Book IV, Chapter I
3. 'Land (in Ohio) was divided into three classes, according to quality, and there were three rates of taxation per 100 acres; one for land of the first quality, another for land of the second quality, and still another for land of the third quality,' Ely, Taxation, 134.
11. 'The survey and valuation of Bohemia is said to have been the work of more than a hundred years.' Wealth of Nations, 351. The French cadastre, begun in 1807, was not completed till 1850. In Madras we hear that 'in 1855 the work of survey and re-settlement was begun. This work will be accomplished in or about 1895, but certain districts of the Presidency will then have seen this very re-settlement expire.' Goodrich, Economic Journal, i. 451. In like manner the Irish valuation usually known as 'Griffiths's' has become by lapse of time very misleading.
13. Leroy-Beaulieu, i. 343. For Italy, Alessio, i. 224-5; Fournier de Flaix, Traité, 498. According to the former, land was taxed in Lombardy, at 25 per cent., in Liguria at 7 per cent.; the latter gives 79 per cent. for Modena and 17 per cent. for Sicily. A new cadastre for Italy is proposed.
Local Rates for 1898-99—
In the last country the returns from gas and waterworks are included in the rates, but are unimportant.
21. En 1876, 6,614 propriétés étaient expropriées par le Fisc pour le recouvrement de 936,774 francs d'impôt, et en 1877, 6,644 propriétés pour 662,722 francs. Le Fisc dévore la petite propriété trop obérée. De 1873 à 1878, 35,074 petits propriétaires ont perdu leur avoir par l'expropriation forcée. Laveleye, Lettres d Italie (1880), 161-2. For the Italian land tax, De Parieu, i. 205-218; Alessio, Sistema Tributario, i. 88-232.
For the State, 25,924,130 francs.
29. The proposal was made by Léon Say in the debates on the Impôt foncier in 1890 (Finances de la France, iii. 437), and by Professor Ely, Taxation, 251-3, who would exempt land from even 'State' taxation.
31. 'As a matter of fact it appears that a great portion of the farms in England are not rack-rented. If so, it is clear that any increase in local burdens must fall on the margin between the actual rent and the rack-rent, and so far diminish the advantage derived by the farmer from his actual rent being below a rack-rent, and till that margin were exhausted it would naturally be useless for him to apply to his landlord to readjust his rent.' Goschen, Local Taxation, 165. But as Mr. Blunden (Local Taxation and Finance, 42) points out, in times of depression this may tell in a different way. Rents continue above the economic level, and the rates paid by the occupier are an aggravation of his position.
Book IV, Chapter II
36. Bk. iv. ch. 1, § 4. Sir H. Fowler's estimate for England and Wales in 1891 was £23,560,000, but it should be remembered that other property is included under this heading. Local Taxation Report, xl.
Taking this with the preceding notes we reach the result in the text. Mr. Egerton in the year 1890, estimated that 'the total tax on land and houses in France will be found to amount this year to about £15,000,000 independently of the personal and 'mobilière' tax of £5,500,000 and of the door and window tax of over £3,000,000.' Reports as to the Taxation of Land and Buildings, (C. 6209), 16.
45. Cp. with the discussion in the text the fuller treatment by Professor Seligman, Incidence, Part ii. ch. 3. His careful discrimination of the different effects of the tax according to its point of first imposition—on the landowner, builder, or occupier—is most valuable as a lesson in the effect of economic friction, but he seems to give too little weight to the forces that shift taxation on the ground owner. In his second edition, Professor Seligman remarks that this criticism 'seems to overlook' the statement in his text that 'as between the landowner and the tenant, the tenant is the weaker party' (Incidence, 241). The assertion so broadly made is a disputable one. It does not follow that because rent rises with increasing demand, it will rise still further in consequence of a tax. The difference of view as to the elasticity of demand for houses accounts for the difference on this point. Moreover, in the theory of incidence it happens that the holder of a differential gain is the weaker party (infra, Bk. vi. ch. 5, § 6). To avoid misapprehension, it must be added that it is not 'the tax' but a portion of it (as suggested by the word 'taxation') that has a tendency to pass on to the ground owner. Professor Edgeworth's complete agreement powerfully supports the position here taken (Economic Journal, vii. 66). See for further reference to the latest discussions Bk. iii. ch. 6, § 5.
47. Professor Seligman (Incidence, 242 n.) asks, 'But why should the landowner take less? The building owner is in the weaker position, for his building is on the land and under the law goes with the land.' This implies a misconception of the supposed case. It is the intending builder who is considered, and therefore, the question may be answered thus—because, otherwise, his site will remain vacant. The building owner is not in the weaker position, for his building is not yet on the land. In respect to existing leases there is no room for shifting between the building owner and ground owner, and when a lease has expired, the ground owner absorbs the building owner's interest, or, as Professor Seligman puts it, 'the building under the law goes with the land.' Cp. the statement 'this freeholder is generally spoken of as the "ground landlord," but ... is in no sense more the owner of the ground than of the house ... At the expiration of the lease both land and house revert to him together.' Report of Town Holdings Committee, vi. vii. This position is fully accepted by Lord Balfour and his co-signatories in the separate Report on urban rating and site values. Commission on Local Taxation, Final Report, 154. A slight alteration in the text meets Professor Seligman's other objection, viz. 'that there is no such thing as a strict monopoly value of a lot.
49. The latest scheme in this direction is that of a section of the Local Taxation Commission for a special charge on site values. This charge is to be divided between owner and occupier, the latter deducting one-half the tax from his payment. See Final Report, 153-176. More extreme plans are vigorously criticised in this Report.
51. One-third of the rent is now taken as the profit of the farmer, who, however, if he prefers, may be assessed under Schedule D. Previous to 1894 one-half the rent was the standard in England and Wales.
The additional centimes include those for State purposes, which amounted to 20,200,000 francs in 1885 and to 39,000,000 francs in 1900.
56. For the Prussian Gewerbesteuer, Cohn, § 307; Wagner in Schönberg, 273; also Finanzwissenschaft, iv. 18, 20, 31, 32, 41; Taxation of Personal Property (Misc. No. 2, 1886, C. 4909), 8-10. For the recent changes see Wagner's article in Finanz Archiv, xi. 1-76, and J. A. Hill, 'The Prussian Business Tax,' Quarterly Journal of Economics, viii. 77-92.
Book IV, Chapter III
65. Seligman, Finance Statistics of American Commonwealths, 53; cp. Ely, Taxation, 209 11. This was the case in Massachusetts until the amendment of the Constitution in 1891, Massachusetts Tax Commission Report (1897), 5.
66. Lord Avebury (Statistical Journal, lxiv. 567) regards this passage as 'an admission which amounts almost to a surrender' of the position taken with respect to the theory of equal diffusion in an earlier part of this work (see Book iii. ch. 5, § 4). It is, however, merely a criticism of the exaggerated form of the doctrine held by the Physiocrats and Ricardo. To hold that labourers do not always, or even generally, shift capitation taxes is quite consistent with believing that taxes are not equally diffused.
Book IV, Chapter IV
70. The total mass of legislation and legislative proposals is quite overwhelming. It has been collected with characteristic thoroughness in the elaborate work of Schanz, Die Steuern der Schweiz (over 2,000 pages in 5 volumes).
74. Essays, 61. The recent Ohio Tax Commission is equally emphatic. 'The system as it is actually administered results in debauching the moral sense. It is a school of perjury. It sends large amounts of property into hiding. It drives capital in large quantities from the State,' Report, 24.
We thus see that while real property has more than doubled in value, the personal property returned is roughly about two-thirds of what it was twenty-five years previously. For further details as to evasion see the excellent Report of the Tax Commission of Ohio (1893), especially 24-31.
79. The best American authorities approve of the corporation tax as a peculiarly suitable form of revenue for the States. Thus Prof. Adams concludes that 'in view of the peculiar duties imposed upon a State, and because of the nature of corporation and natural monopolies, that all special and corporation taxes should be assigned to the State as an exclusive source of revenue.' Finance, 502.
80. On the whole subject of the property tax see the Local Taxation Report of Mr. Wells and his colleagues, made in 1871; Professor Seligman's chapter, 'The General Property Tax,' Essays, 23-61; his Finance Statistics of the American Commonwealths, 53-66; and Professor Ely's Taxation, 146-201, in which a mass of evidence is collected showing the grievances that arise from the property tax. Professor Ely, however, fails to notice that the same arguments may be urged against the state income taxes advocated by him in a later part of his valuable work (287-311).
83. The precise rates are:—Property under 6,000 marks is free; between 6,000 and 24,000 marks the tax rises from 3 marks to 12 marks, at the rate of 1 mark for each complete increment of 2,000 marks. Between 24,000 and 60,000 marks the increments are 4,000 marks and the increased duty 2 marks. Between 60,000 and 200,000 marks the increments and increased duty are 10,000 marks and 5 marks respectively. From that point up to 2,000,000 marks increments and extra tax are doubled. A property of 2,000,000 marks (£100,000) therefore pays 1,000 marks (£50). Every further addition of 100,000 marks involves an increased charge of 50 marks.
84. For the new Dutch system see Boissevain's elaborate study, Finanz Archiv, xi. 419-682 (reprinted separately); also Seligman, Essays, 322-30. The measures are due to the eminent economist Pierson, and were defended by him on financial, not on social grounds.
85. 'It was in this crisis of the revolutionary war that, when Mr. Pitt found the resources of taxation were failing under him, his mind fell back upon the conception of the income tax.' Gladstone, Financial Statements, 14.
92. This method of stoppage at the source has been generally recognised as a characteristic and valuable feature of the English income tax. This is the judgment of Prof. Dunbar (Quarterly Journal of Economics, ix. 38-40), Prof. Seligman (Pol. Science Quarterly, ix. 644-5) and quite recently of Mr. Hill. The same view is forcibly supported by Mr. Blunden. The only dissentient of note is Prof. Adams, who objects that the principle is carried too far. 'It [the government] taxes the salaries of public officials by not paying them as much as it promised.... The result is the citizen is never sure of getting into his pocket all that he or his property earns' (Finance, 479). Further 'it may be questioned if the use made of it by the English income tax is quite honest in its purpose or fair in its results' (ib. 484). Two points are raised by this criticism, viz., (1) the honesty of the system, (2) its fairness as between different sections. The former seems to anyone actually conversant with the English system almost ludicrous. What is the advantage to the citizen of getting into his pocket what he must immediately pay out again? There would be the necessity for a double transfer of the amount of the tax. So far as public officials are concerned the contention, to give it any substance, should be for exemption from taxation of their salaries. The second point really attacks, not the method of 'stoppage at the source,' but the income tax itself, on the ground that all incomes are not equally discoverable. This is the great difficulty that any income tax must encounter; but it can hardly be held that a contrivance which makes some parts of income more easily ascertainable adds to this weakness. Were all income capable of being taken at the source the income tax would be perfect. An abandonment of the method would increase, not diminish, the inequality inherent in this as in all taxes.
94. On the Income Tax see Dowell, iii. 90-120; Hill, The English Income Tax. Chailley, Impôt sur le Revenu, 89-218, gives a full and lucid account of the English system. The series of studies in the Economic Journal by the late G. H. Blunden (whose loss Englsh students of finance must deplore) are most instructive: see vol. ii. 637-52; v. 527-31; vii. 607-18; xi. 156-68.
100. For the Prussian income tax see Cohn, §§ 315-20, and for the recent reform, Wagner, Finanz Archiv. 551 sq.; also J. A. Hill, 'The Prussian Income Tax' in Quarterly Journal of Economics, vi. 207-26.
107. Among opponents of the income tax are M. Guyot and Léon Say, chiefly on the ground of its progressive and 'personal' character. Guyot, Impôt sur le Revenu; L. Say, Les Finances de la France, ii. 163-78; iii. 255-87; iv. 576-99, 645-67. M. Chailley, in his elaborate Impôt sur le Revenu, is a strong supporter. Leroy-Beaulieu (i. 491) is neutral. Mr. Bodley explains that the income tax is always regarded as a device of radical politicians, and adds, 'My own observation' leads me to believe that an income tax is unsuited to the French temperament, and that its imposition would be a mischievous error. France, 622.
109. This is the really decisive argument against direct progression, as contrasted with the English method, which is 'degressive,' and which throws the task of claiming exemption or abatement on the person interested.
111. A new period of assault on the alleged inequalities of the income tax seems to be approaching. Mr. Blunden's proposal of a property tax (really a higher charge on permanent incomes) has much to commend it in the case of a high rate to meet exceptional outlay.
Book IV, Chapter V
The licenses on carriages should be added; they are placed with the 'drink' licenses in the financial returns.
Book IV, Chapter VI
13. Thus in England the receipt from the Excise on commodities has been for many years, speaking broadly, 30 per cent. of the total tax receipts—£26,050,000 out of £78,665,000 in the year 1894-5—but now hardly exceeds 25 per cent.—£31,600,000 out of £121,893,000 in 1901-2. The contributions indirectes and the fiscal monopolies in France show for 1901 a gross yield of £41,800,000. Allowing for the expenses of working the tobacco monopoly, the balance remaining is over 25 per cent. of the total tax revenue. The German Imperial excise is of less importance, but still gives a substantial contribution, estimated at £15,800,000 for 1900-1. In the United States the internal revenue for 1899-1900 was $233,000,000, that for 1900-1 $238,000,000 or over 40 per cent. of the receipts from every source.
19. The hostility of the Physiocrats to indirect taxation was shared, so far as internal taxation went, by the other sections of the liberal party. It is note-worthy that this disposition is also found in the labour parties of the present day, who resent taxation on commodities consumed by the working classes as taxation of labour. Cp. Lassalle, Die indirecte Steuer und die Lage der Arbeitenden Classen.
21. In preceding editions it was stated as an illustration that, 'With an increased expenditure of £20,000,000 per annum in Great Britain, the exemption of sugar from taxation could hardly be continued.' This has been confirmed by fact.
23. The principle stated in the text is important, but is often overlooked. Thus in the controversy on the financial relations of Ireland to Great Britain it has been argued that the imposition of the same taxes must produce equality, the different character of consumption in the two countries being neglected. On the other hand, Sir R. Giffen (Financial Relations Report, ii. 161) has suggested that the possible existence of inequality is a ground for separate financial treatment, overlooking the fact that a system of taxation may be unequal as between individuals and classes within a single country in exactly the same way. From which it follows that the true remedy for injustice in either case is reform of taxation. Provided the tax objects are properly selected there is no injustice in placing two countries under a common system.
29. The case of the sugar duty illustrates admirably the principle of relativity in taxation. Recognition of the fact that sugar is relatively a good object for taxation is quite consistent with the belief that the removal of the sugar duty in 1874 was highly beneficial.
31. The severity of the revenue laws was greatly increased. Hallam declared that 'our fiscal code ... is to be counted as a set-off against the advantages of the Revolution.' Constitutional History, iii. 290.
39. Lavoisier, the eminent chemist, was one of the sufferers. For the system of the Ancien Régime, see Stourm, chs. 11-14. For the mechanism of the Finances, cp. Bk. vi. ch. 2, also Bouchard, Système Financier de l'Ancienne Monarchie and the Dictionnaire de l'Economie Politique, s. v. 'Finances de l'Ancien Régime.' For the earlier history, Clamageran, Histoire de l'Impôt, and for the latter part of the 18th century the elaborate works of Gomel, Les Causes financières de la Révolution Française (2 vols.); Histoire Financière de l'Assemblée Constituante (2 vols.), and Histoire Financière de la Législative et de la Convention, as yet only vol. i.
42. For the re-establishment of the French finances see Stourm, Les Finances de l'Ancien Régime. For Bonaparte's place see the same writer's lately issued Les Finances du Consulat. Mollien, Mémoires d'un Ministre, 1780-1815, is full of instructive details.
The following figures illustrate the relation of the sugar duty and bounties—
This table shows the effect of changes in the laws regulating the bounties, and the growth in recent years of the net receipts. The customs duty is so small that it may be neglected.
59. The Swiss alcohol monopoly has given a small profit. The receipts from September 1887 to the end of 1900 amounted to £5,836,000, the expenses to £3,604,000, showing a surplus of £3,232,000 or about £244,000 per annum. The Russian experience since 1895 is also in favour of a monopoly.
Of the total on drinks 67,000,000 francs were levied on wine, 57,500,000 francs on spirits, and 16,500,000 francs on beer. The cost of collection in 1900 came to about £1,250,000, which should be deducted from the gross receipts of £14,200,000.
70. For the German octrois, see Cohn, §§ 457 sq. Cp. 'In Deutschland sind die Octrois von geringer Bedeutung, der Bieraufschlag in Bayern und einige neuere Verbrauchsabgaben Württembergs ausgenommen; Belangreicher sind sie schon in Oesterreich; Wien zieht aus den städtischen Verzerungssteuern eine ansehnliche Summe.' Schäffle, Steuerpolitik, 452.
76. This has been alleged of the Belgian reform and also of the partial remission of the Parisian octrois in 1848. The absence of any traceable effect on price by the abolition of the London coal dues is another instance.
Book IV, Chapter VII
A large part of the United States' revenue has generally been obtained from this source, often exceeding one-half of the total receipts. The lowest yield since 1884 was in 1893-4, when the Customs were only $131,818,000. The highest absolute amount was in 1900-1, when $238,585,000 were received, or 40 per cent. of the revenue from all sources.
79. For the great number of tolls and passage duties in mediæval times see Clamageran, i. 160-1; Pigeonneau, Histoire du Commerce de la France, i. 96-99, 182-3. The tolls on the Seine in 1315 are set forth in a document given in Fagniez, Documents de l'Industrie et du Commerce en France, ii. 30-37 for Germany, Zimmern, Hansa Towns, 102.
89. The English revenue from this source kept very near £20,000,000 per annum for forty years. In the period 1815-1900 it has only varied between £24,000,000 and £19,000,000, notwithstanding the extensive remission of taxation. The export duty on coal and the import one on sugar account for the great rise in 1901-2. The estimate for 1902-3 exceeds £35,000.000.
95. Dowell, i. 195; ii. 34. Some of the hottest contests between the king and the people turned on questions of taxation, e.g. the currant duty (Bates' case). For the earlier history, see Hall, History of the Customs Revenue.
Sinclair, History of the Revenue, ii. Appendix No i. ; Dowell, ii. 62, 109; Wilson, National Budget, 55.
98. There were three stages in the movement, viz. (1) the reforms of Huskisson 1823-7, which opened the way; (2) Peel's tariffs of 1842 and 1845, by which a substantial instalment of free trade was given; and (3) the measures of Mr. Gladstone in 1853 and 1860, which completed the work. For the fiscal history of this period, see Dowell, ii. 249-361; Buxton, Finance and Politics, i. 1-217; Bastable, Commerce of Nations, ch. 6; also Northcote, Twenty Years of Financial Policy. For the general character of the legislation, Wagner, iii. 300-1.
99. It is important to maintain the distinction between 'finance' (Finanzwissenschaft) and 'economic policy' (Wirthschaftpolitik). To introduce a discussion of the merits of free trade or protection into a financial treatise would tend to confuse these separate subjects, and would thus be detrimental to both. Prof. Plehn's statement (Finance, 185 n) that in this work we 'refuse to discuss protective duties because we believe them [sic] "vicious" and "uneconomic,"' is, it need hardly be said, entirely destitute of foundation. Such a reason, as he rightly says, 'is not scientific.' Therefore to ascribe it without a shadow of evidence—the quotation marks inserted in his note are spurious—is a proceeding which may be left to the reader to characterise.
101. Between 1815 and 1885 the amount of duties remitted was £35,861,000 against £8,063,000 imposed, or a balance of £27,800,000 remitted. Wagner, iii. 299. But there were no remissions in the last ten years of the period, and those in the preceding fifteen years (1861-75) amounting to £14,500,000, were on purely revenue duties—tea, sugar, &c. In the period 1885-1900 the tea, tobacco, and currant duties were reduced.
113. The Indian transit duties—the most important of which was that on Cashmere wool (10 per cent.)—were abolished by Mr. James Wilson; see his Financial Statement (1860), 22. But part of the opium revenue is really a transit charge on the drug from the native States.
114. The Indian opium duty—partly monopoly, partly transit—yielded 84,500,000 rupees in 1880-1, but the estimate for 1899-1900 was only 66,000,000 rupees, the Brazilian coffee duty gave £1,800,000 in 1889.
115. The English customs system was extended to Scotland in 1707, but not to Ireland till 1825, when the Union duties were repealed. At present the Channel Islands are outside it, and the Isle of Man is under special regulations.
118. Wool in mediæval England and opium in India at present have been suggested as examples, but the latter is undoubtedly open to some competition. The newly imposed coal duty has given rise to much discussion on this point. Mine owners, lessees, colliers, shippers, foreign consumers, and the home consumers of imported commodities have each and all been put forward as the real bearers of the tax. Cp. Jevons, Coal Question, 337.
119. For further discussion of this complicated question, see Nicholson. Principles, iii. 342-9; Seligman, Incidence, 300-304; Edgeworth, Economic Journal, iv. 39-48; Bastable, International Trade, 110-24, and Britt. Assoc. Report, 1889, 440-48, also cp. Bk. iii. ch. 5.
Book IV, Chapter VIII
7. Professor Ely advocates taxation of gross receipts in order to escape evasion. Taxation, 324. But where this danger exists a more thorough reform is wanted. Taxation of railways by American States on this basis is particularly unsuitable owing to inter-state competition. See Adams, Finance, 458-62.
14. Some of the 'penny' duties devised by Mr. Gladstone erred in this respect; e.g. that on packages, justified by its author for statistical reasons. Financial Statements. 161, 295. The French statistical duties have the same defect. Leroy-Beaulieu, i. 617.
Dowell, iii. 290-1.
From this total the succession duties have to he deducted, and allowance has to be made for the element of fees under the 'other duties.' Actes civils et administratifs amount to £3,000,000, Actes judiciaires to £960,000. Probably one-half of these sums should be regarded as 'fees,' the other half as taxation.
21. Suppose, for example, that a property, which free of duty would sell for £10,000, is subject to 10 per cent. on transfer. If the whole tax fell on the seller he would only get £9,000, if it all fell on the buyer he would pay £11,000. Is it not plain that if an exchange is to take place the probability is that there will be a division of the tax? When there are many transactions the less eager buyers and sellers will withdraw, and there will be fewer dealings at a higher price, the tax included. See Böhm-Bawerk, Positive Theory of Capital (Eng. trans.), 203-13, for the theoretical basis of this position.
Book IV, Chapter IX
22. See on the whole question of succession duties the careful monograph by Dr. Max West entitled The Inheritance Tax; A. Garelli, L'Imposta Successoria; and Schanz, 'Studien zur Geschichte und Theorie der Erbschaftssteuer,' Finanz Archiv, xvii. 1-62, xviii. 553-678.
27. Cp. Bk. iii. ch. 2, § 5, and Bk. v. ch. 5, § 9, for recognition of this fact. Professor Marshall declares that 'the old objection to taxes on inheritances that they are paid out of capital ... seems to me to have great force still,' Memoranda, [C. 9528], 123.
28. It is therefore impossible to accept Dr. West's statement, that 'Whether a tax is paid out of capital or income depends not on the form of the tax but upon its amount and the time allowed for payment' (Inheritance Tax, 119), unless we reduce the antithesis between the terms so opposed almost to vanishing point. The mere 'name' of a tax has of course no effect.
29. The strongest body of sentiment in favour of high succession duties is that which regards them as an agency for reducing large fortunes, and thus bringing about a better distribution of wealth. In Bentham's language such persons desire to sacrifice 'security' to 'equality.'
30. See West, 114-19, for a list of the different theories, also Seligman, Essays, 122-33, who holds that the tax is one on 'accidental income.' Schanz (Finanz Archiv, xviii. 172-6), after reviewing the earlier theories, bases this form of taxation on (a) the increase of ability in the payer, (b) the justice of beavier taxation on property, (c) the power of the State to limit inheritance.
31. It is ingeniously suggested by Sidgwick that inheritance taxes are 'quite sui generis,' and therefore outside the rules for distributing general taxation. See his Political Economy, 577-9, and Politics, 176-7. But this view overlooks the close connexion between property and income, and also that between the successors and those from whom they inherit.
33. The system of insurance so extensively advertised by British insurance companies to meet the estate duty of 1894 indicates very plainly that this is the essential character of the tax. This view is adversely criticised by Seligman (Essays, 132), on the grounds that (a) if the existing system (i.e. without the inheritance tax) does reach the living taxpayer, there is the injustice of double taxation; (b) if it does not reach him, there is inequality between persons dying at different ages. To which it may be rejoined that (a) it is because the existing system only partially reaches the taxpayer that the inheritance tax is introduced; and (b) that there is inequality in the case of persons dying at different ages, but this, like other inequalities, is hardly avoidable without incurring greater evils. Westlake recognises 'the fact that death duties may be regarded as capitalised income tax,' (Economic Journal, ix. 372), and holds that this view is in accordance with the principle of the British system. Lord Milner also declares, 'I regard the death duty as equivalent to an extra income tax on property.' 'Commission on Agricultural Depression,' Evidence, iv. 478 a.
35. Cp. the Roman rule as to disherison of children, justified by the jurist Paulus on the ground that there was a sort of co-partnership between the father and the children. See Pliny's remarks as to the vicesima hereditatum, which was 'tributum tolerabile et facile heredibus extraneis, domesticis grave, since it was levied on goods 'quaeque nunquam ut aliena et speranda, sed ut sua semperque possessa cepissent.' Paneg. 37.
38. The only scientific bases for progressive succession duties would be (a) the establishment of the regressiveness of other taxes, so that in this case a duly calculated progression would restore proportionality, and (b) the proof of the justice of progression on an assigned scale over the whole tax system. It was on the former ground that Lord Goschen defended his estate duty of one per cent. on estates over £10,000. He declared that 'On the whole, I think it will be found that the men whose fortunes are considerable are those who pay the least in proportion to their aggregate income.' Budget Speech, April 18, 1889.
43. Real property paid no probate duty; succession duty on it was not due for a year after death; it could be paid by eight instalments, and it was calculated on the successor's life interest only, not on the full value.
47. One very difficult question is the relation of the death duties to local finance. Lord Goschen's allocation of half the probate duty has been continued under the present system, with the substitution of 1½ per cent. of the new estate duty. This substitution, however, altered the character of the charge, which ceased to be on personal property (to which the 'probate' duty was confined), and instead fell on all the mass of wealth passing by succession. See 'Local Taxation Commission,' Final Report, 114.
49. The following table gives the scale of duties under the laws of 1901 and 1902; the latter introduced the progression on inheritances exceeding £40,000. It is instructive as showing the arbitrary way in which progressive taxation can be applied. Cp. Bk. iv. ch. 3, § 7, for this point.
53. Finanz Archiv, xviii. 637. For a fuller account of the facts respecting continental inheritance taxes see, besides the articles of Schanz, West, Inheritance Tax, ch. 1. It is impossible to follow the many small changes in the various States.
It thus appears that the yield from succession duties, which are only one part of the non-customs taxation, is very small. See The Victorian Year-Book (1892), i. 231.
58. This is the judgment of Professor Adams (Finance, 504, who, however, suggests a claim of the smaller local bodies), Professor Seligman (Political Science Quarterly, xiv. 139), and Professor Taussig (ib. xiv. 123).
59. Professor Adams, in discussing the allocation of taxation, remarks, 'The Federal Government would be excluded, because under the rule imposed by the Constitution it cannot justly make use of direct taxation,' Finance, 504. From the economic point of view this is correct, but it may be questioned whether there is any justice in this interpretation of the constitutional rule. See W. H. Dunbar (Quarterly Journal of Economics, xv. 292-8) on the legal question. It is interesting to notice that under either French or German law a succession duty is certainly 'indirect.'
Book V, Chapter I
10. The accumulation of silver by the American Treasury, though primarily a matter of policy rather than one of finance, has in the last few years been a disturbing element, and has affected both the trade and the revenue of the country.
Book V, Chapter II
14. Turpe est et multum regali reverentiae derogat a suis subditis mutuare pro sumptibus regis vel regni. Thomas Aquinas (?), De Regimine Principum, ii. 8. The approval of state treasures by so many early writers was intended as a condemnation of the alternative method of borrowing.
15. 'The king was both in theory and practice the financier of the nation.... if he had to provide security for a loan he did it upon his own personal credit, by pledging his jewels, or the customs, or occasionally the persons of his friends for the payment.' Stubbs's Constitutional History, ii. 558. See the whole section for borrowing in mediæval England.
20. 'Einen Bürgerstaate, der Republik der Vereinigten Niederlande, ist es unter allen modernen Staaten zuerst gelungen, sich einen wirklichen Staatscredit, und mit dessen Hülfe die Unabhängigkeit als Vorbedingung glänzenden Gedeihens zu schaffen.' Ehrenberg, ii. 321.
23. The Socialists and some Catholic writers are very vehement in their attacks on La Haute Finance. For more moderate criticism see C. Jannet, Le Capital, La Speculation et La Finance, ch. 12. He, however, shows (ch. 11) that at the commencement of the modern loan system the evils were greater. The student of the history of the money market feels the truth of Emerson's remark, that 'the first lesson of history is the good of evil.'
24. Cohn, §§ 535, 536. "At the present time over one hundred States that possess practical sovereignty for debt purposes offer their bonds to the choice of an English investor, and if to this number were added the obligations of quasi-sovereignties, the London Market would show over 150 sorts of public securities. There are here found the bonds of China, Japan, Persia, Siam, Egypt, Liberia, Orange Free State, Zanzibar, besides many other peoples of the Old World. The South American States are nearly all represented.' Adams, Public Debts, 5.
Book V, Chapter III
29. One curious item, the oldest of all, and hence sometimes regarded as the origin of the debt, was added in 1706. The Cabal Government of Charles II. bad in 1672 seized on the Goldsmiths' loans to the Exchequer, a proceeding known as the 'shutting of the Exchequer,' and had simply paid interest on the amount of £1,328,000 detained. In 1683 even the interest was stopped. Legal proceedings were taken by the sufferers, and after a series of trials the House of Lords decided in their favour; but by an Act of 1699 it was provided that after December 25th, 1705, one-half the amount (£664,000) should be added to the existing debt, to bear interest at 6 per cent.
See Hamilton, 256.
About £58,000,000 was held by government departments, leaving £500,000,000 in the hands of the public.
The amount for which payment was demanded was very small; in the case of the 'new threes,' only £761,000, or less than ½ per cent.
National War Loan £30,000,000, 2¾ per cent. interest, redeemable April 5th, 1910, issued at £98 10s. 0d.
Exchequer Bonds, £10,000,000, 3 per cent. interest, redeemable August 7th, 1903, issued at £98.
Exchequer Bonds, £3,000,000, 3 per cent. interest, redeemable December 7th, 1905, issued at £98 2s. 11d.
Exchequer Bonds, £11,000,000, 3 per cent. interest, redeemable December 7th, 1905, issued at £97 5s. 4d.
Consols, £60,000,000, issued at £94 10s.
" £32,000,000, " " £93 10s.
Treasury Bills in various amounts. Total for War purposes, £13,000,000.
39. The figure of £747,876,000, given above as the debt burden in 1902, is slightly higher than that of 1884, which was £746,424,000. The inclusion of the latest loan of £32,000,000 would bring us back to 1873 with its total of £779,222,000.
Book V, Chapter IV
40. Vührer, i. 320. Cp. Ehrenberg's account of Spanish finance in the 16th century. 'Es trieb rettungslos aus einer Krisis in die andere. Staatsbankerott und Zwangsconsolidation wurden gewöhnliche Finanzmittel,' Zeitalter der Fugger, ii. 259.
Cp. Vührer, ii. 538; Leroy-Beaulieu, ii. 573. For a full treatment of the finance of the early years of the Third Republic, see Léon Say, Les Finances de la France, vols. i. and ii. His account is first hand evidence.
The conversion of the 3½ per cent. rentes will bring the general 3 per cents. to 22,000,000,000 frs. The capital value of the life charges cannot be put at less than 25,000,000,000 frs.
53. These annual deficits, 'which began with £15,000,000 for 1860 and rose to nearly £29,000,000 in the war year 1866, became less than £3,000,000 in 1871, and only a little over £500,000 in 1874,' amounted in the aggregate for the fifteen years 1860-1874 to £166,000,000.
58. The smallness of the debt in the period 1836-60 will be best realised from the fact that its capital amount rarely exceeded, and in several years was much under, the annual income of the Federal Government.
60. Bolles, Financial History (1861-1885), 306. According to Prof. Adams, 'the interest-bearing obligations of the United States stood at their maximum in August, 1865, amounting at that date to $2,381,000,000.' Public Debts, 249.
By March 1st, 1902, the capital charge was further reduced to $937,021,160.
Book V, Chapter V
74. 'Les dettes d'un État sont des dettes de la main droite à la main gauche, dont le corps ne se trouvera point affaibli.' Melon, Essai Politique, ch. 23 in Économistes Financiers du 18me siècle, 749.
92. Mill, Principles, Bk. v. ch. 7, § 1. His error has been exposed both by Cairnes, On the Best Method of Raising the Supplies for War Expenditure, 10, 11, and by Cliffe Leslie, Notes (privately printed), 17, 18.
94. The labourers' sufferings were really due to the continued bad harvests, the depreciated paper money, the restrictive laws against labour, the old Poor Law, the check to imports by war, and the industrial revolution. The capitalists gained by the greater use of machinery and the command that England at times obtained over the supply of foreign markets.
100. Cp. Bk. iii. ch. 2, § 5, and for a discussion of the conception of revenue see Marshall, Principles, Bk. ii. ch. 4, §§ 3, 4, (3rd ed.). Prof. Fisher and Mr. Cannan urge that the distinction between 'capital' and 'income' turns on differences in respect to time, Economic Journal, vi. 509 sq., vii. 199 sq., 278 sq.
101. 'The expenses of a war are the moral check which it has pleased the Almighty to impose upon the ambition and the lust of conquest that are inherent in so many nations. There is pomp and circumstance, there is glory and excitement about war, which, notwithstanding the miseries it entails, invests it with charms in the eyes of the community, and tends to blind men to those evils to a fearful and dangerous degree. The necessity of meeting from year to year the expenditure which it entails is a salutary and wholesome check, making them feel what they are about, and making them measure the cost of the benefit on which they may calculate.' Hansard, March 6th, 1854. Cp. the useful criticism in Northcote, Financial Policy, 259-264.
104. Professor Adams (Public Debts, 94) objects to the use of the income-tax for the purpose described in the text, but it seems on insufficient grounds. He hardly makes due allowance for the speedy yield of new taxes. 'The financier,' he thinks, 'may hope for assistance from his new taxes within eighteen months of their levy,' ib. 140. The first duties would surely come in much sooner. Speaking of the income-tax Mr. Blunden remarks, 'A further great merit in the tax is the promptitude with which its machinery can be brought into operation, the flow of funds in response to an increase of the rate beginning almost at once, and the full addition for the year being brought into account within from nine to fifteen months, according to the period of the year at which the increased rate is decided upon.' Economic Journal, ii. 642.
105. In England, e.g., the suspension of the terminable annuities and the new sinking fund,—which was employed in 1885, and again from 1899 to 1902—provides nearly £5,000,000 for meeting the fresh expenditure.
109. France had £550,000,000, the United States, including the 'State debts, £532,000,000, as their respective capital liabilities. Leroy-Beaulieu, ii. 597. The French debt, so far as the central government is concerned, is probably here placed too high, but it serves as an illustration of the principle.
113. The best methods are: (1) that of Sir R. Giffen, which capitalises income, and (2) that of M. de Foville, which takes the property changing hands by succession as the base of calculation. Giffen, Growth of Capital; De Foville, La France Économique (1887), 437 sq.
115. Cp. Prof. Nicholson's essay on 'The living capital of the United Kingdom' (Money, 2nd ed. 354-373), in which the highly conjectural value of £47,000,000,000 is assigned to this factor, or group of factors, of production.
Book V, Chapter VI
2. The British war loan of 1899 was described as a patriotic proceeding, but the subscribers were immediately able to obtain a small premium, and, therefore, self-interest sufficiently accounts for the large amount applied for.
10. Justification may, however, exist in the fact that the gain by lower interest exceeds the loss through the creation of more capital. As Prof. Miller justly remarks (Journal of Pol. Economy, i. 141), 'The whole question is largely one of financial arithmetic.' The point may be illustrated by taking the opposite case of a loan bearing high interest and issued at a premium. Here the State gains in capital and loses on interest, but it is tolerably evident that the lenders will take the two sides of the transaction into account and guard themselves against loss. The great objection to the creation of extra capital is the generally improvident character of state administration, especially where future advantage is concerned.
16. The metallic stock of the United Kingdom has been variously estimated at from £70,000,000 to £110,000,000, the interest on which would not exceed £4,000,000. In other countries the amount would be greater, but the shock to established habits would also be more felt.
17. Governments have to accept legal tender money in payment of taxes, unless in the case of customs duties, which are often made payable in gold under the erroneous idea of drawing money into the country. Leroy-Beaulieu, ii. 692.
Book V, Chapter VII
19. Sir R. Giffen has declared 'that it would now be the wisest thing for us to give up any attempt at the reduction of debt, so long, at least, as the mean for paying are really derived from taxes on capital.' Economic Journal, ix. 363-4.
26. 'There is disclosed in the administration of Mr Gallatin the true policy of debt payment ... Under the guidance of his clear insight this country departed from the pernicious methods of English financiering.' Adams, 268. Cp. Ross, 60.
29. The very high price of English Consols in the period 1894-9 was mainly due to their purchase by the National Debt Commissioners, operating in a limited market. See Giffen, 'Consols in a Great War,' Economic Journal, ix. 353 sq.
37. This statement is in accordance with Prof. Irving Fisher's theory that appreciation of money tends to lower interest. See his Appreciation and Interest; also Prof. Clarke's articles, Political Science Quarterly, x. 389 sq., xi. 249 sq., 493 sq.; and Marshall, Principles (3rd ed.), 673-4.
Book V, Chapter VIII
It thus appears that state indebtedness is declining, but that of the smaller divisions is increasing, though this advance has been checked in recent years by legislative restrictions.
44. Even on the assumption that Adam Smith's ideas as to the limits of state action should be observed, 'The duty of erecting and maintaining certain public works' is one of those prescribed by him. Wealth of Nations, 286.
Book VI, Chapter I
1. The literature for this part of the subject has received important additions since the last edition of this work. Stourm's valuable treatise is now in its 4th edition and is paralleled by the German work of Heckel, Das Budget. Masè-Dari's Bilancio dello Stato, is specially useful for Italy. A fuller recognition of the necessity for studying budgetary legislation as a part of finance is evidenced in the space—one-fifth of the whole treatise—allotted to it in Adam's Science of Finance, and the smaller works of Plehn and Daniels also devote separate sections to this topic.
3. See the Dialogus de Scaccario (attributed to Richard, Bishop of London), printed by Madox in his History of the Exchequer; also by Stubbs, Select Charters, 168-248. Hall's Antiquities of the Exchequer gives a more popular account of the working of the system.
6. The case of France under the Ancien Régime referred to in the preceding note is also instructive in regard to the evils that result from concealment and the absence of responsibility. At present the Russian and Indian finances show by their contrast the advantage that publication of vouched accounts and the power of opinion may be, even to a subject country.
11. 'The Congress shall have the power to lay and collect taxes.' Art. i. § 6. 'All bills for raising revenue shall originate in the House of Representatives.' Ib. § 7. 'No money shall be drawn from the Treasury but in consequence of appropriations made by law; and a regular statement and account of the receipts and the expenditures of all public money shall be published from time to time.' Ib. § 9.
Book VI, Chapter II
22. It seems plain that the head of a great industrial department, such as the English Post Office has become, should have the same weight as the heads of the Army and Admiralty admittedly possess. The difficulty of applying the strict administrative control necessary in the case of public expenditure to industrial undertakings is one very weighty argument against extension of the state domain. The Treasury could hardly keep a Railway Department within bounds.
23. The French method of adding smaller budgets to the ordinary one is therefore a violation of principle and injurious in practice. Stourm, 187. It may, however, be said that the Budget sur Ressources spéciales is really a statement of one part of local finance. But it is incomplete as regards the communes, and in fact of no service as a mode of control.
25. The estimates of expenditure in England for the three years April 1, 1889, to March 31, 1892, as compared with results, show an error of only £137,000 in a total of £264,000,000, or a little over 1s. per £100.
Book VI, Chapter III
30. M. Stourm supposes that the attendance in Committee of Supply is smaller than in the case of ordinary sittings. Le Budget, 273. He has been followed by Masé Dari (Bilancio, 112) and Adams (Finance, 147-8). The latter asserts that 'as a matter of fact none but the leaders commonly attend.' This view is altogether erroneous.
32. 'This principle is commonly involved in mediæval metaphysics as to the prerogative of the Crown, but it is as useful in the nineteenth century as in the fourteenth, and rests on as sure a principle.' Bagehot, English Constitution, 146.
37. It has, however, been pointed out that this limitation may lead to extravagance by inducing a department to spend rather than surrender surplus funds. The official feeling is 'let us use up our balance.'
42. The proper mode of providing for increased naval expenditure has been a subject of hot debate between the two great English parties. Lord Goschen preferred the permanent method; Sir W. Harcourt advocated the annual one. So long as a consistent scheme is adopted and maintained there seems to be really no important difference. The control of the House of Commons over expenditure is in either case effective.
43. Thus the tedious process of 'supply,' which used to take thirty-five working days of the session, is, in the French sense, a part of the budget. By the existing rules of the House of Commons twenty days are set apart for supply, and on the last of these days all the votes that remain are put to the vote without debate. This has the effect of unduly extending discussion on the earlier and destroying it on the later votes.
44. Peel, for example, miscalculated the yield of the income-tax for 1842 by not taking into account the fact that only one half of the tax would come in during the financial year. Northcote, Financial Policy, 41. Lowe increased some of his surpluses by manipulating the collection of the income-tax. More generally, there is no doubt that a surplus could be manufactured by starving the permanent part of the public services and throwing the additional cost of replacement on succeeding years.
48. The case given by Prof. Adams (Finance, 207), of interest for the three months ending July 31st, when the fiscal year ends on June 30th, illustrates this. The two months will run on for each year. If, e.g., the year for 1901-2 gains at the end, it loses at the beginning.
49. In respect to semi-sovereign States, e.g., Egypt, the method of accruals might be applied with advantage in order to separate the amount available for improvements from that assigned for creditors.
57. For an admirably clear account of the U.S. system see Adams, Finance, 193-200. See also the articles on 'The Control of National Expenditures,' by E. I. Renick and N. H. Thompson. Political Science Quarterly, vi. 248-281, and vii. 468-482.
Book VI, Chapter IV
70. The audit of the accounts of English boroughs is unsatisfactory as it is conducted by elected auditors. See Report on 'Municipal Trading' [305, 1900], 137-141. The Irish system is, in this respect, better.