Chapter LII: , pp. 345 and 365

The work which in these last years cost him most labour--in view of his failing health, it would have been well for his friends had he never undertaken it--was that given to the Committee on the Income Tax, of which he became chairman in 1906. Sir Bernard Mallet (now Registrar- General) writes in 1916:

"In the spring of 1906 the Government decided to appoint a strong
Committee to inquire into the questions of graduation and
differentiation of the income tax, which had for some Sessions been
coming into prominence in consequence of the financial difficulties
caused by the South African War. Mr. Asquith, then Chancellor of the
Exchequer, offered the chairmanship to Sir Charles Dilke, who had
never claimed to be an expert in finance, and only accepted it after
strong pressure, and the Select Committee set to work accordingly
early in May. Having taken up the work, which occupied most of the
summer, Sir Charles threw himself into it with immense energy. He
familiarized himself with all the literature bearing on the
question, and he made a point of calling, as witnesses, not only the
usual officials, but also as many outside economists and
statisticians as might be able to throw light upon questions which,
as he rightly conceived, lay at the root of any proper consideration
of the problem before the Committee. He attached special importance
to all the evidence bearing upon foreign and colonial methods and
principles in the taxation of income and property, and to the
endeavour he made to get at statistics bearing on the distribution
of income--two vitally important factors introduced by him, for the
first time, into any official handling of the subject.

"But the result of all the knowledge, thoroughness, and enthusiasm,
which, as his friends could testify, he lavished without stint (and,
it is to be feared, to the serious detriment of his health) upon the
work, must have somewhat disappointed him. Sir Charles's attempts to
deal with the matter in a comprehensive spirit and produce a report
which would rival in interest the famous reports of two previous
Select Committees on the subject, those of 1851 and 1861, were
hampered by the necessity, under which the Committee lay, of
devising a means to increase the yield of the income tax with the
least political friction. The two expedients which came most
prominently before the Committee were those of differentiating the
rate of the income tax in favour of earned or precarious incomes,
and of imposing a supertax upon the larger incomes. Both of these
were included in the recommendations of the report which was
ultimately adopted, [Footnote: Report of the Select Committee on
Income Tax, II. of C. 365 of 1906.] and carried into effect in the
Budgets of 1907 and 1909 respectively. [Footnote: See _British
Budgets_, by Bernard Mallet (1913), pp. 262, 263, 274, 277-281, and
305, where also some comments on the recommendations of the
Committee are to be found.] Sir Charles's own view was opposed to
both these methods. He would have preferred to differentiation, even
in the limited form (up to £2,000 a year) in which it became law,
the method of separate taxation of property, or income from
property, as in Prussia and Holland, if death duties were not
considered as sufficient taxation upon property.

"He was certainly impressed by the unscientific character of the
proposed differentiation; by the difficulty of distinguishing
between 'earned' and 'unearned' incomes, and by the possibilities of
abuse which this method of dealing with the question offered.
Supertax he would have reserved for a national emergency, but it
should not be supposed that his opposition to it implied opposition
to graduation either in principle or in practice. He was, indeed,
strongly in favour of a graduated income tax, but, in his judgment,
a supertax was a somewhat clumsy way of effecting the purpose aimed
at. In his opinion the universal declaration of all taxable incomes
was an indispensable preliminary to the full and just graduation of
the income tax, and written notes of his are in existence showing
how much importance he attached to this point.

"Holding these views, he could not produce a report sufficiently
decisive in its acceptance of the methods favoured by the majority
of his colleagues.

"The stupendous increases which have taken place in the rates of the
income tax owing to the present war, increases far surpassing
anything contemplated by the Committee over which Sir Charles
presided ten years ago, have thrown all such controversies as these
into the shade; but apart from the practical results of its
recommendations, which for good or ill left at the time a very
decided mark on fiscal legislation, this investigation succeeded,
owing mainly to his influence, in eliciting a quantity of evidence
which will always make it of historical interest to students of
taxation."