INCOME TAX.

New Zealand Herald, Volume LVII, Issue 17597, 9 October 1920, Page 1 (Supplement)

INCOME TAX.

TOO MUCH OF A GOOD THING.

BY H. W. SEGAB, M.A. , F.X.Z. INST,

■ Income tax is of British origin. In-, come taxes-, in the 'modern sense were levied for the first time in England m 1799. They ultimately spread to Ger-s many, Prance, Italy, America, and elsewhere, but only at a considerably later period. Just as the recent war has been, the cause of intensifying the income tax, so it was the burden of the Napoleonic wars that led to its original infliction. The tax was far from popular. Although Pitt maintained that it was founded on ''a principle which no man had yet by any solid argument disputed," it was generally resented even as • a temporary tax for an emergency. To Fox it was '* an impost against all principles of taxation; in fact, a confiscation of property." To the livery of London it was " destructive to the trading world, and unjust in making no discrimination between fluctuating and certain income, hostile to the liberties and morals of the people, and incapable of being made equitable or efficient." It is not surprising that the livery, having this opinion of the tax, demanded its repeal. Oppressive, pernicious, vexatious, odious, monstrous, intolerable, detestable, inquisitorial, unconstitutional, fradulent, boldly tyrannical, a tax on industry— these epithets were then, as mostly also now. applied in the discussion of the tax. Yet the tax of 1799 had only reached the extent of 10' per cent, of income, or two shillings in the pound ! So when a temporary peace came in .1802. the tax was dropped by common consent.

But there has been for centuries a progressive attempt to realise the demands of fiscal justice. This fiscal evolution, has been based on a tendency to work out'the principle of ability to pay. The poll or capitation tax. served in the primitive community. The property tax played a suitable part in the early stages of industry and v commerce. Expenditure was advanced as the best test of ability to pay toward the close of the Middle Ages. With the failure of this there developed in the seventeenth and subsequent centuries, a system of taxes on products or produce, on things rather than on persons. But the tax upon the thing does not lend itself readily to the changing conditions of the man who owns the thing. The immense increase in modern wealth and the appearance of great fortunes have forced the question of graduated taxation. A system of taxes on the product does not lend itself to this principle. It was thus that income was finally selected as a test of ability to pay. Drawbacks. But the Income Tax had its drawbacks.. There was some difficulty in deciding what income really means. Is an income derived from hard, personal work, to be classed with an equal income, derived from an inherited fortune, or from a lucky a speculation? To what extent does income fail as a- measure of ability to pay? What other circumstances mast be taken into account? It has to be' admitted that no - single test; of ability to pay can be found which will meet the varying circumstances of individuals. And it cannot reasonably be maintained, as is sometimes attempted, that the income tax is the fairest of taxes. Even if it were, it is notorious that, of all taxes,, the income tax is perhaps the most difficult to assess with a proper degree of justice and accuracy. An income tax, though framed in a spirit of the utmost fairness, is bound to inflict injustice in many individual cases. With these and other uiiuculties to face, the income tax did not fulfil its early promise. It had appeared at first as it the new test of ability topay would supplant all others; as if all other direct taxes at least would give place to onea single income tax. Hut enthusiasm for the tax gradually faded. It was realised that the test of income must be supplemented by others in order to form a well-rounded" whole. Thus it happens that no modern tax system, although most systems include it/ relies entirely upon the income tax, even tor direct taxation alone.

The income tax only gradually won its footing even in England. Reimposed in 1803, on a 5 per cent, basis, it was repealed again in 1815. The occasion caused great joy. Tierney made a celebrated speech, in which he begged pardon of God ,and of the public for the part he taken in imposing the tax. "The greatest merit of the tax," he also said, "was the dislike so generally felt to it, and if it could be held out to the people in terrorem against entering into war it had done great service indeed." The escape of Napoleon from Elba led to the renewal of the tax for another year. But in 1816 it was finally repealed, though only to be reimposed a little more than a quarter of a century later £1842) in a permanent form. During this second period of the operation of the tax it was twice increased. In 1805 Pitt added one-fourth, making it a tax of 6£ instead of 5 per cent. Fox objected that the tax "was taking little by little from the property of the subject till the. reduction was tantamount to the risk of the, whole." But the following year (1806), although Fox was a member I of the then Government, the rate was further increased to 10 per cent. The larger increase was defended on the { ground that "a gradual rise would have I led to the supposition that this was a fund to be drawn upon to an indefinite I extent; but. being raised at once to its I natural limit, there would be less suspicion of future augmentation," and this apparently satisfied Fox. The Present-day Tax. We have gone beyond the stage of two shillings in the pound. Such a rale is no • longer the " natural limit " of the income tax. We no longer regard the tax as only i j for emergencies. Fox's fear of the supposi- ! tion that the tax was a fund to be drawn j upon to an indefinite extent is on!v too j I fully realised. The tax, too. is suffering I | from the defects of its qualities. Being i ': elastic, easily levied, and as easily raised ! i or lowered as circumstances required, it i I was pre eminently suited to the exigencies j jof a great war. But the high rate attained ; | in war is retained and may be. increased i !in peace. Being capable of refined gradu- j ' at.-on it was capable of exacting great sums ' j from the rich without hitting" too hard j , the poorer man. But it hits not only the j ', rich man but the company, connected | 1 with which there may not be a single [ I individual that, may fairly be counted > rich, while there may b-> many fairly de ' ; scribed as poor. Established partly because Oj£ its power to discriminate and to exempt. it makes no allowances for charees 1 for education, accident and sickness that I may be making great inroads into, the . ' family resources. The charge of the livery of London, that it makes no discrimination '; ■ between fluctuating and certain income. is true to this day. You may lose heavily . one year, your income is taxed to the ! utmost the next. A company may be j : struggling to make up lost capital. ' The I I income tax has no pity. The return re- | 1 lativeiy to capital may be small. The . i income tax does what it can to make it i i smaller. Some can and do pass on the tax .to the consumer. There is no considera- ; - 1 tion for the one that cannot. The tax, | l as it is. is a burden ; it* incidence in ' cusps is iniquitous. Levied in peace at ' about the greatest rate it will bear it : ceased to be a source of additional ini come in time of trouble. For which rea* son alone a wise statesman would seek some relief and give it a less conspicuous place in the fiscal system. *"