THE MANNER IN WHICH TAXES WORK.
The present chapter changes slightly the point of view from which the general question of taxation has thus far been regarded. Having considered the nature of a tax, the employ ment of the taxing power, and the peculiar relation of citi zens as taxpayers, and having analyzed the various kinds of taxes, it now becomes our task to inquire how taxes work. This, it will be observed, approaches the problem from the point of view of the social interest, it holds in mind the pro cess of social evolution, and includes within its inquiry the broad question of social utility. The analysis itself will be minute and technical, but the bearing of the analysis is com prehensive and general. It presents a line of observations essential for a wise opinion respecting a nation's financial policy.
63. The Shifting and Incidence of Taxes. As introduc tory to an analysis of the way in which taxes work, it is necessary to consider the shifting and incidence of taxes. There is perhaps no question respecting which so many con flicting views are entertained. Professor Seligman, whose ability to review bibliography and classify literature is un excelled, shows in his chapter upon " The History of the Doctrine of Incidence " that there are ten distinct groups of opinion entertained by writers upon this subject, and this of itself is adequate to suggest the care with which the student should enter upon its consideration.
(1) The use of terms. The confusion with which the subject of the shifting and incidence of taxes is surrounded is in part traceable to the incomplete analysis of the laws of value, but it is due in larger measure to the unwillingness of writers to separate the question, Who pays the tax? from the question, What are the results of such payment? One should not be led, in following out the incidence of taxes, beyond the legitimate sphere of his analysis.
By the incidence of taxes is meant the final resting place of their payment; by the shifting of taxes is meant the process according to which he who makes payment imposes what he has paid upon some one else. A study of incidence and shift ing, therefore, confines itself to an analysis and classification of the conditions under which a sum of money paid by one person to an officer of the government in satisfaction of a revenue law may be included in the price of the commodity which he sells or of the service which he renders, and, through the medium of price, change this payment over to some other person with whom he has commercial or professional dealings. It is, therefore, evident that in tracing the commercial and social results of taxation it is important to discover who pays the tax; and it is equally evident that in such an investigation the student must draw a sharp line between the shifting of taxes and the shifting of occupations or investments which follow as a result of taxation.
The difficulty which surrounds this subject is bound up in the loose ideas entertained respecting the payment of a tax. Manifestly there can be no payment by the citizen unless there is a corresponding receipt by the government; but were one to judge by the literature of the subject, any disturbance in manufacture, sale, or consumption resulting from the imposition of a tax should be counted a payment. The error underlying this conception may be made clear by an illustration. Suppose a tax to be imposed on the sale of meat. The butcher must either pay the tax out of his income or add it to the price charged for meat. Should he pursue the latter course he would lose part of his trade, and through curtailment of sales reduce what otherwise might be his clear income. Now, it is certainly an unwarranted use of language to say that the butcher pays the tax, or indeed any portion of it, because it decreases an assumed income and prevents him from obtaining less than what, independently of the tax, existing commercial conditions might lead him to expect. He is doubtless inconvenienced because of the tax. He will be obliged to readjust his business calculations on account of the tax. He is keenly conscious of the fact that the government demands for itself part of the money that pre viously came to him in the purchase of meats; but he does not pay the tax. One must admit the truth of this statement when it is observed that the same commercial results would follow, so far as the butcher is concerned, should the govern ment by some other means take to itself an equal amount from the fund assigned to the payment of meat bills in the domestic budget of customers. He might, then, continue to offer his meats at the old price, but his sales would be cur tailed, and his prospective income would be reduced, just as though he had raised the price of meats to cover a correspond ing tax imposed upon his business. It thus appears that a tax may be completely shifted, so that the manufacturer or trader is entirely reimbursed for the sums paid to the govern ment in satisfaction of revenue laws, and still he may feel the inconvenience of the tax levied. A study of the results of taxation covers not only the question of tax payment, but the ultimate consequences of such payments as well; it is, however, essential that the student should distinguish between the question of incidence and the question of commercial re sults.