tenths of the next 4,0007., and ten-tenths of anything above it, are taxed.1

In the Netherlands the capital value of every fortune has, by a recent law, to be annually stated, and it is taxed according to that value on a graduated scale. Ten thousand florins are untaxed; after that the tax on capital gradually rises from one to two in a thousand. There is also a progressive tax on revenue, but with exemptions intended to prevent capital from being twice taxed. In New Zealand and the Australian colonies there is much graduated taxation, chiefly directed against the growth of large landed properties. In New Zealand the ordinary land-tax is thrown upon 12,000 out of 90,000 owners of land. There is an additional and graduated land-tax on properties which, after deducting the value of improvements, are worth 5,0007. and upwards. It rises from d. to 2d. in the pound, and there is also a special and graduated tax on absentees. The income-tax is 6d. in the pound on the first taxable 1,0007., and 1s. in the pound on higher rates." In Victoria there is a graduated succession duty, varying from 1 to 10 per cent.3 In France the question of graduated, or, as it is called, progressive, taxation has of late been much discussed; but, with the exception. of a graduated house-tax, attempts in this direction have, until quite recently, been defeated. In the United States, as I have noticed in a former chapter, proposals for graduated taxation have received a serious check in the decision of the Supreme Court in 1894, which appears to establish that, in the imposition of direct Federal taxation, the Congress must only recognise

1 See a Foreign Office Report on Graduated Taxation in Switzerland (1892).

2 New Zealand Official Year

4

State divisions and the number of citizens. During the war of secession, however, a graduated income-tax for a short time existed. The first war income-tax, which was established in 1861, taxed all incomes above 800 dollars at the same rate; but the second incometax, which was enacted in July 1862, established a system of graduation, which was, however, nearly all repealed in 1865. The English Budget of 1894 went far in the direction of graduated taxation, both by the additional exemptions granted in the income-tax and by the new system of graduation.

Recent discussions have made the arguments which have been adduced by economists against graduated taxation very familiar. It is obvious that a graduated tax is a direct penalty imposed on saving and industry, a direct premium offered to idleness and extravagance. It discourages the very habits and qualities which it is most in the interest of the State to foster, and it is certain to operate forcibly where fortunes approach the limits at which a higher scale of taxation begins. It is a strong inducement at that period, either to cease to work or to cease to save. It is at the same time perfectly arbitrary. When the principle of taxing all fortunes on the same rate of computation is abandoned, no definite rule or principle remains. At what point the higher scale is to begin, or to what degree it is to be raised, depends wholly on the policy of Governments and the balance of parties. The ascending scale may at first be very moderate, but it may at any time, when fresh taxes are required, be made more severe, till it reaches or approaches the point of confiscation. No fixed line or amount of graduation can be maintained upon principle, or with any chance of finality. The whole matter will depend upon the interests and wishes of the electors; upon party politicians seeking for a

cry and competing for the votes of very poor and very ignorant men. Under such a system all large properties may easily be made unsafe, and an insecurity may arise which will be fatal to all great financial undertakings. The most serious restraint on parliamentary extravagance will, at the same time, be taken away, and majorities will be invested with the easiest and most powerful instrument of oppression. Highly graduated taxation realises most completely the supreme danger of democracy, creating a state of things in which one class imposes on another burdens which it is not asked to share, and impels the State into vast schemes of extravagance, under the belief that the whole cost will be thrown upon others.

The belief is, no doubt, very fallacious, but it is very natural, and it lends itself most easily to the clap-trap of dishonest politicians. Such men will have no difficulty in drawing impressive contrasts between the luxury of the rich and the necessities of the poor, and in persuading ignorant men that there can be no harm in throwing great burdens of exceptional taxation on a few men, who will still remain immeasurably richer than themselves. Yet, no truth of political economy is more certain than that a heavy taxation of capital, which starves industry and employment, will fall most severely on the poor. Graduated taxation, if it is excessive or frequently raised, is inevitably largely drawn from capital. It discourages its accumulation. It produces an insecurity which is fatal to its stability, and it is certain to drive great masses of it to other lands.

The amount to be derived from this species of taxation is also much exaggerated. The fortunes of a few millionaires make a great show in the world, but they form in reality a very insignificant sum, compared with the aggregate of moderate fortunes and small sav

ings. Unless the system of graduation be extended, as in Switzerland, to very moderate fortunes, it will produce little, and even then the exemptions that accompany it will go far to balance it. It is certain, too, that it will be largely evaded. There is, it is true, a great distinction to be drawn in this respect between real and personal property. Land is of such a nature that it cannot escape the burden which is imposed on it, but there are many ways in which personal property can escape. Confidential arrangements between members of a family or partners in a business, foreign investments payable to foreign bankers, an increasing portion of wealth sunk in life annuities, insurances made in companies that are not subject to British taxation, securities payable to bearer, which it will be impossible to trace, will all multiply, and the frauds that are so much complained of in income-tax returns will certainly increase. No graver error can be made by a financier than to institute a system which is so burdensome and so unjust that men will be disposed to employ all their ingenuity to evade it. With the vast and various field of international investment that is now open to them they are sure, in innumerable instances, to succeed, and no declaration, no oath, no penalty will effectually prevent it. Taxation is, ultimately, the payment which is made by the subject for the security and other advantages which he derives from the State. If the taxation of one class is out of all proportion to the cost of the protection they enjoy; if its members are convinced that it is not an equitable payment, but an exceptional and confiscatory burden. imposed upon them by an act of power because they are politically weak, very many of them will have no more scruple in defrauding the Government than they would have in deceiving a highwayman or a burglar.

It would be pressing these arguments too far to maintain that a graduated scale of taxation is always and necessarily an evil. In this, as in most political questions, much will depend upon circumstances and degrees. It is, however, sufficiently clear that any financier who enters on this field is entering on a path surrounded with grave and various dangers. Graduated taxation is certain to be contagious, and it is certain not to rest within the limits that its originators desired. No one who clearly reads the signs of the times as they are shown in so many lands can doubt that this system of taxation is likely to increase. It would be hardly possible that it should be otherwise when political power is placed mainly in the hands of the working-classes; when vast masses of landed property are accumulated in a few hands; when professional politicians are continually making changes in the incidence of taxation a prominent part of their electioneering programmes; when almost every year enlarges the functions, and therefore the expenditure, of the State; when nearly all the prevalent Utopias take a socialistic form, and point to an equalisation of conditions by means of taxation. Under such conditions the temptation to enter upon this path becomes almost invincible.

It is a question of great importance to consider to what result it is likely to lead. To suppose that any system of taxation can possibly produce a real equality of fortunes, or prevent the accumulation of great wealth, seems to me wholly chimerical; though it is quite possible that legislators in aiming at these objects may ruin national credit, and bring about a period of rapid commercial decadence. Highly graduated taxation, however, is likely to have great political and social effects in transforming the character of wealth. It will