Chapter LXI: Part II: Of Taxes (1)

The private revenue of individuals, it has been shown in the first book of
this Inquiry, arises, ultimately from three different sources; rent,
profit, and wages. Every tax must finally be paid from some one or other
of those three different sources of revenue, or from all of them
indifferently. I shall endeavour to give the best account I can, first, of
those taxes which, it is intended should fall upon rent; secondly, of
those which, it is intended should fall upon profit; thirdly, of those
which, it is intended should fall upon wages; and fourthly, of those
which, it is intended should fall indifferently upon all those three
different sources of private revenue. The particular consideration of each
of these four different sorts of taxes will divide the second part of the
present chapter into four articles, three of which will require several
other subdivisions. Many of these taxes, it will appear from the following
review, are not finally paid from the fund, or source of revenue, upon
which it is intended they should fall.

Before I enter upon the examination of particular taxes, it is necessary
to premise the four following maxims with regard to taxes in general.

1. The subjects of every state ought to contribute towards the support of
the government, as nearly as possible, in proportion to their respective
abilities; that is, in proportion to the revenue which they respectively
enjoy under the protection of the state. The expense of government to the
individuals of a great nation, is like the expense of management to the
joint tenants of a great estate, who are all obliged to contribute in
proportion to their respective interests in the estate. In the observation
or neglect of this maxim, consists what is called the equality or
inequality of taxation. Every tax, it must be observed once for all, which
falls finally upon one only of the three sorts of revenue above mentioned,
is necessarily unequal, in so far as it does not affect the other two. In
the following examination of different taxes, I shall seldom take much
farther notice of this sort of inequality; but shall, in most cases,
confine my observations to that inequality which is occasioned by a
particular tax falling unequally upon that particular sort of private
revenue which is affected by it.

2. The tax which each individual is bound to pay, ought to be certain and
not arbitrary. The time of payment, the manner of payment, the quantity to
be paid, ought all to be clear and plain to the contributor, and to every
other person. Where it is otherwise, every person subject to the tax is
put more or less in the power of the tax-gatherer, who can either
aggravate the tax upon any obnoxious contributor, or extort, by the terror
of such aggravation, some present or perquisite to himself. The
uncertainty of taxation encourages the insolence, and favours the
corruption, of an order of men who are naturally unpopular, even where
they are neither insolent nor corrupt. The certainty of what each
individual ought to pay is, in taxation, a matter of so great importance,
that a very considerable degree of inequality, it appears, I believe, from
the experience of all nations, is not near so great an evil as a very
small degree of uncertainty.

3. Every tax ought to be levied at the time, or in the manner, in which it
is most likely to be convenient for the contributor to pay it. A tax upon
the rent of land or of houses, payable at the same term at which such
rents are usually paid, is levied at the time when it is most likely to be
convenient for the contributor to pay; or when he is most likely to have
wherewithall to pay. Taxes upon such consumable goods as are articles of
luxury, are all finally paid by the consumer, and generally in a manner
that is very convenient for him. He pays them by little and little, as he
has occasion to buy the goods. As he is at liberty too, either to buy or
not to buy, as he pleases, it must be his own fault if he ever suffers any
considerable inconveniency from such taxes.

4. Every tax ought to be so contrived, as both to take out and to keep out
of the pockets of the people as little as possible, over and above what it
brings into the public treasury of the state. A tax may either take out or
keep out of the pockets of the people a great deal more than it brings
into the public treasury, in the four following ways. First, the levying
of it may require a great number of officers, whose salaries may eat up
the greater part of the produce of the tax, and whose perquisites may
impose another additional tax upon the people. Secondly, it may obstruct
the industry of the people, and discourage them from applying to certain
branches of business which might give maintenance and employment to great
multitudes. While it obliges the people to pay, it may thus diminish, or
perhaps destroy, some of the funds which might enable them more easily to
do so. Thirdly, by the forfeitures and other penalties which those
unfortunate individuals incur, who attempt unsuccessfully to evade the
tax, it may frequently ruin them, and thereby put an end to the benefit
which the community might have received from the employment of their
capitals. An injudicious tax offers a great temptation to smuggling. But
the penalties of smuggling must arise in proportion to the temptation. The
law, contrary to all the ordinary principles of justice, first creates the
temptation, and then punishes those who yield to it; and it commonly
enhances the punishment, too, in proportion to the very circumstance which
ought certainly to alleviate it, the temptation to commit the crime. {See
Sketches of the History of Man page 474, and Seq.} Fourthly, by subjecting
the people to the frequent visits and the odious examination of the
tax-gatherers, it may expose them to much unnecessary trouble, vexation,
and oppression; and though vexation is not, strictly speaking, expense, it
is certainly equivalent to the expense at which every man would be willing
to redeem himself from it. It is in some one or other of these four
different ways, that taxes are frequently so much more burdensome to the
people than they are beneficial to the sovereign.

The evident justice and utility of the foregoing maxims have recommended
them, more or less, to the attention of all nations. All nations have
endeavoured, to the best of their judgment, to render their taxes as equal
as they could contrive; as certain, as convenient to the contributor, both
the time and the mode of payment, and in proportion to the revenue which
they brought to the prince, as little burdensome to the people. The
following short review of some of the principal taxes which have taken
place in different ages and countries, will show, that the endeavours of
all nations have not in this respect been equally successful.

ARTICLE I.—Taxes upon Rent—Taxes upon the Rent of Land.

A tax upon the rent of land may either be imposed according to a certain
canon, every district being valued at a curtain rent, which valuation is
not afterwards to be altered; or it may be imposed in such a manner, as to
vary with every variation in the real rent of the land, and to rise or
fall with the improvement or declension of its cultivation.

A land tax which, like that of Great Britain, is assessed upon each
district according to a certain invariable canon, though it should be
equal at the time of its first establishment, necessarily becomes unequal
in process of time, according to the unequal degrees of improvement or
neglect in the cultivation of the different parts of the country. In
England, the valuation, according to which the different counties and
parishes were assessed to the land tax by the 4th of William and Mary, was
very unequal even at its first establishment. This tax, therefore, so far
offends against the first of the four maxims above mentioned. It is
perfectly agreeable to the other three. It is perfectly certain. The time
of payment for the tax, being the same as that for the rent, is as
convenient as it can be to the contributor. Though the landlord is, in all
cases, the real contributor, the tax is commonly advanced by the tenant,
to whom the landlord is obliged to allow it in the payment of the rent.
This tax is levied by a much smaller number of officers than any other
which affords nearly the same revenue. As the tax upon each district does
not rise with the rise of the rent, the sovereign does not share in the
profits of the landlord’s improvements. Those improvements sometimes
contribute, indeed, to the discharge of the other landlords of the
district. But the aggravation of the tax, which this may sometimes
occasion upon a particular estate, is always so very small, that it never
can discourage those improvements, nor keep down the produce of the land
below what it would otherwise rise to. As it has no tendency to diminish
the quantity, it can have none to raise the price of that produce. It does
not obstruct the industry of the people; it subjects the landlord to no
other inconveniency besides the unavoidable one of paying the tax. The
advantage, however, which the land-lord has derived from the invariable
constancy of the valuation, by which all the lands of Great Britain are
rated to the land-tax, has been principally owing to some circumstances
altogether extraneous to the nature of the tax.

It has been owing in part, to the great prosperity of almost every part of
the country, the rents of almost all the estates of Great Britain having,
since the time when this valuation was first established, been continually
rising, and scarce any of them having fallen. The landlords, therefore,
have almost all gained the difference between the tax which they would
have paid, according to the present rent of their estates, and that which
they actually pay according to the ancient valuation. Had the state of the
country been different, had rents been gradually falling in consequence of
the declension of cultivation, the landlords would almost all have lost
this difference. In the state of things which has happened to take place
since the revolution, the constancy of the valuation has been advantageous
to the landlord and hurtful to the sovereign. In a different state of
things it might have been advantageous to the sovereign and hurtful to the
landlord.

As the tax is made payable in money, so the valuation of the land is
expressed in money. Since the establishment of this valuation, the value
of silver has been pretty uniform, and there has been no alteration in the
standard of the coin, either as to weight or fineness. Had silver risen
considerably in its value, as it seems to have done in the course of the
two centuries which preceded the discovery of the mines of America, the
constancy of the valuation might have proved very oppressive to the
landlord. Had silver fallen considerably in its value, as it certainly did
for about a century at least after the discovery of those mines, the same
constancy of valuation would have reduced very much this branch of the
revenue of the sovereign. Had any considerable alteration been made in the
standard of the money, either by sinking the same quantity of silver to a
lower denomination, or by raising it to a higher; had an ounce of silver,
for example, instead of being coined into five shillings and two pence,
been coined either into pieces which bore so low a denomination as two
shillings and seven pence, or into pieces which bore so high a one as ten
shillings and four pence, it would, in the one case, have hurt the revenue
of the proprietor, in the other that of the sovereign.

In circumstances, therefore, somewhat different from those which have
actually taken place, this constancy of valuation might have been a very
great inconveniency, either to the contributors or to the commonwealth. In
the course of ages, such circumstances, however, must at some time or
other happen. But though empires, like all the other works of men, have
all hitherto proved mortal, yet every empire aims at immortality. Every
constitution, therefore, which it is meant should be as permanent as the
empire itself, ought to be convenient, not in certain circumstances only,
but in all circumstances; or ought to be suited, not to those
circumstances which are transitory, occasional, or accidental, but to
those which are necessary, and therefore always the same.

A tax upon the rent of land, which varies with every variation of the
rent, or which rises and falls according to the improvement or neglect of
cultivation, is recommended by that sect of men of letters in France, who
call themselves the economists, as the most equitable of all taxes. All
taxes, they pretend, fall ultimately upon the rent of land, and ought,
therefore, to be imposed equally upon the fund which must finally pay
them. That all taxes ought to fall as equally as possible upon the fund
which must finally pay them, is certainly true. But without entering into
the disagreeable discussion of the metaphysical arguments by which they
support their very ingenious theory, it will sufficiently appear, from the
following review, what are the taxes which fall finally upon the rent of
the land, and what are those which fall finally upon some other fund.

In the Venetian territory, all the arable lands which are given in lease
to farmers are taxed at a tenth of the rent. {Memoires concernant les
Droits, p. 240, 241.} The leases are recorded in a public register, which
is kept by the officers of revenue in each province or district. When the
proprietor cultivates his own lands, they are valued according to an
equitable estimation, and he is allowed a deduction of one-fifth of the
tax; so that for such land he pays only eight instead of ten per cent. of
the supposed rent.

A land-tax of this kind is certainly more equal than the land-tax of
England. It might not, perhaps, be altogether so certain, and the
assessment of the tax might frequently occasion a good deal more trouble
to the landlord. It might, too, be a good deal more expensive in the
levying.

Such a system of administration, however, might, perhaps, be contrived, as
would in a great measure both prevent this uncertainty, and moderate this
expense.

The landlord and tenant, for example, might jointly be obliged to record
their lease in a public register. Proper penalties might be enacted
against concealing or misrepresenting any of the conditions; and if part
of those penalties were to be paid to either of the two parties who
informed against and convicted the other of such concealment or
misrepresentation, it would effectually deter them from combining together
in order to defraud the public revenue. All the conditions of the lease
might be sufficiently known from such a record.

Some landlords, instead of raising the rent, take a fine for the renewal
of the lease. This practice is, in most cases, the expedient of a
spendthrift, who, for a sum of ready money sells a future revenue of much
greater value. It is, in most cases, therefore, hurtful to the landlord;
it is frequently hurtful to the tenant; and it is always hurtful to the
community. It frequently takes from the tenant so great a part of his
capital, and thereby diminishes so much his ability to cultivate the land,
that he finds it more difficult to pay a small rent than it would
otherwise have been to pay a great one. Whatever diminishes his ability to
cultivate, necessarily keeps down, below what it would otherwise have
been, the most important part of the revenue of the community. By
rendering the tax upon such fines a good deal heavier than upon the
ordinary rent, this hurtful practice might be discouraged, to the no small
advantage of all the different parties concerned, of the landlord, of the
tenant, of the sovereign, and of the whole community.

Some leases prescribe to the tenant a certain mode of cultivation, and a
certain succession of crops, during the whole continuance of the lease.
This condition, which is generally the effect of the landlord’s conceit of
his own superior knowledge (a conceit in most cases very ill-founded),
ought always to be considered as an additional rent, as a rent in service,
instead of a rent in money. In order to discourage the practice, which is
generally a foolish one, this species of rent might be valued rather high,
and consequently taxed somewhat higher than common money-rents.

Some landlords, instead of a rent in money, require a rent in kind, in
corn, cattle, poultry, wine, oil, etc.; others, again, require a rent in
service. Such rents are always more hurtful to the tenant than beneficial
to the landlord. They either take more, or keep more out of the pocket of
the former, than they put into that of the latter. In every country where
they take place, the tenants are poor and beggarly, pretty much according
to the degree in which they take place. By valuing, in the same manner,
such rents rather high, and consequently taxing them somewhat higher than
common money-rents, a practice which is hurtful to the whole community,
might, perhaps, be sufficiently discouraged.

When the landlord chose to occupy himself a part of his own lands, the
rent might be valued according to an equitable arbitration of the farmers
and landlords in the neighbourhood, and a moderate abatement of the tax
might be granted to him, in the same manner as in the Venetian territory,
provided the rent of the lands which he occupied did not exceed a certain
sum. It is of importance that the landlord should be encouraged to
cultivate a part of his own land. His capital is generally greater than
that of the tenant, and, with less skill, he can frequently raise a
greater produce. The landlord can afford to try experiments, and is
generally disposed to do so. His unsuccessful experiments occasion only a
moderate loss to himself. His successful ones contribute to the
improvement and better cultivation of the whole country. It might be of
importance, however, that the abatement of the tax should encourage him to
cultivate to a certain extent only. If the landlords should, the greater
part of them, be tempted to farm the whole of their own lands, the country
(instead of sober and industrious tenants, who are bound by their own
interest to cultivate as well as their capital and skill will allow them)
would be filled with idle and profligate bailiffs, whose abusive
management would soon degrade the cultivation, and reduce the annual
produce of the land, to the diminution, not only of the revenue of their
masters, but of the most important part of that of the whole society.

Such a system of administration might, perhaps, free a tax of this kind
from any degree of uncertainty, which could occasion either oppression or
inconveniency to the contributor; and might, at the same time, serve to
introduce into the common management of land such a plan of policy as
might contribute a good deal to the general improvement and good
cultivation of the country.

The expense of levying a land-tax, which varied with every variation of
the rent, would, no doubt, be somewhat greater than that of levying one
which was always rated according to a fixed valuation. Some additional
expense would necessarily be incurred, both by the different
register-offices which it would be proper to establish in the different
districts of the country, and by the different valuations which might
occasionally be made of the lands which the proprietor chose to occupy
himself. The expense of all this, however, might be very moderate, and
much below what is incurred in the levying of many other taxes, which
afford a very inconsiderable revenue in comparison of what might easily be
drawn from a tax of this kind.

The discouragement which a variable land-tax of this kind might give to
the improvement of land, seems to be the most important objection which
can be made to it. The landlord would certainly be less disposed to
improve, when the sovereign, who contributed nothing to the expense, was
to share in the profit of the improvement. Even this objection might,
perhaps, be obviated, by allowing the landlord, before he began his
improvement, to ascertain, in conjunction with the officers of revenue,
the actual value of his lands, according to the equitable arbitration of a
certain number of landlords and farmers in the neighbourhood, equally
chosen by both parties: and by rating him, according to this valuation,
for such a number of years as might be fully sufficient for his complete
indemnification. To draw the attention of the sovereign towards the
improvement of the land, from a regard to the increase of his own revenue,
is one or the principal advantages proposed by this species of land-tax.
The term, therefore, allowed, for the indemnification of the landlord,
ought not to be a great deal longer than what was necessary for that
purpose, lest the remoteness of the interest should discourage too much
this attention. It had better, however, be somewhat too long, than in any
respect too short. No incitement to the attention of the sovereign can
ever counterbalance the smallest discouragement to that of the landlord.
The attention of the sovereign can be, at best, but a very general and
vague consideration of what is likely to contribute to the better
cultivation of the greater part of his dominions. The attention of the
landlord is a particular and minute consideration of what is likely to be
the most advantageous application of every inch of ground upon his estate.
The principal attention of the sovereign ought to be, to encourage, by
every means in his power, the attention both of the landlord and of the
farmer, by allowing both to pursue their own interest in their own way,
and according to their own judgment; by giving to both the most perfect
security that they shall enjoy the full recompence of their own industry;
and by procuring to both the most extensive market for every part of their
produce, in consequence of establishing the easiest and safest
communications, both by land and by water, through every part of his own
dominions, as well as the most unbounded freedom of exportation to the
dominions of all other princes.

If, by such a system of administration, a tax of this kind could be so
managed as to give, not only no discouragement, but, on the contrary, some
encouragement to the improvement or land, it does not appear likely to
occasion any other inconveniency to the landlord, except always the
unavoidable one of being obliged to pay the tax. In all the variations of
the state of the society, in the improvement and in the declension of
agriculture; in all the variations in the value of silver, and in all
those in the standard of the coin, a tax of this kind would, of its own
accord, and without any attention of government, readily suit itself to
the actual situation of things, and would be equally just and equitable in
all those different changes. It would, therefore, be much more proper to
be established as a perpetual and unalterable regulation, or as what is
called a fundamental law of the commonwealth, than any tax which was
always to be levied according to a certain valuation.

Some states, instead of the simple and obvious expedient of a register of
leases, have had recourse to the laborious and expensive one of an actual
survey and valuation of all the lands in the country. They have suspected,
probably, that the lessor and lessee, in order to defraud the public
revenue, might combine to conceal the real terms of the lease.
Doomsday-book seems to have been the result of a very accurate survey of
this kind.

In the ancient dominions of the king of Prussia, the land-tax is assessed
according to an actual survey and valuation, which is reviewed and altered
from time to time. {Memoires concernant les Droits, etc. tom, i. p. 114,
115, 116, etc.} According to that valuation, the lay proprietors pay from
twenty to twenty-five per cent. of their revenue; ecclesiastics from forty
to forty-five per cent. The survey and valuation of Silesia was made by
order of the present king, it is said, with great accuracy. According to
that valuation, the lands belonging to the bishop of Breslaw are taxed at
twenty-five per cent. of their rent. The other revenues of the
ecclesiastics of both religions at fifty per cent. The commanderies of the
Teutonic order, and of that of Malta, at forty per cent. Lands held by a
noble tenure, at thirty-eight and one-third per cent. Lands held by a base
tenure, at thirty-five and one-third per cent.

The survey and valuation of Bohemia is said to have been the work of more
than a hundred years. It was not perfected till after the peace of 1748,
by the orders of the present empress queen. {Id. tom i. p.85, 84.} The
survey of the duchy of Milan, which was begun in the time of Charles VI.,
was not perfected till after 1760. It is esteemed one of the most
accurate that has ever been made. The survey of Savoy and Piedmont was
executed under the orders of the late king of Sardinia. {Id. p. 280,
etc.; also p, 287. etc. to 316.}

In the dominions of the king of Prussia, the revenue of the church is
taxed much higher than that of lay proprietors. The revenue of the church
is, the greater part of it, a burden upon the rent of land. It seldom
happens that any part of it is applied towards the improvement of land; or
is so employed as to contribute, in any respect, towards increasing the
revenue of the great body of the people. His Prussian majesty had
probably, upon that account, thought it reasonable that it should
contribute a good deal more towards relieving the exigencies of the state.
In some countries, the lands of the church are exempted from all taxes. In
others, they are taxed more lightly than other lands. In the duchy of
Milan, the lands which the church possessed before 1575, are rated to the
tax at a third only or their value.

In Silesia, lands held by a noble tenure are taxed three per cent. higher
than those held by a base tenure. The honours and privileges of different
kinds annexed to the former, his Prussian majesty had probably imagined,
would sufficiently compensate to the proprietor a small aggravation of the
tax; while, at the same time, the humiliating inferiority of the latter
would be in some measure alleviated, by being taxed somewhat more lightly.
In other countries, the system of taxation, instead of alleviating,
aggravates this inequality. In the dominions of the king of Sardinia, and
in those provinces of France which are subject to what is called the real
or predial taille, the tax falls altogether upon the lands held by a base
tenure. Those held by a noble one are exempted.

A land tax assessed according to a general survey and valuation, how equal
soever it may be at first, must, in the course of a very moderate period
of time, become unequal. To prevent its becoming so would require the
continual and painful attention of government to all the variations in the
state and produce of every different farm in the country. The governments
of Prussia, of Bohemia, of Sardinia, and of the duchy of Milan, actually
exert an attention of this kind; an attention so unsuitable to the nature
of government, that it is not likely to be of long continuance, and which,
if it is continued, will probably, in the long-run, occasion much more
trouble and vexation than it can possibly bring relief to the
contributors.

In 1666, the generality of Montauban was assessed to the real or predial
taille, according, it is said, to a very exact survey and valuation.
{Memoires concernant les Droits, etc. tom. ii p. 139, etc.} By 1727, this
assessment had become altogether unequal. In order to remedy this
inconveniency, government has found no better expedient, than to impose
upon the whole generality an additional tax of a hundred and twenty
thousand livres. This additional tax is rated upon all the different
districts subject to the taille according to the old assessment. But it is
levied only upon those which, in the actual state of things, are by that
assessment under-taxed; and it is applied to the relief of those which, by
the same assessment, are over-taxed. Two districts, for example, one of
which ought, in the actual state of things, to be taxed at nine hundred,
the other at eleven hundred livres, are, by the old assessment, both taxed
at a thousand livres. Both these districts are, by the additional tax,
rated at eleven hundred livres each. But this additional tax is levied
only upon the district under-charged, and it is applied altogether to the
relief of that overcharged, which consequently pays only nine hundred
livres. The government neither gains nor loses by the additional tax,
which is applied altogether to remedy the inequalities arising from the
old assessment. The application is pretty much regulated according to the
discretion of the intendant of the generality, and must, therefore, be in
a great measure arbitrary.

Taxes which are proportioned, not in the Rent, but to the Produce of Land.

Taxes upon the produce of land are, in reality, taxes upon the rent; and
though they may be originally advanced by the farmer, are finally paid by
the landlord. When a certain portion of the produce is to be paid away for
a tax, the farmer computes as well as he can, what the value of this
portion is, one year with another, likely to amount to, and he makes a
proportionable abatement in the rent which he agrees to pay to the
landlord. There is no farmer who does not compute beforehand what the
church tythe, which is a land tax of this kind, is, one year with another,
likely to amount to.

The tythe, and every other land tax of this kind, under the appearance of
perfect equality, are very unequal taxes; a certain portion of the produce
being in different situations, equivalent to a very different portion of
the rent. In some very rich lands, the produce is so great, that the one
half of it is fully sufficient to replace to the farmer his capital
employed in cultivation, together with the ordinary profits of farming
stock in the neighbourhood. The other half, or, what comes to the same
thing, the value of the other half, he could afford to pay as rent to the
landlord, if there was no tythe. But if a tenth of the produce is taken
from him in the way of tythe, he must require an abatement of the fifth
part of his rent, otherwise he cannot get back his capital with the
ordinary profit. In this case, the rent of the landlord, instead of
amounting to a half, or five-tenths of the whole produce, will amount only
to four-tenths of it. In poorer lands, on the contrary, the produce is
sometimes so small, and the expense of cultivation so great, that it
requires four-fifths of the whole produce, to replace to the farmer his
capital with the ordinary profit. In this case, though there was no tythe,
the rent of the landlord could amount to no more than one-fifth or
two-tenths of the whole produce. But if the farmer pays one-tenth of the
produce in the way of tythe, he must require an equal abatement of the
rent of the landlord, which will thus be reduced to one-tenth only of the
whole produce. Upon the rent of rich lands the tythe may sometimes be a
tax of no more than one-fifth part, or four shillings in the pound;
whereas upon that of poorer lands, it may sometimes be a tax of one half,
or of ten shillings in the pound.

The tythe, as it is frequently a very unequal tax upon the rent, so it is
always a great discouragement, both to the improvements of the landlord,
and to the cultivation of the farmer. The one cannot venture to make the
most important, which are generally the most expensive improvements; nor
the other to raise the most valuable, which are generally, too, the most
expensive crops; when the church, which lays out no part of the expense,
is to share so very largely in the profit. The cultivation of madder was,
for a long time, confined by the tythe to the United Provinces, which,
being presbyterian countries, and upon that account exempted from this
destructive tax, enjoyed a sort of monopoly of that useful dyeing drug
against the rest of Europe. The late attempts to introduce the culture of
this plant into England, have been made only in consequence of the
statute, which enacted that five shillings an acre should be received in
lieu of all manner of tythe upon madder.

As through the greater part of Europe, the church, so in many different
countries of Asia, the state, is principally supported by a land tax,
proportioned not to the rent, but to the produce of the land. In China,
the principal revenue of the sovereign consists in a tenth part of the
produce of all the lands of the empire. This tenth part, however, is
estimated so very moderately, that, in many provinces, it is said not to
exceed a thirtieth part of the ordinary produce. The land tax or land rent
which used to be paid to the Mahometan government of Bengal, before that
country fell into the hands of the English East India company, is said to
have amounted to about a fifth part of the produce. The land tax of
ancient Egypt is said likewise to have amounted to a fifth part.

In Asia, this sort of land tax is said to interest the sovereign in the
improvement and cultivation of land. The sovereigns of China, those of
Bengal while under the Mahometan govermnent, and those of ancient Egypt,
are said, accordingly, to have been extremely attentive to the making and
maintaining of good roads and navigable canals, in order to increase, as
much as possible, both the quantity and value of every part of the produce
of the land, by procuring to every part of it the most extensive market
which their own dominions could afford. The tythe of the church is divided
into such small portions that no one of its proprietors can have any
interest of this kind. The parson of a parish could never find his
account, in making a road or canal to a distant part of the country, in
order to extend the market for the produce of his own particular parish.
Such taxes, when destined for the maintenance of the state, have some
advantages, which may serve in some measure to balance their
inconveniency. When destined for the maintenance of the church, they are
attended with nothing but inconveniency.

Taxes upon the produce of land may be levied, either in kind, or,
according to a certain valuation in money.

The parson of a parish, or a gentleman of small fortune who lives upon his
estate, may sometimes, perhaps find some advantage in receiving, the one
his tythe, and the other his rent, in kind. The quantity to be collected,
and the district within which it is to be collected, are so small, that
they both can oversee, with their own eyes, the collection and disposal of
every part of what is due to them. A gentleman of great fortune, who lived
in the capital, would be in danger of suffering much by the neglect, and
more by the fraud, of his factors and agents, if the rents of an estate in
a distant province were to be paid to him in this manner. The loss of the
sovereign, from the abuse and depredation of his tax-gatherers, would
necessarily be much greater. The servants of the most careless private
person are, perhaps, more under the eye of their master than those of the
most careful prince; and a public revenue, which was paid in kind, would
suffer so much from the mismanagement of the collectors, that a very small
part of what was levied upon the people would ever arrive at the treasury
of the prince. Some part of the public revenue of China, however, is said
to be paid in this manner. The mandarins and other tax-gatherers will, no
doubt, find their advantage in continuing the practice of a payment, which
is so much more liable to abuse than any payment in money.

A tax upon the produce of land, which is levied in money, may be levied,
either according to a valuation, which varies with all the variations of
the market price; or according to a fixed valuation, a bushel of wheat,
for example, being always valued at one and the same money price, whatever
may be the state of the market. The produce of a tax levied in the former
way will vary only according to the variations in the real produce of the
land, according to the improvement or neglect of cultivation. The produce
of a tax levied in the latter way will vary, not only according to the
variations in the produce of the land, but according both to those in the
value of the precious metals, and those in the quantity of those metals
which is at different times contained in coin of the same denomination.
The produce of the former will always bear the same proportion to the
value of the real produce of the land. The produce of the latter may, at
different times, bear very different proportions to that value.

When, instead either of a certain portion of the produce of land, or of
the price of a certain portion, a certain sum of money is to be paid in
full compensation for all tax or tythe; the tax becomes, in this case,
exactly of the same nature with the land tax of England. It neither rises
nor falls with the rent of the land. It neither encourages nor discourages
improvement. The tythe in the greater part of those parishes which pay
what is called a modus, in lieu of all other tythe is a tax of this kind.
During the Mahometan government of Bengal, instead of the payment in kind
of the fifth part of the produce, a modus, and, it is said, a very
moderate one, was established in the greater part of the districts or
zemindaries of the country. Some of the servants of the East India
company, under pretence of restoring the public revenue to its proper
value, have, in some provinces, exchanged this modus for a payment in
kind. Under their management, this change is likely both to discourage
cultivation, and to give new opportunities for abuse in the collection of
the public revenue, which has fallen very much below what it was said to
have been when it first fell under the management of the company. The
servants of the company may, perhaps, have profited by the change, but at
the expense, it is probable, both of their masters and of the country.

Taxes upon the Rent of Houses.

The rent of a house may be distinguished into two parts, of which the one
may very properly be called the building-rent; the other is commonly
called the ground-rent.

The building-rent is the interest or profit of the capital expended in
building the house. In order to put the trade of a builder upon a level
with other trades, it is necessary that this rent should be sufficient,
first, to pay him the same interest which he would have got for his
capital, if he had lent it upon good security; and, secondly, to keep the
house in constant repair, or, what comes to the same thing, to replace,
within a certain term of years, the capital which had been employed in
building it. The building-rent, or the ordinary profit of building, is,
therefore, everywhere regulated by the ordinary interest of money. Where
the market rate of interest is four per cent. the rent of a house, which,
over and above paying the ground-rent, affords six or six and a-half per
cent. upon the whole expense of building, may, perhaps, afford a
sufficient profit to the builder. Where the market rate of interest is
five per cent. it may perhaps require seven or seven and a half per cent.
If, in proportion to the interest of money, the trade of the builders
affords at any time much greater profit than this, it will soon draw so
much capital from other trades as will reduce the profit to its proper
level. If it affords at any time much less than this, other trades will
soon draw so much capital from it as will again raise that profit.

Whatever part of the whole rent of a house is over and above what is
sufficient for affording this reasonable profit, naturally goes to the
ground-rent; and, where the owner of the ground and the owner of the
building are two different persons, is, in most cases, completely paid to
the former. This surplus rent is the price which the inhabitant of the
house pays for some real or supposed advantage of the situation. In
country houses, at a distance from any great town, where there is plenty
of ground to chuse upon, the ground-rent is scarce anything, or no more
than what the ground which the house stands upon would pay, if employed in
agriculture. In country villas, in the neighbourhood of some great town,
it is sometimes a good deal higher; and the peculiar conveniency or beauty
of situation is there frequently very well paid for. Ground-rents are
generally highest in the capital, and in those particular parts of it
where there happens to be the greatest demand for houses, whatever be the
reason of that demand, whether for trade and business, for pleasure and
society, or for mere vanity and fashion.

A tax upon house-rent, payable by the tenant, and proportioned to the
whole rent of each house, could not, for any considerable time at least,
affect the building-rent. If the builder did not get his reasonable
profit, he would be obliged to quit the trade; which, by raising the
demand for building, would, in a short time, bring back his profit to its
proper level with that of other trades. Neither would such a tax fall
altogether upon the ground-rent; but it would divide itself in such a
manner, as to fall partly upon the inhabitant of the house, and partly
upon the owner of the ground.

Let us suppose, for example, that a particular person judges that he can
afford for house-rent all expense of sixty pounds a-year; and let us
suppose, too, that a tax of four shillings in the pound, or of one-fifth,
payable by the inhabitant, is laid upon house-rent. A house of sixty
pounds rent will, in that case, cost him seventy-two pounds a-year, which
is twelve pounds more than he thinks he can afford. He will, therefore,
content himself with a worse house, or a house of fifty pounds rent,
which, with the additional ten pounds that he must pay for the tax, will
make up the sum of sixty pounds a-year, the expense which he judges he can
afford, and, in order to pay the tax, he will give up a part of the
additional conveniency which he might have had from a house of ten pounds
a-year more rent. He will give up, I say, a part of this additional
conveniency; for he will seldom be obliged to give up the whole, but will,
in consequence of the tax, get a better house for fifty pounds a-year,
than he could have got if there had been no tax for as a tax of this kind,
by taking away this particular competitor, must diminish the competition
for houses of sixty pounds rent, so it must likewise diminish it for those
of fifty pounds rent, and in the same manner for those of all other rents,
except the lowest rent, for which it would for some time increase the
competition. But the rents of every class of houses for which the
competition was diminished, would necessarily be more or less reduced. As
no part of this reduction, however, could for any considerable time at
least, affect the building-rent, the whole of it must, in the long-run,
necessarily fall upon the ground-rent. The final payment of this tax,
therefore, would fall partly upon the inhabitant of the house, who, in
order to pay his share, would be obliged to give up a part of his
conveniency; and partly upon the owner of the ground, who, in order to pay
his share, would be obliged to give up a part of his revenue. In what
proportion this final payment would be divided between them, it is not,
perhaps, very easy to ascertain. The division would probably be very
different in different circumstances, and a tax of this kind might,
according to those different circumstances, affect very unequally, both
the inhabitant of the house and the owner of the ground.

The inequality with which a tax of this kind might fall upon the owners of
different ground-rents, would arise altogether from the accidental
inequality of this division. But the inequality with which it might fall
upon the inhabitants of different houses, would arise, not only from this,
but from another cause. The proportion of the expense of house-rent to the
whole expense of living, is different in the different degrees of fortune.
It is, perhaps, highest in the highest degree, and it diminishes gradually
through the inferior degrees, so as in general to be lowest in the lowest
degree. The necessaries of life occasion the great expense of the poor.
They find it difficult to get food, and the greater part of their little
revenue is spent in getting it. The luxuries and vanities of life occasion
the principal expense of the rich; and a magnificent house embellishes and
sets off to the best advantage all the other luxuries and vanities which
they possess. A tax upon house-rents, therefore, would in general fall
heaviest upon the rich; and in this sort of inequality there would not,
perhaps, be any thing very unreasonable. It is not very unreasonable that
the rich should contribute to the public expense, not only in proportion
to their revenue, but something more than in that proportion.

The rent of houses, though it in some respects resembles the rent of land,
is in one respect essentially different from it. The rent of land is paid
for the use of a productive subject. The land which pays it produces it.
The rent of houses is paid for the use of an unproductive subject. Neither
the house, nor the ground which it stands upon, produce anything. The
person who pays the rent, therefore, must draw it from some other source
of revenue, distinct from and independent of this subject. A tax upon the
rent of houses, so far as it falls upon the inhabitants, must be drawn
from the same source as the rent itself, and must be paid from their
revenue, whether derived from the wages of labour, the profits of stock,
or the rent of land. So far as it falls upon the inhabitants, it is one of
those taxes which fall, not upon one only, but indifferently upon all the
three different sources of revenue; and is, in every respect, of the same
nature as a tax upon any other sort of consumable commodities. In general,
there is not perhaps, any one article of expense or consumption by which
the liberality or narrowness of a man’s whole expense can be better judged
of than by his house-rent. A proportional tax upon this particular article
of expense might, perhaps, produce a more considerable revenue than any
which has hitherto been drawn from it in any part of Europe. If the tax,
indeed, was very high, the greater part of people would endeavour to evade
it as much as they could, by contenting themselves with smaller houses,
and by turning the greater part of their expense into some other channel.

The rent of houses might easily be ascertained with sufficient accuracy,
by a policy of the same kind with that which would be necessary for
ascertaining the ordinary rent of land. Houses not inhabited ought to pay
no tax. A tax upon them would fall altogether upon the proprietor, who
would thus be taxed for a subject which afforded him neither conveniency
nor revenue. Houses inhabited by the proprietor ought to be rated, not
according to the expense which they might have cost in building, but
according to the rent which an equitable arbitration might judge them
likely to bring if leased to a tenant. If rated according to the expense
which they might have cost in building, a tax of three or four shillings
in the pound, joined with other taxes, would ruin almost all the rich and
great families of this, and, I believe, of every other civilized country.
Whoever will examine with attention the different town and country houses
of some of the richest and greatest families in this country, will find
that, at the rate of only six and a-half, or seven per cent. upon the
original expense of building, their house-rent is nearly equal to the
whole neat rent of their estates. It is the accumulated expense of several
successive generations, laid out upon objects of great beauty and
magnificence, indeed, but, in proportion to what they cost, of very small
exchangeable value. {Since the first publication of this book, a tax
nearly upon the above-mentioned principles has been imposed.}

Ground-rents are a still more proper subject of taxation than the rent of
houses. A tax upon ground-rents would not raise the rent of houses; it
would fall altogether upon the owner of the ground-rent, who acts always
as a monopolist, and exacts the greatest rent which can be got for the use
of his ground. More or less can be got for it, according as the
competitors happen to be richer or poorer, or can afford to gratify their
fancy for a particular spot of ground at a greater or smaller expense. In
every country, the greatest number of rich competitors is in the capital,
and it is there accordingly that the highest ground-rents are always to be
found. As the wealth of those competitors would in no respect be increased
by a tax upon ground-rents, they would not probably be disposed to pay
more for the use of the ground. Whether the tax was to be advanced by the
inhabitant or by the owner of the ground, would be of little importance.
The more the inhabitant was obliged to pay for the tax, the less he would
incline to pay for the ground; so that the final payment of the tax would
fall altogether upon the owner of the ground-rent. The ground-rents of
uninhabited houses ought to pay no tax. Both ground-rents, and the
ordinary rent of land, are a species of revenue which the owner, in many
cases, enjoys without any care or attention of his own. Though a part of
this revenue should be taken from him in order to defray the expenses of
the state, no discouragement will thereby be given to any sort of
industry. The annual produce of the land and labour of the society, the
real wealth and revenue of the great body of the people, might be the same
after such a tax as before. Ground-rents, and the ordinary rent of land,
are therefore, perhaps, the species of revenue which can best bear to have
a peculiar tax imposed upon them.

Ground-rents seem, in this respect, a more proper subject of peculiar
taxation, than even the ordinary rent of land. The ordinary rent of land
is, in many cases, owing partly, at least, to the attention and good
management of the landlord. A very heavy tax might discourage, too much,
this attention and good management. Ground-rents, so far as they exceed
the ordinary rent of land, are altogether owing to the good government of
the sovereign, which, by protecting the industry either of the whole
people or of the inhabitants of some particular place, enables them to pay
so much more than its real value for the ground which they build their
houses upon; or to make to its owner so much more than compensation for
the loss which he might sustain by this use of it. Nothing can be more
reasonable, than that a fund, which owes its existence to the good
government of the state, should be taxed peculiarly, or should contribute
something more than the greater part of other funds, towards the support
of that government.