about two and one-half centuries; and if the condition of human life permitted the Right Honourable Gentleman to extend his parliamentary career to a period as lengthened as that embraced by the Crusades, I am sure that at the end of two centuries and a half he would still be found arguing with undeniable force, and all his clearness of demonstration in favour of his plan for the reconstruction of the income tax.” Gladstone, indeed, did not deny the inequalities of the tax. "I do not contest one of them," he said. "I make a whole armful of concessions to him. I will not accuse him of exaggerating those inequalities; it is hardly possible to exaggerate them." But he stood by his speech of 1853, and stated that he agreed with every important official of the department in regarding the scheme "as a wholly visionary project, though no doubt philanthropic and benevolent in intention, and as absolutely impossible of practical application." Hubbard discussed the entire episode in a pamphlet the following year, in which he accused Gladstone of "cynical injustice to the demoralizing influence of an unequal and oppressive impost," and in which he put upon Gladstone the responsibility of "intensifying every one of its crying anomalies." He concluded with the statement that "the futile pretexts on which finance ministers have resisted the adjustment of the tax have vanished."2 Yet such was the glamour of Gladstone's name that it took another two decades before the force of these "futile pretexts" was overcome. In the twenty years following the change in the law. of 1874 mentioned above,3 a few important alterations were made. In 1876 the limit of absolute exemption was again raised, this time to £150, and an abatement of £120 was granted on all incomes between £150 and £400. In 1878 incomes under Schedule B were allowed such deductions for depreciation and for the wear and tear of machinery and plant as the Commissioners might think "just and reasonable.”1 In 1880 the Taxes Management Act, which summarized and reenacted existing administrative provisions, introduced a new instance of appeal. In all cases of appeal by the General or Special Commissioners, either appellant or the surveyor might henceforth require the Commissioners to state a case for the opinion of the High Court on questions of law. Further appeal might then be taken to the Court of Appeals, and finally to the House of Lords.2 The same law authorized the Board of Inland Revenue to increase the number of General Commissioners from seven, as fixed in the year 1842, to fourteen. In 1885 the control over incomes from foreign and colonial securities was rendered more effective by including in the list of persons intrusted with the payment of such dividends or interest, and required to make returns to the government, dealers in bills of exchange and dealers in coupons who purchase foreign coupons from any one excepting a banker.1 In 1887 it was provided that farmers, i.e., persons occupying land for purposes of husbandry only, might henceforth elect to be assessed under Schedule D instead of Schedule B, that is, on actual profits, instead of on an assumed income.5 This, it will be remembered, had been a source of complaint as far back as 1808. In 1889 the exemption accorded to friendly societies for dividends and interest under Schedule C was extended to their income from real estate under Schedule A.7 In 1890 an important alteration as to losses was introduced. In the act of 1842, as in its predecessors, losses could be deducted only. if they were particular losses, whereby the profits of the business, for instance, were diminished. Now, however, where business men or farmers assessed in Schedules D and B sustained a general loss, i.e., a loss on the total result of all business operations, they might secure a deduction if they applied within six months after the year's assess ment.1 In 1891 the poundage which had been abolished in 1866 and reintroduced in part by the Taxes Management Act of 1880 was finally done away with.2 It was hoped in this way to diminish the suspicion on the part of the public that the more the officials could extort from the taxpayer, the more he would be paid. In 1893 so much of the income of trade-unions as was employed for benefits was exempted in Schedules A, C, and D, provided the amount of benefit did not exceed £200 or the amount of annuity did not exceed £30.3 All these changes tended to smooth away some of the existing inequalities, and to render the machinery of the tax more efficient and more productive. §3. The Emergence of the Newer Problems, 1894–1904 With the beginning of the nineties we enter upon a new and modern epoch of the income tax. The income tax in an improved form had been adopted in Italy; it had been practically reformed, and was becoming a vast fiscal resource in Germany; and it was being discussed in many other countries as an engine of social progress. In England its administration had been so perfected that not only was it now generally accepted as a permanent and necessary part of the revenue system, but the complaints against it were fast disappearing. In 1891, indeed, we still find a suggestion that permission be given to the taxpayers to buy themselves free of the income tax by a method of composition. Such expressions of opinion, however, were now becoming rare. Sir John Lubbock, who at one time had vigorously opposed the tax, now stated that "we must recognize it as a permanent portion of our fiscal system."5 Blunden, who had called attention to 1 53 and 54 Vict., c. 8, sec. 23. 2 54 and 55 Vict., c. 13; and 55 and 56 Vict., c. 25. 3 56 and 57 Vict., c. 2. 4 Redemption of the National Debt by Composition of Income Tax. By R. Printed for private circulation. London, 1891, pp. 18–21. 5 Sir John Lubbock, "The Review, vol. 158 (1894), p. 150. Income Tax in England," North American the undeniable fact that the income tax was not a product of theoretical economic science [in England], and who was by no means blind to the difficulties involved in Schedule D, explained the continued existence of the tax as due to its "merits which distinguish the income tax above the other taxes, as a fiscal resource for great emergencies." Blunden was still so much impressed by the old arguments of Sir Stafford Northcote that he defended the tax chiefly on the ground that "its potentialities for the hour of need are so great, so valuable, and so unique, as to justify its permanent retention in the British tax list, and to insure perfect readiness and efficiency for the emergency, its constant use at a minimùm. rate is indispensable."2 Public opinion, however, as we now know, had by this time advanced beyond this position. The real problem that now attracted attention was not only the old one of differentiation, but the new one of graduation. Although the principle of progressive or graduated taxation had occasionally been advanced in England by radicals, as the preceding pages have shown, it had been uniformly reprobated not only by all English statesmen, but by the great mass of important British thinkers. In the early eighties Mr. Labouchere had hinted at the probability of a progressive income tax, only to have it criticised by a commentator as "a preposterous and impossible system of finance." 5 Another writer maintained that such a scheme "would be indeed fatal to the whole spirit of our commerce and manufacturing energy.' 116 A gradual change was, however, coming over the public mind, and by 1894 the Chancellor of the Exchequer, Sir William Vernon Harcourt, de 1 G. H. Blunden, "The Position and Function of the Income Tax in the British Fiscal System," The Economic Journal, vol. ii (1892), p. 642. 2 Op. cit., pp. 650, 651. 3 For a general review of the arguments, see Seligman, Progressive Taxation. 2d ed., 1908, Historical Appendices. 4 " A Democrat on the Coming Democracy," Fortnightly Review, March, 1883. 5 The Economist, March 10, 1883, p. 284. On the Incidence of Taxation, as affecting Different Classes in the United Kingdom at the Present Time. By Investigator. London, 1883, p. 23. Although he clared himself a convert to the new doctrine. applied it to the new death duties, he refrained from extending the principle to the income tax, simply on the ground that he did not yet see his way to perfect the practical details. In his budget speech of April 16, 1894, he conceded that "in principle there is nothing to be said against such a system; indeed, there is every argument in its favor. The difficulties which lie in its way are of an administrative and a practical nature, which as yet I have not been able to find means to overcome." 1 He sought, however, as far as possible, to effect a part of the scheme by an elaborate change in the system of abatements and exemptions. He proposed to fix the limit of total exemption at £160; to have incomes between £160 and £400 receive an abatement of £160; and to have incomes between £400 and £500 enjoy an abatement of £100. The act of 1894 carried out these recommendations,2 and also adopted two other changes, one of minor and one of major importance. The minor alteration was the exemption of the income of savings banks, chargeable under Schedules C or D, so far as this is applied to payments of interest not exceeding five pounds for each depositor. The important change affected Schedule A. It had long been complained that real estate had been assessed in Schedule A at its gross, instead of its net, income. Under the new act it was provided that the assessment might be reduced by one-eighth in the case of farm lands with buildings thereon, and by one-sixth in the case of other buildings, so as to permit deductions for repairs. This was recognized as at once a substantial concession to the landowners and a decided improvement in the theory of the tax itself. Finally, in Schedule B the charge was now equalized in the whole of Great Britain. Up to this time, it will be remembered, the rate of duty in Schedule B was in England one-half of the rate in Schedule A, and in Scotland and Ireland about one-third. Now the rate was made uniform, being fixed for the year at 3d. in all three countries, as against 8d. in Schedule A. 1 Hansard, 1894, p. 502. 257 and 58 Vict., c. 30, secs. 34-38. |