A tax upon the gross rent of land would fall upon the landlord, and would be in fact a tax upon his annual income, and as such would fall with undue seve rity upon him, unless other classes of the community should be liable to a propor tionate deduction from their respective incomes for the benefit of the state. This brings us to consider the expediency of a general tax upon all incomes.
in whatever form the tax may be levied, the contribution should be paid from in come, and not from capital ; and accord ingly the simplest and most equitable mode of taxation would appear to be that which, after assessing the annual income of each person arising from all sources., should take from him, directly, a certain proportion of his income as his share of the general contribution. Such a tax, equitably levied, would appear to agree in theory with all the four maxims of Adam Smith ; but, practically, every tax upon income must abound in inequalities, in uncertainty, and in great personal hardships and inconvenience.
In order to make such a tax fall equally upon all, in the first place, the assess ment must be equal. But this is min possible, because there are many cases in which a man can conceal the sources of his income. Even if we suppose the actual income of each individual to be ascertained, the mere income of per sons is a most fallacious test of their abi lity to bear taxation. One man has a fee-simple estate in land, or money in the funds, producing an income of 10001. a year, which land or money is his absolute property, and may come to his children after his death: another, by a laborious and uncertain profession, also obtains an annual income of 10001., dependent not only upon his life, but upon his health and a thousand accidents. The annual incomes of these two men are the same, but their circumstances are most dis similar. Yet these two men, with means so unequal, would be assessed alike, and charged with equal contributions. The professional man may spend the whole of nis income, and yet he is charged upon it just as if it were the annual pro duce of realized property. If he saves any part of his income, he is charged upon that part, and thus his capital is taxed.
The case of annuitants also may be instanced as one, amongst numerous others, of peculiar inequality. One per son invests his money in permanent securities, and retains his capital, but derives a small income, and therefore contributes a proportionally small rate of tax : another purchases an annuity, and parts with his capital ; but as his income is much larger than that of the capitalist, he pays a higher tax. At first sight this may appear a just arrangement; but in fact not only the income of the annuitant is taxed, but also his capital ; for that which is taxed as his income is derived partly from the interest of his purchase-money, and partly from an annual repayment of a portion of his principal.
There is this essential difference be tween taxes upon income and taxes upon expenditure : the former are compulsory, the latter are voluntary, and raid or avoided at the option of each individual. If a man be saving money, an income tax seizes upon his accruing capital : a tax upon expenditure is levied upon that portion of his income only which he thinks it prudent to spend.
To smooth in some degree the inequali ties of an income-tax, 1st, the annual premiums on policies of insurance should not be reckoned as income in the assess ment, being clearly capital, and the pay ments being no longer optional, as the insurance could not be discontinued with out loss; this provision was made by Mr. Pitt in 1798: 2ndly, incomes arising from realized property should be taxed at a higher rate than the profits of trades and professions: 3rdly, annuitants should be rated on such terms as to avoid the assessment of any portion of their capital as part of their income : 4thly, all per sons should be liable to the tax, whatever may be the amount of their incomes.
In addition to the unequal pressure of an income-tax, which cannot be alto gether corrected by anv expedients. there is much uncertainty in the assessment of certain classes of persons. The vicissi tudes of trade, bad debts, or deferred pay ments, render the incomes of commercial and professional men very uncertain ; and nominal income therefore, which afterwards cannot be realized, may be charged with the tax.