Toprovidethattaxationshallfallentirelyonincome，and
notatalloncapital，isbeyondthepowerofanysystemof
fiscalarrangements。Thereisnotaxwhichisnotpartlypaid
fromwhatwouldotherwisehavebeensaved;notax，theamountof
which，ifremitted，wouldbewhollyemployedinincreased
expenditure，andnopartwhateverlaidbyasanadditionto
capital。Alltaxes，therefore，areinsomesensepartlypaidout
ofcapital;andinapoorcountryitisimpossibletoimposeany
taxwhichwillnotimpedetheincreaseofthenationalwealth。
Butinacountrywherecapitalabounds，andthespiritof
accumulationisstrong，thiseffectoftaxationisscarcelyfelt。
Capitalhavingreachedthestageinwhich，wereitnotfora
perpetualsuccessionofimprovementsinproduction，anyfurther
increasewouldsoonbestopped—andhavingsostrongatendency
eventooutrunthoseimprovements，thatprofitsareonlykept
abovetheminimumbyemigrationofcapital，orbyaperiodical
sweepcalledacommercialcrisis;totakefromcapitalby
taxationwhatemigrationwouldremove，oracommercialcrisis
destroy，isonlytodowhateitherofthosecauseswouldhave
done，namely，tomakeaclearspaceforfurthersaving。
Icannot，therefore，attachanyimportance，inawealthy
country，totheobjectionmadeagainsttaxesonlegaciesand
inheritances，thattheyaretaxesoncapital。Itisperfectly
truethattheyareso。AsRicardoobserves，if100l。aretaken
fromanyoneinataxonhousesoronwine，hewillprobablysave
it，orapartofit，bylivinginacheaperhouse，consumingless
wine，orretrenchingfromsomeotherofhisexpenses;butifthe
samesumbetakenfromhimbecausehehasreceivedalegacyof
l000l。，heconsidersthelegacyasonly900l。，andfeelsnomore
inducementthanatanyothertime（probablyfeelsratherless
inducement）toeconomizeinhisexpenditure。Thetax，therefore，
iswhollypaidoutofcapital:andtherearecountriesinwhich
thiswouldbeaseriousobjection。Butinthefirstplace，the
argumentcannotapplytoanycountrywhichhasanationaldebt，
anddevotesanyportionofrevenuetopayingitoff;sincethe
produceofthetax，thusapplied，stillremainscapital，andis
merelytransferredfromthetaxpayertothefundholder。Butthe
objectionisneverapplicableinacountrywhichincreases
rapidlyinwealth。Theamountwhichwouldbederived，evenfroma
veryhighlegacyduty，ineachyear，isbutasmallfractionof
theannualincreaseofcapitalinsuchacountry;andits
abstractionwouldbutmakeroomforsavingtoanequivalent
amount:whiletheeffectofnottakingit，istopreventthat
amountofsaving，orcausethesavings，whenmade，tobesent
abroadforinvestment。Acountrywhich，likeEngland，accumulates
capitalnotonlyforitself，butforhalftheworld，maybesaid
todefraythewholeofitspublicexpensesfromitsoverflowings;
anditswealthisprobablyatthismomentasgreatasifithad
notaxesatall。Whatitstaxesreallydois，tosubtractfrom
itsmeans，notofproduction，butofenjoyment;sincewhatever
anyonepaysintaxes，hecould，ifitwerenottakenforthat
purpose，employinindulginghisease，oringratifyingsomewant
ortastewhichatpresentremainsunsatisfied。
NOTES:
1。WealthofNations，BkV，Ch。2。
2。ThisprincipleofassessmenthasbeenpartiallyadoptedbyMr
Gladstoneinrenewingtheincome—tax。From100l。，atwhichthe
taxbegins，upto200l。，theincomeonlypaystaxontheexcess
above60l。
3。MrHubbard，thefirstpersonwho，asapracticallegislator，
hasattemptedtherectificationoftheincometaxonprinciples
ofunimpeachablejustice，andwhosewell—conceivedplanwants
littleofbeingasnearanapproximationtoajustassessmentas
itislikelythatmeanscouldbefoundofcarryingintopractical
effect，proposesadeductionnotofafourthbutofathird，in
favourofindustrialandprofessionalincomes。Hefixesonthis
ratio，onthegroundthat，independentlyofallconsiderationas
towhattheindustrialandprofessionalclassesoughttosave，
theattainableevidencegoestoprovethatathirdoftheir
incomesiswhatonanaveragetheydosave，overandabovethe
proportionsavedbyotherclasses。’Thesavings’（MrHubbard
observes）’effectedoutofincomesderivedfrominvestedproperty
areestimatedatone—tenth。Thesavingseffectedoutof
industrialincomesareestimatedatfour—tenths。Theamounts
whichwouldbeassessedunderthesetwoclassesbeingnearly
equal，theadjustmentissimplifiedbystrikingoffone—tenthon
eitherside，andthenreducingbythree—tenths，orone。third，the
assessableamountofindustrialincomes。’ProposedReport（p。xiv
oftheReportandEvidenceoftheCommitteeof1861）。Insuchan
estimatetheremustbealargeelementofconjecture;butinso
farasitcanbesubstantiated，itaffordsavalidgroundforthe
practicalconclusionwhichMrHubbardfoundsonit。
Severalwritersonthesubject，includingMrMillinhis
ElementsofPoliticalEconomy，andMrM’Cullochinhisworkon
Taxation，havecontendedthatasmuchshouldbedeductedaswould
besufficienttoinsurethepossessor’slifeforasumwhich
wouldgivetohissuccessorsforeveranincomeequaltowhathe
reservesforhimself;sincethisiswhatthepossessorof
heritablepropertycandowithoutsavingatall:inotherwords，
thattemporaryincomesshouldbeconvertedintoperpetualincomes
ofequalpresentvalue，andtaxedassuch。Iftheownersof
life—incomesactuallydidsavethislargeproportionoftheir
income，orevenastilllarger。Iwouldgladlygranttheman
exemptionfromtaxationonthewholeamount，since，ifpractical
meanscouldbefoundofdoingit，Iwouldexemptsavings
altogether。ButIcannotadmitthattheyhaveaclaimto
exemptiononthegeneralassumptionoftheirbeingobligedto
savethisamount。Ownersoflife—incomesarenotboundtoforego
theenjoymentofthemforthesakeofleavingtoaperpetualline
ofsuccessorsanindependentprovisionequaltotheirown
temporaryone;andnooneeverdreamsofdoingso。Leastofall
isittoberequiredorexpectedfromthosewhoseincomesarethe
fruitsofpersonalexertion，thattheyshouldleavetotheir
posterityforever，withoutanynecessityforexertion，thesame
incomeswhichtheyallowtothemselves。Alltheyareboundtodo，
evenfortheirchildren，istoplacethemincircumstancesin
whichtheywillhavefavourablechancesofearningtheirown
living。Togive，however，eithertochildrenortoothers，by
bequest，beingalegitimateinclination，whichthesepersons
cannotindulgewithoutlayingbyapartoftheirincome，while
theownersofheritablepropertycan;thisrealinequalityin
caseswheretheincomesthemselvesareequal，shouldbe
considered，toareasonabledegree，intheadjustmentof
taxation，soastorequirefromboth，asnearlyaspracticable，
anequalsacrifice。
4。Thesameremarksobviouslyapplytothoselocaltaxes，ofthe
peculiarpressureofwhichonlandedpropertysomuchhasbeen
saidbytheremnantoftheProtectionists。Asmuchofthese
burthrensasisofoldstanding，oughttoberegardedasa
prescriptivedeductionorreservation，forpublicpurposes，ofa
portionoftherent。Andanyrecentadditionshaveeitherbeen
incurredforthebenefitoftheownersoflandedproperty，or
occasionedbytheirfault:inneithercasegivingthemanyjust
groundofcomplaint。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book5
Chapter3
OfDirectTaxes
1。Taxesareeitherdirectorindirect。Adirecttaxisone
whichisdemandedfromtheverypersonswho，itisintendedor
desired，shouldpayit。Indirecttaxesarethosewhichare
demandedfromonepersonintheexpectationandintentionthathe
shallindemnifyhimselfattheexpenseofanother:suchasthe
exciseorcustoms。Theproducerorimporterofacommodityis
calledupontopayataxonit，notwiththeintentiontolevya
peculiarcontributionuponhim，buttotaxthroughhimthe
consumersofthecommodity，fromwhomitissupposedthathewill
recovertheamountbymeansofanadvanceinprice。Directtaxes
areeitheronincome，oronexpenditure。Mosttaxeson
expenditureareindirect，butsomearedirect，beingimposednot
ontheproducerorsellerofanarticle，butimmediatelyonthe
consumer。Ahouse—tax，forexample，isadirecttaxon
expenditure，iflevied，asitusuallyis，ontheoccupierofthe
house。Ifleviedonthebuilderorowner，itwouldbeanindirect
tax。Awindow—taxisadirecttaxonexpenditure;soarethe
taxesonhorsesandcarriages，andtherestofwhatarecalled
theassessedtaxes。
Thesourcesofincomearerent，profits，andwages。This
includeseverysortofincome，exceptgiftorplunder。Taxesmay
belaidonanyoneofthethreekindsofincome，oranuniform
taxonallofthem。Wewillconsidertheseintheirorder。
2。Ataxonrentfallswhollyonthelandlord。Thereareno
meansbywhichhecanshifttheburthenuponanyoneelse。It
doesnotaffectthevalueorpriceofagriculturalproduce，for
thisisdeterminedbythecostofproductioninthemost
unfavourablecircumstances，andinthosecircumstances，aswe
havesooftendemonstrated，norentispaid。Ataxonrent，
therefore，hasnoeffect，otherthanitsobviousone。Itmerely
takessomuchfromthelandlord，andtransfersittothestate。
This，however，is，instrictexactness，onlytrueoftherent
whichistheresulteitherofnaturalcauses，orofimprovements
madebytenants。Whenthelandlordmakesimprovementswhich
increasetheproductivepowerofhisland，heisremuneratedfor
thembyanextrapaymentfromthetenant;andthispayment，which
tothelandlordisproperlyaprofitoncapital，isblendedand
confoundedwithrent;whichindeeditreallyis，tothetenant，
andinrespectoftheeconomicallawswhichdetermineitsamount。
Ataxonrent，ifextendingtothisportionofit，would
discouragelandlordsfrommakingimprovements:butitdoesnot
followthatitwouldraisethepriceofagriculturalproduce。The
sameimprovementsmightbemadewiththetenant’scapital，or
evenwiththelandlord’siflentbyhimtothetenant;provided
heiswillingtogivethetenantsolongaleaseaswillenable
himtoindemnifyhimselfbeforeitexpires。Butwhateverhinders
improvementsfrombeingmadeinthemannerinwhichpeopleprefer
tomakethem，willoftenpreventthemfrombeingmadeatall:and
onthisaccountataxonrentwouldbeinexpedient，unlesssome
meanscouldbedevisedofexcludingfromitsoperationthat
portionofthenominalrentwhichmayberegardedaslandlord’s
profit。Thisargument，however，isnotneededforthe
condemnationofsuchatax。Apeculiartaxontheincomeofany
class，notbalancedbytaxesonotherclasses，isaviolationof
justice，andamountstoapartialconfiscation。Ihavealready
showngroundsforexceptingfromthiscensureataxwhich，
sparingexistingrents，shouldcontentitselfwithappropriating
aportionofanyfutureincreasearisingfromthemereactionof
naturalcauses。Buteventhiscouldnotbejustlydone，without
offeringasanalternativethemarketpriceoftheland。Inthe
caseofataxonrentwhichisnotpeculiar，butaccompaniedby
anequivalenttaxonotherincomes，theobjectiongroundedonits
reachingtheprofitarisingfromimprovementsislessapplicable:
since，profitsbeingtaxedaswellasrent，theprofitwhich
assumestheformofrentisliabletoitsshareincommonwith
otherprofits;butsinceprofitsaltogetherought，forreasons
formerlystated，tobetaxedsomewhatlowerthanrentproperlyso
called，theobjectionisonlydiminished，notremoved。
3。Ataxonprofits，likeataxonrent，must，atleastin
itsimmediateoperation，fallwhollyonthepayer。Allprofits
beingalikeaffected，noreliefcanbeobtainedbyachangeof
employment。Ifataxwerelaidontheprofitsofanyonebranch
ofproductiveemployment，thetaxwouldbevirtuallyanincrease
ofthecostofproduction，andthevalueandpriceofthearticle
wouldriseaccordingly;bywhichthetaxwouldbethrownuponthe
consumersofthecommodity，andwouldnotaffectprofits。Buta
generalandequaltaxonallprofitswouldnotaffectgeneral
prices，andwouldfall，atleastinthefirstinstance，on
capitalistsalone。
Thereis，however，anulterioreffect，which，inarichand
prosperouscountry，requirestobetakenintoaccount。Whenthe
capitalaccumulatedissogreatandtherateofannual
accumulationsorapid，thatthecountryisonlykeptfrom
attainingthestationarystatebytheemigrationofcapital，or
bycontinualimprovementsinproduction;anycircumstancewhich
virtuallylowerstherateofprofitcannotbewithoutadecided
influenceonthesephenomena。Itmayoperateindifferentways。
Thecurtailmentofprofit，andtheconsequentincreased
difficultyinmakingafortuneorobtainingasubsistencebythe
employmentofcapital，mayactasastimulustoinventions，and
totheuseofthemwhenmade。Ifimprovementsinproductionare
muchaccelerated，andiftheseimprovementscheapen，directlyor
indirectly，anyofthethingshabituallyconsumedbythe
labourer，profitsmayrise，andrisesufficientlytomakeupfor
allthatistakenfromthembythetax。Inthatcasethetaxwill
havebeenrealizedwithoutlosstoanyone，theproduceofthe
countrybeingincreasedbyanequal，orwhatwouldinthatcase
beafargreateramount。Thetax，however，musteveninthiscase
beconsideredaspaidfromprofits，becausethereceiversof
profitsarethosewhowouldbebenefitedifitweretakenoff。
Butthoughtheartificialabstractionofaportionofprofits
wouldhavearealtendencytoaccelerateimprovementsin
production，noconsiderableimprovementsmightactuallyresult，
oronlyofsuchakindasnottoraisegeneralprofitsatall，or
nottoraisethemsomuchasthetaxhaddiminishedthem。Ifso，
therateofprofitwouldbebroughtclosertothatpractical
minimum，towhichitisconstantlyapproaching:andthis
diminishedreturntocapitalwouldeithergiveadecidedcheckto
furtheraccumulation，orwouldcauseagreaterproportionthan
beforeoftheannualincreasetobesentabroad，orwastedin
unprofitablespeculations。Atitsfirstimpositionthetaxfalls
whollyonprofits:buttheamountofincreaseofcapital，which
thetaxprevents，would，ifithadbeenallowedtocontinue，have
tendedtoreduceprofitstothesamelevel;andateveryperiod
oftenortwentyyearstherewillbefoundlessdifference
betweenprofitsastheyare，andprofitsastheywouldinthat
casehavebeen:untilatlastthereisnodifference，andthetax
isthrowneitheruponthelaboureroruponthelandlord。Thereal
effectofataxonprofitsistomakethecountrypossessatany
givenperiod，asmallercapitalandasmalleraggregate
production，andtomakethestationarystatebeattainedearlier，
andwithasmallersumofnationalwealth。Itispossiblethata
taxonprofitsmightevendiminishtheexistingcapitalofthe
country。Iftherateofprofitisalreadyatthepractical
minimum，thatis，atthepointatwhichallthatportionofthe
annualincrementwhichwouldtendtoreduceprofitsiscarried
offeitherbyexportationorbyspeculation;thenifataxis
imposedwhichreducesprofitsstilllower，thesamecauseswhich
previouslycarriedofftheincreasewouldprobablycarryoffa
portionoftheexistingcapital。Ataxonprofitsisthus，ina
stateofcapitalandaccumulationlikethatinEngland，extremely
detrimentaltothenationalwealth。Andthiseffectisnot
confinedtothecaseofapeculiar，andthereforeintrinsically
unjust，taxonprofits。Themerefactthatprofitshavetobear
theirshareofaheavygeneraltaxation，tends，inthesame
mannerasapeculiartax，todrivecapitalabroad，tostimulate
imprudentspeculationsbydiminishingsafegains，todiscourage
furtheraccumulation，andtoacceleratetheattainmentofthe
stationarystate。Thisisthoughttohavebeentheprincipal
causeofthedeclineofHolland，orratherofherhavingceased
tomakeprogress。
Evenincountrieswhichdonotaccumulatesofastastobe
alwayswithinashortintervalofthestationarystate，itseems
impossiblethat，ifcapitalisaccumulatingatall，its
accumulationshouldnotbeinsomedegreeretardedbythe
abstractionofaportionofitsprofit;andunlesstheeffectin
stimulatingimprovementsbeafullcounter—balance，itis
inevitablethatapartoftheburthenwillbethrownoffthe
capitalist，uponthelabourerorthelandlord。Oneorotherof
theseisalwaystheloserbyadiminishedrateofaccumulation。
Ifpopulationcontinuestoincreaseasbefore，thelabourer
suffers:ifnot，cultivationischeckedinitsadvance，andthe
landlordslosetheaccessionofrentwhichwouldhaveaccruedto
them。Theonlycountriesinwhichataxonprofitsseemslikely
tobepermanentlyaburthenoncapitalistsexclusively，arethose
inwhichcapitalisstationary，becausethereisnonew
accumulation。Insuchcountriesthetaxmightnotpreventtheold
capitalfrombeingkeptupthroughhabit，orfromunwillingness
tosubmittoimpoverishment，andsothecapitalistmightcontinue
tobearthewholeofthetax。Itisseenfromthese
considerationsthattheeffectsofataxonprofitsaremuchmore
complex，morevarious，andinsomepointsmoreuncertain，than
writersonthissubjecthavecommonlysupposed。
4。WenowturntoTaxesonWages。Theincidenceoftheseis
verydifferent，accordingasthewagestaxedarethoseof
ordinaryunskilledlabour，oraretheremunerationofsuch
skilledorprivilegedemployments，whethermanualor
intellectual，asaretakenoutofthesphereofcompetitionbya
naturalorconferredmonopoly。
Ihavealreadyremarked，thatinthepresentlowstateof
populareducation，allthehighergradesofmentaloreducated
labourareatamonopolyprice;exceedingthewagesofcommon
workmeninadegreeveryfarbeyondthatwhichisduetothe
expense，trouble，andlossoftimerequiredinqualifyingforthe
employment。Anytaxleviedonthesegains，whichstillleaves
themabove（ornotbelow）theirjustproportion，fallsonthose
whopayit;theyhavenomeansofrelievingthemselvesatthe
expenseofanyotherclass。Thesamethingistrueofordinary
wages，incaseslikethatoftheUnitedStates，orofanew
colony，where，capitalincreasingasrapidlyaspopulationcan
increase，wagesarekeptupbytheincreaseofcapital，andnot
bytheadherenceofthelabourerstoafixedstandardof
comforts。Insuchacasesomedeteriorationoftheircondition，
whetherbyataxorotherwise，mightpossiblytakeplacewithout
checkingtheincreaseofpopulation。Thetaxwouldinthatcase
fallonthelabourersthemselves，andwouldreducethem
prematurelytothatlowerstatetowhich，onthesamesupposition
withregardtotheirhabits，theywouldinanycasehavebeen
reducedultimately，bytheinevitablediminutionintherateof
increaseofcapital，throughtheoccupationofallthefertile
land。
Somewillobjectthat，eveninthiscase，ataxonwages
cannotbedetrimentaltothelabourers，sincethemoneyraisedby
it，beingexpendedinthecountry，comesbacktothelabourers
againthroughthedemandforlabour。Thefallacy，however，of
thisdoctrinehasbeensocompletelyexhibitedintheFirstBook，
thatIneeddolittlemorethanrefertothatexposition。Itwas
thereshownthatfundsexpendedunproductivelyhavenotendency
toraiseorkeepupwages，unlesswhenexpendedinthedirect
purchaseoflabour。Ifthegovernmenttookataxofashillinga
weekfromeverylabourer，andlaiditalloutinhiringlabourers
formilitaryservice，publicworks，orthelike，itwould，no
doubt，indemnifythelabourersasaclassforallthatthetax
tookfromthem。Thatwouldreallybe’spendingthemoneyamong
thepeople’。Butifitexpendedthewholeinbuyinggoods，orin
addingtothesalariesofemployeswhoboughtgoodswithit，this
wouldnotincreasethedemandforlabour，ortendtoraisewages。
Without，however，revertingtogeneralprinciples，wemayrelyon
anobviousreductioadabsurdum。Iftotakemoneyfromthe
labourersandspenditincommoditiesisgivingitbacktothe
labourers，then，totakemoneyfromotherclasses，andspendit
inthesamemanner，mustbegivingittothelabourers;
consequently，themoreagovernmenttakesintaxes，thegreater
willbethedemandforlabour，andthemoreopulentthecondition
ofthelabourers。Apropositiontheabsurdityofwhichnoonecan
failtosee。
Intheconditionofmostcommunities，wagesareregulatedby
thehabitualstandardoflivingtowhichthelabourersadhere，
andonlessthanwhichtheywillnotmultiply。Wherethereexists
suchastandard，ataxonwageswillindeedforatimebeborne
bythelabourersthemselves;butunlessthistemporarydepression
hastheeffectofloweringthestandarditself，theincreaseof
populationwillreceiveacheck，whichwillraisewages，and
restorethelabourerstotheirpreviouscondition。Onwhom，in
thiscase，willthetaxfall？AccordingtoAdamSmith，onthe
communitygenerally，intheircharacterofconsumers;sincethe
riseofwages，hethought，wouldraisegeneralprices。Wehave
seen，however，thatgeneralpricesdependonothercauses，and
areneverraisedbyanycircumstancewhichaffectsallkindsof
productiveemploymentinthesamemanneranddegree。Ariseof
wagesoccasionedbyatax，must，likeanyotherincreaseofthe
costoflabour，bedefrayedfromprofits。Toattempttotax
day。labourers，inanoldcountry，ismerelytoimposeanextra
taxuponallemployersofcommonlabour;unlessthetaxhasthe
muchworseeffectofpermanentlyloweringthestandardof
comfortablesubsistenceinthemindsofthepoorestclass。
Wefindintheprecedingconsiderationsanadditional
argumentfortheopinionalreadyexpressed，thatdirecttaxation
shouldstopshortoftheclassofincomeswhichdonotexceed
whatisnecessaryforhealthfulexistence。Theseverysmall
incomesaremostlyderivedfrommanuallabour;and，aswenow
see，anytaximposedonthese，eitherpermanentlydegradesthe
habitsofthelabouringclass，orfallsonprofits，andburthens
capitalistswithanindirecttax，inadditiontotheirshareof
thedirecttaxes;whichisdoublyobjectionable，bothasa
violationofthefundamentalruleofequality，andforthe
reasonswhich，asalreadyshown，renderapeculiartaxonprofits
detrimentaltothepublicwealth，andconsequentlytothemeans
whichsocietypossessesofpayinganytaxeswhatever。
5。Wenowpass，fromtaxesontheseparatekindsofincome，
toataxattemptedtobeassessedfairlyuponallkinds;inother
words，anIncomeTax。Thediscussionoftheconditionsnecessary
formakingthistaxconsistentwithjustice，hasbeenanticipated
inthelastchapter。Weshallsuppose，therefore，thatthese
conditionsarecompliedwith。Theyare，first，thatincomesbelow
acertainamountshouldbealtogetheruntaxed。Thisminimum
shouldnotbehigherthantheamountwhichsufficesforthe
necessariesoftheexistingpopulation。Theexemptionfromthe
presentincometax，ofallincomesunder100l。ayear，andthe
lowerpercentageformerlyleviedonthosebetween100l。and150
l。，areonlydefensibleonthegroundthatalmostallthe
indirecttaxespressmoreheavilyonincomesbetween50l。and
150l。thanonanyotherswhatever。Thesecondconditionis，that
incomesabovethelimitshouldbetaxedonlyinproportiontothe
surplusbywhichtheyexceedthelimit。Thirdly，thatallsums
savedfromincomeandinvested，shouldbeexemptfromthetax:or
ifthisbefoundimpracticable，thatlifeincomes，andincomes
frombusinessandprofessions，shouldbelessheavilytaxedthan
inheritableincomes，inadegreeasnearlyaspossibleequivalent
totheincreasedneedofeconomyarisingfromtheirterminable
character:allowancebeingalsomade，inthecaseofvariable
incomes，fortheirprecariousness。
Anincome—tax，fairlyassessedontheseprinciples，wouldbe，
inpointofjustice，theleastexceptionableofalltaxes。The
objectiontoit，inthepresentlowstateofpublicmorality，is
theimpossibilityofascertainingtherealincomesofthe
contributors。Thesupposedhardshipofcompellingpeopleto
disclosetheamountoftheirincomes，oughtnot，inmyopinion，
tocountformuch。Oneofthesocialevilsofthiscountryisthe
practice，amountingtoacustom，ofmaintaining，orattemptingto
maintain，theappearancetotheworldofalargerincomethanis
possessed;anditwouldbefarbetterfortheinterestofthose
whoyieldtothisweakness，iftheextentoftheirmeanswere
universallyandexactlyknown，andthetemptationremovedto
expendingmorethantheycanafford，orstintingrealwantsin
ordertomakeafalseshowexternally。Atthesametime，the
reasonofthecase，evenonthispoint，isnotsoexclusivelyon
onesideoftheargumentasissometimessupposed。Solongasthe
vulgarofanycountryareinthedebasedstateofmindwhichthis
nationalhabitpresupposes—solongastheirrespect（ifsucha
wordcanbeappliedtoit）isproportionedtowhattheysuppose
tobeeachperson’specuniarymeans—itmaybedoubtedwhether
anythingwhichwouldremovealluncertaintyastothatpoint，
wouldnotconsiderablyincreasethepresumptionandarroganceof
thevulgarrich，andtheirinsolencetowardsthoseabovethemin
mindandcharacter，butbelowtheminfortune。
Notwithstanding，too，whatiscalledtheinquisitorialnature
ofthetax，noamountofinquisitorialpowerwhichwouldbe
toleratedbyapeoplethemostdisposedtosubmittoit，could
enabletherevenueofficerstoassessthetaxfromactual
knowledgeofthecircumstancesofcontributors。Rent，salaries，
annuities，andallfixedincomes，canbeexactlyascertained。But
thevariablegainsofprofessions，andstillmoretheprofitsof
business，whichthepersoninterestedcannotalwayshimself
exactlyascertain，canstilllessbeestimatedwithanyapproach
tofairnessbyatax—collector。Themainreliancemustbeplaced，
andalwayshasbeenplaced，onthereturnsmadebytheperson
himself。Noproductionofaccountsisofmuchavail，except
againstthemoreflagrantcasesoffalsehood;andevenagainst
thesethecheckisveryimperfect，foriffraudisintended，
falseaccountscangenerallybeframedwhichitwillbaffleany
meansofinquirypossessedbytherevenueofficerstodetect:the
easyre。sourceofomittingentriesonthecreditsidebeing
oftensufficientwithouttheaidoffictitiousdebtsor
disbursements。Thetax，therefore，onwhateverprinciplesof
equalityitmaybeimposed，isinpracticeunequalinoneofthe
worstways，fallingheaviestonthemostconscientious。The
unscrupuloussucceedinevadingagreatproportionofwhatthey
shouldpay;evenpersonsofintegrityintheirordinary
transactionsaretemptedtopalterwiththeirconsciences，at
leasttotheextentofdecidingintheirownfavourallpointson
whichthesmallestdoubtordiscussioncouldarise:whilethe
strictlyveraciousmaybemadetopaymorethanthestate
intended，bythepowersofarbitraryassessmentnecessarily
intrustedtotheCommssioners，asthelastdefenceagainstthe
tax—payer’spowerofconcealment。
Itistobefeared，therefore，thatthefairnesswhich
belongstotheprincipleofanincometax，cannotbemadeto
attachtoitinpractice:andthatthistax，whileapparentlythe
mostjustofallmodesofraisingarevenue，isineffectmore
unjustthanmanyotherswhichareprimafaciemoreobjectionable。
Thisconsiderationwouldleadustoconcurintheopinionwhich，
untiloflate，hasusuallyprevailed—thatdirecttaxeson
incomeshouldbereservedasanextraordinaryresourceforgreat
nationalemergencies，inwhichthenecessityofalarge
additionalrevenueoverrulesallobjections。
Thedifficultiesofafairincometaxhaveeliciteda
propositionforadirecttaxofsomuchpercent，notonincome
butonexpenditure;theaggregateamountofeachperson’s
expenditurebeingascertained，astheamountofincomenowis，
fromstatementsfurnishedbythecontributorsthemselves。The
authorofthissuggestion，MrRevans，inacleverpamphletonthe
subject，（1*）contendsthatthereturnswhichpersonswould
furnishoftheirexpenditurewouldbemoretrustworthythanthose
whichtheynowmakeoftheirincome，inasmuchasexpenditureis
initsownnaturemorepublicthanincome，andfalse
representationsofitmoreeasilydetected。Hecannot，Ithink，
havesufficientlyconsidered，howfewoftheitemsintheannual
expenditureofmostfamiliescanbejudgedofwithany
approximationtocorrectnessfromtheexternalsigns。Theonly
securitywouldstillbetheveracityofindividuals，andthereis
noreasonforsupposingthattheirstatementswouldbemore
trustworthyonthesubjectoftheirexpensesthanthatoftheir
revenues;especiallyas，theexpenditureofmostpersonsbeing
composedofmanymoreitemsthantheirincome，therewouldbe
morescopeforconcealmentandsuppressioninthedetailof
expensesthanevenofreceipts。
Thetaxesonexpenditureatpresentinforce，eitherinthis
orinothercountries，fallonlyonparticularkindsof
expenditure，anddiffernootherwisefromtaxesoncommodities
thaninbeingpaiddirectlybythepersonwhoconsumesoruses
thearticle，insteadofbeingadvancedbytheproducerorseller，
andreimbursedintheprice。Thetaxesonhorsesandcarriages，
ondogs，onservants，areallofthisnature。Theyevidentlyfall
onthepersonsfromwhomtheyarelevied—thosewhousethe
commoditytaxed。Ataxofasimilardescription，andmore
important，isahouse—tax;whichmustbeconsideredatsomewhat
greaterlength。
6。Therentofahouseconsistsoftwoparts，the
ground—rent，andwhatAdamSmithcallsthebuilding—rent。The
firstisdeterminedbytheordinaryprinciplesofrent。Itisthe
remunerationgivenfortheuseoftheportionoflandoccupiedby
thehouseanditsappurtenances;andvariesfromamere
equivalentfortherentwhichthegroundwouldaffordin
agriculture，tothemonopolyrentspaidforadvantageous
situationsinpopulousthoroughfares。Therentofthehouse
itself，asdistinguishedfromtheground，istheequivalentgiven
forthelabourandcapitalexpendedonthebuilding。Thefactof
itsbeingreceivedinquarterlyorhalf。yearlypayments，makesno
differenceintheprinciplesbywhichitisregulated。It
comprisestheordinaryprofitonthebuilder’scapital，andan
annuity，sufficientatthecurrentrateofinterest，afterpaying
forallrepairschargeableontheproprietor，toreplacethe
originalcapitalbythetimethehouseiswornout，orbythe
expirationoftheusualtermofabuildinglease。
Ataxofsomuchpercentonthegrossrent，fallsonboth
thoseportionsalike。Themorehighlyahouseisrented，themore
itpaystothetax，whetherthequalityofthesituationorthat
ofthehouseitselfisthecause。Theincidence，however，of
thesetwoportionsofthetaxmustbeconsideredseparately。
Asmuchofitasisataxonbuilding—rent，mustultimately
fallontheconsumer，inotherwordstheoccupier。Forasthe
profitsofbuildingarealreadynotabovetheordinaryrate，they
would，ifthetaxfellontheownerandnotontheoccupier，
becomelowerthantheprofitsofuntaxedemployments，andhouses
wouldnotbebuilt。Itisprobablehoweverthatforsometime
afterthetaxwasfirstimposed，agreatpartofitwouldfall，
notontherenter，butontheownerofthehouse。Alarge
proportionoftheconsumerseithercouldnotafford，orwouldnot
choose，topaytheirformerrentwiththetaxinaddition，but
wouldcontentthemselveswithalowerscaleofaccommodation。
Housesthereforewouldbeforatimeinexcessofthedemand。The
consequenceofsuchexcess，inthecaseofmostotherarticles，
wouldbeanalmostimmediatediminutionofthesupply:butso
durableacommodityashousesdoesnotrapidlydiminishin
amount。Newbuildingsindeed，oftheclassforwhichthedemand
haddecreased，wouldceasetobeerected，exceptforspecial
reasons;butinthemeantimethetemporarysuperfluitywould
lowerrents，andtheconsumerswouldobtainperhapsnearlythe
sameaccommodationasformerly，forthesameaggregatepayment，
rentandtaxtogether。Bydegrees，however，astheexisting
housesworeout，orasincreaseofpopulationdemandedagreater
supply，rentswouldagainrise;untilitbecameprofitableto
recommencebuilding，whichwouldnotbeuntilthetaxwaswholly
transferredtotheoccupier。Intheend，therefore，theoccupier
bearsthatportionofataxonrent，whichfallsonthepayment
madeforthehouseitself，exclusivelyofthegrounditstands
on。
Thecaseispartlydifferentwiththeportionwhichisatax
onground—rent。Astaxesonrent，properlysocalled，fallonthe
landlord，ataxonground—rent，onewouldsuppose，mustfallon
theground—landlord，atleastaftertheexpirationofthe
buildinglease。Itwillnothoweverfallwhollyonthelandlord，
unlesswiththetaxonground—rentthereiscombinedan
equivalenttaxonagriculturalrent。Thelowestrentoflandlet
forbuildingisverylittleabovetherentwhichthesameground
wouldyieldinagriculture:sinceitisreasonabletosuppose
thatland，unlessincaseofexceptionalcircumstances，isletor
soldforbuildingassoonasitisdecidedlyworthmoreforthat
purposethanforcultivation。If，therefore，ataxwerelaidon
ground—rentswithoutbeingalsolaidonagriculturalrents，it
would，unlessoftriflingamount，reducethereturnfromthe
lowestground—rentsbelowtheordinaryreturnfromland，and
wouldcheckfurtherbuildingquiteaseffectuallyasifitwerea
taxonbuilding—rents，untileithertheincreaseddemandofa
growingpopulation，oradiminutionofsupplybytheordinary
causesofdestruction，hadraisedtherentbyafullequivalent
forthetax。Butwhateverraisesthelowestground—rents，raises
allothers，sinceeachexceedsthelowestbythemarketvalueof
itspeculiaradvantages。If，therefore，thetaxonground—rents
wereafixedsumpersquarefoot，themorevaluablesituations
payingnomorethanthoseleastinrequest，thisfixedpayment
wouldultimatelyfallontheoccupier。Supposethelowest
ground—renttobe10l。peracre，andthehighest1000l。，atax
of1l。peracreonground—rentswouldultimatelyraisetheformer
to11l。，andthelatterconsequentlyto1001l。，sincethe
differenceofvaluebetweenthetwosituationswouldbeexactly
whatitwasbefore:theannualpound，therefore，wouldbepaidby
theoccupier。Butataxonground—rentissupposedtobea
portionofahouse—tax，whichisnotafixedpayment，buta
percentageontherent。Thecheapestsite，therefore，being
supposedasbeforetopay1l。，thedearestwouldpay100l。，of
whichonlythe1l。couldbethrownupontheoccupier，sincethe
rentwouldstillbeonlyraisedto100l。Consequently，99l。of
the100l。leviedfromtheexpensivesite，wouldfallonthe
ground—landlord。Ahouse—taxthusrequirestobeconsideredina
doubleaspect，asataxonalloccupiersofhouses，andataxon
ground—rents。
Inthevastmajorityofhouses，theground—rentformsbuta
smallproportionoftheannualpaymentmadeforthehouse，and
nearlyallthetaxfallsontheoccupier。Itisonlyin
exceptionalcases，likethatofthefavouritesituationsinlarge
towns，thatthepredominantelementintherentofthehouseis
theground—rent;andamongtheveryfewkindsofincomewhichare
fitsubjectsforpeculiartaxation，theseground—rentsholdthe
principalplace，beingthemostgiganticexampleextantof
enormousaccessionsofrichesacquiredrapidly，andinmanycases
unexpectedly，byafewfamilies，fromthemereaccidentoftheir
possessingcertaintractsofland，withouttheirhaving
themselvesaidedintheacquisitionbythesmallestexertion，
outlay，orrisk。Sofarthereforeasahouse—taxfallsonthe
ground—landlord，itisliabletonovalidobjection。
Insofarasitfallsontheoccupier，ifjustlyproportioned
tothevalueofthehouse，itisoneofthefairestandmost
unobjectionableofalltaxes。Nopartofaperson’sexpenditure
isabettercriterionofhismeans，orbears，onthewhole，more
nearlythesameproportiontothem。Ahouse—taxisanearer
approachtoafairincometax，thanadirectassessmentonincome
caneasilybe;havingthegreatadvantage，thatitmakes
spontaneouslyalltheallowanceswhichitissodifficultto
make，andsoimpracticabletomakeexactly，inassessingan
incometax:forifwhatapersonpaysinhouse—rentisatestof
anything，itisatestnotofwhathepossesses，butofwhathe
thinkshecanaffordtospend。Theequalityofthistaxcanonly
beseriouslyquestionedontwogrounds。Thefirstis，thata
misermayescapeit。Thisobjectionappliestoalltaxeson
expenditure:nothingbutadirecttaxonincomecanreacha
miser。Butasmisersdonotnowhoardtheirtreasure，butinvest
itinproductiveemployments，itnotonlyaddstothenational
wealth，andconsequentlytothegeneralmeansofpayingtaxes，
butthepaymentclaimablefromitselfisonlytransferredfrom
theprincipalsumtotheincomeafterwardsderivedfromit，which
paystaxesassoonasitcomestobeexpended。Thesecond
objectionis，thatapersonmayrequirealargerandmore
expensivehouse，notfromhavinggreatermeans，butfromhavinga
largerfamily。Ofthis，however，heisnotentitledtocomplain;
sincehavingalargefamilyisataperson’sownchoice:and，so
farasconcernsthepublicinterest，isathingrathertobe
discouragedthanpromoted。（2*）Alargeportionofthetaxationof
thiscountryisraisedbyahouse—tax。Theparochialtaxationof
thetownsentirely，andoftheruraldistrictspartially，
consistsofanassessmentonhouse—rent。Thewindow—tax，which
wasalsoahouse—tax，butofabadkind，operatingasataxon
light，andacauseofdeformityinbuilding，wasexchangedin
1851forahouse—taxproperlysocalled，butonamuchlower
scalethanthatwhichexistedpreviouslyto1834。Itistobe
lamentedthatthenewtaxretainstheunjustprincipleonwhich
theoldhouse—taxwasassessed，andwhichcontributedquiteas
muchastheselfishnessofthemiddleclassestoproducethe
outcryagainstthetax。Thepublicwerejustlyscandalizedon
learningthatresidenceslikeChatsworthorBelvoirwereonly
ratedonanimaginaryrentofperhaps200l。ayear，underthe
pretextthatowingtothegreatexpenseofkeepingthemup，they
couldnotbeletformore。Probably，indeed，theycouldnotbe
letevenforthat，andiftheargumentwereafairone，they
oughtnottohavebeentaxedatall。Butahouse。taxisnot
intendedasataxonincomesderivedfromhouses，buton
expenditureincurredforthem。Thethingwhichitiswishedto
ascertainiswhatahousecoststothepersonwholivesinit，
notwhatitwouldbringiniflettosomeoneelse。Whenthe
occupierisnottheowner，anddoesnotholdonarepairing
lease，therenthepaysisthemeasureofwhatthehousecosts
him:butwhenheistheowner，someothermeasuremustbesought。
Avaluationshouldbemadeofthehouse，notatwhatitwould
sellfor，butatwhatwouldbethecostofrebuildingit，and
thisvaluationmightbeperiodicallycorrectedbyanallowance
forwhatithadlostinvaluebytime，orgainedbyrepairsand
improvements。Theamountoftheamendedvaluationwouldforma
principalsum，theinterestofwhich，atthecurrentpriceofthe
publicfunds，wouldformtheannualvalueatwhichthebuilding
shouldbeassessedtothetax。
Asincomesbelowacertainamountoughttobeexemptfrom
incometax，sooughthousesbelowacertainvalue，from
house—tax，ontheuniversalprincipleofsparingfromall
taxationtheabsolutenecessariesofhealthfulexistence。In
orderthattheoccupiersoflodgings，aswellasofhouses，might
benefit，asinjusticetheyought，bythisexemption，itmightbe
optionalwiththeownerstohaveeveryportionofahousewhich
isoccupiedbyaseparatetenant，valuedandassessedseparately，
asisnowusuallythecasewithchambers。
NOTES:
1。’APercentageTaxonDomesticExpendituretosupplythewhole
ofthePublicRevenue。’ByJohnRevans。PublishedbyHatchard，in
1847。
2。Anothercommonobjectionisthatlargeandexpensive
accommodationisoftenrequired，notasaresidence，butfor
business。Butitisanadmittedprinciplethatbuildingsor
portionsofbuildingsoccupiedexclusivelyforbusiness，suchas
shops，warehouses，ormanufactories，oughttobeexemptedfrom
house—tax。Thepleathatpersonsinbusinessmaybecompelledto
liveinsituations，suchasthegreatthoroughfaresofLondon，
wherehouse—rentisatamonopolyrate，seemstomeunworthyof
regard:sincenoonedoessobutbecausetheextraprofitwhich
heexpectstoderivefromthesituation，ismorethanan
equivalenttohimfortheextracost。Butinanycase，thebulk
ofthetaxonthisextrarentwillnotfallonhim，butonthe
ground—landlord。
Ithasbeenalsoobjectedthathouse—rentintherural
districtsismuchlowerthanintowns，andlowerinsometowns
andinsomeruraldistrictsthaninothers:sothatatax
proportionedtoitwouldhaveacorrespondinginequalityof
pressure。Tothis，however，itmaybeanswered，thatinplaces
wherehouse—rentislow，personsofthesameamountofincome
usuallyliveinlargerandbetterhouses，andthusexpendin
house—rentmorenearlythesameproportionoftheirincomesthan
mightatfirstsightappear。Orifnot，theprobabilitywillbe，
thatmanyofthemliveinthoseplacespreciselybecausetheyare
toopoortoliveelsewhere，andhavethereforethestrongest
claimtobetaxedlightly。Insomecases，itispreciselybecause
thepeoplearepoor，thathouse—rentremainslow。
ThePrinciplesofPoliticalEconomy
byJohnStuartMill
Book5
Chapter4
OfTaxesonCommodities
1。Bytaxesoncommoditiesarecommonlymeant，thosewhich
areleviedeitherontheproducers，oronthecarriersordealers
whointervenebetweenthemandthefinalpurchasersfor
consumption。Taxesimposeddirectlyontheconsumersof
particularcommodities，suchasahouse—tax，orthetaxinthis
countryonhorsesandcarriages，mightbecalledtaxeson
commodities，butarenot;thephrasebeing，bycustom，confined
toindirecttaxesthosewhichareadvancedbyoneperson，tobe，
asisexpectedandintended，reimbursedbyanother。Taxeson
commoditiesareeitheronproductionwithinthecountry，oron
importationintoit，oronconveyanceorsalewithinit;andare
classedrespectivelyasexcise，customs，ortollsandtransit
duties。Towhicheverclasstheybelong，andatwhateverstagein
theprogressofthecommunitytheymaybeimposed，theyare
equivalenttoanincreaseofthecostofproduction;usingthat
terminitsmostenlargedsense，whichincludesthecostof
transportanddistribution，or，incommonphrase，ofbringingthe
commoditytomarket。
Whenthecostofproductionisincreasedartificiallybya
tax，theeffectisthesameaswhenitisincreasedbynatural
causes。Ifonlyoneorafewcommoditiesareaffected，their
valueandpricerise，soastocompensatetheproducerordealer
forthepeculiarburthen;butiftherewereataxonall
commodities，exactlyproportionedtotheirvalue，nosuch
compensationwouldbeobtained:therewouldneitherbeageneral
riseofvalues，whichisanabsurdity，norofprices，which
dependoncausesentirelydifferent。Therewould，however，asMr
M’Cullochhaspointedout，beadisturbanceofvalues，some
falling，othersrising，owingtoacircumstance，theeffectof
whichonvaluesandpricesweformerlydiscussed;thedifferent
durabilityofthecapitalemployedindifferentoccupations。The
grossproduceofindustryconsistsoftwoparts;oneportion
servingtoreplacethecapitalconsumed，whiletheotherportion
isprofit。Nowequalcapitalsintwobranchesofproductionmust
haveequalexpectationsofprofit;butifagreaterportionof
theonethanoftheotherisfixedcapital，orifthatfixed
capitalismoredurable，therewillbealessconsumptionof
capitalintheyear，andlesswillberequiredtoreplaceit，so
thattheprofit，ifabsolutelythesame，willformagreater
proportionoftheannualreturns。Toderivefromacapitalof
1000l。aprofitof100l。，theoneproducermayhavetosell
producetothevalueof1100l。，theotheronlytothevalueof
500l。Ifonthesetwobranchesofindustryataxbeimposedof
fivepercentadvalorem，thelastwillbechargedonlywith25
l。，thefirstwith55l。;leavingtotheone75l。profit，tothe
otheronly45l。Toequalize，therefore，theirexpectationof
profit，theonecommoditymustriseinprice，ortheothermust
fall，orboth:commoditiesmadechieflybyimmediatelabourmust
riseinvalue，ascomparedwiththosewhicharechieflymadeby
machinery。Itisunnecessarytoprosecutethisbranchofthe
inquiryanyfurther。