Blackwood's Edinburgh Magazine, Volume 68, No. 421, November 1850

Next month we propose to resume the consideration of this most important topic.

FOOTNOTES:

THE RENEWAL OF THE INCOME-TAX

Although a considerable period must yet elapse ere the expiration of the Parliamentary holidays, it will be well for the public to be prepared for the discussion of certain questions which must perforce engage the early attention of the Legislature. We know not, and have no means of knowing, what may be the nature of the coming Ministerial programme. Were we to argue entirely from the results of past experience, we might well be excused for anticipating the absence of any kind of programme; seeing that the Whig policy of late years has been to remain as stationary as possible, and to take the initiative in nothing, unless it be some scheme devised for the evident purpose of bolstering up their party influence. Whether the old line of conduct is to be pursued, or whether Lord John Russell, desirous to give a fillip to his decreasing popularity, may propound some organic changes – for there are rumours to that effect abroad – is at present matter of speculation. One subject he must grapple with; and that is the taxation of the country, taken in connection with the Property and Income Tax, which, unless renewed by special Act of Parliament, expires in the course of the ensuing year.

That an attempt will be made to continue this tax, no reasonable person can doubt. Ever since it was imposed, Ministers have acted as though it was permanent and not temporary. They have done this in spite of the solemn pledge given to the country by its originator, that it should not be made a regular burden – in spite of the frequent and unanswerable remonstrances advanced by many who felt themselves aggrieved by its unjust and unequal operation. The limited nature of its duration was made the first excuse for avoiding its revision – the necessities of Government the next excuse for continuing it in all its imperfection; and yet these necessities, so far from being casual, were purposely created by the remission of other taxes, in order to afford the Premier of the day an apology for breaking his word – in plain English for violating his honour. We defy any man, however skilled he may be in casuistry, to alter the complexion of these facts, which are anything but creditable to the candour of the statesmen concerned, or to the character of our political morality.

We are, therefore, fully prepared for a demand on the part of the Chancellor of the Exchequer for the reimposition of the Property and Income Tax. He will attempt to justify that demand by the usual allegation that it is absolutely necessary in order to meet the exigencies of the State; and that it yields very near five and a half millions of revenue, not one penny of which he can spare if he is to defray the expenses of the public service and the interest of the National Debt. This might be an excellent argument if employed to meet the proposal of any financial Quixote for abolishing a tax which the Legislature has solemnly declared to be permanent. But it is no argument at all for the continuance of this tax after its stated legal period has expired, any more than for the imposition of some tax entirely new. The real state of the case will be just this, that our recent commercial policy and its attendant experiments have landed us in a deficit of some five and a half millions, which, on the whole, in the opinion of the Chancellor of the Exchequer, may be most conveniently supplied by a New Act authorising the direct taxation of Property and Income, on the same terms as before, for a certain period of years. That is all that can be said for the reimposition; and, cæteris paribus, the same argument would be as effective and as well grounded, if the honourable gentleman using it should propose to raise the sum required by clapping on an additional land tax, or by doubling or trebling the assessed taxes.

What the exigencies of the State now require is the raising five and a half millions more than the ordinary produce of the revenue, and NOT the resumption of the Property and Income Tax. These are two separate and distinct things; but, as a matter of course, we must expect to see them confounded, as if the fact of a peculiar tax having once been raised, gives a sort of servitude to the provider for the Exchequer over the property from which it is levied, notwithstanding the express limitations of the statute, continuing the impost for a certain time, but no longer. This has been, and no doubt will be the Whig logic; and it is very material for those who think with us that it is full time that this odious, unjust, and inquisitorial tax should cease, to remember that they stand now on precisely the same footing which they occupied when the impost was originally proposed. Sir Robert Peel, then in the zenith of his power, and with a large and undivided party at his back, dared not propose it as a permanent source of revenue. He asked it, in 1842, as a special and exceptional boon – almost as a mark of personal confidence in himself; and as such it was given. He did not attempt to aver that the measure was perfect in its details; on the contrary, he admitted that it was partial; but he excused that partiality on account of the shortness of its duration; and the public, believing in the sincerity of his statement, was willing to accept the excuse. He used the money thus partially raised for the reduction of other taxes, in the hope of effecting "such an improvement in the manufacturing interests as will react on every other interest in the country;" and when, in 1845, he proposed its continuance for another limited period, he expressly said, "I should not have proposed the continuance of the Income-Tax unless I had the strongest persuasion, partly founded on the experience of the last three years, that it will be competent to the House of Commons, by continuing the Income-Tax, to make such arrangements with regard to general taxation as shall be the foundation of great commercial prosperity." And again, "If we receive the sanction of the House for the continuance of the Income-Tax, we shall feel it to be our duty to make a great experiment with respect to taxation." So, then, by the confession of Sir Robert Peel, its author, the Income-Tax, a great portion of which is levied from the agricultural section of the community, was laid on for the purpose of enabling him to stimulate manufactures; and that being done, it is to be made permanent, – the landed interest, in the meantime, having been almost prostrated by the subsequent repeal of the Corn Laws!

Such is the history of this tax; and we apprehend that, even without, reference to the iniquity and inequality of its details, it is so manifestly unjust in point of principle, that no statesman can, consistently with his honour and duty, propose it again for the adoption of the Legislature. Have manufactures benefited by the remission of duties thus purchased for them by the extraordinary sacrifice of so many years? If so, let them contribute to the national revenue according to the amount of that benefit. If not, why, then, the vaunted experiment has totally failed – the money been uselessly squandered; and the sooner that the taxes which have been taken off are reimposed, the better. But to subject the agricultural portion of the community and all professional men to a perpetual extraordinary tax for the purpose of advantaging the manufacturers, is a proposition so monstrous, that, notwithstanding the tenor of recent legislation, we can hardly bring ourselves to believe that it will be seriously entertained.

But we must not be too confident as to that. The Whigs are not famous for financial ability; and even if their talent in that line were much greater than it is, they would find it difficult, without seriously compromising that course of policy to which they are committed, and mortally offending some of their slippery supporters, to devise means for raising a revenue at all adequate to the deficiency. Last year an annual sum of nearly £600,000, the average amount of the brick-duty, was remitted, nominally for the benefit of the peasantry, actually for that of the manufacturers: the window-duty may be considered almost as doomed, and there are clamours for other reductions. So that we need not be surprised if, about the time of the opening of the Budget, the Chancellor of the Exchequer should be driven nearly to his wits' end, and the Whigs determined, at all hazards, for the fourth time to lay on the Income-Tax. Now, in counselling opposition of the most determined nature to any such attempt, we are actuated by no factious spirit. We are quite aware that money must be raised for the efficiency of the public service and the maintenance of the public credit. We see the difficulty as clearly as Sir Charles Wood can state it; but the existence of a difficulty by no means implies that most of us are to submit to gross injustice, and many to be subjected to positive plunder. In short, we hold that the period has now arrived when, for the public safety, the general good, and the satisfaction of all classes, the whole of the taxation of Great Britain should be revised, and adjusted on distinct and intelligible principles, so that each man may be made to bear his own burden – not, as at present, either to carry double weight, or to shift his load to the already cumbered shoulders of his neighbour. Surely this is no extravagant demand, no unreasonable expectation. Heaven knows, we have now been experimenting long enough to enable our rulers, if they are at all fit for their duty, to have arrived at some positive results. Why should any "experiments" have been tried, if they were not to lead to such an end? We say deliberately, that no better opportunity than the present can occur for forcing on that revision of the taxation which almost every one believes to be necessary. The excise reformers – those who demand the repeal of the taxes on paper and on soap – those who wish the window duty abolished – those who advocate a further reduction of customs duties, and those who, like Mr Disraeli, desire an equitable adjustment of the burdens upon land – have all here a common ground to rest upon, – namely, the injustice or the inexpediency of our present fiscal regulations. We occupy the same ground in protesting against the continuance of the Income-Tax. Surely, with such general testimony from men of all parties against the continuance of the present heterogeneous and unsatisfactory arrangements, it is time that our statesmen should really bestir themselves, and announce to us upon what principles for the future our taxation is really to proceed. We cannot go on for ever robbing Peter to pay Paul. We cannot always submit to a perpetual shifting of burdens, as if the people of this country were so many dromedaries, to have their hourly capabilities of relief determined by the caprice of their drivers. Yet such, in effect, is the present state of matters; and such it will continue, unless we are resolved to avail ourselves of an opportunity like the present, and force our governors, as is the clear right of the governed, to explain and justify the principles upon which their method of taxation is framed. Unless this be done, we are indeed a degraded people; because, when every class believes that it suffers injustice, to submit tamely to that, with constitutional remedies in our hands, would argue a pusillanimity utterly unworthy of a free and enlightened nation.

We have long foreseen that some such crisis as the present must arrive. It was, indeed, inevitable, from the time when the two rival Premiers began to bid against each other for popular support, and to make the British nation a chess-board for the purpose of exhibiting their individual dexterity. The cleverer man of the two lost the game by over-finessing. But before that occurred, enormous mischief had been done. All was disorder; and the conqueror at this moment does not see his way to a proper readjustment of the pieces. But order we must have, and arrangement, and that speedily too, if the functions of the State are to go on tranquilly and unimpeded. Men are tired of being used as actual impassive puppets. They want to have a reason for the moves to which they have lately been subjected; and a reason they will have, sooner or later, let Ministers palter as they may.

Very little consideration will show that such a revision, upon fixed principles, is absolutely necessary, if justice is to be regarded as any element of taxation. The ordinary revenue of the United Kingdom, on the average of the last ten years, is rather more than fifty-five millions, whereof twenty-nine millions constitute the annual charge of the public debt. Those fifty-five millions, it is evident, fall to be paid out of the annual produce of the country, as well as the local burdens, which amount to a great deal more, there being, in fact, no other means of payment; for, without produce at home, foreign commodities cannot be purchased, and the consumer of such commodities is the party who pays not only the prime cost of the article, but all the taxes which may be levied upon it; and this he must do, if not directly, at least indirectly, out of produce. Hence, the burden of taxation remaining the same in money, and not fluctuating according to the value of produce, it is evident that it never can be for the general interests of the country that produce should be unduly depreciated; that is, that it should be sold at prime cost to the consumer, perfectly free of that portion of taxation which it ought on principle to bear. It is really amazing that so self-evident a proposition should have escaped the notice of our legislators; nor can we otherwise account for the fiscal blunders which have been committed, than by supposing that men in power had become so used to shuffle and deal with taxation, that they entirely lost sight of its clear and fundamental principles. Let but the reader bear this in mind, that all taxation is ultimately levied from production, from which also all incomes are derived,⁵¹ and he will be able clearly to follow our reasoning to the points at which we wish to arrive – first, the absurdity, anomaly, and injustice of the present system; and, secondly, the necessity for a complete and speedy remodelment.

The direct burdens or taxes upon agricultural produce, by far the most important, permanent, and extensive branch of production in this country, are levied principally through the land. These are estimated as follows: —

It is foreign to our purpose at present to compare this amount with that of the direct and local burdens paid from manufactures, though it may be useful to recollect that the latter amounts only to £4,432,997, being less than a third of the sum derived from the other. What we wish the reader to observe is, that the sum of fourteen and a quarter millions is a primary fixed burden upon the land, and must, in the first instance, be levied from the land's productions.

But the cost of production is further increased by the effects of indirect taxation. More than one half of the fifty-five millions which constitute the public revenue – twenty-eight and a half millions, arise from taxes imposed on the following articles of consumption – spirits, malt, tobacco, tea, sugar, and soap. All these are consumed principally by the labouring classes, and must be paid for out of produce in the shape of wages. Consequently, in addition to the prime cost of produce and the profit of the grower, the consumer does or ought to pay that portion both of direct and indirect taxation which is leviable according to justice, and distinctly levied by the State on the article which he purchases. To make this matter more plain, let it be understood that every quarter of wheat grown in Great Britain, before it can be brought to market, is charged with a portion of the direct taxes which we have enumerated above, and also of the indirect taxes which come through the labourer; and that these are positive burdens levied by the State for the public service and the payment of the national obligations. Now, mark the anomaly. The cry is raised for cheap bread, and it appears that cheap bread can be obtained by importing grain free of duty from abroad. A law is passed allowing that importation, and an immense quantity of corn is immediately thrown into the British markets. But on the production of that corn on a foreign soil, no such charges are leviable as exist here. Direct burdens on the lands do not, in many countries, exist; and in no country save our own are indirect taxes levied to the same amount upon articles indispensable for the labourer's consumption. The excise duty on soap alone – in 1848, close upon a million – is said to cost each labouring man in this country a week's wages in the year. What is the consequence? The foreign grain is brought into this country, and exposed at a price which immediately drags down the value of British grain. If the supply were limited, the power of the foreign grower to exact an enormous profit might in some measure tend to counteract the evil; but the supply being unlimited – not confined to one locality, but extended to two continents – there arises a competition between foreign markets for the supply, which drags down prices still more. The farmer, when he complains of the ruin which has overtaken him, and the writer who advocates the cause of Native Industry, when he points out the disastrous consequences which must arise from the pursuance of such a course of policy, are met – not by argument, but by flippant and contemptible sneers. We are asked "whether we object to have our food cheap?" – "whether plenty is a positive evil?" – and so forth: questions which only expose the shallowness and the imbecility of the inquirers. We have no objections to cheap bread – quite the reverse – provided you can have that consistently with putting the British grower upon an exact level or equality with the foreigner. Take off the direct taxes on land, and the indirect taxes which bear upon the labourer; persuade the manufacturers, now so uncommonly prosperous, to defray the interest of the national debt; clear away customs and excise duties on malt, tea, tobacco, sugar, and soap: and then – but not till then – will we join with you in your gratulation, and throw up our caps in honour of your veiled goddess of Free Trade.

Two things cannot be doubted – the existence of such burdens here, and their non-existence abroad. Well, then, let us see if Britain possesses any peculiar counterbalancing advantages. Our climate, it will be conceded, is later and more uncertain. This remark applies even to the south of England, which is but a section of the corn-growing districts. In Scotland we notoriously struggle under vast climatic disadvantages. Capital may be more easily commanded than elsewhere; but then, people seem to forget that in order to have the use of capital it is necessary to pay interest, and the payment of that adds materially to the cost of rearing produce. We are said to have more skill – and we believe it in part; but if we farm better, we farm also more expensively; and those who are now our competitors have had the full benefit of our experience without the corresponding risk and loss. As for freights, these are as low from ports in the Baltic as they are from many of our corn-growing districts to the nearest available market. If there are any other points for consideration, we shall be glad to hear them; but we know of no other: and the upshot of the whole is, that our landowners and farmers are now expected to compete on equal terms with the foreigner in the home market – the equality consisting in the produce of the former being taxed directly and indirectly to an amount certainly exceeding two-thirds of the whole national revenue, whilst that of the latter is admitted tax free, on payment of the merest trifle!

"All these," says the Free-trader calmly, "are exploded fallacies!" Are they so, most excellent Wiseacre? Then tell us, if you please, where, when, and by whom they were exploded? Admirable Solon as you esteem yourself – and we admit that you are qualified for the Bass – it would puzzle you, with the aid of all the collective wisdom you can gather from the speeches or writings of Cobden, Bright, Wilson, Peel, or your daily organs of information, to refute one single proposition which has been here advanced, or to negative a single conclusion. Do you deny that the burdens we have specified exist in Britain? You cannot. Do you deny that the wheat-growing countries from which we now receive our principal supplies are exempt from similar charges and taxation? You cannot. Do you deny the truth of the economical proposition, that all burdens and taxes imposed by the State upon any kind of produce are proper elements of the cost of production, and ought to be paid by the consumer? You do not. Well, then, will you venture to aver that, at present prices, wheat being at 42s. 2d. per quarter, according to the average of England, or at any period which you may choose to specify within the last eighteen months, the purchaser of British wheat has repaid the grower of it the whole cost of its production, comprehending the full amount of its direct and indirect taxation? If you venture to say Yes, then you are at issue, in point of fact, with your own vaunted authorities, Sir Robert Peel, Wilson of the Economist, and every writer of the best ability on your side, none of whom have supposed that wheat can be grown in this country with a profit at a lower rate than 52s. 2d. per quarter, whilst others assume the minimum rate to be 56s. If you answer No, the whole question is conceded.

The fact is, that our opponents, if they had the least regard for common decency, ought to be chary of talking about exploded fallacies. We should like to know on which side the burden of the fallacy lies? Have we not, even within the last six months, seen long and elaborate articles in the leading Free-Trade journals, assuring us that wheat was rising, and must rise to a profitable point? Was not this argued over and over again in the columns of the Economist, with such an array of statistical authorities as might have overcome the conviction of the most desponding farmer? Where are the assurances now, and the arguments to prove that a free importation of foreign corn would simply have the effect of steadying, and not of permanently depressing prices? And yet these men, as miserably detected and exposed as Guy Fawkes when dragged from the cellar, have the consummate assurance to talk about "exploded fallacies!"

But we must not suffer ourselves to be led away from the point which we were discussing. What we wish to enforce is the fact, that at present there are no fixed principles whatever to regulate the taxation of the kingdom; and we have brought forward the case of the agriculturists, not being able to find one more important or strictly apposite as a remarkable illustration of this. Taxation remains the same, notwithstanding the operation of a law which has produced a violent and permanent change in the value of agricultural produce. Now, if produce is accepted as the real thing to be taxed – and you can truly tax nothing else, since all taxes must be paid from produce – can this be just and equitable? Certainly not, if your former mode of taxation was likewise just and equitable. The agriculturist who was secured by law against unlimited foreign competition, might calculate on selling his hundred quarters of wheat for £280, on an average of years, and could therefore pay his taxes. You change the law, bring down the value of his wheat to £200, and yet charge him the same as before. How can his possibly be otherwise than a losing trade? Then mark what follows. We have said that no kind of produce whatever can be remunerative unless the consumer of it repays the grower the full cost of production, along with the grower's profit, and the whole of the direct and incidental taxation to which it is liable. In the case of corn this cannot be, because you now admit to the British market grain which is exempt from all taxes, and grown at far less cost than here, and the competition so engendered drags down the price of British corn far below the remunerative point, consequently the consumer does not pay the charges and costs of production, (taxes inclusive,) and the farmer goes to the wall. Such is the plain and inevitable course of things; and those who sneer at the tales of agricultural distress will do well to examine the matter dispassionately for themselves, and see if it can be otherwise. Very possibly it may never have occurred to them – for it does not seem to have occurred to our statesmen – that the indirect taxation of the country is at least as great an element in the cost of produce as that which is direct. Nevertheless it is so. The beer which the labourer drinks, the tobacco which he smokes, the tea and sugar used by his wife and family, the soap which washes their clothes, and many other articles, all pay toll to Government, and all contribute to the cost of the grain. And if the grain when brought to market will not pay its cost, there is an end not only of British agriculture, but of the best part of the revenue which at the present time is levied from the customs and excise!

Sift the matter as closely as you will – the more closely the better – and you can arrive at no other conclusion than this, that in the long run all taxation must necessarily be levied from produce. If so, what is the inference? Clearly this, that you cannot permanently levy taxation except upon a scale commensurate to the value of produce.

If the value of production is lowered, the power of taxation must decrease in the same ratio. Cheap bread then ceases to advantage the consumer; for that amount of taxation which was formerly levied from the production of corn in this country, must necessarily, since taxes have a fixed money value, be raised from something else – that is, from some other product – if any can be found adequate to sustain the burden. Towards this consummation we must gradually tend by the operation of an inevitable law, unless the eyes of our statesmen, and also of the constituencies of Britain, are opened to the extreme folly of the course which we are just now pursuing. In pure theory no one can object to Free Trade. It is a simple rule of nature, and a fundamental one of commerce, the free exchange of superfluities among nations. But taxation alters the whole question. We are not now, as before the Revolution of 1688, free from debt as a nation, and at little annual cost for the maintenance of our establishments. By an arrangement, in which the present generation certainly had no share, we have taken upon us the debts not only of our fathers, but of our ancestors of the third and fourth generation, and have become bound to pay the annual interest of the expenses of wars, the very name of which is not familiar in our mouths. The annual amount of taxation necessary for that purpose has heightened the price and value of all commodities in Britain, and consequently, by rendering living more expensive, has increased the cost of our establishments. How, then, is it possible, under such circumstances, to have free trade? You may have it, doubtless, in one article, or in many – that is, you may have free importations, but that is not free trade; nor can it exist until you have abolished the last farthing of customs duties at the ports. Well, then, let us suppose this done; let us assume that every article of foreign produce is admitted duty-free: the question still remains, how are you to raise the fifty-five millions for the public revenue, and a still further enormous sum for local taxation, including the maintenance of the established churches, the poor and county rates, and all the other necessary charges? It obviously cannot be done from capital, without gradually, but surely, making capital disappear altogether. It must be done from income; and income, as we have seen, is entirely dependent upon the value of produce. Agricultural production, estimated at the former prices, was calculated to amount to £250,000,000 annually. That can no longer be calculated upon. £91,000,000, according to Mr Villiers, was the amount of the depreciation in a single year; and as the net rental of Great Britain and Ireland is under £59,000,000, it is plain that, supposing all rents were abolished, the tenantry must expect to draw £32,000,000 less than formerly, a depreciation which evidently would leave no room for taxation whatever. We must, however, upon the supposition above stated, that all customs duties are abolished, (and we shall include also the excise,) deduct from this latter sum the amount of the labourer's consumption of articles formerly taxed. In order to avoid cavil, we shall estimate the number of the agricultural labourers, with their families, at 10,000,000; and as the customs and excise duties together amount to about £30,000,000, we take off £11,500,000 as the labourer's proportion. This is greatly above the mark; but it will serve for illustration. It reduces the tenant's loss, after extinction of the rents, to £20,500,000 annually.

Next, let us see what manufactures would or could do for maintaining our public establishments, and discharging our engagements to the national creditor. It will, we think, be shortly conceded, if it is not so already, that agricultural distress cannot possibly stimulate the consumption of manufactures in the home market. That market, indeed, depends entirely upon agriculture, because we have no other very important branch of produce which can furnish it with customers. Without agriculture the home trade must utterly decay; and as for the foreign trade, it is enough to observe, that in the very best year we have yet known (1845) we exported goods from this country to the value of just £60,000,000, being only £5,000,000 more than the amount of our yearly revenue, independent altogether of the large local taxation.