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THE INCOME AND PROPERTY TAX 1861 - John Stuart Mill, The Collected Works of John Stuart Mill, Volume V - Essays on Economics and Society Part II 
The Collected Works of John Stuart Mill, Volume V - Essays on Economics and Society Part II, ed. John M. Robson, introduction by Lord Robbins (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1967).
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THE INCOME AND PROPERTY TAX
Parliamentary Papers, 1861, VII, 244-64. Not republished. Original heading: “John Stuart Mill, Esq., called in; and Examined.” Running heads: “Minutes of Evidence taken before the/Select Committee on Income and Property Tax.” The evidence was taken on 18 June, 1861, with John Hubbard in the Chair, and the following members of the Committee present: Walter Buchanan, Stephen Cave, William Gladstone (Chancellor of the Exchequer), T. Sotheron Estcourt, Sir William Heathcote, Sir Frederick Heygate, Robert Lowe, Sir Stafford Northcote, James Turner, William Pollard-Urquhart. Not mentioned in JSM’s bibliography or Autobiography. No copy in Somerville College.
On 19 Sept., 1861 JSM wrote to Leonard Courtney, in answer to the latter’s “intelligent objections” to his arguments before the Committee, saying in part: “It so happened that none of my cross-examiners in the Committee took the same view of the subject which you, and the actuaries, take; and their questions, therefore, drew out very little of what I could have said in opposition to that view. I will merely place before you one form of the argument, which appears to me very simple and conclusive. The actuaries argue that income of equal capitalized value should pay equal amounts to the tax. Granted: that is, equal total amounts. But if these equal total amounts are to be made up by equal annual payments, it is implied that the payments are of equal duration, and the owner of the terminable income would be required to go on paying his quota to the tax after his income had ceased.
If you will only consider what would be the payments required from the two supposed taxpayers if each of them was required or empowered to redeem the tax by paying down a gross sum once for all, you would, I think, see that the opinion of the actuaries has no ground whatever to stand on.” (Letter in the British Library of Political and Economic Science.)
JSM’s examination includes questions 3538 to 3804 of the evidence before the Committee.
The Income and Property Tax
j. hubbard:You have given considerable attention, have you not, to the subject of taxation in its different forms? I have given considerable attention to that subject.
Would you have the kindness to state to the Committee what are the principles upon which you would recommend the construction of a tax of the nature of an income tax, levied for the purpose of providing a portion of the annual supplies of the country, and therefore differing in that respect from a property tax, which is levied upon the corpus of the property at its change of possessor or transfer? It seems necessary, I think, to begin by considering what would be the conditions of a perfectly just income tax, although those conditions may not be, and are not, entirely realizable; in order to have a standard of absolute justice before one, which one must endeavour to carry out so far as insuperable practical obstacles do not interfere with it. Unless we set before ourselves an idea of what would be perfectly just, we are unable to make any fair approximation to justice in the practical application. I should say that the first rule is the general rule of taxation, namely, equality; that is to say, taxation in proportion to means. But this does not, I think, necessarily imply taxation in proportion to the whole of a person’s receipts; because the whole of his receipts may greatly exceed what he can, with any propriety, expend upon himself. It seems to me, therefore, that two kinds of allowances are necessary; an allowance for small incomes, and an allowance for incomes that are of temporary duration, or precarious; and I think that the present income tax fails of justice under both those heads, though I do not go nearly so far as many people in my estimate of the amount of that injustice.
Would you state what are the special features in the present income tax[*]which appear to you to conflict with those two principles which you have laid down? Perhaps I had better begin with the one of the two cases which will take the shortest time to state, and that is the allowance due to small incomes. It seems to be admitted that a just income tax ought never to fall on necessaries; and accordingly all income taxes fix a certain minimum up to which no tax is paid. That I think perfectly right; but the present income tax taxes incomes which exceed that minimum on their full amount, and that seems to me not just. Justice, I conceive, requires that any income exceeding the minimum should be taxed only on the excess, and not on the whole amount; because otherwise those who are immediately above the minimum are placed in a worse position than if they were at the minimum. The rule of equality and of fair proportion seems to me to be that people should be taxed in an equal ratio on their superfluities; necessaries being untaxed, and surplus paying in all cases an equal percentage. This satisfies entirely the small amount of justice that there is in the theory of a graduated income tax, which appears to me to be otherwise an entirely unjust mode of taxation, and in fact, a graduated robbery. What gives it plausibility is the fact, that at present the lowest incomes which are taxed at all are overtaxed. If an income above 100l. a year, supposing that to be the minimum, as at present, were only taxed upon the excess above 100l. a year, I think everybody would see that the ratio was in that case fair, and that the lower incomes were exempted as much as they had any just right to be.
Following out for a moment the last inference which the Committee might draw from your reply, you are aware, are you not, that the objection to taxing upon the excess beyond a certain sum, if applied strictly, would involve the collection of sums so small, and spread over so wide a surface, that they would not be worth collecting; do you think that any adjustment in a middle form might be taken which would reconcile those difficulties; for instance, instead of taxing 101l. at 1l., or 105l. at 5l., a certain minimum, say 60l., should be deducted from incomes of 100l. up to 150l., so as to leave 40l. as the sum which should be assessed? That seems to leave too large a margin. I know that there would be an objection to assessing incomes of 101l. upon 1l.; the income tax upon 1l. would not be worth collecting; but I presume that the income tax upon 5l. might be so. A 6d. income tax on 1l. would be 2s. 6d., and I imagine that the tax-gatherer does collect as small sums as that. At any rate that is only a question of degree. You might tax every income on its excess above 100l.; that is, you might make the taxable amount the excess above 100l., but might only begin to collect the tax at the point of 105l., or 110l. Or if it is thought necessary to begin the actual collection at 100l., you might tax only the excess above 90l., or the excess above 80l. But I have no very decided opinion upon that point.
To settle the principle of your remark, it implies that a certain sum would be adjusted as an equivalent for the necessary maintenance, and that above that all should be taxed, releasing then only sums so small as not to be worth collecting? Just so.
Then, passing to the other point of your remark, which was the mode in which the present tax falls upon precarious incomes; in what way would you describe the present inequality of the tax in that respect, and in what way would you propose to remedy it? The injustice of the present tax as it affects permanent and temporary incomes, and fixed and precarious incomes, seems to me to result from this: that incomes which are nominally equal, are not equal for the purpose of expenditure. Those whose income is either temporary or precarious are under obligations, or necessities, one may say, which others are not under, to save a portion of their income; and that I conceive to be the only claim in equity that there is to any remission of taxation in the case of temporary incomes. The plan of capitalising incomes and taxing them on their value as capital, I confess, seems to me to be not merely impracticable, but, even if it were practicable, thoroughly unjust and unequal, and to involve such arithmetical fallacies, that it is to me a matter of astonishment that good arithmeticians should have fallen into them. But what I should lay down as a perfectly unexceptionable and just principle of income tax, if it were capable of being practically realised, would be to exempt all savings; that the portion of an income which was saved, and converted into capital, should be untaxed. I would leave this untaxed, because otherwise, as it pays income tax again after being invested, as it pays income tax on its produce after having paid it on the capital, it really pays twice, whereas the portion of income, which is devoted to personal expenditure, pays only once. By the adoption (if it were practicable) of the principle of not taxing savings, all the claims of justice towards individuals would be included and covered. Inasmuch as the only claim which any income has to be taxed more lightly than others consists in the greater necessity for saving; if you could exempt from taxation what any person does save, you would have done him full justice in that respect, and if he does not actually save it, he has no claim to any exemption. I am laying this down merely as the theory of a perfectly just income tax. I am quite aware that it cannot be fully carried out; that you cannot consider individual cases, and you are therefore obliged to consider, not what people actually do save, but what are their necessities and obligations to save; with merely a general consideration whether, on the average, it is practically the fact that as a class they do it, or not.
In the attempt to carry out that theory, if you are unable to consider individual cases, would you make it a portion of your design to consider classes of incomes, so as to ascertain as nearly as you might, those incomes which are subject to the demands of saving to a greater degree than others? Certainly; and the impossibility of doing full justice in every case would be no good reason with me against doing it whenever I could.
Would you describe to the Committee what characteristics you woulddemand in incomes which you would conceive to be entitled to concession in the matter of taxation, seeing that the present law levies the same tax upon all receipts under the shape of income which came into the possession of an individual during the year? I beg to be understood as speaking positively only on the claims of justice, and the scientific principle on which the tax should rest. On the question of practicability, or of the administrative difficulties which might arise in applying the principle, I must be understood as always speaking under correction from many who are much more competent than I am to judge of those administrative difficulties. But in principle, I would say that all life incomes, with certain exceptions which I could specify, have a claim to some consideration as compared with permanent incomes; and that all precarious incomes, without any exception that I know of, have a claim to some consideration as compared with those which are not precarious, but fixed. Those which, like industrial incomes generally, are both precarious as to amount and also temporary as to duration, having thus a double claim, have the strongest claim of any. By industrial incomes, I mean, as the Honourable Chairman means in his memorandum,[*] professional and trading incomes; but trading have not quite so strong a claim as professional incomes, because traders, at least those who are trading on their own capital, in some degree combine the two characters, and hold an intermediate position between those who depend on property and those who depend on labour.
When you state that you would place life incomes in a different category from permanent incomes, do you state that with regard to the tenure of the owners, and without consideration of the nature of the income itself or of the property which produces it? I state it without any distinction as to the nature of the property from which the income emanates: but I am quite aware that the source from which it emanates makes a great many practical differences, some of which are such as in my opinion ought to exclude some life incomes from the consideration which I would give to them in other cases.
If you look at the schedule[†]which is in the paper lying before you on the table, you will find that in the scheme which is there presented to the Committee, it is proposed to range in one class only all the incomes derived from property which may be invested; the Committee now, I think, understand you as wishing, if possible, to discriminate between the different tenures under which portions of that income might be held? As far as possible; as far as is consistent with administrative impracticabilities.
That is to say, that land, or the rental of land, might be held under somecharges or tenures to which you would grant an indulgent measure of taxation, while the rental of land held under other tenures you would tax to the full amount which might be imposed? Exactly.
The consequence of the application of that rule would also apply, would it not, to the dividends of funded property, or to any of the products of money invested? Yes. In principle, and as a general rule, I would exempt merely life incomes from a portion of the tax, by taxing them only on a part of their gross amount. But in some cases, I do not think that they possess this claim for exemption: particularly in cases of life incomes derived from settled property. There are a number of interests, which are life interests, one may say, only in name, and in a sense which is quite consistent with the tenant in possession being able to spend the whole of the income without imprudence. For instance, a tenant in possession of settled property, though he may be only a tenant for life, has, I should say, no claim to exemption, because the reason on which I would give an exemption in other cases does not apply to him. It may be fairly presumed that if he has any person whom he is bound to provide for, that is, if he has any children, for that is the only case that can be laid down as a case of obligation, they are probably provided for by the same settlement under which he is a tenant for life. The same reason applies to the next heir, the person who, under the settlement, will come in next. He may have an allowance by the settlement, which is of course liable to income tax, and I do not think that he has any claim to be taxed on less than its entire amount; because as he is to come into the whole property ultimately, he is not obliged to save out of his income, the amount of which, probably, has been adapted to his present needs and expenditure, and nothing else. I do not undertake to say positively how far the exceptions to the rule of partially exempting life incomes should extend. For instance, the case of a widow’s jointure is a case in which doubt might arise. But upon the whole, I should say that a widow’s jointure is not entitled to any exemption; because in almost every case in which a jointure is settled on a widow, either she has no children, or if she has, they are provided for by the same settlement; and therefore, generally speaking (of course you cannot allow for individual cases) she is under no extraordinary obligation to save anything for children from her jointure. Therefore, taking cases in classes, and without considering individual cases, these are life interests, and yet have no claim. I do not think that the same reasons apply to collaterals. I think that charges for younger children, for instance, though they have not quite so strong a claim as industrial incomes, still have a claim to exemption to a certain extent.
The motive, as I understand, for the concession of which you are now speaking, as desirable for the purpose of carrying out a perfectly just theory of taxation, is the view of the necessity of saving? It is so.
Would you allow to be introduced, with regard to that necessity ofsaving, other considerations beyond that of mere tenure; for instance, would you allow the introduction of the consideration of whether other property might be held by the person in question, and what children he either had or might have; whether he were married or unmarried, in what degree the relations who were next of kin might stand to him, as influencing his desire of accumulating on their behalf; all those circumstances would, of course, form elements which would weigh upon a man with regard to his disposition to save; are you prepared to admit that those considerations should be ascertained for the purpose of qualifying or establishing the concessions that you think would be desirable? I do not think it would be possible to enter into those minutiæ, or into the particular circumstances of individuals. I think you can only proceed on a general and rough classification of incomes. Besides, if it were possible to enter into those minutiæ, I apprehend that there would be just the same reason for entering into them in the case of industrial incomes, as in that of incomes from land, or the funds.
Then you would, by the concession which you think might be required here, imply a new interpretation of the tenure of the owner? Yes.
Have you at all considered whether, in legal form, that tenure could be so described as to carry out the object which you have in view, without giving rise to doubt or litigation? The only way which has occurred to me (but it is possible that better ways may occur to others) is, that all incomes which are for life, or for terms of years, shall be entitled to exemption, except an enumerated list. The list of exceptions would perhaps comprise three-fourths of all those which are nominally life tenures. For instance; if it were enacted that the case of a tenant in possession of settled property, the case of the future possessor, and the case of widows’ jointures, should be excepted cases, to which no exemption should be allowed, these alone would cover, I imagine, the great mass of the nominal life interests in property. Thus a very small list of exceptions would include such a mass of incomes as would make it comparatively unimportant, whether or not you specified all the exceptions that might be with justice made. If you except those great classes of cases in which there could be no claim to exemption, I think an exemption might be allowed in all unmentioned and unenumerated cases of temporary incomes.
Would you allow the same indulgence to take effect upon the execution of a deed of trust by the owner of an estate, as you would in the event of that disposition having become a legal document, and being subject to its legal results; would you, for instance, allow a man of middle age to make by deed a disposition of his property which he would ordinarily make by will, so as to involve the same consequences with regard to a claim for concession in the incidence of the tax? Yes; for instance, if he chose to bind himself to give a provision of so much a year to one of his younger children in his lifetime, instead of postponing it until his death, you have a right to consider that from the time the income is out of his control it belongs to his younger son, and the younger son must be treated like any other life annuitant, I should say, from that time.
Supposing a large landowner of middle age, who holds an estate in fee, of course naturally subject to the incidence of the tax, to make a trust deed, under which he provides for his several children, reserving to himself only a life interest in the estate, and giving to them a contingent reversion in the property in various shares, and supposing that that disposition in no degree fettered the amount of expenditure which he had previously been commanding, do you think that there is anything in the mere legal determination of that property which should exonerate the estate from a portion of its liability to the Exchequer? His power of expenditure is now fettered in a degree in which it was not before, because he has, by a special bond, bound himself legally to make certain allowances to certain people; and has it not in his power to expend that part of his income on anything else. It has become the property of the person to whom he has given it; it has become the income of that person, and is no longer part of his own income. Therefore, in considering how it should be taxed, we ought to consider the circumstances of the person receiving it, and not those of the person paying it.
If, for instance, a person having an estate of 10,000l. a year, with the property tax at the rate of 9d., amounting to 375l. a year, were to place it entirely in trust in that way, he might diminish the liability of the estate by one-half; as regards the income tax, do you think that the circumstances of a family arrangement or a settlement are of such a nature as to justify the relaxation of the Chancellor of the Exchequer in his demand upon the revenues of that estate? If such a rare case should happen as that of a person who, during his life time, legally appropriates the half of his income to another person, it is then no longer his, and the Exchequer has no longer any business to come upon him for it. With regard to those who now have it, it seems to me that they are to be considered each of them as to his own position or his own circumstances. If a parent is in such a position that he ought to save for his younger children, or to give them the means of saving for themselves, it is a thing rather to be rejoiced in than not; that by these family arrangements he is enabled to obtain an allowance from the Exchequer for what is thus saved.
We are assuming that he retains in his own possession the full sum which he wishes to expend, and therefore he does not embarrass his own expenditure, but it is merely that he changes the legal tenure of the property which is to be rated, and so far changes its incidence to the tax? Yes.
Have you considered whether the question of savings should override inthe assessment of the rental of property, the rule which has been equally affirmed that all property being protected by the State should, to its full extent, be taxed equally? I do not recognize any rights or obligations as existing in property itself, in things; I recognize them only as existing in persons. All moral rights reside in persons; and all moral obligations are towards persons and I should consider nothing but persons in any question of justice.
But then you would consider those persons not simply in their persons, but with regard to their property, which qualifies them to pay taxes? I should consider it, so far as it constitutes their means of paying the taxes, and the payments ought to be adjusted equitably to those means; but I should not think that anything depends on whether one form of property is more easily accessible than the others, or whether you are more certain of its amount in the case of one person than in the case of another. I should say, in each case ascertain that as you best can, and then tax it with reference to the circumstances of the person, and not with reference to any supposed peculiarity in the thing. I only recognize things as influencing the question of justice in so far as they operate upon the situation and feelings of persons.
Are we to understand you to state that you conceive that the incomes derived from real property should under a perfect theory of taxation be taxed not upon their net amount but upon their amount with regard to the supposed saving in each individual case, as measured by the tenure of the owners? The amount of saving cannot be got at in an individual case; but the presumable savings of classes I think depend more upon the tenure than upon anything else. The saving which you have a right to presume that classes will make, depends on the classification according to the tenure; it depends upon whether the tenure of the property is permanent or temporary, and whether it is of a fixed or of a precarious amount. I would beg to add that whatever claims I may think exist to exemption in the case of some life incomes derived from property (and therefore falling within the first class in the Chairman’s memorandum), I can hardly imagine that any of them are so strong as the claims of the second class; because the second class has the double claim of precariousness and of temporariness, whereas incomes from land, though they may be for life only are usually fixed, and the cases of their being at all variable or precarious in amount are very rare. That is one reason. Another reason is because in the great majority of life incomes derived from land or from realized property, the obligation or necessity for saving, though it exists, is of a considerably less binding character. For example, in the case, which is one of the strongest, that of provisions for younger children, I do not think that the necessity of saving in that case is on the average nearly so great as in the case of industrial incomes. In the first place, there is some difference between the case of sons and that of daughters. In the case of daughters, a large proportion of them will probably marry, and of those who marry a large proportion, if they marry in their own class, will not be under the necessity of saving from their separate incomes. Still, they may marry some one to whom their income is of importance, or they may not marry at all, and therefore I do not think that their claim is annihilated; it is only weakened. Then as to younger sons who have life incomes; they have a claim to exemption, but not so strong a one as professional and industrial incomes have; because generally speaking, incomes given to younger sons are not meant to be their sole provision; they are destined to enter into the professional class in some way or other, and what is given them is generally as a help to that rather than a substitute for it. As a matter of fact, I believe those of them who marry do generally acquire more than the incomes so allowed them, and those who do not marry are not obliged to save. As a class, therefore, they have I think, a less strong claim than industrial incomes, but still a real claim to partial exemption.
With regard to incomes in the first class, with regard to which you have described very ably the remissions which you would be glad to see put in force if they were practicable, and upon which I dare say you are aware that there may be considerable doubts, but with regard to the second class you affirm a stronger claim, because there are more of those elements which should influence saving, which you conceive to be the proper test for concession? Yes. In the case of industrial incomes there are all the elements that possibly can be; there is want of permanence, and want of fixity. There is nothing, generally speaking, to fall back upon in the case of those for whom the saving is made, and, if they are not provided for from that source, they are not so at all. That applies in its strictness, however, only to professional and not to trading incomes, and I should be glad, if it were possible, to see a distinction made between trading and professional incomes. The claims of professional incomes, and all incomes derived entirely from personal exertions, seem to me to be the strongest possible. The claims of incomes from trade are less strong; because so far as the income consists of the interest of capital, it properly comes into the first class, and, being of a permanent character, is not entitled to exemption. If it were possible to tax traders on the interest of their capital at one rate, and on the remainder of their profits at another, as you do propose to tax the incomes of the capital that they borrow at one rate, and their profits at another; if it were possible to extend this to the interest of the whole of their capital, and tax it at a higher rate, and the surplus profits at a lower rate, I should be very glad to do it; but whether it can be done or not is a point upon which I am entirely in the hands of those who can judge better than I can.
Are you not now alluding to a distinction which requires you to deviate rather from what you have hitherto taken as the main guide to the discrimination which you require, namely, savings; do you suppose that the proportion of the savings which are effected out of professional earnings is larger, or as large, as those which are made out of the earnings of trades and manufactures, and other industrial employments which contain capital as one of their requisites? No doubt the mass of saving comes from traders; that is, a much greater absolute mass comes from them than from professional incomes; but whether, generally speaking, as large a proportion may not be saved from professional incomes I have no means of judging. Professional incomes I take to amount, on the whole, to much less than the aggregate of trading incomes, and therefore if they saved on the whole as large a proportion of their incomes, their savings would still bear a much smaller proportion to the entire savings of the country. There is one reason, however, which inclines me to think that very likely the savings from professional incomes may in reality be somewhat less in proportion than from trading incomes, namely, that perhaps a larger proportion of traders than of professional men are aiming at making fortunes. The great mass of professional men are aiming probably at little except a moderate provision for their children and for their old age, while successful traders are mostly aiming at making fortunes, and passing into a superior class altogether. That establishes a certain degree of probability that traders save in a larger ratio than professional men, but how far this is really the case it is not in my power to estimate.
Without venturing, therefore, to assert that traders or manufacturers save a larger proportion, you would probably admit that they certainly save as large a proportion as professional men do out of their earnings? Yes.
And, therefore, if you look to that test alone, there would be no plea for drawing a line of discrimination between them as regards the assessment on their earnings? Just so. If it were possible to carry out the principle of the tax, and to ascertain actual savings, I should have no objection whatever to any degree of favour which that principle might extend to traders. But since it is impossible to carry out that principle, the next principle that you can follow is that of the necessities or obligations for saving, and those are greater in the case of professional men than in the case of traders, for two reasons. One reason is, that the great majority of traders have capital of their own, which, being left to their children, may be sufficient to fulfil their obligation; since nobody is obliged to save, so as to leave his descendants as rich as himself. The obligation to save does not extend that far; it may be often sufficiently satisfied by leaving the capital only. But the capital only is not always the whole of what is left. Many businesses are in fact almost as hereditary as properties. In almost every very successful business it happens that if there is a son, who has been brought up to the business, and who is capable of it, he continues to carry it on, and thus inherits not only the interest on the capital, but that additional profit which is the reward of ability and industry.
Supposing that it were found impracticable to draw the line of separation between trades and incomes, from their merging into each other in many instances, so that it is impossible always to ascertain the amount of capital engaged in trade, which would be indispensable in order to carry out the discriminating assessment of trades, do you think that it would meet the justice and necessity of the case to involve both trades and professions in one common measure of relief? I should regret the necessity, but I would rather do that than not give relief at all. If I could not make the distinction, I would give to both, instead of withholding from both. And what would reconcile me mainly, if I could be reconciled, to making no distinction, would be the fact which you have mentioned, that the great mass of the actual saving of the country is made by the trading classes. If one-third or any other proportion of income may be considered to be actually saved by the trading classes, I should see no injustice in adopting that average, and taxing them only upon two-thirds.
Are you aware that in the paper which you have before you, the one-third is not stated to have been arrived at by any definite calculation, but it is rather a proportion inferentially derived from other great facts which are patent to those who have inquired into the subject; it is in itself rather an arbitrary figure? It is no doubt impossible to get any perfectly accurate statement, but some rough estimate may be made, and as far as I know, that may be a just one.
You see no reason yourself to question the propriety of that proportion? None whatever. I observe it assumes that more than one-third is actually saved by the trading classes, because one-third, in the plan before me, represents the excess of their proportional saving above that which is supposed to be made by the first class.
May the Committee infer from what you have now stated, that your wish would be to carry out a theory which would consider the amount of saving in individual cases, to be estimated from the nature of their tenure in the cases of incomes in the first schedule, but that failing the power of making that inquiry and that concession, you think it would be desirable to make the concession which is proposed for the second class alone, and in the proportion which is there stated? I would do so, so far as my information extends. I cannot speak positively as to the proportion, I must leave that to be judged of by others; but I am quite clear about this, that even if it were practically impossible to make the concession to any one else, the classes in the second table in this memorandum ought to have it.
w. gladstone:You have stated that you exclude from your view the class of difficulties, in any reconstruction of the income tax, which may be termed administrative, and deal with the question on abstract and scientific principles; may I ask you whether you also exclude from your view another class of difficulties, which may be termed political difficulties? It is hardly my province to consider political difficulties, these being, I presume, the difficulties of carrying the question through Parliament.
I mean the difficulties of carrying the question through Parliament, and of making the measure acceptable to the country, which of course, as we know very well, would not depend upon the degree of its scientific accuracy, but in a much greater degree upon the feelings of men with regard to the relative mode of treatment? That last consideration I do feel bound to enter into.
You despair, do not you, of any mode of adaptation or of reconstruction of the income tax to the principles of justice, and you look to what you have fairly termed a rough estimate? Yes.
Those rough estimates, coming as they would, with all the disadvantages of novelty, in the matter of taxation, and aiming at supplanting a system which is old, and has been long established, is there not some danger that those rough estimates might give rise to very great differences of opinion as between those classes who were to receive remissions and those classes who were to undergo augmentations, in order to enable the others to receive remissions, and that the political difficulties to which that might give rise would be so considerable, that in all probability they would be insurmountable? If the system which is proposed to be interfered with were one that gave general satisfaction, and could be considered a popular system, I cannot deny that the new inequalities which might be introduced, or those which might be left unredressed, might be very severely criticised. But there is such dissatisfaction with the plan as it now is, that I think there could hardly be so much with any new one; at least if the cases in which redress was given by the new plan, were on the whole those which presented the strongest claims to it, as I think would be the case under the Honourable Chairman’s plan. It seems to me, that any plan giving a relief of one-third to the whole mass of industrial incomes, would not only cover the greatest number of cases that have any claim, but also the strongest cases; and I should therefore anticipate that the complaint and dissatisfaction which might be excited by the impossibility of carrying the relief quite so far as the principle would go, would not be very great. I think that almost all the cases which would be left unrelieved, would be cases in which the claim to relief, if properly explained, would be seen to be not nearly so strong as in the cases of industrial incomes.
I wish to call your attention particularly to the circumstance that, as we must assume for the purpose of argument, one class of cases being relieved, another class of cases would not merely be left unrelieved, but they would necessarily be subjected to an additional tax, in order to make up the vacuum in the Exchequer which is caused by the relief granted to the other cases; and it is with reference to the dissatisfaction that might attend the positive increase of the taxation in the unrelieved cases that I wished to present to your mind the view of the political difficulties. That is a case which must arise in every attempt to redress the inequalities of taxation. If you relieve some of the payers, the Exchequer must either do without the money or must raise it in some other way. Those who have to make up the deficiency may complain, but that is not an objection to redressing a grievance, when the cases you are able to relieve are those in which the claim is strongest. Very much will depend upon the clearness and authority with which the real grounds for making the exemption were presented to the public mind, and with which, I think, they would perfectly well admit of being presented; the present Chancellor of the Exchequer, if he had to do it, would be perfectly competent to it. I think that they would admit of being so presented to the public, as to be made intelligible to reasonable people. To unreasonable people they would never be intelligible.
A great deal would depend, would it not, upon the practicability of drawing broad and clear lines of demarcation at the point where you pass over from one rate of tax to the other? Yes, and it is a very strong argument in favour of the Chairman’s plan that it does so; that it draws the line very markedly and definitely. My desire would be, if possible, to run the risk of making the line of demarcation a little less definite, in order to include a still greater number of the cases to which the principle applies; but I speak entirely under correction, in regard to the administrative difficulties that would arise in making those distinctions, especially in reference to a very important consideration, the possible introduction of fresh frauds.
It would be necessary, would it not, for any body of persons charged with the responsibility of conducting public affairs, to look carefully through, and to test all the various forms of difficulty that might be raised, and it would not be sufficient for them to say that they had prepared a plan of which the general outlines were so sound, that they felt assured that it would be carried, but they must be prepared to give an answer to every difficulty that might be stated? Yes.
Have you ever felt yourself to be in the same predicament, and to be bound to go through the various forms of difficulty, and to deal with themdefinitively on that principle, and to consider whether the result is, to leave those clear demarcations which might be made intelligible and satisfactory to the public? I cannot pretend that I have considered it so fully, and with so much knowledge of the subject as those have done whose business it is, but I have paid some attention to it.
With regard to what I understand to be your principle of a perfectly just income tax, namely, that there should be an exemption of all savings, if it were attainable; am I right in supposing that you state the ground of that principle to be this, that if any other course is adopted, the income is twice taxed? Yes; a portion of the income is twice taxed.
Would you kindly point out particularly in what mode it is twice taxed? Suppose that out of an income of 1,000l. a year, I save 300l., and spend 700l.; on that 700l. I pay the tax once; we will suppose it for the sake of simplicity to be 10 per cent. I pay, therefore, on the 300l. 30l., and I have only 270l. remaining; those 270l. I make no other use of except to lay them out and receive what they produce, and that produce I expend, and pay the income tax again on its amount. The produce has thus been doubly reduced; in the first place by a reduction of the capital, and in the second place by a tax upon the returns. If there had been no income tax I should not merely have escaped the income tax on the new revenue, but that new revenue would have been one-tenth greater than it is, and therefore I say that I have been taxed twice. A parallel case would, perhaps, serve for illustration. Supposing there were a tax on stockings, intended to be 10 per cent.: if a tax were also laid upon the machinery by which they were made (supposing for simplicity the machinery to include all the expense of making them) will not the stockings be in reality taxed 20 per cent.? It may be replied that the stockings bear one part, and the machinery the other part of the tax; that you have got the machinery and you have got the stockings too. That is true, but the machinery is of no use except to produce the stockings. The stockings are to be the whole of your remuneration; you have paid 20 per cent. before you sell them, and you will not get back the tax unless you raise their price 20 per cent. In the same manner, I say, that on that part of any person’s income which he saves and invests, and pays income tax on the returns, he is paying the tax twice. He cannot both spend the income and save it; but he is taxed as if he did both; he is taxed on it in the first instance just as if he spent it, and he is rated again on what he does spend, namely, its produce. He is taxed as if he used it for both purposes; but he can only use it for one, though he may use it for either. Therefore, I think you cannot claim the tax more than once.
Practically, the state of facts which you consider glaringly unjust in this respect, as I understand this, that a man with 1,000l. a year saving 300l., is liable to pay an income tax of 10 per cent. (that is 30l. upon the 300l. thathe saves) while that 300l. is in its transition state from income to capital? Just so.
And that subsequently, he is also liable to pay income tax upon the fruits of the remaining 270l.? Yes, for he pays it at both ends; he has the amount reduced by the amount of income tax, in the first place; and then he pays a second income tax upon it when he gets it.
Do you consider the injustice of such a state of things, as I described in my question (if that was a true description of it) to be patent and self-evident? I consider that on the principles of equality it is so. If a person is taxed on one part of his income once, and on another part twice, that is contrary to what is universally received as the just principle of taxation; and contrary to public policy too, because the portion which is taxed twice is just the portion employed in a way in which it would rather be public policy to encourage its employment. In fact, it is liable to the same objection, in some degree, which applies to a graduated property tax. The great injustice of a graduated property tax is that, by sparing the prodigal and taxing the saving, it is a punishment for economy and a reward for the reverse. So is the present income tax; since, whoever saves part of his income, pays on that part double the tax that he would have paid if he had spent it.
If I understand your objection, it goes to the root of the principle of a tax upon income, and what you contend that justice requires is, that there should be no tax upon income as such, but a tax upon expenditure? Precisely: but seeing that levying it upon income is the only way in which it can be practically done, I would levy it in such a manner as to make it approximate as closely as possible to a tax upon expenditure.
The great bulk of our taxation already lies upon expenditure, does it not? Yes.
Do you think that all taxation ought to be placed upon expenditure, and that every tax which is not placed upon expenditure, sins against first principles? I think that every tax, in so far as it is levied upon anything but expenditure, does sin against first principles. The most advantageous manner of levying it may often be on income; but still I think in its practical incidence it ought to fall on expenditure.
Therefore, with respect to the principle of the tax, making all due allowance for the difficulty of its application, you are not prepared to go the length of saying that those taxes which are directly laid upon capital are indefensible upon principle? No; not the succession tax, for instance. Those who advocate a graduated property tax, I think, have thus much ground for their opinion: they feel instinctively that the State, in its taxation, ought to give some advantage to those whose income is the result of labour, above those to whom it comes without any exertion of their own; but the only way in which, as it seems to me, this distinction can be made financially, is on the occurrence of a vacancy by death, or the passage of property from one person to another; because as long as the income is in the hands of the person in whose hands it originated, the presumption is, that he earned it, and if you tax him at a greater proportion because the amount is greater, it is taxing him either because he has earned more, or because he has saved more; either of which seems to me to be unjust and impolitic.
Still, if I understand the matter rightly, the objection which you have taken to the present income tax, namely, that it begins by limiting capital, and then taxes the produce of the remaining capital, and therefore may be said to tax incomes twice over, that objection applies just as much in the case of a succession tax, inasmuch as a man who comes into an inheritance of the value of 10,000l., and has a succession tax of 1,000l. laid upon it, is liable, in the first instance, to have the capital diminished by the tax on the succession, and then on the current rent, which is taxed by the income tax, or in whatever form the tax may be, on the fruits of the capital itself? Perfectly true. But I do not think that the principle of equality of taxation has any application to the case of taxes on succession. It seems to me that taxes on succession stand on a different foundation from all other taxes, and that the State is entitled, in reference to them, to consider public policy and general morality, abstractedly from the special rule of equality of taxation. If a person is allowed by the State to succeed to that which he has not earned, but has obtained without any exertion, that is a privilege which he owes to the existence of law and society, to which the State is entitled to annex conditions, and if those conditions are just, when tried by a higher principle of morality, no general principle of equality of taxation has any application to them.
You assume that there is a peculiarity in the case of the tax upon succession, by its amount; would you condemn other taxes upon capital in its transfer? I would; I think them always indefensible.
Do you think that the principle which you have laid down as adverse to the taxation of capital, with the single exception of taxes on succession, is of so high an order that it can be really treated, not merely as one of policy, but as one which is imperative upon grounds of justice? When one speaks of any principle as imperative upon grounds of justice, one must speak with reference to its operation on the position and feelings of individuals; and I should say, therefore, that in so far as the feelings of individuals can receive what is due to them without adopting this principle, it is not absolutely imperative. But the exemption of savings would fully satisfy and cover all just claims of individuals; and if it were practicable, there would be no need to consider anything else; you would have a perfectly just tax, since, by exempting all savings, all claims on the ground of the necessity of saving would be satisfied. But since this principle cannot be practically carried out, the next thing is to consider what are the diversities of obligation upon different classes in respect to saving, and whether in the main, and as classes, they do fulfil those obligations; and if they do, I then think that the obligation of giving them a consideration for it, by leaving untaxed, as far as possible, the savings which they are bound to make, and which, as a class, they practically do make, is an imperative obligation of justice.
Supposing it were practicable to adjust the tax exactly upon the principle of exempting savings from charge, would not that state of the law be exceedingly favourable to the richer as compared with the poorer members of society; is it not a very much easier thing for the wealthier classes to save than for the poorer ones? Undoubtedly it is.
Then does not it seem that the question is raised in point of equity and justice as to the advantages in principle of a system of law which should adopt that basis, and should say to all classes of society, under the notion of equality and fairness, we will exempt all savings from taxation; it being at the same time admitted that it is a comparatively easy thing for those who live in abundance to save, and a very difficult thing for those who live in penury, and whose absolute wants press hardly upon their means? That is perfectly true; but I think it is an objection which applies to all the received maxims of taxation. For instance, it is a received maxim to tax persons in proportion to their means; but supposing that there is an income tax of 10 per cent., it is a much easier thing, apart from conventions, from social necessities or social follies, for a rich person to bear a deduction of 10 per cent. from his income than for a poor person. I do not see how you can allow for this consideration. I would allow for it in the case of a person who succeeds to property which he had not earned, and I have no objection even to graduation in the case of a succession tax; but I do not see how you can, either with justice or policy, tax a person more heavily because he earns more, or because, after having earned more, he saves more. I do not think that you can lay a tax upon energy, or industry, or prudence. It seems to me that even upon the question of justice, apart from policy, there is no stronger or more valid principle than that of not giving any advantage to self-indulgence over industry and economy, even though the effect may be to give some advantage, or rather, not to interfere with the natural advantage of the rich over the poor.
You have just stated that if you levy an equal income tax on all classes of the community amounting to 10 per cent., from the nature of things that tax of 10 per cent. would bear harder upon the poorer classes than upon the richer; but is it not also the case that if, instead of having that equal income tax of 10 per cent. upon all classes, you modify the principle of that tax, by saying, I will exempt from the charge of 10 per cent. a certain amountwhich I estimate to be the proper savings of each person; the practical effect of that change in the frame of the income tax would be to leave what remains bearing still harder upon the poorer members of the community than it did when the rate was equal? Not, I apprehend, if you took a fixed proportion from each of them on the principle of averages; one-third, for instance, as is proposed.
What I want to present to your mind is this; I understood you to set out with the proposition that savings ought not to be taxed; and I understood you at once frankly to admit that saving is much more difficult for the poorer members of society than for the richer; that is to say, in other words, that savings cannot be effected to the same amount, or that they cannot save the same proportion of their respective incomes? Yes.
That being so, if it be true that we propose to deviate from an equal income tax, by introducing the principle that savings are not to be taxed; and if it be true that a greater proportion of savings will and can be made by the rich than will or can be made by the poor, is it not true that the adoption of your principle that savings shall not be taxed, does tend upon the whole certainly to aggravate the burden of the tax upon the poorer as compared with the richer classes? I should say not, because the relief that you give in the case of the poor, is the relief of a much greater necessity. Though they save less, still what they do save costs them a much greater effort, and therefore to have that effort alleviated, is a greater advantage to them. And in regard to the rich, though it is true that they can save more without any substantial mischief to themselves, it does not follow that they will. Those whose income is permanent, seldom do so. And if they do, I am not sure that the fact that by doing so, they confer a special benefit on the poor by adding to the capital of the country, is not a sufficient reason in one way to overrule the reason in the other.
But the savings of the poor man are just as good as those of the rich, are they not, so far as they go, in adding to the capital of the country? So far as they go, no doubt.
Let us suppose that society is divided into two classes, the rich and the poor; that all the poor men have 50l. a year each, and that all the rich men have 1,000l. a year each; that the poor men can by effort and industry and forethought save 5l. a year out of their 50l., and that the rich men can, by a similar exercise of industry and forethought, save 200l. a year out of their 1,000l.; in that state of things, would not an equal income tax, levied upon the gross income, be far more favourable to the interests of the poor class as compared with the rich class, than an income tax which taxes the poor man on 45l., and the rich man on 800l. a year? That, so far as it goes, may be a reason for taxing people according to their necessities of saving, rather than according to the saving which they actually make. It is, no doubt, an important question of principle, how far the importance of not taxing twice ought to prevail over other considerations. But this is not the question to be decided practically, since we cannot exempt people on what they actually do save. A tax which was proportioned, not to people’s actual savings, but to their necessities and obligations of saving, would not be liable to the objection which you have stated, whatever the force of that objection may be.
If a large allowance be made upon the assumption that it is an approximation to what persons may and should save, does not the same principle that this saving is a consideration altogether more applicable to persons in easy circumstances, than to persons in poorer circumstances, apply as much as if we could precisely measure the actual amount of saving in each case? But then the average that would be taken on the principle of having untaxed what people were bound to save, would of itself exclude the greater portion of the opulent classes from the benefit; it would exclude all but those who were obliged to save in order to fulfil a real necessity.
I quite understand the force of your argument as between one portion of the upper classes, and the other portion, that is to say, the distinction that you have so clearly and admirably stated between the owners of permanent and terminable incomes, and the owners of precarious and certain incomes; but then I wish to draw your attention to quite another division, the next division of society, not according to the source of income, nor according to the tenure of income, but according to the quantity of income relatively to the wants of human nature for subsistence and for comfort, and to ask whether it did not appear, that upon the whole, the adoption of this principle, that savings are not to be taxed (setting aside the degree in which you may be able to give it a precise application), and the attempt to frame a law upon that principle, would not be a change in our law favourable to the condition of the poorer classes of society as compared with the wealthier? I think it would be favourable to the saving classes, whether poor or rich, compared with the spending classes; and that consideration I think is even paramount to the other. If the rich are to be subject to a greater proportionate amount of taxation than the poor, I think it ought to be done in some other way. A succession duty is the most unobjectionable mode of doing it, because in that way it is confined to hereditary wealth. I think you must allow people to retain the full advantage for their lives of what they have acquired; but the State may deal with it on the occasion of succession. I certainly do think it fair and reasonable that the general policy of the State should favour the diffusion rather than the concentration of wealth, but not, I think, by taxing people twice on the same portion of their income, or by taxing people for the fact of their saving. Taxing people on what they save, and not taxing them on what they spend, or taxing people on a larger proportion of their income, because they are better off, does not hold the balance fairly between saving and spending; it is contrary to the canon of equity, and contrary to it in the worst way, because it makes that mode of employing income which it is public policy to encourage, a subject of discouragement.
You have just stated, that this would be in favour of the saving classes, as compared with the spending classes, but is it not true, that upon the whole the poorer classes are, and must be spending classes, and not saving classes, in comparison with the richer classes, relatively to the rich; and is it not also true that the change would be, so far as it goes, a change in favour of the richer classes of society as against the poorer? In one sense it would.
I think I have understood you to say, that you adopt generally the schedules of the Honourable Chairman, not as being perfect, but as being a great improvement upon the present structure of the income tax? Exactly.
There is one more point on which I should wish very much to have your opinion with as much exactitude as you can give it, and that is the point with regard to life incomes; but, first of all, are you prepared, according to the schedules of the Chairman, to adopt the principle, that all life income, as such, shall be charged with the full tax? I am not prepared to adopt that part of the Honourable Chairman’s plan. I would exempt as many of the life incomes as could be got at without very inconvenient consequences.
I quite understand that your desire would be to give exemption to life incomes in a certain form; the form which I think you suggested was that an exemption should be laid down generally, and then a long list of exceptions should be made, which perhaps might contain a great proportion of them; but what I wish now to put specifically to you is this, whether you would be ready, rather than to retain the present income tax, to adopt the Chairman’s plan as it stands in that important and vital point, namely, that it puts all life incomes whatever under the full tax? Yes; life incomes in the first class, life incomes from property: for I think that the Chairman’s second class, taking it as a class, has a much stronger claim than almost any in the first class have; and that is a great object to exempt the second class, even if it were not possible to do justice to any in the first class. The only case that I would positively take out of the first class is pensions. I do not see any reasonable ground for refusing them exemption. There is another class, a class essentially professional, which, because the income is derived from land, the Chairman includes in his first class; it is the case of clergymen, holders of tithe rent-charge, or glebe with cure of souls. These I think in principle ought to be in the second class. It is quite true, however, that the Chairman’s allowance of 100l. a year untaxed to each of them, does on the average satisfy the claim of the entire class, but it operates very unequally in individual cases.
Are you aware that the plan of the Honourable Chairman makes an allowance to a life interest in the case where it is founded upon a life annuity purchased with money? I am aware of that allowance.
And you would adopt that as part of your plan, would you? I have no doubt whatever, that in the case of what are called terminable annuities, the Chairman’s plan is right, because a terminable annuity is not wholly income, but partly a replacement of capital; and it may be said of life annuities too, that they are a replacement of capital, so far as regards those by whom they have been bought. There is this difference, however, between the two cases, taken as classes, that in the case of terminable annuities, the capital is actually replaced, because it hardly ever answers the purpose of anybody to hold them, except persons in business, who hold them as investments; whereas, a very large proportion of life annuities are meant to be entirely consumed; the capital is sunk; and just as I think that when income is converted into capital, it should be exempted from the income tax, so I think that when capital is reconverted into income, and employed in expenditure, on the same principle it ought to become again subject to the tax. I therefore do not see, in the case of the great mass of life annuities, that there is any real ground for their being exempted; but I am aware that cases may be shown in which there is ground. So many practical difficulties would attend the attempt to make the distinction, that I will not venture to say it ought to be made. Still I think that in principle the case of terminable annuities, and that of the great bulk of life annuities, are not similar. An annuity which a person holds on his own life is usually intended to be consumed during his life, and the capital is not intended to be, and is not, saved and replaced; therefore, there is not the same injustice in subjecting life annuities to the entire income tax, as there is in the case of terminable annuities. I do not mean that the deduction (say of one-third) ought not to be made from them as from other life incomes; I mean that no special deduction ought to be made for the replacement of capital, such as is proposed in the case of terminable annuities. The proposition in the case of terminable annuities is not to deduct one-third, and charge the tax only upon two thirds; it is to separate what is replacement of capital, and to tax only the interest. That reason, I think, does not exist in the majority of life annuities that are held by persons for their own lives; still I am aware that if it were attempted to make a distinction, there might be means of evading it, and therefore I hesitate to give any opinion practically on the point.
In asking you those questions upon the Chairman’s schedules, the form of question which I wish to put is this; are there any improvements which you think it vital as a matter of principle, to make in those schedules, in order to reconcile your mind to this plan, as a plan in substitution for thepresent income tax. I do not want merely to ask you what you think might be an improvement, but with respect to the point of pensions, I should like to know whether you think it vital to carry them over into the second class, or whether you are ready to admit that you cannot get anything better than a reconstruction of the income tax, which shall still continue to tax pensions upon their full annual amount? Yes; but at the same time I own that it is of very great importance to carry the principle on to all cases to which it may be found practicable to apply it, in order to diminish as much as possible, the number of those on whom, as has been justly remarked by yourself, an additional burden would be thrown by an exemption given to others.
You think, therefore, with regard to the question whether pensions shall be charged in full, though your plan would not charge them in full, yet you do not think it inadmissible to charge them in full as a part of a plan of reconstruction? If it were found impossible to make any other reform of the tax than just that which the Chairman has proposed, I would adopt his plan.
If pensions are to be charged in full, we should stand, should we not, in this predicament, that while aiming at equalising substantially the incidence of the tax, we should continue to levy the tax at the same rate upon a pension, which, in a multitude of cases, would not represent more than four or five years’ purchase, and upon incomes from land, which, under the most favourable circumstances, would represent 30 or 35 years’ purchase? The number of years purchase, though the ground taken by one class of reformers of the income tax is not, in my opinion, a tenable ground, I should consider only the necessity under which the holder might be of saving, and the means which his income afforded him of doing so: and certainly if the income were nearly expired, it would not afford him much means, but also those means would not be much crippled by the tax, as it would be for a short time only.
Therefore, you would not be staggered or alarmed by the fact, as it would be, that pensions being often worth four or five years’ purchase, and rarely worth more than six or eight years’ purchase, would be taxed at the same rate upon the net income as incomes arising from land, being worth in capitalised value four, or five, or six times as much? I should not consider the difference in capitalised value as any test of the injustice, but I should think that there was injustice. Still, as there must be some injustice in any income tax, and as the thing to be aimed at is to make that injustice the least possible, if it were shown to me, or if there were a general conviction, that other distinctions could not be made without involving consequences that it would not do to incur, I would then do as much justice as I could, and take the second class as the Chairman leaves it.
In respect to this particular case, what I understand is, that supposing A.B. were to object to the reconstituted income tax, that a pension worth five years’ purchase was taxed as much as an income from land worth 35 years’ purchase, your answer would be, if I understand you rightly, that you put that aside as not relevant to the matter in hand, because that is not the principle upon which you found that reconstruction? That is not the principle, but still I should admit that the pensioner was not justly treated.
The exemptions which you would desire to secure for pensions, you would desire to secure upon other grounds? Yes.
You do not think it absolutely vital in the plan for reconstruction that pensions should have any relief? I think it highly desirable in every plan of approximating taxation to justice, that a just principle should be carried out so far as it can go, that is, to the point at which it is stopped by insurmountable obstacles; but if other means fail, and it is thought that there are insurmountable obstacles to doing absolute justice in a particular case, I am forced to give way to them, but not for that reason to relax my support of what I consider justice in cases in which it is practicable.
Then, with respect to annuities for life, I understand you to consider that they ought to have an exemption? I think that the greater number of annuities for life have no real claim to peculiar exemption as annuities, but they have a claim to the general exemption on life incomes of one-third. I conceive that they have not, generally speaking, a claim to the exemption due to terminable annuities, of deducting the replacement of capital, because, as a general rule, the capital invested in them is not intended to be replaced, and is not replaced.
You have noticed, have you not, the mode in which the plan of the Chairman deals with the case of life annuities? Yes; he deals with life annuities in the same way as with terminable annuities, except that the calculations of course are somewhat different, because they depend upon the age and not solely upon the value.
You do not approve of this particular mode of dealing with them. You think that they are entitled to exemption, but not in that form? I find it difficult to make up my mind upon that subject, because it depends very much upon practical considerations. I have no doubt whatever as to their being entitled to the exemption of one-third, or whatever it is that is given to life incomes generally, because there is no class of persons on whom the obligations to save are more imperative than on a large proportion of life annuitants. But, on the other hand, the Chairman proposes that they should be allowed a deduction, not of this one-third, but the much larger deduction which is implied in exempting from taxation what is required to replace the capital. This I quite agree is a proper principle in the case of terminable annuities, that is, in the case of all annuities in which the capital is really intended to be replaced; and there is a class of life annuities, as the Honourable Chairman has had the goodness privately to point out to me, to which it applies. For instance, if a person receives money from an insurance office, paying for it by an annuity on his own life, that is a similar case to an annuity for a term of years; and there are just the same reasons for leaving untaxed the portion which is repayment of capital.
On the whole, I think that you have considered that life annuities ought to be treated on the general principle of life incomes, and ought to receive the same amount of exemption as life incomes? Just so.
But are you aware that is not the principle upon which the Chairman’s plan deals with them? He deals with them as terminable annuities.
I presume that you do not consider it vital, or of first-rate importance to deal with them in that form? I do not attach first-rate importance to that distinction; I do not pretend to decide positively whether life annuities should or should not be treated like terminable annuities.
Do you consider it of first-rate importance that terminable annuities should receive the same exemptions as life incomes? I think that it is of importance, but not of such importance, that unless it could be done it would be a fatal objection to the Chairman’s plan; I do not in that sense think it of first-rate importance.
Do you think that a plan could be said to conform in your view sufficiently to the interest of justice which levied upon all life annuities the full tax? As it would not do what I consider full justice, my opinion would depend upon whether the practical difficulties were such as satisfied me, or satisfied better judges than I can pretend to be, that it was not practicable to get nearer to complete justice. If you have got as near to justice as you can get, every reasonable person must be satisfied.
You are not satisfied in your own mind that this plan, which leaves all life interests subject to the full tax, with the exception of life interests in annuities purchased by money, is the nearest practicable approximation to justice? I am not satisfied, because life annuities and pensions, and even charges upon landed estates, and other settled property, in favour of collaterals who would not come into the property ultimately, or whose descendants would not benefit by it, might, so far as I can see, receive an exemption; it would be just to give it to them, and it is still to be proved to my satisfaction that it would be practically impossible.
Should I be justly representing your idea of the plan in this way, that you would accept it in carrying you so far on the road towards justice, but not as reaching it, and that consequently you would accept it, in the hope of effecting whatever further amendments experience might suggest? I should hope that if the alteration were to be made at all, it would be carried as far as practical difficulties permit. But if those who have the thing to do, find that the practical objections are insuperable to carrying it further, that would be a sufficient presumption that in the opinion of the best judges, this is the point at which it is necessary to stop, and if so, I would stop at this point.
At the same time, your respect for the opinions of those who have the thing to do is not sufficient to lead you to acquiesce in that conclusion if they say that they cannot do it at all? Not unless they tell me the grounds upon which they go, and then I might possibly be convinced. If they tell me what the difficulties are, I might possibly think that they were sufficient; or I might possibly think that they were better judges than I am of their sufficiency.
sir s. northcote:I think I understood you to state that in apportioning taxation you should look to the circumstances of the person taxed, and not to the nature of the property from which the income is derived? Yes, except in so far as it affects the circumstances of the person.
And persons should, you say, be taxed in proportion to their means? That is a proposition which requires some explanation before I can assent to it. I should say they should be taxed proportionally to their means of personal expenditure, their means of expenditure as contrasted with saving.
And you consider that their means are to be ascertained by taking the average of classes? That is one of the elements which must be ascertained in that way, because it can be ascertained in no other way. The incomes may be ascertained as they now are from individuals, but neither their actual savings nor their necessities for saving can be ascertained by inquiring into individual cases, but must be taken on the average of the class.
What do you mean by a class? I mean any number of persons who are in a situation capable of being clearly specified and defined, which situation places them in a different position as to their necessities for saving, from that of any other set of people.
Then, in classifying for the purpose of taxation, you must classify upon some principle which will distinguish one class from another class? Yes.
And which will be common to all individuals contained in that class? Certainly.
You might take many different principles of classification, might you not? I do not think you could take many that would be relevant to this point.
You might take, for instance, the case as to the tenure which persons have; you might distinguish persons according to their having life interests, or more than life interests? Yes.
Then, again, you might classify them according to the amount of their wealth, or according to their being above or below a certain rate of income? Yes.
Then you might classify them again, might you not, according to the circumstances of their families, as has been done in old times, when persons with large families were taxed at a lower rate; that would be another principle of taxation? Yes; it would be a possible principle, but an objectionable one.
You might classify them according to the nature of their property, or other source from which their incomes arise? That, also, is one of the elements.
Would it be possible to take more than one of those principles, and combine them for the purpose of classifying, or must you classify them upon one principle, rejecting all the others? I do not think it would be just to disregard any consideration which is relevant to the real principle, that is, the necessity for saving. You must, I think, make the classification, so as to allow for the greatest number possible of the circumstances that make it necessary for one person to save more than another, with the single exception of those circumstances which depend upon his own will. For instance, I would not admit large families as a ground, because it is not a necessity for anybody to have a large family; it is his choice, and I do not think any allowance should be made for that.
Is it not necessary in adopting any classification for any purpose whatsoever, as a scientific principle, that you should lay down some principle of classification, and adhere to that one principle? It does not seem to me always necessary to adhere to one principle; the best classification is sometimes grounded on a combination of principles.
Supposing you were going to classify books, for instance; you might classify them according to their size, or according to their language, or according to the subject-matter with which they dealt, but you must adopt one or other of those principles, must you not, and not mix up one or two of them together? That depends upon what your object is. If your object is to arrange them in a library, you often proceed upon more than one of those principles; for instance, you may proceed partially upon size, and partially upon subject; on the same shelf, it is necessary, in some degree, to place books of the same size, and yet you may place upon the same shelf, as far as possible, those which are upon the same subject. I mention this, to show that it is not necessary to adhere to one principle exclusively, and that you should take into consideration as many as are relevant to the purpose which you have in view.
Would you call putting books on shelves classifying them? That is the end for which I am supposing them to be classified; but if you are classifying them for any other end, of course the principle would be different.
Looking at it as a mere question of scientific principle, you do not think it necessary in forming a class, that you should take any one principle whichdistinguishes that class from all other classes, and which is common to all the individuals in it, and distinguishes them from individuals in other classes? I think you very seldom do anything practically on one principle only. It is almost always necessary to consider more than one principle.
Then, in fact, the classification ceases to be scientific, and becomes arbitrary in that case, does it not? Not necessarily; because all the elements of it may be scientific, and because each of them may only be allowed the weight which it derives from its scientific relation to the end which you have in view.
I understand you to say, that persons are to be classed for the purpose of taxation, according to their means, and that their means are to be ascertained by taking the average means of the class to which they belong, however that class is to be ascertained? Their means are to be ascertained in the same manner as at present, from their returns, or otherwise.
But with regard to the higher or lower rate of taxation to be placed upon one class or another class, do you not place people in the one class or the other class before you get their returns of the amount of their incomes? The necessity of classifying incomes before you receive the returns, arises from the fact that all incomes are not ascertained in the same way. You are obliged to have different schedules, because the income tax is levied from different classes in different ways, and upon different evidences. If the classification needed to be adopted to some other purpose, such as that of making allowances of the kind which this Committee are considering, it would probably be necessary to make some change in the principle of classification.
You stated a little while ago, did you not, that the savings of classes depend more on tenure than on anything else;[*]what did you mean by tenure? If I said that, I said what I cannot stand to. I am not aware that I said it; I think I may say that the word “tenure” is not my own word at all.
I do not mean to say that you stated that savings depended on tenure, but that the necessity of savings depended on it? I would not say that the necessity for savings depends entirely upon it, because in individual cases it does not; but it is very much affected by the fact of the tenure being permanent or temporary, and also by the fact of the income being fixed or precarious.
Then the income being fixed or precarious, has relation to the source of the income, has it not? It is very much affected by it; incomes from some sources are necessarily unfixed, while those from other sources may be, and generally are, fixed.
Upon what else does it depend, if it is not upon the nature and source of the income? In individual cases, it depends upon many things; for instance, the most certain income from land may be affected by a bad year; the rents may not be collected, and in that way all incomes are precarious in some degree; but certain incomes are much more precarious than others, owing to their source. Incomes which are earned by continued labour, are liable to the contingencies of health, while all incomes that are earned at all, are subject to termination by death.
Is the income which a man receives from a ship, of which he is the owner, a precarious income? It is precarious in the sense in which all trading incomes are; that is, it may be a great deal one year, and very little another, or he may become a bankrupt, and have none at all.
Is the income which a man derives from the possession of a house precarious or not? No doubt it is precarious in some degree, but the precariousness of it depends upon circumstances which can be in a certain degree averaged.
Supposing a man to own a certain number of houses, and to make an income by letting them, is it not uncertain from year to year what he may make by the rent of those houses? Yes, it is uncertain; there is a character of precariousness in it, which applies to many more cases in some degree. For instance, in another case, which is in the Honourable Chairman’s first class, namely, shares in public companies, the income from them is no doubt liable to vary from year to year, and therefore in that case the element of precariousness exists to a certain degree, but it exists much less than it does in many other cases.
At the present time the man who owns a ship and the man who owns a house pay at the same rate upon the incomes which they respectively derive from them; it is now proposed to diminish by one-third the amount which the owner of the ship has to pay, and to increase by some sensible proportion, the amount which the owner of the house has to pay; do you think that that is a fair arrangement to make? I think it is hardly fair to say that the tax on the income from the house will be increased, because it is proposed to make an allowance of 15 per cent. in the way of reduction. That, however, is on a different ground, undoubtedly, but I think there is one very considerable difference between the two cases (although they are border cases, as it were). The income of the shipowner is one in which he may make very large receipts at one time, and none at all at another. In the case of the owner of houses, the maximum we know; the maximum is the rental of the houses; more he cannot receive, and his liability to receive less is a moderate liability only. It is not likely that any person who only owns house property will have the bulk of his property generally unlet for many years, or will have much of it unlet at one time.
The owner of house property is, however, subject to some dangers which are peculiar to him; for instance, fashion may change, and his housesmay become less valuable on that account, may they not? They may so, certainly.
And certain burthens may be thrown upon house property in respect of rates and taxes, from which other property, shipping property, for instance, is exempt? Yes, but you may set against that that the burthens may be diminished as well as increased.
But, as a matter of fact, is it not the case that taxes are laid upon house property which are not laid upon shipping property? Yes.
Are you aware that house property is subject to many disadvantages and burthens, and restrictions in its transfer from hand to hand, which do not apply to shipping property? That is perfectly true; none of which, I think, should exist.
But, nevertheless, while there are those differences between the two which make for the ship and against the house, you consider that there is a principle which would induce you to put the ship in the lower class and the house in the higher class? There arises, then, a question which not unfrequently does arise, namely, whether certain personal situations are to be considered as trades or not. There are undoubtedly persons holders of houses, and living by the rent of houses, who may be considered as approaching to the character of traders; and if they were all so, if all were in the situation in which some holders of a good deal of small house property really are, they might come with propriety into the Chairman’s second class. They do not now, because, I suppose, the great majority of house property has not connected with it that amount of difficulty and liability to loss, and consequent precariousness.
You adopt a classification, do you not, which places the house in the higher taxed class, and the ship in the lower taxed class? Yes; I adopt that classification subject to any correction which justice may be found to require; but so far as I can see, it is not a clear case for making a distinction.
As you adopt this classification, I want to know what is the principle of classification which is applicable to the one case and not the other? The classification in the Chairman’s schedules I do not consider to be a matter of principle, but of convenience: but the principle which in my mind would decide the question would be, whether the income from the ship was really more precarious and really more dependent upon personal exertion than the income from the house. If it is not, if the income from houses generally, or from any class of houses which can be distinctly defined, required as much personal exertion, and therefore, on that ground had as much of the element of non-permanency, and also was subject to as great risk, as the situation of the shipowner, I should say that there would be sufficient reason for putting it in the same class as the shipowner.
Supposing that this scheme were to become law, and that after it hadbecome law any considerable number of persons were to come to the Chancellor of the Exchequer, and were to represent that they were owners of house property which they were in the habit of letting, and were to point out in what a disadvantageous position they were placed, and were to make out a case of hardship upon them, do you think it would be fair that the tax should be amended for the purpose of giving relief to such persons if they could clearly define their position? The consideration in that case would be whether their position represented that of any class which could be distinctly separated from all other classes; if it did, then you might separate them, but if it did not, they must go with their class, although the individual case may make it a hardship.
Have you ever been able yet to get at what the principle of the class is; because when you say that the one is rather more precarious than the other, would you not say that there are incomes included within this second class in the Chairman’s schedule of which some are rather more precarious than others? Yes, certainly.
For instance, the income of a physician is rather more precarious than the income of a brewer, is it not? Yes; and if I could, I would make a distinction, as I have already said, between the case of traders and that of purely professional persons.
But you find it impossible to draw that distinction, and therefore you give the relief in common to all those classes? I do not know that it is impossible; I am inclined rather to think that it might be drawn, but I find there is a general opinion that it is impossible.
You think, do you not, that it ought to be drawn? I think it ought to be drawn, if it can be.
At what point would you propose to draw it? At the point where there is the broadest distinction, namely, the distinction between trading and professional incomes; between incomes derived from labour and capital, and incomes derived from labour only, except inasmuch as there may have been capital expended in education.
If the income is derived entirely from labour with no possible capital, you would treat it upon one footing; but if from capital, and not at all from labour, upon another footing; how would you deal with it if capital entered to a small extent, and labour to a large extent into the production of the income? It would very often happen in the case of a small trader, for instance, that the capital would be so small a proportion as not to be worth considering, and if so, I would give him the full benefit in the same manner as professional persons; but in the cases in which the capital was anything considerable, anything that would be much worth taxing, I should think it just, if it were practicable, to tax the interest on capital at one rate, and the profits above the interest at another and a less rate.
Do you think that it would be possible to distinguish each man’s case, or must you settle it according to classes? On that point I cannot presume to have an opinion.
You are prepared, however, are you not, to adopt a scheme which would include in one class a number of cases which are shading off the one from the other? I am, because I think that must be the case in all classifications; you can very seldom draw a line so accurately as to include exactly everything that you would like to include, and exclude everything that you would like to exclude; you are obliged to take into consideration the intelligibility of the line.
Supposing that persons owners of house property made such a case as I have represented, and that the Chancellor of the Exchequer and Parliament were to let them into the favoured class, would not such an alteration probably be followed by applications from other classes of persons who would consider that they also had claims? No doubt it would; and you must stop at some point.
Do you think it possible to draw the line in such a way that all persons who were taxed at the higher rate, or at all events the greater bulk of them, would be satisfied to remain at the higher rate, or would there not be a continual pressure to get below the line? Yes; but I think there would be a smaller amount of pressure than there is now. By having an indiscriminating rule and granting no exemption to any one, you do not avoid drawing the line; all that you do is, you draw it in the worst place possible; you draw it by making no distinctions at all; whereas in any other place that you might draw it, you would at any rate be nearer to doing average justice than by drawing it at one extremity.
Take the case of a manufacturing business carried on, in the first place, by an individual, and, in the second place, by several individuals, forming a private partnership together; and, in the third place, by a joint stock company, all the three being in competition the one with the other; do you think that those three sets of trading persons should be taxed equally or unequally? I think the line should in this case be drawn exactly where the Honourable Chairman draws it; to tax the shareholders in the joint stock company at the higher rate, and the two others at the lower.
Why? Because the reasons for exemption are stronger in the other two cases than they are in that. The only reason that could be urged for exemption in the case of the shareholder, is the slight shade of precariousness that there is about his income, which is not usually great in those cases. Where the shareholder is poor, the property is usually in the funds, or in some comparatively secure and steady investment, and where he is not poor, it will generally be so divided that the risks will be an insurance against one another; therefore I think the claim is at its lowest point in the case of the shareholder in a company; it is at the lowest point that can be, where there is any precariousness at all. But in the other two cases, not merely the interest or profit on capital, but also the reward of industry and talent forms part of the income; and this element of the income, besides being more precarious, terminates with the life of the person.
As a matter of fact, do you believe that persons with very small incomes, who have small savings to invest, do invest them in very safe investments, or do they not very commonly invest them in very precarious securities? It is their own fault if they do, because very small savings can, in any case, be invested in the savings bank, or Government annuities.
There is no doubt that that may be, but you lay down as a reason, do you not, for excluding from view, the precariousness of those businesses, that the shareholders in them will be rich people, because poor people would invest in safe investments? The case of very poor people is otherwise provided for, by not taxing anybody who has not 100l. a year.
When you say that the precariousness in those cases is very slight, do you mean to say that there are not a very considerable number of those undertakings which become utter failures, and in which persons who have embarked in them are losers to a very great extent, of the amount of their investments? No doubt, these things happen, but you cannot provide against all cases of individual imprudence. It is necessary to be content with considering the general situation of individuals as to what they are obliged to do, or what they may reasonably do. It may reasonably be supposed that persons whose means are of importance to them, will not invest the whole of them in some very precarious undertaking; if they do, they must take the consequence.
But you do not mean to say that the precariousness of the income in those public companies is very slight and inappreciable? Taking public companies as a whole, taking any average of them, I should suppose that they are among the most secure investments, though of course there are many of them which are not secure.
I will put to you one case, which I have put to other witnesses; suppose you take the case of a widow’s jointure; I understand you to say that you would not exempt that widow from any portion of taxation in respect of her income being a life income? I think not; after some consideration, I have come to the conclusion that it is not entitled to exemption.
That is to say, if her jointure arose out of land? Or out of settled property; and on this ground, that it may fairly be presumed that if she has children, they are provided for by the same instrument which gives her the jointure.
Supposing the case of a man who has a substantial business, and leaves his business to his children, and settles a jointure for his widow upon thatbusiness, do you consider that she ought to have any remission or not? I think not in that case, because she is under no peculiar obligation to save.
sir f. heygate:You stated, did you not, that some annuities were meant to be consumed? Yes.
Were what were called the Long Annuities[*]intended to be consumed in your opinion; the annuities which expired in 1860? No, I should think they could never have been held, except as a matter of investment. They could not have been held for the purposes of provision for the individual who held them, because an annuity that expires at a certain time is one of the most inconvenient forms in which such provision could be made, either by a person for himself, or by somebody else for him; it would be too much if he died before it expired, and too little if he did not die till after. Nobody wanting to provide, for himself or another, something which is to be his sole mode of support, would choose that mode.
Do you think that the capitalists who tendered for the late issue of Long Annuities did not make that calculation as the basis of their tenders? I do not know.
You think that they did not take it into consideration in offering a price to the Government? No doubt they took them as investments; they did not take them for a provision for themselves.
You also stated, did you not, that the daughters of individuals who have life interests in property, who married in their own class, were generally provided for by such marriages? They may be.
Will you explain what you mean by that? I was endeavouring to show that those who hold life annuities issuing from land or other settled property, though they have a claim to exemption, have not so strong a claim as industrial incomes, because the majority of them have not the average amount of motive or necessity to save which the owners of other life incomes have; either they have nobody to save for, or they have considerable chances of not needing to save for them. With regard to those latter cases, as in the case of a widow’s jointure, in all probability she has no necessity to save for her children. That completeness of reason does not exist in the case of younger children, but there are reasons which make their claim less strong than that of industrial incomes, one of which I mentioned in the case of daughters, that there are many chances of their acquiring by marriage a position in which their separate income will not be so far of importance to their descendants as that they should be obliged to save a part of it.
Who would have to maintain those daughters if they were unmarried? As I observed some time since, they may not marry, or if they do, they may marry some one to whom their income is important: I therefore think them entitled to the concession; but still I do not think that the claim is as strong as the claim of industrial incomes; and if the concession could only be obtained upon industrial incomes, it would not be sacrificing people whose claim is greater to people whose claim is less; that is the sole object with which I alluded to the subject.
You consider that they have a claim, but not so strong a claim as the other class? Yes, that is so.
r. lowe:Upon what principle do you consider that the Chairman has divided those incomes into two classes? Upon the principle I should say of not disturbing the existing classifications; that is the principle most apparent in it.
Is there not the principle of division into spontaneous and industrial incomes; does not that appear to pervade his division? It does; but it seems to me that the reason for making a distinction between spontaneous and industrial incomes is one of practicability rather than of principle.
He puts it as a matter of principle does he not? Of both, I think.
It is pretty logically carried out into first class and second class with some slight alterations; that is pretty much the way in which they are divided, is it not? Yes.
He says, “The characteristic of all those incomes is that, consequent on the possession of the property from which they arise, they accrue spontaneously, and require no exercise of labour on the part of the owners.”[*]Your principle on the other hand is the necessity of savings, as I understand? Yes.
And that arises mainly in your view as to whether the income be precarious or not? Whether the income be precarious, and whether it be only temporary.
Then the two schemes coincide in this, that you both would place professional incomes in the favoured class? Yes.
I suppose you would both agree in placing, for instance, incomes in fee or absolute ownership in a different class? Yes.
When we have established those two poles, the identity between you seems to end, does it not? It goes considerably further than that, because I should agree with the Chairman in subjecting to the entire tax the great mass of what are nominally life incomes, when they are in the first class, because though by law they are only incomes for life, still practically the possessor of them has the power of expending the whole.
I understood that those life incomes where the estate was charged for younger children, for instance, were entitled to some deduction? I think so; that is a point in which I differ from the Chairman’s plan; but it is a difference on the question of practicability; not on that of principle.
I am asking you rather with regard to the principle of the thing, and not so much with regard to considerations of expediency or practicability, as to what you consider to be the just principle? I think the just principle would be, to exempt charges in favour of younger children.
Then we come to a clergyman’s income, which I understood you to state you would treat as a professional income? Yes.
With regard to mines, how would you treat them? I do not feel that I understand that subject. The difficult question is to know how far deductions should be allowed for exhaustibility, on the same principle on which the replacement of capital is deducted in the Chairman’s plan in the case of terminable annuities; and on that question I do not feel that I can give any opinion worth hearing.
A mine is in pari materiâ very much what a life annuity is, that is to say, a mine has a certain life of its own, has it not? Yes; only that there are not so good tables for calculating the duration of mines as of lives.
The means of calculating it are not so eligible, but the principle upon which it would be calculated would be pretty much the same; that is, there would be a number of elements of saving in mines which there would not be in the case of an estate in fee? Yes.
If that class in this paper is adopted of taking the estimated annual depreciation, you would be inclined to say that there should be some reduction made for mines? Yes, when they get near exhaustion; I am not sure that I should make it before.
With regard to public companies, I think you agree with the Chairman, that you would make no exemption? I would make no exemption in their case.
Annuities for life, you would place, if I understand you, under the head of incomes where saving was required, and you would make some deduction for them? I would.
And pensions the same? Yes.
And with regard to trades generally, you think that there should be some difference between trades and professions? As the income from trade is partly dependent upon life and health, and partly on permanent property, I would, therefore, make a distinction if it could be done.
Taking things in the abstract and not troubling ourselves with details as to how it is to be worked out, your opinion, as a matter of justice in the theory of taxation would be, as I have said, that you would agree with the two poles of the Chairman’s plan; but the intervening circumstances would almost all of them require, in your view, some sort of deduction? A great many of them, certainly would. I think, however, that if the line had to be drawn with great simplicity, it ought to be drawn where the Chairman draws it. If we are to be content with such an approximation as can be made by taking a great mass of cases, which present upon the whole stronger claims to exemption than any others, I think that the Chairman, as nearly as possible, hits the mark.
I am not speaking so much now of what you might be willing to accept, as the Chancellor of the Exchequer put it to you,[*]but rather as a matter of abstract reasoning? As a matter of abstract reasoning, I should certainly carry the principle further, and make more distinctions than the Chairman has done.
I suppose you would look to further considerations if those classes could show any subdivision that could be effective? Certainly.
As to your principle of exemption, as I understand you, it is to exempt all savings, if that can possibly be done? Yes.
I do not quite understand what we mean by savings in that sentence; is it what a man does save, is it what a man can save, or is it what he ought to save? In principle, I should say that the remission should be on what he does save, neither more nor less; but as this cannot be carried out, I think you must consider, taking people in classes, what difference exists between them as to the necessity or obligation that they are under of saving, with some consideration also of how far you have reason to believe that, practically, as a matter of fact, they do, as a class, save up to the mark of obligation.
That is to say, we are to take a thing compounded of what a man does save and what he ought to save? You cannot practically enter into the consideration of what he does save, you must consider what the class ought to save, and then if you think that, on the whole, they do save an equivalent amount, you should exempt them. If you thought that, on the whole, they did not fulfil that obligation, but saved a great deal less than what they ought to save, it would be right to consider what they do save, rather than what they are bound to save; but as a matter of fact, I think that the classes who pay income tax do save, on the whole, up to their obligations.
We may take it as your view, that it is what men do save? What men ought to save, provided they do save it.
If a man saves more than he ought to save, what then? If a man saves more than he is bound to save, I think him entitled in principle to an allowance on it, because otherwise, he would be taxed twice. What a man does save is the best principle of exemption, but I am obliged to give up that as impracticable; and I take the other, and am willing to exempt people by considering what they are peculiarly bound to save.
Then, it comes to this, that the abstract principle is what a man ought to save? The principle upon which you are obliged to act, is what he ought to save; the perfect principle is what he does save, and that covers all other principles. If that is satisfied, all other principles are satisfied with it; but as you cannot get at that, then, if you adopt the principle of what he ought to save, and go upon that, I think you are right, provided you have fair reason to think that the exempted class, as a class, in the main fulfil that obligation; of course, if you thought that they did not, they would forfeit the privilege.
Then you do not agree with this opinion which I will read to you, out of your own book, in which you say this: “The principle therefore of equality of taxation interpreted in its only just sense, equality of sacrifice, requires that a person who has no means of providing for old age, or for those in whom he is interested, except by saving from income, should have the tax remitted, on all that part of his income which is really and bonâ fide applied to that purpose”?[*] If you could do that I should certainly think it right; the only question is as to the mode of doing it. As you cannot get at individual cases, you must go upon the general presumption drawn from the obligations of his position.
I understand you that this principle is introduced by you in order to ascertain the fact whether a man does save, and that you inquire what he ought to save as a means of getting at what he does save; is that so? Not as a means of getting at what he does save, because I know it does not correspond with what he does save; but in order to bear fairly upon one person as compared with another: I think you are bound to take into consideration, on the principle of justice between them, the difference in the necessity. That principle I should not need if I had the other, because the other covers it, and provides for everything which is included in it; but as I cannot have the other, I am obliged to be satisfied with this. I think they are both important principles.
But one or the other I suppose is the ultimate principle, and I understand the ultimate principle to be what a man does save? What a man does save, if you can get at it.
You think it is easier to get at what he ought to save than at what he does save? Yes; because you can take the average of classes.
And you take what he ought to save in order to get at what he does save? Yes; what he is to be considered as saving, when you cannot ascertain it otherwise.
I suppose you would not adhere to what you stated just now, that the rule is what a man ought to save, provided he does save it? In principle I do, but in practice you cannot tell what he does save. What he ought to save is not the only thing that you would have to consider if you knew what he did save; if you knew that he did not save what he ought to save, you could not defend making the allowance. But in the absence of this knowledge, you are not entitled to presume that he does not do his duty.
What use will this be to me unless I found some presumption by which I may arrive at the fact of what he does save; why should I interpose the consideration at all, if I am to presume nothing either way from it? You only presume that which there is always sufficient proof of, namely, that his needs are different from those of another person. He may choose to sacrifice those needs to something else, but you cannot help that.
I can understand that if I am at liberty to presume from the fact that he ought to save, that he does save, but you say that I must not presume that? The only purpose for which we need to consider what he does save, is to justify us in taking into consideration what he ought to save.
Therefore, the ultimate principle is what he ought to save, and not what he does save? The ultimate principle is hardly an expression which I should apply to it. There are two principles, one is the principle of not taxing incomes twice over, and the other, which is a totally different principle, and is strictly one of justice, is that of showing equal consideration to the necessities of different people. Both of these are principles, and if you could satisfy them both you ought to do so. If you could satisfy the principle of not taxing income twice, the satisfaction due to the other principle would be included in that, because if you taxed everybody according to what he did save, you would by that very circumstance show the indulgence due to the necessities of the person who is obliged to save. If he himself has shown that he cares about these necessities, and if he has fulfilled the duty, he gets the advantage which you intend for him, and not otherwise. But as you cannot get at what he actually does save, you are obliged to found your system upon the other principle solely, only considering that former principle so far as to ascertain for your more complete justification, whether the ground on which you grant the exemption really exists; whether on the whole (since you cannot enter into individual cases) the class of persons whom you exempt have fulfilled the proper condition.
What is the principle upon which it solely rests? That which I propose as practicable rests upon the consideration of what a person is bound to save.
Then the thing rests upon that, and the inquiry for us is, what a man is bound as a moral duty to save, is that so? Yes.
If you mean by saving on your principle that regard should be had to money laid by, or incomes invested in something else; supposing a man is heavily in debt, and is paying off the debt by instalments, is that saving? Yes; that is saving, certainly.
However the debt may be contracted, whether it is a gambling debt or any other debt, you call that saving? Yes, I call that saving.
A man goes to a gambling house and spends a large sum of money, and pays off the debt by instalments; you would say that that was a saving within the meaning of the principle? Yes.
When does the income become taxed; because it is very important if it is to be exempted from taxation to fix upon the exact period of the transition taking place; when are we to call income savings? That is a practical rather than a theoretical question.
The income tax on the income of a landowner is levied on the tenant, and it is paid by the tenant before he pays his landlord, is it not? Yes.
And upon that the income tax is paid? Yes.
I want to know whether that part of the income in the tenant’s hands is to be considered as saved for the purpose of this principle? It cannot, while in the tenant’s hands, be dealt with as saving.
But the tax is levied upon it in the tenant’s hands, is it not? Yes; but when we are entering into considerations such as that of the hands through which it passes, we are coming to a question of practical arrangement, and not to a question of principle.
I do not want to put it as a matter of practical arrangement, but merely to test the principle and to know when you would fix upon it the mark of saving which is to exempt it from taxation. The only difficulty that will arise is a difficulty of practice and not one of theory. In theory the principle is that whatever he does take from his personal consumption, and add to his capital, shall be exempted.
I find that it is laid down in the quotation which I read from your own book, that on the contrary a man “should have the tax remitted on all that part of his income which is really bonâ fide applied to that purpose;” that I can quite understand, but now we have not to decide the question of what he does save, but what he ought to save; when is that to be decided for the purpose of collecting the tax? It seems to me, that you are now upon the question of practicability, and not upon the question of principle; when you ask how it is to be ascertained, I am not obliged to show any mode of ascertaining it; I say that it cannot be ascertained, and that all you can do is, to consider the situation of the classes, and all the peculiarities of their situation which affect their obligation to saving, and then to make them an allowance.
Then it is by their being of that class, that you determine the question; you have no means of fixing upon the precise point when it becomes saving? No; the actual saving cannot be considered as a practical principle at all, but only as a sort of ultimate test by which you may, in some degree, measure the approximation to justice in any other system.
May I assume this as a principle, that it is a safe ground of solution to presume that men will do what they ought to do, and to remit the taxes to them accordingly? I think that you are never entitled to suppose that men will not do what they ought to do, for the purpose of doing something to them which would be an injustice if they did do what they ought to do.
Is it a safe ground of exception from a tax, that a man should be presumed to do what he ought to have done? I think it is a safe ground for taxation, that a person is not to be taxed in such a way, as would render it impossible or more difficult for him to do what he ought to do.
Of course, upon that principle, if a man could be shown to be deeply in debt, he ought not to be taxed at all, because it would render it more difficult for him to pay his debts? It might make it more difficult for him to pay his debts no doubt, and if you taxed a person so that it should make it more difficult for him to fulfil his duties, while other people were taxed in a way that had not that effect on them, he would suffer injustice, but not otherwise.
I will put the case of a person, we will say who is a fundholder, with an absolute interest; it is computed by a professional witness before this Committee, that this scheme would require 2,000,000l. to be made up somehow or other;[*]that I presume must be levied by a fresh assessment on a new principle? Yes.
What do you say with regard to the fundholder or tenant in fee? Do you think that he will be impressed by the doctrine of equal sacrifice, if he were saddled with a heavier tax, merely because it was presumed that some other persons had saved some portions of their incomes? What a person might do where he was himself interested, I cannot say, but I think that a person should not put it to himself in that way, but in this way; that persons whose circumstances require them to save, ought to have a concession made to them, such as shall make it possible for them to fulfil their duty without making a sacrifice to which others are not subject.
If they do not fulfil the duty, they are to have the concession all the same, are they not? That is one of the inconveniences which arise from the impossibility of going into individual cases. I would most gladly go into them if I could.
Say that a man does more than his duty, he will not have a remission for the excess? No, and so much the worse.
So that the man who does his duty, will not get remission upon all that he does; and the man who does not, will get a remission for what he does not do? But the result is a greater approximation to accurate justice than if you either gave a remission to all, or refused it to all.
We have it in evidence that very considerable frauds are practised under Schedule D.; one gentleman who is in the habit of acting as a consulting doctor for people in difficulties, has stated to the Committee that he never saw a schedule of a certain class of traders that he described, that was otherwise than incorrect in regard to income tax; and another gentleman thought that at 1d. in the 1l., it had been 50,000l. for the last 12 years in the City of London, which could only be correct upon the supposition thatthe trade income of London has not increased during that period; do those considerations make any difference to you in recommending the reduction? They make a difference in the question of imposing an income tax at all, and except in a case of absolute necessity, and as an extraordinary resource, I should be decidedly against it; but if there is to be an income tax, the frauds make, in my estimation, no difference in the reasons for reduction: because in the first place if you were to refuse the reduction on this ground, it would be punishing the honest man for what the rogues do; because if you announce that you must tax people in a higher ratio, because they defraud the revenue; if in fixing their taxation you assume that they are going to evade a part of it, you in fact license them for doing it.
You think, then, that this income tax tends to demoralise them? Yes, thoroughly.
Could you imagine anything more demoralising than for a man to have been successful for 20 years in cheating the Government of a large proportion of the tax, and then by a claim on the ground of morality, getting a remission of the tax? Certainly; one would be sorry that the remission should be granted to rogues; but I do not think it would do to assume that people are rogues, for the purpose of refusing to them what they would be entitled to if they were honest.
w. pollard-urquhart:In short, you would do them this justice, that you would take away from them all reasonable excuse for roguery? Yes, I would do that; but I do not attach so much importance as some do to this, as a practical consequence of the reduction.
That would be one reason, would it not? Yes, certainly.
Because some people are rogues, it is no reason why others should not do the thing which is just? Just so; and the more so because to refuse people on the ground that they are going to be rogues, a concession which would be due to them if they were honest, is licensing them to be rogues, because you are recognising their roguery as a fact, and as a compensation necessary to make things just.
In short, to refuse a readjustment of the income tax because a great many people make false returns under Schedule D. is licensing those people to make false returns for the future? Certainly.
You were speaking of the income tax being highly immoral except as it is considered as a mere temporary tax for temporary purposes; do you not think that the obligation to make some adjustment of the income tax is much greater when it is likely to become a permanent law than when it was a mere temporary tax for temporary purposes? I think so.
Was not it regarded as a mere temporary tax when it was levied by Mr. Pitt[*]for 10 years, to the end of the war? Probably; and it is also to be considered that in the use of a national emergency, there is not so much danger of fraud. People only grow fraudulent by degrees; they commit a great fraud at first; or at least not to the same extent.
The very circumstance mentioned by Mr. Lowe just now, that the income tax on traders had remained stationary in the City of London, shows, does it not, that people only get rogues by degrees? Yes. Besides, at a time when there is great national excitement, there is a strong feeling that there is a great public object which requires the tax, and people have both more feeling of their own against defrauding the Government, and are more restrained from it by each other’s opinion.
When the income tax was first imposed by Sir Robert Peel,[*]for the sake of trying a great experiment in taxation, it was to continue only five years, and it might be regarded as levied for a temporary purpose? It might.
In that case it was quite fair to ask people to give money wherever they could get it, on the same principle that the Carthaginian ladies cut off their hair in the third Punic war? It was.
Whereas, now that it can no longer be considered as a temporary tax, you think that the obligation of readjustment is much stronger than in 1842, when it was first imposed since the war? Certainly; the nearer the approach to the prospect of permanency, the more reason exists for its being readjusted.
Do you not think that the prospect of its being permanent is much greater than it appeared to be in 1842? Yes.
You stated that you thought the people ought not to be taxed upon savings; do you not think that that principle applies with much greater force to the case where those savings are absolutely necessary, in order to keep the capital at the same point at which it was the year before? Yes; anything that goes to the replacement of capital ought not to be taxed.
Under the present tax it is considered as income, is it not? Yes; for instance, in the case of terminable annuities, which is the strongest of all.
Is not the case almost equally as strong where a person has spent his whole capital for his education, and for the purpose of maintaining himself in the many years that are necessary in almost every profession before realising any considerable income, that a part of his earnings, after he begins to derive a considerable income from his profession, ought generally to go to replace the capital so spent? No doubt that is one of the circumstances which plead in favour of his exemption.
Do you not think it a very strong circumstance? It is a circumstance among others.
In short, that part of his professional earnings which goes to the replacement of the capital spent in his education ought not in strictness to be considered income? But, on the other hand, if that capital belonged to him, and if it was spent by himself, you may say, on that principle, that the interest on it becomes subject to the full taxation, and justly so.
You were asked, whether raising the number of pence in the pound, levied in order to make this readjustment, would excite discontent;[*]would it excite more discontent than when 4d. in the pound was added to the income tax to pay for the extra expenses two years ago, when, for State reasons, the income tax was raised from 5d. to 9d. in the pound, without any readjustment; would it excite much more indignation to have it raised from 5d. to 7d. in the pound, in order to allow of a readjustment? It is very difficult to say; but I think, generally speaking, that anything which is just, or which is as near as it is practicable to get to justice, and the grounds of which are laid clearly before the public, does, in time, command their approbation.
On the whole, you think that the fear of any dissatisfaction which might be caused by raising the income tax slightly, in order to admit of any equitable readjustment of it, would not be such as to constitute any valid objection against any scheme that might appear just? I think that the dissatisfaction would be chiefly at first, and that as soon as people were convinced that it really was not possible to carry the adjustment of the tax further, they would either turn themselves to getting rid of the tax itself, or they would gradually reconcile themselves to what remained of inequality.
Supposing the circumstances of the country would admit of a slight lowering of the tax, would it not be better to retain the income tax at the same poundage, at the same time giving a readjustment of the income tax, than lowering it 1d. or 2d. in the pound, as might be required? Decidedly.
Do you think that it would excite any very great dissatisfaction throughout the country if it was retained at its present rate, but at the same time readjusted according to the plan proposed by the Honourable Chairman, or according to any plan which seemed to be equitable? Of course, the occasion when the State could do without part of the produce of the tax, would be a particularly convenient opportunity for making this adjustment, and it would excite less dissatisfaction than if it implied an increase of the poundage.
You think that it would create much less dissatisfaction if it was done at the time when the State had an opportunity of taking off some amount of taxation, than if you were obliged to raise the whole general rate in order to readjust it? No doubt.
Do you think that such an opportunity occurring might certainly obviate any objection that might be raised against the readjustment on the ground of causing dissatisfaction? I think it would mitigate the dissatisfaction very much.
On the whole, do you not think that the system proposed by the Chairman is much less unjust than the present system? Much less unjust in many respects.
Would it not be much better for the country to submit to the system proposed by the Chairman, even supposing it raised 1d. or 2d. more in the pound higher than at present, rather than to have it in its present shape? I think so; but I should be very anxious to carry the principle as much further as it could be carried without being stopped by obstacles, the nature of which could be made tolerably clear and intelligible to the public.
w. buchanan:Does your recommendation of a remission of one-third on professional and industrial incomes proceed upon the principle that there ought to be a saving of one-third, or does it arise from the consideration of the precariousness of those incomes? It is their precariousness, combined with their temporary nature, which constitutes the obligation to make savings from them. It is because the incomes may end sooner, from loss of health and other causes, that professional persons are under a much stronger necessity of saving, than people who derive their incomes from property.
Then it is a consideration of the combined influence of those two principles? It is a consideration of the greater obligation to save on precarious and terminable incomes.
And not upon the principle that a merchant who has made a profit which enables him to lay by one-third more than he expends, and reinvests it, pays double tax? That is the principle that I would apply if I could; but inasmuch as I cannot apply it, I take another standard, to satisfy that which I consider to be the criterion of justice between one tax-payer and another, namely, the difference in their necessities.
And also the difference of the certainty of income? Yes, the difference of the certainty of income constitutes the difference in their necessities; because we are supposing the incomes to be equal; but one of those incomes is precarious, and the possessor cannot depend upon its continuance; and as he knows that it will cease with his life, he is obliged to save, whereas the other could dispense with saving.
Do not you consider that a professional income, when established, is a more certain income than a commercial or a trading income? I do not think it is so always; no doubt it is in some cases; but professional persons, for instance, lawyers who are making a large income by their practice occasionally, lose it by some of their juniors getting on, and making a more brilliant success in their profession.
But a man gaining his living by being a shipowner is exposed to every wind that blows, and he has certainly a much more precarious income than a professional man, has he not? But then, on the other hand, there is a portion of it dependent upon capital.
But the capital is involved in the success of the ship, is it not? He is under the necessity, no doubt, of insurance, but that enters into the expenses of his business.
He cannot insure against the adventure miscarrying? He cannot insure against a miscalculation of the markets, no doubt.
You propose, do you not, to introduce a preference in the tax in favour of professional incomes? I should prefer to do so, certainly; and it occurs to me that it ought to be so.
j. hubbard:You are aware that the scheme which is before you is not a stereotyped one, and that it is of course open to any amendments which the course of evidence may suggest; the Committee, therefore, are naturally interested in hearing your comments upon it, therefore I would ask you two or three questions more. It was put to you, in answer to your objection to the way in which the present tax taxes capital, first in its creation as earnings, and then in its fruits, that there are other taxes which do tax capital; but is there not a great difference between a tax which, like the legacy duty, or the probate duty, or the succession duty, professedly taxing capital, and one which, professedly taxing income, does partially and capriciously tax capital? It was exceedingly well put by one of the witnesses before the Committee, Mr. Ansell, that the injustice depends upon the combined circumstances, that it professes to be an income tax and does tax capital, and, that taxing capital, it does not tax it equally. It only taxes some capitals, and not others; and is therefore unjust as a tax upon capital.[*]
You have expressed an opinion that life incomes, if possible, should be considered with reference to the amount of tax levied upon them, as contrasted with the amount which would be levied if the property was held in fee; and I think you suggested that you would make the exemption extend to life interests, with certain qualifications; will you allow me to put a case to you, and perhaps you will tell me whether it would come into the category of such cases as you would relieve. A nobleman has a son who is unmarried, and whom he does not trust, but he leaves by his will landed property to the extent of 120,000l. a year, to trustees in trust to pay 100,000l. a year as an annuity to his son for his life, and 20,000l. a year to a married nephew, to whom he leaves also, and as heir in reversion, the estate; there are two life annuities charged upon that estate; are those life annuities of a like nature with those which you would tax at a diminished ratio, or would you tax them at the full amount of the assessable tax upon the rental? If I understand the statement correctly, the bulk of the income is supposed to be given for life to a person whose descendants are not to have it, while the smaller share of the income for life is given to the person whose descendants are to have the whole. It is plain that if you could enter into individual cases, the one who should pay in full should be the one whose descendants are to have the property, and not the one whose descendants are excluded from it; but still I do not think you could take into consideration cases of so great a rarity as these. Generally speaking, if the estate is entailed or settled in trust in favour of a son or any other person for life, the remainder is to descendants, to that son’s children, and if you limit yourself to providing for that which is so much the commonest case, you do not do any injustice worth speaking of.
Are you prepared to state from your knowledge of legal arrangements, that it would be possible to draw an enactment which would make practicable, without raising doubts and litigation, the discrimination which you wish to propose? I do not consider myself competent to do it in the best way, or anything like the best way, nor can I foresee all the cases that would arise, but I think I could suggest modes of drawing it, which would provide for the objects desired. I should lay down the rule, that all life incomes should be exempted, except such and such; then I would enumerate all the cases in which the motive for saving clearly does not exist, or exists in a very inferior degree.
In all those cases you would not, as some of the schemes placed before the Committee at a former period proposed, charge the whole of the life estate to be taxed, but you would diminish the taxation to the extent of the concession to individual cases? I would, because it would clearly be unjust to charge the full tax on a life interest, and the idea does not seem to me admissible of imposing a present tax upon the future holder.
With regard to life annuities, you stated, did you not, that whether an annuity was a life annuity or an annuity for years, if granted, for instance, by a landowner as the means of repaying a loan, made for the purpose of building a house, or improving his estate, you would see in each of those cases the clear repayment of capital to the corporation from whom he took the loan? Yes.
Seeing that in all cases, whether of a life annuity or an annuity for years, granted to a borrower, it is only as regards the application of the money that you would make the discrimination of charging the whole annuity with the tax? Yes.
Upon the assumption that it is meant to be consumed? Exactly.
At least you differ in that respect from the scheme before you, upon that assumption? Yes.
It is an assumption, is it not, that it is meant to be considered as expenditure? It is.
Upon the other hand, you propose to make a rebate of the tax upon the savings of capital? Yes.
But that is only for the purpose of balancing the charge which you make upon capital when consumed, and if you were unable to do the one, you would not I suppose do the other? That does not necessarily follow; I think the income tax should as far as possible be a tax upon expenditure; I should like to bring all personal expenditure under it if I could; and whenever I could, I should like to get hold of it and tax it.
Your principle is (to follow this to a conclusion) that you would exempt all savings? Yes.
And it is the operation of the same rule which induces you to wish to see pensions placed also in a favoured position? Yes, because, the income terminating with life, there is, generally speaking, a greater necessity for saving from it.
May pensions, do you think, be so far considered as the result of deferred payment for services as to be brought in as a kind of accessory to industrial incomes and salaries? A large proportion of them might logically be classed with industrial incomes; but not all, because some pensions are merely the result of good-will, and are not payments for service at all.
Do you think that they might be discriminated in that way, that where they bear the character of being only a deferred payment for antecedent services, they may be fairly treated in the same way as salaries? I would treat them in that way in all cases.
You have been asked to consider the position of houses and ships as placed one in one schedule, and one in the other; but is not the precise matter to be assessed the rent of the houses and not the houses themselves? Yes.
On the other hand, did you ever hear of the rent of ships? No.
Ships are only a means of industrial occupation, are they not? Yes.
And ships, therefore, are only one of the means which tend to the commercial earnings of the owners of the ships? Yes.
But are you aware that there is any such thing as ship-rent? I am not.
Then, you can hardly call these two matters parallel? Not exactly.
The estimate that has been communicated to you of the probable defalcation in the Exchequer from the application of any such remedy as the one before you has been stated at 2,000,000l.;[*]supposing, for the argument, that the complaints against the income tax with regard to its incidence are real, and that the remedy of those evils would have such a costly result; must not that be the logical consequence, that the 2,000,000l. represents the amount of injustice inflicted by the present law? That follows decidedly.
t. estcourt:I understood you, in answer to a former question, to draw a distinction between precarious incomes and incomes of a limited duration; and I understood you to state, that in your view the fair course would be togrant a concession of some deduction from the amount of tax payable for incomes that are terminable with life, or a less term; and I understood you to state, that you would make a still further deduction in the case of those incomes which were precarious; did I rightly understand you? Not quite. I did not express any opinion as to the possibility of making more than one rate of exemption. I have not made up my mind, practically, as to whether it is better to have several scales, or only one. But what I brought forward those considerations for, was to point out that the claims were much stronger, the necessity for saving being much greater, in some cases than in others; and my object was, not so much to recommend the application of different scales to those different cases, of which I am not able to judge sufficiently to have a decided opinion, but rather to show that, provided you could relieve the cases in which the claims were strongest, you need not so much mind not being able to relieve those in which they were much weaker; that the fact that you would perhaps be obliged to demand a little more from those who still have some claim to exemption, is not a conclusive objection to giving relief to those whose claims are much stronger.
I understand you to assign as the reason why any concession should be made with regard to Schedule D. to be two-fold, first, because the income is limited, and secondly, because it is precarious? It is both precarious and also limited in duration.
Have your opinions, with regard to this particular subject which has been brought before you to-day, varied since you gave evidence before the Committee in 1852?[*] I am not aware that they have; I have considered the subject more minutely since, and perhaps I may have more of an opinion upon some points of practical execution than I then had; but on the question of principle, my opinions have not altered.
Are you still of opinion, as you were in 1852, that equality requires that in assessing precarious incomes and those of limited duration, some deduction ought to be allowed, which I think you put at one-third, before the assessment is imposed? Yes.
[[*] ]23 Victoria, c. 14.
[[*] ]Hubbard, John G. “Memorandum submitted by the Chairman,” in “Appendix 1 to the Report from the Select Committee on Income and Property Tax,” Parliamentary Papers, 1861, VII, pp. 315-17.
[[†] ]“Income Tax Schedule,” ibid., p. 314.
[[*] ]See pp. 554 ff. above.
[[*] ]See 2 George III, c.10.
[[*] ]Parliamentary Papers, 1861, VII, p. 284.
[[*] ]See p. 574 ff. above.
[[*] ]Principles of Political Economy, in Collected Works, III, p. 815.
[[*] ]Pressly, Charles, “Evidence,” Parliamentary Papers, 1861, VII, p. 43.
[[*] ]39 George III, c. 13.
[[*] ]5 & 6 Victoria, c. 35.
[[*] ]See pp. 562-3 above.
[[*] ]Parliamentary Papers, 1861, VII, p. 190.
[[*] ]See p. 590 above.
[[*] ]See 465-98 above.