brewer, is really of the cumulative kind. The exciseman demands money of him, at a time when no alienation takes place, and perhaps when he is not prepared to make the advance for his customers, who must refund it to him with profit: besides the hopes of being able to defraud are disappointed, and it is always disagreeable to be disappointed in what we either wish or hope for.
Were all mankind honest, the inconveniences of levying such taxes would be less; but as this is not the case, methods must be fallen upon to disappoint the intention of committing fraud. The only way to accomplish this, is, to render if difficult and dangerous: but while every individual has a liberty to manufacture an exciseable commodity in whatever place he thinks fit to enter, (that is to declare to be set apart) for that purpose; when every one has a liberty to sell liquors, which, upon retail only, are subjected to excise (as is the case in France) must not collectors be multiplied in proportion to the occupation which such policy implies? And will not these collectors oppose frauds to frauds, in order to profit by them, at the expence of the merchant or manufacturer? This will sow discord and hatred between two classes of the same society, and thereby the state is hurt. All discord hurts a state, as it does a private family.
It is out of my way to lay down plans for preventing such inconveniences. It would require an intimate knowledge of every circumstance relating to the country for which the remedy is intended.
I shall therefore endeavour only to throw out some useful hints, by mentioning the impositions where the inconveniences in levying are the least; and by comparing these with other impositions, where the oppression in levying appears to be greater, the contrast of circumstances will suggest the principles upon which a plan may be formed.
There are many more frauds and difficulties in collecting excises in the country than in cities, from the number of manufacturers employed in them. It is just so with the aides in France, from the number of retailers. There are very few frauds and little difficulty in gathering the malt-tax; because the object is unwieldy, and the places of manufacture are fewer.
The frauds upon tobacco and salt in France, do not proceed from those who manufacture them, but from those who introduce foreign goods to supply the place of those manufactured by the company. This shews that excises should be made as general as possible over a country; because local exemptions introduce, as it were, a foreign country into the center of a state.
Stamp-duties are seldom defrauded by forging the stamp; but in France, where they extend to almost every deed of alienation, the public is defrauded by private bargains.
Customs are defrauded by the liberty given to trade in every port; and from the want of convenient public magazines, to serve as a proper repository for all goods brought by sea.
It may further be said, in general, that frauds are most frequent upon the new establishment of taxes; that those who complain most of the oppression of them, are precisely those who have the least reason for it; and that the cause of their complaint proceeds rather from the inconvenience in paying their taxes when they are not prepared, and the disappointment in defrauding, than from any real oppression arising from the laws of excise: the hardships of these laws are owing to the necessity of general rules for preventing frauds; and such rules would be unnecessary, could the liberty of committing frauds be circumscribed.
One very good method of raising proportional taxes, without great expence or oppression, when the situation of a country will admit of it, is to levy no such duties, but at the gates of towns and villages, which in this light appear to be political inclosures. At these gates every produce of the lands, and every manufacture not made in the town, might pay a tax upon coming in; every manufacture made in the town, might pay a tax on going out: all fruits consumed in the country might be free; all manufactures made and consumed in the towns might be free also. If we consider the quantity of exchange between the inhabitants of towns and those of the country, and between town and town; this regulation, I believe, will be found sufficient to raise more money by proportional taxes than what is raised in any country in Europe.
A second method of diminishing the expence, and also the burden of proportional taxes, is to exact nothing of the manufacturers of exciseable goods, but to prohibit the delivery of them to any one who does not present a permit from the excise office, signifying that the tax has been paid. This is the method observed in the Austrian low countries, where excises are carried to a very great height. There the transporters or carriers of exciseable goods, are formed into a corporation, and none else dare to transport them.
Whoever has seen the execution of these regulations will not be very fond of them; but the inconveniences which occur proceed from the political situation of all these towns, the public debts of which are so enormous, that to pay the interest of them excises have been carried so high as to banish manufacturers into the country, where few excises are levied. It is from the country and many considerable villages, which have not the privilege of running in debt, that the manufactures of that country are carried on. No industrious man can afford to live in the towns of the Austrian Netherlands, except he who supplies their consumption; and in no place, I know of, is work so dear as there.
Were great excises levied there upon the furnishers of the exciseable goods, as is the case in Great Britain, and were as little restraint laid upon their frauds, those duties would not produce what they do; and the oppression would be intolerable; whereas by the policy established, nothing but the high price of goods is complained of. A third method of avoiding both expence and oppression in levying proportional taxes, would be to confine the fabrication of all articles charged with them to certain places properly enclosed. Were those undertakings few and large, were spacious magazines of all sorts prepared, at the public expence, in all sea-port towns, and surrounded with walls, an entire liberty might be allowed within the inclosures, and no questions would be asked, but on going in and coming out. Under such regulations a state would reap great benefit. First, There would be considerable savings in collecting. Secondly, There would be great savings on the number of hands employed in manufacturing: forty men, in a large brew-house, make more beer than an hundred disposed as they are in country villages. This resembles the introduction of machines into manufactures.
The objection from the infringement of liberty is more a pretext, in order to facilitate fraud, than any thing else. Are not those who manufacture exciseable commodities, the servants of the state? Are they not even the collectors of the public revenue? With what face then can they pretend to be indulged in the means of defrauding their customers of those taxes which they wish to put into their own pockets, by withholding them from the public. Has liberty any other meaning, but an entire permission to do whatever is not forbid by general and wholesome laws, calculated for the universal good of the society; and shall this class of men, who are enriching themselves as much by the profits they have in advancing the taxes, as by their industry, be considered in as favourable a light as another who is paying a cumulative tax out of his income, one farthing of which he never can draw back?
If any one should misinterpret the doctrine of this chapter, I must put them in mind of my original plan, which was to keep constantly in view those virtuous statesmen who think of nothing but the good of their subjects. Taxes and impositions in their hands, are the wealth of the father of the family; who therewith feeds, clothes, provides for, and defends every one within his house. The increase of taxes on this supposition is national oeconomy, as shall be afterwards shewn; frauds are the thefts of servants impairing the public good, and particularly the means of self-defence against the incroachments of ambitious neighbours.
As it is the duty of every statesman to make his people happy and flourishing, perhaps the speculations of one whose only interest in throwing them upon paper is to fill up his leisure agreeably, may some time or other tend to promote so glorious a purpose.
After examining separately the nature and effects of cumulative and proportional taxes, it remains, for the more full understanding of this subject, to compare them together; the better to find out wherein they really differ, and how far the difference is apparent only.
It has been observed, that as the payment of taxes is made in money, this payment can diminish no part of the produce of either land, or industry; the whole amount of these remains entire to the subjects of the state.
Taxes then are paid either out of the money which circulates in the purchase of produce and manufactures; or out of the income arising from solid property: from which we have concluded that those of the proportional kind must constantly be confined within a certain proportion to alienation. We have also observed, that the imposition of taxes augments the mass of circulation, and makes it requisite for a statesman to contrive some method for increasing money in proportion to their increase. I hope these propositions have acquired an additional confirmation, from what has been already said in the preceding chapters.
We have also seen how the amount of proportional taxes is ultimately taken from the superfluity of the rich, whom we have called the idle consumers: and how they are advanced by one set of the industrious, and refunded by another, until at last they fall upon those who cannot draw them back from any body. These last have been said to pay the taxes, the others to advance them only.
Were we therefore to suppose all desire of defrauding out of the way, we should find the whole burden of proportional taxes confined to the inconvenience of advancing their amount by the industrious, and to the payment of them by the rich, which proportionally diminishes their income. Where credit therefore is well established, where payments are regularly made by buyers to sellers, and where people proportion their expence to their free income, the weight of proportional taxes will be very small. I appeal to experience for the truth of this.
Let us next examine the nature of cumulative taxes, as we have called them, in order to distinguish them from the others.
In these, alienation is not necessary at the time they are paid; from which it follows, that, in many cases, they cannot be drawn back. When a man pays his land-tax out of his rent, what remains to him will not buy more of any thing than if he had paid nothing. Nay, were the state to indulge him and take his tax in corn, the corn which remains to him would not bear an advanced price, unless the state should export the quantity he had given; and then indeed, by diminishing the supply, it might raise the price of grain in general; but every one having grain to sell would profit of the rise upon the price, as well as the landlord, whose share does not commonly amount to one third of the crop.
But were a cumulative tax so levied as to prevent the proprietor from spending what the state intends to make him pay out of his income, he who pays it would thereby acquire one great alleviation of his burden.
I have said that when a brewer pays the excise, the tax, as to him, is of the cumulative nature. It is so in a certain degree, no doubt, as may be seen without farther explanation; but it still so far retains its own nature as to be easily drawn back from the consumer. But how can a soldier draw back the tax he pays to Chelsea?
From this material distinction between the two impositions, I conclude, that no objection can lie against proportional taxes, so far as they affect the industrious; because they draw them completely back: and that great objections lie against cumulative taxes, when they affect the industrious, because they cannot draw them back at all; and consequently, they may affect the physical-necessary of the contributor, in case no profit should remain to him upon his labour. On the other hand, I think little objection can be made to cumulative taxes, when they are imposed upon possessions, which produce a visible annual revenue, clear to the proprietor. This is the nature of the dixiemes and vingtiemes in France; where the whole amount of the person's income is taken upon proper proof, and taxed in proportion to it, without any subsidiary or second levy's taking place, to make up a determinate sum.
Cumulative taxes would also be far less burdensome to the lower class, could they be levied, so as, first, to preserve the proportion of them to the actual profits on industry: secondly, to make that proportion sensible to the people: and in the last place, to retain the tax, instead of allowing them first to receive it, and afterwards obliging them to refund it.
In proportion as these three requisites do not take place, such taxes become grievous to all who have no fixed income.
To put a tax upon a man's dwelling house, in proportion to its windows, or hearths, when the house produces no fixed income to him, and when he has none independent of it, may take away a part of his physical-necessary. To put a tax upon his head, is more grievous than to put a tax upon his hands, in proportion to what they daily gain.
If cumulative and proportional taxes be compared, with respect to the influence which they severally have upon our opinions as to taxes in general, we find that both of them deceive the contributors, but in different ways.
In the cumulative taxes, the person who pays does not always perceive the reason of his paying. He imagines that he is taxed merely because it is known that he is able to pay a certain sum.
In the proportional, the deceit is of another nature. When a person buys a consumable commodity, which has paid an excise, he does not perceive that the price he pays for it comprehends a tax upon his past gains, in favour of the public; but he concludes the whole to be necessary, in order to procure what he has an inclination to consume. An example will make this plain.
Suppose a tax laid upon wheel carriages, and that every person in the state were liable to pay a certain sum in proportion to the number of carriages he has for his convenience. The tax-gatherer comes at the end of the year and demands the sum. The person complains that he is not at liberty to have a coach or a chaise without paying duty for it; and that while he has occasion for one carriage only, and has but one pair of horses, he is obliged to pay for several sets of wheels.
Now suppose this cumulative tax were turned into a proportional one, and that wheels were to pay a stamp-duty, or the like, in the hands of the wheelwright. The price of them would immediately rise. but this rise would soon become familiar to the man who has the carriage; and he would then be no more hurt by this additional expence, than if it had proceeded from some new and expensive fashion of wheels; in short, wheels would generally begin to bear an advanced price, and very soon nobody would enquire how it came about, nor once complain of the tax.
To set this in another light, the difference between the two impositions resembles that between long and short accounts, which to poor people is very great. When the expence of living is insensibly and universally augmented, by the effect of proportional taxes, then the industrious man, who enjoys neither superfluity or idleness, may and can augment the price of his work in proportion. This augmentation forms then a part of what has been called his (A), which he draws fully back when he comes to market. But if the same, or even a less sum be raised upon him by a cumulative tax, it comes upon him at the end of the year, or at the end of the quarter, and let him be ever so provident, he cannot draw it back, or raise the price of his work, because of the unequal competition of other people of his own class, who from a variety of circumstances, cannot all be so equally loaded by the cumulative as by the proportional taxes. Besides, they may not be so provident as himself and may work for subsistence, without making any allowance for what they are to pay the state at the end of the year. Thus a double inconvenience ensues. The industrious poor are oppressed by the tax-gatherers, and the tax is ill levied. In the other case, the first never see a tax-gatherer, and the money is paid. Besides these advantages in favour of proportional taxes, there is still another, that if this tax be improperly laid on, the defect will manifest itself by checking consumption only; whereas in the other case, it will be known by the distress also of the individuals.
If the liberty not to consume be taken away, as in the gabelle in some provinces in France, then the imposition changes its nature and becomes a cumulative tax, as may be easily perceived. (8)
It has been said, that so far as the three inconveniences of the cumulative taxes can be prevented, they cease to be oppressive. From which we see the reason why excises are so easily paid when those who manufacture the commodities charged with them, are contented to compound for them. This changes the tax into one of the cumulative kind; but gives it every requisite to make it easy. Let me take an example.
A brewer who pays excise for all he brews, is exposed to the daily visit of the excise-man, to whom he pays the duty. Here the brewer's imposition participates of several of the inconveniences attending cumulative taxes. But let me suppose that after a certain time he finds that 100 l. is the annual amount of his excise. If he make a composition for it at this rate, he comes under a regular cumulative composition, with every advantage. He thinks no more of frauds; he no more grudges what he pays; and becomes in a manner collector of that imperceptible duty advanced by him, and paid by all his customers.
The easy method of transforming those taxes into one another, shews their resemblance sufficiently, and the differences which we have pointed out, shew the principles which regulate the proper manner of imposing them.
We have now seen the objects affected by taxes, and the inconveniences which result to those who are obliged to pay them.
It comes next to be examined, whether taxes of all kinds be not a great load upon a people, a grievous infringement of their liberty, the means of bringing many honest and industrious people to great distress, and a great discouragement to marriage. I answer without hesitation, that taxes may be, and most commonly are accompanied with all these and many more inconveniences; but I must add, that they proceed from the abuse, and not from the nature of taxes.
In my inquiries, I have constantly in my eye, how man may be governed, and never how he is governed. How a righteous and intelligent statesman may restrain the liberty of individuals, in order to promote the common good; never how an ignorant and unrighteous statesman may destroy public liberty, for the sake of individuals.
Raising money by taxes must always be burdensome, less or more, to those who pay it; and the advantages resulting from taxes can proceed only from the right application of the money when it is raised.
When individuals only draw a profit from the inconvenience of taxes, the public loses, no doubt; because taxes are paid for the advantage of the public, not for that of private people. If the money raised be more beneficially employed by the state, than it would have been by those who have contributed it, then I say the public has gained, in consequence of the burden laid upon individuals; consequently, the statesman has done his duty, both in imposing the taxes, and in rightly expending them.
Taxes, in this last view, may be considered as a saving out of every private fortune, in order to procure a public fund to be expended for the public benefit.
I have frequently recourse to the familiar examples of private oeconomy, in order to make applications from it to the political; which, however different it may appear, will be found easily deducible from the same principles.
Let me suppose two persons, (A) and (B), living in the same neighbourhood, of the same rank and fortune, enjoying great superfluity, but spending yearly the whole of their income in different ways.
Let the income of both be supposed to be 2100 l. sterling; and let the branches of their expence be ranged under six different heads. Let (A) be supposed to spend upon the first 100 l. on the second 200 l. on the third 300 l. on the fourth 400 l. on the fifth 500 l. on the sixth 600 l. in all 2100 l.
Let us suppose (A) to enjoy in every one an ample sufficiency.
(B), on the other hand, spends upon his first article 1600 l. and upon each of the other five, no more than 100 l. Here the first article of (B's) expence is sixteen times greater than any of the rest; and by the supposition, 100 l. is supposed to denote an ample sufficiency upon each article.
I come to (A), and I say to him, you disapprove of the extravagance of your neighbour (B) upon his first article of expence, where he spends sixteen parts of his income, and where you spend but one; and yet you must allow that upon every other article of his expence, he is a better oeconomist than you. Would it not be for your interest to bring the other articles of your expence down to his standard, without increasing any thing upon your first article, which is already within the compass of what may be called sufficient.
To what purpose, says (A), would you advise me to so strict an oeconomy? And what should I do with so great a saving on my annual income? Be in no pain about that. I shall lay it out for you in discharging your debts; in providing for your children, and giving them a good education; in improving your estate; repairing your house; making up your inclosures; all shall be usefully spent; and out of 600 l. a year, you shall have every thing necessary for your family.
Here is the representation of a scheme between a good statesman and a people whose interest he consults.
After the imposition of taxes, the individuals of a state, who have already a determinate income, begin to pay greatly more than they used to do for every thing they consume. A great part of this additional price goes to the public, and is thereby laid out for national purposes. The whole of such expences is thrown into circulation, as much as if the rich proprietors had laid it out themselves upon articles entirely adapted to their own taste.
Is it not evident, that in this way of appropriating the income of a country, it must produce a more extensive encouragement to industry of all kinds, than if the proprietors only had spent it? They never would have thought of becoming merchants, or of setting up manufactures for the supply of foreign markets: their whole expence would have been calculated to supply their own wants real or imaginary; and it would have been indifferent to them whether these were supplied by natives or by strangers.
Let us apply this doctrine to common experience. Let us compare the nature of circulation in a trading town, with that of a country place, where many gentlemen of large fortunes reside. How extensive the objects of the first! how contracted those of the latter!
Let us compare again the exigencies of government, with those of a trading city, what a variety of new wants here occur to be supplied, which the city never could have occasion for?
I have shewn how the great amount of taxes comes to be taken from the income of those individuals whose fortune is already made, or whose daily profits are considerable: I have suggested how circumscribed the expence of this class must be, when considered with respect to the employment it procures to the body of a people. Does not the experience of former ages show how apt private opulence is to sink into treasures, when a taste for industry does not animate the lower classes to create new objects of desire in the wealthy? Wherein is a state benefited by the luxurious gratifications of the rich, unless it be by the employment they procure for those who provide the objects of luxury? Those very gratifications are, in one sense, taxes upon the rich in favour of the industrious: they increase expence, and throw money into circulation. In Spain and Portugal, where industry is not introduced among the lower classes, the strangers are they who in effect levy such taxes upon them. Were the taxes they pay, properly applied for the encouragement of the arts, instead of being appropriated to private purposes, and to the enriching of private men, whose taste for expence is always circumscribed to the objects of their own wants, how soon should we see them vying with us in every market of Europe, and supplying themselves as far as their country is calculated for it.
The reciprocal wants of industrious nations, resemble the reciprocal wants of tradesmen; all may be employed in supplying one another, as well as themselves.
When a due proportion of the amount of taxes is properly laid out in premiums, for the encouragement of the industrious, the prices of labour upon articles of exportation, may be brought so low, that all nations who do not follow the like policy, must languish and decay. Luxury at home will then cease to hurt the foreign trade of the nation. In her treaties of commerce, she may throw open her ports to many articles of foreign consumption, without incurring any inconvenience from such allowances; while on the other hand, she will reap the greatest advantages from a reciprocal permission.
The example by which I have illustrated the nature of public contributions, must not be understood to tally with respect to proportion. It would be both ridiculous and impossible to reduce all the expences of rich men to the barely sufficient. All I meant was, to shew how taxes, when properly applied, may be considered as public oeconomy; and how the levying of them has no direct tendency to hurt a nation in point of ease and prosperity.
One good way to discover the nature of taxes, is, to examine how far it may be possible to carry them. This is my intention in this chapter.
I have said that the object of taxes was income, and not stock. I have shewn how those of the proportional kind affect the income of stock already made, and enhance the expence of persons who enjoy large profits upon their daily industry. I have pointed out the impropriety of imposing cumulative taxes, upon such as draw nothing more from their industry than an easy subsistence; and I have given a general preference to those of the proportional kind; because they constantly imply both alienation and consumption: alienation in those who advance the taxes, consumption in those who pay them.
Could, therefore, taxes be levied upon every alienation, where consumption is implied, and that in proportion to the whole superfluity of those who are to consume, proportional taxes would be carried to their utmost extent.
I shall now analize this subject still farther, in order to discover how far this extent may reach; and by this inquiry, the principles of taxation will be the better understood.
The object of alienation comprehends all that is in commerce among men, moveable, and immoveable.
What is moveable is generally consumable, what is immoveable, is generally not so.
As consumption is a requisite, together with alienation, in order to form a proper object for proportional taxes, we see how contrary to principles it would be, to tax the alienation of lands, houses, etc. in the same proportion as consumable commodities. These are funds, not income; and the money with which they are purchased, must be considered in the light of a fund, while it is in the hands of the buyer. When once it comes into the hands of the seller of the immoveable subject, it frequently, indeed, partakes of the nature of income; that is to say, it is spent in the consumption of fruits, and of the labour of man; and then it will be properly affected by proportional taxes. This may suffice to recal to mind the principles we laid down in the 26th chapter of the second book, concerning the effects of the vibration of the balance of wealth between the members of a modern state.
The next thing we are to consider is the state of circulation. As to this, we have frequently observed, how it must be in proportion to alienation.
This proportion is not determined by the value, or denominations of the money circulating; but by this value combined with the frequency of transitions from hand to hand; as the force of a cannon ball is estimated by the weight of the ball, and the swiftness of the motion at the time it strikes.
Let us now lay aside the consideration of immoveable property altogether; and examine the nature of consumption, alienation, and sale, with respect to other things.
Consumption comprehends every thing produced by the earth, or by man; alienation is confined to that part of consumption which is exchanged between men; and sale to that part of alienation which is exchanged for an equivalent in money.
Whatever part is consumed without alienation, ought, I think, to be out of the reach of proportional taxes, unless, by some circumstance or other, it can be made to fall under the eye of the public, in a manner resembling its coming to market. Thus a tax upon malt may with propriety be levied at the malt-house, as if it were sold to the maltster, although it be made for the consumption of the grower of the barley. In like manner a tax upon corn for bread may be levied either at the mill where it is ground, or at the oven where it is baked. (9)
The worst kind of proportional taxes are those which are levied upon private manufacturing, and upon unmanufactured consumption, where no alienation takes place. An example of the first we have in the excise upon malt, cyder, candles, etc. made in private houses for private use: the last is known in Holland, where a man cannot kill his own pig, or his own calf, without paying a tax. Were taxes of this nature extended to the making of bread, cooking of victuals, &c. I apprehend they would become of a nature more burdensome than any hitherto invented, unless public cooks, &c. were established, as public ovens are in many parts of France: in such cases, taxes might be levied upon every part of consumption.
Investigations of this nature are so disagreeable, that it is with reluctance I mention them; but when in fact, such taxes are found established in different countries, it is highly proper that the nature of them should be inquired into.
Taxes in Holland are so multiplied, as to descend to this sort, in many places, as we have seen by the example just given; but even these, however oppressive they may appear to those who are not accustomed to them, are still less so than many of the cumulative kind we have mentioned, particularly the tax upon industry and the capitation in France. They approach nearer to proportional taxes and derive every alleviation of their burden from this circumstance. He who pays such taxes, sees that he can avoid them, by retrenching his consumption; and when they fall upon the necessaries of life, he may draw them back, provided he be an industrious man, and that every one who enters into competition with him for employment, be equally subjected to the same burden. But they are more burdensome than those where sale takes place; because, when a poor man, who wishes to consume, has no money, he considers himself in the same light as if the thing were not to be sold; but when he has what he has acquired by his own labour, and cannot consume it for want of money to pay for a permission, as it were, he must either starve for hunger in the midst of plenty, or be reduced, perhaps, to beggary, for having preserved his life by defrauding the tax.
What has been said, is, I think, sufficient to shew the hardships which occur, when taxes are imposed upon bare consumption, where no alienation takes place: they must, in every respect, be ranged under those of the proportional kind, although some principal requisites be wanting to engage any one to approve of their institution.
It appears still more difficult to establish a proportional tax upon barter, or the exchange of commodities one for another, unless sale be understood. This would be the case were a private person, not subject to the excise upon beer made in his own house, to pay in that commodity. He would not there escape the imputation of fraud; and might, with propriety, be considered as a retailer. I do not, however, doubt but examples of taxes upon barter might be found; some even occur to myself; but they are too trifling to mention. (10)
The last and principal requisite, to render proportional taxes easy and light, is sale. There the burden must be proportional to the buyer's purse; and if it prevent the consumption of the thing taxed, the defect will manifest itself.
Of these taxes we may say, that they are in proportion to circulation; and accordingly, we see how difficult it was to raise them, as long as circulation remained confined to the small quantity of coin in the country. As money increased, both by the increase of trade and alienations, they became more productive; and were the nature of them rightly understood, and were they properly imposed, they would soon be more generally adopted.
In treating of public credit, I have said that it is the duty of a statesman to augment the quantity of money, in proportion as he intends to multiply taxes on his people. I shall now, before I conclude this chapter, explain the meaning of what was there thrown out relatively to another subject.
The money of a country, we have said, bears no determinate proportion to circulation; it is the money circulating, multiplied by the number of transitions from hand to hand. Again, we have said that the prices of all things are determined by demand and competition. The meaning of this, as it concerns the present question, is, that in proportion to the competition of those who appear with money, in order to acquire what comes to market, a larger or a smaller sum is brought into circulation.
Now, according to the principles laid down in the first chapter of this book, we saw how the full value of the industrious seller's expence and profit, were made up to him in the sale of his work; and if he had advanced any tax upon any part of his work or consumption, that even this was refunded to him by the buyer, who, if he consumed in the light of an idle man, paid for the whole.
Farther, when a proportional tax is imposed, we said it was, in a manner, as if the state interposed at the time of alienation, and exacted of the purchaser a certain value in money, in proportion to the commodity, as the price of the permission to acquire what his own industry had not produced. From this I draw the following consequence, that in proportion to the tax, an additional sum of money is drawn into circulation, which would otherwise have remained in the pocket of the purchaser; consequently, on imposing proportional taxes, they cannot, at first, exceed that proportion of money which is found in the pockets of the consumers, over and above what they used to pay for what they consumed.
The truth of this proposition is established upon many facts. First, in countries where people keep their money locked up, proportional taxes are very well paid. Hence the great amount of the alcavala and cientos in Spain, which amount together to 14 per cent upon every consecutive alienation of the commodities which they affect, chiefly indeed for the consumption of the rich.
Secondly, When excises were augmented in England, in the reign of king William, Davenant tells us, that the goods excised fell in their price.
Thirdly, When a war has lasted any time in France, taxes cease to be so productive.
Are not all these, and many other appearances, resolved upon the same principle, viz. that taxes must come out of that money which exceeds what was necessary for carrying on alienation before they were imposed?
In Spain such taxes draw money from the chests of the hoarders, and increase circulation for a while.
In England, during King William's wars, the quantity of money being very small, and trade being very low, the tax upon malt could come out of no other fund than the price usually given for barley.
In France people are better acquainted with taxes, and the great bulk of excises are administered by the farmers, who never lower their price; so that the diminution of the mass of coin must diminish consumption.
But when methods can be fallen upon to increase money according to the uses found for it, taxes will continue to produce, consumption will not diminish, and circulation will keep pace with them.
Could we suppose, that before the imposition of taxes, every person in a state had laid it down as a rule, to spend the whole of his income, but none of his treasure, in the consumption of what is brought to market, it is plain, that in a luxuriouS nation, taxes might be carried so high as to draw the last farthing of the treasure into circulation, even though it were supposed to exceed the value which demand had fixed for all that was formerly brought to market. But without a luxurious turn this would not be the case. There are countries abounding with coin, which it is impossible to come at by proportional taxes. The reason is plain: the value which demand fixes upon the total of the articles of consumption exposed to sale in the country, bears but a trifling proportion to the coin which remains locked up. This was the case in ancient Greece. In this case, proportional taxes never can exhaust the treasure; because were they to be made high upon articles of the first necessity, all the poor would starve; if upon articles of superfluity, demand would stop.
Proportional taxes, therefore, can be raised in proportion only to the desire of spending money; and as this desire depends upon the spirit of the people, so must the extent of taxes.
Let me now trace a little the progress of money brought into circulation by proportional taxes in a luxurious nation. I shall call the value, fixed by demand, for all that comes to market (Y). The sum levied in consequence of the alienation of it, or in other words, the sum of the proportional taxes (X). And the whole money of the country (Z). This premised, it will follow, from what has been said, that as soon as all the money of the country is brought into circulation, then (Z) will be exactly equal to the sum of (Y) and (X).
Let us next suppose the whole alienation to be made at once. Will not (Z) then immediately appear divided into (Y) and (X)? What then will become of those two sums which we suppose to enter into circulation at the same time? I answer, that (Y) will go entirely free to the industrious seller: that it is, or should be, nearly equal to the former value of what came to market before taxes were imposed: and that (X) is an additional sum drawn from the idle consumers, who live upon an income already made. But suppose (X) to be augmented, until it exceeds the quantity of money formerly superfluous for carrying on alienation: then I say, that either taxes will become proportionally less productive, or consumers must melt down the capital of their funds into paper money, to the amount of the deficiency of (X); and this will supply circulation with the additional sum required in consequence of the imposition of taxes.
Now, I think, it is a lucky circumstance, that the additional sum of taxes should be paid by those very people who are the best able to borrow it upon their funds.
Let us proceed to examine the progress of (Y) and (X) as they continue in circulation. (Y) is no sooner come into the hands of the industrious seller, but he has occasion to go to market: that moment I consider him as one of the rich; and the money which, at the time he sold, had acquired the denomination of (Y), now resumes that of (Z). When he comes to buy a commodity with what was formerly his (Y), there is immediately a part of it converted into a new (X), and the remainder keeps the denomination of (Y) in the hands of him from whom he buys. By this progress it is plain, that after a certain number of alienations, or transitions from hand to hand, the whole quantity (Y) will be converted into (X).
Experience shews this to be the fact; because the amount of taxes in a short time, far exceeds the value of all the money of a country.
Let us next follow the progress of (X).
Upon the first alienation of any part of what comes to market for the consumption of the proprietors of (Z), a proportional part of (Z) is transformed into (X), and is carried into the public coffers. Were it there to be locked up, and not thrown back into circulation, it is plain, that in a short time the whole of (Z) would be converted into (X), and would be shut up in the exchequer.
When the amount of taxes, therefore, instead of being shut up in the exchequer is sent out of the country, as in time of war, must not this produce a similar effect? Has not the exportation of this amount the same effect as locking it up, since the one and the other equally take it out of circulation? Does it not then follow, that if more money be not obtained, either by borrowing it back from strangers, or by melting down more solid property, that selling must stop, and (Y) disappear as well as (X)? The rich, therefore, must give over buying, and the proprietors of all that comes to market must deal by barter with one another.
How naturally do all these consequences follow one upon the other! and how exactly do they correspond to the principles which run through that part of the last book where we treated of banks and public credit!
Taxes are not raised, in our days to remain in treasures, but to answer the exigencies of the state. The moment, therefore, that the money arising from them comes out of the public coffers, it loses the character of (X) and resumes that of (Z), in the same manner as (Y) was transformed into (Z), by being brought to market in order to buy a commodity. This new (Z), as we may call it, no sooner returns into circulation, than it becomes again converted into (Y) and (X), with this difference, however, that what came from the exchequer, so far as it is converted into (X), returns directly into it again.
Hence it follows, that states commonly pay their servants the full of their salaries, and make them refund a part in consequence of cumulative taxes, instead of proportionally diminishing what is due to them. And when the salaries themselves are intended to be 1aid under poundage, which in fact is an actual diminution of them, they choose that the tax should appear to be a deduction out of what is supposed due; because it seems less arbitrary to impose a tax, than to diminish a salary, without assigning any reason for it; but indeed, besides this reason, it commonly happens, that the particular appropriations and administration of the revenue render this method easier.
With respect to proportional taxes they affect the expences of the state in the same manner as those of individuals; with this difference, as we have said, that the part (X) returns into the exchequer; but the part (Y) is fairly spent by the state, as by the idle consumer.
From what has been said, we may gather the principles which lead to the most extensive establishment of proportional taxes, viz. either to draw by particular regulations, the whole real and gross produce of land and work to market; or at least to bring it under the eye of the state, in consequence of some modification or manufacture performed upon it, as was observed with respect to malt-houses, mills, and public ovens. When, by such contrivances, the whole gross produce falls under taxation, the proportional taxes must be gently laid on, and gradually raised until they begin to interrupt consumption; then they must be diminished for a while, until dissipation increase; a case which will probably happen, as it commonly keeps pace with industry.
If we suppose the rich to set out on a plan of living upon their capitals, instead of living upon their incomes, as we have hitherto supposed them to do, then indeed taxes may augment to a degree not to be estimated. This combination has already found a place in the 26th chapter of the second book, where we examined it with regard to the progress of industry. In that place it was said, that in proportion to credit and industry, it might be possible, in the compass of a year, to produce commodities to the value of the whole property of the most extended kingdom. Were this the case, to what a height might not taxes be carried?
(Y) then would represent the whole value of the country, and consequently (X) would swell in proportion, according to the competition among the inhabitants, to purchase every particular article. Subsistence and necessaries might be taxed low in proportion to the abilities of those of the lower classes; articles of luxury might be taxed in a higher proportion, in order to draw the more into the exchequer.
Were taxes thus carried to their utmost extent, still every person in the state must be left at liberty to save, or to spend the whole, or any part of his stock, or income; which is not the case when cumulative taxes are imposed. Proportional taxes, though carried to their utmost extent, will not deprive an industrious man of his physical-necessary, nor of the reward of his ingenuity, nor of that rank in wealth, to which his birth or expence entitles him. (11)
When taxes have the effect of interrupting this harmony of expence, of restraining the liberty of squandering, or of saving, or of oppressing one set of men more than another, in all such cases, they are improperly imposed; and instead of being too high, as it is commonly supposed, I think it is a demonstration that they are really lower than they need to be. The classes of men in a modern state, resemble the horses in a team. When every horse draws fairly and equally, the whole force is exerted; but if any one happen to be strained by an over-charge thrown upon him, the force of the team is greatly diminished.
When proportional taxes are carried to their full extent, I then presume every one will be obliged to pay as much as possible; I do not mean that every one will be forced to pay to the extent of his abilities, but I say, that the generality will; and therefore, were cumulative, or personal taxes, to be superadded on those who already pay all they can, they would, by affecting them unequally, deprive many of their physical-necessary, or small profits; and consequently destroy the proper balance of their competition. The setting of the lower classes free from cumulative taxes, will have the effect only of putting the growing wealth of the penurious and saving part of the industrious inhabitants out of the reach of taxation. This ought in good policy to be done, as has been shewn in another place. But, farther, we have observed, that taxes can be increased in proportion only to the spirit of dissipation in the people. To force money, therefore, out of the hands of those who do not incline to spend it, is forcing the spirit of the people; and if it be not tyranny, it is at least great severity. Besides, we shall presently shew, how impossible it is these savings should escape being taxed whenever they begin to produce an income; and allowing that they may be greatly accumulated, and thrown into trade, yet still they must in one way or other appear in alienation, and become subject to the proportional taxes. The only part, therefore, of the savings not affected by taxes, will be confined to that which is locked up. This in a prodigal nation should never be touched. The inconveniences resulting to the state from so small an inequality of taxation, is too trifling to be attended to, and too difficult to be prevented.
I come next to examine the extent of cumulative taxes.
If we suppose the proportional taxes to be carried to their full extent, there will be little place found for the cumulative, as has been said. The only objects left for them are the savings locked up, and the pure profits upon trade.
But let us suppose proportional taxes out of the question, as they must be when contrary to the spirit of a particular nation; and then inquire into the principles which regulate the imposition of cumulative taxes, in order to discover to what extent they may be carried, and what consequences may follow when they are brought to a height.
This branch has two objects; first, income, which is determinate; secondly, profits from industry, which are and must be very uncertain.
Income, I divide into two sorts; that which proceeds from every branch of solid property, capable of producing it: Land, houses, even cattle, furniture, &c. all may, in some respects, produce an income, more or less permanent according to circumstances. This sort of income is established by lease. The second sort is the interest of money, constituted by the contract of loan.
In imposing cumulative taxes upon income, it is very proper to attend to the nature of every species of it, with respect to its stability. Landed property is fixed, and cannot escape taxation, were the tax to be carried even to the extent of the full income, as has been observed. Were the same proportion to be laid on houses, they would soon fall to ruin, because the nominal proprietor would not keep them up. Like circumstances must be attended to, in taxing every other article of revenue.
The method of ascertaining the value of this kind of property, is to oblige all leases to be recorded, under a sufficient penalty. This is the method in France, for the sake of the controle, which is exacted upon recording them; and this, no doubt, facilitates the arising of the twentieth penny, which operates upon all such income.
The value once ascertained, the whole income is at the mercy of the state, in proportion to the impossibility of avoiding the tax, by any change on the nature of the fund. It is from this circumstance that I have called all such taxes arbitrary impositions. And I call them also cumulative; because the reason given for imposing them, is, that it is just every one should pay a general tax, for the support of the state, in proportion to his abilities.
As these taxes cannot be carried beyond the value of the income which the proprietor cannot withdraw from under the burden, we see the impossibility of establishing them upon that income which proceeds from money. If a tax of so much per cent be imposed upon money lent at interest, the lender may immediately call in his capital from his debtor, and send it away beyond the reach of the tax. If the calling it in be prohibited, then all credit will be destroyed for the future, and no more money will be lent. If the statesman should be disposed to profit of the advantage found in securing money upon land-property; and if, trusting to the desire monied-people have of settling their capitals in that way, he should take one or more per cent. upon capitals so secured; it will still have the effect of hurting the credit of landed men, who have frequently no good security but their land to give.
It was formerly the practice to allow the landlords a retention of a part of the interest, in consideration of the tax they paid upon that part of their land, which was pledged for the security of the money borrowed; but when credit is once established, this regulation has no other effect, than to oblige landlords to borrow so much dearer than other people, who have no retention to claim. Where indeed credit is precarious, such a regulation may be considered as a premium for good security.
In general, I believe, we may safely determine, that all attempts to lay a tax upon the income of so fluctuating a property as money, where the capital is demandable, will prove unsuccessful.
The case is different, when the capital is not demandable, as has been observed in the end of the 8th chapter upon public credit; where we were suggesting a reason for taxing the interest of national debts, when grown up to the full amount of all the income of a country. But a material distinction was there made, between those debts which were supposed to be consolidated into a permanent property, and the new contracts which were to be considered as debts constituted upon that property.
We see, therefore, the extent of cumulative taxes upon possessions which produce an income. Let us next examine how they may be made to affect other articles.
We have observed how improper, and how contrary to principles it is, to impose proportional taxes upon those branches of sale, which do not change the balance of wealth between the contracting parties. Yet cumulative taxes may then take place; because there is no reason to make them general, or proportional.
When lands, for example, carry titles along with them, as is the case in many countries; and when, as with us in Scotland, they carry a right to vote for a member of parliament, a very heavy tax might be imposed upon the alienation of them. The same may be said of every other estate which requires a feudal investiture to complete the right. Thus the Lods et Vente in France, which is a proportion of the price of such lands due to the superior or lord-paramount of the fee, amounting in many cases to the sixth part of the price, is a hint for a cumulative tax to be raised upon the alienation of this kind of property.
Were cumulative taxes properly laid upon personal service, a regularity in levying them at short intervals, and according to some determinate proportion, would do a great deal towards communicating to them all the advantages of those of the proportional kind.
Thus a tax laid upon those who work by the day, may be levied in such a manner as to be tolerably easy. A penny a day (or more if necessary) paid by every industrious man, regularly, once a week, would soon enable him to raise his price in that proportion. But then deductions must be allowed for all accidental impediments; and were a plan to be concerted, many other considerations would enter into it, which it would be superfluous here to mention, and which, perhaps, may occur in another place.
The two articles which, in analizing the extent of proportional taxes, we observed had escaped that imposition, to wit, money locked up, and the pure profits on trade constantly accumulated into the stock, are equally ill adapted to bear a cumulative tax. I can see no way of taxing money locked up, any more than money lent, without opening a door to the greatest oppression. And as to the pure profits on trade, although they appear to be income, I rather consider them as stock, which, according to principles, ought not to be taxed. My reason for not considering them as income, is because we have supposed them to be accumulated by the merchant into his trading stock. They resemble the annual shoots of a tree, which augment the mass of it, but are very different from the seed or fruit which is annually produced, and is annually separated from it. If they be spent by the merchants, then they are undoubtedly income, and will be affected by proportional taxes; but as they may also not be spent, and become stock, the cumulative tax will affect them in both cases.
It is not easy to find out, a priori, how taxes should prove a spur to industry. What makes several people adopt this opinion is rather from their feelings, in consequence of many circumstances arising from experience, than from what reason, or the nature of the thing, has pointed out. But as nothing can be produced without an adequate and natural cause, let us examine this political problem, by an application of the principles we have laid down in the former chapters. If these be just, we shall discover by them, how it happens that in countries where taxes are high, where living is dear, and where every circumstance seems to render the means of subsistence difficult to obtain, people live in the greatest plenty, are best and most easily subsisted, and that industry there makes the greatest progress.
For the solution of this question, let us call to mind the principles which influence the multiplication of mankind, and the increase of labour and industry, laid down in the first book. We there explained how the wants of mankind promote their multiplication.
Money, the instrument of alienation, was represented as the primum mobile in this operation; a desire in the rich of acquiring every thing with money, that is demand, was shewn to be the spur to industry in the poor. It was said, that if riches did not inspire a taste for luxury, that is for the consumption of the labour of man, these riches would not circulate; and that they would then be adored rather as a god, than made subservient to the uses of men.
Connect herewith that the imposition of taxes is a method of bringing money into circulation; that those of the proportional kind have the effect of drawing from the rich an additional price upon every thing they buy, which goes for the use of the state, and which otherwise would not have entered into circulation at that time.
From these principles, I conclude, that taxes promote industry; not in consequence of their being raised upon individuals, but in consequence of their being expended by the state; that is, by increasing demand and circulation.
From the principles above laid down, I cannot discover the shadow of a reason, to conclude that taking arbitrarily away from some individuals, a part of their gains by cumulative taxes, or proportionally from others, by augmenting the price of what they buy and consume, must in any respect imply an incitement in the consumers to demand more; and without this it never can excite the industrious man to augment the supply.
I readily allow that every one who has been obliged to pay a tax, may have a desire to indemnify himself of the expence he has been put to, by augmenting his industry; but if, on the other hand, taxes have put every one to a considerable additional expence, in proportion to his income, it would be absurd to allege this diminution of his fortune, as the cause of a desire to augment his consumption; and unless the rich do augment their consumption, the poor cannot augment their industry.
Examine, on the other hand, the use made by the state of the money raised, and you will easily perceive the justness, I think, of the above mentioned principles. This money belongs to the public, and is admastered by private people. Public expence is defrayed with a full hand; they who bestow the money, bestow it for the public, not for themselves; and they who work for the public, find, or ought to find, the greatest encouragement to be diligent.
Every application of public money implies a want in the state; and every want supplied, implies an encouragement given to industry. In proportion, therefore, as taxes draw money into circulation, which otherwise would not have entered into it at that time, they encourage industry; not by taking the money from individuals, but by throwing it into the hands of the state, which spends it; and which thereby throws it directly into the hands of the industrious, or of the luxurious who employ them.
It is no objection to this representation of the matter, that the persons from whom the money is taken, would have spent it as well as the state. The answer is, that it might be so, or not: whereas when the state gets it, it will be spent undoubtedly. Besides, had it been spent by individuals, it would have been laid out for the supply of private wants, which are not near so extensive as those of the public: and farther, when money is so taken from rich individuals, it obliges them to find out a way of procuring more, out of their solid property; and when this facility is n1ot procured for them by their statesman, we see how taxes become both oppressive and ill paid. On the contrary, when it is provided, either by the returns of foreign trade, which greatly augment the coin of a country; or by banks, which melt down property into paper circulation; we see taxes augmenting constantly, without creating any impediment to consumption, or discouragement to industry. All these consequences hang in a chain, and hence may be gathered the solidity of the principles upon which they depend.
After this solution of the question proposed, let those who are versed in history lay circumstances together and examine whether facts do not prove the truth of what I have been saying.
Of all the kinds of cumulative taxes, that which is properly imposed upon lands seems to be the best: that is, to imply the fewest inconveniences to the persons paying, and to the state in raising it. That it is an unequal imposition is plain and certain: this character is unavoidably attached to every species of cumulative taxes, in one way or other. It has also the effect of casting a general discredit upon the purchase and improvement of land; because the proprietors are naturally exposed to augmentations, which may, almost with the same ease, be carried to the total amount of the income, as to any proportional part of it. This has been mentioned in a former chapter, where the interest of a nation's debts was supposed to increase so as to equal the value of all the land-rents, and the whole revenue of individuals.
Land-taxes are imposed in various forms in different countries, and all are supposed to bear a determinate proportion to the rent. This, however, is never, nor indeed can it ever be the case. The value of land is varying perpetually, from the industry of the inhabitants. Besides this inequality, there are other inconveniences proceeding from the unequal distribution of property. In Scotland, for instance, land is divided into large portions; very few small lots are to be found. The class of farmers, for the most part, labour the lands of others, who have large possessions. This is less the case, I believe, in England, and still less in France and in Germany. A land-tax, therefore, being supposed universal, would, in Scotland, do little harm: in England, it would fall heavier upon the small proprietors; because the sum exacted would bear a greater proportion to the supposed superfluity of the proprietor. In France, it would still be worse; for there the exemptions of the numerous class of nobles, and many other circumstances mentioned above, would entirely destroy even the shadow of proportion. It is out of my way to enter into any long detail upon this head, with respect to different countries.
I shall therefore confine myself to a very few observations upon the method of laying this tax in England; and upon a project which has been long in agitation in France, to raise their land-tax by way of tithe upon the fruits.
This scheme was first proposed to the late King of France by the Marechal de Vauban, in 1699, and the proposal was renewed some years ago in a performance called the Reformateur. But as it would prove hurtful and burdensome to France, in a great degree, from a circumstance which has not been attended to by these authors, the examination of this system of taxation will serve as a good illustration of this part of our subject.
The land-tax in England has, I think, two remarkable defects. First, The sums imposed at certain rates, upon every district of the kingdom, whether cities, towns, universities, or open country, even upon the King's palaces, inns of court, &c. are not distributed according to any rule of proportion upon the property of individuals; but this operation is left to assessors.
Secondly, All personal estates, except property in the public funds, and stock upon land, supposed necessary for agriculture, are charged in the same proportion as land-rents.
Quest. 3. What is meant by income, relatively to individuals, or 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 another: so that without applying our reasoning to every particular fact, no general explanation can be rendered 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 his 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, forests, 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 8 l. 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 8 l. 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 8 l. a year; because if this sum be supposed to be an exact quantity of income, not one farthing of tax can come out of it. So that imposing, for example, 5 per cent upon this article would be raising only the physical-necessary to 8 l. 8s. which 8s. must be paid, not by the physical-necessarian, but by somebody having superfluity who employs him: and if there were 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 8 l. each, answers 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.
Now if he suppose the first article of twenty millions, arising from the income of those who are employed in arts and manufactures, according to the former calculation of 8 l. a head, to be as ready a fund for taxation as the land-rents, we must examine, by the principles we have deduced, whether there be any ground for such a supposition.
Let me suppose one of this great class to work a whole day for his victuals only. Here is an alienation of work for food. It is impossible, however, to raise a tax in money upon this alienation; because it may easily be supposed that neither party has a farthing. The only method therefore, for imposing a tax in such a case, would be, either to oblige the workman to set apart a portion of his day's work for one who would pay the public for the value of it; or to oblige the person who gives him his food, to pay the public for the privilege of employing him in his service. The one and the other are examples of proportional taxes. But this method of taxation is absolutely unknown. In this example there is an alienation, which, I have said, constantly implies a superfluity of one kind or other. The labour of the person working is, here, superfluous to himself; therefore a part of it may be applied towards the public. But the bread he receives is in no part superfluous, and therefore cannot be laid under taxation as to him. But then the bread given for the labour is superfluous to the person who gives it; and as this implies that he has a superfluity of bread, the state may demand a share of this superfluity.
By this exposition of the matter it appears, that in order to raise a tax, in whatever way it be done, some kind of superfluity must be supposed. It also points out how it should be laid on: for if by mistaking the proper object, a part of the bread should be taken from the workman, instead of being taken from the man who employs him, the tax would affect the physical-necessary of the labourer, instead of affecting the superfluity of the employer.
Let us next suppose a workman able to do no more than what is requisite to dig the ground for roots to eat, instead of digging it to procure bread from a man who has bread to spare; still there will be no alienation; consequently, no possibility of establishing a tax: for if you either take a part of his labour, or of his food, you deprive him equally of his physical-necessary. Yet the work of this man, and his food, may be valued at so much money; and thus may enter, in one sense, into Davenant's general article of income or expence; but it does not follow that any tax can be raised upon such an income.
To estimate, therefore, the total value of what is the object of taxation, we must go another way to work. The first article must be the annual income of all funds. By funds, here, I understand the capital wealth already made, in opposition to the produce of industry, which may be considered as the materials of which such funds are composed. The fund therefore is the accumulation of savings, which, not having been spent by the industrious, form a capital of a nature to produce an income, either from land, or from any other valuable thing. Thus land-rents, annuities, interest of money, emoluments of offices, salaries, even wages of servants, in short, every fixed income, I range in this first article, which I call annual income, produced from a capital already formed, either real or supposed.
This may be laid under taxation by a pound-rate or otherwise, and forms that kind of tax which I call cumulative and arbitrary; because a man who has any sort of visible revenue, comes under this general rate, let him have ever so many necessary deductions out of it, ever so many debts and incumbrances. From such circumstances, cumulative taxes frequently turn out extremely burdensome.
The second object of taxation is upon alienations made for money. Whenever we come to dispose of money in the purchase of any thing, the state has an opportunity of exacting a part of it as a tax; but while it remains hid, it can neither be come at, or laid under contribution, without extortion or violence.
All branches of expence may be laid under taxation by excises, which I call proportional taxes; because a man is never subjected to them, but in proportion to his expence; and his expence ought naturally to proceed from his income.
As for trade, I do not clearly see how the profits of it can be regularly taxed. In France, indeed, they are taxed under the first head, and are considered as an income. Such an imposition is not well judged; because there the materials for making the fund are taxed as if they were the income of a fund already made. The savings only out of the profits upon trade, placed so as to produce a permanent revenue are, what can properly be considered as a fund: the income therefore of these savings and not the savings themselves, should come under this branch of taxation.
Customs are improperly called taxes upon trade. When ill imposed they may stop trade, or render it less profitable by diminishing the demand for the goods so taxed; but they can take nothing from the profits already made.
In a trading nation, the great branches of commerce produce a certain determinate profit, subject, I allow, to augmentations and diminutions, from accidents and circumstances impossible to be foreseen: and the customs imposed upon exportation and importation differ from excises more in the method of levying them than in any thing else.
Davenant, in my opinion, would have given a better idea of the sum which taxes might have produced in England, had he examined the amount of all the branches of revenue, and of all the species of sale, than in the manner he has done. These two points known, it would be expedient next to inquire, in what manner the several articles could be made subject either to cumulative, or proportional taxes.
I must now take notice of another passage of Davenant, where he explains himself upon the question before us: it is in his fifth discourse upon revenues, where he says,
'By annual income, we mean the whole that arises in any country from land and its product, from foreign trade, and domestic business, as arts, manufactures, &c. and by annual expence we understand what is of necessity consumed to clothe and feed the people, or what is necessary for their defence in time of war, or for their ornament in time of peace: and where the annual income exceeds the expence there is superlucration arising, which may be called wealth or national stock. The revenue of a government is part of this annual income, as likewise a part of its expence, and where it bears too large a proportion with the whole, as in France, the common people must be miserable and burdened with heavy taxes.'
I must comment a little upon this passage.
I have no objection to this exposition of the matter; the ideas are intelligible and clear: but I object against the application of his doctrine to taxes; because it would lead to error. Here are my reasons:
First, Income is called the whole of the earth's productions: this I may admit to be just, except when we consider income as an object of taxation. But if we retain the same definition to express the income of one, for example, who labours the soil for his own subsistence, as well as of another who labours it as a trade, the difference in paying their taxes out of it will be very great. He who draws nothing from the ground but his physical-necessary, can be laid under no taxation; because he has no superfluity. And if he be obliged either to give a part of his crop in tax, or to sell any part of it for money to be paid to the public, this diminishes his physical-necessary, and forces him to starve: whereas the other, who exercises agriculture as a trade, may be obliged to pay a part of his surplus by way of tax or rent; and still his physical necessary may remain untouched.
It is for this reason, that in treating of these matters, I am always at the greatest pains to point out, that nothing can be the object of taxation, except what is over and above the physical-necessary of every one.
In all countries where a land-tax, steuer, taille, or by whatever name it goes, is established, care must be taken to prevent the husbandmen from confining their labour to such a small spot of ground as is barely sufficient to produce their own physical-necessary, unless when they have a trade to assist them in paying what the public demands of them.
From this circumstance, and this only, it happens, that the land-tax in England is so little burdensome, comparatively to what it is in many nations of Europe. Lands in England are let in large portions: nobody will let a farm so small as to be proportioned to the supplying of the mere physical wants of the farmer. But in other countries, where the oeconomy is different; where inheritances in land are constantly divided, as moveables, among all the children; the lots become so small, that the proprietor can draw no more from them than his own subsistence; and then when a land-tax is imposed, this poor little portion being valued in proportion to what it can produce, as well as the greatest estate in land, the husbandman is starved, although the tax demanded of him be laid on in the exact proportion to the produce of his land, while he that has a surplus is quite easy.
I would therefore recommend, in countries where this minute subdivision of lands has taken place, that for the future no lot under a certain extent or value should be suffered to be divided among the children, but ordered to be sold, and the price divided among them; and that the same regulation should be observed upon the death of such proprietors whose lands are not sufficient to produce three times the physical-necessary of the labourers. This would engage a people to exercise agriculture as a trade, and to give over that trifling husbandry which produces no surplus, and which involves so many poor people in the oppression of land-taxes. This regulation never can be recommended in a plan to be executed all at once: it must be done by degrees, and in proportion to the progress of industry. The principle is so evident, that I never found any one who did not immediately agree to the justness of my observation; although in imposing land-taxes I have nowhere found it properly attended to.
Here then is the use of theory; it directs us in practice to avoid difficulties, which might otherwise be judged unsurmountable.
Secondly, I farther observe, that it is a more hurtful error still to mistake the produce of industry for the taxable income arising from it, than to mistake the gross produce of land for the rent: because the profits upon industry bear frequently a smaller proportion to its produce, than the rents of lands do to their full fruits.
The best method of raising money upon the lower classes of the industrious is rightly to lay their consumption under proportional taxes, which they may easily draw back; because they will raise the price of their work proportionally.
From this we may conclude, contrary to the common opinion, that the test of well imposed taxes is to raise prices in proportion. When they are rightly imposed, every one who sells a commodity which has paid a tax, will draw it back, whether he be industrious or not. If he consume it, he cannot draw it back, but by raising the price of his work; which again he cannot do, unless the tax be made so general as to affect all his competitors; and unless the consumption he had made be unavoidable to every one of them.
When we reflect upon the large quantities of exciseable goods which are consumed as superfluities, we must conclude that the rise of prices, daily complained of, proceeds more from our manners than from the taxes we pay.
Thirdly, the expence of a people is not merely what is sufficient to subsist them; but what they consume, either in fruits or manufactures. Had indeed Davenant computed the value of this necessary quantity, and deducted it from the income, according to his acceptation of income, the remainder would have been a tolerably good representation of what I mean by income, or taxable fund; because whatever a people consume beyond the necessary, I consider as a superfluity which may be laid under taxation.
Fourthly, I must also differ from him in his idea concerning superlucration, wealth, or national stock.
According to him, this is the quantity of income remaining after the following deductions: First, What is necessary to clothe and feed the people. Secondly, What is necessary for their defence in time of war, and ornament in time of peace. But according to my notions, I must also deduct all which is consumed in superfluities; for what is consumed, whether necessarily or superfluously, never can make an article of superlucration, wealth, or national stock.
The superlucration then of a nation consists in the augmentations made upon her stock of every kind, capable of producing a proportional income: it is the converting into something durable the well employed time of the inhabitants. In this sense the new pavement of London, the roads, buildings, ships, etc. in England, are all articles of superlucration, as well as the improvement of the lands, and consolidation of the balance of her trade, which has created that part of the public funds belonging to natives.
Every one who has written concerning taxes has endeavoured to contract the object of them as much as possible: more, I imagine with a view to ease the public than the people. I have followed another course. I have been for multiplying the objects of taxation as much as possible, and for making them more in proportion to expence than to property or income. But that I may conform myself in some measure to the ideas of those who have examined the same subject, I shall propose a tax, which would fill up the place of every other; and could it be levied, would be the best perhaps ever thought of.
It is a tax, at so much per cent upon the sale of every commodity.
1. The corvée in France is the personal service of all the labouring classes, for carrying on public works. Were they paid for in money, it is computed they would amount to no more than 1,200,000 livres a year. This tax was omitted in the account of the French revenue.
2. The gentlemen of the Monthly Review for August 1767, p. 120, have proposed an objection to the doctrine here laid down; I shall therefore insert the passage, and endeavour a reconciliation of opinions, which is a more laudable attempt, than the most successful refutation.
'In the discussion of so difficult and complex a subject as this of taxes (say these gentlemen) great care should be taken that the foundation be laid upon solid principles; and that nothing be admitted upon the authority of the inquirers, because the smallest error in first principles must lead to great mistakes and confusion in the subsequent parts of the inquiry. When our author says that taxes ought to impair the fruits and not the fund; and represents this as a fundamental principle of taxation - we should have wished to have seen the reason upon which this principle is founded; as in our apprehension it wants much of the clearness of an intuitive truth - And we own it appears to us that every man whose goods are embarked in the political vessel, risks the whole; and in equity, as in all other cases of insurance, ought to pay, in the language of commercial policies, as interest may appear: which will be in proportion to the whole risk, and not in proportion to the profits, or fruits. Those whose funds are the production of artificial society, or protected by the laws of entail, even against the effect of their own folly and extravagance, ought, in our opinion, to pay for their extraordinary care and security, these being benefits which the laborious man has no share in, and which he lies under no obligation to support with the fruits of his industry. For this purpose what our author calls cumulative taxes may with great justice and propriety be applied.--'
On these judicious remarks I must observe, that nothing is more requisite, in the perusal of this work, than a strict attention to the manner of establishing every principle. This was my particular care in the composition of it, and every oversight in this respect will be the object of a judicious criticism.
I must now examine whether, in this place, I have failed in exactness, as it is here insinuated; or whether my critics have misunderstood the meaning of my words. As for the authority of my opinion, I perfectly agree with them that it should go for nothing.
I have said that it is a fundamental principle in taxation that the fruits not the funds are to be impaired by the tax. In this I speak strictly in terms of my definition of a tax, inserted in this very Review, p. 119. A tax it is there said is a certain contribution of fruits service or money imposed on the individuals of a state, &c.
By the words fruits and service, the fund bearing the fruit, and the person serving, are evidently supposed to be exempted; and in the paragraph following, the money exacted is said to comprehend the equivalent given for what may be exacted in the other two ways. So according to this express definition all impositions on funds must be classed under a different head from taxes; and these I have called contributions.
My reason for excluding in my definition of a tax, all contributions from funds, such as that made by the Dutch, is that they cannot, by their nature, be annual and perpetual, as taxes, which affect growing fruits only, may easily be. Were such contributions out of property, to be annually levied, over and above the full extent of the value of the fruits or income; the contributors would be reduced to beggary; and the taxable fund itself would in time, become the property of the state. Is it possible that the authors of the Monthly Review should wish, in any case, to see taxes carried beyond the extent of any person's income or profits on his trade and industry? Surely, not: and therefore I must suppose that they have not rightly understood my meaning; though I cannot discover where any ambiguity lies.
When a man pays insurance, as interest may appear, upon a cargo which runs a risk of being totally lost, this case seems to be parallel to that of a person who runs the risk of losing his whole landed estate by a foreign invasion. In this case, indeed, as in the former, he would no doubt willingly give to the conqueror one half of his lands to secure the other; but such a case conveys, I think, no idea of a tax; nor does property, in any country I know, stand on so precarious a footing as to make it reasonable.
Thus far I have said in explanation of my meaning, and in justification of the principle, or rather of the definition by which it is implied, that taxes should impair the fruits only, and not the fund.
I now willingly agree with the gentlemen of the Review, that entailed property may very reasonably be taxed higher than any other, on account of the additional security. But still this augmentation must fall within the income of the entailed lands; because, should it exceed it, it would destroy the entail itself, which makes the fund unalienable. As to funds, which these gentlemen call the production of Artificial Society, I can say nothing; I do not understand this term, and I even take it to be an error of the press.
Upon the whole, I confess that my anxiety concerning the opinion of the public, in relation to my inquiries into the principles of taxation, was, lest they should be found to extend too far: It gives me a particular satisfaction to find that, by some, they are not thought to extend far enough.
3. The Taille is properly a land-tax, to which men called noble are not subjected. The reason of which is, that it was originally imposed in lieu of such personal military services as were peculiar to the lower classes.
The Fourage and Ustencil are laid upon all those who pay the taille, and are in proportion to it. The first is appropriated for the subsistence of the cavalry, when they are in quarters; the last for kettles and small utensils for the infantry.
The Capitation is the poll-tax. The Dixiemes and Vingtiemes have been already explained, and tithes are well known to every one.
The Industrie is that imposition arbitrarily laid on by the Intendants of provinces, upon all classes of industrious people, in proportion to their supposed profits in every branch of business.
4. This sort of taille is called tariffée; because it is imposed according to a valuation of the land. It is a late improvement; but still is exposed to numberless inconveniences, which are mentioned in the text.
5. The gabelle is a branch of the general farms, and consists of an excise upon salt. The manufacture of the commodity is in the hands of the farmers; and they, for a liberty to sell salt at a certain price, far above the expence of the manufacture, pay to the King an annual revenue of 28 millions of livres.
This I call a proportional tax, relatively to consumers; although in reality no tax-gatherers be employed for the collection of it, contrary to what is the case of all excises; which are seldom farmed by government to the manufacturers of the commodity taxed.
The traittes, or, as they are otherwise called, the five great farms, were established by Colbert, when he took away a multitude of customs paid upon the transportation of goods from one province to another. They, the traittes foraines at least, resemble very much our customs, or the duties of tunnage and poundage, and are let to the farmers general for the sum of 12 millions.
The tobacco is of the same nature with the salt tax. The farmers general have the exclusive privilege of selling it at a price fixed by the King.
For the farm of the tobacco are paid 15 millions.
The aides resemble our excises more than those we have mentioned. They consist in duties upon liquors, either brought into towns, or sold by retail in public houses; and upon all articles of food sold in corporations, except grain of every kind, which is free. They comprehend also a multitude of other duties superfluous to enumerate.
They are collected by tax-gatherers at the gates of every town, who also have access to all public houses, where retail is laid under additional rates. The aides are farmed at 38,600,000 livres. These were the rates in the farms let in 1755. They have been since augmented in 1762, as has been observed.
6. When excises are imposed upon any commodity, it is contrary to all principles in fixing the assize, not to superadd the whole duty imposed to the former selling price. This however is sometimes omitted, with an intention to make part of the duty fall upon the manufacturer, to the ease of the subject. The consequences are,
First, The manufacturers blow up the spirit of the people against the tax, who never would think of making an outcry, were they not excited to it by the interested motives of the manufacturers. Were high profits allowed to manufacturers on imposing the tax, they would be quiet: and if the profits were afterwards found to be too high, it would then be a popular measure to reduce the selling price, and also a means of setting people on the side of government, against the manufacturers, who are their real tax-gatherers.
Secondly, It is impossible to compass the end proposed. A proportional tax, rightly imposed, must be drawn back; and all attempts to prevent it, occasion only a multiplication of frauds, and a bad manufacture.
In fixing assizes upon the manufacturing of goods, which in different years vary in their price, regard should be had to such variations; otherwise the manufacturer will be distressed, and the public will be ill served: in either of which cases, the people will be animated against such duties.
The only expedient to share the profits of the manufacturers of exciseable commodities, is to lay them under some cumulative tax which they cannot draw back, such as making them pay for a licence.
7. It must, however, be observed, that the price of beer was not raised, either by the brewers, or by the victuallers, on account of the additional malt-duty, 1760.
8. The gabelle, or salt-tax in France, is not levied in every province; because of certain privileges of exemption, which some have all along enjoyed.
This opens a door to the greatest abuse, by smuggling salt from places where it is free, into places where the tax is imposed, at many 100 per cent above the value; and obliges the King to use great severity upon those who are loaded with this duty.
The consumption of every family is fixed to a certain quantity; and if it be found that they have not bought, from the King's granaries, to the full extent of what is reckoned necessary for them, it is supposed that the deficiency has been made up from contraband salt, and the deficiency is exacted.
9. Examples of these kinds of taxes were familiar in former times. Vassals were obliged to grind in their lord's mill, bake in his oven, press their wine in the public press of the territory, etc.
This was found very useful, in ages when alienation and sale were little known; but now they are considered as oppressive, and so I think they are, when compared with proportional taxes, which take place upon the sale only of the commodity: but still they are far preferable to many taxes of the cumulative kind.
10. Two gentlemen in France exchange casks of their wine, they are both obliged to pay a tax upon removing the wine from their cellar. This duty is called Remuage.
11. A man's rank, in a modern society, seems to be determined more according to his birth, or to his expence, than according to his stock,or income.