been abolished, because the expense of collecting them, or the expense of distinguishing between the better and the cheaper descriptions of a single article, made them nearly wholly unproductive. But, on the whole, the strong leaning of our present system in favour of the poor cannot reasonably be questioned; and it becomes still more apparent when we consider not merely the sources, but the application, of the taxes. The protection of life, industry, and even property, is quite as important to the poor man as to the rich, and the most costly functions which Governments have of late years assumed are mainly for his benefit. Primary education, the improvement of working-men's dwellings, factory inspection, savings banks, and other means of encouraging thrift, are essentially poor men's questions.

Adam Smith, in a well-known passage, has laid down the principle on which, in strict equity, taxation should be levied. The subjects of every State ought to contribute to 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. The expense of government to the individuals of a great nation is like the expense of management to the joint-tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate.'1

According to this principle, the man with 1,000l. a year should pay ten times the taxes of a man with 1007. a year, and the man with 10,000l. a year ten times the taxes of a man with 1,0007. a year. In the words of Thiers, Every kind of revenue, without exception, ought to contribute to the needs of the State, for all depend upon it for their existence. Every exemption

6

1 Wealth of Nations, Book v. chapter ii.

from taxation is an injustice. . . . The true principle, which was established in 1789, is that every man, without exception, in proportion to what he gains or what he possesses, should contribute. To exempt labour in order to strike property, or to tax property in exorbitant proportions, would only be to add a new iniquity as great as that which was abolished in 1789. . . Society is a company of mutual insurance, in which each man should pay the risk in proportion to the amount of property insured. If he has insured a house of the value of 100,000 francs (the rate being 1 per cent.), he owes 1,000 francs to the company. If the insured house is worth a million, he owes 10,000 francs. Society is a company, in which each man has more or less shares, and it is just that each should pay in proportion to their number, whether they be ten, or 100, or 1,000, but always according to the same rate imposed on all. There should be one rule for all, neither more nor less. To abandon this would be as if a merchant were to say to his customers, "You are richer than your neighbour, and must therefore pay more for the same goods." It would only lead to endless confusion, and open out boundless, incalculable, possibilities of arbitrary imposition.'1

The great majority of serious economists have, I believe, agreed that, as a matter of strict right, this doctrine is the true one. Adam Smith, however, clearly saw that human affairs cannot, or will not, be governed by the strict lines of economic science, and he fully recognised that it may be expedient that taxes should be so regulated that the rich should pay in proportion something more than the poor. In England, the system of graduated taxation which I have described has

La Propriété, livre iv. chaps. ii., iii.

passed fully into the national habits, and is accepted by all parties. The taxation of luxuries, as distinguished from necessaries, has been productive of much good, and is much less liable than other forms of graduated taxation to abuse. The exemption of small incomes from all direct taxation undoubtedly brings with it grave dangers, especially when those who are exempted form the bulk of the electorate, and are thus able to increase this taxation to an indefinite extent, without any manifest sacrifice to themselves. At the same time, few persons will object to these exemptions, provided they are kept within reasonable limits, are intended solely as measures of relief, and do not lead to lavish expenditure. It does not necessarily follow that, because a class are a minority in the electorate, they are in grave danger of being unduly taxed. As long as they still form a sufficiently considerable portion to turn the balance in elections, they have the means of vindicating their rights. It is the duty of the Government to provide that the taxes are moderate in amount, and are levied for the bona fide purpose of discharging functions which are necessary or highly useful to the State. There is, however, another conception of taxation, which has of late years been rapidly growing. It has come to be regarded as a socialistic weapon, as an instrument of confiscation, as a levelling agent for breaking down large fortunes, redistributing wealth, and creating a new social type.

The growing popularity of graduated taxation in the two forms of an exemption of the smaller incomes from all direct taxation, and of the taxation of large incomes on a different scale or percentage from moderate ones, is very evident, and it is accompanied by an equally strong tendency towards a graduated taxation of capital and successions. Precedents may, no doubt, be

1

found in earlier times. A graduated income-tax existed in ancient Athens, and was warmly praised by Montesquieu. Graduated taxation was imposed with much severity and elaborated with great ingenuity in Florence in the fourteenth, fifteenth, and sixteenth centuries. But it is chiefly of late years, and since democratic influence has predominated, that the question of graduated taxation has been pushed into the forefront. It exists, though only to a very moderate degree, in Prussia and most of the German States, and a Prussian law of 1883 considerably enlarged the number of exemptions. It prevails in slightly different forms in a large number of the Swiss cantons, and especially in the cantons of Vaud, Zurich, Geneva, Uri, and the Grisons. Thus, in the Canton de Vaud real property is divided into three classes-properties of a value not exceeding 1,000l., properties that are valued between 1,000l. and 4,0007., and properties of a value above 4,0007. The first class are taxed at the rate of 17., the second at the rate of 17. 10s., and the third at the rate of 27. per 1,000l. Personal property is divided into seven classes, each of them taxed at a separate rate. Fortunes exceeding in capital value 32,0007., and incomes exceeding 1,6007., are subject to the highest rate. In Zurich a different system is adopted. Though both capital and income are progressively taxed, the rate of that tax is the same for all, but the amount liable to taxation becomes proportionately larger as the fortune or the income increases. Thus, five-tenths of the first 8007. of a capital fortune, six-tenths of the next 1,2007., seven-tenths of the next 2,0007., eight

'Leroy-Beaulieu Traité des Finances, i. 139 74; Say, Solutions Démocratiques de la Question des Impôts, ii. 184-224.

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. 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

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

New Zealand Official Year

Book, 1894, pp. 245-47.

3 Dilke's Problems of Greater Britain, ii. 277.

Ibid. pp. 278-79.