articles of general consumption, following upon a great reduction of those duties, have fairly established the theory, and are fast entailing the practice, of moderate rates. The operation of a reduction of duty is twofold: it increases the consumption of the taxed article in consequence of the reduced price bringing it within the reach of a larger number of consumers, and enabling former consumers to purchase more abundantly than before; and it causes a larger proportion of what is consumed to contribute to the revenue, by removing or lessening the motive to illicit importation or production. The various fluctuations in the tax on sugar, on coffee, on tea, on wine, on spirits, and on letters, and their immediate and invariable consequences, which have been so often brought before the public, have raised the enriching tendency of reduced duties so nearly to the rank of an axiom of financial policy, that scarcely any one except a Chancellor of the Exchequer would hesitate to act upon it. The same history, however, which has taught us this prolific truth, has brought to light two exceptions, which are sometimes pointed to by financiers of little faith, as invalidating the general law. The usual result does not ensue when the article is not one of general consumption, but a mere luxury or fancy of the few. Thus, no reduction in the tax on hair-powder or four-wheeled carriages would so increase the use of either as to compensate for the change. Neither does the usual result ensue where the reduction is inadequate to the purpose, and neither materially reduces the price to the consumer of the duty-paid article, nor greatly diminishes the temptation to smuggling. It is obvious, that where the duty on an article of moderate bulk and in great demand is 800 per cent., the reduction of this to 600 per cent. would only reduce the price to the consumer, and consequently affect the consumption, to an inappreciable extent, and thus the revenue would probably lose the whole amount of the reduction. It is obvious also, that the smallest of these duties would still leave the stimulus to smuggling so enormous as to ensure its continuance to the utmost practicable extent. The reduction would leave the disadvantage of the fair trader virtually untouched. The experience of the items of tea and tobacco have well illustrated both these principles, the duty on the former being about 200, and on the latter about 700 per cent.

These two practical facts form, however, pretty much the sum total of financial wisdom on which all parties may be said to be agreed. Nearly every other rule is adhuc sub judice. Even our first authorities on these matters, Adam Smith, Ricardo, M⭑Culloch, and Mill, are by no means always in harmony; and if they were, our senators and statesmen are far from having studied them or imbibed their principles. A new school, and a very

Desideranda in a Perfect Tax.

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active one, has now sprung up in Liverpool, and its votaries. have formed themselves into an association for the avowed purpose of advocating direct taxation as the only sound, innoxious, and equitable system. We shall not attempt to enter into any abstract disquisitions on the knottier branches of the subject, but shall endeavour to elucidate a few general propositions which may naturally aid us in gaining a clear conception of its larger bearings.

A perfect tax-if perfection can be predicated of a thing whose ineradicable essence is evil-would be one which should press equally upon every individual in the community; which should hamper no industry and curtail no commerce; which should offer no temptation and leave no opening to fraud; which should be levied in such a manner as to create no irritation, but should be paid as it were unconsciously, or at least ungrudgingly; and which should take no more from the subject than it put into the Exchequer. But such a tax, though conceivable, is obviously unattainable; and practically, therefore, we must be content to adopt such taxes as most nearly approximate to the fulfilment of these conditions, or of the most important of them. It will help us much if we fairly face the inevitable dilemma. A large revenue must be raised. Taxation, therefore, must be submitted to. But all taxes are objectionable. It is impossible, we believe, to name a single impost against which a case more or less strong might not be made out. Every tax diminishes the wealth of the country, because every one is unproductively expended. Almost every one we ever heard of is either inequitable in its nature, or fetters commerce, or stimulates to fraud, or is costly in the collection, or is irritating to the temper, or combines several or all of these objections. All that is left to us is a choice of evils. It is no sufficient reason, therefore, for rejecting or repealing a tax, that it is open to one or more of the above charges. Neither, on the other hand, is it any valid ground for preferring or imposing a tax, that it fulfils one of the above requirements, if it violates others equally or more important. It is no conclusive recommendation of a tax that it is equitable, if it be intolerably irritating or needlessly impoverishing. It is no adequate defence that it is cheap and palatable, if it be at the same time unfair or demoralizing. We must not judge taxes by a standard of ideal perfection, which none of them can satisfy, but by the degree in which they approach to the most essential requirements of that standard.

Let us now dive at once into the heart of the matter, and consider the chief recommendations alleged in favour of a system of direct taxation. "Direct taxation, we are told, is the most equitable of all systems. Under the existing mode the poor pay

more, and the rich less, than their fair share. Under direct taxation this injustice would be remedied."-Under what system of direct taxation would the adjustment be equitable? and what is a "fair share?" What is equity?-Simple equity-the dictates of rigid justice, would seem to require that men should pay to the State in proportion to the services it renders them, those who benefit most paying most. Now the class which derives the greatest benefit from the protection of the State is clearly that which would suffer most from the withdrawal of that protection, viz., the ignorant, the feeble, and the helpless. The class which profits most by the active beneficence of the State (when its functions are not merely negative and protective) is clearly the same, viz., the poor, the weak, and the incapable. Simple equity, therefore, would appear to require that those should pay the largest amount of taxation who are least able to pay-a conclusion which, however strictly deducible from admitted premises, it is alike impossible to adopt or carry out.-Other lovers of equity contend that, as every man has life and liberty to be guaranteed, but every man has not property,-a poll-tax should be levied as an equivalent to the former, and that the rest of the revenue should be raised on property, and according to property. There is a certain shallow plausibility in the distinction which will recommend it to many minds. But a single question will show how inadequate and unsatisfactory is the solution it affords. How are you to estimate the relative value of life, liberty, and property, so as to decide what proportion of the revenue shall be raised by a poll-tax, and what by a property-tax? According to general feeling the latter would be infinitesimally small. "Skin for skin, yea, all that a man hath will he give for his life." Again, is every man to pay the same amount of poll-tax? -the man to whom life is sweet and valuable, with every charm which health, happiness and affection can shed around it,—and the man to whom it is a burden and a malady. Others urge that the relation between the State and its citizens is too wide and too sacred to be thus treated as a bare contract for protection on the one side, and payment on the other; that it is the key-stone of a union in which all have entered with a view to the general good; and that every man should contribute, not in proportion to his needs, but in proportion to his means. Butpractical difficulties apart-on what principle are a man's means to be estimated? By "means," do we intend to signify his property or income, or his ability to pay? Is he to be taxed according to what he has, or according to what he can afford? If the latter which clearly ought to be the reply-how, by the resources of direct taxation, is it possible to ascertain it? If the former, as is contended by the parties whose arguments we are

Inevitably unfair pressure of Direct Taxation.

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considering, what rule could be more inequitable? For, of three men with £1000 a year each, it is as certain that their incomes are equal, as that their means are unequal. The income of the first is derived from fixed property, and is permanent and bequeathable, and he may spend the whole. The income of the second is a life annuity, and he can only venture to spend what remains after he has purchased an insurance policy for his surviving family. The income of the third is derived from severe professional exertions which cannot be continued for ever, and he can only spend what remains after the additional purchase of a deferred annuity as a provision for old age. Are all these men to be taxed equally, on the plea that their incomes are equal? If so, your equitable plan leads to the commission of a manifest injustice; for it is clear that a man can only afford to pay in proportion to what he can afford to spend; and though you levy the same amount of tax on each of the three men, the pressure of that tax will be very different. We will assume, however, that this objection is met, as many political economists contend that it should, by taxing permanent, terminable, and professional incomes by a varying scale. Still other difficulties as insuperable in the way of a really fair assessment remain behind. How will you deal with the case of men who, with equal fixed incomes, have most unequal demands upon those incomes, and therefore in truth most unequal means? It is abundantly clear that a man having £1000 a year, and ten children, cannot afford to pay as much as a man having £1000 a year and neither wife nor child. A tax of 10 per cent., which would be scarcely felt by the latter, or, at the worst, would only debar him from some noxious or needless luxury, would actually pinch the former, perhaps drive him into a smaller house, and probably compel him to stint his family in clothes or education.

In order in some measure to meet this objection, Bentham recommended, and Mr. J. S. Mill endorses the recommendation, that taxation should only be levied on a man's surplus income, i.e., on that portion of it which remains after the absolute necessaries of life are provided for. In pursuance of this idea, he advises that all incomes under £50 should be exempted altogether, that a man with £100 should pay upon £50 only, and a man with £1000 upon £950, and so on. We see no objection to the proposal as a practical boon; but it is obvious that this could afford only a very rough approximation to justice: £50 a year would more than supply a bachelor with food, shelter, and clothing, but would be inadequate for a man with ten children. Moreover, it would leave the real difficulty untouched-which is to provide an income-tax which shall be truly and not nominally equitablewhich shall not press upon one man more heavily than on another? We are not here arguing, be it observed, against an income-tax

VOL. XVI. NO. XXXI.

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as inadmissible; we merely wish to shew that it does not, any more than those taxes which it is proposed to discard in its favour, fulfil the requirements of equity. It does not make, and cannot be arranged to make, every man pay his "fair share" towards the burdens of the State.

There is little doubt that many of the objections to the existing Income-tax might be removed or mitigated, but several we believe to be inherent in its essence. At present it combines nearly every possible bad quality that a tax can have. It is only half as productive as it might be made; it is inquisitorial and irritating to the last degree; it is brimful of obvious and hidden injustices, and it offers overwhelming inducements to fraud. It is impossible to point to any principle on which the exemption of all incomes under £150 can be defended. If the propriety (above stated) of leaving untaxed a sufficient portion of a man's income to provide him with an actual subsistence be urged on its behalf, then we reply that the exemption is far too wide, and should have been confined to incomes under £50. If the plea be brought forward that the class whose incomes fall between £50 and £150 bear an inordinate proportion of the indirect taxes, as is suggested by Mr. Mill, then we reply that the exemption does not extend nearly far enough, for the people whose income ranges from £100 to £300 are far the most heavily taxed portion of the community. They pay house-tax, they pay poor-rates and county-rates, they pay a considerable portion of the stamp duties and the advertisement duty, and they contribute fully more than their share to the customs and excise. Moreover, the exemption reduces the yield of the tax, according to the best opinions, fully one half. Finally, as the recent Parliamentary investigation is said to prove beyond question, it opens a wider door to petty fraud than any other provision of this baneful impost. Those acquainted with the practical working of special taxes declare, that if there be one rule which their experience points to as admitting of less doubt and fewer exceptions than any other, it is, that all exemptions are mischievous.

*

Even if all the obvious and admitted inequalities of the Incometax were rectified, it would still be in practice the most unfair of all imposts, from the utter impossibility of assessing with any certainty the actual incomes of the contributors. Rents, salaries, annuities, dividends, &c., may be accurately ascertained; but professional gains, and the profits of trade, can be estimated on no other ground than the declarations of the contributors themselves. No productions of books, no demand for minute and detailed returns, though these are often called for to a most vexatious and

* In 1844 the claims for exemption were 82,854, of which the Commissioners were obliged to admit 75,500. The amount returned on these claims was £69,100.