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    A 1068 THE LEADER. [Saturday ,

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    Taxation Reduced To Unity And Simplicity...

    The difficulty , if any , lies in dealing with mortgages effected before the establishment of the new system of taxation . In many such cases , no doubt , new engagements would be made , equitably settling all interests in accordance with the new state of things . In case , however ; , of a mortgage which for any reason could not be removed , the obvious rule would be for the mortgagee to repay to the possessor so . much of the tax as bore the s « inie proportion to the whole tax , as the mortgage bore to the whole estimated value of the property . A rent-charge , on being fairly capitalized , falls under the same principles as a mortgage ; its share of the tax would be to the whole tax what its capitalized value would be to the estimated value of the whole property . 2 . The Tradesman ' s Creditor . —This cr . se differs

    from that of the mortgagee in that the lien is not specifically on some designated article of property , but on all the possessions of the debtor . It further differs in that it is not a specific rate of interest , but a general view to advantage , which induces the creditor to place his goods or money in the debtor ' s hands . Both parties , in considering the total effect of their proceedings , take the tax into account just as they do rent , insurance , or any other expense . The tradesman has to consider whether it is to his own advantage to hold ostensibly his creditor ' s property and pay the tax on it ; the

    creditor has to consider whether the tradesman is likely to hold his property safely and to advantage with that burden on it . If the tradesman had no tax , or a small tax to pay , he could give a greater price for the goods he retails , or a higher interest for the money he borrows : if he has a large tax to pay he can give only a smaller price or a lower interest . Thus , although there is no formal , there is not less a real , partition of the tax , either in exact proportion to the interest of the several parties in the property , or in that proportion affected as all other transactions are by the comparative skill , diligence , or commercial power of the parties .

    This , it is true , is only one phase of the complicated question of the ultimate incidence of taxation , and a very incomplete view of that question ; but it is sufficient for the present purpose of showing that under the proposed system the tradesman's creditor would not go untaxed , and that he would bear such a share of the tax on goods held for him by others , as circumstances beyond the control of any law or government permit to reach him . 3 . The Fundholder . —This is a case of lien such as we have already discussed , affected , however , by special circumstances . The linn is on the entire property of the nation , and is not the less real for being , Ike the tradesman ' s debt , not specifically nssignable ^ to individunl objects amongst that property .

    In any other case the holder of the lien would be taxed , explicitly or implicitly , through the possessor of the encumbered property . But here the natural operation of private interests cannot take place ; for no voluntary arrangement can be made , and no ascertained share of the ; lax can be assigned by law as between individual parties . It is , therefore , necessary to provide by law , in this abnormal instance , for that which everywhere beside would provide for itself .

    The fundholder is himself a member of the body bound to supply the means of satisfying bin claim . The justice of including the funds in the category of taxable property becomes manifest on remembering that , if all other I axes wore repealed , and a tax on property mibstituttd for them , the fundholder would remain unfaxed , if bis claim were not so included , and that the actual holders of bis unsevered share would , in fact ., pay bis share for him , having already paid their own . For , tho liability to pay interest to him deteriorates their property by the amount of the capital due to that intercHt , if not by more ; and if he do not , pay his share of tho common expenses in proportion to his lien , lie just leaves them to pay it for him , after Buffering that deterioration .

    Reduced to its simplest form , the ease is I hat of an estate owned in partnership by two persons , iind mortgaged to the . wealthier of them . If the mortgagee , beiiif * a partner also , doen not pay his share ! of the interest on the mortgage ! , by its lining included in the account of disbursements , the other partner payN both shares . Our position , then , scarcely requires to lie . Htronglhened by the fact , Mint , all ' prior taxation , applicable fo them from its nature , has boon made to aidcct the funds and their dividends , just as it au ' ecteri of her property . The dividends pay income-tax .

    When we propone to tax Mio funds , we must repeat that this is a hoIo parliamentary tax , imposed in abolition of all other . Heing freed from all other taxes , the finxlhohler is only culled on to bear exactly the mime burden as his follows . The foregoing principles show ( hat tho foreign bolder of British funds in . just as liable to taxation jih Mm Mulish holder himself . ll . i « unmtverod property ,

    or , in other words , the property on which the foreigner is secured , is liere , entitled to and enjoying all the protection afforded by our laws and national stability , and it is for him to pay his proportionate share of the expense of its protection , just as he would pay if hia property were invested here in some specific and definable objects . We might thus seem to be conducted to the conclusion that property in the funds should be taxed like all other property ; or , what is the same thing , that its nominal capital should be added to the estimated value of the visible and tangible property , and then one rate made to run over the whole . But here another fact

    obstructs us , and mere good faith in fulfilling existing engagements , may he said to require an artificial character to be put on what would otherwise be a simple and natural arrangement . The engagements with the national creditor have been founded , whether wisely or not , on the principle that the nation engages to pay so much income , the principal being irredeemable , except at the option of the Government ; the whole transaction is based on income . In other affairs , and naturally ,

    the subject-matter of sale is the capital ; here , by artificial arrangement , it is the income . In those other affairs , and naturally , the estimate of money value , variable from circumstances , is based on the invariable matters forming the capital in kind ; here and artificially , it is based on the invariable income in money . This is the essence of the funding system . The national creditor may spy that he ought not to be taxed by the decree of his debtor , on property , while his transaction with that debtor related to income .

    Not , then , from the nature of the case , but from the manner in which it has been dealt with , it may be urged that we have here in good faith to consider , contrary to general principles , how the income of the fundholder should be taxed , as income , so as it put its owners in the same position as they would have been had they been proprietors of visible and tangible property , and had been taxed accordingly . Let us see to what this view will lead us .

    Obviously , such an adjustment can be made only in the way of an average . Different fundholders might have employed their property in different ways , with various results , but only one rule of estimate for all can be carried into effect . What that rule should be , or rather within what limits it will probably be found , when justly determined on examination of all the facts , may appear as follows : In our article of October 23 rd , we showed that , as fur as it is yet known , the taxation of the United Kingdom may be fairly estimated at one-sixth of the income . But this income is partly the earnings of skill , industry , and even of severe labour , while that of the fundholder is purely the interest of capital , received without

    any expenditure of time or effort ; that is , without any admixture of earnings . If , then , the entire income of the country could be separated into two parts , one the produce of property , tho other of skill and labour , it is clear that the taxation which would fall to the share of pure property—such as the funds are—would be more than one-sixth . The true tax of the fundholder , on this principle , considered as one on property commuted from necessity of circumstances to one on income , will not be less than one-sixth of bis dividend . If the data on which this proportion is founded should hereafter be corrected by better knowledge , a corresponding correction will be required in the application of the argument , but none in tho argument itself . Meanwhile , we take the lowest limit of the fundholder's taxation at

    one-sixth of bis dividend . The highest limit may be found by considering thailand in general may l > e taken as worth from twentyfive to thirty years' purchase ; that is , that it yields from . ' {' , to I . per cent ,, per annum , as an investment , and that , consequently , fi rate of about one . per cent ., such as the proposed system would at present require , must amount ; to about one-fourth of the rent . The landowner , however , has generally an advantage over the fundholder , in tho improvable character of hiw property ; lie may derive from it a larger absolute income ,

    although he pay an equal proportion of his gross income in tax . The fundhohler ' s property is fixed and unimprovable . ! n endeavouring to place tho fundholder in the mime situation as to tax , as lie would have been in had he held visible and tangible property , this difference may justify bis boin ^ ra ted not quite Ho highly on his income as the landlord . It Heenis , then , that . tho tax on the fundholder would lie between one-sixth and one-fourth ofhis dividend ; probably one-fifth , twenty per cent ; , would be a fair average . For this he would be J ' nw of all other parliamcntarii taxes whatever .

    Hut thin oonchmion , however truo at present , is founded , in part , on a supposition , which , under a change of eircumstanccH , would involve an error , —viz ., thai the gonoral taxation in ono-uixth of tho general

    income . If the taxation should diminish , or the incom increase , ( both probable events , ) so that the proportion of one-sixth no longer obtained , the fundholder would be entitled to a revision of his quota . If it be imagined that any necessity of treating this special case as income , if established , would impugn the soundness of our general principle , that propert y is the true . subject-matter of taxation , we need only repeat that this case is made special by the irreversible acts of

    the parties themselves , one of whom is the very power which imposes and regulates taxation . These acts , if admitted to affect the case , change conventionall y the character of this particular relation , but they change nothing beyond it ; and , to argue from a case so di 8 . turbed by artificial considerations , to those depending on the great natural relations of Government , society and individuals , would be an error most calamitous , in the end , for all parties .

    But more;—if a bargain so obviously changing the ordinary obligations of the borrower to the lender , establish here a necessity of dealing , as to taxation , with income , not with property , it is an easy inference that beyond that bargain , property and not income is the true matter to be taxed . To tax , however , the fundholder on the nominal value of his stock , would come so nearly to the same thing , as to leave little doubt that the position , in respect of taxation , assigned to him above , is the true one .

    For a tax of one per cent , on the nominal capital would commonly be not quite one-third of the income , —a proportion which , under any equitable system , would probably fall on other incomes equally secure , and equally exempt from the necessity of labour , to realize them . The difference between this result and that of one-fifth , arrived at above , is somewhat more than one-eighth;—a difference which , in the coarse operations of taxation , has often been thought inconsiderable , and which does not here prevent the mutual confirmation of the two conclusions .

    4 . The Reversioner . —We here use the word reversion in the widest sense , without regarding distinctions between the different kinds of deferred interests . All property is reversionary , the only difference being that , in some cases , the reversioner is already designated , or may be designated , independently of the will of the present owner , while , in others , the present owner has the power of designating his successor . Inasmuch as a reversion has a saleable value , it is argued that it is a fit subject of taxation . But whatever is tho value of the reversion , Is Just t , o niucll subtracted from the entire valuo of the property to its present owner ; and as to taxation , it is , on our principles , an incumbrance , taxable , if at all , only through the actual possessor .

    A reversion differs from other incunibrances in being realizable only after a given event : the reversioner has no present right or enjoyment . The mere fact of the deferred right being saleable , proves nothing as to the taxableness of reversions ; for such a sale is a mere transfer of a deferred right , to a person who is willing to exchange for it a right in present activity . The salcablencss of a property goes no further , in matters of taxation , than to ascertain the share of tax which a given object ought to bear , if it he taxable at all . I ' the sale of a reversion , there is no measure , as in other sales , of one active right by means of another active right , both admitted to be taxable alike ; there is only an interchange in the situation of two persons , and we are left to discover whether or not a reversion is

    taxable , by the aid of other principles . There is no difficulty as to reversions to bo created subsequently to the establishment of tho system proposed . Whoever crentes one , then , may do no on 1 »» ovvh terms , tax being taken into account when ho fixes them . The State can have nothing to do with existing reversions except in cases where the present and lutur ) owners do not agree ; and then its only question can w > of the repartition between them of the entire tax on the properly , whether any , or , if any , in what proportion .

    Other incumbrnncers having present virtual 1 ' ° *^ nion of their property may justly be called on by ^ taxed possessors to contribute ! their quota to the <^ peiiHO ; but the reversioner possesses nothing «« -j \() n _ the ntate to protect , Is not taxation /// is year s <¦ ^ tribution to this year ' s expenseM ? and will it " ° ' ^ time for tho reversioner to pay Ihh share whon ho «> into poHHcssion P , jH It is Hiiid , I . owovcr , thai ; hecaww tho State pro ., - the properly for tho future benefit of tho aversionas well ns for tho present advantage of tho Vri' *™ ' l t HCHHor , tho roversioner ought to , my hi * sliare of tin of the present protection . A sufficient answer to ^ would bo that tho State cannot look ho far , n . . . 1 ' , with liabilities so oxtmnoly uncertain in tboir inci ^ and extent iw thoae tlnu * said to attach to reversion

    A 1068 The Leader. [Saturday ,

    A 1068 THE LEADER . [ Saturday ,

• Citation
  • Leader (1850-1860), Nov. 6, 1852, page 16, in the Nineteenth-Century Serials Edition (2008; 2018) ncse-os.kdl.kcl.ac.uk/periodicals/l/issues/cld_06111852/page/16/