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XIII.

THE INCIDENCE OF IMPERIAL AND LOCAL
TAXATION ON THE WORKING CLASSES.

(Fortnightly Review, February 1, 1874.)

THE working classes comprehend in this article all grades of working people, skilled and unskilled, in both town and country, domestic servants, and also that numerous body of small dealers whose earnings are derived more from their labour than from their little stock in trade. It is not very important whether foremen are included or not, but they are so here as receiving wages. To measure the burden imposed on this vast section of society by both imperial and local taxation is a problem of much complexity and difficulty, admitting of no exact solution, but the grounds for a rational judgment may be found. Two questions are involved: How much do the working classes contribute to the revenue of the State? and-How much do they actually lose by the system of taxation? The first may possibly be answered with some approximation to accuracy; but the second is really the principal inquiry, and it is one as impossible to answer in arithmetical terms, as it would have been to estimate in precise figures the pecuniary loss inflicted on the working classes by the corn duties. The theoretical canons commonly applied to determine the incidence of taxes afford but moderate assistance, and are often misleading. They furnish us amply with inferences from ideal 'average' or 'natural' rates of wages and profit, respecting the tendencies' of taxes in the long run,' and in the absence of disturbing causes.' But taxes are paid immediately, under the real conditions of life, and out of the actual wages and profits or other funds of individuals, not out of hypotheses or abstractions in the minds of economists. The

working classes have had especial reason to complain of the acceptance of such abstractions as realities, and of inferences from them as rules of practical finance. The doctrine of the equality of wages has done much to perpetuate the low wages of agricultural labour in the southern counties, that of the equality of profits has injured the labouring classes generally, alike as recipients of wages, as consumers, and as taxpayers; and the doctrine of a 'natural' rate of wages was the chief cause of the passing of the Corn Laws, the least mischief of which to the classes who live by labour, was the rise in the price of bread. It was inferred that the labourer's pay must rise with the price of his food, and that taxes on wages are really taxes on profits, and accordingly members of Parliament, on both sides of the House, discussed the duty on corn under the conviction that it could not fall on the labourer.† Mr. Ricardo himself opposed the duty in Parliament, simply on the ground that it would lower the profits of capitalists. In place of raising wages, it really lowered them, in a manner highly important to remember in an inquiry into the effects of existing taxation. 'Take the great change in the Corn Laws,' said Mr. Gladstone, in a celebrated Budget speech. You have created a trade in corn; by that trade you have created a corresponding demand for the commodities of which they (the working classes) are the producers, their labour being an essential element in their production, and it is the enhanced price their labour brings, even more than the cheaper price of commodities, that forms the main benefit they receive.' One of the chief causes of the impossibility of ascertaining with exactness the amount of the burden of existing taxation on the classes in question, is that the effect on wages must be taken into account. But, although I cannot pretend to furnish an accurate estimate, I think the following investigation, brief as it necessarily is, will be found to establish at least: (1.) That the real burden imposed on the working classes by the present system of taxation, imperial and local, is incalculably greater than is generally supposed. (2.) That taxes

* Ricardo's 'Principles of Political Economy and Taxation,' chap xvi. + See, on this point, the 'Speeches of Mr. Cobden,' vol. i. p. 16-17.

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which admittedly fall on them, seriously affect them in various ways besides those ordinarily taken account of. (3.) That they are contributors to a number of taxes generally believed not to touch them at all.

Take first imperial taxation. Of the grievous inequality of the contribution levied from the working classes by the customs and excise duties, which produced nearly forty-seven millions of the sixty-five and a half millions raised by imperial taxation in the last financial year (exclusive of the revenue from the postoffice, telegraphs, crown lands, and miscellaneous receipts), there can be no question. The duty, for instance, on all qualities of tea is the same; the duty on a pound of the finest cigars is little heavier than on a pound of common unmanufactured tobacco; the duties on beer, spirits, and wine make no distinction between rich and poor. It is indeed sometimes asserted that the wealthier classes pay, in addition to their own, their servants' taxes on tea, sugar,* and beer; but the very language in which one well-known writer defends this assumption, affords proof of its error: A gamekeeper,' says Mr. Dudley Baxter, 'is employed by a country gentleman at weekly wages, but lives in his own cottage, and pays his own taxes on beer and If sugar. the taxes are taken off, he reaps the benefit, and is therefore the true taxpayer. But a house-servant, if his provisions are paid for him, would not receive any benefit, so that his master is the taxpayer.' Were the taxes referred to removed, the result would be that outdoor servants would have more money to spend, while indoor servants in the very same establishments would have no more than before, unless their wages were raised, as they could be in proportion to the reduced cost of their board, without any loss to their masters. It is, indeed, a mere fiction, that competition equalizes wages in all occupations and all over the kingdom; but such an inequality as the foregoing obviously could not continue. It is not, however, by the cost to them as consumers, even adding the charges for the advance of the duties by the producers and dealers, that the sums of which customs

* The duty on sugar has been abolished since the first publication of this Essay.

'The Taxation of the United Kingdom,' p. 48.

and excise duties deprive the working classes can be measured. Not to mention that the forty to fifty millions advanced, would otherwise be productively employed, yielding wages as well as profit on each turn of the capital, the system by which they are raised is a network of obstructions and restrictions to trade, production, and the employment of labour. For evidence in detail of the mass of impediments which customs and excise regulations oppose to the growth of commerce, manufactures, agriculture, capital, and wages, I must refer to a former essay.* But I may instance one fact not particularized there. Conservatives and Liberals are now agreed that protective and discriminative duties impede the development of our resources, and diminish the demand for labour. Yet we still maintain four protective and discriminative duties, on sugar, spirits, wines, and tobacco. The sugar duties are framed for the protection of the British refiners, and the protection afforded appears to be disastrous, even to many of them.† The duty on foreign spirits protects the British against the German distiller, in ordinary years. The wine duties place all wine-producing countries other than France, and our trade with them, under a heavy disadvantage. The licensed British cigar-maker pays little more than the importer of raw tobacco, and the duty becomes virtually protective. These four duties, accordingly, by obstructing the natural course of commerce and industry, diminish the earnings of the working classes, besides taxing them on their expenditure. Just as the duty on foreign corn was a tax not only on the bread, but also on the wages of working classes, so the sugar duties mulct them, not only as buyers of sugar, but also as sellers of labour; and the duties on wine, spirits and tobacco are taxes

* Financial Reform. Cobden Club Issays, 2nd Series, 1871-2.

'Since 1840 they had had no less than twenty-seven changes in the sugar duties, and since 1863 they had had four or five conventions with Foreign Powers for the purpose of protecting the refining trade, and also the revenue. The result had been this, that while there were twenty-three sugar refiners existing in London in 1862, only three or four were left in existence now. He had the curiosity to ascertain what proportion of foreign sugar and English sugar was sold in this town (Bradford). He went to one of the leading grocers and asked him the question, and was astonished to hear that he did not sell a single ounce of English-made sugar, and that he found it more profitable to buy it from France.-Speech of Mr. Jacob Behrens at Bradford, November 26.

on the wages of men and women who never drink a glass of strong liquor, or smoke a pipe in the year. It may, on account of the difficulty of levying the imperial revenue by direct taxation, be absolutely necessary, it may, for moral and sanitary reasons, be desirable to tax the consumption of stimulants; but in estimating the actual incidence and pressure of our system of taxation, we are bound to take account of the fact that the duties levied on commodities are not only taxes, and most unequal ones, on the working classes as consumers, but also taxes on their earnings as producers.

Another incidence of a number of taxes on the working classes as producers, has been concealed by the doctrine that taxes on particular commodities and particular employments fall on consumers only, not on producers. The theory of taxation abounds in examples of the danger of the abstract and hypothetical method of reasoning in economics. The economist sets out with an assumption surrounded with conditions and qualifications, and perhaps itself open to question, such as that in the long run, and on the average, the profits of different occupations tend to equality, and presently forgetting all his qualifications and conditions, concludes that the profits of individuals must be equal; and therefore all special taxes advanced by producers must come back to them with equal or average profit. Individual profits really, in almost every business, vary from enormous gain to absolute loss. Profit depends, as Mr. Mill says, not only on the skill of the capitalist himself, and the conduct and honesty of those he deals with, but also on the accidents of personal connexion, and even on chance. That equal capitals give equal profits, as a general maxim of trade, would be as false as that equal age and size give equal bodily strength. Nevertheless, it is taken for granted that every special tax on a business is recovered with average profit,' though the net result of all a trader's advances is not unfrequently ruin; though all such taxes give an advantage to the larger capitalists; and though our customs and excise duties have been steadily driving small producers and dealers from

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Principles of Political Economy,' Book ii. chap. xv.

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