HOW TO TAX INCOMES

Dominion, Volume 12, Issue 277, 19 August 1919, Page 7

HOW TO TAX INCOMES

THE CANONS OF ADAH SMITH

AN EXPERT'S REVIEW

In regard to taxation tho four canons t>f Adam Smith are unsurpassable (writes an "expert Correspondent' of the London "Daily News"). As these belong to tho category of things supposed to bo known to all,' and forgotten by most, let me set them forth iu a slightly abridged form.

1. The subject of every State ought to .contribute towards- the support of tho Government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the State.

2. The tax which each individual is bound to' pay ought to be certain, and not arbitrary. Tho timo of payment, tho manner of payment, tho quantity to bo paid, ought all to be clear and plain to the contributor, and to every other person.

3. Every tax ought to bo levied at tho time, or in the manner, in which it is most likely to be convenient for tho contributor to pay if.

•1. Every tax ought to bo fo contrived ns both to take out and to keep out of tho pockets of the peoplo as little as possible over and above what, it brings into tho public treasury of the State. The point I wish to establish -is tho possibility of <io graduating tho income tax as to fulfil tho requirements of Adam Smith's canons, and to do this in a way ■understandable by the man in the street. If I seem to write dogmatically, it is bacause limitation of space prevents mo developing my argnmont in detail as I should like. Danger of Class Division, The raising of the limit of exemption from incomo tax would be a mistake. It ■would tend to divide classes sharply, And provoke a struggle between them, tho ■upper classes' interest being to, see mora and more indirect taxation laid on the lower classes, while tho latter would bo' tempted to agitate contiiiuallytor a raising of the limit of exemption from incomo tax. Conscious solidarity of interest should bo tho aim.

For these reasons, I suggest tho reduction Of the limit of exemption to .6100 per annum,' and the merging of super tax and excess profits tax in one graduated income tax. The last-mentioned is in reality a specialised income tax, the enactment of Which implied that an impost of 16s. in tho . £ on income may be just. ■ As it is levied on profits irrespective of their derivation from tho war, the principle inferred is that it is iust to tax incomes 16s. in the ,-£l, if of recent creation. 1 In that case, it is hardly tenable to maintain that with incomes of ancient creation a lesser sum than 16s. is just. A merging,, therefore, of tho two taxes is the obvious wav out of an untenable position, as the new merged tax could be averaged equitably over incomes both of recent and ancient derivation.

Tho feature of the present scheme ,is e division of income tax payers into four great classes:

I. Possessors tif incomes of i! 100 to .£500.; - • 11. Possessors of incomes of ,£5Ol to < ,£IOOO. ■111. Possessors of indomes of .£lOOl to

• ' rnooo.* • IV. Possessors of incomes of ,£IO,OOI to .£70,000. The scheme provides both for graduation by, class, and graduation within class; and that upon an equitable and scientific, basis. 1 Why Accentuation is Just, With each class, an accentuatiou of taxation is both' just nnd wise, for as class suceecds; class the proportion of the ■unit's income that must bo spent upon necessities falls, and the balance available for comforts and luxuries rises; This is the reason for '.he accentuated rise in taxation as class succeeds class. But let the tables speak for themselves. CLASS I—FOR, HS.COIIES PKOM- £ ICO ■■••• •TO £500. ', r • V Aver- , . age rate PercentTax on in £of . - ,age of respec- tax over Total income Tax live. total in- tax payin £. £100. come, payable, able, d. £ s..d. d.' £s. d.'Ist £100 ... 3 1 5 0 3 15 0 1.25 2nd £100... 6 210 0 4J 315 0 1.87 3rd £100 ... 9 315 0 6 710 0 2.5 4th £100 ... 1/- 5 0 0 wl2 10 0 3.12 6th £100 ...' 1/3 6-6 0 9 18 15 0 3.75 Example: What is the tax on an income of £365?

£ s. d. On Ist £100, at 3 15 0 On. 2nd £100, at. 6d 2 10 0 On 3rd £100, at 9d. 3 15 0 On last £65, at Is. 3 5 0- ' Total 10 15 0 (An average o£ just over 7d. and 2.94 of tho total income.) At every stage within the table it will bo seen the principle of graduation works to a nicety, and the calculation is so simple that the -man in the street can work it out for himself with tho greatest ease. There is not- the'incentive existing in the present system to "wangle" the income Mow a 6et figure, for the graduation is devoid of sudden arbitrary jumps. Steeper Steps. We now approaoh Stage II for incomes from ,£SOO to .£looo,' where the graduation proceeds on tbe same principle, -but in"steeper step 3. . CLASS lI.—INCOMES OP £500 to £1000. The tax progresses successively by 6d. :n the £ on every additional £100 of income. Aver- , age rate PercentTax on in £ of age of respec- tax over Total income Tax tive total in- tax payIn £. £100. come, payable, able, s. d. £s. £s. 6th £100 1 9 815 lid. 2710 4.58 7th £100 2 3' 11 5 1/1.27 38 15 5.53 Bth £100 v 2 9 13 15 l/3?d. 62 10 6.56 9th £100 3 3 16 5 1/6 Md. (3 15 7.63 10th £100 3 9 18 15 l/9d. 87 10 8.75 Example: What is tho tax on an income of £823? - On £800 £52 10s. Od—an average of Is. 3?d. On £23 £3 14s. 9d. at 3/3 d. in the £.' .Total £56 4s. 9d. (An average of just over l/4Jd.) Incomes up to £10,000. From Stage II we next proceed to Stage 111 in the following ' way. The tax now progresses by successive • advances of Is. CLASS 111.-IKCOJIfiS OP £1000 TO £10,000. Aver-. age rate PcrcentTax on in £ of age of respec- tax over Total income Tax tivfe total in- tax payin £ £lMiti. come, payable, able, s. d. £8. £s. Ist £1000 1 9 e7 10 1 9 87 10 8.75 2nd £1000 2 9 137 10 2 3 225 0 11.25 3rd £1000 3 9 1-37 10 2 9 41210 13.76 4th £1000 4 9 237 10 3 3 6SO 0 1635 sth £1000 5 9 287 10 3 9 937 10 18.75 6th £1000 6 9 337 10 4/3 d. 1,275 0 21.25 7th £1000 7 9 387 10 4/9 d. 1,«2 10 23.75 . Bth £1000 8 9 <37 10 5 3 2,100 0 M 25 9th £1000 9 3 <87 10 5 9 2,587 10 28.75 10th £10C0 10 9 537 10 6 3 3,125 0 31.25 Example-What Is the. tax on an income of £1500? On the first £1000, at Is. 9d. mlO *0 On tho next £500, at 2s. 9d 6815 0 T0' 3 , 1 . 5 0 (Average tax per £-2 a , id.) What .is on an income of £5750? ,£ g, On £5000, at an averago of 3s. 9d. 937 10 0 On £750, at os 9d. Z53 2 0 Total £U9012~6 (An average of just over 4s. l{d.) For the Very Rich. From Stage 111 we go on to Stage IV the advanco progressing by Is, 3d. ' INCOMES OF £10,000 TO JE7O.OCO. \ Avovape rale PercentTax on in £of . age t-f respcc- tax over Total income Tax tive total in- tax payin £. £10,000 come, payable, able, s. d. £ s. d. £

Ist £10,000 6 3 3,125 6 3 3,125 31.25 2nd £10,000 7 6 3,750 6 tO.t 6.675 34 37 3rd £10,000 8 9 4,375 7 6 11,250 37 5 4th£lo,ooo 10 0 5,000 8 H 16,210 4062 sth £10,000 11 3 5,625 8 9 21,875 <3.75 6tll £10,000 12 6 6.250 9 4} 28,125 <6.87 \ 7th £10,000 13 9 6,075 10 0 35,000 50. Example.—What is the tax on an. Income' of £45,0C0? • £ s. d. On £40,000,. at an average of Bs. Hd. Y.. 16,250 0 0 On £5,000, at lis. 30 2,812 10 0 Total £19,062 10 0 (An averago of just over Bs. 6Jd.) ■ At incomes of ,£70,000 it will be seen we attain an averago tax of 10s. in tno it Beyond th(s limit it would be un-

bo for the tax to become more and more iinrcmunerative. With u maximum tax Of 10s, in tho £ so llie richest member of the community would know that if lie had.the luck or skill to make a sovereign, half of it would belong to himself. Taxation on tho scale of the Excess Profits Tax tends to kill the goose that lays tho golden egg, and is responsible for untold waste, and what may bo termed legitimate fraud by those on whom it is levied. Whin taxation comes permanently' above tho 50 per dent, level, a capital levy is probably best, for ft reduction of taxation to a more reasonable figure. Workable on Any Scalc. The scheme should bo understood as embodying a principle; tlio details 01 tlio tallies might l;e very different, utter examination of tho data bearing on our problem. ■ Tlio increase m lliu tax by multiples of threepence is to renuorgjaicuiatioti eilsy to Uioao who are not accustomed to think iu decimals—a highly impwcant consideration. The principle or graduation cotud, however, lie equally weu 'embodied if another scaio wero employed.

in the first group of incomes the limit might be liuiiic .£2 a week instead of wlslOO a year, thus raising the limit of exemption to This trifling modification ought to bo of great practical value, and save an infinity of work to both revenue ofncmls aim the puoiic, with little or no resultant loss to the national revenue.

Heturniiig to my, starting-point, the first canon of Adaiu Smith is iullitled by the principle of giuduation as projected in the present scheme. Tho schcuio also accords with requirements of the ..second canon, xno requirements of the thud canon could bo Inet m the great majority of cases liy the collection of income tux pro rata as income is received, l'or example, the lax eoiul be collected from the wage-earning mid salary-receiv-ing clashes, through the employer when the monjy is paid over to them week by wt-ek, month iiy month, or quarter. Incidentally, this would save the Exchequer millions annually in discounts on Treasury bills; as money would flow in as fast or luster than it flowed out. .Government would be carried on like a cash stori 1 , with resultant economy. An income tux collected through the employer on tho insurance stamp principio 'would fulfil the lourth canon. .-

If relief from taxation be desirable for the smaller income tax payer, it should lie given not via the income tax but through a free breakfast table.