CHAPTER XII.

PROTECTION JUDGED BY THE CANONS OF TAXATION.

Protection, as indirect taxation spread over a large field of commodities, cannot distribute the charge equitably; it is an income tax levied on all consumers without abatement or exemption. Protection introduced in our country, then, would throw out the whole of our carefully arranged scheme of taxation; would tax, not according to the circumstances of the tax payer, but according to the circumstances of the producer; and so give a legitimate grievance against those who benefited by the high prices.

SUPPOSE, then, we grant that Protection is taxation of the people; that it is of the nature of a subsidy given, by the power of a government, to producers; it must, as such, be gauged by the ordinary canons of taxation. Is it good taxation or bad? Does it spread the inevitable charge equitably?

It might be an argument for Protection if it could assure the community a better distribution of the charge of taxation. But all our experience of indirect taxation is that its incidence is en

tirely indeterminate. When we put a full income tax on incomes above £700 and a degressive

CH. XII. BAD INDIRECT TAXATION

III

rate on certain incomes under it, and no tax at all on incomes under £160, we at least know where we are. We have made the attempt to free small incomes, to put a moderate rate on moderate incomes, and to lay the heavy end of the charge on the rich. But if we tax con

sumption as is done in indirect taxation-we cannot secure this.1 If liquor is taxed, and the rich man is a teetotaller, he escapes; if the poor man spends a third of his income on liquor, he pays enormous taxation.

But if a man is forced to pay taxes on all goods he buys, and if the amount of tax which the goods contain is determined, not by anything in the circumstances of the consumer, but simply by the needs often, I am afraid, the needs of inefficiency of the producer qua producer, what guarantee is there that there will be even an approach to equitable taxation ? If the poor man buys woollens, and the woollen manufacturers are protected by 100 per cent. duty, while the rich man buys silks, and the silk manufacturers are protected only by 50 per cent. duty, how can this work out but inequitably?

This disposes of the shallow idea that Protection takes from the rich and gives to the poor. It is difficult to see how raising the prices of everything, and raising them unequally, affects the poor more favourably than it affects the rich. In the matter of prices, it is the rich who know where to find the bargains, not the poor. Given

1 The ordinary, but necessarily very rough, calculation is that the poor pay three-fourths of the taxes on consumption.

112 INCOME-TAX WITHOUT EXEMPTIONS CH.

one man who spends his wage on a small range of articles, as compared with another man who can distribute his income over a very wide range, it is evident who can avoid the dear, and double on the cheap.

The objection was well put by Fawcett: "A protective duty, by making the commodity on which it is imposed, unnecessarily dear, virtually levies a tax from all those who purchase it. When such commodities are in general use, the effect of the duty is precisely the same as if an income tax were levied from the entire community. Such a tax cannot, however, be adjusted or equalised as is the case with the income tax in our own country. Small incomes cannot be exempted; for, however poor a man may be, the tax will fall with unerring certainty on all that portion of his income or his wages which is expended in the purchase of the protected articles. But, besides, when, by protection, the instruments and the plant of industry are made more costly, their products become necessarily more expensive."

"1

When we pay a tax for police, we get police service in return for it. And, if a man is considering whether he should take a house in any particular city or not, he always asks, "What police rates shall I have to pay?" He first, as a natural man, thinks of police rates as a burden, and then, as an economic man, he puts against that what he gets in return, the security which the police give him. So when an Englishman

1 Free Trade and Protection, p. 118.

XII. CAN TAXATION INCREASE WEALTH? 113

But,

emigrates to the United States, he finds and grumbles, as a natural man, that he has to pay much higher prices for almost everything he buys. But, as an economic man, he asks himself what he gets in return for the high prices. If he finds that he gets no better goods, he seeks some other explanation. Possibly he finds it in the fact that, in his own business, whatever it is, he gets high prices for the goods he makes. again, he has to weigh against this, the high price he has to pay for all his material where similar material is taxed on entry, the high wages he pays because high prices need high wages to pay the high prices, and so on. In short, he never thinks that high prices are an unmixed good; he finds all sorts of makeweights against them. He is told then that the duties put on goods are taxes levied on the citizens to ensure the prosperity of the citizens. He is not stupid enough to think that taxes, as taxes, are anything but money taken out of his pocket-deductionsand so he asks how the deduction on the one hand is balanced by the "value received" on the other. If it is simply a game of raising prices all round, how can that do him any good, unless the system allows him to impose more taxes than his neighbours?

It comes down to this: Can the wealth of a country be increased by its tax system? The first aspect of taxation is deduction from income; and, to this extent, the citizen is poorer by his taxation. But the sums handed over to the government, even after allowing for the expense

H

114

PROTECTION WOULD THROW CHAP.

of collection, may be used by the government more wisely and beneficently than they could be by the private citizen, and wealth thus economised is wealth gained. It all depends on how the money is used. If Protection is taxation of this kind, then Protection is justified in the same way as our Telegraph service is justified: the citizen pays sixpence for services which, we may say, he could not get otherwise for less than sevenpence. If this economy cannot be proved, then the argument for Protection must be that of the Infant Industry;-that the tax is the seed which the husbandman buries in the ground with tears, in the hope of, some time, rejoicing in a more abundant harvest. If this argument is not proven, what is to be said for the tax? What is the sense of paying sixpence to the government to get back sixpence? Who pays for collecting the sixpence? And if a penny is paid for collecting the sixpence, is not the net result this;-that the citizen pays sixpence to get back fivepence?

There is, then, one great objection to any change in our fiscal system which would reintroduce Protection in however modified a form, and I do not think it has been fully weighed. It is that it would make a serious change in our system of taxation. The taxation of a country is always one of its greatest problems. With all its anomalies and defects-and they are many-we in Great Britain have probably the nearest approach to a scientific tax system of any nation. It did not come to us out of the