It is certain, however, that a large part of the improvement is due to the increasing value of advantageous sites, an unearned increase of value such as Mr. Mill speaks of, and therefore a kind of profit which the State may restrict with least harm.
— ROBERT GIFFEN, Essays in Finance, 1st Series (1871), Chap. X., p. 244.
The rise in value which the industry of others providentially gives to the land of the wise and good.
— W. D. HOWELLS, A Hazard of New Fortunes, Part IV., Chap. 3.
TAXES ON LAND."
* Written in 1871.
in "Essays in Finance" (1880)
A curious and instructive collision has just occurred between a bold and comprehensive project in the application of political economy, and one of those traditional cries in English politics which originate in some class interest, or in circumstances quite different from those which now exist, and yet colour strangely the discussion of practical reforms. I refer to the proposals of the Land Tenure Reform Association on the one side, and the agitation against local rates, or rather against the burdens on land, on the other. There could not be a wider divergence of ideas and aims than what is here discovered. The Association addresses itself directly to one of the gravest questions which can come before an old and crowded community — the question, namely, how the ownership and occupation of its narrow area should be regulated. It challenges the complete applicability here of the rule of absolute ownership which is found expedient as regards other property, and proposes, among other restrictions, that individuals who are allowed to have exclusive possession of any part of the national soil should be specially taxed. In this way, it is argued, the whole community may benefit in some degree from the competition which is inevitable when a large population is crowded into narrow room. The proposal has at least the merit of coming down from philosophy to practice, and raises in a suitable manner a question of the first importance in a democratic society, where the political power is in the hands of masses who are not the possessors of the soil. The opposing cry — that the possessors of land, or that land itself, are already unjustly burdened — is of a very different kind. It has long occupied a principal place in the party politics of England, though perhaps it was never louder or more persistent than it is now. But it is based upon no great principle. Apparently it began when all taxation was heavy, and when the possessors of land, from their political influence, had a peculiar power of making themselves heard; and it has descended to our own day, partly from habit and partly from keen self-interest, the promised gain to a class from any material change being, as we shall see, very great. But whatever its history, it springs evidently from the lowest practical side of politics — the exact opposite of the rival agitation. In discussing, as I now propose to do, the question on which this collision of opinion occurs, it will probably be useful to keep in mind the contrast which is here presented. Some good may be done by bringing scientific principles to bear on the traditional cry against rates, and by confronting the philosophical principles of Mr. Mill, and of the Association whose programme he expounds, with the practical facts and difficulties of English finance.
It will be convenient to examine, first, the traditional cry. While a good deal has been said and written on the economic theory by which the proposals of the Association are supported, the means of reducing it to practice have only been discussed in the most general terms. If we begin with a question in the practice of English taxation in this matter, we shall obtain a near view of the field to which the theory must be applied. On the other hand, the indigenous discussion, as it may be termed, is most confused; and progress will be difficult till the confusion is cleared up.
The confusion is at the very beginning. It is difficult to get an exact statement of the grievance of which so much is made. The common mode of speech is something like this: — that land, or real property, has to bear more burdens, in proportion to its value, than any other kind of property. Lord Salisbury, Sir Massey Lopes, and a hundred others, have rung the changes on this theme during the last few months; and I have read not a few laborious estimates of the personal property in the country, and the burdens upon it, got up for comparison with the more accurately ascertained facts as to real property and its burdens. But what is meant by real property bearing burdens is found on examination to be far from clear. The case is sometimes argued as if the burdens were in the nature of an income-tax upon the owners of property, and the rate of the fax is contrasted with the rate which falls on incomes from personal property, or on incomes which are not from property at all; but at other times there is evidently some vague notion that property, as such, should be equally taxed, and that the rule is broken in the case of land. Confused as the statement is, we must take it as it comes, and inquire into the principles it assumes.
Whichever alternative we take, it must strike every student of finance that the principle laid down does not make out the case, even if the facts are as supposed. In either case it is a misapplication of the real doctrine of equality in taxation which political economy lays down. Taking the first alternative, that it is the owners of real property who pay a larger income-tax than others, it is no doubt true that each taxpayer should contribute according to his ability; but it would not follow that a special income-tax on a certain class would offend against the maxim. If this were so our present income-tax would be grossly unjust, for the masses of incomes are exempt. Theoretically, however, it is obviously quite possible that to produce the final result it may be necessary to tax some sort of incomes exclusively, or more than any other sort. Say, for instance, in a country where a large part of the taxation is raised by duties on articles of geueral consumption, and is therefore borne by the masses of the people, and another large part by an income-tax which in conjunction with the other taxes falls with peculiar weight on the lower middle class — clearly, in such a community there might be some reason for a third set of taxes designed to fall on the classes more or less exempt from the other two branches of taxation. And if these classes possessed almost exclusively some special kind of property, a tax on that property, supposing it could be made to fall on its owners, would be the very thing to redress an existing inequality. I am only supposing a hypothetical case; but it is enough to show that inequality of burdens on different kinds of property is no part of the theory of taxation.
If we take the other alternative, which makes no assumption that taxes upon a particular sort of property fall upon the incomes of the owners, the theory of the grievance will even appear absurd. How can it be supposed that there is any principle of political economy, when one sort of property is taxed, requiring all property to be taxed alike? Ex hypothesi, the ultimate incidence of the tax is not upon the owners of it, and before deciding to tax all property equally it would be necessary for a legislator both to weigh the immediate effects of his measures and the object he wishes to arrive at. In point of fact, the considerations which induce a legislator to impose or retain special taxes on property will induce him to tax some kinds and let others be exempt. As with taxes on the profits of a particular trade, with which a tax on property may be classed, his object will either be to impose some charge on the general consumer, in which case the tax will fall to be dealt with as one of the many taxes on consumption, or he will select some trade in which the limitation of the area of profit — the tax not being charged to the consumer — will produce the minimum of inconvenience to the whole community. The particular tax will not be unjust per se, but its injustice will be determined by the nature of its ultimate incidence, and the extent of its hindrance to business as compared with other taxes. Such considerations have hardly been touched on by those who complain of unequal taxes on property, but they are essential to the question when the so-called burdens on property are not of the nature of an income-tax upon its owners.
What has been said may be enough to prove the great imperfections in the statement of the grievance under discussion. It may be useful to note, however, that in the actual circumstances of England, on the principles suggested, there is a violent presumption in favour of existing taxes on property or profits. They are not likely to be objectionable on any of the grounds suggested. The reason is that they are the last of a heavy burden of a similar kind, and the fact that they are the last is so far a proof that they have been distributed — that if the persons who pay them suffered at one time, they have long since been compensated. Any long-continuing tax on profits tends to adjust itself, but in the case of England during the last thirty years the adjustment has been favoured by the remarkable growth of the country under the stimulus of the removal of other taxes. The limitation of the profit area caused by the tax has been more than made up by the general progress. Unless, then, there is some overwhelming objection, or some greater good to the whole community would result, such as comes, for instance, from a larger reduction of Customs duties, it would even be inequitable to remove these old taxes. To do so would be simply to mate a present of a capital sum to the followers of some particular industry or the owners of some particular property. They have already shared to the full in the general prosperity of the community caused by the lightening of taxation, and now they would obtain in addition the capital value of the tax which they do not really pay, since its burden has been transferred.
There can be no objection, besides, to special taxes on real property, on the ground of their hindrance to trade. Land-owning is so simple a business, that it is divorced from the very notion of trade, and considered a special occupation for trustees and widows and orphans. So simple a business can hardly be checked by a few plain conditions. The objection of hindrance to trade is also compensated by the consideration that the business itself is in the nature of a monopoly. The abolition of brewers' licences was objected to for this among other reasons, that the business had become practically a monopoly in a few hands; to abolish the licences would have been to put money in the pockets of a few without any real chance of its reaching the public. The passenger duty on railways is defended for a similar reason. The duty, it is said, is only a way by which the State reserves to itself the share of a monopoly. This may be wrong as regards railways, but the principle of the reasoning is obviously sound. Now land-owning is, beyond all other callings, in the nature of a monopoly. The whole quantity in a particular country cannot be increased, and there are besides hundreds of specially favoured spots. As regards land, therefore, that condition exists in the highest degree of force, which makes it probable that any abolition of a tax on profits would not benefit the community.
We are thus a long way from the proposition so confidently assumed, that all property should be taxed alike, There are many questions affecting the regulation of special taxes on property of a very different order. We may look, then, at the particular taxes which form the gravamen of the complaint, and see what portion, if any, offend against the true principle of equality in taxation, by pressing unduly on' some classes of income, and which of them, on other grounds, are liable to objection.
The maximum taxation which can form the subject of this inquiry appears to be, from Mr. Groschen's recent report: —
||Stamp duties on deeds
|Probate and succession duties
Besides these there is the income-tax, which the owners of real property pay like all others; but this is not an exceptional impost on income, and the only question here is of exceptional burdens.
The total of taxation affecting real property looks very formidable. In fact, it is nearly one-third of the entire taxation of the country, imperial and local, and amounts to a charge of about 3s. per pound on the estimated annual value of the property in the country.* But the moment we examine the items, we find how little reason there is to suppose that the burden is of the nature of an income-tax on the owners of real property, or that any part is of such a nature as to raise an overwhelming objection against it.
1. The stamp duties on deeds may very well be left out. The heaviest of them is a half per cent. ad valorem charge on the sale of property, a charge which is borne by many kinds of other property as well; and even a half per cent. charge is a hardly perceptible tax. It is sunk in charges of much greater magnitude, which always take place at sales. In any case, the incidence of stamp duties is so peculiar, that it cannot be said to affect a class so much as individuals of a class, and these unevenly amongst each other, in comparison with the amount of the duties. "Where they are not defensible as a minute charge on transactions, like the receipt and cheque stamps, as I think they may perhaps be now in the case of real property, though it was not always so, there would be a case for their reduction, so as to make them minute enough for the purpose. In that case they would cease to be taxes which could be set off against others in a question of comparative taxation. It would be a mistake, however, in the meantime, to make their existence a ground for interfering with some other impost.
2. The probate and succession duties appear to me also to be a tax sui generis, with which no others properly come into comparison. I have to discuss them afterwards; but the distinguishing peculiarity is apparent. They are charges upon a very special extension of the ordinary rights of property, its bequest or descent after death — an extension which necessitates the direct intervention of the State; and as such, the burden which they constitute cannot properly be weighed with burdens of a different nature. If it is discussed as a charge upon a particular description of property, the difficulty at once arises that it is most unequal and severe. Some owners escape with hardly a charge, while others, who own no more, have much to pay. The only plea by which it can be defended, therefore, is that the Acts in respect of which it is levied — the authorisations given by the State to the transmission of property from the dead to the living — furnish occasion for a wholly exceptional charge. In any case, so far as the probate and succession duties are a tax upon real property generally, it will not be denied that they are more moderate than the corresponding imposts upon other property and its owners.
3. The land tax, which is next on the list, should equally cause but little controversy. It is persistently claimed as a burden upon land or landowners; but this will not bear scrutiny when we inquire out of whose income the tax is paid, or what way it causes pressure, so that its reduction or abolition would be a benefit to the community. As a fixed charge upon land for generations, it is now past all controversy a rent-charge. In many instances it has long since been redeemed, the property having subsequently changed hands; in others, inheritors of property have acquired it under the burden, and have calculated their income minus the tax, while purchasers, in buying, invariably allow for it. To reduce it now would be to present the landowners of England with a capital sum of nearly £30,000,000. Their estates, relieved of the burden, would become at once so much more valuable, and if they did not sell, they would pocket an additional income which they never inherited or paid for.
There remain the house duty and the rates — still a formidable amount, if they are considered to fall on the incomes of real property owners, or as forming an objectionable tax on profits, notwithstanding that the burden is shifted to the consumer. We may class them shortly as rates, the only difference being that the house duty is a fixed rate limited to certain descriptions of property, whereas the rates apply more or less to all real property, though in fluctuating proportions. But what is the incidence of these rates? Are they, in the first place, an income-tax on the owners of real property? There is one very short answer to this question. If they were an income-tax there is none more outrageously unjust. Most properties, we are told, are incumbered, often heavily incumbered, and the residuary owner, as we may call him, the man who would benefit by a reduction of the rates, has often but a barren interest. Measuring the rates with his income from the property, they might be ten or fifteen shillings in the pound. Is it possible to believe that the owners of real property are subjected to any such income-tax? The inequality in itself suggests that the incidence of the tax is different — that the burden is on the property and not on the individuals who have incomes from it.
The question remains, however, whether the rates are on other grounds objectionable. And here it should be noticed that it is by no means unanimously admitted that they are burdens on the profits of land-owning at all. A large party maintains that to no inconsiderable extent they really are passed on to the consumers — in the country districts, farmers, who pass it on as a deduction from their farming profits; and in towns, the class of occupiers, who both pay it and ultimately bear it. But granting that this transference does not take place to any material extent — a view, I am willing to admit, which I am disposed to agree with — granting that in consequence the whole or most of the charge falls on the profits of owners, are the circumstances such that they have any cause for complaint? The answer is that in the lowest view the business is one which has increased enormously, stimulated by other changes in taxation, and that being a monopoly, as land-owning confessedly is, the magnitude of the charge, even if it has been an increasing one, makes nothing against its propriety. Look only for a moment at what the increase of business has been. In 1815 the annual value of real property — in other words, the annual return of the business — was £53,000,000; in 1853 it was £85,000,000; in 1868 it was £143,000,000. At the same time the rates have barely doubled in the last thirty years, and have not doubled if we take an earlier date for comparison.
The improvement it may be said has arisen through the investment of capital, but this statement cuts two ways. If it means anything at all, it would mean that the charge upon the profits of the business checks investment, but nothing of the sort is alleged. The fact that investment has continued is thus a proof that the burden, whatever it is, has still left a large enough margin of profit to induce a resort to this species of business. It is certain, however, that a large part of the improvement is due to the increasing value of advantageous sites, an unearned increase of value such as Mr. Mill speaks of, and therefore a kind of profit which the State may restrict with least harm. The increase of the annual value of house property in the country since 1815 has been £54,000,000, or 356 per cent., although the population has barely doubled. If we estimate that only a fifth of this amount is for extra ground rents — that is, rentals in excess of the value of the area occupied for agricultural purposes — we shall probably be far under the mark. And this is not the only unearned increase of value. Against the large amount of rates therefore is to be set an unearned increase of value which altogether will be of equal amount, and double, perhaps treble, what the increase of rates has been.
Nor does the case as to profit end here. The increase of rental value does not measure the actual increase of profit with which the rating-charge should be compared. It is probably the case that as respects the bulk of property in area, the increase of rental measures the whole increase of value; but there is one kind of property, that in the suburbs of large towns not taken up for building, extending in the case of London in all directions but the east over an area of about eighty miles diameter, where the increase of rental is no measure at all of the increased value. The position of the property is in effect discounted, and it is no exaggeration to say that its real selling value is now double what it would have been ten or fifteen years ago upon the same rental. It would be useless to put any figure estimate upon this increase of value, but it must be remembered as a set-off against "increasing" rates.
The question might well be left upon these broad facts, and the general principles stated, but there are other facts about the rates which affect the question of the business profits on which they are a charge. When we look into them we discover that the increase has been far from uniform geographically, or in respect of the class of property affected. The increase has in fact been confined to that class of property in which the investment of capital has taken place to the largest extent, while as respects the remainder of the property, there has either been a diminution of the burden or no material increase. The inference is, that while the rates where they have increased have not checked investment, there is an immense mass of property which has augmented in value without any proportionate charge upon its profits. The facts speak for themselves. First of all, of the above sum of £16,783,000 of rates proper, there are upwards of £4,000,000 of comparatively recent rates which not only form a charge upon the property in which the investment of capital has taken place, but were mainly intended for the improvement of that property. The remainder, £12,689,C00, is very little more in amount than similar rates have been during the present century, and the rate per pound is less.
|In||1817||the rates were||£10,000,000||or per||£ 3s. 10¾d.|
Thus, as respects a large part of the real property in the country, it is incorrect, strictly speaking, to talk of the increase of rates.
The second fact is, that at time when real property was different in its constituents from what it is now, there was an enormous diminution of the burden, precedent to the subsequent rise in proportion to the value.
|The rates were||£9,500,000|
|The rates were||8,000,000|
showing an actual diminution of about £2,500,000, representing a capital sum of about £75,000,000 in the charges upon the property then existing—a burden which has never since been reimposed, as the rates, including house duty, have only risen in proportion with the augmentation of rent. The relief to the old property has been permanent.
It is thus evident, that while so much has been heard of the increase of rates, the actual fact is entirely different. The increase, such as it was, has been limited in extent, and conceals an actual diminution in the amounts levied upon part of the property which has since never been made good. To complete the statement, we need only ask ourselves what the effect would be of any such reduction of rates as the principles of the anti-rate agitators point to. Consequences are very often a test of principles, the logical result proving the groundlessness of the plea. And this appears to be the case in the present matter. Grant that certain rates* are thrown on the Consolidated Fund, as the most eager reasoners of the party contend, or that they are reduced one-half, which would be the effect of throwing them rateably on all the schedules of the income-tax, what would be the result? It is not difficult to see that in the former case some people would have £11,000,000 a-year, and in the latter case £5,500,000 a-year more than they had before. Possibly it would not all go to the so-called owners of property, for the occupiers would gain where they are dealt with on tenant-right principles; but it may be treated practically as a bonus to owners, and, as such, it is of magnificent dimensions. In the one case, at thirty years' purchase only, it represents a capital of £330,000,000, and in the other of half that amount — all to be transferred to a single class by a few lines in an Act of Parliament! To state such a result is to make the argument absurd. Unless it is to be contended that the State keeps out of the pockets of the class some £300,000,000 which they ought to have now, there is no call to give the money. And if the State inflicts such a wrong, the sooner it pays back what it has exacted, with interest, the better.
Having thus examined the case against existing burdens on land, I turn to the second part of my subject — the claims urged by the Land Tenure Reform Association for securing to the State a share of the unearned increase of value. The inquiry, however, should have prepared the way for looking at the question from the Association's point of view. It has been seen that upon the general theory of taxation special burdens on this particular description of property are not unreasonable, that they are not without analogy in taxes upon trade profits, which no one thinks of altering on the ground that "other property" escapes the burden, or that they are a special income-tax on the people in the trade. It has also been shown that, if taxes on profits are justifiable in any case, the circumstances of land-owning are such as to reduce the hardship of the owners to a minimum when their profits are taxed. The business is a monopoly, and simple in the highest degree, and nowhere else can be found more favouring conditions for a tax upon profits. We are thus prepared for the inquiry, whether so peculiar a business could not be made to bear a larger burden; and for the theory of the Association, that while it is only on grounds of expediency the State permits individual property in land at all, there is no reason of expediency against its limiting that right of individual property by a large reservation in its own favour. If there is any reason in this theory at all, the facts stated will have suggested the magnitude of the value in which the State may claim a share. The augmenting value, on which it is urged the State would have had the first claim under a proper financial system, must have amounted, in the last thirty years, to hundreds of millions sterling.
Now in theory, so far as I can see, there is absolutely nothing to be urged, and nothing has, in fact, been urged, against the principle of the Association. The soil of the nation is primarily the property of the whole nation—the common inheritance of all, regarding which the State, according to its lights, cannot help laying down rules from time to time for the common advantage. There is no other final authority, and if the action of that authority is to be limited by so-called rights, if on cause shown it may not destine the whole land, or any part of it, to any use it pleases, then we have this anomaly—that the most vital necessity of national existence is to be held, not under the direction of the State, but subject to some arbitrary limitations in favour of individuals or classes, based on a superstition of right. In point of fact, as well as theory, no such limitation has ever been admitted by English law. Year after year the national Parliament exercises in innumerable cases the right of diverting some part of the "common inheritance " from one use to another. If it so acts in part and detail, it has clearly a right to take a wider range and exercise its discretion upon the whole" or a large part of the soil of the country. The only question would be whether the particular regulations or uses proposed to it are wise.
And whatever regulations may be objected to, it seems to me that, assuming private property in land to be retained as the rule, the imposition of special charges on it, which will be in the nature of mining royalties, or a reserved rent-charge, or like the casualties under feudal tenures, will be about as innocent a way of limiting the privilege, interfering as little as possible with the individual enjoyment as could well be desired. It leaves untouched the right of exclusive possession, which is the main thing coveted, and merely keeps to the State a charge, which exactly resembles many other charges by which the privilege of absolute possession is limited. Of course the mode of the reservation will be an important matter; but theoretically there is no reason against reserving something.
It may be added that the more progressive a community, the more likely it is that any proper reservation will be little felt as a burden. By the hypothesis, it is in such communities that competition will cause an immense unearned increase of rent and of capital value. There will be a large margin for ground rents of every description, and the State ground rent will be no more felt than the others. So free from hardship will the charge in fact be, that just as the commuted tithe rent-charge and the land tax are no longer felt as burdens by the present possessors of land, the whole charge of the State, when it is carefully studied, will be acknowledged as equally light.
But what form should the charge of the State assume, and how much in the present condition of things, as respects property, business, and population, should the State endeavour to obtain? Clearly, if the phenomena of the last thirty years are about to be repeated — and there is a reasonable chance that they will be, for there is no sign of check to the growth of population or the increase of machinery and inventions — it is much to be wished that a better system should, if possible, be at work than has hitherto existed for securing to the nation a portion of the augmenting value of its soil. The problem, however, is excessively difficult, and I doubt very much whether Mr. Mill's own suggestion, which must be first considered, will be found, as a general measure, to answer the purpose. It is in effect a proposal to go straight to the end in view — that the State should inquire at prescribed intervals what is the augmenting rental of land, and make a charge upon the owners of some definite portion of that augmentation. If there is no increase of rental due to general causes, there will be no increase of tax, and owners who object will have the opportunity of surrendering their estate on what Mr. Mill's enemies must admit will be full compensation. One objection to this proposal is that it is almost wholly novel in European countries, at least where the art of taxation has been most carefully studied, and is least of all fitted for a country in the circumstances of England. Mr. Mill has apparently in view the ideal of the fonder taxes on the Continent, in which the process is for the State at a certain date to impose a lump charge on the whole land of the country in proportion to its estimated value, and then apportion this charge among the various localities and parts of soil in the country, by a carefully arranged cadastre, But there is nothing more tedious in fact than the completion of a cadastre, or unequal when it is completed. Even in France, which has set the example in these fonder taxes, the new cadastre, which was commenced forty years ago, was only completed the other day, and while it was being put into operation the value of the whole land subject to it was changing. It is hardly possible to imagine that even if in England, we could give that attention to the nice adjustment of competing qualities of land or property, which could alone make the basis of French direct taxes endurable, we should be content to await the slow development of a pretentiously perfect, but really imperfect, cadastre for a period of forty years. It is a still more fatal objection that such taxes do not appear to draw. It is officially estimated in France that the annual value of real property has increased since 1821 from £64,000,000 to £160,000,000, which is quite comparable with the increase in England. But while the rates have risen in England from about £10,000,000 to £17,000,000, the special land tax of France has only risen from £11,720,000 to £12,280,000, including the additional hundredths imposed for local purposes, as well as the "principal" of the tax. The special tax of England is thus more elastic and effective than the special tax of France, which is proposed as a model. Besides, if these objections could be got over, if it could be shown that an improved cadastre is easily possible, and is capable of frequent renewal, there would remain the objection that such a tax, so imposed, might interfere with the enjoyment of private property in an inexpedient manner. It would be very difficult to reassure individuals against the operations of the tax assessors. Every few years they would foresee a demand of an indefinite amount, depending on many points of taste and opinion, and they would only have the alternative of paying or surrendering their property to the State. Careful as Mr. Mill is to suggest safeguards, the essential nature of the transaction would be such as to destroy confidence in the continuity of private right in some particular plot of land. The apprehensions might in the main be unfounded, but their existence would be a public calamity, unless the theory is admitted that the abolition of private property would be beneficial, which in some localities it might be.
Turning from this suggestion, I think there is much to be said in favour of our present special taxes on land, imperfect as we have shown them to be. They have permitted the growth of an immense mass of value in the hands of individuals only, and at a very recent date there was a sudden reduction of the burden, by which a small class received a considerable gain. But with all their imperfections they have the merit of elasticity. They are set apart for the discharge of certain branches of expenditure; and, without fluctuating so widely as to disturb property rights, they may be increased materially, and so reserve for the State some portion, however insignificant it may be, of the augmenting value of property. This is no small merit, especially when compared with the model of the continental land taxes, which have no such capacity of expansion. It is an additional convenience that, as the branches of expenditure which are thrown specially on this property are local, local administration and local taxation can be associated. In this view rates are, in fact, a happy English invention, by which different and unconnected advantages are obtained in a rough practical fashion, and as it is a familiar system we have another obvious reason for trying to make the most of it. Could not something more be made of it? It will be of some use perhaps if the discussion of the principles on which the burden is imposed makes it clear that no injustice is now committed — that the support of a certain burden of expenditure is a condition of the enjoyment of the property which the State may properly impose. Every one knows the condition beforehand, and as it is quite a calculable one, notwithstanding the loud talk of the increase of rates, and the addition of new rates, there is no inexpediency in it as a too heavy restriction on the enjoyment of private property in land. But the discussion, I think, may do more, and justify the imposition of new charges which are convenient for local administration. As the tendency of the functions of local government is to increase, and the additional expense has not yet proved commensurate with the increase of the value of property, we have a security in the recognition of this principle, both for the reservation to the State of a part of that value — though, I fear, a most inadequate part — and for the safety of private property against any great disturbance. If I might venture to make a suggestion, there is one new charge which escapes notice, and which might very properly be treated as a branch of local expenditure: the army for home defence ought to be locally maintained. For many reasons it is important that a good deal of local management and self-government should be associated with the organisation of our militia and volunteers, and the charges might very properly fall on the rates. This would not only relieve the Imperial army estimates of a heterogeneous charge, but by really associating localities with the work, would contribute much to the strength and vitality of our home system of defence. There is another way in which something more could be made of the present system. Under the haphazard methods and want of principle which have hitherto prevailed the local rates have gradually been relieved of a large portion of the burden which properly falls upon them. On one pretext or another, the Imperial Exchequer has been drawn on for "grants," amounting annually in England to a million and a quarter, by which the growth of the local burden has been retarded — or, in other words, the individual landowner has been permitted to retain a larger share than otherwise he would retain of the augmenting value of land. Good reasons, I think, have been furnished for putting a stop to this system, if rates continue to be the form of our especial tax. The proper course would now be to institute a mode of discontinuing the grants by degrees, according to a defined scale, and so reimpose on property a burden which it has escaped.
But while the system of rates is preserved and amended, as the principal agency for securing to the State a share in the national soil, there is another mode in which it seems to me a smaller advantage of the same sort may be gained, equally without disturbing the security of private property in land. I have already referred to the probate and succession duties, pointing out the confusion of thought which leads to the share of them derived from land being added in with taxes of different kinds, so as to present a large total of burdens on land. But the rationale of these taxes is so important a part of the art of taxation that, even apart from the suggestion I intend making, I may be excused from returning to the subject and showing how the special nature of these taxes makes it improper to classify them with the burdens on property.
Their distinguishing feature, as has been already said, is that they are a charge for a special intervention of the State — for the authority it gives to the transmission of property from the dead to the living. It is common to consider the bequest and descent of property as mere extensions of the right of private property, but they are not so historically or practically. The reasons which make private property expedient during life do not apply with the same force to the transmission of it at death. It would be difficult to conceive of a large society existing without absolute ownership in the fruits of individual industry, but so long as people are secure in what they earn themselves a very severe strain may be put on the rules for disposing of it at death without endangering the existence of society. Instead of the absolute right of bequest and the unincumbered descent of property to individuals when there is no bequest, being an ordinance of nature as of natural right, they are in fact very peculiarly the creations of the State, and have been modified in all civilised countries to suit its varying policy. For these reasons a special tax on successions has an undoubted justification. The State being their author, and having, strictly speaking, the power and right to absorb them altogether, a power which it would be infinitely less inexpedient to exercise than would be its similar power in regard to private property — the special tax becomes virtually a charge for a concession which the State grants, and which it might conceivably withhold, or at least very seriously curtail. Viewed in any other light, it appears to me wholly indefensible, for though it would no doubt fall on the payer at a convenient time for payment, its pressure on individuals would be most unequal, and it would thus offend against a cardinal maxim of taxation.
Regarding it as a charge upon a concession however, we may recognise in the State a capacity for varying it which would not exist in the case of an ordinary tax. It may take into account, in adjusting the so-called tax, the whole policy of the law of succession and bequest, and the nature of the property itself. The principles to guide it seem hardly to admit of discussion. The tax must not be so severe as to check accumulation, or be severely felt, so as to cause individual suffering even when accumulation is not checked. Subject to these restrictions the State should simply take by a succession duty what it can. It follows that its charge should be most moderate where the transmission resembles most a continuance of the enjoyment of private property, or is the transmission of property which the deceased person has acquired by his own industry, and in acquiring which he may be supposed to have been influenced by the prospect of regulating the succession; and should be most severe in the contrary case, where the transmission is to strangers, or where the property has been inherited. Unless these points are kept in mind the State will not be able to levy so large an amount as would otherwise be possible for it. To make the charge uniform would simply be to limit it to the minimum possible in those cases where the succession of the dependents of a deceased person, whose income dies with them, gives the tax the appearance of a charge not upon inheritance, but impoverishment. It would be quite consistent with the principle of the tax, however, to look at the composition of the property bequeathed; to say that as the possession of a certain kind of property over which the State had primary rights was keenly competed for, one condition of its enjoyment should be a special liability to taxes on successions. No person could complain, for there are abundant modes of investment besides land, and those who wished to have an unrestricted privilege of bequest could invest in other property. Even a charge of 5%, however, would probably present no inducement to people to keep away from land. It is very seldom that an entire fortune is thus invested (it would be sheer folly so to invest it), and the total charge on the succession, though it is 5% on a portion of it, might not be much higher than it is. I need not add that if there is any reason in this view of succession duties, the singular arrangement by which land now pays least of all is more than indefensible; it is a gross neglect of the State to secure a due to which it is most fairly entitled. The arrangement is another instance of the perversity of discussions about the incidence of taxes according to the historical method in England. An illogical mode of comparison has not only enabled the owners of land to secure for themselves an augmenting value in which the State might well have had a larger share, but has enabled a class which enjoys a valuable monopoly to escape payment on its successions of the charges which other classes of the community, enjoying no monopoly, have to bear.
After all, it may well be doubted whether by any process that would not be worse than the disease, anything but a small fraction of the augmenting value of land will ever be secured for the State. At the past rate of increase, the real property of England, which is now worth about £150,000,000 a-year, will be worth £250,000,000 in another thirty years. And a large part of this additional £100,000,000, perhaps the half of it or more, will not be owing to any investment of capital in improvements, but to increasing monopoly value. At the past rate of increase, however, our rates will be under £30,000,000, so that, at the outside, there will not be an additional burden of £15,000,000 to set against an additional value of £100,000,000, while much of that additional burden will also have fallen, not on the property generally, but on the profits of the improvements. There is little hope of touching this immense augmentation. But this is hardly a result to be rejoiced over by the defenders of private property in land. If they were wise in their generation it should be their aim to show that the present system, besides any indirect advantages to the community it may have, is also directly beneficial to the State, because it provides a large fund for the support of national charges. Looking forward to the great increase of value which is inevitable, they should rather, of all others, be anxious to secure a large appropriation to the State, as some compensation to the masses for the privilege of exclusive possession which they enjoy. The divorce of the people of England from the soil would be more, and not less, defensible than it is if it could be shown that private property in it was so regulated as to relieve the general taxpayer of his burdens.