V. OF TAXES, AND OF THE PROPER APPLICATION OF THEIR AMOUNT
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Introduction
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 relatively 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.
CHAP. I. Of the different Kinds of Taxes.
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 category, 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, 1_mo_, 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.
2_do_, By the object, when instead of being laid upon any determinate piece of labour or consumption, it is made to affect past and not present gains.
3_tio_, 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[38].
Footnote 38:
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.
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 paid, 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 that 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.
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CHAP. II. Of proportional Taxes, and their proper Object.
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, with regard to taxes, to be that part of the fruits only 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 that 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 that 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 that 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 this physical-necessary. In that 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 that, 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 out of his own stock, or that of others who have furnished him food and necessaries all the time it was coming forward: consequently, that part neither belongs 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 must not be supposed to exist in favour of the state, to the prejudice of the farmer; for this reason, that 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 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 only take gratuitously and proportionally out of the surplus 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, there the state steps in, 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 no body starves, but such as have not 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.
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CHAP. III. How proportional Taxes are drawn back by the industrious, and how that drawing back is the only reason why Taxes raise the Prices of Commodities.
What perplexes our notions in the theory of proportional taxation, is, that the industrious man, instead of bringing his surplus to market, is obliged to bring the whole of his work.
Let me, therefore, suppose him to be creditor upon one part of his work, and proprietor of the other. This will divide it, as it were, into two parts, which I shall call (A) and (B).
(A) represents that part upon which he is creditor, and answers to all the expence he has already been at; that is, to his physical-necessary, as we have called it. This we have said ought to be considered as virtually consumed by the workman, and if a tax be raised upon it, it must not affect him; that is, he must draw it totally back from the person to whom he disposes of it. (B) on the other hand, represents that part of which he is proprietor, to wit, his profit; and therefore may either be taxed or not, as the state shall think it.
If it be taxed in the hands of the industrious man, without suffering an alienation, the tax will be of a cumulative nature. If it be left free to him, and taxed to the person who buys it, it will be of the proportional kind, as we shall see afterwards. Again,
In the first case, it will check the growing wealth of the industrious man; in the second, it will accelerate the dissipation of the buyer.
Taxes, therefore, of the first kind, are proper to be imposed in countries where the state is jealous of growing wealth, as we have observed in the 25th chapter of the second book. If the tax, again, be laid upon the buyer, then the balance turns in favour of the industrious man, in proportion to the full amount of (B), and produces no other effect than to accelerate the dissipation of the buyer.
Let us now take in a new combination.
If, when the work is brought to market and sold, the price shall not exceed the value of the industrious man’s (A), then he is of the class of those we call physical-necessarians, who accumulate no profits. If the price of it be less than (A), he becomes a load upon the state, a bankrupt to those who have fed him upon credit, and will die for want, unless he be supported by charity.
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; or 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. Is it not plain, that when the second industrious man comes to market to sell his work, which I also suppose composed of his (A) and his (B), that his (A) is a still more compounded body? It first includes his own physical-necessary, as above: 2. the (A) and (B) of the man from whom he bought the materials: and 3. 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 realized 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 bought was a material necessary for his manufacture, the second buyer finds himself obliged to refund the whole amount of the first (A), (B), (C); because the sum of them make 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 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 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 lands 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 category of taxes which I have now been describing, and which I shall still more fully explain in a subsequent chapter, never can either fall 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 I farther 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 back 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 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, by introducing fresh and untainted hands into such branches. This will be a sure check upon 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 the 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.
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CHAP. IV. Of cumulative Taxes.
I shall not 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[39].
Footnote 39:
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.
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 outgoing 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 only to gain 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, 1. That the more such taxes are proportional to the subject taxed, 2. the more evident that proportion appears; and 3. the more frequently and regularly they 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. 1st, It bears an exact and determinate proportion to the value of his pay. 2_dly_, This proportion he knows perfectly. And 3_tio_, 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. 1_st_, They bear an exact proportion to the crop. 2_dly_, This proportion is perfectly known. 3_dly_, 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.
The land-tax in Scotland bears, 1_st_, a very determinate proportion to the valuation of the land; and has, 2_dly_, 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[40].
Footnote 40:
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.
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, is, that after the distribution is laid on, as in Scotland, at so many shillings in the pound of valuation, the full sum intended to be raised does 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 that others, who were really bound to pay 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 contributors, in the most exact proportion to the first, but yet by their nature 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, 1_st_, destroy the proportion between the tax and the revenue taxed. 2dly, 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 more 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.
1_mo_, 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.
2_do_, It cannot possibly be provided for, as no check can be put upon the imposer, unless so far as general rules are laid down for each class of the industrious; and from these again other inconveniences flow, as shall be observed.
3_tio_, 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 that so useful fund.
When cumulative taxes are laid upon any of the industrious classes, they tend to check growing wealth; and are most familiarly 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.
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CHAP. V. _Of the Inconveniences which proceed from proportional Taxes, and of the Methods of removing them._
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 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 that case, not as paying, but as advancing it for another; and while any part of the commodity remains unconsumed, there still remains the equivalent of 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, &c.[41]
Footnote 41:
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 are employed for the collection of it, contrary to what is the case of all excises; which are never 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 answer very much to our customs, or to 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 is 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.
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 alledged against proportional taxes may be reduced to three:
1_mo_, 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.
2_do_, That they discourage consumption, by carrying the prices of many things too high for people of a middling rank in life.
3_tio_, 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 matter of fact; how far from plausible appearances only; and so far as they are real, not imaginary, to discover the methods of removing them.
As the first inconvenience lies in raising 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 is 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 that a man can support, and still not 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, and still live upon their wages, 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 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 circumscribe the productions of industry, and thus to raise their price, than any tax upon subsistence which has been hitherto imposed in that 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 tract 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 combination 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 only two hands 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, 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 suffers 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 finds 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 wants to reduce prices still lower, in favour of exportation, but finds 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 all 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 you only want to promote exportation by lowering prices, 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 pimple 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: 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 this argument all its force. But I must observe, that when manufacturers can thus capitulate with their employers, and 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,
1_mo_, 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 consequentially 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.
2_do_, 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.
3_tio_, 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.
4_to_, 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.
5_to_, If hands increase, after he is reduced to his physical-necessary, the whole class of the manufacturers will be forced to starve.
6_to_, 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 whenever 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 of 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 incline they should remain the same. When the hands employed are really diligent, and prices still too high, then it may be expedient to increase their numbers, providing they enjoy considerable profits. This will cut them off, and reduce the price of commodities; because it will augment the supply.
When the hands employed are not diligent, the first 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 incline to sink the price of labour 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 from taking place after the industrious are reduced to moderate profits; and to promote competition, 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.
1 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 only influences it; because two circumstances may destroy that influence. 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 there are at too great a distance of time, to be able to compensate one another with respect to all the manufacturing classes of a people.
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,
2_do_, 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 affords 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 10th and 18th chapters of the second book, must be applied to bring them down: and so 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 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, administred by commissioners, who act for the public, not by farmers who act for themselves, does not cost above 5_l._ 12_s._ 6_d._ 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 only advance them 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 that 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 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[42]: for want of observing exactly that regulation, the publicans and victuallers in England raised the price of their strong beer one halfpenny 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[43].
Footnote 42:
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,
1_mo_, 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 on imposing the tax, manufacturers 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.
2_do_, It is impossible to compass the end proposed. A proportional tax, rightly imposed, must be drawn back; and all attempts to prevent it, only occasion a multiplication of frauds, and a bad manufacture.
In fixing assizes upon the manufacture of goods, which in different years vary in their price, regard should be had to such variations; otherwise the manufacturer is distressed, and the public is ill served: and the one or the other happening, the people are 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.
Footnote 43:
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, anno 1760.
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 only advance the tax, and draw it back from the consumers upon the sale of the commodity.
It is greatly 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, when they sell their salt and tobacco. But as the farmers appear in the light of King’s officers, and that the collectors seem to bear hard on those with whom they 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, 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 only advance these impositions, 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 is disappointed, and it is always disagreeable to be disappointed in what we either wish or hope.
Were all mankind honest, the inconveniences of levying such taxes would be less; but as that 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 it difficult and dangerous. While every individual has a liberty to manufacture an exciseable commodity in whatever place he thinks fit to enter 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 might 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, as a proper repository for all goods brought by sea.
It may 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 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 to prevent 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 those 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; that fund, I believe, would be found sufficient to raise more 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, but to prohibit the delivery of the manufacture 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 those regulations will not be very fond of them; but the inconveniences which occur proceed from the political situation of all those 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 upon the furnishers of the 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 inclosed. 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. 1_st_, There would be considerable savings in collecting. 2_dly_, 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 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 o£ 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.
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CHAP. VI. Cumulative and proportional Taxes compared with one another, and farther examined.
After examining separately the nature and effects of cumulative and proportional taxes, it remains, for the more fully understanding this subject, to take a view of them together; the better to find out wherein they really differ, and how far the difference is only apparent.
It has been observed, that the payment of taxes diminishes no part of the produce of either land, or industry; the whole amount of these remains entire to the subjects of the state.
The taxes are paid out of the money which circulates in the alienation of them: from which we have concluded that they 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 of increasing money in proportion to their increase. I hope these propositions have acquired an additional confirmation, from what has been already said in the preceeding 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 only to advance them.
If therefore we suppose all desire of defrauding out of the way, we shall 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 tax laid on in so regular a proportion to the value of any property, as to prevent the proprietor from making use of that part which the public intends to take from him, those who pay cumulative taxes would thereby acquire one very great alleviation of their 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 compleatly back: and that great objections lie against cumulative taxes, when they affect the industrious, because they cannot draw them back; 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 him because he has a 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 different effects they are found to 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 only 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 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 no body would inquire 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 of 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[44].
Footnote 44:
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.
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 makes a composition for it at that 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 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.
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CHAP. VII. Consequence of Taxes when the amount of them is properly applied.
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 or not taxes of all kinds be a great load upon a people, a grievous infringement of their liberty, a 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 only proceed from the right application of the money when raised.
When individuals only make a profit of the inconvenience of taxes, the public loses, no doubt; because they 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, whose income is already formed, 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 are thrown into circulation, as much as if the rich proprietors had laid it out 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; 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 that the great amount of taxes is 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, it is the strangers who in effect levy such taxes upon them. Were the taxes they pay, properly applied to the encouragement of the arts, instead of being appropriated to private purposes, and to enriching 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 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 example, must languish and decay. Luxury at home will then cease to hurt the trade of the nation. In her treaties of commerce, she may throw open her ports to many articles of foreign consumption, without running any risk by such allowances; and on the other hand, she will reap the greatest advantages from a reciprocal permission.
The example I have given, 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 purely 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.
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CHAP. VIII. Of the extent of Taxation.
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 persons who enjoy large profits upon their daily industry. I have pointed out the impropriety of cumulative taxes, when imposed 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, in order to discover how far that extent may reach; and by this inquiry, the principles of taxation will be the better understood.
The objects of alienation comprehend 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 basis for proportional taxes, we see how contrary to principles it would be, to tax the alienation of lands, houses, &c. 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 objects, 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 affected by 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 that, 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 that 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; 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 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 is 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[45].
Footnote 45:
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, &c.
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 only take place upon the sale of the commodity: but still they are far preferable to many taxes of the cumulative kind.
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, &c. 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 that 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 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 category, 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 that 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, providing 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, wants money, he considers himself in the same light as if the thing were not to be sold; but when he has that which he has acquired by his 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 varieties 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 malt 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 almost too trifling to mention[46].
Footnote 46:
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.
The last and principal requisite, to render proportional taxes easy and light, is sale. There the burden must be proportional to the buyers purse; and if it prevents 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, so 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, 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 even advanced any tax upon any part of his work or consumption, that it was refunded to him by the buyer, who, if he consumes in the light of an idle man, pays 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, 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 price of the goods excised fell.
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 they 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 administred by the farmers, who never lower their price; so that the diminution of the mass of coin diminishes 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 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 that case, proportional taxes can never 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 only be raised in proportion 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 so 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, is sent out of the country in time of war, must not this produce a similar effect? Has not the exporting that amount the same effect with the 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, at this time, 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 that (Y) was transformed into (Z), by being brought to market 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 laid 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 that 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 increases; 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, 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 that 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, tho’ 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[47].
Footnote 47:
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.
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 happens to be strained by an overcharge 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 the lower classes free from cumulative taxes, will only have the effect 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 only be increased in proportion 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 not tyranny, is at least great severity. Besides, we shall presently shew, how these savings cannot 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 inconveniencies 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 consider the nature of every species of it, with respect to stability. Landed property is fixed, and can not escape taxation, were the tax to be carried 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 annual 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 raising of the twentieth penny, which operates upon all such incomes.
The value once ascertained, the whole income is at the mercy of the state, in proportion to the impossibility of avoiding it, by any change on the nature of the fund. It is from this circumstance that I call all such taxes arbitrary impositions. And I call them also cumulative; because the reason given by the statesman 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 is destroyed for the future, and no more money will be lent. If the statesman should incline 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 to retain 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, that regulation has no other effect, than to oblige them to borrow so much dearer than other people, who have no retention to claim. Where indeed credit is precarious, such a regulation would be 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 new contracts which were to be considered as debts 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 compleat the right. Thus the Lods et vente in France, which is a portion 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 are 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.
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CHAP. IX. The consequences of an Abolition of Taxes.
Having endeavoured to deduce the principles of taxation, by examining the combinations which occur when we suppose it augmented to the highest degree, I must now look for new combinations, which will suggest themselves upon examining the consequences of a total, or a partial abolition of taxes.
So far as taxes are absolutely necessary for the support of government, no body, I suppose, can wish to see them abolished. The object, therefore, of a statesman’s attention in levying taxes for indispensable national purposes, should turn upon the principles we have been examining. What now follows relates to the consequences of abolishing taxes once established, so far as it proves a revolution in the oeconomy of a state. This will lead us to examine the consequences of taxes, considered as voluntary public contributions, independently of the absolute necessity of raising them to supply the exigencies of the state. We are therefore to examine the consequences of so great a change to the whole body of the society, considered as a nation, which requires a public stock, to which it may have recourse upon every extraordinary occasion.
When the interest of a whole people is examined with respect to taxes, they may very properly be divided into the following classes.
1_mo_, Those who receive the amount of taxes, viz. the creditors and servants of the state, and those to whom they give employment.
2_do_, Those who advance the taxes, viz. all the different classes of the industrious.
3_tio_, Those who pay the taxes, viz. all the rich and idle; or, in other words, all those who cannot draw back what they have paid.
In these classes are comprehended those who pay the taxes, and those who receive the amount of them; consequently, in whatever concerns taxes, the common interest of the whole taken together is what must regulate the conduct of the statesman.
In order to determine this first and general question, viz. the consequence of abolishing taxes relatively to the cumulative interest of a whole state, it is proper to inquire,
1_mo_, What will be the consequence of abolishing taxes, relatively to those who now receive the amount of them, viz. the creditors and servants of the public, and those to whom they give employment.
2_do_, What will be the consequences of abolishing taxes relatively to trade, industry, and manufactures: that is, whether these great objects are carried on to most advantage, when every individual contributes largely in providing a fund to be administred by a statesman; or when no body contributes any thing, but when every one retains the whole of his income, and the profits of his industry, and disposes of them as he thinks proper.
3_tio_, What will be the consequence of abolishing taxes, relatively to that part of the people who now complain that they are forced to contribute to every tax, although by their exclusion from the emoluments of lucrative employments, they bear a greater burden than others not better entitled to exemption, who thereby profit at their expence?
To determine so intricate a question, several combinations of circumstances must here be examined, and from the particulars resulting in every case, we shall, towards the end of this chapter, endeavour to point out the general conclusion. I begin by examining the consequences arising to the creditors, and to those who serve the state, from the cessation of those expences which flow from the produce of taxes, either in paying the interest of debts, or in defraying the whole actual expence of government.
As to the creditors, this question has been already discussed. We have seen that the withholding the interest due to them would have the consequence of bringing on such a convulsion in the state, by the breach of faith, and ruin of public credit, as would throw every thing into confusion. But with respect to the servants of the state, we must inquire, whether the raising taxes for defraying this article of expence be more hurtful to the people in general, than the consequences of such a revolution in circulation and employment, which would follow, if the taxes were to be suppressed, and the servants employed by the state dismissed.
When the necessity of raising taxes is out of the question, the hurt they do in general to a country is when, by the imposition, the money is taken out of those hands who would have employed it for the advancement of the prosperity of the state, in order to throw it into those who will employ it otherwise. From this let us now draw some conclusions.
1_mo_, That if money be taken from those who would have employed it in feeding themselves, and in continuing their industry, the cessation of such a tax is in a manner giving bread to those who are starving.
2_do_, If money were to be taken from those who, having more than bare necessaries, would, by its use, increase the demand for domestic industry, and were that money bestowed on a set of men who would employ it in the purchase of foreign commodities; the cessation of taxes, in such a case, would, so far, take the bread out of the mouths of foreigners, and give it to our own countrymen.
The abolition of the first species of taxes is advantageous to a state in every combination, let the money arising from it be ever so well employed. As to the second species, the abolition is not necessary; because the vice lies only in the misapplication of the amount.
Let us then suppose taxes to become unnecessary, and all those of the hurtful kind, depriving the industrious of bread, and enriching foreigners at the expence of citizens, to be taken off.
Suppose that after all, there should still remain more taxes than are sufficient for supplying all the necessary charges of government, when administred with prudence and with oeconomy, and that this surplus is bestowed in gratifying individuals, beyond the value of all the services they do the state: I ask whether this superfluous expence is immediately to be cut off, and taxes diminished in proportion; or whether it would not be more proper to let the taxes subsist, and to think of a better method of applying the amount of them?
I answer, that according to the state of the question, the body of the people, who are all made to contribute towards the enriching of a few of their number, may justly complain of the inequality of their condition, and have a title to demand an abolition of their taxes, unless it can evidently be made appear, that by granting their request, there would follow a prejudice to the state, which would affect their own interests as individuals.
To discover how far this may be the case, let us form as many combinations as we can, relative to the effects of diminishing taxes, and candidly examine the most natural consequences of every one. If we find that the mass of a people gain, in general, more than they lose by paying taxes imposed with moderation and propriety, and still more if it appears that their ease and prosperity depend upon the levying and expending of such taxes; I think we may conclude, that all diminutions of them which hurt the interest of the greater body, are in general hurtful to the society.
Let me first suppose a general reform of all unnecessary expence to take place at once, and a proportional abolition of taxes to go hand in hand with it. Would not all those who at present subsist by the superfluous expences of government, be reduced to misery? Would not all those who supply unnecessary wants, equal to the whole amount of the taxes suppressed, be forced to be idle in proportion? The millions who contribute in paying those sums would be differently affected. Those who pay out of a fixed and certain income, would feel an immediate benefit from it; those who contribute by proportional taxes would also be gainers, providing they be of the idle class; but all the industrious would lose in proportion, if the prices of subsistence should not fall with the diminution of their taxes. All the manufacturers of exciseable goods, who had been used to advance the taxes, as we have observed, would gain considerably. For the diminution of the taxes would be total as to them, though not to their customers; because traders would never want pretences for keeping up the price of their commodities beyond the proportion of what it ought to be, when duties are taken off.
I decide with the greater certainty as to this particular, from the analogy it bears to the consequence of changing the denominations of the coins in France, which long experience shews never to have the immediate effect of regulating prices proportionally.
But as we are here considering the consequences of a sudden abolition of taxes, let us, for a moment, consider, with an eye of humanity, the scenes which would unavoidably open to our view, both in the formerly opulent habitations of those who were wont to wallow in public money, and in the comfortable dwellings of many others of every denomination, who, either as the reward of merit, or as the recompence of painful industry, had supplied the wants of useless armies, navies, arsenals, dock-yards, &c. formerly paid out of taxes, now abolished, and who thereby had subsisted and brought up their families.
Are not all these children of the state? Have they not had fathers and mothers who have been greatly relieved by procuring such outlets for them? Have they not children who are educated and brought up with the amount of their salaries, and profits of their service? Have they not had people of every class of industry, who have gained their bread by providing for their wants, while they were supplying those of the state, now become superfluous? In one word, does not the money they receive, circulate and return to the grand river, as I may call it, in the same manner as that of other members of the state?
For these reasons, I say, that taxes once properly imposed, and brought to circulate through a certain channel for a long time, cannot, suddenly, be suppressed, without occasioning far greater misery and distress than can arise from them, when levied with any degree of intelligence. This is nowise peculiar to the suppression of taxes; it is equally the same, in every sudden revolution of property. When the Templers were universally rooted out of Christendom, who doubts of the afflictions, misery, and distress, which followed to every class of inhabitants employed by them, in every kingdom in Europe? Could so large a consumption as that of so great an order cease at once, without drawing along with it numberless inconveniences? Did not the reformation itself, otherwise so great a blessing, starve a multitude of poor who were fed by the monastries? Did not the secularization of so many ecclesiastical benefices do great prejudice to many families, by blotting out an infinity of ways of procuring an easy livelihood for their children? Let those who do not feel the truth of what I here advance, examine the state of the protestant nobility in Germany, where you find the same hardships still subsisting, though in a degree much inferior to what it must have been at the time of this sudden revolution, which took bread from thousands of the younger sons of noble families.
Such revolutions have happened; such inconveniences have been felt: but they were not the deliberate act of any particular statesman. They were the effect of those convulsions which the human passions occasion. No body can justly impute them as necessary consequences of a reformation in religion. But let any statesman now, from a cool reflection upon the unnecessary load of employments in church, state, army, navy, finances, and law, and from a principle of distributive justice, abolish at once all that is superfluous, and the taxes, at the same time, out of which the emoluments arise, he will very soon set before the eyes of his people, such a scene of compassion, as will quickly blot out the remembrance of the favour.
We should not then find some individuals reduced to want, but numerous families; not a parcel of beggars starved, but industrious manufacturers; not a set of ecclesiastics, who from their state of celibacy and retreat, appeared already, in a manner, separated from the commonwealth, but a multitude of people connected by marriage, by society, and by all the tender bonds which unite mankind. Such a scene, I say, would not fail to excite compassion in the heart of those very men in whose favour the desolation was to be brought on; and the statesman would thereby lose the whole merit of his ill judged zeal for distributive justice, and be considered in the most unfavourable light that passion or prejudice could suggest.
This is a digression introduced with no intention to favour a misapplication of public money, but to point out how far a reformation in this particular is a delicate operation.
A good physician never attacks a disease by violent remedies, when mild ones, with time, may be made to produce the same effect. Nothing can resemble an ingrained disease in a human body, more than an ingrained vicious habit in a state. The spirit of a nation is influenced, as has been said, by the administration of its government. So large a sum of misapplied money creates a political disease, which must be purged away by degrees; and new doors must be opened to receive those whose former method of subsistence is thereby intended to be cut off.
Let me next examine the consequence of a gradual and insensible reduction of taxes, relatively to trade, industry, and manufactures.
It would be both tedious and superfluous to trace the steps by which such an operation ought to be conducted. Let me suppose it compleat; but let it not be so very gradual as to blot out all remembrance of the age of taxes, and of their effects.
We have sufficiently analized the whole progress of circulation; we have shewn how it must constantly be in proportion to alienation, and how, when deficient, industry suffers a check. Even when peace is restored after an expensive war, we have shewn how circulation diminishes, from the abatement of public expences, how money stagnates, and how it is consolidated upon property of a more permanent nature.
Let us now apply these principles to the question before us. Let taxes be abolished ever so gradually, the circulation of the exchequer must cease in proportion; consequently, the whole alienation, and the whole industry which is the object of that alienation, must cease also. The money issued from thence at present, continues its progress from hand to hand, and all is found necessary for circulation, in this age of taxation, as we have called it. What a deal of industry is implied in the circulation of a sum equal to all the taxes! Let those who choose to calculate, state the following proportion, because I will not here interrupt my subject.
As the whole money of the country is to all the alienations performed by it, so is the sum of taxes to that part of alienation which will fall with them.
If a gradual diminution of taxes must have the effect of extinguishing so much industry, it will have the effect of starving the industrious who lived by it. But before they starve, the price of work must fall below the price of the narrowest subsistence: because the never failing foreign demand for subsistence, will keep it above the rate of their slender abilities, as long as any trade remains.
To imagine a foreign outlet for cheap manufactures, while the subsistence of workmen is at par with other nations, is against all principles; as it is against experience, to see a country without revenue, and without taxes, carrying on with success the operations of industry and foreign trade.
Compare, therefore, the situation of such manufacturers with those in the age of taxes. Compare those who would augment a supply far beyond all the demand for it, with those who are paying large taxes, and as regularly drawing them back, either upon the sale of their work, or in consequence of wages which enable them to be idle two or three days in a week.
In such a situation, how ardently would the former wish to see the idle consumers furnishing again a copious supply of money to government, for removing such inconveniences. They would then quickly perceive that they had not been of that class which had felt the load of taxes; they would recal to mind the joyful hours they had spent in public houses; the fortunes which every industrious man might hope to accumulate, while every branch of industry was kept alive, by the means of a copious circulation.
If, therefore, the industrious classes of a people cannot be benefited by an abolition of taxes; let us next inquire, to whom the advantage would accrue.
It has been said, that the idle consumers pay all taxes of the proportional kind; the proprietors of lands, houses, &c. bear every where a very large share of taxes both proportional and cumulative. This class of men, therefore, are those who bid the fairest to reap a benefit from an abolition of them. But the proprietors of lands are by no means included in the class of idle consumers, in every respect; altho’ they may be considered in that light, with respect to such taxes upon their consumption as they do not draw back from their direct industry, in producing some manufacture which they may sell again, with a profit proportional to the tax they paid. They are masters of a property, which, in a country of industry, is daily augmenting in its value. Their fortunes, often swell faster than those of any one class of the industrious; but they augment by annual income; the fortunes of all the rest, increase by the capital. Every penny raised in a landlord’s rent, is equivalent to half a crown gained by a merchant.
If it be true that taxes, rightly imposed, do no prejudice to any of the manufacturing, or any-wise industrious classes of a people; and if it be true, that an abolition of those taxes, by contracting circulation, would discourage industry; then we may determine that the landlords would lose much more in finding the improvement of their lands interrupted, than all they can gain by adding their taxes to their present fortunes.
Combinations of this sort are so involved, that I cannot pretend to unfold them step by step, as might be done in cases of a more simple nature. The conclusions therefore drawn from researches of this kind, do not command that assent, which we find in a manner extorted from us upon other occasions. In this chapter, I have not undertaken to demonstrate that the judicious imposition of taxes is advantageous to a country in every respect. My view is to point out the advantages they actually have. The common opinion is that they are hurtful. Our feelings, however, have raised doubts with many great men concerning the truth of that proposition. If my investigations, however imperfect, and however liable to objections, should facilitate to others the clearing up a point, which is beyond the reach of my capacity to extricate, this consideration will be a sufficient encouragement for me to proceed.
Let me, therefore, lay aside the thoughts of analizing the effects of taxes, with such accuracy as to form a demonstration of their being more beneficial than hurtful to an industrious nation, and that the throwing them back into circulation does more good, than the raising them does harm. But let me shew, in general, that the interest of landed men, who, I think have, beyond all doubt, been proved to be those who, in the first place, pay a considerable part of proportional taxes, does by no means require an abolition of them.
The proprietors of lands, whom we have hitherto considered as being of the class of the idle consumers, advance their rents by the great demand produced for subsistence, in consequence of industry. This, if it does not raise the price of subsistence, keeps it, at least, at an equal standard; and that standard must bear a proportion to what it is worth in other nations, as long as trade subsists. But let trade decay, let domestic industry fail, it will not be the foreign price which will then support the rate of our markets. What a multitude of circumstances contribute to the exportation of our superfluity! I can send from Charing-cross, any parcel whatever, to the distance of fifty miles, cheaper than from my own country habitation, where I can have a man, with a cart, for two shillings a day. From Charing-cross, I can send, at an hour’s warning, many thousand tuns weight: here I could not do the same in many weeks. Near London, an extended common may be inclosed and improved in a season: here, the improvement of a small field is the business of a man’s life. Let me even consider how matters are changed within these fifty years. Undertakings which now are executed with little difficulty, were then absolutely impracticable. An army was necessary thirty years ago to make a road of a hundred miles, and the inhabitants were astonished at the execution of it[48].
Footnote 48:
Wade’s road through the highlands of Scotland.
Were it necessary, at this time, to do as much every year, if money be but provided, hands will not be wanting, either to conduct or execute the plan.
The number of people, well employed, makes the prosperity of a state; and the profits of the opulent classes, by the augmentation of industry, more than compensates all the burden of their taxes. They grow in relative wealth; and the acquisitions they make, are commonly exempted from the cumulative taxes raised upon their possessions. In proportion to their industry in improving their lands, their fortunes augment. The present system of taxes does not interrupt their operations. Were any great change in that particular to take place, which might sink the market prices of subsistence, even allowing that it would prove an advantage to foreign trade, they, I am sure, would be the first who would feel the inconvenience.
It may be wondered, why I have not suggested, as a consequence of taxes, the increase upon the price of the earth’s productions, which is a direct indemnification to all the landed interest, more than equivalent to the taxes they pay. But taxes upon land, do not augment the price of grain, as they raise the price of exciseable goods. The reason is plain. The tax upon land affects only the proprietor’s share of the produce of his lands: were he to attempt to raise the price of his grain, in proportion to the tax he pays, his farmer, who pays no land-tax for his portion, would undersell him in the market. A tax never can raise a price, except when it is laid on so universally, as to make it impossible for any person to avoid it, who sells in competition with another who pays the duty. It is from this principle that smuggling often ruins fair traders: the smuggled goods are sold cheaper than those which pay duty, and the fair trader is thereby forced to sell below what he can afford.
On the whole, I believe that when this question is thoroughly understood, it will be found, that taxes affect prices far less than any one could imagine; except in the case of excises, rightly imposed, and levied without fraud. There indeed they have their effect; but in every other mode of imposing them, I am apt to believe that they do not produce the consequences commonly ascribed to them. I have already suggested the reason in a former chapter upon this subject; where the influences of competition in the markets where commodities are sold, has been proved to work more irresistible effects in regulating the price of work in general, than any thing that taxes, not immediately imposed upon the very article of consumption, can produce. But if in spite of all that has been said, it should be urged that the prices of labour and manufactures rise in proportion to taxes, I answer, that the difficulties resulting upon this hypothesis, would be many more than could be objected to the other theory. Could, for example, any man assign a reason why a pound of the best snuff in England should be sold dearer than in France, where it pays a duty of above two shillings sterling; why many articles of manufacture can be afforded cheaper in England, than in Scotland, where taxes are certainly lower, and although a day-labourer in the first be paid a shilling, and in the last little more than eight pence; why subsistence should be absolutely dearer in Scotland than in England, taken upon an average; why universal experience should prove, that when the price of subsistence is raised by scarcity, work instead of rising, is constantly lower than at other times?
From all these appearances, added to the arguments I have used to prove that taxes are not prejudicial to industry, I conclude, that the theory I have attempted to give is just in the main; and that when taxes are judiciously imposed, and actually levied without oppression, they enrich a nation.
1_mo_, By putting into the hands of a good statesman, the means of removing every abuse; of rendering the state respected by its enemies; of supporting every class of industrious inhabitants, when their particular branch falls under distress; of providing an outlet for many young people, who in time become ornaments to their country, and instruments of her defence; of supporting foreign trade by bounties on exportation; of encouraging the improvement of lands, the establishment of colonies, the extension of fisheries, and every other scheme for augmenting the production of subsistence and manufactures.
2_do_, That the multiplication of taxes, exclusive of the encouragements just mentioned, which are bestowed gratuitously on trade and manufactures, do, of themselves, and independently of the proper application of their amount, augment, demonstratively, the mass of circulation, alienation and industry; and in this respect may be considered as a voluntary contribution, in the first place at least, from the rich who pay them, to the industrious who directly draw them back.
3_tio_, As to that part of the people, who pay their taxes without sharing the advantages of those who serve the state in lucrative employments, I say the industrious part of them pay nothing; and the demand for what they produce, is greatly increased by the expence of those very men who are the objects of their envy: and farther, that if an alteration were to be made on the revenue, by any abolition of taxes, those who imagine themselves hurt at present, might find, by sad experience, a much greater, and much more real hurt, from what would disturb the harmony of the present system.
To conclude, we have a tolerable notion of the state of industry in former times, when taxes were little known: we may see the progress it is making in countries where, at present, impositions are comparatively lower than elsewhere; and we may compare the state of those countries with our own, as to ease and happiness. From such inquiries, nothing, I apprehend, can be concluded in favour of the progress of industry, from an abolition of taxes.
That such an abolition may produce some good effect, as yet unknown, I shall not pretend to deny: we have not lived long enough to see any experiment of this kind put in practice.
From the exposition I have given of this matter, there arises a great difficulty to be solved.
Taxes are paid, no doubt, and no body according to this theory seems to pay them. The industrious draw them back; the proprietors of land and solid property are said to be indemnified; prices, it would appear, are not to fall by a diminution of taxes, in favour even of the most idle consumer; they are not made to rise in consequence of an augmentation on them: Whence then do taxes proceed? From what fund do they arise? What interest do they affect? I can solve all these difficulties, by an answer to another question. From whence arises the value of a small parcel of flax, when wrought into fine lace? It arises from the price paid for time well employed; which produces nothing when spent in idleness. This is the fund out of which the greatest part of taxes is paid; it is a fund created by the industrious Britons, which I hope will increase for many centuries, tho’ taxes should increase in proportion. It is worth more than ten times all the taxes which could be raised, and all the landed property without it. Let that time be spent in idleness, and the whole produce of this island would not supply the expences of government for a month.
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CHAP. X. Are taxes a spur to industry, as some pretend?
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 their feelings, in consequence of many circumstances arising from experience, rather than what reason, or the nature of the thing has pointed out. But as nothing can be produced without an adequate and natural cause, it is proper to 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 the 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 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 estate, it would be absurd to allege this diminution of his fortune, as the cause of a desire to augment his consumption.
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 administred 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 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 not 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 the solidity of the principles upon which they depend may be gathered.
After this solution of the question proposed, let those who are versed in history combine circumstances, and examine whether facts do not prove the truth of what I have said.
During the time of the Roman empire, when the riches of Asia flowed into the coffers of Rome, and were constantly exhausted by the prodigality of the emperors, we perceive, from many circumstances, to what a degree the consumption of superfluities augmented. The price of certain commodities rose to an excessive height; industrious people, of the lowest extraction, were daily seen to amass prodigious fortunes: these are proofs of circulation. But when we consider the expences of a Lucullus, or of a Crassus, who consumed, it is said, the work of ten thousand slaves, and compare the consequence of that consumption with the expence of a modern, who should consume the industry of ten thousand freemen, we shall find a wonderful difference in the effects of the one and of the other, with respect to circulation, and the encouragement given to industry.
There was no alienation between Crassus and his ten thousand slaves, notwithstanding all the work consumed; consequently, the only circulation implied by this consumption was in proportion to the necessaries which the master was obliged to purchase for so great a multitude: and if we still suppose all those necessaries to have been produced by their own labour, then the state of Rome could not, but by an arbitrary imposition laid upon Lucullus and Crassus, draw one farthing out of their coffers; consequently, industry could not increase in proportion to the loads of wealth brought from Asia by those generals. Whereas were Lucullus now at London, or at Paris, he would not be able to spend a shilling, without giving a penny, and perhaps more, out of his treasure to the state, which would immediately throw it back into circulation.
As we are now on the subject of circulation among the ancients, let me briefly trace the progress of it in Europe, through different modifications, to our own times, and so close this chapter.
When the seat of empire was translated to Constantinople, and all the Asiatic provinces attached to the Emperors of the East, a stop was put to the augmentation of coin and bullion in the empire of the West. A considerable part of what had formerly been there returned to Constantinople, and the remainder fell a prey to the barbarous nations which overran it. This may be called the first period.
These barbarians, by enslaving all the ancient inhabitants, and by forcing them to perform every kind of service, must have had little use for coin. What they coined appears to have been broad and thin.
Let any one reflect upon the insensible waste of silver plate, and the still greater loss on coin which circulates; the vast sums carried off in the time of the Croisades; the quantities buried or thrown into rivers in times of devastation; and add to these circumstances, that from the fifth century after Christ, till the discovery of the Indies, there was, probably, little or no silver or gold brought into Europe; and it will appear very natural, that coin should have been at that time much more scarce than formerly.
How contracted circulation was during the 13th and 14th centuries, may be gathered from the anecdote concerning alienation in France, mentioned in the third chapter upon public credit.
But farther, the great subordination established by the feudal form of government, and the military services to which such numbers were bound, had the effect of preserving the ancient simplicity of manners, so unfavourable to industry. The consequence was, that Princes could raise no taxes; and that all the money the people had was locked up in their chests. We know there were in those days abundance of wealthy people; but their wealth inspired them with no disposition to consume at the expence of ready money.
The discovery of the Indies opened a third period, and threw great riches into the hands of the Spaniards: the house of Austria was the first enriched, and appeared with great splendor for some time. Charles V. by his extensive dominions, had an opportunity of distributing this new gotten treasure among his subjects in Flanders, his native country: this set industry to work in that quarter. The Portugueze discovered the East Indies: a new enticement to luxury; a new motive to become expensive. The Hollanders became a trading people, and with the money which their industry had drawn from the magnificent Spaniard, they shook off his yoke. Money insensibly began to circulate. Princes immediately found, as has been said in the second book, that it was necessary for them also to augment their revenue, in order to maintain a proper superiority over their subjects in point of riches. The increase of circulation among individuals made it more easy to raise taxes; and the throwing the amount of them back again, in gratifications to the chief people of the state, engaged those who came by money in a manner gratuitously, to expend it as freely as they received it. No wonder, then, if Princes found it an easy matter to load their subjects. They were supported in this scheme by the great men of the state, who found a benefit from it. This revolution has totally changed the face of affairs in the present period of circulation. Courts are splendid; armies are numerous; buildings, in cities and in the country, are magnificent; an old city, compared with a new one, appears hideous; all public works are carried on with that solidity which we admire in those of ancient Princes and states, when nations led into captivity were employed to perform them. In those days the magnificence of Princes was in proportion to the groans of their subjects; now they are in proportion to their wealth and ease. Whence proceeds the difference, the effects are the same? From good government, and a well regulated political oeconomy.
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CHAP. XI. _Considerations upon Land-Taxes, with some Observations upon those of England and France._
Of all the kinds of cumulative taxes, that which is properly imposed upon lands seems the best: that is, it implies 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 falls heavier upon the small proprietors; because the sum exacted bears a greater proportion to the supposed superfluity of the proprietor. In France, it is still worse; for there the exemptions of the numerous class of nobles, and many other circumstances mentioned above, 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, 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, in my humble opinion, two remarkable defects. First, The sums imposed at so many shillings in the pound[49] 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.
Footnote 49:
That the assessments, in the annual act for the land-tax, are generally understood to be at the rate of 1, 2, 3, or 4 shillings in the pound, is true; but it is to be observed, that no such rate is mentioned in the statute with respect to real estates or land. The rate of a certain number of shillings in the pound occurs only with regard to personal property.
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.
I shall now point out the inconveniences and bad consequences of these two capital defects.
When a tax is imposed at so many shillings in the pound upon the income of a whole district, every article of the property which produces it ought to be specified. If this be omitted, there is a legislative authority vested in those who make the distribution.
The articles which compose the whole property, and the revenue of each article being once determined, the state has it in its power to impose the tax according to what proportion it thinks fit; of one, two, or more shillings in the pound. But then, in favour of the contributors, the different articles which produce the supposed total, ought either to be specified in the law, or reference should be made to a book of valuation where they are recorded.
It is no easy matter to frame the valuation of all the property of a country: and it is a scheme I should be very far from proposing, unless the spirit of a nation took such a turn as to wish for it. But where a determinate sum has been in use to be levied upon a certain district, it does not appear so difficult to make a proportional distribution of it according to equity, and to adhere for the future to that distribution, considering it as a proportional valuation, if not a real one. This is done every year, and without it no such tax could be raised. But when annual distributions are made, discontents constantly arise; and the pretended equality thereby observed, produces worse effects than the inequalities which would follow from the other scheme: because the change in the relative value of possessions would then be chiefly owing to the industry of every proprietor in improving his lot.
How valuations in England were made originally I cannot tell[50]; but in Scotland, it is very certain, that as to lands they were all set down in a book of valuation at their supposed rents at that time. So let the sum raised be what it will, every man at least knows that his proportion must be according to his valuation in the general register.
Footnote 50:
There is no vestige in the history of England, since Dooms-day book, of any regular valuation being made of all the lands of the kingdom, nor of any tax imposed, singly, on that branch of property.
The subsidies, monthly assessments, and pound rates, in the different stages of the monarchy, have all been mixed duties; composed of a charge upon the lands, upon the money and personal estates of the subject, and frequently including a poll-tax, where qualities, that is rank, were differently charged.
The whole operation of distributing and raising this duty, has been by commissioners named by the King, or by parliament, who sometimes upon oath, and sometimes not, inquired into the extent of every one’s private fortune, and assessed them accordingly. Whoever wishes to have a more full account of this confused method of raising a land-tax in England, may consult Davenant’s Ways and Means, Article of Monthly Assessments, and Aids upon a Pound-rate.
In England, the case is totally different. The proportion every district is to pay, is indeed recorded by an original distribution made many years ago in King William’s time. By this it appears what every city, county, university, &c. is to pay according as the tax is imposed at one, two, three, or four shillings in the pound. This is precisely the regulation in France, as shall be more fully observed; but still such regulations nowise prevent the most grievous inconveniences which attend this tax; because the burden of it does not consist in the total amount, so much as in the partial distribution upon the inhabitants in every subdivision.
In England, let me suppose the proportion of the general sum for a particular district to be ten thousand pounds, at four shillings in the pound. How is this to be levied as the law stands? Instead of books of valuation, which shew at least the proportion of every man’s property, if not the real value of it, assessors are constantly called in, who examine the rents of all the lands according to the last leases of them. If they have been improved and let at a higher rent than formerly, the proportion of the tax is augmented. If they have not been let, but still remain in the possession of him who improved them, the tax is not augmented. If the tax be found to fall too heavy upon the lands and houses, then personal estates are made to contribute, as is the case in London. All questions or disputes about the repartition of the tax are determined, without appeal to the courts of law, by the commissioners appointed for laying on the tax; as in France they are determined by the Intendant. Without this regulation all would run into confusion, for the reason I am now going to mention, and which regards the second defect in this tax.
Any proprietor of lands is entitled, from the words of the statute, to insist that the whole personal estates of those of the district shall enter into computation of the total value upon which the sum imposed is to be assessed. Were such questions to come before a court of law, where the judges are obliged to determine almost according to the letter of it, I believe no land-tax could be levied in that kingdom. But manners, not laws, govern mankind. The spirit of the English nation is such, as to be incompatible with every thing which savours of oppression. Hence the few complaints against the assessors, or those who judge between parties. And as the land-tax is levied without any complaints, except as to the total amount; while that remains the case, the fewer the innovations made upon it are, the better.
In France, the sum of the taille to be raised upon the kingdom for the year is determined in the King’s council; and the proportion of every district (called an Election) is there particularly specified. The district of an Intendant is called a generality, and comprehends in it several elections. The Intendant, therefore, makes the distribution of the general sum imposed upon every election, and upon every town, village, and parish in it, according to a certain proportion; and rules are prescribed to the collectors of every parish, concerning the method of taxing every species of income, every emolument of industry, even every animal in the possession of those who are subject to this tax. This proportion is calculated to carry the most scrupulous attention to every man’s gain, upon all effects belonging to him, and upon every possibility of making profit by industry. All this is carried into execution with the greatest seeming equality in the minute subdivisions.
But as the first imposition of the tax is not proportioned to the actual value of the income it is intended to affect, and as the Intendant does not set out by a particular valuation of every man’s possession, before he distributes the tax upon the several parishes, he is obliged to make up the deficiencies by second and third distributions.
Although this taille affects every species of property producing an income, as well as every kind of industry and employment, it does not affect every landlord for his rent, so much as every cultivator under lease, for his supposed profits.
Land-rents in France belong, for the most part, to the higher classes; and these, whether they be well born or not, are exempted from this tax, providing they be noble; a word which has no reference to birth, but to certain privileges which any man, who has money, may acquire.
It was in order to avoid this exemption, that the Marechal de Vauban wanted to substitute a tenth instead of the present taille; for a reason we shall presently see.
All the land-rents, therefore, of the nobles are exempted from the taille, and are only affected by vingtiemes and dixiemes but when they cultivate their own lands, their privilege of exemption from the taille is confined to as much as four ploughs can labour; and this farming must be carried on by menial servants, unmarried, in order to prevent such proprietors from defrauding the tax, by really letting their lands under pretext of holding them in farm.
This exemption, as to their land-rents, is more apparent, however, than real. It is not the lands of the nobles, but the rent paid out of them which is exempted from the taille; consequently, by imposing an exorbitant taille upon the lessee, very little remains for the land-rent; and this tax being laid upon a set of people who are loaded with many others, is in the end more burdensome to the proprietor, than if he paid it himself. But a change in this policy is impracticable. The gentlemen of France will probably never submit to a taille; and although, by yielding up that point of delicacy, their rents might be raised in the end; yet as matters stand, they know they enjoy the rents they have, free of tax, and if once they were made to pay any part of them, they do not know where such payments might terminate.
To avoid the infinite oppression which results from the French principle of sharing every man’s profit as soon as he makes it, the Marechal de Vauban proposed to abolish the taille, as it is paid at present, together with the capitation, industrie, and all the train of cumulative taxes committed to the management of the Intendants; and to establish in their room what he called a royal Tenth, meaning by this term, a proportion of all the fruits of the earth, similar to what is established in favour of the clergy. This he proposed to lay on, according to the exigencies of the state, from one twentieth part to one tenth upon every article of the gross produce of land, over all France. This he imagined to be equal to one tenth of the land-rent. And the author of a book published under the title of the Reformateur, containing a new plan of taxation, in which there are some things worthy of observation, follows in this particular the Marechal de Vauban, without ever considering the true nature of a tax of this kind.
Of all the taxes upon the income of land-property, the tithe is the worst; and it has undoubtedly been established among men, before agriculture or taxes were understood. Lands in all countries are of different qualities: some are proper for bearing rich crops of grain, others are indifferent; some produce pasture, others forrest; the revenue of some consists in wine, in mines, and in a thousand different productions, which cost, some more, some less expence to cultivate. The tithe takes without distinction a determinate proportion of the fruits, in which is comprehended the tithe of all the industry and expence bestowed to bring them forward. As an example of this, let me suppose a field of corn, which cannot pay the proprietor above ¼ of the grain it produces, many I know cannot pay above ⅕, but let me suppose it ¼: another may pay with ease ⅓; another even ⅖; the fields about Padoua pay ½; grass fields pay still more; and rich hay fields will pay in some places ⅔, and even ¾.
How then is it possible there should be any equality in a tax which carries off, without distinction, a certain proportion of the fruits, when those fruits bear no determinate proportion at all to the expence of raising them? But besides the inequality of this tax among proprietors, I ask how it is possible that any rent should be determined for lands, which are subject to a variable tithe, sometimes at 1⁄10, sometimes at 1⁄20 of the produce? Let me demonstrate the impossibility of such a plan, by an example.
I suppose the Marechal’s plan established, and that the tithe to be imposed is to be deducted from the rent stipulated between master and tenant. This was his intention: he has in many places declared, that all tithes were to come out of the land-rent, which indeed is the only fund upon which a land-tax ought to be established. And he has as often declared that he never intended this land-tax should exceed one tenth of the rent, or two shillings in the pound.
I suppose a field, producing every year 1000 bushels of grain, to be let: it is to pay a variable tithe, sometimes of 100 bushels, sometimes of 50, according to the exigencies of the state. I farther suppose one third of the produce to be equal to what the farmer can pay the landlord for rent. And I suppose the rent to be paid in bushels of grain.
According to these suppositions, the rent must be 333⅓ bushels subject to the tithe. Suppose it to be laid on at ⅒, or 100 bushels. Deduct this from 333⅓, remains to the proprietor 233⅓. The tithe comes next year to 1⁄20; this makes 50 of deduction, remains to him 283⅓. So instead of 10 per cent. of his rent, he pays in the first case 30 per cent. and when at the lowest, he pays 15 per cent. which is thrice as much as the Marechal proposed to take.
But how are masters and tenants to reckon with one another? Lands are not let according to a determinate proportion of increase. Suppose an estate in lands of different kinds, how is the tithe to be deducted then? Is the master to take the tenant’s word both for the quantity and the value of every article he has paid as tithe, of every field, of every article in his possession, even of the chickens in his yard? If on the other hand, this variable tithe is to be thrown upon the possessor, which, indeed, is the only possible supposition, which way are lands to be let, when we see that the difference of the imposition, at different times, is no less than 15 per cent. or three shillings in the pound? This, however, would be the only method for masters and tenants to reckon.
But let me suppose another proprietor to let a grass field adjacent to that which bears grain, and that both were to be of an equal rent, supposing all tithes out of the way. The gross produce of the grass would be to the rent, little above the proportion of 4 to 3. Let us then call the gross produce 1000, as in the other case, ¾ of which would be 750, for the rent. One tenth of the whole taken from that would leave the rent at 650, or little above 13½ per cent. deduction at the highest tithe, and 6¾ per cent. at the lowest.
What inequality, therefore, would not such an imposition occasion upon land-rents, and what inextricable difficulties in letting of grounds? From what has been said, without farther inquiry, we may declare that no land-tax can possibly be raised, with any equality, by a royal tithe; and the Marechal has never considered farther, than how the King could with certainty and ease to himself, appropriate a portion of the lands in his kingdom, leaving the proprietors and their tenants to settle accounts the best way they could.
On the whole, nothing can make us approve of the Marechal’s, royal tithe, unless it be the present oppression which proceeds from the method of levying the taille; by which it happens that in France few incline to acquire the full property of lands.
Most of the great estates consist of fee-farm rents. A man of three thousand a year land estate, covers sometimes with his nominal property (dominium directum) a whole country of fifty parishes; but the real property (dominium utile) of this vast extent is subdivided into a number of small fees, of which he is only lord paramount; and what remains is the property of the lower classes, who pay what is called Rentes Seignoriales, or noble rents, consisting in money and grain. These rents can nowise be affected by any tithe imposed, because they bear no proportion to the produce: and supposing they did, as in some provinces, where they are called agriers, (which is the ⅙ or ⅛ sheaf paid to the lord) the tithe, instead of taking a tenth of the agrier, takes a tenth of the whole crop; consequently, only one tenth of this sixth or eighth sheaf falls upon the lord; the tithe of all the rest falls upon the poor proprietor or lessee, who the more he is industrious is oppressed the more by this imposition; because it carries off the tenth of his expence and labour, as well as of the farm which he rents.
This is the tax which the Marechal de Vauban recommended to be raised universally over all the land-property of France, when the tithe was at the highest. To this the late reformer adheres; but proposes the twentieth instead of the tenth; and after a nice calculation of the gross produce of France, he estimates one twentieth part of it to be worth about 95 millions of livres per annum. Hence I conclude, that the twentieth part of the income, or one shilling in the pound of all the revenue of solid property in France, fairly collected, would not much exceed one third of that sum, or about 30 millions, or 1 333 333_l._ sterling. This first part, therefore, of the Marechal’s tithe, imposed at 1⁄20, would lay a tax equal to three shillings in the pound on the poor lessees and vassals of the nobles, while, contrary to his express intention, the whole fee-farm and noble rents of France, would escape taxation. From this we may conclude, that no tax upon land-rents can possibly be raised by way of tithe: as also that when it is taken in kind it is the most oppressive, the most unequal, and the most discouraging to industry, that ever was contrived.
The Marechal’s principal motive for proposing this mode of taxation, was to avoid the difficulty of obliging the nobles to pay the taille. He found also, that there would be great ease in collecting this revenue for the King, without demanding money of the lower classes. The consequence, however, would have been, either to ruin all lessees, if they continued to pay the same rent for the lands as formerly; or to introduce the greatest inequality imaginable among proprietors, if the tithe had been totally cast upon their rents: but as to the method of settling accounts between master and tenant, in consequence of this tithe, both the Marechal and the reformer are totally silent.
The Marechal’s Dixme royale, with all its defects, is a book of great value, from two considerations.
The first, that he had all possible access to come at the true state of the nation. The second, that he wrote with great impartiality, and with a sincere desire to serve the landed interest, without intending to hurt that of the King his master. From this book, we have an opportunity of judging of his notions of taxation; and from the consequences he himself points out, we discover the miserable state of the common people in France, whose situation at this day is not much changed for the better.
The Marechal’s scheme was to reduce the whole revenue of France under four heads.
The first, a general tithe of all the fruits of the earth, without distinction, which we have already explained.
The second, a tithe upon every income whatsoever, even upon the profits of labour, servants wages, employments, possessions, and trades of all denominations.
The third, was a modification of the gabelle, or the duty upon salt.
The fourth, which he calls the fixed revenue, was to be composed of the domain, and several other branches of taxes which he allowed to subsist, judging them, I suppose, not hurtful to the state.
I shall now shew wherein the Marechal’s plan of taxation is contrary to principles, and leave the reader to make his conclusions.
First, he has declared in many places, that his intention was only to impose a tax upon the income of land, which he understands to be that part which remains after the deduction of all expences of cultivation &c. in other words, what every one understands by land-rent, and which, no doubt, is the only proper object of taxation: but in order to impose upon this part his royal dixme when at the real tenth, he takes the tenth part of the whole produce, instead of the tenth part of what goes for the rent; and, as far as I have been able to discover, he never perceives that there is the greatest difference between these two quantities.
The second article was the tithe of every income, not consisting of the fruits of the earth.
Where an income arises from a branch of property which can render it determinate, I shall form no objection to a tithe or two shillings in the pound upon it. But when he comes to tax lawyers, attorneys, physicians, &c. according to the value of their emoluments, I own I cannot find a possibility of preventing abuse in the collection, or inequality in the imposition of the tax.
The Marechal’s principal point in view was agreeable to the standing maxim in France, to make every one contribute according to his income. Very right, so far as it is possible, without implying much greater inconveniences than what can be compensated by this imaginary equality. I call it imaginary, because in the execution it will be found, that no body will really pay what they ought, except those whose income cannot be concealed. Whenever any part can be hid, there must, in my opinion, result a great inequality, and great oppression, in endeavouring to ascertain it.
A short observation will suffice to give a view of his notions with regard to merchants and trade in general. His intention was to be very indulgent to this class of inhabitants; and he feels all the advantages of trade. He proposes, however, to proscribe all notes of hand payable to bearer, as it is a method of concealing wealth and exacting interest for money; which he supposes to be contrary to scripture. Trade would be ill carried on with the Marechal’s restrictions.
When he comes to the lower classes, which he supposes to comprehend one half of the people, to wit, all tradesmen, manufacturers, and day-labourers, their wives and children; he takes the example of a weaver, as a middle term, to judge of the gains of the tradesmen and manufacturers. He supposes this weaver to have a wife and family, to work 180 days only (because of the many holidays, as well as accidental avocations) at 10½_d._ sterling a day. This makes his year’s labour worth 7_l._ 17_s._ 5_d._ sterling. Of this he takes 10_s._ 10½_d._ for the greatest tithe. Besides this, he exacts of him for his salt-tax, for four persons in his family, 12_s._ 9_d._ So that this man, whose whole labour is only worth 7_l._ 17_s._ 5_d._ sterling, is to pay 1_l._ 3_s._ 7½_d._ of cumulative taxes out of it, which is above ⅐ of the whole fund of his poor subsistence: after which he adds, “This, in my opinion, is a tax high enough for a weaver, who has only his two hands to gain his bread with, and who has house rent, meat and clothes to provide for a family, who frequently can gain very little for themselves.” To this I must agree.
I shall give one specimen more of what the Marechal considered as an ease procured to day-labourers, in their then situation; which relief, however, they have not hitherto obtained.
These he also supposes to work 180 days in the year, at not quite 8¾_d._ sterling. He values his year’s labour at 6_l._ 10_s._ 6_d._ sterling, and here is the employment of this sum according to the plan.
He is to pay for tithe of his industrie £ 0 8 8½ For his salt-tax 0 12 9 For five English quarters of rye 4 7 1 For clothes to the family, utensils, and repairs 1 1 11½ ——————— 6 10 6
I have been the more particular upon this part of the plan, because it gives us a notion of what the Marechal thought a moderate easy tax laid upon 8 000 000 of inhabitants, to wit, 2 000 000 men and 6 000 000 women and children, according to his calculation.
I come next to the tax he proposed to lay upon salt, of which mention has been made.
This tax is of the nature of an excise, and is called the gabelle, which we have explained already in a note; and the objections to it, as the Marechal has proposed them, are no less than three very material ones.
First, the proportion of the duty is far too great, considering the value of the commodity. The second is, that being imposed upon an article of subsistence, it operates immediately on the price of the salt, and only consequentially on the price of labour. This is no great objection, were the proportion moderate; because insensibly the price of labour would rise, were the tax generally and exactly levied in proportion to the consumption: but this was not the case; and this circumstance opens the last objection, and the greatest of all, to wit, that the tax, proportional in its nature, is rendred cumulative, by being raised at the end of the year, in order to oblige every one to consume the salt required.
Now by this mode of levying the tax it loses every advantage, and becomes an addition to the tithe laid upon the industry of the consumer. If every man in England were to be rated at the end of the year, in proportion to the excise of as much beer as he may reasonably be supposed to consume, would that be an excise? certainly not. It would be a poll-tax to all intents and purposes, which no man could draw back.
I have little or nothing to object to the fourth article of the Marechal’s plan. He proposed no essential change, either as to the imposition, or method of levying the taxes which composed it. The principal heads of them are,
1_mo_, The royal domain, or the king’s landed estate, together with all casualties attached to royalty, or feudal superiority; stamp-duties, and the controle of public acts by notaries.
2_do_, The customs upon importation and exportation.
3_tio_, Certain taxes of the purely proportional kind; among which was one upon tobacco, and one upon liquors drank in public houses in the country. Here entire liberty is left to the consumers; and the taxes are principally calculated to affect, or, as he calls it, to punish luxury, intemperance, and vanity. With this view, he wittily proposes an imposition upon large and ridiculous wigs, at that time much in fashion, and upon several other articles of extravagance.
This is a short sketch of the Marechal’s system of royal tithe, considered as to the principles only, upon which the several taxes were intended to be imposed. The treatise contains several admirable things; especially with regard to recapitulations of inhabitants, lands, houses, animals, &c. highly deserving the attention of the statesman, who intends to execute any plan for national improvement.
I shall now set before the reader the Marechal’s calculation, as to the amount of the four articles, when at the lowest, and at the highest taxation. When the tithe is understood to mean the 20th part of the fruits, &c.
I. The tithe of the lands 60 000 000 II. The tithe of all revenue and industry 15 422 500 III. The salt-tax at eighteen livres the minot[51] 23 400 000 IV. The fixed revenue 18 000 000 —————————— Total of the four articles, when at the lowest taxation 116 822 500 —————————— When the tithe is understood to mean the tenth part of the fruits, the two first articles are just double of what they are stated at above, viz. 150 845 000
The salt-tax at thirty livres the minot 39 000 000 The fixt revenue never changes, and stands always at 18 000 000 —————————— Total of the four articles, when at the highest taxation 207 845 000 ——————————
Footnote 51:
The minot is a measure of capacity equal to three Paris bushels, or the fourth part of a septier; which is about one half of an English quarter. This makes the minot to be about an English bushel. The Marechal proposed that this quantity, when at the lowest price, should be sold for 18 livres, or 1_l._ 6_s._ 1½_d._ sterling; and when at the highest, at 30 livres, 2_l._ 3_s._ 6½_d._ from which we may judge of the exorbitancy of the gabelle, even after all the diminution he thought proper to make upon it. The French money mentioned in the Marechal’s Dixieme royale, is here converted into 52¼_d._ sterling, for the French crown of three livres: because the silver coin in France, at the time he wrote, was 30 livres 10 sols the marc (Dutot, chap. 1. art. 6.); and at present it is at 49 livres 16 sols.
In imposing this tax upon the fruits, he allowed no exemptions, not even in favours of the princes of the blood: for this he gave an excellent reason. Tithes, said he, were the ancient patrimony of kings. The Roman emperors and kings of France enjoyed them. From those duties no noble was exempted. This appears from the ecclesiastical tithe, which, he alledged, to be nothing but the royal patrimony, alienated in favour of the church; consequently, there is nothing derogatory in paying the tithe, although nothing be more so than paying the taille. So great is the difference between terms, when the ideas of a nation are connected with them!
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CHAP. XII. Miscellaneous Questions relating to Taxes.
The subjects of credit, debts, and taxes, have been so extensively treated of in the two last books, that I hope no question I now can propose will serve for any purpose, but to suggest the solution of it, so far as it comes under the principles we have been deducing.
QUEST. 1. What is the most proper method for imposing a land tax?
I answer, that according to equity and justice, all impositions whatsoever ought to fall equally and proportionally on every one, according to his superfluity; but in land-taxes this equality is not so essential as in most others. The great hurt arising from inequality in taxation proceeds from the inequality occasioned thereby in the competition between the classes of the industrious. When the same tax affects people of the same class differently, those who bear the heaviest load gain less, though their industry be equal. But in land-taxes the case is different: the tax there only diminishes an income already made, and in fact diminishes the value of the property; so that were land-taxes made perpetual deductions, the whole loss of the tax would fall at once upon the actual possessors at the time it is imposed. Every subsequent purchaser, by deducting the land-tax out of the rent, would calculate the value of the remainder only; and the consequence of the tax would be, virtually, to transfer a part of the land-property to the state.
The consequences of such a change upon property may produce a variety of new combinations. The state may then sell this portion of their property; they may with the price received pay off part of their debts; they may acquire certain districts of the country, where, being both sovereign and proprietor, they may abolish taxes, which would then in a great measure affect themselves only, and establish manufactures for foreign exportation.
Although an absolute equality in this tax is not so very requisite, still the inequality ought to be ascertained, and every income intended to be affected by the tax should be specified in one way or other. For this purpose, the best method seems to be, to make the regulation of any one year a rule for the subsequent years, until it be judged proper to make a new general valuation of every part. This is a consequence of what has been said: a fluctuating annual valuation, which is the case in France, produces numberless inconveniences; and upon the whole, they are far greater than those which it is intended to avoid.
I agree that the same land may be worth more one year than another; but it is impossible by a fluctuating valuation to ascertain that difference over a whole country, to the satisfaction of every one; and although, by fixing it at one rate upon every possession, inequalities must take place, yet fixing it from rising in proportion to improvement, will prove an encouragement to industry, which will greatly overbalance such an inequality. Every one then will be in the way of acquiring an addition to his income, free of land-tax; and if this be thought too great an encouragement to improvement, let the regulation be only fixed for a determinate time; suppose a century. This is no more than giving every one a lease as it were of their land-tax for a hundred years; and experience shews, that without granting long leases it is impossible that lands should ever be improved.
Were innovations practicable, according as right reason and plain principles direct, it is very certain that a land-tax might be imposed in a better way than I have here suggested. But to what purpose would it be to lay down schemes beyond the power of execution, when the principles already deduced so plainly point them out?
QUEST. 2. Which is the best method of levying taxes; by farm, or by the management of commissioners appointed by the state?
The best way to answer this question, is to shew the inconveniences and advantages of both. The arguments against farming are,
1_mo_, The great fortunes made by the farmers occasion jealousy, and expose to the eyes of the people a set of men who are become rich at their expence; hence envy arises, and hatred against government.
2_do_, In years of scarcity, war, or public calamity, deductions of the rent, or annual sums paid by the farmers, are demanded, and can hardly be refused, and the farmers always overvalue their loss; here therefore is an unequal bargain: the farmer must gain, the state may lose.
3_tio_, The people pay less willingly to the farmers than to the King; magistrates in general support the raising of duties with more unwillingness, and severities upon delinquents are less easily born.
These inconveniences are avoided in the management. There men of the best abilities may be entrusted with that employment; experience shews that many branches of taxation have been carried to great perfection under management, and men of probity and capacity will act with as great zeal for the public as for themselves.
The principal arguments for farming are; the advantage of having a fixed and certain revenue to depend on at regular terms; that the farmers act with more zeal for themselves, and with greater impartiality in employing under-officers, as well as more frugality, and therefore can afford to give a higher rent, with considerable profit to themselves, than can be made effectual under the best management: besides, every one judges himself capable to administer the King’s affairs, because he finds profit in it; but people think twice before they undertake to be farmers of a revenue they do not well understand.
In the administration of taxes, it ought to be the object of a statesman’s attention and care to profit of every advantage attending the different modes of levying them. It is not sufficient to inquire into the general consequences of the two modes of administration, the management and the farming of taxes: those of the cumulative kind especially, affecting the lower classes, would be very improper objects of a farm; because it would be in a manner delivering over the greater part of a people to the rapacity of tax-gatherers.
On the other hand, the farming of proportional taxes is not liable to so many inconveniences. The farmers there are principally employed in watching over those who advance the taxes, and who are themselves, as has been said, in reality the tax-gatherers over the people.
When therefore circumstances permit, without inconvenience, the fabrication of exciseable goods to be incorporated with the farm, this of all others is the best method of levying taxes. Examples of this are familiar almost every where. The farmers of the salt and of the tobacco in France are in this situation. In retailing those commodities, they collect the price they pay for the composition; that is, for the farm of them. It is not the same of the aids in France. There the farmer superintends the immediate tax-gatherer, to wit, the retailer of spirituous liquors, or of other things subject to the tax. The circumscribing the number of places where exciseable commodities are fabricated, and the shutting them up within inclosures, would greatly facilitate the levying of all excises, whether by farm or by management.
In order therefore to decide whether the preference ought to be given to the management or to the farm, circumstances are to be weighed. When a tax is new, or has been ill managed, or has fallen, without any visible cause, below what it formerly produced, or ought to have done; when the amount is unknown, by being of an extensive collection: in such cases, short farms, and even several subdivisions of them in a country, may be of use. But when a tax is well understood, and a good plan of levying it laid down, it may be well raised, and perhaps better improved, under a management; as also, when it is of a nature to be easily understood, and when the very exercise of levying it points out all the frauds possible to be committed.
Davenant, who well understood this question, in his 4th Discourse upon revenues, recommends farms which are not absolute, but limited, as the best. By limited, he understands, that the farm should first be given for a fixed sum; that the farmers should carry on an open administration, liable to the government’s inspection in every particular; that in case the profits of the farm should exceed the rent stipulated, a certain sum should be ascertained for the charge of management, and the surplus should belong to the King, allowing a certain poundage to the farmers to animate their diligence[52].
Footnote 52:
This plan of Davenant’s was carried into execution in France by Monsieur Silhouëtte, in 1759.
He very justly observes, that a tax, when farmed, in order to be improved, will naturally draw, at first, a less rent than the sum liquidated as a free profit by the former management; because the farmers will be willing to secure to themselves a good profit; and next, because they will be obliged to make a considerable advance, as a security for fulfilling their engagement, which must also be considered as a deduction out of the produce of the tax.
All the advantage therefore in farming must be looked for after the expiration of the lease; for which reason, the shorter the term is, the better: three years, it seems, was the common term in England, in Davenant’s time.
All new imposed taxes ought to be raised with the greatest lenity, not to revolt the minds of the people: the first year’s deficiency is well bestowed, if government can but discover the different ways which may be fallen upon to defraud the tax, and form a good judgment how far the amount of it may go in time, when the management is brought to perfection. As long therefore as a management continues to improve a tax newly laid on, I should not think of farming it: but when, either from the extent of the imposition, or the nature of it, frauds begin to multiply, and management begins to become more and more difficult, then is the time immediately to put it into farm, either for different districts of a country, or in sub-farms. If this be delayed, frauds will daily increase; and the difficulty of preventing them will carry government to the expedient of imposing penalties, severe in proportion to the frequency of the crime. Commissioners will constantly put these in execution with reluctance; the management will become slack; or if penalties are rigorously exacted, they will become a handle for oppression; and even though justice be done, and none but delinquents be punished, yet still the people will be ill affected with the punishment of an action which in itself they are too apt not to consider as a crime: whereas in farming, frauds will be prevented by vigilance more than by fear of punishment; and this is by far the better expedient. Thus instead of feuds daily increasing, they will daily diminish, and the tax will improve yearly.
Here Davenant well observes, that nothing but divine wisdom can at first create perfect order; but in all human affairs it must be the work of time, and the result of much labour and application.
One good reason for managing a tax before it be farmed, is to learn the nature of it, and of the frauds it is liable to. When these are not rightly known, the farmer can more easily surprize the government, and obtain from it new regulations, under the pretext of preventing frauds; which regulations they may abuse, and turn to other purposes than those intended.
Davenant has a very good remark, p. 154. That a new tax, imposed upon consumption, and ill levied, equally raises the price upon the consumers, and the whole profit centers in the hands of those who retail. That when an old excise becomes ill levied, the profit is divided between the inferior officers (who collect it) and the retailers. The reason is, that a branch which is well understood, is not so liable to frauds as to collusion. This shews that in every case, such a duty should never be imposed without exerting every endeavour to have it rightly collected. The state should also keep a watchful eye upon the augmentations made in the price of exciseable commodities, in order to keep the augmentation justly proportioned to the duty. If this be neglected, the overcharge hurts consumption, diminishes the produce of the tax, and enriches the retailers only. Here competition is necessary to be introduced: the public may even erect a manufacture which may regulate prices, and so soon as they are properly ascertained, the selling price may be fixed by an assize.
An ill levied imposition is attended with this additional inconvenience, that it establishes inequality among the industrious of the same class; consequently, an unequal competition. This happens when particular officers are diligent and exact in doing their duty, while others are remiss. The profits of retailers are high in proportion to the negligence of the officers of the revenue; and their extraordinary profits, enable them to undersell and to ruin those who are exactly looked after: the consequence of this is, to diminish the number of retailers; to introduce hurtful monopolies; and in general, to hurt the whole branch of the manufacture. All remissness, therefore, in collecting an excise, draws along with it a prejudice to the Prince and his people: and the relative profit, which balances this loss, falls into the pockets of the fraudulent manufacturer, and the corrupt and negligent collector. This is not all: the deficiency must be made up in another way; for taxes must produce the sums wanted. Thus the remissness in collection occasions a new additional burden to be laid on the people.
QUEST. 3. What is meant by income, when applied to individuals, and to a state, and what is the nature of the expence which must diminish it, when it is considered as the object of taxation?
The great intricacy of this question proceeds from hence, that what is really an expence to one is the income of the other: so that without applying our reasoning to every particular fact, no general explanation can be rendred intelligible. My reason for proposing it in this place, is, that in commenting upon some passages of Davenant, in his discourses upon the revenues of England, I may have an opportunity of illustrating some things which have been already examined.
Davenant was an admirable writer; he had a remarkable genius for political theory, and his sentiments upon many things are very generally adopted. My intention here is not to refute opinions, but to avail myself of his combinations, in order to explain my own ideas.
In his first discourse upon revenues, we find the following passage.
"The number of the people leads us to know what the yearly income may be from land, and what from mines, houses, and homesteads, rivers, lakes, meers, ponds, and what from trade, labour, industry, arts and sciences: for where a nation contains so many acres of arable land, so many of pasture and meadow, such a quantity of wood and coppices, forrests, parks and commons, heaths, moors, mountains, roads, ways, and barren and waste land; and where the different value of this is computed, by proper mediums, it is rational to conclude, that such a part of the people’s expence is maintained from land, &c. and such a part from mines, houses, &c. and that such a part is maintained from trade, labour, &c. and the poor exceeding so much the rich in numbers, the common people are the proper medium by which we may judge of this expence.
“There is a certain sum requisite to every one for food, raiment, and other necessaries; as for example, between 7 and 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 is supposed to be an exact quantity of income, no one farthing of tax can be imposed upon it. So that imposing, for example, 5 per cent. upon this article would only be raising the physical-necessary to 8_l._ 8_s._ which 8s. must be paid, not by the physical-necessarian, but by some body having superfluity who employs him: and if there was not superfluity enough in England to answer to 8_s._ 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 to two millions and a half of people. He states the income of lands at fourteen millions, and the income of trade at ten millions, in all at forty four millions a year: and hence he concludes, that taxes ought to be imposed in some proportion to this total.
Now if he supposes 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, in such a case, to impose a tax, 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 that 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, in any nation, 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. It is only the savings out of the profits upon trade, placed so as to produce a permanent revenue, which properly can be considered as a fund: the income therefore of these savings, and not the savings themselves, should come under that branch of taxation.
Customs are improperly called taxes upon trade. If ill imposed they stop trade, or render it less profitable, by diminishing the demand for the goods so taxed; but they 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 been supposed capable of producing 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 to either 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 cloath 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:
1_mo_, 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 labour 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: no body 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 none 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 plan can never be recommended as 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 attended to[53].
Footnote 53:
Some small attention is paid to the poorer sort of landholders in England: for, by the annual act for a land-tax, no poor person shall be liable to the pound-rate, whose lands, &c. are not worth 20_s._ per annum value.
Here then is the use of theory; it directs us in practice to avoid difficulties, which might otherwise be judged unsurmountable.
2_do_, 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 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 consumes 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 has 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.
3_tio_, The expence of a people is not merely what is sufficient to subsist them; but what they consume, either in fruits, of 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 tolerable 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.
4_to_, 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: 1_mo_, What is necessary to clothe and feed the people, 2_do_, 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 that 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, &c. 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.
QUEST. 4. Is it possible to convert a land-tax into one of the proportional kind?
This is a curious speculation; and as it is a short exercise upon several principles of this science, it comes in properly at the conclusion of our work.
To make a land-tax proportional, the proprietors of land should be enabled to draw back the burden, in the sale of the earth’s productions. This they cannot do, as matters stand. The farmers who pay no land-tax undersell them; because they have no tax to draw back.
Since the tax, therefore, cannot be drawn back directly, let us apply our principles to discover a method how this might be done indirectly.
Let nothing but lands be subject to this imposition.
Let every part of them be valued, and recorded in a general register.
Let bread, butchers-meat, and subsistence of all kinds, be laid under an excise, in all markets, and nowhere else, at a rate sufficient to raise the tax intended to be laid upon the lands; and let the amount of this tax be drawn back by the landlords, in proportion to the valuation by which they have paid the land-tax.
That this is a reasonable imposition, appears from the whole plan of this work. We have seen, in the first book, how the great body of the people is divided into labourers and free hands; that the free hands are the inhabitants of towns, who go to market for subsistence, and consume what corresponds to the land-rents; consequently the landlords, who at present pay a cumulative tax, which they cannot draw back in any shape, are justly intitled to the amount of this proportional tax, laid upon the great articles which produce their land-rents, and which are consumed by the inhabitants not employed in agriculture.
Every one who has writ 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.
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CHAP. XIII. Recapitulation of the Fourth Book.