Public Finance

Bastable, Charles F.
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London: Macmillan and Co., Limited
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3rd edition
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§ 1. The income tax as developed in the present century, marks the highest point attained in the methodising and skilful use of direct taxation. From the rude land, property, and poll taxes up to the existing system of charging the net receipt of the subject, regarded as a whole, or its several parts, there has been an unmistakable improvement in justice, productiveness, elasticity, and that absence of irritation which is so important from the political point of view. The natural order of advance has been in great measure the historical course of financial movement. If existing direct taxation is very far from being perfect, it is, at least, better now than it ever was before. The true aims to be reached are better understood, and there is a more intelligent effort made towards their realisation. In the present and immediately succeeding chapters we have to see how far another large department of taxation has received the benefits of like improvements. We have spoken of the taxes already discussed as being 'primary,'*1 since they include all possible parts of the sole normal source of taxation—income. In contrast to them, the great mass of charges imposed on consumption and enjoyment, on transfers and juristic acts is secondary, since in a thorough analysis its several elements may be decomposed into taxes on some form of income. But the realities of practical finance do not easily adapt themselves to this mode of treatment; whatever be the 'source' of taxation, its 'objects' are many, and the mode of imposition is too important a circumstance to be entirely neglected.


The same conclusion is attainable from another direction. The classification of taxes most in favour in Germany*2 places first those that fall on wealth in the making and next those imposed on its possession, and under either of these heads the various taxes already examined would be grouped. To these it, however, consistently adds an additional set of taxes levied on wealth in the using, and it is to the study of this form of taxation that we must now proceed. On both historical and financial grounds it is to the full as important as the taxation of income and property.


§ 2. The great body of taxes on consumption is capable of division on several different grounds. Thus the kind of commodity used may be employed as the basis of arrangement, giving the classes of (1) eatables, (2) drinks, and (3) other articles.*3 The subdivision of the second class into alcoholic and non-alcoholic drinks, and of the third into raw materials and manufactured articles, naturally follows. Another mode of arrangement divides taxes according as they fall on necessaries, conveniences, or superfluities, and is supported by reference to the important differences in the economic and social effects of these different kinds of charges. From a financial point of view, however, the best grouping is that according to the mode in which the tax is levied. It may (1) be obtained at once from the consumer, in which case it is, in one use of the term, direct. It may, on the other hand, (2) be charged within the country on the manufacturers or dealers, who are expected to shift the burden to the consumers. Or again, it may (3) be realised by a state monopoly of the industry or sale; while finally it may (4) be collected at the frontier. It is true that the same article may be differently treated in different countries,*4 but this circumstance does not affect the general principle. In fact, it is quite safe and convenient to follow the usual fiscal practice and deal separately with (1) the immediate taxation of enjoyments and commodities, (2) the excise or internal duties, including state monopolies under this head, and (3) the customs.


The order just given is also the best to adopt in a scientific inquiry, as the immediate taxation of consumption is the closest to the direct taxes on property and income, the border-line being in some cases indistinct. This absence of quite precise boundaries has been more than once noticed; the difficulty that it places in the way of rigid lines of demarcation is best escaped by placing the nearest groups in close connexion with each other. The real relations are in this way best perceived, and the grounds for the actual classification are better understood.


§ 3. Historically the system of direct taxes on consumers can be traced very far back. The levies of commodities in kind by the sovereign may, where they consist of articles used by the contributors, be regarded either as taxes on produce or on consumption, though the former is the more natural interpretation. In like manner the taxation of movable property may be regarded as a charge on its use. Thus the tax on consumers capital in the shape of furniture, plate, and works of art is plainly the same in effect as a tax on their use. Taxes on direct consumption and use seem to have originated in the sentiment to which sumptuary laws are due—the desire to repress luxurious expenditure. The first measure of the legislator was to prohibit; when that failed, the next was to tax the supposed injurious expenditure.*5


There is thus a double origin for the existing taxes of this kind; they are stray remains, either of the older property taxes or of sumptuary enactments. With one doubtful exception their financial value is slight. No modern country derives any noteworthy revenue from their use. The reasons for this small return are to be found partly in the development of the excise, under which most commodities are taxed in the hands of the producer or trader. By adopting this method the State gains the double advantage of having to deal with a smaller number of persons, who can be watched with comparative ease, and of avoiding the annoyance that direct taxation causes. Direct taxes on consumption seem to combine the defects of the two classes of taxes as described in an earlier chapter.*6 They have the unpopularity and inelasticity of direct taxes, without the equality and definiteness that are the chief recommendations of the latter. Industrial progress has further curtailed their area. They are the readiest way of reaching commodities produced and consumed at home, but this once large group of articles has shrunk to a very narrow space. The factory system has been destructive to the method of direct taxation on the consumer. Where industry on the large scale prevails, the employment of an excise has very decided advantages; e.g. the concentration of breweries has made the license tax on home brewing insignificant. It may also be remarked that the system of indirect taxation through producers tends to promote production on a large scale. Heavy taxation on an industry is a grave danger to the smaller producers.*7


There is, moreover, another reason for the decline of the direct consumption taxes. They have been in many cases imposed on luxuries, or, at least, on the consumption of a limited class. The power of changing the direction of expenditure is here at its greatest, so that even a moderate tax diminishes consumption very rapidly. This fact explains the small productiveness of the old assessed taxes in England, though a limited field of action is still left to this particular fiscal expedient.


§ 4. One important tax, which might be regarded as coming under the present head, has been considered at an earlier stage. This is the tax on dwelling houses when levied on the occupier. A very plausible case could be made out for this view. A house is as much a commodity as other more perishable articles, and it may fairly be classed among necessaries. A great part of the taxation go collected comes out of the occupiers' pockets, which lends further support to the conception of it as a consumption tax. It is, however, on the whole, more convenient to deal with it in immediate succession to the land tax, and in connexion with the taxation of buildings in general. The difficulties that arise respecting its incidence, and the undoubted fact of its falling back, under certain conditions, on ground rent, seem to justify that course. We may therefore limit any notice of it in this place to a reference to the earlier discussion.*8


The other English taxes of the same character originated in the eighteenth century. Carriages, men-servants, dogs, and armorial ensigns were brought under taxation, and have continued in the same position up to the present. Plate, horses, watches, clocks, and hair powder have also, for a longer or shorter time been made contributory. The bare enumeration of these several items shows sufficiently the character of the taxation. It is imposed on certain kinds of expenditure, which, if not superfluous, are, at least, not necessary, and only possible where a considerable amount of wealth exists. The plate tax, so long as it continued, was a tax on one part of consumers' capital. The licenses for killing game, and the later one for guns, are strictly 'taxes on enjoyment,' and might indeed be placed under the taxes on 'acts,' but they find a more natural place in the present group.


The fiscal history of these taxes is instructive. At first separately levied by special commissioners, they were formed by Pitt into the 'assessed taxes,' and used by him as the basis of his 'triple assessment,' which was substantially a property tax. Its failure showed the defects of the system, and led to its replacement by the income tax. In the present century, after many alterations and extensions of exemption, the system of assessment has disappeared, and that of licenses been substituted, while the latest event in their history has been the transfer of their yield to local bodies in 1888. Points for criticism abound in respect to the English consumption licenses,*9 and the taxes that preceded them. In the first place they are unproductive,*10 as the subjoined figures for 1900-1 show. They are far better suited for the purposes of local taxation, and their transfer may be unreservedly approved of. But the further question arises as to their fitness for use in any part of the financial system. They have the great disadvantage of being very often unequal as between persons. It requires much watchfulness to prevent evasion in the case of sporting and gun licenses, and armorial ensigns, particularly the latter. The tax on male servants is so far a check to their employment, and special exemptions have to be made for occasional hirings. The carriage tax is rather complex and often presses unfairly on some classes. There is either the alternative of including all vehicles to the injury of trade and agriculture, or where, as at present, there are large exemptions, the difficulty of administration is increased. A more comprehensive tax, such as the horse and wheel tax, proposed in 1888, would avoid much of this difficulty, and as a local resource would have the merit of making the users of roads contribute towards their maintenance, but its unpopularity and complicated incidence are both against it. The dog tax is perhaps, on the whole, the least objectionable, on account of its service as a measure of police, but for that very reason its rate, to be effective, should be so low as to deprive it of any great financial value.*11 The conclusion suggested on the whole is that which recognises the consumption licenses as a possible local contribution, but one entirely unfit for imperial taxation. It might be possible within limits to give the local authorities the privilege of selecting the particular articles to be taxed, and regulating their number and the rates of charge by the needs of the particular district.


§ 5. France has made a more sparing use of direct consumption taxes, and when employed they have had a sumptuary aim. Those established under the Directory were given up in 1807. Some, however, have been reintroduced: thus the horse and carriage tax was passed in 1862. A local dog tax was enacted in 1855, and the legislation as to game licenses dates from 1844. The tax on servants has not been restored. Among taxes that may be placed in the present category is that on societies, introduced in 1871-20 per cent. on the subscription of the members—which is practically direct.


The revenue derived from these imposts is small, being about £1,000,000,*12 though as, with the exception of the horse and carriage tax, they serve as a measure of police, it may be expedient to retain them.


The development of direct taxation of consumption in other countries is less marked. Taxes on dogs, servants, and carriages, are a part of the optional communal resources in Italy, but their yield is unimportant. The dog tax, e.g., was in 1883 only applied in about 1,400 communes, and produced less than £25,000.


Prussia tried these forms of taxation between 1810 and 1814, but abandoned them at the latter date. The tax systems of the Empire present some variety in the use of these taxes, so far as they have been continued. The dog tax is a communal receipt in Prussia; it is a state one in Bavaria and Würtemberg. The amount obtained from these direct taxes is inconsiderable.


In the United States the direct consumption taxes are assigned either to the States or smaller divisions, and they vary from State to State. The almost universal employment of the general property tax does in practice bring most of the objects of consumption taxes under charge. Some of the licenses so extensively used fall on enjoyment rather than on trade or production, but they are insignificant in their yield.


§ 6. From the foregoing notice of past and present taxation of this kind, we get a confirmation of the view already expressed that it is a decaying form of impost. No modern State has managed to raise a large revenue by its aid; on the contrary, its relative importance is much less than formerly. There is quite enough evidence available to prove that it can without inconvenience be surrendered to the local bodies, whose requirements make all new resources desirable, and who at the same time have not to meet sudden changes in expenditure. It may even be questioned whether the American or German State is not too large a division. The town or rural commune, or at highest the county department or circle (Kreis), is the proper area for the application of the direct consumption taxes collected within it.


There is in fact a kind of resemblance between the poll taxes and those now under discussion. Both are employed rather freely in early communities, but decay as Society advances. The causes that reduce their services are different, though the result is the same. The poll tax is both unjust and unproductive, where wealth is unequally distributed; taxes on enjoyments and luxuries are too easily evaded to be of practical use in an advanced financial system.

Notes for this chapter

Bk. iii. ch. 1, § 12.
Wagner, ii. 233, 515; Cohn, § 332.
This is probably the best plan in a purely descriptive or historical treatment. It has been adopted by Mr. Dowell (who gives tobacco a class to itself), and in great measure by De Parieu.
Tobacco, e.g., is free in India, subject to excise in the United States and Germany, monopolised in France and Italy, and taxed by the customs in England.
Cp. Cato's over-valuation of articles of luxury after the repeal of the Les Oppia, and his taxation of them.
Bk. iii. ch. 4, §§ 8, 9.
Leslie, Financial Reform, 241-2. This is one of the many instances in which economic forces act and react on each other.
See Bk. iv. ch. 2, §§ 1-5 inclusive.
To be distinguished from the trade licenses noticed in Bk. iv. ch. 2, § 8.

Dog licenses 550,216
Carriage " 516,810
Game " 201,517
Gun " 115,942
Menservants 156,556

The Irish rate of 2s. (with 6d. additional for stamp) is for this reason better than the English one of 7s. 6d.
The respective contributions are—

Game licenses £335,000
Dog tax 300,000
Tax on Societies 60,000
Horse and Carriage tax 190,000

The licenses on carriages should be added; they are placed with the 'drink' licenses in the financial returns.

Book IV, Chapter VI

End of Notes

30 of 46

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