Public Finance

The necessity for constantly appealing to the theorems of economists has made the study of taxation almost a part of applied political economy;
*1 but, notwithstanding that this is the favourite English method of treatment, it is far better to discuss it as a part of the wider subject of public finance, since its origin and growth are in this way better understood, and the unquestionably close relation between the several departments of public finance can only thus receive due recognition.

§ 2. At the commencement of our examination questions of definition and classification present themselves in embarrassing number. Administrative practice and economic theory are both responsible for this difficulty. Terms apparently of the utmost simplicity have been, and are, used with a variety of meaning that is all the more confusing because of the strong points of connexion between the different uses. Discussions as to the meaning of terms are, it need not be said, hardly ever purely verbal: they in almost every case turn on different conceptions of facts, or different modes of grouping the objects under notice. The literature of finance, especially in Germany, is rich in examples, and some of the best-known doctrines derive a great deal of their authority from some particular application of an ambiguous word. To clear up our terminology, or at least to explain the use of the terms we employ, is an indispensable step in the investigation.

§ 3. First of all we have to settle the meaning of the word ‘tax.’ This term, so clear and simple to the ordinary citizen, has been very variously defined, sometimes at astonishing length, and often with the, it may be unconscious, design of aiding a particular theory as to the character of the facts denoted by it. The following definition is, we believe, correct and quite in accordance with the realities of finance and politics: it has the further advantage of not implying unfairly any special view respecting the nature or justice of taxation.

A tax is a compulsory contribution of the wealth of a person or body of persons for the service of the public powers.*2

Each term in this definition is significant, and helps to explain the object defined. First, a tax is ‘compulsory.’ This does not mean that all tax revenue is paid unwillingly, but merely that the will of the payer is legally immaterial. The amount, the mode and time of levying, the persons affected, are all determined by the sovereign or its delegate, and individual preferences or dislikes are allowed no place in the act. It thus appears that so-called voluntary taxation is not true taxation, which is plainly the fact; for in the few cases in which it has been tried, society is either in the pre-political stage in which the public economy exists only in a rudimentary form, or the system is one of self-assessment supported by social rather than legal sanction. Gifts may indeed be made by individuals to the State, a circumstance not without importance in the history of finance, but they are at present so rare as hardly to need mention.

Next, a tax is a ‘contribution’—that is to say, it involves a sacrifice on the part of the contributor. It is quite possible that some persons may gain through the operation of a tax of which they themselves pay a part; but it is rather the operation of the tax than its payment by the person affected that produces this result. Every tax necessitates a deduction from the wealth of the contributor, even though compensation may be indirectly brought about through its action.

Thirdly, the term ‘wealth’ has to be understood in a wide sense, including ‘services’ as well as commodities. Military service or forced labour for, say, repairing roads (
corvées) is taxation quite as much as payment of money or goods. These may be good or bad forms of taxation, but they must be reckoned in the category of taxes.

Again, all taxation is imposed on ‘persons.’ This necessarily follows from the circumstance that the payment of taxation is a duty, and persons only can be liable to duties. The proposition is apparently inconsistent with the division of taxes into ‘personal’ and ‘real,’ and also with the taxation of commodities so often mentioned. There is, however, no opposition between the different uses. The term ‘real’ taxation refers to the ‘object’ of taxation; the owner or ultimate bearer is the ‘subject’ of the tax, and he is a person. Taxation of commodities falls on the consumers or other persons connected with the taxed articles, and a similar analysis will apply to other forms of taxation. The truth, though often forgotten, yet always holds good that a tax must ultimately be paid by some one.
*3

Fifthly, taxation is levied for ‘service’ or ‘benefit.’ The public economy requires the supply of its wants, and taxation is the mode of meeting whatever proportion of those wants remains unsatisfied from other parts of the public revenue. The produce of taxation has unfortunately been only too often misapplied, and resulted in injury rather than gain; but the tax-imposing body must be regarded as the final arbiter of the justice of its wants. That some requirements are evil makes them none the less requirements in the case either of individuals or of States.

Finally, taxation is for the ‘public powers,’
i.e. it has to meet the wants of both central and local governments. A rate raised by the smallest parish is as much a tax as if it were levied by the Imperial Parliament. All contributions to the various organs of government are taxes in the view of finance, whatever be their administrative name. Special kinds of taxation have been often denounced as being for the benefit of classes or individuals, not for that of the State. Protective taxes,
e.g., have incurred this reproach. Such forms of taxation are, however, imposed in the interest, or supposed interest, of the nation, and if they yield any revenue are so far productive of gain to the State. The advantage obtained by the protected producers may be regarded as equivalent to so much public expenditure in their favour. It is generally incapable of being estimated, but this circumstance is of practical rather than theoretical importance. That all taxes of equal pressure are not of equal advantage, either to the State or the community, is too evident to need formal assertion. Otherwise there would be no reason for the selection of any particular forms.

§ 4. The foregoing definition, with the accompanying explanations, conveys all that is essential in the idea of taxation, but the numerous efforts to explain the term deserve some further notice. Many of the ablest writers on the subject have given definitions which substantially agree with that stated in the preceding section. Thus De Parieu defines taxation as ‘the charge levied by the State on the property or labour of the citizens, in order to provide for the public expenses’; Roscher asserts that taxes are ‘the contributions which individual economies must pay, in consequence of their dependence, to the State, province, commune, etc., or, generally, the particular collective compulsory economy placed over them in order to assist in satisfying the financial needs of the receivers.’ According to Cossa, a ‘tax is that part of the wealth of private individuals which the authority of the State, province, or municipality appropriates in order to provide for the public expenses incurred for the advantage of the general body of tax-payers.’
*4 To these definitions it is not here desirable to add the many others that generally agree with them; but we ought to consider some of the doubtful variations in the formal statements of the nature of taxation. One of these is suggested by the last clause of the definition just quoted from Cossa.
*5 The phrase ‘incurred for the advantage of the general body of tax-payers,’ recalls to mind the once-established, and still generally popular, doctrine that taxes are the price paid for the services of the public authorities. This way of looking at the facts was quite in harmony with the political doctrines of the seventeenth and eighteenth centuries. Belief in a compact between the ruler and his subjects led naturally to regarding taxation as simply a payment for service done. The citizen received security and paid its price in taxation. The immediate advantage of this doctrine, as placing a limit to arbitrary exactions and tending to increase security, is apparent, and there is accordingly no reason for surprise when, in some form or other, the idea of exchange is associated with the payment of taxes. In Montesquieu’s opinion, ‘the revenues of the State are the portion of his property that each citizen gives in order to have security for the remainder, or to enjoy it in comfort.’ Here the conception of payment to escape further demands is combined with that of return for services rendered. The French National Assembly gives still another variation in its reference to taxation as ‘the common debt of all citizens, and the price of the advantages that society affords them.’ From this it is not far to the assertion of Proudhon that ‘Taxation is an exchange in which the State gives services and the contributor money.’
*6 Hardly distinguishable is the belief that taxation is the insurance premium against the risks of social disorder set forth in Mirabeau’s proposition that ‘Taxation is only an advance to obtain protection for social order.’ The desire to present a ready justification of the arrangements of society finds an illustration in these attempts to depict taxation as a
quid pro quo.

To show that this way of explaining taxation is incorrect is not difficult. The assertion that taxes are purely a return for services rendered is plainly untrue. We shall see that there is no possibility of measuring precisely the most important of the benefits rendered by the State. Security against aggression is, literally speaking, an ‘incalculable’ good. Social order cannot be sold by retail like tea or sugar, and so is it with the other state functions, even the purely economic ones. Indeed, it would be very near the truth to say that the difficulty of applying the normal method of purchase makes a given form of activity suitable for state management; if defence and justice could be readily bought and paid for, we might trust to private enterprise for a sufficient supply. Wherever the benefit to the individual can be even approximately estimated there is a strong presumption in favour of levying the cost incurred from him and converting the tax into a ‘fee.’ Special reasons may make it desirable that this charge should be compulsory. The citizen may be so negligent of his true interest as to omit obtaining the best appliances for the purposes of health or education, but even in such cases there is also a general interest which furnishes the principal ground for the intervention of the State.

The opposition between free payment and taxation is too important to be evaded by the introduction of a vague idea of exchange of services as including both, and any definition of taxation that implies, or expressly states, this combination is so far erroneous. Like the general doctrine of the social contract, its practical convenience as a weapon on the side of liberty cannot conceal its scientific weakness. The equivalence between the amount of taxes paid and the benefits obtained is rather to be found in the case of the community as a whole than of any special part of it. Looking at the public agencies from this point of view, it is well to consider whether the advantages of government are a compensation for its cost, and this test should be steadily applied in judging the merits of any proposed expenditure. The question, in truth, belongs to that department of public finance. Once expenditure has been incurred, the imposition of taxation in order to meet it is a matter of course. We have accordingly considered it in its fit connexion.
*7 In any case, to introduce what is at best a highly disputable doctrine into the definition of so important a term is altogether a mistake.

§ 5. Other definitions of taxation fail through excessive vagueness. We gain little by being told that taxation is ‘a public charge, a duty imposed on certain things.’
*8 Very often one or more of the essential elements is omitted. Thus the fact of taxation falling solely on persons is neglected in the definition of taxes as ‘the enforced proportional contribution of persons or property levied by the authority of the State for the support of government and for all public needs.’
*9 Besides the error of including ‘property’ as a subject of taxation, this definition brings in the unessential principle of ‘proportionality,’ and would therefore exclude large groups of what are universally regarded as taxes. This is a very common defect in the definitions of the term, due to the desire to give an exhaustive account of its attributes, or to bring some favourite theory into its general conception. Professor Ely’s elaborate account, like those of many German writers, illustrates this danger.
*10 The real function of a definition is to give a clear idea of the nature and limits of the phenomenon denoted by the term, not to convey in a formal statement all that is known about it, still less to prejudge the questions that may arise in the course of further inquiry.

§ 6. The etymologies of the words employed in different languages to’ denote this class of public contributions are full of instruction. The English ‘tax,’ as also its equivalent in local finance, ‘rate,’
*11 suggests the estimation or fixing of the amount of charge. So does the German ‘
Schätzung.‘ The idea of assistance or advantage to the State is foremost in the French ‘
aide‘ and the German ‘
Steuer.‘ That of compulsion is primary in ‘
impôt‘ and ‘
Auflage.‘ The surrender by the payer is connoted in ‘
tributum,‘ ‘
dazio,‘ and ‘
Abgabe,‘ while finally the origin of taxation in voluntary payment is evidenced by the words ‘
donum‘ and ‘
benevolence.‘ Minute investigation may show that there are differences in the nature of the charges described by these several names, but, speaking broadly, they all cover what we regard as taxation, and help to justify the definition given above.
*12

§ 7. Having determined the meaning of ‘taxation,’ it next becomes necessary to understand its chief classifications and the technical terms employed respecting it. First, we may notice the term ‘subject,’ which is conveniently used to denote the person who bears its burden, and who must be distinguished from the immediate payer—
e.g. the importer of wine in England pays the duty on it, but the ‘subjects’ of the wine duties are the consumers so far as the charge is really a pressure on them. The ‘subject’ and the payer may or may not be the same according to the particular circumstances.

As the ‘subject’ of taxation is the person affected, so the ‘object’ is the thing or fact on which it is imposed.
*13 Thus, in the example just given of the wine duties, the commodity wine would be the object of the duty. Even where taxation is said to be ‘personal’ it is assessed on some object as ‘income’ or ‘produce,’ or in the extreme instance of a capitation or poll tax on the person as a physical body. Confusion between the ‘subject’ and ‘object’ is the cause of the belief that some taxation does not fall on persons.
*14

The ‘source’ of taxation has somewhat the same relation to its ‘object’ as the ultimate bearer or subject to the immediate payer. The fund created by taxation is derived from the resources of the community,
i.e. as we shall see from the income, or in special instances the property, of the ‘subjects.’ There has been much dispute as to the real ‘source’ of the tax-revenue that will need consideration later on, but there can be no doubt as to the proper use of the term ‘source’ in respect to taxation. It is, perhaps, unnecessary to mention the terms ‘unit’ and ‘rate,’ which are employed, the former to describe the quantity of the object taken as a standard, the latter the amount of taxation per ‘unit.’ Where commodities are taxed the unit will be a measure of weight,
e.g. the lb., as in the British tea duty, or contents, as the gallon in the wine duty, or length, as in the old duties on cottons. A sum of the standard money is the commonest, as in the system of
ad valorem duties.
*15

§ 8. A much more important set of terms is that connected with the classification of taxation. The division and grouping of the several kinds of taxes have been varied to suit particular financial systems, and much of the general discussions on the subject is concerned with the comparative merits of these arrangements, and the extent to which they conform to the natural order, so far as it can be said to exist. A preliminary notice of some of the more common distinctions is desirable at the present stage.

One of the most widely known and frequently used divisions of taxation is that into ‘direct’ and ‘indirect’; unfortunately it is used in different senses, though with several points of connexion. That most familiar to English readers is stated by J. S. Mill in the following terms:—

‘Taxes are either direct or indirect. A direct tax is one, which is demanded from the very persons who, it is intended or desired, should pay it. Indirect taxes are those which are demanded from one person in the expectation and intention that he shall indemnify himself at the expense of another.’
*16

The difference is here made to turn on the mode of incidence, a matter often very difficult to determine, and changing with the special circumstances of each case. Whatever be its economical importance, it is evidently useless for administrative purposes, and probably owes its origin to the peculiar theory of the Physiocrats respecting the ‘source’ of taxation.

A natural result has been that practical financiers have adopted a different basis of distinction, and regard those taxes as direct which are levied on permanent and recurring occasions, while charges on occasional and particular events are placed under the category of indirect taxation. On either method the income tax would be ‘direct,’ and the excise and customs ‘indirect’: the ‘death duties’ would be ‘direct’ from Mill’s point of view, and ‘indirect’ in the administrative sense. The vagueness of the terms has led to a number of further applications differing from the important ones just mentioned. With some writers taxes on possession are ‘direct,’ taxes on consumption ‘indirect’: with others production is substituted for possession, while a third class would regard taxation of income as direct, imposts on expenditure being indirect.
*17

Another division is that into ‘taxes on revenue’ and ‘taxes on capital,’ or, perhaps better, on ‘property.’ The former are paid out of the annual national production; the latter encroach on the accumulated wealth of the society. But in qualification of this statement it must be added that most of the actual property or capital taxes are so only in name, being really paid out of the income of the persons subject to the charge. There is thus a discordance between the practical and scientific use of these terms as great as in the case of direct and indirect taxation.

Taxes are often said to be either ‘real’ or ‘personal,’ and attempts have been made to distribute them into two classes on this basis. Personal taxes are those in which the person is taken note of in assessment. They require lists of the tax-payers (
rôles nominatives, in the language of French administrators). Real taxes are assessed on objects other than persons, and without direct reference to the owners or possessors. Capitation and income taxes are ‘personal’; taxes on land, houses, or goods are ‘real.’ The use of these terms has the inconvenience, already noticed, of obscuring the fact that all taxation is in the last resort on persons, and further raises a particular form of levy into undue importance. An income tax is certainly personal, but Schedule A of the English income tax is very similar to the French
impôt foncier, that is as certainly ‘real.’

In respect to the mode of assessment taxes may be either ‘rated’ or ‘apportioned.’
*18 In the former class the charge per unit is fixed, but the total yield is always uncertain, depending as it does on the number of units that pay. An apportioned tax is one the total amount of which is fixed the shares being apportioned among the objects that are charged. As examples the English income tax and the French
impôt foncier will again serve. The former is ‘rated,’ the latter ‘apportioned,’ being so divided among the departments as to make up the previously fixed amount. This method is decidedly the more primitive: it has disappeared long ago from the English system, and will probably meet the same fate elsewhere.
*19

§ 9. The foregoing distinctions are too important to be passed over, but they are also too imperfect to be of much use in a scientific classification of taxes. Particular aspects of taxation, the administrative peculiarities of certain countries, and obsolete or imperfect theories have been the causes of their employment. It is accordingly advisable to consider the subject from a more general point of view in order, as far as possible, to reach a natural arrangement.

In choosing the principle of grouping we have to make a selection between two contrasted systems which may be distinguished as (1) the economical and theoretical, and (2) the empirical or fiscal modes.

The first mentioned depends on the economical theory of the distribution of wealth, and can be traced back at least to Adam Smith. He opens his discussion of taxation by asserting that ‘the private revenue of individuals arise ultimately from three different sources—rent, profit, and wages,’ and proceeds, ‘every tax must finally be paid from one or other of those different sources of revenue, or from all of them indifferently…. The particular consideration of each of these different sorts will divide the second part of the present chapter into four articles.’
*20 Nothing can be plainer and simpler in appearance than this arrangement. The economic shares in distribution are regarded as so many sources of revenue, on one or more of which every tax must fall. The later analysis of profit into the component parts of ‘interest’ and ’employer’s gain’ would add one further source, but would not otherwise disturb the treatment.
*21 The great attractions of this method are its simplicity and the facilities that it affords for employing the propositions of economics in deducing the effects of taxation. To reduce the subject into ‘four articles,’ even with ‘several other subdivisions,’ promises a welcome abridgment of labour. English economists in treating of taxation have therefore intended, as far as possible, to follow this course. Ricardo and J. S. Mill are the most prominent examples. But on closer examination it appears that neither of them, nor even Adam Smith himself, could adhere consistently to this over-simple grouping. In Ricardo’s hands the subject requires eleven chapters, several of which consider the effects of taxes on land, houses, raw produce, and gold, in addition to those on the primary sources of rent, profit, and wages. Mill goes further and formally limits the division of taxes according to the economic source on which they are imposed to the case of direct taxation on income.
*22 The taxation of commodities and such taxes as those on contracts and on communication are quite outside it. But the
Wealth of Nations affords a stronger proof of the insufficiency of the ground of division selected by its author. Sections devoted to taxes on produce of land, on the profit rent, and the ground rent of houses, to capitation taxes, and taxes on commodities, break up the compact order that the introduction holds out. It is evident that the subject-matter refused to fit into the limited groups that the economic classification required, and the sound common sense so characteristic of Adam Smith is shown by his deviations from the theoretic lines previously traced out by him.

Much of the difficulty arises from the fact that taxation always has persons for its ‘subjects,’ and they frequently derive their income—the normal ‘source’ of taxation—from more than one of the different economic shares. The citizen is not a pure rent, interest, or wages receiver; he often combines all three in his annual receipts. Again, the most prominent external feature of taxation is the ‘objects’ on which it is levied. These are, however, very many, and it is often beyond the power of analysis to decompose the charge on some commodity or form of receipt into its economic constituents,
e.g. the produce of land may be due to the co-operation of natural agents, capital, labour, and directing ability, but to say how much of the taxation imposed on the result is to be assigned to each factor is quite impossible.

The obvious conclusion is that the classification is unsuitable. It is often convenient to use the economic theorems respecting rent, wages, etc., in our investigations of the effects of taxation, even though we should never meet in fact with the pure taxes on those parts of the product. For the problems of finance it is also necessary to remember that these preliminary inquiries are but steps towards the final result, which must deal with realities and not with imaginary and hypothetical cases.

§ 10. The defects of the economical mode of classification lead us to turn to what we have entitled the ’empirical’ or ‘fiscal’ one, which takes the actual kinds of taxation and arranges them in the most convenient way. To this procedure it may at once be objected that as each country has its own tax system, varying from time to time, we cannot attain to a general arrangement applicable to all cases. The classification of taxes suited for ancient Rome would be inadequate in modern England, and even confining attention to the present day, the Indian and British tax systems cannot be easily reduced to the same classification. This effect of temporary circumstances in limiting general principles has been already noticed,
*23 and it does at first sight raise difficulties in the effort to prepare a natural grouping of taxes. A ready mode of escape is, however, to be found. The terms and minute details of taxation vary greatly at different times and places, but this does not preclude the existence of large categories of taxation, possible in all countries, and found in somewhat different forms in many. The Indian land revenues differ from the English land tax and also from the French
impôt foncier, but in all three countries there is ‘taxation of land,’ which offers a general title, under which they may be placed in company with the Roman provincial tax and several others. Like treatment can be applied to different forms of taxes on the produce of industry, and so in other cases.

The question next arises, How far should this process be carried, and what general categories can we form? Rau has boldly grouped all taxes under the two heads of ‘estimated taxes’ (
Schätzungen) usually charged on goods, and ‘taxes on expenditure’ (
Aufwandsteuern), which does not carry us much beyond the rude divisions mentioned in § 8. Hoffmann prefers the division into taxes on possession (
Besitz) and taxes on acts (
Handlungen), while Cohn accepts the tripartite arrangement of Wagner into taxes on (
a) acquisition (
Erwerb), (
b) possession (
Besitz), and (
c) consumption (
Verbrauch).
*24 De Parieu carries out the division more minutely, and forms five classes of taxes, viz. (1) on persons, (2) on wealth, (3) on enjoyment, (4) on consumption, (5) on acts. In defence of this arrangement he argues that, like all natural classifications, it allows of an indefinite margin between each adjacent group, and that it further harmonises with the administrative division between direct and indirect taxation, classes 1, 2, and 3 belonging to the former, and classes 4 and 5 to the latter category.
*25

All the preceding classifications appear to have at least two defects: for (1) they simply deal with certain external features of taxes, and do not take note of their essential characteristics, and (2) like the otherwise very different arrangement of Adam Smith, they are too simple for the complexity of the facts to which they are applied. Hock has attempted to avoid this defect. He starts from the untenable position that taxation is a compensation for state services. These services are, he thinks, of three kinds, to wit: (1) protection of person, (2) protection of property, and (3) the performance of special services. To each corresponds a ‘primitive tax’ (
Ursteuer): these are (1) personal taxes, (2) income taxes, (3) taxes for special services rendered.
*26 The practical difficulties in levying these taxes in their pure form leads to the use of other taxes as substitutes (
Surrogate) in the form of taxes on (
a) consumption, (
b) product, (
c) customs, (
d) special income taxes, (
e) fees and charges on occupations.
*27

Though it is plain that the basis of Hock’s division is unsound, it yet has the merit of suggesting the best way of reaching a truly natural arrangement. The distinction between primitive and derived taxes is a valuable one, and can be so used as to combine the economical and empirical methods of grouping in a consistent arrangement.
*28

§ 11. The position of Adam Smith that taxation must be derived from the constituents of private income is, broadly speaking, correct. Where it falls on property there is a diminution of the national wealth which, if continued, must prove destructive. A true instinct, therefore, prompted him in his effort to analyse taxes into those on rent, on wages, and on profit. On the other hand it is equally true that the ‘objects’ of taxation do not easily allow of this analysis. Between the taxes of economical theory and the taxes of actual life there is a gulf that appears hard to bridge over, and one that has retarded the progress of financial science.

This difficulty is at all events extenuated by the circumstance that though the abstract economic taxes are not met with in fact, they are not wholly imaginary. A tax on economic rent has some and often considerable resemblance to a land tax, or, to put it the other way, a land tax often tends to become a tax on rent. The ‘tax on profit’ of the economic text-books bears a like relation to the taxes on business, of which Schedule D of the English income tax, the Prussian
Gewerbesteuer, and the French
Patente may be taken as specimens. So with the wages tax, in relation to actual capitation taxes, or the late
Classensteuer of Prussia. If now we regard taxes on the factors of production, and therefore on the shares in distribution, as ‘primary,’ we have a basis from which to proceed to the investigation of those secondary taxes that are placed on other ‘objects.’ By grouping together the various taxes on land we can consider the play of financial forces in the case of rent. The industrial taxes will similarly enable us to see the working of charges on interest and profit, and finally poll and capitation taxes will perform the same service for taxes on wages.

The economic mode of arrangement assigns a place to taxes on income or revenue which may be regarded as a combination of all the primary forms. It may in certain cases be admissible to break up an income tax into its component parts, just as, on the other hand, it may be well to combine a series of taxes that together make up an income tax. Thus the five schedules of the English income tax or the four of the Italian one might be separately treated, or again the ‘four direct contributions’ of the French system might be taken in combination as nearly equivalent to a general income tax.
*29 Still, it is necessary to consider the fiscal bearings of general income and property taxes, and this discussion most fitly follows the examination of the taxes on component parts of income.

When the ‘primary,’ and, if the phrase be admissible, ‘quasi-primary’ taxes have been discussed, there remain no small number of other charges. The whole elaborate system of taxation on commodities that has so large a place in every country must be dealt with. It may be regarded as taxation of consumption, or of expenditure, but for practical purposes it includes the two great departments known to English fiscal practice as ‘excise’ and ‘customs.’ So far the taxes enumerated have appeared to fall on the production, the distribution, or the consumption of wealth; those that directly affect the remaining economic process of circulation must also be noticed. Taxes on transport and communications come under this head; so does the yet more important class of taxes on the transfer of property and the transactions of commerce,
i.e. the ‘taxes on acts’ of De Parieu’s arrangement. The taxation of succession after death may be treated as a particular case of transfer, but it also has affinities with property and income taxes which must be carefully considered. In like manner taxes on necessary commodities often resemble in their effects a tax on wages, as Ricardo with some exaggeration urged. The other secondary taxes have similar reactions on the constituents of income, but, nevertheless, their separate treatment is desirable, and indeed unavoidable.

§ 12. We have now obtained what appears, on the whole, a satisfactory distribution of the several taxes. Briefly recapitulated it is as follows: The main division is into ‘primary’ and ‘secondary.’ The primary taxes comprise those on land, on business and capital, on persons and on labourers’ earnings. The combination of these primary forms gives us the general income and property taxes which come next in order. Passing to the secondary forms of taxation we find (1) taxes on commodities, including both excises and customs, (2) taxes on communication and transport, (3) the remaining taxes on commerce and legal transactions, (4) taxes on transfer of property, (5) succession duties.

But the discussion of the several taxes in the foregoing order must be postponed until we have studied the operation of taxation in general and the conditions required for its satisfactory working. No single tax can be rightly appreciated without reference to the financial system of which it forms a part. The remaining chapters of the present Book will therefore be devoted to a study of the characteristics of taxation in general and the principles that should regulate its application. In this part of finance we meet with difficult theoretical and practical questions which will require the utmost attention for their proper understanding. On some points opinion is sharply divided, and consequently, while endeavouring to reach a definite judgment on each disputed question, we shall endeavour to obtain a clear conception of the grounds on which opposing views are based.