Front Page Titles (by Subject) [SECT. IV.]—: TAXES UPON PROFIT, OR UPON THE REVENUE ARISING FROM STOCK. - Lectures on Political Economy, vol. 2
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[SECT. IV.]—: TAXES UPON PROFIT, OR UPON THE REVENUE ARISING FROM STOCK. - Dugald Stewart, Lectures on Political Economy, vol. 2 
Lectures on Political Economy. Now first published. Vol. II. To which is Prefixed, Part Third of the Outlines of Moral Philosophy, edited by Sir William Hamilton (Edinburgh, Thomas Constable, 1856).
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TAXES UPON PROFIT, OR UPON THE REVENUE ARISING FROM STOCK.
Taxes upon Profit in General.]
The revenue arising from Stock divides itself into two parts; (1.) that which pays interest to the owner of the stock; and, (2.) that which is over and above what is necessary for paying the interest.
Of these two parts of Profit the latter is evidently a subject not taxable directly. It is a compensation for the risk and trouble of employing the stock, and which, if the employer did not receive, he would discontinue the employment. If he was taxed directly in proportion to the whole profit, he must either raise the rate of profit, or pay less interest. In the former case, the tax would be finally paid by the landlord or by the consumer, according as the Stock was employed in farming or in mercantile speculations. In the latter case, the tax would fall on the interest of money.
At first view, the interest of money would seem to be a subject as fit for direct taxation as the rent of land; but two circumstances create a wide distinction between them:—(1.) The quantity and value of the land which any man possesses can never be a secret, whereas the whole amount of his capital can scarce ever be exactly ascertained, and, if it could, would be found liable to continual variations.—(2.) Land is a subject which cannot be removed, whereas Stock easily may. A tax, therefore, which tended to drive away stock from any country, would tend to dry up every source of revenue. The profits of stock, the rent of land, and the wages of labour would be diminished by the removal. Hence, the loose manner in which stock is estimated by those nations, who have attempted to tax the revenue arising from it. In England, for example, if the greater part of the lands are not rated to the land-tax at half their actual value, the greater part of the stock is scarce rated at the fiftieth part of its actual value. Nor, indeed, is it possible that such a tax can be levied according to any estimate approaching to the truth, without so severe an inquisition into the circumstances of individuals, as would be inconsistent with the manner and spirit of a mercantile country.
Taxes upon the Profit of Particular Employments.
The taxes on Profit, which we have been now considering, are supposed to be levied on it merely as arising from Stock, without any regard to the manner in which it is employed; besides these, however, it has been the policy of some countries to impose extraordinary taxes on the profits which particular employments of stock produce; sometimes on the profits derived from particular branches of trade, and sometimes on those arising from agriculture. Of the former kind are, in England, the tax upon hawkers and pedlars, that upon hackney-coaches and chairs, and that which the keepers of ale-houses pay for a license to retail ale and spirituous liquors.
A tax upon the profits of stock must always fall finally upon the consumers, and if it is proportioned to the trade of the dealer, occasions no oppression to him. When it is not so proportioned, but is the same upon all dealers, though, in this case, too, it is finally paid by the consumer, yet it favours the great, and occasions some oppression to the small dealer.
The tax known under the old French Government by the title of the Personal Taille, affords the most remarkable instance that has occurred in modern Europe, of a tax upon the profits of stock employed in agriculture.
During the disorderly period when the Feudal Government subsisted in vigour, the great weight of taxation fell on those whose weakness left them at the mercy of the sovereign. Hence the taxes which, in some countries, were confined to lands held in property by an ignoble tenure, and which, in others, were laid on the supposed profits of all those who farmed lands belonging to other people, whatever might be the tenure by which the proprietors held them. In the former case, the taille was said to be real, in the latter to be personal. Examples of both were to be found under the monarchy of France, and they are both liable to strong objections, although, of the two, the latter is by far the most unjust and oppressive.
When a tax is imposed on the profits of stock in a particular branch of trade, the traders are careful that the tax should fall on the consumer. But when a tax is imposed on the profits of stock employed in agriculture, it must fall finally upon the landlord. The more the farmer is obliged to pay in the way of tax, the less he can afford to pay in the way of rent. Although, therefore, a tax of this kind, imposed during the currency of a lease, may distress or even ruin the farmer, it must always fall upon the landlord when the lease is renewed.
In countries where the personal taille takes place, the farmer is commonly assessed in proportion to the stock which he appears to employ in cultivation. He therefore cultivates with the most wretched instruments of husbandry that he can,—a mistaken policy, no doubt, on his part, in many instances, but resulting naturally from the circumstances in which he is placed. The consequence is, that cultivation is discouraged, to the prejudice, more or less, of the husbandman himself, of the landlord, and of the public.
For an examination of the other classes of taxes formerly mentioned, I must content myself with referring to Mr. Smith.* In the prosecution of the subject, my plan was to state the results of the speculations of those writers whose opinions have had, of late years, the greatest practical influence on the financial operations of this country. But this is a subject far too extensive for me to undertake at present.
[* ] [Wealth of Nations, Book V. chap. iii.; Vol. III. pp. 311-394, tenth edition.]