The Sun.
London, England, 1853-03-25 00:00:00

THE INCOME T.I.K.

TO THE EDITOR OF THE TIMES.
Sir, —The letter which I addressed to you two months
since upon the subject of the income tax has met, I have
reason to believe, with very general approval ; yet I should
be regardless of the magnitude of the interests which are at
stake, and neglectful of the principles of truth and justice
which are involved in the decision of the question, if I did
not, by your indulgence, attempt to remove the objections
to a readjustment of the tax which the fallacious arguments
and distorted comments of the opponents of reform may
have raised or confirmed.

' " One of the soundest and most powerful Writers on the
principle of an income tax has just published a second
pamphlet on the subject, entitled Property and Income 1
Tax ; the Present State of the Question. By J. G. Mait-
land, M.A., F.R.S., Barrister, and late Fellow of Trinity
College, Cambridge. All who wish to understand either
the true theory of direct taxation, or the practical impor-
tance
of forming a right judgment on the question, will do
well to study this concise and,pregnant review of almost all
the popular errors by which it has been obscured."
I am not aware of any other writer who has recently
advocated these views ; but in the two pamphlets of Mr.
Maitland, heralded in such eulogistic terms, we may, if
anywhere, expect to meet an effective vindication of the
present tax, and a conclusive refutation of the charges
which have been advanced against it.
In his earlier pamphlet ("Property and Income Tax,
Schedule A and Schedule D") Mr. Maitland announces (p.
2)—" I cannot help •concluding that the tax will, with or
without modification, be a permanent national burden ;"
and he assumes that the object of those who clamoured for
the committee in the House of Commons was, and is, to
" obtain a discriminating rate of taxation—to relieve sche-
dule D at the expense, if necessary, of schedules A and C."
He treats the subject with the apprehension always on
his mind that the demand for reform is an attempt to ob-
tain an unfair advantage, and he closes his first pamphlet
by foretelling (in the event of the principle of the tax being
altered), " a constant struggle on the part of the favoured
classes to increase this tax and diminish others."

In his second pamphlet Mr. Maitland writes (p. 13)—
"For myself, I cannot help looking at the parties who de-
sire, and the object for which they desire, the modification
of the tax." And this prepossession has been fatal to the
impartial consideration of the subject. Mr. Maitland
looks, not at the merits of the case, but at the parties who
appear as plaintiffs in the cate • he suspects, or rather more
than suspects them—he utterly diitrusts their motives,
and dreads the consequences of granting their suit. Had
he been professedly engaged for the defence, one might
have recognised a not unusual forensic stratagem in his
habit of discrediting the evidence of his opponents, but he
writes with no simulated indignation—his alarm is per-
fectly genuine, only it is altogether misplaced.
Traders and professional men taxed under schedule D are
doubtless the largest sufferers, but they ask for relief as
their right, and with no idea that its concession will make
them a "favoured class." To refute relief upon the ground
that the concession would be at the expense of A and C is
virtually to declare that owners of real property have
hitherto occupied a favoured position, from which an act
of justice would dislodge them. Yet their position can be
viewed as "favoured" only comparatively, for I hold that
under the present act neither A nor C is justly dealt with
throughout.
In schedule C the largo section of annuitants for terms
and lives are grievously injured ; and as to A, I state in
Mr. Maitland's own words (first pamphlet, p. 15), "Owing
to the absence in schedule A of any allowance for repairs
and management, &c., it will not be too much to say
that the nominal 7d. is sid. or 9d. upon every pound
sterling of real net income, such as is taxed under schedule
D" (such, I should have said, as is taxed in the interest of
Consols). I do not dispute (though I might not have rated
it so highly) the fact affirmed by Mr. Maitland, that, as
regards land; the real net income pays 14d. more than it
ought, but how` he reconciles this assertion with his decla-
ration that in its present form "the tax is both sound and
just" (pamphlet 3, P. 13), I leave him to settle with the
agricultural interest.

-Passing on to Mr. Maitland's chapter on the taxation of
temporary incomes, we find in his 29th page a supposed
case stated as a test for the question under debate ; but in
treating it Mr. Maitland, like Mr. Warburton, omits all
reference to time as a necessary consideration. He argues
that it is right to tax at the same rate the sum received as
an annuity for 23 years and the interest of a perpetual an-
nuity (each property worth 10,0301.), because the redemp-
tion of the tax upon the perpetual annuity and of the tax
upon the terminable annuity would be equal sums—over-
looking or disregarding the anomaly of charging equal sums
for enfranchising equal properties during unequal periods.
This vital defect in the Warburtonian theory had been
clearly pointed out by Mr. Farr and the actuaries, and I
had further exposed it in my letter to the Chancellor of the
Exchequer. Mr. Maitland; however, defends the theory
with unflinching resolution, and, as the whole case of the
holders of terminable annuities turns upon this point, I
will quote in extenso Mr. Maitland's argument upon it
(second pamphlet, p. 21) :
" It was contended by the actuaries (and Mr. Hubbard
adopts the same view) that in each payment made in re-
spect of an annuity a portion of the principal which was
paid for the purchase of the annuity is repaid, and that the
remainder only is to be regarded as pure interest. This
interest, it is maintained, is the only proper subject of
taxation. I wish to furnish tho reader with a test easily
applicable, and, as I believe, strictly correct, of the
soundness of this theory for purposes of taxation. Let us
suppose that out of 1001., the annual dividend of an
annuitant, 201. only is for this year to be considered as
pure interest. A tax of 5/. per cent. would take from him
11., and he would receive 991.; a 101. per cent, tax would
take 21., and he would receive 981., and so on. From the
holder of Consols yielding a perpetual annuity of 1001. the
former tax would take 5/., the latter 101., leaving him in
the first case 951., in the second 901. However the tax be
increased (and this is the important thing), 201. in the first
case, and 1001. in the second, are both the subjects and the
limits of taxation for this year. , Next year the portion of
the annuitant's dividend which consists of pure interest
will, according to the theory, be smaller still ; but that
does not signify. Now, let us suppose the tax increased
to its limit-1001. per cent.—will equal justice, or equal
injustice (it matters not which), be done, if we pay to the
annuitant 801. this year, a larger sum next year, and so on
to 1860, while, on the other hand, we pay to the holder of
Consols nothing at all, yearly, for ever ? It will be said,
perhaps, that this is an extreme case, absurd, inconceiv-
able, &c. I hope it is so ; but then it is perfectly lawful to
put an extreme case in order to test the soundness of a
mathematical proposition, unless such a case be excluded
by the terms of the proposition, which here it is not, and I
think cannot be."

Mr. Maitland supposes an annuity of 1001. terminable
in 1860. The present value of the annuity, or, in other
words, the capital engaged in it, is 666/. the interest on
that capital subject to the income tax is 201. He con-
trasts that terminable annuity with a perpetual an-
nuity of 1001., and imagines an income tax of 20s.
in the pound (cent. per cent.), which absorbs entirely
the 20/. interest accruing on the perpetual annuity ;
and then he asks whether equal justice (or injustice) will
be done if, while wo pay to the terminable annui-
tant the capital due to him till 1860, we pay to the holder
of Consols nothing at all yearly for ever ? Certainly