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Annual Incomes in Millions of Pounds

ANNUAL INCOMES IN MILLIONS OF POUNDS In each of the five classes a continual increase is noticeable, excepting class B alone where a decrease set in in ,88o, which, it is to be remarked, is confined to possible where an unmitigated local self-government results in impaneling the citizen's and farmer's aversion to taxes in the jury box (cf. sec. 317 below).

§312. The relativity of all institutions for political and tax purposes is made clear by a comparison of the attempts at an income tax made on the Continent at the time of its employment in England in the early years of this century. In the one case as in the other the occasion for the attempt was the extraor dinary demands created by the war against France, which necessitated resort to extraordinary means. As such extraor dinary means of revenue, it was sought to make use of heavy taxes on property and income. But the practical results dif fered widely in the one case and the other.

In Prussia a property tax and an income tax had been intro duced by an edict of May 24, 1812, the former of which was to be not only a nominal but also a real property tax; as a result of this aim it was a mixture of forced loan and tax. On all property (landed property, investments, stores of merchan dise) 3 per cent. (of the amount of the property itself) was to be paid as a tax. Everyone was required to return his prop erty under oath; in case of grave suspicion of too low a return the commissions in charge were to institute a detailed investi gation of the property ; a special method of valuation was adopted in the case of merchants to avoid publishing the amount of their assets. All taxpayers were, if possible, to be repaid two-thirds of the tax by means of a sale of the public domains. It was expected that the property tax would produce 25 million thalers, the aggregate wealth of the country being estimated at 85o million thalers (Pitt had, in 1798, estimated England only (1880, 51.62; 1887, 45.65). In class D there was a decrease from 1876 to 1880 (1876, 271.97 millions) which however was recovered by 1883.

Taking the five classes together we have the following amounts (in millions of pounds): the yearly revenue of Great Britain at a sum not much less than this, viz., 102 million pounds), but the receipts actually obtained amounted to only 4.5o million thalers.

The income tax enacted at the same time required (in addi tion to the property tax) a payment of five per cent. on every income of 30o thalers or over ; incomes of 100-300 thalers were to pay I per cent.; incomes below 10o thalers, subdivided into two classes, to pay one-half and three-quarters thaler, respectively.

A burden of such extraordinary weight could be imposed only as a resort in extreme need, and only temporarily. On Sep tember 7, 1814, was issued the edict which abolished the tax. The experiment had been made under the most unfavorable cir cumstances. The country was already exhausted by war expend itures running over a series of years ; the people were not habit uated to bearing such a tax, although the patriotic enthusiasm of that time might be counted on for something ; the demand was an extravagant one, for although the actual receipts from the property tax amounted to only one-fifth or one-sixth of the esti mated receipts, still, even that was more than to per cent.' of the annual income, and therefore more than the nominal rate of Pitt's income tax at its highest. And this takes no account of the 5 per cent. income tax. In England the people had, for nearly two decades, been gradually habituating themselves to the income tax and learning to manage it in connection with the existing institutions of the fiscal administration. There was already a good foundation present on which to erect the income tax into a permanent constituent of the tax system, and the gov ernment, too, was determined to retain it after the close of the war, while only a moderate majority were opposed to it. It was quite otherwise in Prussia. Here the demand was for a single, extraordinarily heavy contribution, coupled for the most part with the promise of restitution, a promise which, it is to be added, was not lived up to in the midst of the financial straits of that time. What favorable conditions were present, either in the people or in the government, for the introduction of and habit uation to a moderate income tax as a permanent feature, were largely destroyed by this unsuccessful attempt. J. G. Hoffmann, in his memorial of May 22, 1812, to Prince Hardenberg, had argued in vain against the property tax, whereas he was relatively well inclined to an income tax. On the occasion of the reforms of the years 1817-1820 he was a most determined opponent of the income tax also ; he wished to narrow it down to a class tax of the kind that Justil had recommended as early as 1755, when Justi also condemned the income tax.

Minor attempts at introducing the income tax had been made as early as i8o8 and 181o. In connection with the earliest finan cial reforms of 181o, Stein had come forward as an enthusiastic advocate of the income tax ; a he claimed that it was under all circumstances the most equitable impost, inasmuch as it falls .upon all citizens and all sources of income that it was the most uniform and the most productive tax. It was Stein's view that little attention was to be paid to public opinion in Prussia ; that this people is dominated by a deep-rooted egoism, a half civiliza tion and license, combined with the rudeness and absence of feeling that belong to the North ; that this unregulated public opinion was to be corrected by severe penalties, and by no means be led farther afield by leniency and indulgence. A royal Order in Council (written by Hardenberg) of January II,1811, expresses displeasure at the proposal made by the Estates of the Circle of Heilsberg in favor of a capitation tax.

But even at that date von Raumer (in his work on the British Tax System, especially on the income tax, 1810) hachfound that the experience of England with the income tax was an "auf immer schreckendes Beispiel." At the same time Privy Counsellor of Finance, von Prittwitz, in his report to Hardenberg (May 18, 1810), recommended a Class Tax, objecting to the income tax that it could not be levied except by applying most odious meas ures, inasmuch as it lies in the nature of this tax to pry violently into the secrets of ownership, thereby demoralizing the nation, restraining foreigners from coming into the country, and driving the well-to-do inhabitants out of the land.

§ 313. So the class tax came to be the median line, on which the majority agreed in the tax legislation of 1820 ; but even this tax could be adopted only in the mutilated form (sec. 270) in which it was expected to serve simply as a complement to the grist and slaughter tax within the limits of the smaller local units, for only within such narrow limits was it thought feasible to undertake even such a class assessment. In towns of five to six thousand inhabitants, and still more distinctly in all larger places, the more convenient grist and slaughter tax was preferred. "The secret of finance is to take without irritating," said Hoff mann in his memorandum on the tax bills of 1820.' Labaye, a high official in the fiscal administration, had in 1810 remarked in criticism of the class tax, especially of its higher grades : So long as we do not adopt as our guiding principle some rate per cent. of the income we are simply playing blind man's-buff.' The demand for a heavier taxation of the upper classes also found expression in the Privy Council ; in a Separat votum of May 5, 1820, Prince William (afterwards Emperor) urged that the new taxes should be discontinued or lowered, and that to this end the wealthier classes of the nation and the more highly salaried officials should be taxed more heavily, and so lighten the burden of the poorer classes of the population. Prince William was by no means alone in holding this view.. It was a fact well calculated to urge reflection on the subject of the class tax that in the year 1820, when a number of were made in Luckenwalde on account of failure to pay the quarter ing impost, it appeared that in more than one hundred of the houses subjected to the attachment, not more than 30 thalers' worth of attachable property was found.

So the class tax came to serve as an initial stage towards the development of the income tax in Prussia—a preparatory stage which, for a generation, answered, or was required to answer, to the demands of the existing situation, in much the same way as the provincial estates did service in the political constitution of the nation. A growth of the sentiment of equity, an increase of wealth, together with the development of modern industrial life in Prussia, a growth of the sphere of public activity and of the interest taken in public affairs and the resulting growth of the mechanism of taxation,— these various factors gradually carried legislation beyond this initial stage. In proportion as this rudi mentary structure developed into a maturer form, an ever-increas ing pressure made itself felt for a fuller development of the higher gradations of the class tax, as well as for a relative exemp tion of the lower classes of the people, the direct taxation of whom presented itself in an increasing degree, as time went on, to one party as oppression, to the other as idle doctrinarianism.

§ 314. It was intended that the repartition of the new tax should be based not on the incomes of the taxpayers but simply on their position in social life.' By tradition, society was sub divided into four classes, and these classes were to serve as the norm for the distribution of the Prussian class tax of May 3o, The way had been prepared for the class tax by the legisla tion of the years 1810-1811. Among the new taxes on con sumption, which were at that time introduced to replace the earlier municipal excise, was a grist tax [Mahlsteuer] amounting to one-half thaler per scheffel of wheat and one-tenth thaler per scheffel of rye. The difficulty of adequately superintending the grinding of grain in the country and in the smaller towns led to the substitution, by Act of September 7, 1811, of a personal tax [Personalsteuer] for the grist tax, which was in point of fact a capitation tax, being levied on every subject of twelve years or over ; its amount, one-half thaler, being the computed equivalent of the grist tax payable on an average annual consumption of five scheffels of rye. This amounted to the introduction of a capitation tax for three-fourths of the population of Prussia.

From this it appears that the capitation tax of 1811 was the germ out of which was developed the Prussian class tax of 1820, which afterwards gave rise to the income tax. Instead of three fourths of the population of Prussia, to whom the capitation tax of 1811 had applied, the class tax comprised six-sevenths of the population. It distinguished four chief classes, each of which was subdivided into two or three subclasses. In the highest class the monthly rate was (according to the subclass affected) four, eight or twelve thalers, in the next highest class it was one to two thalers per month, in the third one-third to two-thirds thaler, in the lowest class one-sixth to one-fourth thaler. These rates applied to the household, single persons without a house hold establishment paying one-half the rates. The assessment was in the hands of the communal officials, under the supervi sion of the president of the district. The idea was to substitute in place of differences in incomes the more readily ascertainable differences in social stratification, as a standard for the gradua tion of the tax, and at the same time to call into service the ele ment of social ambition as a motive to prompt payment of the tax.' But this social ambition was confined to certain of the 7 upper strata of society ; furthermore there was, even at that time, so great a diversity of tax-paying capacity within each class that an accurate knowledge of this tax-paying capacity was necessary in order to a proper division of the class into sub classes. This of course held true to the greatest extent of the higher classes. In this respect, too, the class tax therefore came to serve as a preparatory stage to the income tax that was to follow. The evolution of social life itself tended to break down the limits of .the class tax. This first became evident in the most modern and the wealthiest part of the monarchy,—in the Rhine province. An attempt was made in 183o, for the behoof of this province, to mend matters by a greater specializa tion and subdivision of the upper classes (the first into six, the second into five subclasses). But the results hoped for were not attained.

During the years 1833-1836, out of every 100,000 thalers paid as class tax in the Rhine province, only 3375 thalers were paid by the first class ; in the remaining seven provinces the fig ure was 3574 thalers ; nearly one-half was paid by the lowest class (48,174, and 46,247 thalers respectively).' The average annual receipts for the whole kingdom, during the eighteen years 1821-1838, were 6.83 millions ; of this the Rhine province afforded 1.10 millions with a population subject to the class tax amounting (1833-1838) to 2.12 millions, while that of the other seven provinces amounted to 9.65 millions. But this tax proved inept also in other respects ; in 1822 it brought in an aggregate of 6.72 million thalers, in 1838 not more than 7.16 million thalers, in 1849, 7.57 millions. During this time the population of the places subject to the class tax had risen from 9.85 millions to over 12 millions. The tax had not even kept pace with the increase of population, not to speak of the increase of wealth' The provocation which acted to hasten this rudimentary structure forward in the line of development lay on the one hand in the hardship which direct taxation imposed on a great num ber of poor people whose industrial development was not yet ripe for such taxation ; and on the other in the cramped condi tion of the higher classes subject to the tax, where it achieved a minimum of satisfactory results together with a maximum of claims for remission.

§ 315. The government attempted a reform when it called the Diet together in 1847. The proposed scheme would have abolished the grist and slaughter tax as well as the existing class tax, introducing in place of these an income tax on all incomes of 40o thalers and over, while incomes under 400 thalers would be subjected to an improved form of class tax. The pro posal was rejected, although it did not contemplate an increase of taxation but only a better distribution of the burden, seeking thereby to meet the demands of equity which again came into prominence only at a considerably later period ; it sought to tax funded incomes at a higher rate than unfunded.

On September 22, 1849, the government submitted to the lower house a new scheme, out of which was evolved the Act of May 1, 1851. The old class tax was nominally abolished, but it was in point of fact virtually retained for its higher classes, which were recast under the form of a classified income tax— another halfway measure, partaking both of the class tax and the income tax (" income tax" proper).

The essential provisions are as follows : On persons who neither possess an income of moo thalers, nor live in a town subject to the grist and slaughter tax, a new class tax is levied. On persons having an income of more than 1000 thalers a classified income tax is levied, and in case they live in a town subject to the grist and slaughter tax they are entitled to an annual rebate of twenty thalers on the income tax.

The new class tax distinguishes three classes, with an aggre gate of thirteen subclasses. The rate varies from one-half thaler to three thalers annually in the lowest class, four to ten thalers in the second, and twelve to twenty-four thalers in the highest class. Every person over sixteen years of age is subject to the class tax, excepting such as belong to a household already liable to the class tax.

The classified income tax distinguishes thirty classes, each of which represents a certain space within which the amount of the tax is the same, this space being narrower the lower the class' (20 per cent. of the lowest figure included). The rate is within each class 3 per cent. of the minimum income included in the class, so that those incomes which exceed this lowest figure enjoy a partial exemption under the law. This exemption is greatest in the highest class, where the rate of 3 per cent. on the minimum income (240,000 thalers) applies in the case of incomes exceeding this figure by any amount whatever.

The valuation is in the hands of a commission appointed annually for each circle (or town), presided over by the district president, its members being elected by the representatives of the circle (or commune). The president of this commission of valuation, who also represents the interest of the state, directs the work of assessment. The commission revises the estimates of incomes submitted by its presiding officer, employing in this work all means of information which it can command, but with the proviso that "every offensive intrusion into the pecuniary affairs of the individual taxpayer is to be avoided." From this assessment appeal may be taken to the departmental commission appointed for each governmental department ; this commission is chosen by the provincial representatives and is presided over by a commissioner appointed by the government. It is the duty of this official to see that the assessments are made on a uniform basis and to superintend the work of the commissions of valua tion. The whole is under the control of the Minister of Finance, who has to hear and decide complaints against the action of the department commissions. A fine is imposed only in case the taxpayer, in his claim for remission, is proved to have know ingly made too low a return ; the fine amounts to four times the amount by which the return falls short.' § 316. The expectations of the government in the way of a revenue from the income tax were quite moderate at the time of the discussion of the bill. It was assumed that there were in the - Prussian state not more than 27,400 persons liable to the tax, with an average rate of 70 thalers (aggregating 1.9 millions). The results obtained in 1854 showed that there were then as many as 47,750 persons liable to the tax, yielding a revenue of 2.8 million thalers but from this amount there was a deduction on account of the grist and slaughter tax, considerably in excess of what the government had assumed.' At the same time the receipts from the new class tax also exceeded expectations. The revenue from this tax—after making allowance for the transfer of the higher classes to the income tax—had been estimated at the same amount which the old class tax, including these higher classes, had yielded in 1849 (7.50 .million thalers). The receipts actually obtained in 1853 were 7.94 million thalers, of which one-half was paid by the lowest class (3.89 million thalers).

The results obtained by the income tax, therefore, indicated an increase in the taxation of the middle and upper classes of the population.

The impression produced by these results was so favorable that the government was able, in 1854, to cover a deficit of 3,000,000 thalers by adding a supplementary tax of 25 per cent. to the income and class tax (including also the grist and slaughter tax). The moral effect of the income tax on the lower classes served also to strengthen the position of the class tax ; the equal taxation of the upper classes, which had so long been avoided, had now become an accomplished fact. This form of taxation now appeared to be sufficiently well established and feasible to admit of building up a system of communal sup plements [Kommunalzuschlike] upon it, which increased in importance more and more as time went on.

Still it is necessary to use all moderation in speaking of the insignificant results of this income tax, as compared with its English prototype, if we are not to judge it too harshly. It was certainly extravagant, at the time the new law was in prepara tion, to recommend the "only equitable" law as capable of replacing all existing taxes whatsoever, and of affording a revenue of some 30,000,000 thalers ; even that gifted and realistic deputy, Bismarck-Schonhausen, had been wrought up into enthusiasm over this tax, but what was to be said of these 2.50 million thalers when it was remembered that at the same time, in Great Britain, with the same rate of 3 per cent. and with the same minimum limit of 1000 thalers, a population but slightly greater paid in a revenue of 38,000,000 thalers ; indeed, under the exigencies of the Crimean war both the rate and the aggregate revenue were doubled, and much more than doubled.' § 317. It was in fact the English example which incited to emulation. Thoughtful people, such as K. G. Kries, who had formerly occupied Hoffmann's standpoint, took their stand on the new income-tax legislation and looked to the future rather than the past. Another man thoroughly familiar with English political institutions, Erwin Nasse, at a slightly later date pointed to this same example as the goal to be striven for in Prussian tax legislation.' It goes without saying that in all this we have not to do with an undiscriminating admiration of English "wealth." This Statistical Abstract for the United Kingdom, 1853-1867, p. 5.

point, of superior wealth, was rather regarded as a factor to be eliminated from the problem and so not counted as affecting the result. The point in question, the point which these men insisted on, was quite a different one. It was impossible, said they, that the difference in wealth between the two countries could be as great as the figures afforded by the income tax would indicate ; they insisted that there entered into this result a difference in political morals as well as a difference in pecun iary ability,—that it was a difference in the degree of moral maturity which was revealed in the payment of this tax. It was to be noted that the per capita receipts from the income tax, even in the metropolis of Berlin taken by itself, was much less than the receipts of the English income tax, levied at the same rate and computed per capita of the entire population of Great Britain (1.25 thalers against 1.92 thalers).

In view of our experience with the Prussian income tax for something over a generation past, it seems rather naive for Kries to assure us that not only the members of the commission of valuation, but the taxpayers as well, admitted quite openly in private conversation that it had never yet been possible to assess the tax on the full income of the majority of the taxpayers. But it is also a characteristic fact that many people at that time did not consider the attainment of such a result to be in any way the purpose of the income tax ; they were of opinion that the gov ernment had good reason to rest content with the undoubted improvements that had been effected, as compared with the earlier state of affairs. It was, in fact, still necessary to combat views of this kind with insistence on the grave injustice of an arrangement under which one person is taxed on his last penny, while the next man pays a tax on less than one-third or one fourth part of his income.

The reform of the Prussian method of assessment presented itself, even in the earliest beginnings of the income tax, as an urgent question, and on this head, too, the experience of England' offered many valuable suggestions.

The organization of the Prussian mechanism of assessment (the owners of baronial estates with their county chairman [Landrailt], the inhabitants of the town with their burgomaster, the too far removed and therefore uniformly ineffective higher instance of the department commission with its president appointed by the government) had already at the start given evidence that it needed reform, and had continued to do so for more than a generation. The first principle of all self-govern ment is that no one is to be judge of his own case ; the organi zation of self-government must provide that no citizen in the exercise of an office is exposed to the temptation of serving his own private interest while fulfilling a public duty. If anywhere, this is difficult in the case of a tax assessment by the method of self-government, and still the aid of the neighborhood factor cannot be dispensed with ; the intimate knowledge of the affairs of the neighborhood which can be made use of in this way is necessary to success, and the fact of local co-operation in the assessment acts to increase the good-will with which the inhabit ants of the place pay their tax.

Better provision has been made against these dangers, in many ways, in England than in Prussia. The extent of the assessment district is much greater than that of a Prussian circle, and still not too great ; this obviates the dominance of neigh borly connivance. The composition of the board of assessment is not dependent on the choice of the taxpayers (the taxpayers might frequently be inclined to choose men from whom they could expect a low assessment). The board of tax commission ers (seven) fills vacancies by co-optation, and traces its historical origin back in unbroken continuity to the land-tax commission ers, who appointed the first income-tax assessment board. The interest of the government is represented by professionally trained state officials (surveyors) whose district comprises some ten assessment districts (with some 2000 taxpayers); the care of the public interest is not an incidental, ex-officio duty to be per formed in a medium of agreeable social relations that are by no means to be disturbed. Over these surveyors are placed ten central inspectors. This regulative apparatus of the general tax administration subjects the assessment of the local boards to inspection by experts ; it stands in no social relations to the mem bership of the boards ; and with the support of a staff of subordi nate officials it independently possesses itself of the facts with regard to incomes in any given locality, in order to report to the board of commissioners any apparent case of too low assess ment. It makes such a report simply as state's attorney, while

the decision of the case rests with the board, which has by numerous decisions of this class given evidence of the indispen sability of the surveyors.

We therefore have here an institution of self-government, and a combination of this institution with the organs of the national administration. The example should be all the more instructive since it occurs in the native land of self-government, and may well serve as a model for the bungling efforts at self government in our bureaucratic states.

To return from this digression, we have found that prevalent opinion in Prussia for a long time countenanced the deficiencies of the income tax administration ; for more than a generation it was thought necessary to introduce an intermediate stage between the old class tax and any seriously administered income tax, just as the class tax itself was in its time adopted as a preliminary to any income tax whatever. If the wording of the Act of May I, 1851, is at pains to say that all "annoying intrusion into matters of prop erty and income" is to be avoided, what was to be expected in the execution of the law ? And what prospect of success during the next following decades could there be for any legislative reform based on the conviction that such intrusion was indispen sable to an equitable administration of an income tax, even if it were at the same time annoying to the individual taxpayers ? §318. The number of payers and the revenue from the income tax have gradually increased. In 1864 there were 68,111 persons subject to the tax,' as compared with 47,75o in 1854 ; a rapid increase, not equaled by the increase in the aggre gate revenue from the tax (3.56 million thalers). It was other wise with the class tax, the revenue from which increased during the same period about twice as fast as the number of persons taxed (in 1864, 9.63 million thalers was paid by 16.20 million persons).

With the increase of population and the extension of the field of government activity since 1866, the number of liable to the income tax has increased.

With respect to this increase, of course, it remains an open ques tion whether it is not due to improvement in the assessment, and therefore in the willingness to submit to the payment of the tax, quite as much as it is due to the increase of wealth.

The receipts from the income tax were, in 1876, 29.34 mil lion marks ; in 1884, 35.80 million marks (of which one million marks is to be deducted for remissions under the Act of March 26, 1883); and finally, in the estimates for 1889-90, 41.90 mil lion marks. The number of persons liable to the income tax amounts now (1889) to 777,319, in an aggregate population of 28,313,833, that is to say, 2.74 per cent. of the total ; it is there fore about twice what it was in 1864 (1.40 per cent.). The rev enue derived from the tax has increased during the period 1864-1889 in a still greater ratio (from 10.68 million marks to 41.90 millions = 1: 3.92) .

Changes in the law have .somewhat affected this result and the bearing of these changes will be discussed presently. The effect of such changes has been especially great in the case of the class tax, which has been gradually lowered by successive enactments, until the receipts, as given in the latest estimates, amount to only 24 million marks ; that is to say, 5 million marks less than was derived in 1864 from the same tax on a popula tion amounting to not more than two-thirds of the present total, at the same time that the law did not then apply to the new provinces, whose lower classes are relatively well-to-do.

§ 319. The gradual precession [ Verschiebung] of the progres sion in the Prussian class and income tax legislation has already been spoken of in its proper place (sec. 219).

In the further development of what was established by Act of May I, 1851, the reform of May 25, 1873, has been of especial importance.' The views of the men who gave its character to the legislation of 1820 were just as consistently in favor of making the direct tax apply to the lowest classes as they were opposed to the development of the class tax into an income tax. Hoffmann sees in the nominal uniformity of the class tax for higher and lower classes alike an expression of the idea of the dignity of citizenship, as contrasted with conditions under the old regime.' This view exerted its influence for half a century .after that time, and it shows some vitality even today. Still it appears that this view has had to yield to the force of circumstances, in much the same way as the class tax has been affected by altered times and opinions.

The Act of May I, 1851, lops off a fragment from the apex of the class tax ; the Act of May 25, 1873, cuts a piece out of the foundation ; later enactments have repeatedly done the like ; the original structure of the class tax of 1820 and 1851 is set aside by the Act of 1873 ; a classified income tax is substituted for it also as applies to the lower classes ; but precisely these lower classes are more and more influenced by experience and are continually better inclined to a tax policy which is realistic in form while it is idealistic in theory.

The lowest class of the class tax of 1851 comprised, in the year 1851, approximately 5,000,000 taxpayers, paying an annual tax of one-half thaler. Incident to the collection of every mo thalers of the tax for this class, 797 special notifications, involv ing costs, were necessary in the department of Koenigsberg, 689 in the department of Marienwerder ; of legal executions there were ordered, in the department of Koenigsberg, 354 for each thalers of receipts ; 167 of these executions were fruitless. Backed with such empirical data as these the government, in 1872, submitted to the House of Deputies a memorandum announcing its intention of abolishing this lowest class of the class tax. But the House of Deputies acceded to this proposal only to a very limited extent, in fixing the limit of the class tax for the future at an income of 14o thalers.

Upwards from this minimum there were twelve grades speci fled by the Act of 1873, the upper limit being moo thalers.' The rate per cent. varied from about .75 to 2.50 per cent. The income tax was also further developed ; the higher classes under this tax were further subdivided, and the upper limit of 7200 thalers (for incomes of 240,000 thalers) was discontinued, the rate increasing also beyond that point so that every additional 20,000 thalers of income would pay an additional tax of 600 In the assessment of persons liable under the first and second classes (1o00-1400 thalers) the taxpayer was hence forth to be entitled to some consideration on account of any circumstances that might diminish his ability to pay (a large number of children, poor relations, etc.).

At the same time the grist and slaughter tax was abolished (from January I, 1875, on) and the class tax introduced in its place ; only the slaughter tax, and that only for communal pur poses, remained optional (requiring a triennial resolution to that effect by the communal officials and a ministerial authorization). By means of the communal supplements [Gemeindezuschlage] (under official supervision) both the class tax and the grist and slaughter tax had long been made use of for communal purposes. An ordinance dating back as far as April 4, 1848, had assigned to the towns liable to the grist and slaughter tax one-third of the gross receipts from the grist tax, and this had been confirmed by the Act of May 1, 1851. But even as early as the gov ernment had submitted to the Federal Diet a memorandum look ing to the abolition of this tax and the substitution of an income tax for it ; the provisional regulation of April 4, 1848, had sought to accomplish the abolition indirectly.

came in repeatedly from the House of Delegates (1850, 1868, 1869). The grist and slaughter tax had (apart from the com munal supplements) yielded 4.75 million thalers in 1872. The number of towns liable to this tax had declined in the course of years (in 182o, 132, whereas according to the Act of 1851 there were only 83, and of these 8 additional ones had fallen out by 1872).

§ 32o. For several reasons there was some improvement in the class and income tax legislation contained in the Act of 1873, but it was an improvement that was everything but definitive. It was a step in advance which divested the class tax of its obso lete form, abolished the lowest grade of that tax, and further developed the income tax in the higher grades. On the other hand it is to be doubted if the substitution of the class tax for the grist tax was a commendable measure, and it is a matter for serious question if the abolition of the slaughter tax was not simply an outcome of a preference for direct taxation on abstract grounds. In this case, as so frequently happens, the question of the relative taxation of the lower classes was mixed up with the question of the form in which the tax was to be laid ; it might have been the proper thing to exempt the lower classes altogether from the burden laid on them in the form of the grist tax (and slaughter tax); but that would have amounted to an admission that an over-taxation existed in the form of the class tax as the alternative and equivalent of the grist and slaughter tax. But to retain the burden, and simply transmute it into the form of the class tax as that already existed in the greater part of the king dom, was merely a change of form which could not be justified in face of the experience already had, and which had been reviewed in the memorandum submitted by the government in 1872.

This state of affairs led to further reforms which have not even yet reached a definitive conclusion.

An Act was passed July 16, 1880, which, in conjunction with the increase of duties in 1879, had the avowed purpose of chang ing the relative shares borne by direct and by indirect taxes so as to effect a lowering of the direct taxes. The increased receipts from the imperial taxes on consumption were to be made available for lightening the burden of the class and income taxes on the lower and middle classes. This action was fairly contrary to the views which in 1873 had prevailed even among a majority of the Chamber of Deputies. It was decided that the funds made available to Prussia out of the imperial taxes were to be applied towards remission of the monthly rates payable by the several classes under the class tax and by the five lowest classes under the income tax.

On March 1o, 1881, a second act was passed which made permanent provision for a remission of three monthly dues pay able under the class tax and by the five lower classes under the income tax. And again, during the session of 1882-83, a pro posal was submitted by the government which contemplated a still more radical measure. It was proposed that, dating from April I, 1883, the four lowest grades (420-1200 marks) were to be abolished altogether. In presenting its reasons for the meas ure the government again cited the experience on which the memorial of 1872 had been based.

By the exemption of these four grades, which comprised 86 per cent. of all persons liable to the class tax, there would have resulted a shortage of 11.70 million marks in the tax receipts. To cover this shortage a tax on. the sale of spirituous beverage's and on the manufacture of tobacco was to be introduced. As a result partly of disinclination to such a tax, partly of a prefer ence for the class tax on part of the majority of the Chamber of Deputies, the measure proposed by the government was some what modified and curtailed. The Act of March 26, 1883, abolished only the two lowest grades of the class tax (42o-900 marks) which, it is true, exempted the greater number of those previously liable to the class tax (3742 million=75 per cent.), as the third and fourth grades comprised only some 619,000 tax payers. But some further results were also accomplished. All the remaining grades (3-12) of the class tax were henceforth to enjoy a remission of three monthly dues ; the lowest grade of the income tax (3000-3600 marks), two monthly dues ; the second grade of the income tax (3600-4200 marks), one monthly due.

The government had only yielded temporarily to a large adverse majority (four-fifths) of the Chamber of Deputies. At the opening of the next session (1883-84) it introduced a new measure which went much further. It provided in the first place for the exemption of all incomes under 1200 marks, and in the second place for a lowering of the rate on all incomes under 10,000 marks (the rate to increase gradually from I to 3 per cent. with the increase of incomes from 1200-10,000 marks). At the same time the relief already afforded to the lower grades, on account of a large number of children and the like, was to be extended also to incomes of 9000 marks and upward. The shortage resulting was to be covered by improvement of the method of assessment, by extending the income tax to joint stock companies, and, finally, by a progressive tax on dividends in the case of income from dividends amounting to 600 marks and over.

The exhaustive discussion which arose over this proposal led to no positive result, and after that time the whole matter remained in abeyance for a number of years. On January 21, the Minister of Finance declared in the Chamber of Depu ties that it was the wish of the government to abolish, not only the third and fourth, but also the fifth and Sixth grades of the class tax (1200—I 500 marks), but without finding any support among the deputies.

§ 321. Finally, there is a word to be said about the income tax in the cantons of Switzerland.

We have seen (sec. 214) how great has been the growth in those communities of the income and property taxes as compared with other forms of taxation ; this has at least been shown so far as concerns the typical canton of Zurich, but there has also been perceptible a general movement in this direction in the other' cantons, showing a decided partiality for this kind of taxes and so contrasting sharply with what was the case at a not very remote period.

Towards the end of the eighteenth century the finances of individual cantons for the most part still bore the impress of the Middle Ages. As in so many other respects, so also in its finan cial system, the epoch of the Helvetic Republic exerted a radi cal influence ; under the constitution of April 12, 1798, the Republic, by an act of the seventeenth of October, 1798, dealing with imposts,' introduced, among other things, a property tax amounting to 2 per mille, together with a tax of 2 per cent. on the profits of trade.

The system of taxation adopted by the League contributed not a little to the dissatisfaction with a constitution and legislation that disregarded the results of past historical development. A considerable portion of the Swiss population was stirred to an intense opposition to direct taxes, not having been accustomed to that form of taxation. When the era of the restoration rein stated the old regime in Switzerland and elsewhere, these oppress ive taxes were thrown off, together with so much else that the French period had introduced. The fiscal accounts of the canton of Zurich in 183o showed no trace of a property or an income tax.' Not until 1832 was a moderate tax of this kind introduced, as one of the consequences of the Liberal movement. Even in 1847 the receipts from this source amounted to only one-eighth of the aggregate revenue ; in Schaffhausen one-twelfth, in Thur gau one-eighth, in the largest canton, Berne, there was no tax of the kind at that time. In the communal finances, on the other hand, a moderate property tax seems to have been in pretty general use by this time. But every glance into the accounts that have come down from that time shows how very sensitive people were with respect to any considerable employment of this tax. What complaints and what discontent would manifest itself everywhere if it were proposed to substitute for the federal import duties a permanent advance of the property tax from one per mille to one and one-half per mille ! says the Zurich Director of Finance in 185o. As regards the communal expenditures and the communal property taxes intended to cover them, another writer' expressed the opinion that they had already reached their highest development, and that the future ought to bring a reduction.

But it all turned out quite differently during the next genera tion.

In 1881 a man with 3000 francs of personal income and 6o,000 francs property, paid property and income tax to the state and commune in the ten cantonal capitals as follows It appears from this that there are still a number of cantons in which this tax is levied for communal purposes only; in others the commune gets at any rate the larger share of the tax. This is also the case in Zurich, where the aggregate amount is an extraordinarily large one. (In particular communes outside of the capital it is even appreciably larger.) About one-fourth to one third of the yearly income from property is demanded for the state (4 per mille) and the commune (7-10 per mille) in the form of a property tax. The commune has as good as no other taxes, and the canton very few. The centre of gravity of the indirect taxation lies continually more decidedly in the federal import duties, in their further development, and in the incipient adoption of other federal taxes on consumption.

§ 322. The development of the Swiss taxes is noteworthy as a counterpart to the development of the income tax in all other states.' As the demands on the state and commune (poor relief, schools, roads, railway subsidies) continued irresistibly to increase, there supervened in the Swiss cantons a condition of things in which, on the one hand, the basis for an adequate development of a system of taxes on consumption was lacking (in part a purely administrative shortcoming), while on the other hand, the force of the democratic current, with its favorite views of taxation, was such as to sweep all considerations out of the way. The questions of equity, as well as the questions of expe diency, that centred about the increase of the property and income tax during the last generation, were easily answered in a case where circumstances put the shaping of constitutions and laws into the hands of a majority possessed of little or no prop erty.

Characteristic features in this peculiarly Swiss development are, apart from the high rate of the tax absolutely considered, the strong ratio of progression, the marked exemption of small personal incomes, the preponderant taxation of incomes from property (especially for communal purposes) as contrasted with personal incomes. But there is also another characteristic fea ture, which is likewise an outcome of democratic institutions,— which does not stand out in contrast with the arrangements in other states, but is very similar to them. This is the method of assessment. On this head it is to be remarked that democracy has not yet nearly reached the logical result of its method of taxation, that is to say, democracy is still to an extent a civil democracy, and not as yet a social democracy. If it had reached the ultimate stage of its development then its assessment machinery which lies entirely in the hands of the communal officials, in conformity with the principles of demo cratic self-government, would reflect the same social contrast which is shown in the legislation on the rate and progression of the tax. For the time being, this is not the case ; for the time, property relations have not yet been sufficiently differ entiated for such a result ; the extreme dangers of democracy have so far been staved off by the preponderance of the middle class.

Hence we find an application of the taxation of property and income calculated to show up the dark side of any system of assessment of equals by equals ; it has disclosed the existence of such a dark side to an extent that is possible only in a case where the individual and the state are so directly and immedi ately in contact with one another as here. Among the conse quences of this management has been a moderation in demands made by the law, of such a character as to make up for much of the apparent hardship involved in the law ; but this has been done in a perverse and inequitable fashion. While this Swiss method of self-government as _applied to taxation is very suggestive as compared with the experiences of Prussia, it affords a particularly instructive contrast to the carefully planned method of assessment in use under English self-govern ment.

§ 323. The Swiss taxes on income stand in the sharpest con trast to the great democratic state of France, and its system of taxation.

It has already been remarked in another place that the influence of democratic ideas, even when a favorable ground is afforded by a radical constitution, will work out very different results in a large political and social organism from those seen in small democratic republics, such as those of Switzerland. It is, relatively, such a long and intricate way from the individual to the whole ; further, the preponderance of the historical forces which continue to govern the state under any and all changes of constitutional forms, the ascendancy of the proper tied classes, the frequently decisive influence of the capital,— these are breakwaters opposed to the currents of democracy.

There has, of course, been no lack of incitement to the domestication of the income tax in France also.' But none of the attempts made have so far led to any result, not even the legitimate result which ought to be attained by this class of tax in a modern system of taxation, still less the extravagant outcome proper to a triumphant radicalism.

In 1848, Goudcheaux, the Minister of Finance, submitted a project to raise 6o million francs by means of a repartitioned income tak, to be distributed upon the departments and com munes and levied by communal assessment upon the individual taxpayers. A committee of the national assembly, whose chair man was Parieu, altered this project essentially, especially by introducing certain bureaucratic features in order to perfect the mechanism of assessment,' but when Parieu presently succeeded to the Ministry of Finance, he withdrew this project, and sub stituted another in 1849, which was to tax all incomes at the rate of I per cent., the assessment being based on returns made by the taxpayers under the supervision of a communal commission, to consist of the mayor, a citizen selected by the prefect and the comptroller of the direct taxes. This project was also presently withdrawn, Fould having succeeded Parieu in the Ministry of Finance.

Since that time proposals of the same nature have frequently (1855, 1862, 1863, 1871, 1872, and later) been made by various deputies, but the government has invariably opposed the meas ures from apprehension of the unpopularity of any income tax. With the shifting of the majority of the Chambers over towards the left, the idea has again suggested itself to the ministries that have lately succeeded one another. Gambetta included the income tax in his programme, very much as he did so many other reforms which were intrinsically desirable, but practically impossible. Very lately (October 30, 1888) the Minister of Finance, Peytral, submitted the draught of a bill' for a general income tax, which has shared the fate of others—being forgot ten in the rapid succession of ministries.

The antipathy of the propertied and cultured classes, even of experts, in France, to this tax is well illustrated by the position of Leroy-Beaulieu. In his Science des Finances (1877) he advocates the adoption of the income tax as an indispensable corrective to other, especially indirect taxes, as being in a peculiar degree calculated to reach the well-to-do and the wealthy classes, but he offers the criticism on Peytral's proposed law, that an income tax would be inequitable in France for the reason that the upper and middle classes already "contribute more than their propor tionate share of the public burdens " under the taxes now exist ing. A further illustration to the same effect is afforded by the fact that while G. de Molinari, the editor of the Journal des Economistes, opposes' this view of Leroy-Beaulieu's, he offers the very characteristic objection that the upper and middle classes, who, after all, continue to exercise a predominant influence in the state, are fairly unanimous in rejecting the income tax, and that, moreover, with the country broken up into factions as it is, it would be impossible to find honest assessors.

tax, income, class, thalers and classes