TAX, TAXATION. A tax is a pot'. tion of the produce of a country or its value, applied to public purposes by the government. Taxation is the general charging and levying of particular taxes upon the community.
In a free state it is assumed that all taxation is necessary for the public good ; and it is justified by necessity alone. The amount of expenditure will, in a great measure, be determined by the magnitude of a state and by the number and importance of its political relations ; yet the prudence with which its affairs are administered will affect the demands of the government upon the people nearly as much as its necessities. The expenses of a pi ivate person must be re gulated by his income; bat in a state, the expenditure that is needed is the measure of the public income that must be obtained to meet it. A civilized community re quires not only protection from foreign enemies and internal security, but it needs various institutions which are conducive to its welfare. It is the business of a government to provide for these objects in the best manner and at the least ex pense consistent with their efficiency. Every tax should be viewed as the pur chase-money paid for equivalent advan tages given in return. This principle assumes the necessity of moderation in levying taxes, and will scarcely be denied by any one when stated in that form ; yet it is not uncommon to hear it argued that so long as taxes are spent in the coun try, the amount is not of consequence, as the money is returned through various channels to the people from whom it was derived. The principle we have just laid down exposes the fallacy of this doctrine, by reducing it to a simple question be tween debtor and creditor. For example, by paying a million of money every year, the people obtain the services of an army. This we will suppose to be an equivalent, and we will further assume that the food and clothing of the force are purchased, and that the entire pay of the men is spent, within the country. The whole of the money will thus be returned: but how ? Not as a free gift, not as the re payment of a loan, but in the purchase of articles equal in value to the whole sum The only benefit obtained by this return of the million is clearly nothing more than the ordinary profits of trade ; for the community has already provided the money, and then out of its own capital and industry it produces what is equal to it in value, and this it sells to the state, receiving as payment the very sum it bad itself contributed as a tax.
No branch of legislation is perhaps so important as the wise application of just principles in the matter of taxation. The wealth, happiness, and even the morals of the people are dependent upon the financial policy of their government.
Adam Smith lays down four general maxims, which are as follow :— L " The subjects of every state ought to contribute towards the support of the government as nearly as possible in pro portion to their respective abilities ; that us, in proportion to the revenue which they respectively enjoy under the protec tion of the state." II. " The tax which each individual is bound to pay ought to be certain, and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person." III. " Every tax ought to be levied at the time or in the manner most likely to be convenient for the contributor to pay it." IV. " Every tax ought to be so con trived as both to take out and keep out of the pockets of the people as little as pos sible over and above what it brings into the public treasury of the state." In discussing the merits of particular taxes we shall have to consider with some minuteness the application of Adam Smith's first maxim. Its justice requires no enforcement or illustration, although the object is most difficult of attainment. The second maxim is of great importance, and the necessity of adhering to it must be universally acknowledged. Uncertainty gives rise to frauds and extortion on the part of the tax-gatherer, and to and suspicion on that of the contributor, while it offers a most injurious impedi ment to all the operations of trade. Not withstanding the many evils of uncer tainty, it is by no means an uncommon fault in modern systems of taxation.