Front Page Titles (by Subject) PROPERTY AND TAXATION 1873 - The Collected Works of John Stuart Mill, Volume V - Essays on Economics and Society Part II
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PROPERTY AND TAXATION 1873 - 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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PROPERTY AND TAXATION
Fortnightly Review, n.s. XIII (Mar., 1873), 396-8. Signed; republished in D&D, IV (1875), 231-6. Original heading, as first of the Fortnightly “Critical Notices,” “L’Avere et l’Imposta. Per Constantino Baer. Roma, Torino, Firenze [: Loescher], 1872.” Not mentioned in JSM’s bibliography. No copy in Somerville College. The D&D text, which is headed “L’Avere e l’Imposta,” does not differ substantively from that in the Fortnightly, except in correcting “et” to “e” in the title. The title here used is taken from the text of JSM’s review.
Writing to Cairnes from Avignon, 9 Dec., 1872, JSM says in part: “Have you ever turned your attention to the merits and demerits of a tax on property, i.e. land and capital, realized and unrealized, as a substitute for an income tax? The pros and cons are tolerably obvious, the pros consisting rather in the demerits of other direct taxes than in the recommendations of this. My attention has been drawn to the subject by an Italian correspondent of mine, Constantino Baer by name, a clever and sensible man, well versed in the best English political economy, and who has published a little book recommending, as the best system of taxation, a tax on land and capital, of a percentage on their pecuniary value, combined with taxes on such modes of expenditure as may be a fair test of a person’s general scale of unproductive expenses. I have written, for the small print of the Fortnightly, a short notice of this book, but I should much like to have your opinion on its main position.” (Letter in the British Library of Political and Economic Science.)
Property and Taxation
those who are apt to feel discouragement at the slow progress of mankind, both in the discovery of truth and in the application of it, may derive comfort from the fact that those nations which, from historical accidents or their own energy, precede others in either of these kinds of improvement, are found to have laboured not for themselves only, but for all the rest, and greatly abridge the task for those who have fallen behind. The European nations which have lately been freed from the hindrances that had retarded their development—Italy and Hungary—with the vigorous impulse which the awakening of liberty gives to the human faculties, have thrown themselves into serious study; and being able to resort at once to the latest and best products of thought in the more advanced countries, are attaining by strides the results which their teachers were only able to reach by slow and measured steps. Knowing that they have all to learn, they learn all at once, having no habit, authority, or prejudice to detain them halfway.
If an example is desired, one will be found in the work before us, the production of a distinguished Italian political economist. Political economy, it is true, is no new subject to Italian intellect; the study of it may almost be said to have originated in Italy: its early cultivators who have left a reputation behind them were generally Italians, and chiefly (we leave the explanation to historians) Southern Italians; indeed, the speculative movement of Italy had for centuries its chief seat in the southern portion of the peninsula, as the political, commercial, and artistic had theirs in the northern. Owing, however, to the general slackening of the intellectual movement in Italy, caused by her unfortunate political situation in the last three centuries, she was outstripped in this as in other departments by more fortunate nations, and it was left to them to originate all the great improvements in this branch of knowledge. But, since restored to freedom, active minds in Italy have not only revived the study of scientific economics, but have placed themselves at once at the most advanced point which that study has yet reached. The work of Mr. Constantine Baer on “Property and Taxation” shows not only a familiar knowledge of the best English, French, and German authorities, but a mastery of their most improved doctrines not often met with even in England; and along with it, no ordinary degree of the ability required for what is a very different thing from a knowledge of economic truths—the power of applying them. We say this, although we have to add that as regards the specific proposal which the book is written to recommend—a matter not of principle, but of application—we do not consider it to be successful. But we have seldom seen a greater amount of sound practical argument brought to the support of a conclusion that we think practically unsound. Like everything written on such subjects by a person thoroughly competent in knowledge and ability, whether right or wrong on the particular point in question, the discussion is highly instructive.
Mr. Baer’s case is this. The primary requisite of just taxation is that every one should be taxed in proportion to his means (avere). There are other requisites, as that taxation should not interfere injuriously with the free employment of labour and capital, that it should give the least possible opening to fraud or arbitrary exaction, and so forth: but the first requisite of all is that it should be equal. Mr. Baer ably confutes the standards different from this which have been or are occasionally professed or acted on; particularly the doctrine, which has a considerable hold on many minds, that persons should be taxed more or less according as they are supposed to benefit more or less by the services of the Government, or according as the services they receive cost more or less to the State.
But the main question is, in what sense is equality of means to be understood? and what constitutes a person’s means? They are, according to Mr. Baer, of two descriptions: productive (if he have any such) and unproductive. The former are capital, and land employed as a source of income; the latter is his income, such parts excepted as he saves and converts into capital. In order, therefore, to reach the whole of his means, we ought to tax his income, and also his land and capital. An income-tax Mr. Baer rejects, and some of the objections to it are stated by him with much force. Income, in his opinion, is best reached by taxes on consumption, imposed on such articles or modes of outlay as can be taxed without interfering with the channels of industry, and as may be considered fair tests of a person’s general expenditure: houses, servants, horses, and carriages Mr. Baer considers to be among the best. Capital and land he would tax by a percentage on their money value, which (as he remarks) represents, in the case of capital, only such part of the income from it as is measured by the ordinary rate of interest, and spares all such part as is either compensation for extra risk, or a return for the skill and industry of the possessor. The tax is to extend to property not yielding income, if of a kind admitting of accumulation, such as houses, furniture, pictures, and sculptures, The practical means of levying such a tax are discussed in some detail by Mr. Baer, and he succeeds to a great extent in showing that there are accessible criteria which would in most cases enable it to be assessed with little danger of fraud by the taxpayer, or undue exaction by the receiver, and without harassing inquisition into private affairs; while, at the worst, the evils of this sort would be many times less for a tax on capital, than they necessarily are for taxes on income.
The objection which we have to bring against Mr. Baer’s scheme of taxation will easily be anticipated. The avere, or possessions, of any one, on which taxation is to be grounded, are estimated by a wrong standard. Taxation is to be proportioned to means; but a person’s means of paying taxes, or of bearing any other burden of a pecuniary nature, do not consist of his capital and his income, but of his capital or his income. He possesses them both in the sense of legal control, but only one or other of them for the purposes of his own consumption. His capital, so long as it remains capital, is not consumed by himself, but by the workpeople whom he employs, and the producers of his machinery and material: if he diverts it from their use to his own, it ceases to yield him an income. He can consume either his capital or his income, but not both; and if he is taxed on both, he is taxed twice over on the same means of payment. The maxim that equal means should pay equal taxes has nothing to rest upon unless the means intended are those which are available to pay taxes from. What forms no part of a person’s means of expenditure forms no part of his means of paying taxes: while, if he withdraws it from production and employs it as means of expenditure, it pays, while it lasts, additional taxes on expenditure, and so, even in that case, satisfies the claims of financial justice. It is true that though he has no other advantage from his capital while it remains capital, he has a sense of power and importance connected with it; and in consideration of this it may be thought equitable to make him pay something additional to the State. But this is departing from the principle of taxation in proportion to means, and introducing another principle, that of distributive justice; it is laying a tax on an advantageous social position—a measure which, if defensible, must be so on moral or political grounds, not on economical.
Notwithstanding, however, the well-grounded objections on the score of justice, in a merely pecuniary point of view, to which a tax on capital is liable, the subject cannot be altogether disregarded by economists and politicians. No tax is in itself absolutely just; the justice or injustice of taxes can only be comparative: if just in the conception, they are never completely so in the application: and it is quite possible that nations may some day be obliged to resort to a moderate tax on all property, as the least unjust mode of raising a part of their revenue. The many injustices of a direct income-tax are generally acknowledged; while perhaps the greatest of all is that which is the least complained of, that it is a tax on conscience, and a premium on deception and improbity. The increase of commercial dishonesty, so much complained of for many years past, was predicted by good judges as the certain effect of Sir Robert Peel’s income-tax; and it will never be known for how much of that evil product the tax may be accountable, or in how many cases a false return of income was the first dereliction of pecuniary integrity. Nevertheless, an income-tax is felt to be indispensable on our present financial system, because without it there are actually no means, recognised by existing opinion, of making the richer classes pay their just share of taxation—a thing which cannot be done by any system of taxes on consumption yet devised. Succession duties are, no doubt, the least objectionable mode of making property, as distinguished from income, contribute directly to the State, and they should be employed as far as practicable; but unless the duty is very light, there is great difficulty in protecting it against evasion. The tax proposed by Mr. Baer may, therefore, some time or other, have to be taken into serious consideration: and should that time come, his remarks on the practical side of the question will be found well worth attending and referring to by those who have to deal with the subject.