Free Trade and Direct Taxation; a Paper submitted on behalf of the Council of the Financial Reform Association. By JOHN NOBLE, JUN.

THE principles which should regulate the levy of taxation have now been discussed at five meetings of this Association, viz., at Liverpool, Bradford, Glasgow, London, and Edinburgh. Upon each of these occasions we have prepared a bill of indictment against duties of customs and excise, which we have sought to enforce alike by sound argument and unanswerable facts.

Our opponents are twofold, one class demanding a scheme of taxation, the other asserting that the present method is, if not absolutely perfect, at all events as nearly so as possible. From neither have we received any answer to the charges we have preferred; mere dogmatic assertion has been substituted for argument, and a vehement maintenance of things as they are for scientific inquiry into the truth of our case and the possibility of direct taxation.

We are prepared to admit that, as at present levied, there is "injustice and hardship connected with direct taxation." This injustice, however, is not essentially bound up with the principle; direct taxation may be unjust. There is, however, this grand distinction in its favour, viz.-while direct taxation may, indirect taxation must be unjust. To adopt the words of the late Sir Robert Peel, "all indirect taxation has a natural tendency to produce injustice." This fact is fully admitted in a recent number of the Economist, in which it is shown, that customs and excise duties, which tax the peculiar enjoyments of the rich, have been entirely repealed, and the whole of our indirect taxation is now levied upon articles of which by far the larger proportion are consumed by the poor. There can be no greater difficulty in securing the requisites of certainty in the amount of payment, convenience in the time of payment, and an equitable contribution from every class, in direct than in indirect taxation. These ends are all secured in the payment of rent, premiums on insurances, and contributions to provident associations, without any serious difficulty, and there is nothing peculiar in taxation which should make it an exception. Our principal complaint is, not so much that these taxes are unjust, as impolitic, not that they press unduly upon any one class, but that they seriously injure all, diminishing the employment and lessening the resources of the entire community. The real problem is, how to raise the necessary revenue in a mode that shall interfere as little as possible with the productive power of the community. This, we maintain, can only be done by the adoption of direct taxation and its consequence, perfect free trade.

The vast increase in our exports and imports during the last twenty years abundantly demonstrates that the results we have predicted as certain to flow from the repeal of all indirect taxation,

are not the mere dreams of enthusiasts. Partial free trade has increased the totals of our foreign commerce from £172,202,716 in 1840, to £444,953,715 in 1863. Not the least noteworthy example of the benefits of this policy is the increase of trade consequent upon the commercial treaty with France, with which the name of Richard Cobden is indelibly associated. During the three years preceding that event our total trade with France was £72,239,136, in the three subsequent years it amounted to £125,682,721, an increase of £53,442,985. How was this vast result attained? Mr. Gladstone in his last financial statement supplied the answer. Speaking of that treaty, he said, "In order to make up for the reductions and remissions, we were compelled to impose for that single year, one additional penny in the pound of income tax which would not otherwise have been required." Truly a profitable investment. Nor is this an isolated case, all our fiscal remissions have been based upon this substitution of direct for indirect taxation. When Sir Robert Peel first applied the pruning knife to our tariff, he boldly, some thought rashly, created a deficiency; that deficiency he supplied by a direct tax, which has ever since been the instrument by means of which obstructive taxes have been repealed, and the trade of the country been developed in a few years to an extent only possible in centuries under a more restrictive system. Freedom of trade has been the means of vastly increasing our resources. "If I select," says Mr. Gladstone, "several years in which Parlia— ment has, with firm and unsparing hand, addressed itself to the business of liberating commerce, these operations have been immediately followed by striking augmentations in the trade and commerce of the country." It is through the instrumentality of direct taxation that "these operations" have been rendered possible. If further evidence be needed of the impolicy of such imposts, we have it in the following facts. In the year 1860, certain articles were subjected to an increased duty, in the following year the importation of such articles decreased 17 per cent.; the imports of such articles as were left untouched remained stationary; the import of those articles upon which the duties were reduced increased 17 per cent.; while upon those articles upon which the duty was repealed, the increase was 40 per cent. Here is the case in a nutshell; if you wish to decrease your trade, increase your customs duties; if to keep it stationary, maintain them at their present rate; if to increase it, reduce them; but, if you would derive the greatest possible advantage, repeal them entirely.

We shall now briefly allude to two or three considerations tending further to elucidate the question. The first is, that by whatever method we raise our revenue, the source from which it is drawn is the same, viz., rents, profits, and wages. By direct taxation we take what is required by the State, and that only; by indirect taxation we take a much larger sum, in the shape of profits upon capital advanced to pay duties and heavy additional expenses incurred in their collection. It has been calculated that two-thirds

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of the amount extracted from the pockets of the tax payers would be saved by direct taxation, and would be profitably employed, thus increasing the demand for labour, the production of the necessaries, comforts, and conveniences of life, and enhancing the value of every description of property. Taxes upon commodities are really taxes upon wages, and are moreover greatly enhanced by the extra profits and charges they render necessary; hence they occasion in the long run a great decrease in the value of land, and by increasing the price of commodities lessen their consumption. "The most efficacious working fund that can be established," says the late Mr. Tooke, "is the release of the industry and skill of the country as rapidly as possible from the pressure of every fiscal burden which operates as a hindrance;" and he adds, our progress consists in augmenting the ability of the country to bear its burdens; the sooner we remove oppressive burdens, the more rapidly shall we arrive at that point; our first duty is to remove fiscal oppressions." There is no greater fallacy than the opinion held by many of the propertied classes, that because these duties are mainly paid, in the first instance, out of wages, that, therefore, they are to that extent relieved of taxation. If the teachings of political economy are true, if the history of the last twenty years is not a fable, there is nothing more certain than that property cannot escape the burden of unjust taxation. The labourer may be crushed by its weight, but there is a certain Nemesis, which avenges his sufferings upon the holders of property. The diminution of the demand for commodities lessens the demand for labour, capital is unemployed, it has to seek hazardous investments, rents are diminished, property is depreciated in value, profits are reduced, pauperism and that state of semi-pauperism in which so many of our population exist increases, crime is developed, and thus holders of property have to meet a vastly increased expenditure with diminished resources. The nobleman who threatened to sell his estates and leave England if the corn laws were repealed, has not done so; nay, the income tax which he has paid in order that partial free trade might be inaugurated, has been a profitable invest

ment.

Such would, in a much greater degree, be the case were all indirect taxation repealed. The direct tax he would have to pay would be a far lighter burden than that now falling upon his property through our violation of the laws of political economy, while by the same process his resources would be vastly increased. This truth was most forcibly enunciated by the late Sir Robert Peel in 1834, when, speaking on a motion introduced by Lord Chandos on agricultural distress, he said, "We have this admission from the noble lord, that the agricultural interest is so intimately connected with the commercial and manufacturing interests, that the best mode of advancing and improving it is to extend our commerce and manufactures by opening new markets; by removing those regulations, as well fiscal as political, which interfere with or impede their extension. These observations are very just. The agricultural classes

would be benefited by the extension of our commerce." Nor would the landed interest alone reap the fruits of such a policy, extending commerce would require increased capital. Holders of every description of property are undoubtedly restricting the field for its profitable employment, and thereby losing far more than the amount for which they are contending. It has been a chronic complaint in this country, that there is no profitable field for the employment of its large yearly accumulations of capital. Hence there is a periodical overflow into visionary and unprofitable foreign undertakings; while all the time there is at home an unlimited field for profitable employment, were we only wise enough to sweep away the obstacles of customs and excise.

In a recent number of the Economist, it is estimated that the clerk occupying a position immediately above the artisan pays in taxation 3s. in the pound on his income. According to data obtained from co-operative stores, the artisan pays in taxation and the enhanced prices of commodities consequent thereon, at least 4s. in every pound of income. There can therefore be no additional hardship in taking from both these classes directly, 3s. in the pound of their earnings. Nor can there be any injustice in taking the same proportion from the more wealthy classes. In the same article the tax-paying and non-taxpaying income of the country is estimated at above £560,000,000; 2s. in the pound upon this amount would yield £56,000,000, a suni equal to the produce of customs, excise, income and assessed taxes. Such an income tax would be less costly to the taxpayer than are customs and excise, and would at once enable us to sweep away every fiscal hindrance to trade, manufactures, and employment. It would vastly increase our prosperity, and by the natural unrestrained growth of our resources, would in a short time materially reduce the rate of assessment. There is no class of the community that would not benefit materially by the change. Whatever objections may be urged against such an income tax, there is no doubt it would be far less oppressive than any indirect tax. It would fall more lightly on the most heavily and unfairly taxed portion of the community, and would benefit property holders materially by the improvement it would cause in the value of their property. Further, it might be adjusted to various species of incomes by the adoption of the principle of capitalisation as advocated by the late Mr. Hume and Dr. Farr, or by a different rate upon different classes of incomes.

In the United States, although our precedent has been followed in raising the national revenue during the present war, the whole of the State taxation is levied upon property. In Massachusets it amounts to per cent. upon real and personal property, in New York upwards of 1 per cent., and in Louisiana 1 per cent. The capital of this country was estimated some years since at £7,000,000,000 sterling, the annual rate of increase is stated at £100,000,000, so that it is now at least £8,000,000,000. A tax upon this sum of per cent. would yield £60,000,000, an amount certainly sufficient for the most extravagant expenditure. Here then

would be a direct tax upon property in whatever shape. Under its operation every man would be perfectly free to use his capital as he thought best, the State would not interfere with his trade or his gains, would leave them alone during the period of accretion. When his profits became capitalised they would be taxed, and then only; industry, skill, and enterprise would be perfectly free from the hindrances, vexations, and restrictions, which are the certain accompaniments of other forms of taxation. This would be a direct tax raised, as recommended by the late Lord Jeffrey, on property; a tax the justice of which, he observes, common sense and common feeling impresses upon all men, out of which no logical refinements will ever drive them."

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During the reign of William III., more than half the expenditure was provided for by the land tax. This, although the property of the country has increased in value at least twenty-fold, now yields but a trifle more than £1,000,000. It was accepted by the landholders at the rate of 4s. in the pound upon the value of their estates, as a substitute for the feudal services and exactions to which they were liable. By a shameful perversion of legislative power, its valuation was subsequently fixed in perpetuity; no matter what may be the increase in value of their estates, it remains the same. The burden of taxation was thus thrown upon the industrious and unrepresented classes, and during by far the larger period of modern history, property has escaped any but the most fractional direct payment for the protection of the State. Clearly then the people have a just claim that this tax, which has never been repealed, which is still the law of the land, but has been shamelessly perverted from its original intent, shall be strictly enforced, according to the letter of the original enactment, should no other means of reaching property be deemed possible.

Such are some of the methods by which it would be possible to raise a revenue by direct taxation. We do not present any of them as perfect schemes founded on absolutely correct data, these being only obtainable by the Government, on whom will naturally devolve the duty of propounding a scheme, when the public voice shall demand the substitution of direct for indirect taxation. Any one of them would be infinitely preferable to the cumbrous, costly, and impolitic method of customs and excise. There is no objection that can be urged against any of them that does not apply with equal or greater force to the existing system. Their great superiority consists in the fact that none of them interfere with the industry of the country, with the extension of its trade and manufactures, and the prosperity of its agriculture.

It may, however, be objected that this change is too vast and comprehensive to be undertaken at once in its entirety, that we must proceed slowly, gradually, and with caution. To meet this view we would urge that the next measure of fiscal reform should be the liberation of sugar-which Mr. Gladstone describes as, after corn, the second necessary of life-tea, coffee. corn, currants. figs,