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of business and professional incomes, with a varying percentage deduction according to the average proportion of capital in each class, has been proposed; but it may be doubted if the second objection has any just foundation. That the assessment of an income from conjoint sources does not necessarily involve an official return of these sources, may be seen by looking to the return of the income of capital or stock itself, as exemplified in all large trading companies. This income, regarded in the concrete, consists of the conjoint incomes from houses, ships, machinery, stock, trade fixtures, all of which incomes having different outgoings, are singly and differently assessed by the owner, but all of which are united, without statement of particulars, in one common official return. What is practicable, however, with the incomes (derived, say, from horse labour plus machinery) is also practicable with those derived from human labour plus capital generally. Doubtless, in order to value the labour-income separately from the capital-income, the two must be separately known to the valuer, but not, therefore, separately returned to the Government unless Government undertakes the work of accountant. The distinction between the two (the one technically known as profits, the other as interest) is a primary distinction in book-keeping usually given in every profit and loss account. Capital being known (and this knowledge is as necessary to the preparation of an accurate return under the present system as to that under the proposed one), its interest subtracted from the mixed income will give the technical profits, gross labour-income, or gross wages of the capitalist. The deduction of labour-outgoings from the labour-income will give the labour's interest-value, which, plus the interest of the capital, will be the interest-value or returnable income of the business or profession.

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Example 1.-A (a barrister, physician, or salaried officer) has £1000 a year, an unmixed gross labour-income. Assuming, e. g., 40 per cent. to be the average labour-outgoings for risk, maintenance, and depreciation," the deduction will be £400 and the interest-value £600. A's returnable and taxable income will be £600. Example 2.-B (a solicitor or general medical practitioner) has £2000 capital in his practice, and a gross income as now returnable of £1000 a year, the joint result of his personal labour and his capital. Interest being reckoned at 5 per cent., £100 will be the interest-value of his capital, and £900 the gross income, wages, or so-called profits of his labour. The deduction of 40 per cent. from this for labour-outgoings leaves £540 as the labour's interest-value, which, plus £100 as the interest of capital, gives £640 as the interest-value of his practice. B's returnable and taxable income will be thus £640.

Example 3.-C (a merchant, manufacturer, or shopkeeper), having a capital of £10,000 in his business, has a gross income of £1000 a year, the joint result of his capital and personal labour. Here, under the former suppositions, the interest of his capital will be £500, and the gross income of his labour will be £500. Deducting 40 per cent. for labouroutgoings, as before, we obtain £300 as the labour's interest-value, which, plus the interest of the capital, equals £800, the interest-value of the business. C's returnable and taxable income will be £800. Zero-point of Direct Taxation.-In the remuneration of labour, as we descend in the scale, there must be a point at which income and outgoings balance, and at which, therefore, interest-value or real profit is zero. This important point in labour, analogous in land to the commencing point of

rent, is the scientific division in labour between exemption and taxation that a common measure of value determines. Wherever the point may be, below it there is no interest-valne, and hence ought to be no taxation; and it is above this point that in strictness the percentage deduction for outgoings ought in every case to begin.

Example 1.-A, a labourer, earns 30s. per week, an unmixed gross labourincome. Assuming this sum to be only sufficient to meet the necessary labour-outgoings, then the interest-value of the income will be nil. A's income will be wholly untaxable.

Example 2.-B, a clerk or artisan, earns £150 per year. Assuming, as before, 30s. per weck or £78 per year, as the necessary labour-outgoings, then the subtraction of this sum will mark the zero-point of the labour's taxable income, and £72 will be the margin to which alone the percentage deduction for outgoings ought to be applied. Assuming this deduction at 40 per cent. as before, we have £22 as such deduction, and £44 as the labour's interest-value. B's returnable and taxable income will be £44.

A similar preliminary process of correction applies to all higher labourincomes, the zero-point being determined by the amount fixed on as the labour's necessary outgoings.

9. Proposed new Valuation System intermediate to the Self-assessment and Official Systems.-The practical working of a measure of value, like other measures, has necessarily a relation to the persons by whom it is applied. A just measure, through careless or wrong application, may act unjustly; but unjust application is no argument for an unjust measure; an unjust measure even when rightly applied must act unjustly. In the income-tax, as now arranged, with its five or six inconsistent measures of value, the valuation for some of the chief schedules ranges between the loose liberties of selfassessment and the inquisitorial stringency of official: the one system conscious of a radical injustice in the law, which it is itself called on to apply, the other in total ignorance of the facts which the law covers, and both working in antagonism to each other. In the valuation for probate duty we have a third system, applied not by the interested individual nor by the official, but by a third and independent party, authoritatively licensed, indeed, by the Government, but selected by the individual, and hence whilst neutral himself, having responsibilities to each. Under an equitable measure of value, self-assessment might in the first instance exist as at present; but in cases of doubt Government might require the guarantee of such an independent authority (licensed valuer, accountant, lawyer, acting as a semiofficial commissioner in income-tax) for a second evidence to the truth of the return, reserving its own power of official examination as a last resort. At the present time many firms do actually call in professional accountants to make up their returns; and with a growing sense of justice in the tax, such an independent guarantee to the truth of the return might not improbably become general, and might even acquire the force of a custom.

COMPARISON BETWEEN CAPITAL-VALUE AND INTEREST-VALUE.

10. Capital-value and Interest-value equivalent on a series of years, but not for each year. The two measures, capital-value and interest-value, are, as before observed, on a series of years equivalent. Interest-value is capitalvalue for a year. Capital-value is the present worth of interest-value for all

years. But though the two measures are thus equivalent on an average of years, they are not equivalent for each specific year. Interest-value measures the gains of capital for one year, and capital-value measures its gains for that year, with the expectant or probable gain of future years added. As, however, national gain for any year has, as a rule, the closest relation to the national expenses for that year, the interest-value is a more specific measure for annual taxation than the capital-value; and this is probably the reason that has unconsciously led to the adoption of an annual-value measure, both in local and imperial taxation, in preference to one of capital or perpetual value.

Capital-value in comparative relation to things and to tenures generally.— Measures practically equivalent may, however, through differences of application, give contrary results; and of this the two measures in question afford illustrations. Taxation, according to capital-value, may look either to the sources, things, or objects owned, or to the rights and tenures of their owners to the land, labour, or stock possessed, or to the freehold, leasehold, life-tenancy, or jointure, as the case may be, of the possessors. Prima facie it would appear that as the value of the tenures of a thing, however manifold, can be neither more nor less than the value of the thing itself, the results of the scientific capitalization of the two should be identical. As a matter of fact, however, this has not been admitted to be the case; and it is on the question of tenures that the deepest controversies of the income-tax have arisen.

Capital-value in relation to terminable tenures.-As the capital-value of a limited tenure in an estate, for example, is less than that of a permanent one, its taxation, it is argued, ought to be less, and therefore it ought to pay at a lower rate. Putting aside for a moment the question of the truth of this inference, it is evident that its enforcement would make an estate's taxation vary with the character of its tenure, thus giving power to the subject to alter taxation by altering tenure, and that to almost any extent. To avoid this it has been proposed to derive the whole tax from the estate as at present, but to levy on the limited tenure according to its capital-value, and to make the reversion liable for the balance.

Terminability of tenure does not influence the Annual Tax.-Without discussing the administrative difficulties of this view, it may be questioned whether such a view be a logical deduction from the principle of taxing tenures according to their capital-value. Assuming that a limited tenure in an estate ought to pay less than a permanent one, with reference to its capitalized value, it would not therefore follow that it ought to pay at a lower annual rate. Be the tenure long or short, the estate for any given year is the same, the value for that one year's tenure is the same, the government protection afforded to it for that year is the same, and hence it would appear that the payment for each year ought to be the same also. But if each year's payments be the same in both cases, the total payments are not therefore equal; the limited tenure pays only for a limited time, whilst the perpetual tenure pays for all time; and if these payments be aggregated it will be found that their amounts are in exact proportion to the capital-values of the respective tenures. Should it be said that the reversioner, having interests in the good government of the present, ought therefore to contribute according to the value of these interests, the reply is that the present possessor has been the reversioner of the past, and has had similar interests in the good government of the past. If, therefore, present possession has a claim on the future, it owes a debt to the past; and it may be mathematically shown, what

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perhaps a sense of the fitness of things indicates, that for any given year the claim and debt will cancel each other, and leave every year's possession to pay the whole year's tax on the estate possessed.

Difference between incomes from terminable tenures and those from terminable things.-That a terminable income by paying at the same annual rate as a perpetual income is equally paying according to its capital-value, is a proposition insisted on by Mr. Warburton and by Mr. Mill in the two Commissions on the Income-tax; and as far as the above class of terminable income is concerned, the proposition is true. But these gentlemen unfortunately carried it into a region where it had no status, and in virtue of it denied the applicability of capital-value, if not of arithmetical proportion generally, as a reforming measure of the income-tax. As there are incomes and incomes, so there are terminable incomes and terminable incomes. If the terminable income be the terminable tenure of a pure interest-value, such, practically speaking, as a life-interest in land or in consols, to tax it at the same rate as a permanent income is to tax each according to its capital-value. If, however, the terminable income be an income that is made up partly of interest-value and partly of capital that terminates, not simply as a legal right, but by gradually exhausting its source, then to charge such income at the same annual rate as a permanent one of similar amount is not to tax it according to its capital-value-a truth repeatedly demonstrated by the actuaries before Mr. Hume's committee, and evident from the reflection that the capital-value of the source is, by the very nature of the income, continually passing away, whilst the tax remains the same. Under the conditions stated, the tax on the one terminable income would be a tax on pure interest-value, the tax on the other would be a tax on a mixture of interestvalue plus capital. By combining the propositions of the actuaries and of Mr. Warburton, each true in its own sphere, but each erroneous when applied to the other, we may conclude that the results obtained from the capitalization of tenures are identical with those obtained from the absolute valuation of sources; and both may be quoted in confirmation of those obtained from the principle of interest-value.

Capital-value in relation to personal riches and property. Common measure of value as needful for equal exemption as for equal taxation.-Another application of capital-value as a measure, however, cannot be so quoted. The taxation of a particular property according to capital-value may be interpreted as taxation, not according to the worth of that particular property, but according to the absolute worth or financial position of the person who owns it; and such a method of levy has been erroneously defended as taxation according to ability. In this view a rich man ought (considerations of practicability apart) to pay a heavier duty upon his dog, his bottle of wine or whiskey, than a poor man; and, the estates being equal, the owner of a permanent tenure would pay more for each year's possession than would the owner of a limited one. Such a theory of capital-value may not be general, but it has a certain degree of popularity, and seems to be constantly getting itself mixed up not only with discussions but even with legislation on the incidence of the income-tax. It may be questioned whether the operation of this theory is not visible, for example, in the exemption from imperial direct taxation (recently so largely extended) of large masses of property in the country including many thousands of acres of land, in consequence of the accident of their ownership. Property thus exempted becomes property taxable by mere change of possession, irrespective of the intrinsic nature or value of the property itself. To exempt in an income-tax the necessary

outgoings of the source of income, be it labour or land, is merely to confine the tax to its own stated objects, viz. to income proper; but to exempt or lower the rate on this income proper, merely in consideration of the personal status of its owner, is to travel into quite a different region-it may be into the region of national charity, or into that of some other principle, but assuredly far away from that of equality in taxation. It may be added that such exemptions, even when admitted, need a common measure of value for their rational application. There are small incomes and small incomes-incomes that are pure interest-values, incomes that are pure drafts on capital, and incomes that are mixtures of interest-value and draft on capital; and the equal exemption of these kinds, as in the present income-tax, is as unequal as would be their equal taxation. As before said, the interest-value measure itself would exempt all small labour-incomes to the extent of their necessities without further special rule.

BEARINGS OF COMMON MEASURE OF VALUE ON GENERAL TAXATION AND

NATIONAL INCOME.

11. Common measure of value necessary to the adjustment of general taxation: fallacies from its absence.—“Your Committee also feel that it would be unjust to make any alteration in the present incidence of the income-tax, without at the same time taking into consideration the pressure of other taxation upon the various interests of the country, some of it imposed by recent legislation, and in one case especially, that of the succession duty, to some extent by way of compensation." This, written in 1861, is the last sentence of the Report of the Select Committee appointed in that year on the equalization of the Income-tax; and perhaps no paragraph could be quoted as a stronger argument for the necessity of determining a common measure of value. It may, indeed, be thought by some that for the purpose of internally equalizing a tax over its own area, be that area sugar, coffee, or incomes, a preliminary inquiry into the pressure of taxation in general is somewhat of a work of supererogation; and it may not be mathematically obvious to others what possible sort of compensation can exist between the inequalities of a tax, or a set of taxes, that are almost stationary, and those of one that changes with every national emergency-that in twenty years has actually compassed the extremes of sixteenpence and twopence in the pound, with every variety of intermediate oscillation. But assuming it to be advisable for the purpose in question, as it must doubtless be always generally useful, to know the comparative pressure of taxation as a whole upon the interests of the country, it is clear that such a knowledge implies their valuation through a common measure, and is, indeed, as impossible without it as would be the knowledge of the weights of different things without weighing them by a true balance. Eminent statists have, indeed, attacked this problem, using income itself as the means of the comparison, though oftentimes without a sufficient preliminary examination of the accuracy of their instrument. Comparing the statistics of different classes of income, as collected from the government returns and from inquiries specially made, with the statistics of the corresponding classes of taxation, they have sometimes concluded that general taxation is, as a whole, tolerably equal. The truth of this conclusion evidently depends upon the uniformity of the standard employed. As, however, this uniformity has no existence (the government returns alone presenting at least five or six different modes of estimate), the argument can prove nothing as regards general equality, except its absence; but does prove that taxation

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