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as to the amount of income available for taxation, but also as to the proportion in which different classes should contribute to the revenue. That no official investigation has hitherto been attempted is due partly to the inveterate English prejudice in favour of empirical and hand-to-mouth methods, and partly to the difficulty of the subject-for it bristles with difficulty of every kind. What private investigators, however, like Sir Bernard Mallet before the war in his British Budgets and Sir Herbert Samuel in his notable address as President of the Royal Statistical Society in 1919, have attempted with a certain measure of success, would certainly not be beyond the competence of a small body of experts, aided as they would be by important recent studies, such as those of Sir Josiah Stamp and Dr Bowley on national wealth and taxable capacity.

We have laid some stress on this aspect of the question because, as Sir Herbert Samuel observed in the address just referred to, we cannot say whether the burdens are justly distributed unless we first know what they are'; and because the presumption of an equitable distribution of the present heavy burden will always be a dominant consideration with Parliament and the politicians who are responsible for our finances. But it is only a first step; and any conclusion to which it pointed would require qualification in vital respects. It is quite possible that an analysis of the primary incidence of the taxes might turn out to conform pretty closely to the theoretical standards of ability' or 'taxable capacity' which have so largely influenced our fiscal legislation since 1907; it might appear that the burden has been duly placed on the shoulders of the 'strong' rather than of the weak,' and that a great revenue was thus being raised without obvious friction or injustice to any class of the community. Yet, all the time, factors might have been left out of account which would give a very different picture of the actual results of our fiscal

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Of all the results of excessively high rates of direct taxation the most serious is the appropriation of so great a proportion of the larger incomes from which in the past industrial capital was accumulated, and which has been made possible by the adoption of the principle

Vol. 239.-No. 474.

I

of graduated or progressive taxation. This principle is indeed defensible on grounds of economic theory, but its liability to abuse in a democratic community goes some way to justify the opposition to it in past days by the adherents of the 'proportional' method. Used in modera. tion, as a means of increasing,the yield of a direct tax without inflicting more hardship on individuals in possession of the larger incomes than the payment of an infinitely smaller tax inflicts on the poor, progressive taxation has obvious merits; but if pushed to excess it has one serious drawback in the eyes of those who look on the accumulation of capital wealth as a boon and indeed a necessity. Available statistics seem to be inconclusive as to how far the national income has, partly e from this cause, been redistributed in recent years in the direction of increasing the number of the smaller incomes at the expense of the larger; but the balance of opinion indicates that this has occurred, and, in so far as it has, the surplus saved for industrial investment, for renewal of industrial plant, and for the supply of fresh capital to provide for expansion of business and for the employment of an increasing population will have been encroached upon; since it is an established truth that effective saving comes principally from the really large incomes. Taxation alone must have diverted from these channels a very large proportion of the amount available for them before the war. It is enough to note that the net receipt of income tax and super-tax has risen from 47,000,000l. in 1913-14 to 400,000,000l. in 1920-21. If there is one point on which both the business world and the economists are agreed, it is on the paramount need for the accumulation of great supplies of fresh capital from yearly savings, if this country is to survive industrially and to continue to support a population which has fai outgrown the natural resources of two small islands This therefore is the point, not at all in the personal interest of wealthy individuals, but in the interests of the masses of the people, to which inquiry should princi pally be directed. If it should appear that the life-blood of industry were being drawn away in excessive taxa tion, the present rate of income tax and death duties, o anything like them, would stand self-condemned. For if the country can no longer finance its home industrie

or its foreign trade, it is very certain that its industrial downfall is at hand, and that in twenty years or less the population will have been reduced by starvation or emigration to perhaps less than half its present

The signs that the rates of income tax, super-tax, and death duties are excessive are too numerous and well attested to be disregarded. Who has not heard of persons with incomes large or moderate seeking every legitimate device to avoid income tax? They register private estates as companies; they create trusts for the maintenance and education of their children; they divide their property as largely as possible between their sons; in too many cases they transfer their permanent domicile outside the kingdom; while British companies doing business abroad are being wound up and re-registered in some foreign country to the detriment of industry at home. It is a well-known fact that large super-tax payers are frequently unable to meet the demand for the duty, and it is significant that in such cases the Revenue authorities are glad to get what they can on account and refrain from proceedings to sell up defaulters. As regards the Estate Duty and other Death Duties the so-called evasion is notorious, but does not prevent the rapid breaking up of landed estates. The operation of these duties has materially contributed to the agricultural revolution which has been accomplished-not, it is to be feared, to the advantage of the agricultural industry or the agricultural population. The burden of the death duties upon the highest incomes, translated into terms of an annual charge on income, was, as Sir Herbert Samuel showed in the address above mentioned, equal in the period 1903-4 to 1913-14 to that of all the other taxes combined; with income tax and super-tax at their present much higher rates it now amounts to more than a quarter of the whole. We doubt if the general public in the least realises that of these large incomes over onehalf is paid away in income tax and super-tax, and if death duties in terms of income are included (as they should be) something like two-thirds. If therefore it is true that the bulk of effective saving for investment and capital accumulation comes from these incomes it is clear that the first measure of relief should be applied to the

hundred million pounds or so annually produced by the super-tax and death duties.*

The death duties have become too firmly embedded in our system of taxation, and the idea that the State has a right to share in a dead man's estate, before any of the successors or beneficiaries, is too consonant with democratic theory on inheritance to encourage any hopes of successful attack on the principle. Yet in practice they have probably become more harmful and oppressive than any other single form of taxation in proportion to the revenue they produce. In the early days, indeed, of Sir William Harcourt's institution of the death duties in 1894 there was much to be said in favour of a tax which automatically provided the element of differentiation between earned and unearned income then lacking in the income tax, and which brought in a moderate revenue without essential hardship upon individuals and without encroaching unduly upon capital resources. Even in the days, however, before this reform, when death duties were bringing in some ten millions a year, the late Lord Courtney deprecated a great enlargement of these duties, as compared with income tax, on the ground that they were taken out of the capital of the country for current expenditure. They now take similarly nearer fifty millions, and authorities like Sir Felix Schuster have consistently maintained that, if these duties must still be maintained, their produce should be strictly ear. marked to the reduction of the capital of the Debt The late Lord Goschen put his finger on the real objection to the systematic graduation then just introduced-an objection not to the principle but to its application-when he pointed out that there were no 'stages' or 'landmarks' to 'guide you as to where you ought to stop.' When he proceeded to remark that it would be bad finance to set any tax so high that every body sets about thinking how he can evade it'; that if it were desired to cause a distribution of property during life, the Chancellor of the Exchequer ought to finance for the Exchequer and not for social reform' that dispersion of capital did not necessarily mear

The super-tax in 1920-21 produced 55,700,000l. and the death dutie just over 47,000,000.

social reform,' and that 'a tax equal to ten years' net income must have a disastrous effect upon landed estates'; he uttered truths which, though they may have appeared far-fetched in 1894, have been more than justified by subsequent developments.

It is too late, however, to argue against principles like graduation, or progression, or differentiation in taxation; principles which may be sound enough, as we have said, if applied in moderation, and indeed necessary whenever the demand for revenue rises to the level required by highly organised civilised States; but the question for practical men now is whether, under the influence of economic theory and political prejudice, these principles, so easy to apply in a country in which capital and property are still concentrated in comparatively few hands, have not been carried to such an extreme as to threaten the whole basis of our industrial and commercial system.

The Income Tax Commission of

What

Wholesale evasion is admittedly a primary test of the validity of a tax. 1919, in a somewhat perfunctory treatment of the question, acknowledged that considerable loss of revenue was caused by 'fraud, negligence, and ignorance,' but it is more than likely that perfectly legitimate evasion accounts for a great deal more loss of revenue. is wanted is a fresh examination, not merely from the point of view of how to tighten up collection, of all these sources of revenue in the light of the most recent figures of assessments and net receipts, in order to discover how far their productiveness is being affected by the present conditions, and to test the truth of the contention (or rather the deliberate conviction) of the whole business world that a considerable reduction and simplification of these imposts is an essential preliminary to any genuine revival of confidence and eventual prosperity.

tions. We are by

Any attempt in this direction would, of course, be described as a reactionary measure intended to transfer the burden from the financially 'strong' to the weak. We should refuse to be alarmed by any such accusaactual incidence of the taxes as raised at present is no means prepared to admit that the so favourable to the wage-earning classes as it would appear to be, or that the fact that they contribute ostensibly only about one-fifth towards the tax revenue,