Robert Giffen

“ The United Kingdom is a conspicuous instance of a country which has a great excess of imports over exports in consequence of its large lending abroad in former times; while its accounts are specially affected by the magnitude of its services as a trading nation carrying passengers and goods all over the world, which do not result, however, in so-called “exports.” The United States, on the other hand, is a conspicuous instance of an indebted nation, which has or had until lately few or no sums to its credit in foreign trade except the visible exports. ”

“ In a question of taxation, however, for the purpose of meeting the expenses of the government, all such duties must be ruled out. Taxes, as instruments for advancing the prosperity of a country, are things unknown to the study of “ taxation ” in the proper sense of the word. The only proper object of taxation is to meet the expenses of the state, and when taxes are used primarily or mainly for some other object they can only be justified by political and economic reasons of a different order from anything that has been under discussion. ”

“ In studying equality, moreover, local taxation must be brought into view, with even more impracticable differences of opinion as to the real incidence of the taxation. The moment rates are brought into question it is seen at once how impossible it would be to establish equality among tax-payers, when owners on one side and occupiers on the other claim that they each bear the burden of the same taxes, and economists favour the opinion that much of the burden is in the nature of a rent charge on the property, and in any case is equally diffused over the whole community. ”

“ Generally, then, it may be affirmed that taxation in its essential nature cannot be thought of as a good instrument for promoting trade and the advancement of a country. So far as it operates at all, it operates by diverting trade from the channels in which it would naturally flow into other channels, and this diversion of industry, so far as it goes, must involve loss. People are induced to do things they would otherwise leave alone, or to leave alone what they would otherwise do, because money is given to them out of the pockets of the tax-payers to make it worth their while to do so ”

“ The frank recognition that local income taxes are impossible, and that taxation on property for local purposes can only be applied to real property, where it becomes, usually or frequently, in the nature of a rent-charge, would have saved the legislature and the public an infinity of laborious discussion. ”

“ The phrase “balance of trade,” then, appears to be an application of a trader’s language in his own business to the larger affairs of nations or rather of the aggregate of individuals in a nation engaged in foreign trade. A trader in his own books sets his sales against his purchases, and the amount by which the former exceed the latter is his trade balance or profit. What is true of the individual, it is assumed, must be true of a nation or of the aggregate of individual traders in a nation engaged in the foreign trade. ”

“ Recent discussion, however, has gone rather to the point which Adam Smith neglected, that of inequality generally, not merely as between different sorts of income, but as between individuals and classes. The whole burden of taxation, it is maintained, should fall equally upon classes and individuals as far as possible, and, if necessary, taxes falling equally upon special sources of private revenue should be balanced against each other in order to obtain the desired result. ”

“ It is contended, for instance, that the revenue from land obtained by the government of India is in reality of the nature of a land rent—a species of property owned by the government. But the fact of a government levying so general a charge may be held ipso facto to convert the charge into a tax, having much the same economic effects and consequences as a tax. When, moreover, a state receives a revenue from property, some of the economic consequences may be the same as if it received the money by means of a tax. ”

“ The extent of the interference with trade, in regard to particular taxes, is also a matter of importance. A particular tax is not necessarily to be condemned because it takes a little more out of the pockets of the people than what the government receives. Such a defect is a ground for consideration in weighing a particular tax against others, but it is only one inconvenience among many incidental to all taxes. ”

“ The starting-point of discussions as to incidence of taxation is a classical passage in Adam Smith's Wealth of Nations (book v. chap. ii.) , where he lays down the following maxims with regard to taxes in general: 1. The subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state. 2. The tax which each individual is bound to pay ought to be certain and not arbitrary. ”

“ In strict theory, where the government makes a charge, it levies a tax. The reasonableness of the charge in a given case is to its credit, but the features of monopoly and compulsion on the tax-payer make the charges difficult to distinguish logically from other taxes. The facts are not in dispute, however they may be described. If the government derived a large income from post office and telegraph service in excess of the amount expended, the whole income would be generally, and not improperly, described as taxation ”

“ Although it is called a direct tax, the method of levy, as far as property is concerned, is upon the profits at their source, and not as they are distributed among the receivers. The question of the amount of individual incomes only comes before the authorities when claims for exemption and abatement are made. The character of the tax is accordingly much less odious than it would be if an account of individual incomes were invariably demanded, as was the case in the United States during the Civil War, when an income tax existed for a short time. ”

“ They are both books of observation and description. The English constitution is described, not from law books and as a lawyer would describe it, but from the actual working, as Bagehot himself had witnessed it, in his contact with ministers and the heads of government departments, and with the life of the society in which the politicians moved. The true springs and method of action are consequently described with a vivid freshness which gives the book a wonderful charm, and makes it really a new departure in the study of politics. ”

“ Indirect taxes are those where it is recognized from the beginning that the individual who pays in the first instance usually passes on the charge to some one else, who may again pass it on until it finally reaches the subject who bears the burden. The income tax, a direct charge upon all incomes above a certain limit, is the principal type in the United Kingdom of a direct tax. In France there is a group of taxes known by that name—a land tax, a personal and furniture tax, a door and window tax, and a trade licence tax. ”

“ The whole of the British revenue from post office and telegraph service, and the whole of the stamp revenue, are derived from charges whose exact incidence cannot be traced. We have seen, indeed, that doubt is even felt as to whether post office and telegraph charges can be treated as taxes at all. Again, the death duties are in a distinct category, these duties falling each year not on a particular class of the community, or a particular kind of property, but on a few individuals only, who are in some cases treated severely, while others may have no cause of complaint. ”

“ Every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the state. [This last passage is specially directed against taxes which are expensive to collect, or discourage trade, or offer temptation to smuggling, or subject people to frequent visits of the tax-gatherer.] These maxims have commanded universal assent, as they are obviously the common sense of the subject. ”

“ The varieties of income charged being very great, and special claims for consideration having been set up at different times, the result has been the formation of an income tax code, defining the methods and rules for assessing the different classes of profits and income, and prescribing the way in which abatements and exemptions are to be obtained. A leading peculiarity is the avoidance of special inquisition into the aggregate of individual incomes. ”

“ His active life in business and politics, however, was not of so absorbing a kind as to prevent his real devotion to literature, but the literature largely grew out of his activities, and of no one can it be said more truly than of Bagehot that the atmosphere in which he lived gave tone and colour and direction to his studies, one thing of course acting and reacting on another. ”

“ The conclusion that with good taxes long established the burden of taxation tends to become equal over the whole community was certainly not ill founded in the circumstances of former times, and may be accepted as true even in the present day.
As to progressive taxation based on the assumption that equality requires a larger proportionate charge upon a big income than on one of a smaller amount, the practical application of the principle, if true, would be impossible. ”

“ The confusion has been further increased of late years by attempts, as far as towns are concerned, to find a new subject of taxation in what are called site values, as if rates themselves were not in reality an appropriation by the state of a portion of the whole value of the property, subject to which all the other interests exist. It would be impossible here even to state all the questions that have arisen about rates; but the essential confusion caused by the neglect of practical men to study the natural history of taxation, as it may be called, must be obvious to every student. ”

“ On the other hand, the consumption by the income tax paying classes of customs and excise articles must vary indefinitely amongst themselves, according to personal habits, size of families, and even their geographical distribution. A further difficulty is furnished by a question as to whether the employer of domestic servants who gives them their board does or does not bear the burden of the duties on the articles which they consume, and which he buys for their use. Theoretically the burden falls on them as consumers. ”

“ To establish, therefore, any fair account of the incidence of indirect taxes on different classes of the community, real classes being distinguished, and not a mere rough grouping into so-called classes of units who are altogether heterogeneous, is probably beyond the skill of man. ”

“ When the proportion becomes one-tenth or less it is doubtful whether the state can do best for its subjects by making the proportion still lower, that is, by abandoning one tax after another, 'or whether equal or greater advantage would not be gained by using the revenue for wise purposes under the direction of the state, such as great works of sanitation, or water supply, or public defence. ”

“ The owners of real property, however, continually urge that they are unfairly treated, and that other property should be rated. Next there has been misconception, arising from the same cause, in the constant attempt to charge the occupier of lands and houses with rates, although the real effect of the rates must be, as a rule, to diminish the value of the property affected like an old-established land tax, so that rates, properly speaking, do not fall upon either owner or occupier. ”

“ It is even at times a very burdensome tax, falling upon a family when its sources of income are otherwise diminished, while it has the demerit of striking a small number annually instead of being diffused equally. Death duties also raise the question as to their being taxes upon capital. They are of large amount, even at the lowest rates of 1 to 4 per cent. upon the capital charged, and they have to be paid at such times as to cause their being paid out of capital andnot out of income, so that their tendency is to diminish the capital available for productive enterprises. ”

“ A prosperous foreign trade carried on by any country implies a continuous investment by that country either abroad or at home, and there may or may not be a balance receivable in actual gold and silver. ”

“ Calculations, for instance, as to what people at the lower levels of the income tax must pay because they happen to be struck by every sort of tax as no other class is, and calculations as to the freedom from taxation of large numbers of other classes whose habits of consumption and living enable them to escape the tax-gatherer as the class to which they belong cannot generally do, may help a finance minister in the selection of taxes to be repealed or reduced or to be newly imposed. ”

“ Excise duties are charges upon commodities produced at home on their way to the consumer, and customs duties in the United Kingdom are charges upon commodities brought into the country from abroad; and they are of essentially the same nature. Not only so, but excise duties and customs duties are in some cases supplementary to each other, like articles being produced at home and imported from abroad, so that for the sake of the revenue they have both to be taxed alike. Of this in the British system spirits are the best instance. ”

“ The Different Kinds of Taxes.—In the economic development of states taxes have come to be grouped in different ways, according to variations in the method of levying them or the means of enforcing compulsion or other differences. One of the most usual divisions is into direct and indirect taxes. Taxes are distinguished as direct, because they are charged directly upon the tax-payer from whose income they are supposed to be taken. ”

“ In other countries, even at the present time, there is a large public domain yielding revenue. Local authorities also largely own property from which a revenue is obtained. But as a rule, and in spite of what has often been the practice in the past, and of exceptions which may still exist in some countries, a government obtains the money required for its expenses by means of taxation. ”