Popular Science Monthly/Volume 58/November 1900/The Distribution of Taxes

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THE DISTRIBUTION OF TAXES.[1]
By EDWARD ATKINSON.

IN nearly all the discussions upon the subject of taxation which have come to my notice, it is assumed that certain specific taxes fall upon and are borne wholly by one class; other taxes fall upon and are borne by a second class; and so on throughout the list. For instance, in the discussion regarding a protective tariff it is held by the advocates of protection that in some cases the imposition of a duty reduces the price of the imported article in the foreign country from which it comes. It is, therefore, held that such a tax may be put upon the foreign producer and is not paid by the domestic consumer. It is held that other duties on other imported articles are added to the cost of importation, then as far as possible added to the price, and are thus distributed in ratio to their consumption. Unless such should be the result of imposing duties on foreign imports, namely, that they may either be borne in the first instance by the foreign producer, or may be distributed on the domestic consumer, there could be no continuous import of any foreign product. Even if it could be proved that some duties are paid by foreign producers, such reduction in price would limit his power of purchase of our domestic goods taken in exchange.

It is also held that excise taxes on liquors and tobacco must be charged to the cost of production, must be recovered from the sales and are, therefore, distributed in ratio to consumption. It is held by the advocates of what is called the single tax that a tax on rent or rental values will be paid out of the rents accruing to the landlord, and that this tax cannot be distributed by him, but that it simply diminishes his income. It is held that a tax on incomes is paid by those who enjoy the income, diminishing their resources. Finally, it is held that a tax on inheritances and successions is taken out of the property and that it cannot be distributed.

All these theories, presented in different forms, are and have been subjects of discussion. They have been debated ever since the subject of taxation became in any measure a matter of scientific inquiry. The conclusions reached by different persons or schools of political economy so-called, are as much at variance now as they have ever been.

I have reached the conclusion that all taxes, wherever placed, however imposed, and through whatever agency collected by the govern ment, either national, State, city or town, are distributed, falling ultimately upon all consumers in proportion to the quantity and value of the product of the country consumed by each person.

What is the cost of each person to the community? Is it not what each person consumes of the materials needed for shelter, food and clothing? What does any one get in or out of life, in a material sense, be he rich or poor, except what we call board and clothing? Incomes in money are distributed. When paid for service that money becomes the means by which the person who has performed the service procures shelter, food and clothing.

If these points are well taken, then it seems to me that the only problem is how much time will elapse before the tax will fall upon the consumers of all products in ratio to consumption; an incidental question being the relative cost of collecting the taxes in one way or another.

I have been led to this conclusion that all taxes are slowly but surely diffused throughout the community—some directly, others indirectly—by reasoning upon the subject without measuring the tax in terms of money—money being only the medium by which the real tax is measured and brought to the use of the government. Does not the same distinction apply to taxes that applies to wages? We are accustomed to speak of money wages and real wages, meaning by real wages the things that money will buy. May we not in the same way speak of money taxes and real taxes, meaning by real taxes the material substances withdrawn from the community for the support of the employees of the government? Does not the real tax consist of the material products needed by and consumed for the subsistence of the officers of the government and of all persons who are in the government service?

The annual product is substantially the source of these material substances. A small part of one year's product is carried over to start the next year's product, a small part of that year being carried forward on which to begin work in the next. Production is a continuous process, but it is governed practically by each series of four seasons. Now, if the real tax is that part of the annual product withdrawn from general consumption to serve the special consumption of the persons who are in the government service, or are pensioned by the government, then by so much as the annual product measured in quantities is lessened in order to meet that demand, will the quantity remaining for distribution among those who directly take part in productive work be diminished.

In the expenditure of the money derived from taxation the government secures materials for constructing buildings, for their furnishings and fittings; for constructing coast defenses; for building naval vessels; for supplying food, shelter and clothing to all government employees and dependents. With respect to armaments, military and naval, all the materials for the construction of vessels, forts, arms and equipments must be taken from the common stock which is derived from the annual product. The rations and clothing of soldiers, sailors and pensioners must be provided in the same way.

It follows that by so much as these government forces, military and naval, are increased will the proportion of products withdrawn from productive consumption be augmented. If these military expenditures go beyond the absolute requirements for defense, leading to the establishment of a large standing army and a great navy, every one must bear his proportion of that burden, because what is taken from the common stock for these destructive purposes is nothing but the material for shelter, food and clothing which would otherwise be constructively or productively expended. By so much as the burden of militarism is augmented must poverty be increased.

I do not mean to give the idea that many of the functions of government are not necessary and are not productive in a true sense. The functions of the civil government are as necessary to the conduct of productive industry and the government employees in this service are as much needed as are the services of any other body of men who are not directly occupied in the mechanical and manual work of production or distribution. The officials of a just government supply mental energy, the fourth and paramount factor in all production. Hence, the constructive work of governments must be carefully kept distinct from the destructive work of militarism. All that is taken from the annual product either to pay debt incurred in war, or the interest thereon, or for the support of armies or navies, is destructive and not constructive in its immediate application to any given year. By so much as food, shelter and clothing are taken from the annual product for military or destructive purposes, by so much is the quantity lessened which would otherwise be consumed for reproductive purposes. Whether or not such destructive consumption may be justified or otherwise is not a question at issue in this discussion; I merely present the facts and intend to show what militarism costs.

We now come to the relative burden of taxation. If by way of taxation so large a part of the annual product is taken for destructive purposes as to leave less than a sufficient supply for necessity and comfort, then the time has come for revision and removal of taxes lest degeneration should ensue. The case of Italy may be cited. It is stated by Italian economists that from twenty-five to thirty per cent, of the annual product of Italy is expended in support of the government, mainly for the destructive purposes of militarism; the consequences being that great bodies of people cannot get enough to eat—there is not enough to go round. Of course, the richer classes can buy what they need, therefore the ultimate and destructive burden of militarism falls upon the poor and the incapable. I think it cannot fail to be admitted that by so much as products are taken by the government for consumption outside the civil service, mainly for military purposes, in the form of food, fuel, metal, timber and the like, by so much is there less of these materials to be expended for subsistence and for the construction of dwelling houses, factories, workshops and the mechanism of productive industry. If such productive consumption is retarded by an excessive tax on inheritances or on incomes, then the accumulation of capital is retarded, and by so much must the rate of interest or profit be higher than it would otherwise have been. The distribution may be very remote, but it is very certain, unless one is prepared to admit the absurd cry of over-production and to defend a waste of substance by way of taxation in order to get rid of it.

All these material substances which are applied in the end to the supply of shelter, food and clothing are the joint product of land, labor, capital and mental energy. They are derived directly or indirectly from the field, the forest, the mine or the sea. There can be no large production conducted exclusively by labor; tools are necessary. Tools are capital, whether used by hand or worked by power. On the other hand, there can be no production exclusively derived from capital; tools and mechanism without human power or direction are inert. Land is the basis of all production, yet raw land is practically inert. Land is but a tool or instrument of production and has been so ever since the nomadic life gave place to civilized life. Again, there can be no great product, of either land, labor or capital, of either manual or mechanical work, without the directing or coordinating power of mental energy, bringing all these material forces to a constantly augmenting product in ratio to the number of persons occupied in their conduct.

If, then, the entire product of land, labor, capital and mental energy in a given period, consisting of four seasons or one year, is represented by the symbol A, that part of the product which is converted to the uses of government by taxation may be represented by the symbol B; then A minus B equals X, the unknown quantity. If X, the unknown quantity, is the share of the annual product of material substances used for shelter, food and clothing, then the whole burden of taxation, wherever imposed and however collected, with all the expenses of collection, be they greater or less, must fall in the end upon all consumers in proportion to their consumption by diminishing the quantity or value of X.

It follows that if the demand of governments takes so large a portion of the product that what is left is insufficient to meet the necessity and comfort of those who are not in the government service, then, as a matter of course, the people with the larger incomes will buy all they need with the necessary consequence that the final burden falls on those least able to bear it.

All systems of taxation have adjusted themselves more or less logically to these conditions.

It has been found in practice among all civilized nations that any large amount of taxation must be derived from a few articles of very general use; as, for instance, our national taxes on liquors and tobacco have for twenty years preceding the Spanish war annually averaged two dollars and a half ($2.50) per head, that rate sufficing to meet the normal expenses of the government during the same period. That is to say, taxes on liquors and tobacco, domestic and foreign, have annually yielded a revenue in money sufficient for twenty years prior to the Spanish war for the support of the civil service, and the army and the navy before these forces were augmented beyond the requirement of national defense. The taxes necessary to meet pensions and interest have been derived from other sources. In other words, under normal conditions, had we paid the national debt, as we might have many years ago without feeling the burden in any considerable measure, and had our pensions been limited to true cases, the people of this country would only have been called upon to forego a part of their consumption of liquors and tobacco in order to support the national government. At the present time, under the augmented taxes on liquors and tobacco, the revenue from these sources is between three dollars and a half ($3.50) and four dollars ($4) per head.

Great Britain, France and Germany derive a large part of their revenues from the same sources, namely, from these and other articles which are consumed in largest measure by the millions rather than by the millionaires. These taxes are collected at the least cost for collection and they meet a true canon of taxation, taking from consumers a part of a product which consumers can spare without impairing their productive energy.

Again, we may find the almost necessary resort of the British Government in India to a salt tax, because it is only through the tax on salt that the masses of the people can be reached, the next great resource of East Indian revenue being what is practically a single tax on land, assessed directly without regard to the relative product year by year. These taxes on salt and land admittedly reduce a large part of the population of India to such condition of extreme poverty that when a bad year comes famine devastates the land. The hoards of wealth in India are enormous, but they cannot be reached. The problem of taxation in India is not a question of will but of power to collect.

The octroi tax imposed upon the traffic of the city with the country, now in force in France, Italy and some other countries, rendered necessary by the magnitude of the burden of taxation, is one of the most obnoxious of all methods of distributing military burdens.

Finally, the relative burden of taxation cannot be estimated nation by nation by mere computation in symbols or money. The taxation by the measure of money of the United States for national purposes before the war with Spain was five dollars per head, tending to lessen. In Great Britain and Germany taxes for the same purposes were about ten dollars per head; in France about fifteen dollars. But this is no measure of the true burden of taxation. The annual product of this country measured by quantities is vastly greater than that of any European country. It may be approximately estimated twenty-five per cent, greater than that of the people of Great Britain and Ireland, thirty to forty per cent, greater than that of France, double that of Germany, and much more than double that of Italy. Hence, the real taxation of these European countries under their military establishments is vastly more than the mere symbols in money make it appear.

It follows that if all taxes in money stand for that part of the annual product required by Government, and that by so much as the product is diminished will the share falling to labor and capital be lessened, the only way to prevent taxation becoming a cause of pauperism or poverty is to limit the taxes to the necessary conduct of civil government and to national defense, avoiding aggression and forbidding armaments for any purpose except defense.

  1. Read before the Section of Economic and Social Science, American Association for the Advancement of Science, June, 1900.