mum in relation to taxable capacity, and consequently I have avoided using it, and have used the term minimum social expenditure. The subsistence minimum implies the least income on which people can keep alive, and it would be a serious error to regard all the remaining income as the measure of taxable capacity. It is true that heavy taxation in excess of the taxable capacity may be imposed and maintained for a short period, say five or six years; but such overtaxation tends to exhaust the sources from which it is drawn and cannot, therefore, be maintained.
5. Results to be gained from Increased Taxation.—In the foregoing section I have alluded briefly to the effects of heavy taxation amounting to overtaxation. For the purpose of understanding the relation of taxation to economic development it is more important, however, to consider carefully the effects of increasing existing taxation by moderate amounts, as this will almost inevitably be necessary in the first stage of the development of any country.
Any increase of taxation obviously reduces immediately the real income of which the individual can dispose, assuming his money income to remain unchanged; but the effects of taxation in reduction of income and of taxation based on commodities are different. Taxes in reduction of income, which are mostly direct taxes, are either assessed upon the whole income, or upon incomes from particular sources, or both. The income tax is the most important of this class, other examples being a land tax on rents, inheritance taxes on estates (which by diminishing the capital remove a portion of the income from the heir), and certain taxes on business and profits. In every such case the effect of the reduction of income caused by the increased tax is to compel a readjust-
