VIII. THE PRINCIPLE OF PROGRESSION IN TAXATION. MR. DAVID A. WELLS, the well-known free-trader, has recently published a vigorous protest against the growing abuse of the power of taxation in the United States1. To make the occasion for the exercise of this power other than necessity, and the object anything else than the raising of money for meeting the expenditure of a government economically administered, is, he considers, 'to strike a blow, not only at good government, but also at free government,' and he finds in the policy of protection, which has long ceased in the United States to be other than a 'pretence and a cover for the promotion of private interests,' an all-sufficient instance of the abuses to which such conceptions of the function of taxation are liable. In countries where the public wealth is less enormous, and where what is called the social problem is more pressing than in the United States, a wider and more menacing extension is being given to the purpose and function of taxation—an extension of which the significance has hardly been grasped in this country, although its effects are obvious enough in the rapidly growing demands upon the public purse. It is held by the school of German economists, led by Adolf Wagner, that taxation is to be valued chiefly for the effect it can be made to produce on the distribution of wealth. Social objects are to prevail over purely fiscal objects, and taxation 1 A Tariff for Revenue: What it really Means. Forum, September, 1892. is to be used as the principal and most powerful means of hastening the supersession of private property by collective ownership. That these ideas are shared by the preachers of the new social gospel in England it would be easy to show; it is perhaps sufficient to quote a passage from a recent work by a writer of this school1. ... We can adjust taxation as we please. If we take the view of rent interests and profits advanced in this chapter, we shall regard them as the natural reservoir from which wealth is to be drawn for all public purposes. That is, we should adjust taxation to fall exclusively on the surplus of industry, and not at all on "wages" in their broadest sense. Leaving the smaller incomes as free as possible, we should graduate the income tax so as to fall most heavily on those who are getting the largest share of rent interest and profits, we should find another point for the application of our principles in the death duties and (if we do not deal more drastically with the unearned increment) in the taxation of ground-rents. In this way we should make rent and interest pay for their own extinction. We should inflict no overwhelming loss on any individuals or any class of living persons, as would happen if we pitched on any one particular form of property-say, land and railways-and took them without compensation. There would be no spoliation, but readjustment of taxation on a new principle. And the ground landlord has no more right to complain when the taxcollector comes his way than I have to cry out when the Chancellor of the Exchequer puts an extra penny on my income tax.' If such a theory were to become widely prevalent, its first result would be seen in a vastly increased public expenditure. Two significant signs of its growth may, indeed, already be noticed in the almost complete disappearance of the old desire for economy and, in the efforts which are being made to discover new sources of taxation, to tap to a greater extent than has so far been done the realized wealth of the community by means of taxes on capital and income. Of the various proposals 1 The Labour Movement, p. 78. L. T. Hobhouse, 1893. now being put forward, that for the systematic incorporation into systems of taxation of the principle of progression or graduation is pre-eminently one as to which hopes and fears, both perhaps exaggerated, seem to be entertained. At the outset it is necessary to emphasize the truth that the importance of the adoption of such a principle as this depends largely on the view which is taken of the legitimate purposes of taxation. If these are held to be confined to what have hitherto been considered the practical necessities of a State economically administered, the questions covered by the euphemistic phrase, 'readjustment of public burdens,' become of comparatively little moment, for no class need then suffer from the pressure of taxation, and progression will be adopted only as a fairer and more scientific means of distributing such pressure as exists; but if the conception of the state which has given rise to what we may call the Wagnerian theory of taxation is to prevail in legislation, the insufficiency of its resources will at once become apparent, the methods indicated by Mr. Hobhouse will inevitably be resorted to, and progressive taxation, adopted in a very different spirit, will take its place as one of the most effective and formidable weapons of the new school. This serious controversy lies at the root of any discussion of taxation, its paramount importance cannot be overlooked; but it lies outside the scope of the present paper, as do the questions of the distribution of wealth and the incidence of taxation direct and indirect, the consideration of which is an essential preliminary to the application of our principle to the case of any particular society. The subject of the following observations is admittedly more abstract and more limited than these; but it may nevertheless be thought useful, with a view to the formation of public opinion on a proposal often mooted, but less often discussed, to endeavour to arrive at some conclusion -first, as to whether the principle of progression rests on any scientific basis; and, secondly, whether, in practice no less than in theory, there is ground for believing that its application for revenue purposes can, under the social conditions which have so far obtained, be successfully confined |