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Taxes on Consumption


§ 358. The taxation of wealth in the form of a tax on con sumable wealth affords the transition to the important field of taxes on consumption (consumption taxes, taxes on expendi tures). So long as we have to do with objects of the nature of durable wealth, the basis of an enduring utility (capital, con sumable wealth), which are turned to use in their original form and not through the medium of an exchange in the market, so long, we have seen, is the " property tax " or the " direct tax on luxuries" the proper form of taxation. As soon as these utilities are thrown upon the market, as happens with the impor tant class of rented houses, they lend themselves more readily to taxation on the basis of their market value. It is quite in accord with the general deliverance of experience on the subject of the relation of the value of the goods consumed in kind to the money value of the same goods, that it is only after the development of marketability in these utilities that the tax (" rental tax ") assumes a form which has long been in use and has proved itself very practicable in other lines.

Something similar may be observed in the broader field of those consumption taxes the tax-object of which is not the usance of invested capital but objects of immediate use. It is true in this case even to a greater extent than in the case of productive capital that there are practical difficulties in the way of subjecting products consumed in kind to a consumption tax, whereas the same products if they are put on the market are extremely well adapted to a tax on consumption (tobacco, beer, wine, etc.). So true is this that it may even be said that the development of production for a market by the method of great centralized industrial establishments is to some extent necessary as a foundation for a highly developed and effective system of taxes on consumption (distilleries, breweries, beet-sugar fac tories).

§ 359 The fundamental principle of the tax on consumption is this, that it accepts the demand of the taxpayer for consumable goods as the standard by which to measure his ability to con tribute to the public expenditures. The fact that a household consumes a given quantity of beer, wine, spirits, tobacco, tea, coffee, sugar, etc., is accepted as evidence that the same house hold is capable of rendering for public purposes a contribution proportioned in quantity (and if practicable in kind) to this consumption.

This principle of consumption taxes is no more fundamentally opposed to the principle of equity in taxation than is a tax on earnings in any of its various forms. Nor are the difficulties which stand in the way of the application of this principle any thing more than what every other form of taxation has to con tend with, and in this case as in every other the chief problem is to bring the practical working of the tax continually more and more into conformity with the requirements of equity. It is to be remarked that it is the unavoidable shortcomings of every form of taxation that necessitate a mutual supplementing of these shortcomings, as it were a fitting together of salient and re-entrant angles. And it is true not only of the less manage able kinds of the taxes on earnings, those which by nature are necessarily more imperfect, but even of the relatively most perfect of them, the income tax, which has its defects, partly inherent in the nature of the tax, partly defects in its practical working; and these defects and shortcomings plainly point to the taxes on consumption as well adapted to supplement and correct them. Defects inherent in the nature of the tax are due to the fact that the method of ascertaining the income necessarily applies too inflexible a standard in measuring the tax-paying capacity, and so makes a more flexible, subsidiary standard desirable. The defects in its practical working are due to the obstacles which a "direct tax" encounters in the immature civic and economic sense of the majority, which gives an advantage to " indirect " forms of taxation that collect the amount of the tax in driblets and in an inconspicuous way.

§ 36o. The literary and social-political struggle against taxes on consumption ("indirect taxes") which has now been going on for two hundred years, turns out on closer examination to be directed not so much against the substance of this kind of taxation as against a special form of it which is at variance with the demands of equity.

One of the greatest of the precursors of the Physiocrats in France, Vauban, who submitted to the king the radical scheme of tax reform of a universal dime (1698) as a means of achiev ing an equitable distribution of the public burden, was willing to retain a number of taxes on consumption so far as they were not levied on necessaries, and he even would have retained the salt tax in an improved form.

Every one of the later opponents of "indirect taxes "' (apart from those occupying very extreme positions on the theory of taxation, as for example the Physiocrats) opposes primarily the inequitable forms of taxes on consumption and the substan tial injustice which results from these forms. No one has estab lished that there is any necessary connection between this sub stantial injustice and the form of the consumption tax. Even in the discussion of the facts the emphasis is frequently thrown very decidedly upon the existing inequality in the most diverse forms of taxation ; so that we find the famous modern opponent of indirect taxes —consciously or unconsciously—construing the taille as an indirect tax and so bringing it under Boisguillebert's condemnation.' But the struggle against indirect taxes is, further, closely connected with that unhistorical radicalism which was initiated and is typified by the Physiocrats. And in a qualified form, dissociated from the bold projects of the Physiocrats, this doc trinarian view of the matter has lasted on for a hundred years. It takes offense at this class of taxes, now because they hinder the freedom of trade, now because their cost of collection is high, now because they are inequitable as between taxpayers of different tax-paying ability, and always with an air that seems to assume there are other forms of taxes available which are ideally perfect in these respects ; but when we come to examine these other kinds of taxes we find to our disappointment that their shortcomings, too, are very great. So that this carping criticism, in so far as it means anything, turns out to be nothing but an expression of that state-and-tax-abhorrent attitude whose ideal in the matter of taxation consists in the absence of all taxation.

§ 361. The office of the science in relation to taxes on con sumption is the same as what we have found to be the office of financial science and of the theory of taxation in general ; it is a dispassionate investigation and appreciation of the develop ments of the past and their causes on the one hand, and a shrewd guidance of their further development in the future in conformity with the principles of justice and expediency on the other.

There exists at present a relatively very general consensus, both in the theory and in the practice of finance, as to how this problem is to be solved. It is not thought possible, in the first place, to attain the desired equitable taxation by taxes on con sumption alone ; in the second place it is further recognized that taxes on consumption are a necessary constituent of every modern system of taxation ; third, matters of detail in consumption taxes are considered open questions, both with respect to their expediency and with respect to their justice.

The problem is greatly simplified by the attainment of such a unanimity in the dominant views of the matter. We have hereby reached a position with respect to the problem from which it is possible to initiate a reconciliation of the historic tax systems with the ideal tax system of the future.

What we have already found to be true with respect to taxes and financial matters generally and with respect to the state as a whole, repeats itself within the field of the consumption taxes ; all historical development is gradual and precarious ; the less perfect is gradually replaced by the more perfect ; but the rate of this approach towards perfection must always continue to be slow and very modest, for the decisive factors in the progress, the psychological elements involved, are incapable of a develop ment by leaps and bounds.

§ 362. If we look into the nature of the taxes on consump tion with a view to ascertaining their office in the fiscal system we shall find that it is as follows The point from which we must approach the question is the amount of the public expenditure, or of that portion of it which it is thought proper to cover by means of taxes on consumption.

The second step is duly to consider, in connection with this first point, what is the kind and qtiantity of the different items that go to make up the actual expenditure and consumption of the economic units comprised in the system with which we have to do.

As has been pointed out in the preliminary discussion, in treating of the evolution of demand (vol. i. secs. 187-212), we have here to do with a question of historical growth, varying with the time and the people in question and with the plane of culture attained by the society as a whole, as well as from one stratum of society to another. The problem is to get a correct appreciation of this diversity and of the proper significance of each particular branch of consumption and of each particular object of consumption in the community which is to be laid under contribution ; and also to appreciate the true significance of these relatively to the aggregate demand of the community as a whole and to that of the various classes of the community.

Even within the circle of the modern civilized countries of Europe and within the brief space of time comprised in the pres ent century we meet with appreciable alterations in the character of the aggregate consumption and considerable variations from one people to another. This fact is especially obvious as regards the articles commonly subjected to a consumption tax, more particularly the great variety of stimulating beverages in use at present. It is not only that coffee and tea are products introduced into our . consumption from abroad, which have only gradually and to a great extent not until the present century replaced certain domestic products ; it is also true that they have penetrated the daily life of the different countries of Europe in very different degrees and play a very different part in their aggregate consumption. Tea has become the popular beverage most generally consumed in England, while in Germany (apart from certain sections of the northwest) it is chiefly a luxury of the upper classes. On the other hand, coffee is the popular drink of Germany and has gradually more and more driven the national meal or milk porridge from the field, while in England coffee is properly to be considered a luxury.' The consumption of tea during the last generation has increased in England just as steadily as that of coffee in Germany. The consumption of coffee has constantly declined in England, while the consumption of tea in Germany has increased but very slightly, and the mod erate increase which has taken place, as shown by the figures cited in the note, is in part due to the accession of new tea drinking countries lying outside the limits of the old Zollverein.

Spirituous beverages (beer, wine, brandy) have a very differ ent importance for different countries and localities, according to the varying circumstances of climate and culture. In the wine countries wine is the staple popular beverage ; so, for example, in the Rhine country. in the wine-producing cantons of Switzerland, in the corresponding sections of France, Italy, Spain, etc. It is only under circumstances of exceptional indigence that its place is taken by cider and the like. Whereas in coun tries where wine is not produced, where no wine is consumed except what is imported from abroad, wine is the drink of well The consumption in the Zollverein per capita was (Statistisches Jahrbuch fur dos deutsche Reich, 1886, p. 158, and Hanssen, loc. cit. p. to-do people and is not generally used as an everyday beverage even by them. Accordingly, in such countries beer is the article generally consumed, and latterly, in consequence of improve ments in processes and the product, the consumption of beer is becoming extremely common.' The extended use of distilled liquors is often due to the same causes which hinder the general consumption of other spirituous beverages. The distilled liquor being the cheapest is consumed by the poorer classes of the people in proportion as the more expensive beverages are beyond their reach, at the same time that lack of proper nutriment and the rigors of the climate make brandy a desirable means of keeping warm. Hence we find a much greater consumption of spirits in the more northerly and poorer localities than in the more southerly and wealthier ; frequently in adjacent territories there may be no consumption of spirits at all in a wine-producing locality on the one hand and a very great consumption in a neighboring mountainous district.

The facts about the consumption of tobacco in modern coun tries are of much the same kind. But the facts of tobacco con sumption as they are today are the result of a recent historical growth, and the figures afforded by the accounts of the French tobacco monopoly which have been reviewed above (sec. 288) are an evidence and an approximately reliable index of the change, the receipts having increased during the years 1815 1887 from 32 million to 320 million francs.

363. These examples (which, as will presently appear, are of great practical significance for any application of a system of consumption taxes) have served to show that a demand for a particular class of consumable goods may vary greatly according to time, place and people, and they serve also to show what far reaching consequences this relativity of demand has for the ques tion of taxes on consumption.

The question as to the relation between the public demand and the various directions taken by private demand, such as 'comes up for consideration in all taxes on consumption, means in the last analysis a question as to the limitations which the public consumption imposes on the various directions of private con sumption. The pressure exerted by the tax will, of course, vary according to the degree of importance which the article taxed assumes in the aggregate consumption of the tax-paying house hold. Articles of necessity will be more sensitive to the pressure of the public burden than the less necessary or superfluous articles. And, conversely, this latter class will develop an elas ticity in the adaptation of private consumption to the enhanced cost of the articles subject to the tax, such as the articles of necessary consumption will not admit of.

Consequently the urgency of the public need will, on the one hand, have to decide how far the imposition of taxes on the necessities of life is to be carried, while by a painstaking adjust ment of the taxes on consumption on the other hand the pres sure of the tax is sought to be kept within bounds.

It is, however, an exaggeration, which is readily explicable as an outgrowth of historical events, to condemn all and every taxation of articles of necessary consumption. It is true that this particular class of taxes on consumption falls short in point of that flexibility and spontaneous adaptation of private con sumption to the pressure of the public burden. which constitutes the great advantage of consumption taxes generally as contrasted with taxes of other kinds ; the decrease of the consumption of salt or of bread can never be taken into consideration as a factor of any consequence in the employment of consumption taxes. And still it is quite conceivable, and it is borne out by the very latest events, that a tax on necessities may be justly and expedi ently imposed in place of many another less feasible form of tax ation ; so it may be noticed that quite recently (see sec. 287) the assembled populace of the country district of Glarus decided to retain the salt tax.

The point not to be lost sight of is not the avoidance of all taxation on necessary consumption, but the proper relation of this taxation to the rest of the taxes on consumption and to the general tax system ; it is this relative weight of consumption taxes that has so frequently suffered an abnormal and offen sive development in the past.

364. This brings us to the point of view of that social equity which is to be maintained between the various classes of society.

Since consumption taxes are always levied on the articles of consumption and not on the persons of the consumers, they can make no distinction between the salt which serves the necessity of the poor man and the salt on the table of the rich. It is, therefore, the article of consumption simply as such, taken with a view to its importance to the various classes of society, with which the tax policy has to do and which affords the norm in the imposition of consumption taxes. Let us imagine a social pyramid in which the most necessary and therefore the most extended wants constitute the lowest strata, while the nearer we approach the apex the more dispensable are the articles and therefore the less extended the want of them. Every taxation of the lowest and broadest strata of this pyramid of wants is pre-eminently a taxation of the lowest strata of society ; the higher we ascend the more does the taxation fall upon the more well-to-do classes. The advantage of a taxation of necessary consumption lies, therefore, in the great number of persons liable to it and the consequent great relative productivity of such a tax ; but there is also bound up with this fact the danger of throwing too much of a burden upon the slight tax-paying capacity which manifests itself in the consumption of the necessi ties of life. On the other hand those consumption taxes which fall only upon the apex of our pyramid are quite sure to touch only the most dispensable objects of consumption and the wealthiest consumers ; but they are for this reason also open to the objection that they fall upon a very limited number of tax payers and have at the same time to make allowance for the possible shrinkage of the taxable consumption which may result from the enhancement of the price of the articles taxed.

This contrast between the two classes of consumption taxes not only indicates the point of view for practical tax legislation in the present and future ; it also serves to explain the historical evolution of taxes on consumption in the past. The slighter the degree of wealth, and therefore the narrower the range of con sumption, of the masses of the people, the more is the con sumption tax constrained to fall back upon the broad lower strata of the necessary wants. Hence it may happen that a friend of the people, like Vauban, may favor the retention of the salt tax and may wish to derive a revenue of 24 million livres from it in a country such as France was two hundred years ago. The development of the consumption tax in this direction finds support in the relative absence of any lively sentiment of social equity, the state being primarily concerned about the amount of the tax and only secondarily about the manner in which it is to be borne.

As the people advance in wealth and in a sense of social equity all this is changed. The acquisition of wealth leads to an extension of the consumption of dispensable articles, so as to include a larger portion of the taxpayers. There results the much to-be-desired but hitherto missing coincidence of a dispensable and a widely extended consumption ; the tax in such a case falls upon a great number of households, but without pressing heavily upon them. But at the same time there comes into the fore ground an enhanced sense of the justice of distributing the bur den of taxation among the different classes of society. Even where the economic development seconds the fiscal productivity of the tax and affords an abundant revenue, this fact alone is not sufficient to meet all requirements ; the further question then comes up whether the distribution of the burden is what it should be —whether the lower classes are not disproportionately taxed. It is only after having reached a lively appreciation of the cogency of these considerations that we are fairly prepared to face the objections which are brought forward against indirect taxes " as such.

§ 365. Taxes on consumption will accordingly have to be arranged with a view to bringing the state's requirement of a productive tax more and more into accord with the requirements of justice. An effort is to be made to achieve this end within the field of consumption taxes alone ; but so far as this end may prove unattainable—in consequence of the difficulties alluded to above in the way of a taxation of the upper strata of the social pyramid—recourse must be had to proper supplementary taxes of other kinds.

A well-constructed system of taxes on consumption is a financial work of art. Its purpose is to bring the great variety of wants which are met with in any modern civilized country within the lines of the tax legislation in such a manner that the portion of the taxes payable by each individual household shall represent a variegated mosaic, in which the harmonious blending of the colors is represented by the rate of taxation and the sur face of the individual blocks by the volume of the consumption on which the tax is levied. This work of art is imperfect in the degree in which glaring contrasts occur between the burdens imposed on different articles of consumption and in the degree in which the system of taxation is of a one-sided character.

To illustrate what is meant we may select an example of great importance from existing tax legislation, viz., the system of consumption taxes in force in Great Britain and Ireland.

The aggregate taxes of the state (for the fiscal year ending March 31, 1888) amount to nearly £80,000,000.' Of this sum consumption taxes of various kinds yield some £45,000,000. This latter amount is made up of £20,000,000 from customs and 425,000,000 from excise. Of this, $17,250,000 is derived from spirits (413,000,000 from the excise and £4,250,000 from import duties); further, £8,750,000 from beer and the same from tobacco. That is to say, £35,000,000, or nearly one-half of the entire revenue of the state, is derived from spirits, beer and tobacco, the burden, therefore, falling in a strikingly one-sided manner on the great mass of relatively dispensable articles of consumption. This one-sidedness which taxes the majority of the population for the benefit of that portion which does not smoke or drink, has no adequate counterpoise within the British system of consumption taxes. The 3.50 million pounds paid for licenses also falls chiefly upon the same class (liquor licenses and the like). The 4.66 million pounds derived from the tea duty (6d. per pound) falls in great measure upon the general body of the people and constitutes a very inadequate and unsatisfactory counterpoise to this one-sidedness. We have, therefore, left

only the receipts from the duty on wine, amounting to one million, and the approximately equal amount derived from the duty on coffee, fruits, spices, etc., making together about £2,000, 000 ; this may to some extent be assumed to constitute a com pensatory burden imposed on the wealthier classes, but it is to be remarked that only one-half of it falls on persons who do not drink.

The British system of consumption taxes accordingly proves to be a bit of consumption taxation in which the very realistic requirement of fiscal productivity is satisfied while the require ment of equity is lost sight of. It marks a stage in the develop ment which presents a finished and typical system only to the superficial glance, while in reality it calls for further develop ment and improvement of a qualitative kind. As compared with earlier systems of taxation, the British system, it is true, gives evidence of the pleasing fact of great and widely distributed wealth and a corresponding distribution of consumption, but this relatively high development must not blind us to the shortcom ings of the system as it stands, or to the further advance still necessary to be made.

These further improvements yet to be made lie in the direc tion of an increase of the scope and number of taxable articles, and a more adequate equalization of the burden by fur ther special taxation of the upper classes. Either these objects will be accomplished more and more completely as time goes on, or the system of consumption taxes must yield the ground to other forms of taxation which are capable of meeting these requirements.

It is the tendency of the present realistic age to thrust these duties that are concerned with the attainment of equity into the background. The science would fail of its highest duty if it did not oppose this realistic tendency by calling attention all the more persistently to the unalterable goal of advance and improve ment in this field.

§ 366. In order to a proper appreciation of the realistic and the idealistic aspects of taxes on consumption it is necessary to occupy a point of view which has so far not been adverted to and which we shall now have to discuss, viz., that of the practical limitations of taxes on consumption.

It would, however, be unjust to the British system of con sumption taxes to disregard the many and urgent reasons of expe diency which have led to its adoption and the repeated experi ences which have led to the substitution of this particular sys tem for a different one which was, in itself considered, more in accord with the requirements of equity.

It is regarded as a chief advantage of taxes on consump tion that they are levied in an imperceptible manner, drop by drop ; but this presupposes that by the provisions of the law the tax is collected upon the taxable articles in a mass at a point of time when these articles are aggregated together in great quantities. The assumed advantage would entirely disappear if this supposition did not hold, if it were necessary to collect the tax separately on each minute item of the articles taxed.

The practical question involved ih taxes on consumption therefore reduces itself to the question whether articles of con sumption which commend themselves for taxation on gen eral grounds of equity present any such convenient stages of concentration as the collection of the tax requires, and which articles of are in this respect the best adapted to the tax.

Experience answers the former question in not a few cases in the negative. It may happen that the tax legislation of the German Empire imposes a tax of ten marks per kilogram on silks imported from abroad, and of twelve marks per kilogram on ready-made garments under the same circumstances, while it lays no tax on the same quality of silks or garments of home production. Now,. looking at the matter from the standpoint of equity it may readily be admitted that the consumption of foreign silks and of foreign garments ordinarily indicates a greater degree of luxury than the consumption of similar home products ; still the sense of equity finds it hard to reconcile itself to so radical a distinc tion as that the one case should be taxed at a high rate and the other not at all. And in point of fact the decisive ground for avoiding the taxation of this class of objects by any other than the one convenient method of an import duty is not the equity of the case, but simply the practical expediency of this method of obtaining the tax.

To cite another example. The consumption of the better grades of wine is habitually accepted as an indication of wealth and luxury ; justice would therefore require that this consump tion should be subjected to an adequate, and by no means inconsiderable tax. Still, the wine tax as it stands, and as it was in Prussia (sec. 273) from 1819 to 1868, makes not the slightest distinction between the poorest product and the " Schloss Johan nisberger " or the " Steinberger Kabinet ;" on the contrary, it taxes all wine alike and at an extremely low rate ; and it is to be added that the great annoyances and expenses connected with the col lection of the tax, taken together with the very slight revenue derived from it, has led to the entire abolition of this tax. The consumption of the and most expensive wine produced at home is therefore entirely untaxed in the German Empire, whereas the poorest wine imported from abroad bears an import duty of 24 marks per hundred kilograms (48 marks if in bottles).

In both the cases which we have cited as illustrations, it is the fact of a practical advantage offered by the tariff boundary, where the taxable articles of consumption can be dealt with in quantity, which has decided that the tax is to be imposed upon an article on its importation ; while it is exempt from any con sumption tax in case it is produced within the country, where such a practical advantage for the collection of the tax is absent ; and this in spite of the fact that justice would require, if not an equal, at least a similar tax in both cases.

§ 367. What has here been brought before our minds in the sheer contrast between taxation or no taxation, according as the practical circumstances do or do not admit of the imposition of a consumption tax, comes up again in a great number of cases as a difference of degree in the extent to which the exigencies of practical life favor the imposition of such a tax.

We have already conceived of the tariff boundary as being, for the purpose in hand, simply a convenient place for levying taxes on consumption,— convenient as contrasted with the method of taxing consumption within the country. This idea is, how ever, to be qualified by the consideration that the practical value of the tariff boundary of different countries for this purpose differs widely.

The political boundary of a state such as the Prussian state once was, whose king was styled the King of Frontiers, is, of course, for the levying of taxes as for every other purpose, much less advantageous than the frontier of a well-rounded domain which comprises the greatest possible area and population within the shortest possible tariff boundary. A wooded or mountain ous frontier, offering convenient hiding places for smugglers, is less well adapted for a tariff boundary than the seacoasts of Eng land. The evolution of the tariff system will accordingly in all cases be influenced by circumstances of this kind ; while a devel oping tariff system at the same time will seek to alter these con ditions and adapt them to its purposes (e.g. the Zollverein). Historical events as well as natural conditions may influence the development of the tariff boundary, and in the more fortunate cases the course of historical development may even modify the natural disadvantages of the tariff boundary, as, e. g., by means of a political or tariff union which removes the former disadvan tageous tariff boundary to a point within the resultant new tariff territory.

Conversely, the course of historical development may affect the tariff system unfavorably, as, e. g., the ascendancy of free-trade ideas or a solicitude for the international trade may prevent or limit the imposition of import duties which might be commendable on fiscal grounds. The one-sidedness of the English tariff which has been referred to above has its origin for the most part in the principle of freedom of international trade which has been in the ascendant in that country for a gen eration past. This principle has been violated by the imposition of import duties only to the least possible extent ; the exceptions have been scarcely anything but taxes on narcotics, which would for the most part leave trade relations with the more important foreign countries unaltered. The earlier tariffs of England and the existing tariffs of the German Empire, Austria, Switzerland, France, the United States of America, etc., are not liable to this one-sidedness in their consumption taxes, so far as concerns any necessary consequence of the practical exigencies of a system of import duties ; these countries have not only not applied the prin ciple of free trade after the radical fashion of England, but have even systematically made use of their import tariff to hinder free trade.

Still, even these countries, as the development of modern industry makes them more and more dependent on the world market, will find themselves obliged by their mutual interest to forego the levying of many fiscal duties which might commend themselves on all other grounds. For example, the Swiss import duty on French wines remains extremely low although the Swiss Confederation has increased the rate on many other items in its tariff, the reason being simply the pressure which France has exerted in the negotiation of treaties and the danger there would be to the graver interests of international relations, and the danger of a disturbance of trade relations with France.

§ 368. In the domain of internal taxes on consumption, as in that of import duties, the problem is to discover certain points or stations where the consumable goods in question may be dealt with collectively or in a wholesale way ; and the absence of any feasible stations of this kind makes a great number of con sumption taxes practically impossible though they might be desirable on other grounds.

Viewed from the standpoint of equity, simply, it is an incom prehensible inconsistency that the consumption of domestic wine in Prussia is exempt from taxation while the consumption of domestic beer and spirits bears a considerable tax. This incon gruity is only to be explained (but it is also sufficiently justified) the fact that it has been found by experience that the prac tical obstacles to a taxation of domestic wine make such taxa tion inexpedient, while the taxation of beer and spirits has progressively developed in consequence of the progressive cen tralization and consolidation of the production of these goods.' So far as this concentration is absent the practical advan tages favoring an internal consumption tax are also absent. The system of taxation habitually employed in wine-producing coun tries, which makes use of the place of sale as a medium by which to collect the tax, is so burdensome to the business that there is properly a great hesitation about introducing this form of taxa tion in any place where it has not already long been established. The decentralized character of tobacco culture is of the nature. of a downright calamity so far as regards the taxation of home grown tobacco, and it is only on the ground of other considera tions which speak so strongly for the eminent propriety of a tax on tobacco, that such a tax is collected in spite of the serious practical difficulties connected with it. Viewed from the stand point of the tobacco tax England occupies a very enviable posi tion, because it has no home-grown tobacco to tax, but is able to tax the entire tobacco supply of its population at the tariff boundary.

§ 369. An artificial concentration of the production of domestic products may be specially created as an expedient for the levying of an internal tax on consumption.

This is the principle embodied in so-called tax monopolies.

The extreme subdivision of the tobacco culture into an enor mous number of very small establishments makes the taxation of this industry just as difficult as the taxation of the greatly sub divided industry of tobacco manufacture (household industry and the like). The tax on the consumption of tobacco, instead of collecting the amount required from the still more extremely subdivided business of the retail trade, or from the consumers in person, goes directly to the establishment where the tobacco is grown or where it is manufactured ; but even in so doing it imposes the burden upon many shoulders, and the majority of them feeble ones which are not well able to bear it although it is but a single item of expenditure. This subdivision of the tax collection is as burdensome to the government as it is to the tax pavers. The measures of supervision required for the purposes of the tax are as annoying to the taxpayers as they are trouble some and odious to the officials. If the culture and manufacture of tobacco were consolidated to the same degree as the beet sugar industry the chief difficulties of an internal consumption .ax would be removed. But where this consolidation does not result from the free development of the industry the state may interfere and bring about a compulsory concentration.

This is the fundamental principle of the tax monopoly. As an illustrious example of a tax monopoly we have already (sec. 288) given a brief review of the history of the French tobacco monopoly.

Where a tax monopoly has been introduced early and has become incorporated in the habits of thought of the people, there are but slight traces perceptible of those difficulties which are so apparent in cases where the requisite concentration of the industry is sought to be introduced at a later stage—to replace a widely extended and subdivided production by private enter prise. The obstacles are partly the economic and financial dif ficulties of a change from the old method of production to the new, partly the opposition to and prejudices against a monopoly bred by long-continued freedom of the business. These obsta cles can be overcome only under the pressure of very great financial straits or through a great advance in popular insight and intelligence.

§ 370. There are a few taxes on consumption which find the state monopoly ready to their hand, established for other pur poses than that of taxation.

One of the chief instances of this is the Post. In this case a consolidated single establishment and centralized management follows from the practical requirements of this means of com munication. Any surplus receipts that may result (and there is certainly occasion and inducement to derive a real surplus reve nue from this source, such as is obtained in Great Britain, and not an apparent surplus only, such as we have at present in the German Empire) have not hitherto been clearly recognized as being of the nature of taxes, for the reason that the postal monopoly rests on other than fiscal grounds. But it is none the less true that apart from its other purposes this monopoly also serves the purpose of taxation so far as it affords a real net revenue.

Also the lottery monopoly (which in any modern tax system has to be counted with not as something that ought to be com prised in the system but simply as an empirical fact) is of course a tax monopoly to the extent that it would not exist at all except for the purpose of taxing (human folly). At the same time it is distinguished from other tax monopolies by the fact that it has been established not for the purpose of taxation alone but also for the sake of obviating the more deplorable effects that would follow from a " free play of natural forces." 371. In the last few paragraphs we have discussed the practical limitations and obstacles to taxes on consumption and the means of overcoming them. It is now to be added that there are also inducements on other than fiscal grounds which may urge to the taxation of articles of consumption.

Such other grounds are the suppression of the use of an article which is regarded as hurtful, and the exclusion of foreign articles of import as a protection to the domestic products.

As is the case with so much of what the institutions of the seventeenth and eighteenth centuries have handed down to mod ern times, so also the policy of prohibiting a luxury—which was then sold by the state for fiscal purposes as a means of taxation' (sec. 57)—was already well known in the medieval towns. Such is the origin of many consumption taxes which are extensively used at present ; such, e. g., is the case with the taxation of tobacco, which, however, does not retain this character in any of the modern states. On the other hand there is even today a motive of this kind present in the taxation of spirits, and this motive has also been influential in bringing about the latest increase of the brandy tax in the German Empire (June 24, 1887), being acknowledged by the government to be one of the reasons which influenced its action.

If the fiscal purpose and the pedagogical purpose of the con sumption tax could be made to go hand in hand we should have a charming harmony of interests. But it is plain that these two purposes logically traverse one another, and that it is only under very special circumstances that they mutually further one another. The pedagogical purpose, whose aim is the restriction of the consumption of a given article through the interference of the state, will of course tend to diminish the quantity of the article liable to the tax ; the fiscal purpose, apart from fiscal consid erations with which we are not at present concerned, does at least not aim at this result. If we succeed, by means of increased rates, in obtaining an increased revenue from the tax in spite of a diminished consumption of the article, that of course does not prove that it would be impossible to obtain a still greater aggregate revenue by lowering the rates.

The presence of this foreign purpose in the imposition of the tax accordingly acts as an inherent limit to the taxation of con sumption at the same time that it may furnish an extraneous motive to the imposition of the tax.

Something similar occurs when an import duty is levied as a measure of protection for the honie product.' The duty may be intended by its creator to serve this purpose, or it may accom plish the purpose independently of, or contrary to the intention of the legislator. It is only in the case of such articles of consumption as cannot be produced at home that the duty is only a tax. The simplicity of the English tariff is largely made possible by the fact that neither tobacco, wine (and formerly sugar) nor tea, coffee or other like articles are produced in the country. The protective character of the English duties can come into play only indirectly by affecting the home-produced substitutes for the taxed articles.

The more effectively a protective duty serves its purpose, or the more a duty is intended for protection, the less is its financial importance. On the other hand, the more completely the duty is made to serve the purpose of a tax, or the less it acts as a protective duty, the less effective will it be as a protective measure for the home industry.

The term "mixed duties" has lately been used officially to designate import duties which are intended, or at any rate serve, to effect both these purposes.

external and internal on the taxation of consumption serves to show not only that such a system of taxation is in need of con tinued development and improvement in order to overcome its peculiar difficulties and to meet the requirements made upon it ; it also points to the necessity of supplementing any system of consumption taxes by taxes of other kinds.

The one-sidedness which so persistently attaches to a system of consumption taxes, and which can scarcely be entirely removed by the development and perfecting of such a system, suggests a recourse to supplementary taxes of another kind in the interest of equity.

The difficulty, or rather impossibility, of levying on the greater tax-paying capacities in due proportion by means of a taxation of the peculiar goods consumed by them, especially where there is a steadily increasing need of revenue coupled with a progressively deepening conviction of the greater obligation properly incumbent on the greater tax-paying capacity,—these considerations lead to the adoption of taxes which are essentially of the nature of taxes on earnings (income, property, inheritance and objective taxes).

Even the relative advantages attaching to taxes on consump tion have their reverse aspect. The flexibility of all those con sumption taxes which are levied on articles of voluntary con sumption has the consequence that it is impossible to secure a definite and stable revenue by this means alone, because the volume of consumption will vary under the pressure of the tax. Recourse must therefore be had to taxes which are less flexible and which can therefore better be depended on.

The relative unobtrusiveness of the tax on consumption is also of great practical importance for any system of taxation, and, in spite of all the protests of the radicals and the doctri naires, it will continue to be so for a long time to come ; for the question of the burden of taxation is largely a question of sub jective appreciation of the pressure of the tax, or at any rate it does not depend on the amount of the tax alone. At the same time it is also to be recognized that the aim of any modern pro gressive tax policy comprises also such a moral development oft the part of the people as shall alter the popular sentiment on this head and bring it into conformity with that ideal of civic virtue which must not be condemned as a piece of folly merely because it would be premature to apply it unreservedly in the systems of taxation in vogue today.


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