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The Income Taxes of the Nineteenth Century


§ 308. The great truths of national life are simple ; their realization is difficult. The new era which is now at the close of its first century can make no new discoveries in matters of taxa tion, in which the innovation extends beyond the technical details of administration. In the great fundamental principles and in their contrasts there is a continual recurrence of what is already long familiar. The difficulties with which the method of taxa tion which recommends itself to the unsophisticated mind as a matter of course is beset, have been as clearly seen in the earliest beginnings of a scientific knowledge of the subject of finance as they are at present. The progress has been altogether prepon deratingly on the side of practical administration ; this is shown by the gradual, circumscribed alteration of the difficulties referred to ; it appears also in this connection qualified by those limitations of all historical progress which result from interminable deviations from a direct and uninterrupted succession of stages of development.

The problem of the income taxes of the nineteenth century is in intimate relation with the general transformation of social and political life, with the helping and the hindering factors which enter into it, with its influence upon the relations subsisting between the state and the individual: The principalities and the great poivers of past centuries afford the traditional contrast to the free cities, in which the significance of a close union between the burghers of the town individually, as well as between the burgher and public affairs, was brought out in a clear light. The towns were the oases of civil liberty in the Middle Ages ; they were the prelude to the greater national development which was presently to pass over the stage of the principalities and the great centralized states. With the era of the Revolution a new element entered, which hastened and furthered the development. This was the awakening of the sentiment of a participation in the state, which had been slumbering or had been stifled for centuries past. The purpose of this movement, so far as regards the ideas underlying it, was the strengthening of the sentiment of civic duty ; nor was the declaration of human rights chary of its magniloquent speech on the subject of the " honor " of tax paying.

But precisely these swelling words showed that in the prac tical experience of their immediate surroundings there was a great difference between words and deeds. It was only very gradually that the sense of civic duty was able to penetrate the new social organization ; at the outset the new national life was intelligible to these people, who had put aside the state, only so far as regarded their rights. It is to be added that the other great factor of the new era, the new industrial productivity, con stituted a force which, while it was not in itself antagonistic to the first factor, proved, in its consequences; to be inimical to it. The new means of communication and the redistribution and regrouping of the population which resulted from their intro duction ; the new means of gain and the resulting new tion of property-holding ; the new examples of gain and its enjoyment, and the chase after success and enjoyment to which they gave rise ; the unexampled increase of the population and the resulting struggle for existence ;—all this served to accentu ate the contrast between society and the state, between the indi vidual and the whole, and, to say the least, all this had an unfavorable influence upon the advantageous results achieved by the new political life.

There is one state which takes the lead' of all our great powers in this new era of civic development. This is England. The peculiar development of its constitution enables it to pre serve intact the traditional bond between state and citizen, and therefore to carry over from the past into the new era the habits of political liberty which in other countries existed at the outset only in words. is a significant fact that England has taken the lead in the income taxation of the new era. Its example is not by any means a faultless model to be followed ; there is in it much of the spirit of the olden time with its plea of excep tional exigencies arising through the demands of a war, and it disappears immediately with the close of the great war against France. The influence exerted by the new industrial life is as strong in England as anywhere ; the mature growth of a hearty sense of duty in this matter has perhaps come no nearer achieve ment in the course of the nineteenth century than it was at its beginning. And still, the results attained during the first period of income taxation, with its great patriotic sacrifices on the one hand, and the early resumption of the income tax and its practi cal incorporation as a permanent constituent of the English tax system of the nineteenth century on the other hand, are so much of a new departure that we are fully warranted in dating the introduction of the income tax into the new tax systems of civil ized countries from these reforms. It is true here as it is with respect to the development of national credit, that it is not the economic phase of the matter alone that is decisive and signifi cant ; the essentially decisive element is the ethical-political principles involved.

§ 309. On December 3, 1798, the House of Commons, after a patriotic speech from Pitt, passed a resolution that from April 5, 1799, a tax was to be levied on all income of any British sub ject, whether residing in Great Britain or elsewhere, and of every inhabitant of Great Britain, to raise the means for carrying on the war against France.' The tax was to be levied at the rate of o per cent. on all incomes over £200, while incomes under £6o were exempt ; for incomes between £60 and £200, distributed in twenty-eight classes, the rate was a progressive one, rising from to Pitt estimated the aggregate income of Great Britain at £102,000,000, and hoped to raise an aggregate reve nue of 0,000,000. The actual results fell considerably short of the expectation (5.6-6.25 million pounds).

This law superseded another and more complicated tax law imposed the previous year, which served as immediately intro ductory to the income tax, in that, in like manner as the latter, it embodied the principle of a progressive tax, the exemption of incomes under £6o, the reduction of the rate of taxation in pro portion to the number of the taxpayer's children ; especially, it required proofs of the amount of the income in all proceedings for recovery or indemnification. The Property and Income Tax continued to be levied until the peace of Amiens (1802), and was reintroduced immediately on the fresh outbreak of the war (1803). At this time it was given .the form which it has per manently retained, and which it also resumed upon being reintro duced by Robert Peel after the interval 1816-1842. Being levied to meet the exigencies of war, it varied down to 1816 with the shifting fortunes of peace and war ; it was modified in detail, the rates were raised and lowered, and it was finally abolished, by a large majority (238 to 201), on March 18,1816, against the proposal of the Vansittart-Castlereagh ministry, which desired to retain the income tax at half the war rates for times of peace. From 1806 the rate of 10 per cent. had been reintroduced, and it brought in a revenue which not only increased from year to year, but was in absolute amount so enormous (416,000,000 in 1815) as to furnish a striking evidence of the political and eco nomic development of England,' when contrasted with the similar attempts by Continental states during the war against Napoleon. The Lord Lieutenant, von Vincke, wrote to Baron von Stein dur ing his first residence in England (1800) expressing his great admiration of the patriotic emulation with which nobility and commonalty devoted themselves to meeting the requirements of the income tax. He found an explanation of this self-sacrificing

spirit in his study of the political institutions which for a long time past had served as a bond between the citizen and the state in England.

§ 310. After an interval of a quarter of a century, Robert Peel again took up the income tax, in 1842, to cover the deficit created by the reduction of import duties. It was at first granted, according to earlier custoni, only for a limited term (three years); but it was renewed at the expiration of this term, was increased on the outbreak of the war with Russia, after wards lowered, being in part reduced to a very low rate, and being altered from year to year according to the varying demands of the national treasury and the varying amounts of revenue derived from other taxes. It is true, the leading statesmen of England have continually flattered the propertied classes with the prospect that the income tax is to be abolished as soon as may be. But the practical fact of its uninterrupted persistence for nearly half a century past seems rather to have erected it into a permanent institution, the equity of which is constantly being more and more clearly impressed on the mind of the propertied class through the growing power and importance of the laboring classes. The propertied class seems by this time, in point of fact, to have accepted the income tax as a permanent institution.' The rate was,' from 1842 to 1853, a uniform one of seven pence in the pound on every income in Great Britain over 415o ; it is only since April 1853 that this law has applied to Ireland. During the years 1854-1857 occurred a considerable increase of the rate (14-16 pence in the pound=6-6% per cent.), but the revenue obtained amounted to no more than what was paid forty years earlier, during the Napoleonic war, by the same country, with a much smaller population, with a much smaller aggregate of wealth, and while subjected to much heavier taxes of other kinds. Since 1857 the rate has been lowered ; during the suc ceeding years it was successively 7, 5, 9, Do, 9 and 6 pence ; during the years 1864-1873 it ordinarily amounted to 4-5 pence (1 /-2per cent.); in 1874 it declined to 3 pence, and in 1875 76 to 2 pence. During the decade 1876-1886 it rose somewhat (5-6 pence) ; it has since risen to 8 pence (3X per cent.) in 1885-86 and 1887-88 (being 9 pence in 1886-87), but in 1888 89 it declined again to 6 pence. The net income in 1887-88 was The degression changes, and is determined annually in the budget, as has already been pointed out (sec. 219). The tend ency so far has been to exempt the smaller and medium incomes more and more from the tax. While Pitt exempted only incomes under £60, Peel exempted incomes under £150; in 1853, however, incomes of £100—£15o were again sub jected to a moderate tax. But in its latest form (1882) the law favors incomes under £400 by deducting from the taxable amount, at the same time that it entirely exempts all incomes under L'150. In addition to this there are special modifications favoring particular classes of incomes; the incomes of leaseholders, for example, in 1888-89, are subject to half-rates only.

The social-political significance of the income tax as a per manent institution in times of peace has long been properly appreciated by sensible men in England. Shortly after its rein troduction by Robert Peel, Lord Ashley, afterwards Earl of Shaftesbury, occupied himself with a tax-reform scheme on a large scale, in which it was proposed to abolish the beer tax and the duties on corn' entirely, and to lower the duties on tea and sugar to one-sixth of the then existing rate, at the same time that the income tax was to be raised to five per cent.I § 311. The English income tax has (since 1803) in a pecul iar degree been based on the distinction of all kinds of incomes into classes corresponding to the sources from which the income is drawn. Of these classes the law enumerates the fol lowing five: A, landed property, B, income from rural lease holds, C, interest-bearing capital the interest on which is paid within Great Britain and Ireland, E, official salaries, D, indus trial enterprises and the liberal professions, together with all incomes which are not included under the four other classes (as, for example, receipts from capital invested abroad). It is thought that the facts will be ascertained with greater accuracy by means of this classification of incomes,' than if, as is the prac tice in income-tax legislation elsewhere, the aggregate income of the individual is made the basis of assessment. Habituation to this method of assessment seems to have recommended its retention in England, while in other countries there is little evi dence of an inclination to follow this example.

Subject to the tax are all British subjects resident in the country or only temporarily absent, as well as all amounts pay able within the country (whether they are remitted abroad, and whether they are paid to a citizen or to an alien within the coun try) and all amounts due from foreign countries.

The revenue from landed pro perty (A) is found by ascer taining the rental value which, owing to the peculiar features of the English land system, it is possible to determine on the basis of a great number of actual cases. In case of an incum brance on the property the owner is entitled to deduct a propor tionate amount from the tax. It also frequently happens that the tenant (lessee) pays the tax for the owner and then deducts the amount from the rent. Incomes from leaseholds (B) are assessed in a fixed proportion to the rent (in England one-half, in Scotland and Ireland one-third) with reservation of the privi lege on part of taxpayer of proving that his actual gain is less than this proportion. In both of these classes the dec laration of the taxpayer is taken, and the assessment is sub ject to revision every three years.

On interest-bearing investments (C) the interest on which is paid within Great Britain and Ireland, deduction of the amount of the tax is to be made by the payer at the time of the payment of the interest. Private establishments doing this kind of business are required to make the necessary reports to the tax commissioners. Similarly in the case of salaries of offi cials (E) the tax is deducted by the establishment paying the salary and is turned over directly to the tax administration. The profits of business and the like (D) are assessed by means of an obligatory declaration on part of the taxpayer (penalty for omission 450) which is required to be made every year, but under the supervision and control of the tax officials. This class presents the weakest point of the method of assessment. Its peculiar character is indicated by the fact that the usual practice in English assessment, as in that of other countries, of intrusting this duty to local organs of assessment chosen by the taxpayers, is in this case (out of regard for the privacy of business) disregarded, and the assessment is intrusted to special commissioners appointed by the government.

The assessment of the tax, generally, is based on the tradi tional institutions of local self-government.' Still, by means of the relatively permanent tenure of the assessors and their inde pendence of any election by the taxpayer, by suitable limitation of the assessment districts, and especially by the right kind of influence exerted by the national tax commissioners, much more adequate provision is made for an honest assessment' than is Gneist, Englisches Verwaltungsrecht, 3d ed., pp. 632 et seq. Cf. also Kries, Zeit schriftfiir die ges. Staatnv., PP. 402 et seq.

'The results of the assessments for the five classes in Great Britain and Ireland have been as follows:

tax, incomes, england, assessment and war