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Collection: The Collected Works of John Stuart Mill

196.: ERRORS AND TRUTHS ON A PROPERTY TAX EXAMINER, 27 JAN., 1833, PP. 51-2 - John Stuart Mill, The Collected Works of John Stuart Mill, Volume XXIII - Newspaper Writings August 1831 - October 1834 Part II [1831]

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The Collected Works of John Stuart Mill, Volume XXIII - Newspaper Writings August 1831 - October 1834 Part II, ed. Ann P. Robson and John M. Robson, Introduction by Ann P. Robson and John M. Robson (Toronto: University of Toronto Press, London: Routledge and Kegan Paul, 1986).

Part of: Collected Works of John Stuart Mill, in 33 vols.

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196.

ERRORS AND TRUTHS ON A PROPERTY TAX

EXAMINER, 27 JAN., 1833, PP. 51-2

Under the title appears “(Continued from the week before last.)”; for the first half, see No. 195. The item is described in Mill’s bibliography as “An article in continuation of the foregoing [No. 195] and headed ‘Errors and Truths in a Property Tax’ in the Examiner of 27th January 1833, and signed A.B.” (MacMinn, p. 24). It is listed as title and enclosed in square brackets in the Somerville College set of the Examiner.

two contrary errors prevail with respect to a property tax. One of these was realized in practice, when a tax actually existed bearing that name:1 the other is of recent growth, and is the logical opposite of the former. Both arise out of an indistinctness of meaning in the word property.

When we speak of a man’s property, we sometimes mean all that is his; all that constitutes his means of living; all he has to spend and to save. But sometimes the term is confined to actual accumulations; the saleable value of what he has actually belonging to him at any given instant. Thus, a physician or lawyer who gains 5000l. a-year by his practice, and spends it all, may be said in one sense to be a man of property; to have a property equal, or bearing some proportion to, the price of an annuity of that amount upon his life. But in the other sense, he may have no property, except the furniture of his house, and whatever other articles he may have momentarily in his possession for immediate use.

Now it would be a monstrous absurdity and injustice to enact that this man, though benefiting as much by legal protection as any other man in the nation, should remain untaxed merely because he spends all he gets; while the expense of protecting him is thrown upon the man who saves, to provide for old age or for a family, or to have leisure to employ himself in literature, science, or works of benevolence. On the other hand, it seems equally monstrous that one whose income is derived from his personal exertions, and depends on the continuance of his life, should be taxed at the same rate as he who derives his from land or capital, which remain permanently with him and can be transmitted to his descendants. Yet these contrary errors, that of leaving the wages of all kinds of labour untaxed, and that of taxing the earnings of labour at the same per centage as the income from land or stock, have gained a footing in many minds; and the latter, when the income tax existed in this kingdom, had established itself in our laws. The last circumstance, indeed, will surprise no one, who duly considers by whom those laws were made.

If there is to be a property tax, all income ought to be considered as property; but a temporary income ought to be deemed a less valuable property than a permanent one. It may be said, indeed, that if an income worth ten years’ purchase pays a given per centage for ten years, and an income worth twenty years’ purchase pays the same per centage for twenty years, the just proportion of taxation is observed, since there is the same ratio between the two payments as there is between the values of the two incomes. And this is true, if we confine our attention to a mere numerical equality; but not if we consider what is alone of any importance, equality of pressure upon the feelings of individuals. Suppose two men with equal incomes, one arising from land or capital, which can be transmitted to descendants, the other terminating with the life of the possessor: these two persons cannot afford to live in the same style of expence. The one may without imprudence spend his whole income; the other must lay by a part, as a provision for his children after his decease. It would be injustice if two men who for no purpose of comfort or enjoyment are equally rich, were to be treated as such solely for purposes of taxation.

The tax should, therefore, be so adjusted upon the person whose income is derived from the earnings of labour, as to enable him to exercise the forethought which duty requires of him, and does not require of the other, without any greater sacrifice of personal comforts and indulgences than is demanded from the owner of the permanent income. It would be impossible, indeed, to adapt the rate of taxation to the peculiarities of every individual case. There is no alternative but to be content with an average, and (what must so often be done in legislation) to cut the knot which it is found impracticable to untie. If a man whose income depends on his personal exertions, supposing him to live for the ordinary length of time, and to have the ordinary number of children, ought in prudence to lay by, throughout life (say) one-tenth part of his income; then an income of one hundred pounds, from the earnings of labour, ought to pay no more to the state, than an income of ninety pounds from a permanent source. By taking some such estimate as this for the foundation of a general rule, justice would be done in gross, though not in detail: to the class of labourers, though not to every individual contained in the class.

Reasons of an analogous kind may, perhaps, be found for taxing the incomes which persons in business derive from their stock in trade, at a lower percentage than those of the landholder, the fundholder, and other persons who can live in idleness, and whose income is not liable to vary. The income of a person in trade is partly the reward of his personal exertions, and comes within the proviso already made in favour of incomes which are the earnings of labour. It is also precarious, in a peculiar degree: and in the same manner as we would exempt from taxation that portion of income which prudence requires should be laid by as a provision for children, there seems equal reason for exempting such other portion, as may be considered equivalent to an insurance against peculiar risks or casualties.

But, if we may judge from newspapers, many well-meaning persons who desire a property tax, seem to understand by it a tax which is to fall solely upon landed and funded property, money lent, and (sometimes) stock in trade, and not at all (as the phrase is) upon industry. This doctrine appears to us fundamentally erroneous: yet in the prevalence of it we see proof of a very gratifying fact, namely, that there is no danger whatever of a confiscation of the funds. The demand for relief from taxes has taken another direction. A less noxious error, though still an error, has supplanted that worst of errors. The cry is not, to throw the whole load of the national debt on a single class, the fundholders, whose incomes are mostly small or moderate, and the bonâ fide earning of honest industry; but to lay this, together with the other public burthens, upon the collective body of the owners of accumulated property. The injustice here is far less heinous, because, being spread over a much larger body of persons, it would fall less heavily upon each: that body including, moreover, all the richest, and none of the absolutely poor. Still it is injustice, for it is partial taxation. The man who lives by his exertions, benefits by the existence of government as much as he who subsists by his accumulations, or by the accumulations of his forefathers. Without legal protection, the one could no more get what he spends, than the other could keep what he has saved: and both ought to contribute in the just ratio of their ability, to the support of that without which the existence of both would be alike precarious. Furthermore, a partial tax of the kind proposed would be a penalty on prudence; an encouragement held out to every man to dissipate all he gets, by taxing him if he saves, and leaving him untaxed if he squanders. And as the fund from which all labourers subsist while they labour, is derived from the savings of former labour, it may be judged what kind of relief that is, which could be afforded to industry by a tax on saving.

There is one case, and no more, in which the justice of laying an exclusive contribution on accumulations actually made, might admit of a valid defence. If a great national effort were to be made for paying off the national debt, there would be much to be said for demanding the sacrifice exclusively from the owners of property already in existence, and not requiring those whose sole property is their labour, to mortgage the future earnings of that labour in order to defray their share. The pecuniary engagements of a government (it may with much show of justice be contended) are a mortgage upon the property which existed in the country when those engagements were entered into. It is for him who inherited his father’s property to pay his father’s debts. In public as in private, the heir or successor is freed from the burthen of fulfilling his predecessor’s obligations, if he faithfully gives up the whole of the inheritance to the creditors.

We rather invite attention to this argument, than express any opinion as to its conclusiveness. The strongest objection to it which we can anticipate, is the impossibility of distinguishing, after the lapse of years, property inherited, from property acquired by industry and frugality since the national debt was contracted. Property accumulated during the interval, would have as good a title to exemption on the principle laid down, as property to be acquired hereafter. In proportion as the latter was relieved, the burthen would press heavier upon the former; and we seem to be placed in the alternative of continuing to do a smaller injustice to a larger number, or beginning to do a greater injustice to a smaller number.

A notice of motion was given on the last day of the session, by Mr. W.B. Evans, (who, we regret to observe, has retired from parliament,) for throwing the national debt upon property.2 Mr. Evans was probably moved to this proceeding by some such arguments as those we have now thrown out. But we must suggest to him that this idea, however good for paying off the national debt, is altogether unfit to be adopted in merely paying the interest of it. For, that way, the tax would extend to future accumulations as well as past: the burthen would not be taken off the coming generation, but, on the contrary, would be imposed with double weight upon as many of that generation as save. Those alone who spend all they get, and, as far as depends on themselves, add nothing permanently to the national wealth, would in consideration of their prodigality, and of their comparative uselessness to society, obtain exemption from the heaviest of the national burthens. This, therefore, would be not only in every way an inequitable, but a highly immoral tax.

There remains the question of what is called a graduated property tax; that is, a tax which demands from the larger incomes not only a larger quantity, but a larger proportion than from the smaller ones. We have not left ourselves space to treat this question at any length, and we will merely suggest the leading considerations which influence our own minds.

All persons who profess any regard for justice or morality, are advocates, at least in words, of equal taxation. To tax any class exclusively, though it be the class of rich; or to tax any class in a greater proportion than other classes, all men admit to be unjust. Now primâ facie it would appear that the only mode of taxing all members of the community equally, is to take the same percentage from all property alike; whatever that per centage be, whether the twentieth penny, (to use the ancient expression,) the hundredth penny, or the thousandth.

To this, however, it is answered, that equal taxation consists not in taking equal proportions from the incomes of individuals, but in taking equal proportions from their enjoyments. If you abstract from a rich man one-tenth of his income, and from a poor man one-tenth of his, you demand a greater sacrifice of enjoyment from the poor man than from the rich. The one you only compel to forego some object of fancy or luxury, while to the other you may cause actual physical distress.

Up to a certain point there is truth in this. If from the man who has only ten shillings a-week you take one shilling, he is probably put to greater inconvenience than the man who has 1000l. a-year and from whom you demand 100l. But why? Because in the case of the poorer man the tax trenches upon the actual necessaries of life; upon the things which nature, not custom or convention, has rendered indispensable. If the tax spares actual necessaries, the maxim no longer holds: beyond that point it is scarcely true that numerical equality is real inequality. One-tenth of each man’s superfluities would seem to be no heavier tax on one man than on another, whatever may be the difference in their fortunes. And by superfluities we mean all that they possess beyond what suffices for the natural wants common to all mankind. Of artificial wants, created by fashion or habit, legislation can in this case take no cognizance; for if these be taken into the account, there are no such things as superfluities. Every class has its own standard of the comforts and indulgences necessary to its station; a standard proportional to its income, and usually determined by what that income is: and if, in deference to such conventional wants, the burthen of taxation were lightened upon any class, the sole effect would be to raise the conventional standard so much the higher.

Our plan therefore would be, to relieve the smaller incomes from direct taxation entirely, up to the income which might be deemed fully sufficient to satisfy those physical wants of a human being which are independent of habit and convention: to keep off hunger and cold, and provide for old age, and for the ordinary chances of sickness, or other inability to work. Having fixed this minimum for entire exemption, we would tax all permanent incomes exceeding this, in exact proportion to the excess. Thus, if 50l. a-year be the minimum, (we take the figures at random,) if it be deemed that any man, with a family such as all men might have without overstocking the labour market, cannot exist, free from physical discomfort, upon less than 50l.; incomes of that amount, or less, should be exempted from the tax, while all others should be taxed a certain per centage on whatever surplus they possess beyond 50l. If, for example, the tax were ten per cent., a man with 60l. a-year should pay out of the odd ten, one pound; the man of 100l. a-year, of the odd fifty, five pounds; the man of 1000l. a-year, of the odd 950, ninety-five. This kind of graduated property tax appears to us to be just, and no other. We would apply the same principle to incomes of temporary duration, such as those derived from the earnings of industry; with the reservation already made, that of leaving untaxed such portion of the income as ought to be saved to form the inheritance of descendants. If this portion be estimated at one-tenth,* the taxable part of the income of a professional man would be not the whole but nine-tenths only of the surplus which he earns beyond 50l. a-year; upon these nine-tenths however we would levy the same per centage as upon income from a permanent source.

We would not, however, leave all incomes below a given minimum wholly untaxed; we are inclined to retain a few such taxes on luxuries, at any rate on stimulants, as might by possibility touch those lowest incomes. It is but just that the indulgence which we suppose the state to extend to a poor man, because all his income is required for actual necessaries, should be contingent upon his really so expending it; and that if he thinks fit to encroach upon his own or his family’s necessaries, for the purchase of mere indulgences, he should contribute his share to the public revenue like the rest of the community. It is equally just that if the owner of a life income chooses to spend on his pleasures that proportion of his income which the state exempts from direct taxation, on the presumption that it is to be saved, he should, by means of that very expenditure, contribute indirectly to the necessities of the state, through taxes on consumption.

A.B.

[1 ]For details, see No. 86, n3.

[2 ]William Bertram Evans (ca. 1801-50), M.P. for Leominster 1831-32; his speech on 16 Aug., 1832, is not reported in PD, which gives no debate on that day, but is reported in The Times, 17 Aug., p. 2.

[* ]We assume this proportion only for facility of exemplification. What the real proportion should be, is matter of nice and careful consideration.