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Public luxury ought never to be supported by taxes on the necessities of life, nor be allowed to encourage among the rich a love of ostentation and sensuality. It should always tend to strengthen those highest sentiments, love of country and humanity, of righteousness and justice.

CHAPTER IV.

TAXATION.

§ 1. What is Taxation?

To defray the expenses of government a revenue is needed. This revenue may be furnished either from domains or from taxation.

In former times kings derived almost all their revenue from domains, just as a private proprietor now lives from the rents of his estates. In the present day states still obtain a certain revenue in this way, as in Russia from the crown lands and in Belgium from the state railways. It is, however, chiefly by taxation that provision is made for the public expenses.

Revenues derived from domains had one advantage in not diminishing the incomes of individuals. A tax on the other hand, is a fine on the incomes of all who pay it, that is of the taxpayers. It is the price paid by the citizens for the blessings of social order. As Montesquieu, well expresses, it, "The

revenue of the state is a portion of his wealth sacrificed by each citizen in order to gain security for the rest or the means of enjoying it more agreeably." (Esprit des Lois, bk. xiii. ch. i.)

When in exchange for the tax a government gives neither security nor comfort the tax is mere robbery. It is even worse when the robberies of a tyrant help to organise his oppression of his people.

When the tax is moderate, well adjusted and well employed there is no expense more remunerative to the nation at large, or more useful to its neediest members.

§ 2. Rules as to the Imposition of Taxes.

The rules as to the imposition of taxes are of the greatest importance, since national decline and revolution mostly have excessive and ill adjusted taxes as their principal cause.

Even when the expenses of the state are for necessary or highly useful purposes, the taxes from which they are defrayed give rise to much incon- . venience. To diminish this inconvenience as much as possible certain rules have been devised which are here given.

(1) The tax should be in proportion to the respective abilities of the taxpayer. Though this principle is strictly just, it was not observed under the old régime. Then the rich, in other words the nobles, paid nothing, and the whole burden fell on the poorer classes who alone worked.

(2) The tax should be completely fixed in advance in all its details, amount, method and time of payment. When it is otherwise, every person subject to the tax is in the power of the tax-gatherers. As these become insolent, their victims grow servile; this may still be seen in eastern countries.

(3) The tax ought not to fall on the means of production but on the net produce. Thus cattle, trees, steam-engines, &c., should be left untaxed. In many villages in Palestine the wealth-bringing palm trees have been torn up, because each tree was taxed. If this tax had been imposed on the land, it would have been the owner's interest to have planted as many trees as possible so as to reduce the amount payable on each of them.

Taxation has often caused more misery by being ill adjusted than by being excessive.

(4) The tax ought to be levied at the time in which the taxpayer will be best able to afford it. For this reason in some countries the land tax may be paid by instalments. So too the succession duties are always readily paid because they are levied from an unexpected increase of the income of those who already had the means of living.

(5) So far as possible the tax ought to bring into the state as much as it costs the citizens. The expenses of collection are paid by the nation and lost to the treasury. Of the dues levied at the gates of French towns twenty or thirty per cent. often serve to support the collectors, who are thus diverted from

productive labour and hamper the circulation of the goods of actual producers.

(6) Taxes should be moderate, and never so high as to discourage production.

"The extortioners of the old régime," says J. B. Say, "even used to maintain that the peasant must be poor to prevent his being idle. This theory had as its result the neglect of agriculture, exhaustion of estates, a lazy peasantry, and a misery that often amounted to positive famine."

When taxation absorbs too large a share of the produce, labour is discouraged and economic decline sets in. Under Louis XIV. vines were uprooted to escape the taxes called Aids, which, according to Vauban, often amounted to the price of the vintage. The two most powerful empires of the world, the Roman and that of Charles V., were both ruined by excessive taxation.

In France the taxes collected by the state, the departments and communes exceeded in 1882, £160,000,000, and the net revenue from land was estimated in 1874 at only £158,000,000. The limit which it must be dangerous to pass seems to have been almost reached.

(7) Taxes ought never to be raised from immoral sources, such as lotteries and gambling houses. Again, in fixing the amount to be paid, the taxpayer must never be put on his oath, for this is placing a premium on perjury.

(8) Taxes should not be of such a kind as can be

evaded by cheating the treasury, or an encouragement will be offered to fraud. Custom dues have this effect when they give rise to smuggling.

There can be no worse laws than those which teach law-breaking.

$ 3. Incidence of Taxation.

To fix the "incidence" of a tax is to determine on whom the burden of it shall fall (incidere).

The effect of most taxes is transmissible, and their burden is thus divided. The imposition of a tax on the food of workmen will cause wages to rise, since the workman must still live. The rise of wages will increase the price of goods, and thus the weight of the tax will finally fall on the consumer. Raise the price of a shopkeeper's license, he will spread the increase over his bills, and it will be paid by his

customers.

After all the changes of incidence, said the physiocrates, the whole burden will fall on the land; no, reply their opponents, it is always the consumers who finally pay it. The truth appears to be that when a tax is of long standing everybody, either directly or indirectly, shares the weight of it. The amount of the several shares it is difficult to state, but the society adjusts itself to the burden, just as foot and boot end by fitting each other.

As a result we may recommend the suppression of as many taxes as possible, beginning with the worst, but readjustments should always be avoided.

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