Taxation

The principle may apply to other forms of differential taxation, e.g., land values, which are not upon immediate income, but fall on future prospects. Where taxes are levied on commodities, the broad principle of an alternative untaxed supply is important. A customs duty on imports balanced by an excise on home produc tion, throws the whole tax (B) as an addition to cost price (A) and the final effect depends upon "elasticity of demand"—if the public will not buy the old quantities at the higher price (A+B) the effect may be to reduce sales which will pass off at a rather lower level C, intermediate between A and (A+B). But, where there is no duty on the home product, the general or broad result is that the foreign exporter needs to add the tax B to his price, the home producer can secure something approximating to A+B, and his trade expands at the expense of the foreigner. This result, again, is materially qualified by elasticity of demand, internal competition, and the degree to which the foreign exporter was mak ing large differential profits which can be cut into before he will relinquish the market. The principle of substitution is operative to a marked extent in controlling incidence. A high tax on tea may encourage the substitution of other beverages. The incidence of death duties is indeterminate—it is described by the Colwyn Committee as follows: On practical grounds, we think it is impossible to say that the incidence of the estate duty is uniform.

If a testator has consciously stinted his expenditure and saved more year by year than he would otherwise have done, regarding the difference solely as a piling up of the tax against the day of his death, it is hard to deny that the incide ce is upon him during his life.

On the other hand, the feelings and action of the testator have not been influenced in any direction by the prospect of the duty, the successor is the only person who suffers and the only person to whom the incidence can well be assigned. . . . When one compares the income tax with the estate duty, regarding the latter as a kind of postponed income tax, one sees clearly the solidarity of the interests of predecessor and successor. The income tax, in a concealed way, hits the taxpayer's son as well as the taxpayer himself, and may hit him just as severely. But the damage is separated by a time-gap. In the case of the estate duty the time-gap is bridged, and the damage is at once apparent. On the whole, we think we have good support for giving primary but not exclusive place to the notion that the incidence of the duty is on the predecessor.

The incidence of local rates on building rentals was highly debated for many years and is not finally determinable. At one time, it was said that all such taxation was thrown off upon ground rents, which could, and would, be pro tanto higher if local rates did not exist. But the reasoning upon which this was based

would have applied almost equally to a reduction in the price of a "hair cut." It has to be realized that a large part of local rating is payment for value received (by the tenant) and also that local rating acts as a very rough (unshif table) income tax.

Ulterior Objects of Taxation.

It will be seen that while taxation may be in the first instance to raise revenue, it has inevi tably certain "effects" in so doing. The economic community can not be exactly the same as it would have been without the taxation. This leads to endeavours to secure "effects" by the machinery of taxation, the resultant revenue (if any) being a secondary con sideration. Taxation becomes an "engine of social or national policy." At any rate, it actually modifies the primary task of rais ing a given amount of revenue into a task of achieving that main object with a combination of desired ulterior objects. These ob jects may he grouped under three classes, (I) the discouragement of the use or consumption of things having disadvantageous per sonal or social effects, (2) the encouragement of particular trades, and (3) the equalization of wealth, and remedying of social inequality. Under the first, the temperance reformer sees virtue in making the price of alcoholic liquors so high that a given expendi ture can do little personal harm; others would consider diminu tion of smoking a satisfactory result of tobacco duties, a tax on cats is desired to keep down their numbers, and not actually for revenue. In the second class, of course protective duties are avowedly designed to promote home production in the particular trades affected—whether there is a net national advantage after allowing for trades which use the product, for depression in export ing trades which would pay for the imports, for comparative efficiency, etc., in the trades themselves, is, of course, the com plicated issue known as the "fiscal question." Under the third head, progressive taxation of incomes and death duties is not pursued merely because it is the easiest or fairest way to raise a necessary burden or discharge a disagreeable duty—it takes on the character of a deliberate equalization of wealth, as a goal to be aimed at, with an almost retributive character. The limits to which this can be carried without reducing the size of the national dividend, are increasingly important. (See CAPITAL LEVY and INCOME TAX.) The Main Problems of Post-war Taxation.—The man in the street would declare that the main problem is to reduce it. But given the necessity or inevitability of raising a certain sum, certain real problems remain.