Year: 1866

| l.. PRUYN: My work last term left me nc


leisure to look into hehistory of the income
tax, and verify the views which had pro-


pounded in the conversation to which your


letter refers. And my term had scarcely ended
| when was unexpectedly-but unavoidably
called away from Oxford to place out Of
the way of political books and informa-
ton.


| Ny friend Mr.. c. A. Roberts of All Souls
College, was, however, kind enough to assist
me by looking into some points which
mentioned to him, and he has placed into


my hands the brief sketch of the history OF
the tax, which | send herewith, and in which
references are made to more extensive sour
ces Of information.


You will find, l believe, that the sketch
in the main corresponds with the account of
the matter which | gave you in our con-
versation.


The tax was first resorted to by Mr.. Pitt,
| in 1897, the most disastrous period of our
war with the French republic, in order to
meet the exigencies of that great national
emergency without recourse to the constant
| loans which were subversive of public Gre
| dit. 1t was remitted at the short peace Of
| Amiens, and reinforced upon the renewal
| of the war, but considered by us as a war
measure, 20 terminate Immediately on the
conclusion of treaty Of peace. An attempt
Of the government TO retain it after the ter
mination of the war was defeated and, in
the words of Mr.. Wilberforce, the principle
that "war and income tax were welded to-
gether."


The tax was not again imposed till 1912,
when Sir X. Peel, who had recently cone
into power, resorted to it to meet a special
emergency-not of military, but of a fl
nancial kind-viz: the large deficit caused
by the financial miscarriages of his prede-
cessors in the government and the injurious
effect of that deficit on public credit. He at
the same time wished to make what was
then great and somewhat perilous expert
ment-viz: the reduction of import duties
in the hope that the increased consumption
would more than countervail to the revenue
the reduction of the duty, and he used the
income tax to show up, as it were, the fiscal
system, while the experiment was being
made. The tax was limited to a stated pc
riod, and avowedly regarded by its author as
an extraordinary measure adopted to meet
great emergency and facilitate a practical ex-
pertinent.


Its renewal by successive Chancellors of
the Exchequer since that time has been
partly justified by the fiscal experiment COM
menced by Sir Robert Peel, viz: the reduc-
ton of duties in the hope of relieving the
consumer without loss TO the revenue, and
by the emergency of the Russian war, when
the tax was temporarily increased. But the
main inducement has been the dangerous
facility of the fiscal engine; by means of
which the Minister who has it in his hand
is able at any time, by single turn of the
screw, to produce an additional revenue of
large and certain amounts, and thus to keep
up the war expenditure in time of peace, to
which our Government, or rather our gov
erning class, is so incorrigibly addicted.


The tax has been opposed throughout its
existence mainly on three grounds.


/. The unfairness of its pressure on the
different descriptions of incomes-those
arising from labor and those not arising
from labor the certain and the precarious
10 remedy which various attempts Mt dis
elimination have been made, but without
success, so that the evil may be regarded as
at once great and incurable.


2. Its inquisitorial character, and the ar
bitrary power almost inevitably given to
the Exchequer in assessing it.


3. Its demOralizing tendency, at least
when there is no great national emergency
to stimulate the patriotism of the taxpayer
and induce him from a sense of honor to
make true returns. Notable instances of this
tendency, even in the case of our most re-
spectacle class of citizens, are given in the
historical sketch. Probably false returns to
the income tax have been the easy and Sc
ductive first step in many atrade in the down.
ward path to mercantile dishOnor. No
body has admitted this more explicitly than
Mr.. Gladstone, though he has been to so
great an extent responsible for the contin-
uance of the tax.


There is another objection to the tax,
arising from socialistic tendency, as tax
imposed expressly on the rich, and capable
of indefinite increase and class graduation,
which is less felt in the country, where the
rich are the possessors of political power,
but which, if rightly remember conver-
sation which had many years ago with
Swiss gentleman, was greatly felt in certain
cantons of Switzerland, where principles
bordering on socialism at that time pre-
vailed


The tax is attractive TO our Finance Min
lister, as, imagine, not only from its facil-
ity and certainty as n source of revenue, but
for the relief which it affords him from the
necessity Of deciding between the conflicting
claims Of different great interests, agricul-
tural and commercial, in the distribution of
fiscal burdens. This advantage, however,
would equally belong to any impartial sys-
TEN Of taxation, such as that of which, if |
can presume to call myself an advocate of
any system, am an advocate-an equal tax
on all realized property, combined with
stamp tax and an equal ad valorem duty on
all imports.


|, of course, confine myself TO the subject
of the English income tax, without touching
on the American question. But perhaps l
may, without presumption, mention one or
two points affecting in different ways the APP
plicability Of our experience to the case of
your nation.


l. The socialistic tendency, which Is here
kept in check by the political power Of the
income tax paying class, win, perhaps, in
your case be equally kept in check by diff
ferent influence, viz by the absence of any
sharp class divisions among your people, the
more palpable identity of interest and the
greater expectation felt by the poor man of
being himself one day numbered with the
rich.


.. We live under the system of free trade,
YOU under that OF protection. will not en-
ter into the vexed and fear acrimonious
question as TO the general merits of the two
systems; but it is of course manifest that free |
trade, by encouraging the importation of ar
:icles on which duties can be levied, is the |
best for the customs revenue; and therefore |
the necessity for direct taxation may not be |
so great in our country as yours.


3. On the other hand much of the income |
paying the tax here is hereditary, or at least |
belongs TO persons not engaged in any indus
try or trade, the crrtailment Of whose ex-
penditure, especially when it is devoted TO
the maintenance of great domestic establish |
ments, though it is an evil and If carried |
beyond due limits an injusticet to the persons
themselves, does not interfere with the pro-
duction of wealth by the community; where
as in America the great incomes are gener- |
ally the prizes Of industry, which cannot be |
rendered insecure without iniuring industry |
itself, and the leading shoots of commerce,
which cannot be Topped without stunting the |
grewth Of the whole tree.


i fear you viii find nothing in this letter |
very new or instructive: but as You desired |
me TO write down my thoughts / could not |
refuse the request Of so kind and hospitable |
friend. " ~


Believe me, dear sir, yours very faithfully |


Goodwin SMITH.