Taxation

TAXATION, that part of the revenue of a state which is obtained by compulsory dues and charges upon its subjects, as distinct from revenue from property of its own.

Where the charge by the State or public authority bears a direct relation to the service rendered direct to the payer, and is on a contractual basis, as though between individuals, the amounts paid are usually classified as fees and charges, rather than taxes.

Definitions and Classifications.—Taxes are classified for various purposes in different ways, e.g., direct and indirect ; bene ficial and onerous; local and national; proportional, regressive and progressive ; taxes in rem and in persona. It is necessary to con sider some of these distinctions if the general literature of the subject is to be understood.

The distinction between direct and indirect taxation is

mainly an administrative one. It is a classification for convenience sake, adopted upon a rough observation of conspicuous, or apparently conspicuous, differences in the mode of levying taxes, and nothing more. The division, nevertheless, cannot be passed over without mention, as it is not only a common one in economic writing, but it figures largely in budget statements, financial accounts and finance ministers' speeches—especially in the United King dom and France. In the United Kingdom the distinction has been made familiar by free-trade discussions. Direct taxes are those finally borne by the actual payer, but where the legislation does not intend the tax to fall upon the payer, and expects him to pass it on, in price, or otherwise by altering the terms of a bargain, it is indirect. Thus income tax is classed as direct, although often paid by a tenant on behalf of his landlord and specifically deducted from rent, but beer duty paid by the brewer, and passed on in price to the publican, and by him to the con sumer, is indirect ; a motor licence duty paid by a private owner is direct, though it appears to be indirect where it is charged upon a vehicle for public hire and is an expense of carrying on a busi ness which is expected to be recovered from fares. But petrol

tax is obviously indirect. The distinction has little actual economic basis, because the effect of the tax in retarding production or consumption may be such as to throw the burden elsewhere, and the customer may, in consequence of the higher price, drink less beer, and the brewer, through selling less, make lower profits.

The distinction between direct and indirect taxes has not always been drawn upon present lines. By direct taxes the physiocrats meant any taxes levied immediately upon the "product net" out of which fund alone could taxes be paid. A levy of taxes any where else was indirect because the burden would be shifted from one to another until it rested there. This distinction fell into disuse as their theory of the location of wealth was discarded. Later writers took into account the difficult question of economic shifting. The French have not been in the habit of classifying customs duties as indirect. In the United States at the time of the Civil War the courts declared the income tax not to be "direct" in the sense intended by the constitution, but this decision was overborne in 1895.

"Local" and "national" refer not so much to the administrative body which formally imposes and collects a tax, as the body which is responsible for the decision to impose it. Income tax is collected locally, but it is a national tax, alike in weight over the whole area. Poor rates are local because they vary from district to district, but though the jurisdiction over them is local, it is regu lated under general acts. But abroad, local revenues are some times raised by being "geared on" to a national tax; the differ ing local requirements are represented by varying percentage sup plements to the national income tax, and collected with it. In other cases, such as Germany, the national tax is for the most part passed on in percentage grants to States and communes. Customs duties are national, but the octroi is local.