In order to establish a Universal Free Trade and to make every port in England a free port, it would be necessary to raise by direct taxation about L40,000,000 annually, because the excise on beer, etc., would have to be abandoned with the Customs duties. We will consider the possibility of raising this L40,000,000 by direct taxation before we dilate on the advantages which would follow Universal Free Trade. Universal Free Trade

Ricardo, at the end of his masterly consideration of the effect of taxation variously levied, comes to the general conclusion that the best tax is that which is least in amount. Adam Smith and the older economists held that one test which a well-devised tax had to satisfy was that it should take the money from the taxpayer insensibly, indirectly. Now, all taxes that thus insensibly drain the taxpayers invariably take more in gross from them than reaches the Government. taxpayer insensibly

• largely consumed

• all luxuries

• modern politicians

as much a necessary of life as tea is. Whether we believe tobacco to be injurious or not2 proportion



	To raise L40,000,000 by customs and excise costs about L3,000,000; so that the people have to pay L43,000,000, while the Government gets L40,000,000. In direct taxes, as income taxes, property rates, the cost of collection is very small--about two-pence in the pound. In public as in private business it is much more economic to look payments in the face and make them with our eyes open than to let the money slip away in driblets. Moreover, modern politicians think, in opposition to Adam Smith, that it has a good moral effect on the body politic to be made to feel exactly what taxes they pay, so that they cannot help knowing whenever taxation is increased.

	A serious objection to indirect taxation is that it always falls with unfair weight on the poor, as in the case of tea duties stated above. It may be urged that the existing duties are (except tea) nearly all on luxuries, as beer, spirits, tobacco. But the English have drunk beer for many hundred years; the taste for beer is largely fixed by inheritance; beer as supplying sustenance in a form that _rapidly_ assists exhausted nature is, to very many at least, as much a necessary of life as tea is. Whether we believe tobacco to be injurious or not, we have no right to impose on an article so very largely consumed a duty which amounts to taxing the poor out of proportion to the rich

If all the indirect taxes are removed, the poor (at least down to those earning L1 a week and upwards) must be made to contribute to direct taxes. It may be urged against Universal Free Trade that the poor are so ignorant that they would sooner pay sixteen-pence a week in taxes indirectly than eightpence directly.

This might prove a fatal objection to carrying out Universal Free Trade at the first attempt; but one of the objects to be gained by direct taxation is the education of the people. It may also be urged that the whole political power being now in the hands of the masses, they are so selfish and unjust that if taxation is made a plain matter they will put all taxation on the rich and refuse to pay anything themselves. The reply to this is, If this is your estimate of the understanding and morality of the masses, you should not have put the whole political power in their hands.

We are only attempting at present to show that the L40,000,000 sterling (to replace duties and those parts of the excise which hang on duties) _could_ be raised by direct taxation: we are not attempting to show the best way it could be raised by direct taxation; it will be seen hereafter that a portion of it might perhaps be better raised by a National Property Rate.

The L40,000,000 would be raised by an income tax of sixteen-pence in the pound--(I am underestimating safely--about a shilling in the pound would raise it really),--carried down to L156 a year without any reductions; while incomes of L1 a week paid eightpence weekly, and incomes of L2 a week paid twelvepence weekly. In the Crimean War the nation endured an income tax of sixteen-pence in the pound; it is certain that the nation is richer now, and better able to bear such a rate

Time and Date

But this is not the strength of the argument. In the Crimean War England endured sixteen-pence in the pound _extra_, in addition to all existing taxes (some of which were raised too), and the capital thus taken from the people was destroyed (much of it) or dissipated in the Crimea. But the sixteen-pence in the pound here suggested would be in lieu of an equal amount of taxes taken off (it would be rather less in amount than the taxes taken off):

the nation therefore, would not feel it at all, though individuals would feel it in different ways. A poor man would have eightpence a week deducted from his wages, but he would get his beer at three-fifths the present price, his tea at two-thirds the present price, etc. He would soon feel that he gained by the change. The rich would find that they lost; but that loss would, I believe, be made up to them over and over again

First, I believe it is impossible to realise the effect on our trade of having London, Liverpool, etc., free ports. We possess at present half the ocean trade of the world: with our ports free, we should get a yet larger share of the world's trade, and secure it permanently. That is to say, we should certainly keep it until other nations adopted Universal Free Trade.

Secondly, The fall in the price of tea, beer, etc., would be more than the amount of the tax remitted: the freedom of universal manufacture without any Government interference, the liberty to land tea without delay, and put it into the market without having to advance the duty, would cause at once a great activity in the trades, and at the same time a fall in price. By diminishing the need for middle-men the quality of the beer, tea, etc., would be raised, and adulteration diminished

Thirdly, The fall in the price of tea and beer would bring down the price of all competing drinks: it would at first diminish the consumption of competing drinks. The cheapening the price of some of the prime necessaries of life would be to some extent divided between capital and labour. As in the case of wheat, the labourer would be made better off, while the profits of capital would be raised.

A general and permanent improvement in all trades would result, except possibly in those of the tea-dealer and brewer--but I do not think they would lose. I see no end to the developments from Universal Free Trade: we can only gain some idea of what they would be by tracing as far as we may what the results of Free Trade in one article--wheat--have been; and in doing this we must recollect that before 1846 the quantity of wheat imported was trifling compared with the present importation

To this scheme of direct taxation Edward Wilson objects, "Taxation should fall on expenditure, not on income." It is true that our object must always be to encourage accumulation, and discourage destruction of capital (expenditure). Practically, it does not appear that a heavy income tax diminishes the taste for accumulation in England: it does increase the tendency of large capitalists to invest their capital out of England, so as to avoid the State charges on capital in England. But the capital in England and the quantity of English capital invested abroad are already so enormous that the "tendency" of an increased income tax may be disregarded. Lastly, it may be objected, Would the sixteen-pence income tax levied as you propose (or nearly so) raise L40,000,000? At the time of the Crimean War each penny in the pound income tax brought in a million sterling.

At the present time, each penny in the pound income tax brings in nearer two millions sterling, but the productiveness of the tax is much interfered with by the large remissions now allowed, and subtractions which take effect just where the contributors to the tax are most numerous, say from L100 to L300 a year. I therefore reckon that, without remissions, the tax of sixteen-pence in the pound down to L156 a year would produce about L30,000,000, and that the tax down to L52 a year would about produce the rest. The _total_ income that income tax is now levied on is nearly L600,000,000.

We need not be surprised at the productiveness of the income tax. A man of L10,000 a year pays tax on that. But he has a steward on L300 a year, he is worth to his firm of lawyers L100 a year, and so on: these pay income tax on the L300 and the L100 over again. When the income tax is carried down to incomes on L1 a week, the tax will be levied on the same income over and over again. Even a spendthrift with L10,000 a year usually scatters more than he actually destroys.

Lastly, It has not been overlooked that there is an income tax now: and if the whole proceeds of the sixteen-pence income tax were used to fill up the deficiency in customs and excise, then we have to make up a deficiency equal to the present proceeds of the income tax.

This might be done (to start with) by the National Property Rate now to be suggested. But the expectation is, that with Universal Free Trade, and the tremendous stimulus thereby given to commerce and manufacture, the National Income would rise with a bound, and that in two or three years a much lower rate than sixteen-pence income tax in the pound would supply the amount of all the indirect taxes abandoned.