Charles Babbage.

Thoughts on the principles of taxation, with reference to a property tax, and its exceptions online

. (page 1 of 2)
Online LibraryCharles BabbageThoughts on the principles of taxation, with reference to a property tax, and its exceptions → online text (page 1 of 2)
Font size
QR-code for this ebook


LIBRARY

OF THE

UNIVERSITY OF CALIFORNIA.

Class



^Wra$^Wflraw*5



S% , SRpi ^W 3-5% K-;

kT'Jlr ^.IX^IL^liL .Cl.^f^Sar?) ilffwl> ^A(S^



r G-



THOUGHTS



THE PRINCIPLES OF TAXATION,



WITH REFERENCE TO



A PROPERTY TAX,



ITS EXCEPTIONS.



CHARLES BABBAGE, ESQ.



SECOND EDITION, WITH ADDITIONS.



a "c.

f UNIVERSITY )

< /FORK



JOHN MURRAY, ALBEMARLE STREET.

1851.



" FIDDLE a son caractere, Napoleon ne craignit pas, Ic jour m6me oil
il briguait le tr6ne, de rgtablir, sous le nom des droits-r6unis, le plus
impopulaire, maia le plus utilc des impCts.

" II en fit la premiere proposition au Conseil d'Etat, et il y soutint
avec une sagacit6 merveilleuse, comme si les finances avaient 6te l'6tude
de sa vie, les yrais principes de la matiere. A la the"orie de 1'impot
unique, reposant exclusivement sur la terre, exigeant du fermier et du
proprietaire la totalite de la somme ne"cessaire aux besoins de 1'Etat, les
obligeant a en faire au moin.s 1'avance dans la supposition la plus
favorable pour eux, celle ou le renchdrissement des produits agricoles
les dedommage de cette avance, a une the'orie aussi follement exa-
geree, il opposa la theorie simple et vraie de UmpOt habilement diversifie,
reposant a la fois sur toutes les propri6te"s et sur toutes les industries,
ne demandant a aucune d'elles une portion trop considerable du re-
venu public, n'amenant par consequent aucun mouvement force dans
les valeurs, puisaut la richesse dans tous les canaux ou elle passe abon-
dammcnt, et puisant dans chacun de ces canaux, de maniere a ne pas
produire un abaissement trop sensible

" Ce systeme, fruit du temps et de 1'experience, n'est susceptible que
d'une seule objection : c'est que la diversite" de I'imp6t entraine la diver-
site" de la perception, et, des lors, une augmentation des frais : mais il
presente tant d'avantages, et le contraire estsi violente, que cette legere
augmentation de frais ne saurait fitre une consideration sgrieuse."
Histoire du Consulat et de T 'Empire, par M. A. Thiers, vol. v. p. 162.
8vo. ed.



GENERAL



PREFACE.



THE approaching discussion respecting the in-
come tax induces me to reprint, with a few addi-
tions, some thoughts on the principles of Taxation,
which appeared about three years ago. That
pamphlet, translated into Italian, has recently
been published at Turin, by a gentleman who has
done me the honour of appending to it many
interesting comments adapted to the circumstances
of his own country.

I am the more inclined to reprint this
pamphlet, because of the prevalence of what
I conceive to be unsound principles, even in quar-
ters where it should be the least expected. I re-
gard the large exemptions from the tax admitted
in the present act as leading directly towards
Socialism; and disapproving of the excessive
clamour which has been raised against some taxes,
in themselves sufficiently impolitic, I cannot ap-

A

108302



IV

prove of the policy of substituting for them other
taxes which are unjust in principle.

The attempt in the late budget to substitute
what was called a house-tax instead of the window-
tax, was most unjust. It rendered permanent on
old houses an impost which was singularly heavy
and partial ; whilst its imposition on new houses,
at a fixed per-centage on the rent, gave a most
unfair preference to different classes of the same
species of property.

March 1851.



THOUGHTS,



THERE are two essential grounds on which all
legitimate taxation ought to rest

1st. The Protection of property.

2d. The Protection of the person.

I. It is obvious, as a general principle, that all
taxation ought to be proportioned to the cost of the
service for which the taxes are paid. If it were
otherwise, some portion of the people would be com-
pelled to pay for services which they do not receive.

But it is equally obvious that the cost and
difficulty of applying this general principle must
put a limit to the extent to which it is politic to
carry it into detail. Ships are liable to peculiar
dangers from the elements, for protection against
one portion of which they pay a special tax to
support lighthouses, beacons, and other means of
contributing to their security when near the coast.
These means are useless for the protection of houses,
which, therefore, are not subject to payment for



6

them. But both houses and ships are subject to
damage and destruction by fire, and other accidents.
Against such misfortunes the owners of both can
insure themselves, and will pay to the Insurance
Companies in proportion to the nature of their
risks.

II. With respect to the expense of protecting
personal liberty, some difficulties arise. It may
be contended that the personal liberty of a poor
man costs as much for its protection as that of a
wealthy man or of a peer. If this be admitted,
then it follows that a fixed sum might be charged
on each individual, as a poll-tax, for his personal
protection. But it would be impossible to raise
any large sum by such means : because, unless the
tax were very small, a considerable portion of the
population would be absolutely unable to pay it.

On the other hand, it may with some plausibility
be maintained, that the value to any man, of his
personal liberty, is in proportion to the amount of
property he possesses. It is by no means an un-
common event, that a poor man is convicted of a
crime of which he is guiltless, simply from his want
of money to pay for legal assistance and to bring
into the presence of his judge the witnesses of his
innocence. It is painful to reflect on the instances
in which innocent persons have thus suffered even
the extreme penalty of the law. But who ever
heard of such calamities happening to a rich man ?
Amongst those convicted of minor felonies, such



instances are more frequent. In a newspaper even
of this morning* I observe that the innocence of a
man convicted in 1845 of stealing a horse and gig
is established, by the confession of another convict
in Van Diemen's Land, that he alone was the real
thief. In the mean time the unjustly convicted
person, who had conducted himself with great pro-
priety during his confinement in Pentonville prison,
went as an exile to Australia. This deeply injured
and ruined man will now probably receive a pardon ;
a word, which in the English language means the
forgiveness of an injury done by the person to whom
it is granted but which, to the disgrace of English
law, implies in such cases an admission that a deep
and an unatoned injury has been done by the
institutions of the country to the person pardoned, f
Undoubtedly ample reparation ought to be made
for such sufferings, and as far as money can be a
compensation, it ought to be liberally bestowed.
The law has already granted compensation to indi-
viduals injured by accidents arising from negli-
gence as in the instance of railroads ; and in case
of death, it gives the same redress even to the
relatives of the sufferer. Why should not a similar
relief be given, through the intervention of a jury,
to men who have been wrongfully injured in their

* The first edition was published in 1 848.
t " Forgiveness to the injured does belong,

But thej ne'er pardon who commit the wrong."

DEYDEN.



8

person, their character, and their feelings, by an
unjust or a mistaken conviction ?

The care taken by the legislature for the protec-
tion of property was curiously contrasted in some
recent cases, with that which is bestowed on the
protection of person.*

From such examples it would seem that the esti-
mated value of the personal liberty of the poorer
classes is very small. If so, any payment on this
ground must also be small, and therefore might be
neglected in considering the question of taxation.
But if, as appears to be the more reasonable view,



* Not many months ago the public were informed, that a
free pardon had been granted to a convict whose innocence
had been clearly proved, after he had suffered some part of his
sentence in Van Diemens Land, and that on his return to this
country the Government had presented him with ten pounds ! ! !
Much about the same time the public were reminded that cer-
tain offices connected with the Court of Chancery, which re-
quired but little industry and small talent in their possessors,
and had long been greatly overpaid, were to be abolished by a
decision of the House of Commons, and compensation was of
course to be made to the holders. To one of these officers
a pension of six thousand a-year for life was awarded, and an
annuity of three thousand a-year to his executors for seven years
after his death.

This is unfortunately not a solitary instance of lavish
extravagance on the part of a weak government, to conciliate
a powerful interest. Can any reasonable being be surprised
at the low estimate which is formed of the public integrity of
the leaders of party, when such profligate expenditure is con-
trasted with the " pittance" meted out to science by those who
are always ready, when pressed, to deplore the insufficiency,
yet ever indisposed, when urged, to attempt its remedy.



9

the expense of protecting the personal liberty of the
wealthy classes bears practically some definite pro-
portion to their means, then the two grounds of
taxation follow the same law.

I shall therefore assume in the following'pages

That taxation ought to be proportional to the
cost of maintaining those institutions, without
which neither property nor industry can be pro-
tected, or even exist.

The first question which arises in the application
of this general principle is, whether a portion of the
property of the country shall be taken once for all
and applied to the purposes of the Government : or
whether certain sums shall be collected at periodical
intervals.

The objections to the first of these alternatives
are insuperable. It provides only for the protection
of that property and those interests which exist at
the time of the first arrangement, whilst the amount
requisite for protection is a continually varying
sum, which no human foresight can predict. If a
portion of land is set apart for this purpose, it is
usually less improved than that which is in the
possession of private owners. All civilized Govern-
ments have therefore adopted periodical payments
of their revenue, and all their accounts are annual.
We may therefore assume that taxation ought to be
annual. And if so, its amount must, of course, be
regulated by the sum required for the protection of
property during one year.



10

It has been objected to this view of the question,
that annual taxes raised for purposes of protection
ought not to be expended on permanent structures.
The answer is, that a certain portion of the expen-
diture being so employed, the average amount
required annually will be considerably reduced.

We have now, therefore, arrived at the principle,
that each person ought to be taxed annually for the
protection of his personal liberty and property
during that year. It may be observed, that the
things to be protected by the taxation during that
year are the income, the advantages, and the enjoy-
ments resulting from property, or from the institu-
tions of the State. This view directly leads to an
income-tax. But without insisting on this infer-
ence, there are other reasons which show that the
amount of annual taxation for securing the enjoy-
ment of property during each year, ought to be in
proportion to its produce.

The power of enjoying property of every kind,
depends entirely on the conventions of Society.
Whether a man derives an income from an heredi-
tary estate, from a permanent or a temporary
annuity in the funds, from the produce of his
brain in scientific and literary productions, from
the sale of his acquired personal knowledge in
medicine and in the law, or from the same know-
ledge applied to the employment of capital by the
merchant or the shopkeeper, it is equally essential



11

for the receipt of his annual income that those laws
and institutions, without which his profit could not
arise, should be maintained during that year.

Although in the preceding discussion the two
grounds of protection of person and of property
have been assumed as comprising the whole func-
tions of Government, this limitation is not essential
to the argument. Since whatever may be the
objects for which Government is instituted, it is
certain that, in order to maintain it, an annual
sum of money is raised, which is expended in
annual payments, under various conditions ; as, for
example

Annual salaries to all persons employed by the
State. These are less in amount, because it has
been found more economical to give retiring pen-
sions after certain periods of service. Thus each
generation pays for the past, and in return its own
retired officers are paid by the next.

Another portion of revenue pays for the rent
of the various buildings required for the use of
Government. There again it has been found less
expensive to purchase than to rent them; con-
sequently the annual expenditure is reduced to the
repairs and enlargement of public buildings.

The materiel of the Navy and Army is paid for
in the same way. The decay and reparation are
met by annual expenditure.

The result of the whole is, that through this
expenditure it becomes possible for the individual



12

to acquire and enjoy the produce of lands, the
rent of houses, fisheries, &c., and to receive the
dividends of his funded property ; whilst it enables
the Government to protect all trades and profes-
sions, so that those occupied in them shall earn
their livelihood in security during that year.

The expenditure then may fairly be considered
as annual ; and since all these annual consequences
can be measured by one common standard, namely,
money, it seems difficult to propose any other mode
of contribution towards it more fair than

That each class of persons should pay in propor-
tion to the money value which, in consequence of
these arrangements, it receives during the year.

Now, during a series of years, the annual profit
of each trade, profession, or class respectively, is
little less fluctuating than that arising from the
rents of houses or lands, and much less so than
that from railways. Some very few trades be-
come slowly extinct, whilst new ones as slowly
arise; but these changes are gradual, and easily
foreseen.

The individuals who practise these trades and
professions who in fact profit by these institu-
tions ought of course to contribute to their sup-
port ; but those contributions should terminate
with the advantages they reap from them.

As to the way in which each individual may
choose to expend the income he receives, it can-
not legitimately be made the subject of taxation.



13

Each will apply his portion in that expenditure
which he considers most advantageous to himself.
If he possesses no other source of income, and is
prudent, he will invest a considerable portion of
his income, in order to support himself in illness
and old age, or to leave to his surviving relatives
at his death.

It is frequently urged that it is unjust to tax
a man who has an annuity of 100 for a limited
number of years, equally with another person who
possesses the same in perpetuity. But the tax is
really paid in each case for the annual security of
the property ; and if he who held the perpetual
annuity were taxed more than the other, he might
justly complain that he is taxed for being richer
than the other. Besides, when the annuity to the
temporary holder ceases, it reverts to the grantor,
who then pays an equal annual sum for its pro-
tection.

If the person receiving an annuity of 100 for
life from the funds, does not pay the same tax
annually as the man who possesses the perpetual
annuity, the following injustice will take place.
Supposing the annuity has been left by will to
half-a-dozen persons in succession, to each during
his own life ; it may then happen that, during
sixty or eighty years, a portion of that money
which is necessary for the annual maintenance even
of the funds themselves will be unjustly charged
upon other persons.



14

It is a frequent subject of complaint by pro-
fessional men, that their uncertain income, depen-
dent on health and other accidental circumstances,
pays the same tax as that of the landowner. But
it must be observed, that, although the income is
precarious to the individual, its protection is not
less costly to the State ; and that in whatever
way the income may be distributed amongst the
members of a profession, the total amount of it to
the whole profession is in general quite as perma-
nent as that of the landlord, and more certain in
its payment. The average annual income received
by the whole Bar, and by its various members who
have been advanced to the innumerable places to
which that profession leads, varies but little, and is
certainly much better paid than the rental even of
the most fortunate landlord. The income of both
depends on the security of property, and the sup-
port during the year of the usual institutions of
the country. Those who enter the profession of
the law are aware of the permanence of its general
income, and cannot fairly complain of being obliged,
during the period in which they are profiting by its
use, to contribute their full share towards the sup-
port of those institutions on which the existence
of their profession depends.

The same argument applies, more or less in
degree, and entirely in principle, to all other pro-
fessions and trades. It is sometimes urged, that
men wih 1 be ill and require medical aid, whether



15



any form of government exist or not. Certainly
this is so : but unless the medical man can reach
his patients and return in safety (for which pro-
tection he must sacrifice a portion of his gains), he
can neither receive food from his patient to support
his own life to-day, nor a fee to supply the wants
of himself and his family on the morrow.

In fact, it appears that the cost of protecting
the small capitalist is greater in proportion to
the amount of his capital than that required
by the larger holders. The Barings and the
Rothschilds can with facility transfer their capital,
or at least a large portion of it, to the protection of
other states, the moment their keen practical eyes
perceive the slightest commencing insecurity in the
institutions of their own. The helpless vendor of
apples at tlie corner of the street has no such
resource. Without the protection of a powerful
and expensive police, her humble store would be
hopelessly exposed to the plunder of every passing
vagabond. One most important step will have
been made in the difficult art of government, when
education shall have fully impressed this fact on
the labouring classes of society.

Two questions of great importance arise in
contemplating a tax upon income :

1st. As to the amount of the tax on a given
amount of income ; or, in other words, its rate per
cent.



16

2d. The amount of income, if any, which shall
be exempted from taxation.

1st. If the income tax be very high, there is
no doubt whatever that it will be considerably
evaded in its collection. It may, therefore, be-
come a most unequal tax, and consequently a
most unjust one. It would in fact, under such
circumstances, be wholly "deprived of the support
of that argument on which its existence has been
advocated. Its injustice would be greater, because
it would fall with unmitigated force upon the most
helpless and the most upright members of the
community.

Another evil resulting from a high rate of tax
upon income is perhaps of more dangerous con-
sequence, from its being less open to observation.
Its necessary effect will be, the transfer of capital
from tkis to other countries. No laws however
stringent can prevent this consequence, nor follow
the transported capital to its adopted home, and
there tax its annual produce. The injustice of a
government taxing capital which it does not pro-
tect, would remove from the minds of its possessors
the impediment of moral wrong ; and the sagacity
of commercial enterprise would soon place that
capital far beyond the grasp of the most rapacious
chancellor of the exchequer, even with all the aids
which legal ingenuity could devise.

The evil effects of such an abstraction of capital
might be at first almost imperceptible ; they would



17

be slow, but certain and cumulative. The impost
itself would fall more heavily than before on the
capital remaining at home, crippling the manufac-
turing enterprise of the country, and pressing with
severity even on that labouring population whose
means are so small that they are nominally exempt
from its infliction. Extended information amongst
the masses is the best antidote to these evils, as
well as the most faithful trustee of the interests of
truth.

2d. The second question is, The amount of
income which shall be exempt from taxation. Here
it may be observed, that there are two limits. 1 . It
is obviously impolitic to allow any tax to descend
below the point at which the cost of collection
exceeds the produce. 2. It is also hopeless to
attempt to collect it from those whose entire income
just enables them to subsist. The remission of
the tax might in the latter case be looked upon as
an act of charity.

I shall at present refer only to the economical
ground of national charity, of poor rates, and of
other similar institutions, because it is of import-
ance that the operation of the principles of morals
and of economy should be investigated separately,
before their united action in any system of govern-
ment is examined. Whenever, for the purposes of
government, we arrive, in any state of society, at
a class so miserable as to be in want of the com-
mon necessaries of life, a new principle comes into

B



18

action. The usual restraints which are sufficient .
for the well-fed, are often useless in checking the
demands of hungry stomachs. Other and more
powerful means must then be employed ; a larger
array of military or of police force must be main-
tained. Under such circumstances it may be
considerably cheaper to fill empty stomachs up to
the point of ready obedience, than to compel
starving wretches to respect the roast-beef of their
more industrious neighbours : and it may be
expedient, in a mere economical point of view, to
supply gratuitously the wants even of able-bodied
persons, if it can be done without creating crowds
of additional applicants.

In considering the minimum of income on
which a tax should be imposed, the effects of
exemption ought to be thoroughly examined.
These effects have hitherto received little atten-
tion, although pregnant with danger of the most
fatal kind.

The present generation have little notion of
the intense feeling of antipathy with which the
income tax of ten per cent., existing about a third
of a century ago, was then viewed, nor of the
popularity which was acquired by its subsequent
abolition, and by the measure which accompanied
its extinction, of destroying as far as possible every
record tending to an exposure of the circumstances
of individuals.



19

The exemption at that time extended to all in-
comes under 50 but on its renewal in later
times, far more extensive exemptions were admitted :
all incomes under 150 were expressly exempted.
But even this sacrifice of principle was not
thought sufficient ; and by the same statute it
was enacted, that a farmer who paid 300 a-year
rent for his farm should be deemed to make a
clear income equal to one-half only of that sum.
So that every farmer not possessing other sources
of income than a farm, whose rent is less than
300 a-year, is at this moment exempt from
income tax.

The machinery for collecting the income tax is
not expensive ; and whether the amount of the tax
itself is five or twenty-five per cent., the cost of its
collection need not be much augmented. This fact
alone is a tempting inducement to a chancellor of
the exchequer to have recourse to its increase when-
ever increased expenditure becomes necessary, or
whenever a deficiency in the revenue is apprehended.

It is unfortunate, that by the very nature of the
exemptions from the income tax, a large number of
the electors of this country have a direct pecuniary
interest in preferring its augmentation to any other
mode of taxation. In consequence of these unjust
and unstatesmanlike exemptions, numbers of elec-
tors will urge their representatives to pledge them-
selves to oppose all other taxes : and the ultimate


1

Online LibraryCharles BabbageThoughts on the principles of taxation, with reference to a property tax, and its exceptions → online text (page 1 of 2)