Taxation

I. Jurisdiction and Double Taxation.—The civilized world has accepted the ideas of subjective taxation, according to the capac ity of the individual, before it has given up that of objective taxation, or the levying of tax upon a source of wealth wherever it is found. The two are in conflict, but the conflict does not much matter where the two are in the same tax or political jurisdiction. But where the object, say, is a ranch in the Argen tine, and the owner a resident in England, then the Argentine government think most of the protection and benefits they are affording the ranch and without which the ranch would be un productive, and think too of the wealth "withdrawn" from their country, while the British think of the wealthy private resident in their midst, who, compared with his neighbours, can "afford" in justice a high rate of tax. The people interested in the "ranch," as an object, may be the tenant, who has an occupational and capital interest, the owner who receives a rental and interest on capital, the mortgagee, and possibly a ground landlord— these may all be in different stations in life, properly taxable at very different levels, and resident in four different jurisdictions. Still more complex is the origin and destination of business profit—buying, and perhaps some manufacture done in Australia, blending and selling in Africa, the directing seat of control in London, the shareholders in America. How determine where profit is made? The widely distributed character of modern owner ship accentuates the problem of double taxation. Neither Gov ernment is willing to give up an existing source of income. The matter is the subject of expert enquiries since 1920 by the League of Nations, the International Chamber of Commerce, and the various Governments. As an ultimate goal the choice of the individual as the crux of taxation rather than the physical object is now clearly preferable, and consequently the taxation of the resident on his whole resources wherever they come from, and the "reciprocal exemption of the non-resident" in the country of "origin" of the wealth or income is the generally approved prin ciple in theory.

2. Taxation of Collective Wealth in a Progressive System.— Focussing attention upon the individual and his available re sources leads to difficulty at a time when he has proximate re sources held in collective form—e.g., the reserves and undistrib uted profits of companies. When these companies are small groups of two or three persons, the distinction between personal ownership and collective ownership is very thin, yet very real. The aggregate of individuals' fortunes or incomes tends to be less than the aggregate of wealth or incomes finally accruing to individuals, to an increasing extent ; it is not necessary to postu late the desire to evade highly progressive taxation as the cause.

3. The Borderline Between Income and Capital Gains.—The ease with which, under modern financial forms, income and capi tal are convertible into each other, and at the same time the fact that capital accretions may be due either to additions of un used income, or to new monetary expressions of the same thing, leads to great difficulties in "drawing the line."

5. The determination of "profits" as between two countries, where some of the trading operations are performed in the export ing and some in the importing country.

6. The establishment of customs tariffs which shall be fairly ad valorem without an unduly cumbrous and expensive adminis trative machine.

7. The reconciliation of "justice" in progressive taxation with social expediency and collective advantages in the accumulation of capital and preservation of incentive.

8. The choice of suitable articles of consumption for taxation which shall be wide enough to be productive of revenue and worth while, and which will not vanish through elasticity of demand or be repressive and regressive because they are necessary features in the poorest household budget.

9. At a time of very high expenditure the choice between find ing objects of new taxation and putting fresh increments on successful existing taxes at a point at which those taxes are beginning to show their peculiar disadvantages to a marked degree. Akin to this is the super-imposition of various progressive types, which individually productive, eat into the yield of each other, e.g., a combination of high income taxes, death duties, surtaxes and the Capital Levy (q.v.).

The Burden of Taxation.

In the last decade of the Victo rian era a taxation budget in Great Britain in excess of LI oo mil lions was regarded as the limit of prudent finance, with income tax at 8d. in the L. But the South African War, succeeded by social legislation, brought in clear view an annual budget of 200 million sterling, with an income tax of Is. 3d. in the £, super tax and heavy death duties. In every budget debate it was as serted that the nation had reached the "limit of its taxpaying power," that it had "destroyed its war reserve," that it was "killing the goose that laid the golden eggs." Such jeremiads were uttered in the discussions of 1914 just before the World War. Every year of war enlarged the taxable horizon, and to-day the pre-war burdens, then so vast, seem trivial. There was much the same experience in other countries. To-day the annual payment in respect of the British debt to the United States alone requires a rate of income tax equal to the total for all purposes in pre-war times.' Of course taxation for the debt is the chief item in the post-war budget, equal in one case to nearly twice the total pre-war budget. In general, at a date suf ficiently long after the close of the war for the position to have been consolidated, the debt situation can be even expressed as a percentage of 1913 and then as corrected by the 1921 wholesale price index number :— The proportions between local and central or national taxation vary greatly. Before the World War, say 1900, the United Kingdom had 119 millions sterling national, 56 millions local; France 3,100 million francs national and about 800 millions local; Germany 886 million marks imperial, 525 State and Boo com 4. The devolution of fortunes by gifts inter vivos instead of at death, bids fair to take a considerable corpus of "descending" wealth permanently out of the estate duty scheme.