Chapter 8

Taxation

September 30, 2015

Section 3: Taxation in Kind

Taxation in kind is the specific and immediate appropriation of a portion of the gross product to the public service. It has this advantage, of calling on the producer only for what he has actually in hand, in the identical shape which it happens to be under. Belgium, after its conquest by France, found itself at times unable to pay its taxes, in spite of abundant crops; the war, and the prohibition of exportation, obstructed the sale of its produce, which the government enforced by demanding payment in money; whereas, the taxes might have been collected without difficulty, had the government been content to take payment in kind.

Besides, when money-prices grow high, and specie is consequently reduced in relative value, it gradually takes its depar- ture, and becomes scarcer, like all other commodities= and thus a country, burthened with a taxation too heavy for its productive powers, is first drained of its commodities, and next of its specie; till it gradually reaches the extreme of penury and depopulation.

It has the further advantage of making it equally the interest of government and of the farmer to obtain plentiful crops, and improve the national agriculture. The levying of taxes in kind in China, was probably the origin of the peculiar en- couragement, bestowed by its government upon the agricultural branch of production. But, why favour one branch, when all are equally entitled to protection, because all contribute to bear the public burthens? And, why has not government an equal interest in supporting the other branches, which it takes the trouble of extinguishing?

The marechal de Vauban, in his work entitled, Dixime Royale, a book replete with just views, and well worth the study of those who manage national finances, proposes a tax of 1-20 of the product of the land, which, in times of great emer- gency, might be raised to 1-10. But this proposition was made as a substitute for a still more inequitable system= namely, the saddling of the lands of the commonalty with the whole tax, and altogether exempting the lands of the nobles and clergy. The public-spirited writer, who had occasion, in his character of engineer, to become personally acquainted with every part of France, speaks most feelingly of the hardships resulting from the land-tax 103 of those days. And there is no doubt, that the adoption of his plan at that time would have been a vast relief to the country.

But it was disregarded because every courtier had an interest to resist it= and this fine country was left to flounder through its distresses. The consequence was, a heavier loss of population from famine, than from the sword, in the war of the Spanish succession. It has likewise the advantage of excluding all exaction and injustice in the collection; the individual, when he gathers in his harvest, knows exactly what he has to pay; and the state knows what it has to receive. This tax, which might appear at first sight to be of all others the most equitable, is nevertheless of all others the most in- equitable; for it makes no allowance for the advances made in the course of production, but is taken upon the gross, in- stead of the net, product Take two farmers in different branches of cultivation; the one farming tillage-land of moderate qual- ity; his expenses of cultivation, amounting, one year with another, say to 1600 dollars, and the gross product of his farm, say to 2400 dollars, so as to yield him a net product of 800 dollars only; the other farming pasturage or wood-land, yield- ing a gross product of precisely the same amount of 2400 dollars= with an expense of cultivation, amounting, perhaps, to but 400 dollars, leaving him a net product, one year with another, of 2000 dollars. Suppose a tax in kind to be imposed in the ratio of 1-12 of the annual product of land of all de- scriptions indiscriminately.

The former will have to pay in sheaves of corn to the amount of 200 dollars; the latter will pay, in cattle or in wood, an equal value of 200 dollars. What is the result?

The one will have paid the fourth part of a net revenue of $800; the other but a tenth part of a net revenue of $2000.

The difficulty and expense of collection, together with the abuses to which it is liable, are another objection to taxation in kind. The immense number of agents must open a fine field for peculation. The government may be imposed upon, in respect to the amount collected, upon the subsequent sale and disposal, in respect to the quantity damaged, as well as in the charges of storing, preservation and carriage. If the tax be farmed to contractors, the profits and expenses of numberless farmers and contractors must all fall upon the public. The prosecution of the farmers and contractors would require the active vigilance of administration.

‘A gentleman of great fortune,’ says Smith, ‘who lived in the capital, would be in danger of suffering much by the neglect, and more by the fraud, of his factors and agents, if the rents of an estate in a distant province were to be paid to him in this manner. The loss of the sovereign, from the abuse and depredation of his tax-gatherers, would necessarily be much greater.’ 104 Various other objections have been urged against taxation in kind, which it would be useless and tedious to enumerate. I shall only take the liberty of remarking the violent operation upon relative price, which must follow from so vast a quan- tity of produce being thrown upon the market by the agents of the public revenue, who are notoriously equally improvi- dent as buyers and- as sellers. The necessity of clearing the storehouses to make room for the fresh crop, and the ever urgent demands upon the public pulse, would oblige them to sell below the level, to which the price would naturally be brought by the rent of the land, the wages of labour, and the interest of the capital, engaged in agriculture; and private dealers would be unable to maintain the competition. Such taxation rot only takes from the cultivator a portion of his product, but prevents his turning the residue to good account. The revenue, that each person has for his own share, is the net residue only after replacing the capital he has embarked, whatever may be its amount. Is the gross amount of the sales he effects in the year the annual income of the merchant? Certainly not; all the income he gets is the surplus of his re- ceipts above his advances; on this surplus alone can he pay taxes, without ruin to his concerns. The ecclesiastical tithe levied in France under the old system was liable to this in- convenience in part only. It attached neither upon meadow, nor wood-land, nor kitchen-ground, nor many other kinds of cultivation; and in some places was 1-18, in others 1-15 or 1- 10 of the gross product; so that the real, was corrected by the apparent inequality.

cultivated spots, were rated very high. Since then, the tor- rents and inundations have been confined by drainage and embankment, and the plains reduced to fertility; their pro- duce, being comparatively exempt from tax, came to market cheaper than that of the uplands, which, consequently, were unable to maintain the competition, under the pressure of dis- proportionate taxation, and have gradually been abandoned and deserted. 105 Whereas, had the tax been adjusted to the change of circumstances, both might have been cultivated together.

Section 4. The Territorial or Land-Tax of England.

In the year 1692, which was four years after the happy revo- lution, that placed the prince of Orange upon the British throne, a general valuation was made of the income of all the land in the country; and, upon that valuation, the land-tax continues to be levied to this day; so that the tax of four shillings in the pound, upon the rents of land, is a fifth of its rent in 1692, and not of the actual rent at the present day.

In speaking of a tax, peculiar to a particular nation, I have u:ed it merely in illustration of general and universal prin- ciples.

This tax encourages improvements of the land. An estate that has been improved so as to double the rent, does not pay double the original tax; neither does it pay a less tax if it be suffered to fall into neglect and impoverishment; thus, it operates as a penalty upon negligence.

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