CHAPTER I THE INCOME TAX IN GERMANY §1. The Taxes on Product and the Prussian Class Tax of 1820 THE characteristic feature of the German fiscal system during the first half of the nineteenth century was the taxation of product. The medieval system of the general property tax had long since broken down and disappeared in Germany as everywhere else. The general property tax had gradually split up, and instead of being levied on the individual himself who was responsible for his entire property, had come to be assessed on the things or the particular constituent elements of property. With the gradual slipping of personal property out of the assessment list, and with the disinclination of the large land-owners to subject themselves to high taxation on real estate, the direct taxes were now in the eighteenth century supplemented by a system of taxes on expenditure, which ordinarily took the form of a general excise. In the meantime, the custom had arisen of assessing property on the basis of the yield or product, rather than of the selling value.1 Thus the old general property tax was replaced by a system which attempted to reach the various elements of product. In almost all the German states the system comprised taxes on land and on buildings and in some instances taxes on business also. At the beginning of the nineteenth century an effort was made to round out the system by adding other taxes on product, such as the tax on wages and the tax on interest or funded capital; and in proportion as the taxes on produce were developed, it became possible to reduce the general excise. 1 Cf. A. Kölle, "Zur Entstehung der Ertrags- und Katastersteuern in den deutschen Staaten," Finanz Archiv, vol. 16 (1899), pp. 477–496. -- Before long, however, and in fact in some cases almost from the very outset, unofficial opinion came to the conclusion that neither a system of taxes on product, despite certain advantages of its own, nor a system of taxes on expenditure availed to respond in all respects to the newer ideas of ability to pay, which under the influence of the modern industrial and political system were gradually permeating the public mind. Accordingly, we now find an effort both to diminish the burden of the exaggerated excises and to modify the taxes on product by a return to some method of personal taxation which should be able to reach the wealthier taxpayers. The form which this personal taxation ultimately assumed was the income tax. Hence the fiscal history of the nineteenth century in the German states is a record of the gradual disappearance of the general excise, the elaboration in some places of a complete, well-rounded system of taxation on product, and the gradual introduction of a system of taxation of personal income, at first supplementing, and finally replacing, the older methods. By the end of the nineteenth century this process had been fairly well worked out, although it was not entirely completed everywhere. The tempo of the development, however, has naturally varied in the different states.1 In Prussia, which we shall naturally discuss first as the most important of the German states, the tax on product had been only partially developed, and the consumption tax played the greater rôle.2 The Prussian system, in the form which 1 For a general account of this development during the nineteenth century, see von Heckel, Die Fortschritte der Directen Besteuerung in den Deutschen Staaten. Leipzig, 1904. Cf. also, for a more succinct account, the same author's Lehrbuch der Finanzwissenschaft, vol. i, 1907, pp. 217–338. See also in general Wagner, Finanzwissenschaft, Vierter Theil. Die Deutsche Besteuerung des 19. Jahrhunderts. Leipzig, 1899. For brief surveys, see Conrad's Handwörterbuch der Staatswissenschaften. 3d ed., Jena, 1909. Cf. esp. sub verbo Einkommensteuer. For the last few decades numerous articles on various phases of the subject will be found in Schanz, Finanz Archiv. 2 For the fullest account of the early period of Prussian taxation, see K. Mamroth, Geschichte der Preussischen Staats-Besteuerung, 1806-1816. Leipzig, 1890. Cf. C. Dieterici, Zur Geschichte der Steuer-Reform in Preussen von 1810-1820. Berlin, 1875; J. G. Hoffman, Die Lehre von den Steuern. Leipzig, 1840; and had been given to it especially by the Great Elector, consisted of two chief parts; the so-called direct contribution, which was a land tax levied only in the rural districts, and the general excise, or so-called universal excise, which consisted of a system of taxes on consumption applicable to the towns. There was also a small general tax on salt. In the land taxes there were all kinds of exemptions, especially for the nobility, and all manner of variations in local administrative methods. In the towns the burden was felt especially by the poor and by the lower commercial class. The period which opened after the peace of Tilsit was marked by efforts at reform. The introduction of the modern system of freedom of commerce, which led to the gradual breakdown of the guild system, not only destroyed, in part at least, the opposition of town and country, but created a demand for the liberation of industry from oppressive taxation; and at the same time the growing movement toward greater fiscal equality brought into prominence the idea, voiced by the French Revolution, of taxation according to ability or means Thus a double tendency disclosed itself: on the one hand the attempt to abolish the existing privileges and exemptions in the land tax as well as to make it uniform throughout the state, and in the second place, the effort to reform the excises by reducing the number of articles liable to taxation, and by supplementing them by some form of direct taxation. was, however, only by slow degrees that these reforms were accomplished. It In 1810 the movement was initiated by Hardenberg through two enactments. One of these attempted to concentrate the (1) excises upon a smaller number of commodities. But the R. Grätzer, Zur Geschichte der Preussischen Einkommen-und Klassensteuer, 1812-1851, Berlin, 1884. For the later period an excellent work is that of Fuisting, Geschichtliche Entwickelung der Preussischen Steuersysteme und Systematische Darstellung der Einkommensteuer. Berlin, 1894. Many details will also be found in Adolf Held, Die Einkommensteuer. Finanzwissenschaftliche Studien zur Reform der Directen Steuern in Deutschland. Bonn, 1872. A good survey for the earlier period will be found in J. A. Hill, "The Prussian Income Tax," Quarterly Journal of Economics, vol. vi (1892), pp. 207 et seq. necessities of a large revenue compelled a corresponding increase in the rate of the excises which were retained. Moreover, some of the old taxes on consumption, as well as some new ones like the grist or meal tax (Mahlsteuer), the meat or slaughter tax (Schlacht- und Fleischsteuer), and the taxes on beer and brandy, were now extended to the rural districts. (2) In the second place, a general business tax (Gewerbesteuer) was introduced and made applicable throughout the entire state. This endeavor to put town and country on an equality led to so much opposition to the grist tax, especially on the part of the farmers, that in the following year, 1811, the old distinction was reintroduced in a modified form. The reformed excise and the new consumption taxes were now limited to the larger towns, while the rural districts as well as the smaller towns were freed from the unpopular grist tax, and were made liable to the slaughter, beer, and brandy taxes, at a much reduced rate. As a compensation for the loss of revenue, however, the rural districts and the smaller towns were now subjected to a so-called direct personal tax, which was in effect an annual poll tax of one-half a thaler (37 cents), for every one over sixteen years of age. Thus was introduced the entering wedge of personal taxation. The troubles of 1811 and 1812 led, both in Prussia and elsewhere, to some merely temporary expedients. In 1811 a class tax was imposed, which was replaced in 1812 by a socalled income and property tax. The income tax was levied at the rate of five per cent on all incomes over 300 thalers, while the property tax, which was in part a forced loan, like that of France during the Revolution, amounted to three per cent. These war measures lasted only a short time and were repealed in 1814. The income tax was never considered a part of the regular system; and its great unpopularity was to produce unfortunate consequences later on. The conclusion of peace brought with it substantial additions to the Prussian territory, each with its own system of taxation. As a consequence, a not altogether successful attempt was made to bring about greater uniformity in taxa |