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Home -> Charles Francis Bastable -> Public Finance -> Chapter II

Public Finance - Chapter II

1. Preface

2. Chapter I

3. Chapter I a

4. Chapter II

5. Chapter II a

6. Chapter III

7. Chapter IV

8. Chapter V

9. Chapter VI

10. Chapter VII

11. Chapter VII a

12. Chapter VIII

13. Chapter VIII a

14. Book II Chapter I

15. Chapter II

16. Chapter II a

17. Chapter III

18. Chapter III a

19. Chapter III b

20. Chapter IV

21. Chapter V

22. Book III Chapter I

23. Book III Chapter I a

24. Chapter II

25. Chapter III

26. Chapter III a

27. Chapter III b

28. Chapter IV

29. Chapter V

30. Chapter V a

31. Chapter VI

32. Book IV Chapter I

33. Chapter II

34. Chapter III

35. Chapter IV

36. Chapter V

37. Chapter VI

38. Chapter VI a

39. Book V Chapter I

40. Chapter II

41. Chapter III

42. Chapter IV

43. Chapter IV a

44. Chapter V

45. Chapter Va

46. Chapter VI

47. Chapter VIa

48. Chapter VII

49. Chapter VIIa

50. Chapter VIII

51. Chapter VIIIa

Taxes On Capital And Business.

1. FOR fiscal purposes durable capital has the closest
resemblance to land the two are indeed sometimes inex-
tricably mixed up together and of its different forms,
houses and buildings generally are the most important
from the same point of view. Sometimes as an integral
part of the land tax, but more often with a distinct posi-
tion, we find the charge on houses used both for local and
general purposes. The reasons for its employment are to
be found, partly in its connexion with land, partly in the
universality of the use of houses, which extends taxation to
all classes, partly in the convenience and readiness of
assessment, and finally in the belief that the value of a
person's house was a satisfactory test of his income. These
considerations have very different weight at different
periods. In early times the one object was to secure
receipts, and for this purpose houses, or something con-
nected with them, were convenient objects of imposition.

As in the case of land, the precise form adopted varied ;
at first houses were taxed simply as part of the land on
which they stood, being treated as a particular kind of
improvement. The hearth or chimney tax was in use in
the feudal period, under the name foaticum. The sub-
stitution of windows for chimneys made another variety,
to be succeeded by taxation according to the class of
house, or proportioned to the letting value. The problems
and course of development of the land tax reappear with
modifications in the case of the house tax.

2. England shows this development. The hearth tax,
established in 1662, was so unpopular that it was abolished
in 1688, but soon replaced by the window tax, under which
a scale of payment was fixed ten windows and under, u.,
increasing at a higher rate for a larger number. With
several changes in the rates, and with additional stringent
provisions to check evasion, the tax continued all through
the i8th century. In 1815 its yield was about 2,000,000.
Sounder ideas of taxation led to its repeal in 1851. Adam
Smith's suggestion that inhabited houses should be taxed
on their annual value was adopted in 1778, in addition to
the existing window tax. Houses under 5 value were to
be free ; those between 5 and 50 to pay 6d. in the pound
(2^ per cent.) ; those over 50, is. (5 per cent.). Several
increases of the tax were made for war purposes, till in 1 808
the rate on houses of 40 and over was 2s. iod., or nearly
15 per cent. By a curious selection the house duty was re-
pealed in 1834 instead of the window tax, but on the repeal
of the latter in 1851 it was reimposed. Houses under 20
were exempted, and business premises paid only two-thirds
of the rate on ordinary houses, i. e. 6d. and qd. per pound
respectively. The last change has been made in 1890
when Mr. Goschen restored the old system of grading.
Houses between 20 and 40 pay only 4 between 40 and 60, 6d., the corresponding rate on
business premises being id. and ^d. The yield of the
tax was by these changes reduced from 2,000,000 to
1,450,000 l .

To arrive at the total pressure of taxation on buildings
we must add, (i) the income tax in schedule A, amounting
at 6d. to about 3,500,000, and (2) the great mass of local
rates. Taking the figures in the last chapter, if the bal-
ance of rates can be assigned to buildings, we would get the enormous sum of 23,000,000 as their local taxation 1 .
The occupier, the ground landlord, and in the case of
business establishments, the consumers of the commodities,
are all participants in the burden, but we must again note
that a great deal of this expenditure is economically repro-
ductive, so that the taxes are paid out of a fund created by
their employment.

3. France has not reached the same stage of develop-
ment as England in regard to this form of taxation. The
separation of the land and house taxes has only just been
accomplished, and the door and window tax still exists,
in addition to the Mobilier, or tax on letting value. The
latter, suggested under the monarchy as a substitute for
the personal Taille^ was in its origin, as established by
the Constituent Assembly in 1791, a tax on income based
on the presumption that house rent was a measure of its
amount, but owing to the belief that income increased
more rapidly than the cost of housing, the tax was on
a progressive scale so calculated as to be proportional
to income, and some qualifications were made by using
other elements. In 1798 these refinements were abolished,
and the Mobilier became a house tax. The tax (which
is combined with the personal tax, to be discussed in the
next chapter) is apportioned, and amounts to about
3,000,000, of which at least three-fourths comes from
the house tax part 2 . The contributions to local taxation
through the additional centimes are of very nearly the
same amount.

The door and window tax was established under the

1 Bk. iv. ch. i. 4.

3 The yield of the Personnelle mobilttre has been as follows
FRANCS (ooo's omitted). .









Directory in 1798. At first a rated tax, it was appor-
tioned in 1802, and with the exception of 1831-2, it has so
continued, with a steady increase in amount. From a little
over 500,000 in 1830 it rose to nearly 1,600,000 in 1885,
while the additional centimes that were only 100,000 at the
former date, had come to equal the principal at the latter.
The total may therefore be regarded as about 3,000,000,
obtained by an inconvenient and vexatious method l . To
the foregoing the building tax, now separated from the
pure land tax, adds a sum of 2,500,000 for the principal,
with additions coming very close to 3000,000 (2,600,000
of that amount being for the communes and departments in
about equal proportion). As the tax is now a rated one
the increase in value of house property, even if the present
rate of 3-20 per cent, is maintained, will add to the yield.
The total burden on houses is therefore, speaking broadly,
between 13,000,000 and i 4,000,000 2 .

Italy had, as we saw, established a distinct house tax in
1865. The amount obtained by it in 1866 was 1,300,000;
by 1886 it had more than doubled, being nearly 2,650,000
Moreover the local charges, superimposed on the principal,

The figures for the ' door and window ' tax are
FRANCS (ooo's omitted).








2 The estimate for 1890 for Proprietes baties was
FRANCS (ooo's omitted).

Principal 63,450

Additional for education . . . 5,076

For departments 3 2 723

For communes 32,698

Extras 3-557

Total 137,504

Taking this with the preceding notes we reach the result in the text. Consul
Egerton states that ' the total tax on land and houses in France will be found
to amount this year (1890) to about 15,000,000 independently of the personal
and ' mobiltire ' tax of ^5,500,000 and of the door and window tax of over
3,000,000,' Reports as to the Taxation of Land and Buildings (C. 6209), 16.
came to almost the same amount. For the year 1888-9 the
total for state and local taxation was close on 5,500.000,
equally divided between the two branches. Though the
absolute amount is much less, the pressure is probably
greater than in England or France 1 .

Belgium, Spain and Portugal do not separate their land
and house taxes ; it is therefore impossible to deal with them
under this head.

The Prussian house tax, made distinct in 1861, and sepa-
rately collected since 1865, is proportioned to value 2 per
cent, (or 4 per cent, in the case of houses let to tenants). It
has grown with the increase of wealth from 850,000 in 1878
to over 1,500.000 in T 889-90. The local charges may be less
than half that amount, giving a total of about 2,200,000 a .

In most of the smaller German States the house tax is a
part of the land tax. Bavaria, as in the case of land,
applies the ' area ' and ' productive power ' principle to the
taxation of houses.

The Austrian house tax, in existence since 1820, yielded
for 1889 about 3,000,000, and that for Hungary, about
1,000,000, not including the local charges 3 .

4. From the facts (unfortunately imperfect) just given,
we can see that the course of development in respect to
the taxation of buildings is towards taking their value, or,
if possible, their annual^yield, as the~~Easis^of~assessment,
and at the same time towards separating them from land.
The French door and window tax may, therefore, be at
once condemned as a pernicious survival of an antiquated
method : its abolition, or rather absorption in the mobilier,
is merely a question of time.

The problem of assessment has usually been dealt with in
the way approved by Adam Smith, but with a large allow-
ance for expenses and repairs, varying in the different coun-

1 For the Italian house tax, Alessio, i. 233-266.

2 Cohn, 306; Reports on Taxation (C. 6209), 31.

3 I.e. taking the florins at 2s., the figures are Austria, 31,058,000 florins ;
Hungary, 10,000,000 florins.
tries. On the whole, it is easier to ascertain the letting value
of houses than of land, and there is besides the element of
cost of construction to be used as a corrective. Some
difficulties, however, certainly exist. It is not easy to deal
with deterioration and the resulting loss of value, more
particularly in respect to buildings employed in produc-
tion. Revaluation at short intervals is the only suitable
way, but it is both troublesome and expensive. The oppo-
site case, i. e. where improvements have been made, is also
complicated. The increased value ought certainly to be
taxed, but the effect in checking improvements is serious.
The usual course of allowing a period to elapse before
rating new constructions is the best practical solution.

The taxation of expensive private dwellings, such as
noblemen's mansions, has attracted more attention than its
intrinsic importance warrants. In England such houses
have been rated at a nominal figure on account of the sup-
posed expense of maintaining them, which is thought to
reduce their letting value. On the other hand, the cost
of construction has been proposed as the basis for valua-
tion, or again, that of reconstruction. Neither is, however,
adequate. Letting value fails where the objects are not
really and in fact let to tenants. Cost would give much
too high a value in some cases, as expenditure is not
always represented by additional value. The true test
in such cases lies in the utility of the house and surround-
ings, which selling or market letting value would measure,
but which, in its absence, must be estimated, either by
reference to similar dwellings let elsewhere x , or by the
probable expenditure of the possessor on his house accom-
modation. The modern tendency to apply commercial
principles, even to aristocratic residences and estates, will
afford a means of readily gauging value in these instances.

5. Far more important is the very difficult question
of the incidence of house and building taxes. So many
elements are combined that the assignment to each of its
separate share is a task of some complication. The value
of the ground on which the buildings stand is determined
by the law of rent, and a tax that falls on it would, there-
fore, appear to be untransferable. A house itself is a par-
ticular kind of commodity, and its share of taxation may
be supposed to come under the laws that determine the
incidence of taxes on commodities. Accordingly, Adam
Smith, Ricardo, and Mill have agreed in asserting that /
taxes on ground rent fall on the landlord, while those on/
building rent fall on the occupier. The builder must, they
thought, get his fair profit. The solution is not quite so
simple. First, as to ground rent, wherever there is an
alternative use for land, it is plain that a tax on it, if em-
ployed for building, is strictly limited by that other use :
thus until the rent of land for building exceeds that of
agricultural land by the amount of the tax, no landlord
will let it for that purpose. The tax on this minimum
ground rent would be passed on to the builder ; but when
that point is reached the ground landlord has a differential
gain, and cannot escape it by withdrawing his land as
he would thereby lose still more. We can, therefore,
accept the doctrine of the non-shifting of a tax on ground
rent as generally true. The other part of the doctrine
requires more consideration. The rent of houses depends
proximately on the conditions of supply and demand ;
taxation levied from the occupier is equivalent to so much
additional rent, what in the case of an ordinary com-
modity would be a rise of price. The consequent check
to demand tends to take off part of this increase, and
therefore the initial effect is to throw some of the tax on
the house owner. As houses are a very durable commodity,
the adjustment of supply to the altered demand may take
a long time to accomplish. It will largely depend on the
economic position of the locality ; if it is progressing, the
tax will check building until rent rises to its old level ;
but if it happens to be stationary or declining the burden
remains on the house owners, who are the possessors of a
particular kind of fixed capital. Again, even in an ad-
vancing locality the shifting may be on the ground rent.
The increase of house rent that checks building thereby
reduces the demand for building ground, and consequently
lowers its value. It is highly probable that some at least
of the burden will be so distributed.

In the case of buildings used for production or business
there may be a further shifting. The taxes levied on factories
and shops form a part of the expenses of the manufacturer
or trader and tend to raise the prices of the commodities
supplied by him ; but where the taxation is uniformly distri-
buted, a general rise of prices from this cause being impos-
sible, the tax would not be transferred. As this uniformity
is never really found there will be a disturbance of values
through taxation, with an ultimate incidence on interest
and employers' gains. The taxation of houses in all countries
varies according to locality, and the modern improvements
in transport and business organization have brought retail
prices nearer to a general level. The result is that the
shifting of building and house taxes to consumers of com-
modities is hardly possible, prices being limited by outside
competition, and it must therefore be on the owners of the
ground, in so far as it does not rest on the house owners,
traders and manufacturers in question. Still the levelling
force of competition is not universal, and shifting is not
always possible, and it may be that in the influence of
taxation we have at least a partial explanation of two im-
portant economic facts : (i) the curious local diversities of
prices and (2) the failure of various local industries 1 . The
creation of various interests makes the matter more com-
plex. Between the ultimate owner of the soil and the
immediate occupier there are often, as already noticed,

1 Fawcett, Political Economy (5th ed.), 626, who gives the Thames ship-
building trade as an instance. His argument as to the incidence of rates on the
consumer is based on too rigid an interpretation of the doctrine of equality of
profits. several intermediate interests, and the house and building
taxes may be placed on them in different degrees. The
tenant free to leave can, if the economic conditions favour,
throw back his taxes, but the leaseholder cannot. For this
reason legislative provisions are urgently required to secure
a due division of burdens that the process of shifting cannot
fairly distribute, and the problem of devising a fair house
tax is made more difficult. The policy of confining general
taxation of land and houses to their contribution in common
with other kinds of revenue to an income tax appears to be
the soundest. Local Finance is thereby supplied with a
special kind of taxes and the question of unequal valuation
between localities is reduced in importance.

6. The taxation of land and buildings covers most fixed
capital. Many doubtful points may arise as to the treat-
ment of machines and fittings, but they usually come in
connexion with the taxation either of mines (a form of land)
or of factory buildings, and are taken as part of a general
property or income tax, or come in as indications to be
used in the taxation of business. Proposals to tax fixed
capital as such have been made, but they have not as yet
been reduced to practice. Apart from the taxation of land
and buildings and the taxes on particular commodities we
have next to examine the taxation of floating capital.

The question of a tax on interest presents itself in prac-
tical Finance chiefly as to dividends and mortgages. They
represent the great mass of wealth that is invested by its
owners for gain without their direct supervision. Floating
capital as such is so closely combined with other elements
and is so hard to trace, that its separate taxation is scarcely
ever presented. Unless this large part of wealth is reached
in some way there is an undue encouragement given to it.
Investments in land and industrial enterprises, are checked
and the distribution of taxation is so far unfair. These
reasons point towards the adoption of the general income
tax, which will necessarily include the revenue from floating

The separate taxation of floating capital for general or
local purposes in a direct form is not found in England, but
Schedule C (and part of D) of the income tax discharges
this function, and loans in the form of mortgages come under
Schedule A. The yield of Schedule C for 1889 came to
about ;i, 1 00,000. The taxes on acts are of service as they
compel these forms of wealth, so difficult to be reached by
direct means, to contribute to the revenue.

France has employed a substitute for this part of the
income tax in the Impot sur les valeurs mobilieres, introduced
in 1872, by which 3 per* cent, was imposed on the shares
of companies either home or foreign ; the yield, which in
1 873 was ^"1,250,000, increased by 1 880 to nearly i ,600,000 ;
by 1890 to over 2,000,000. The rate has been raised to
4 per cent, for 1891, and the estimate for that year is
2,600,000 or more than double the receipts of 1873.

Italy, like England, reaches interest by means of a general
income tax, and such is the usual method. In fact, one of
the strong reasons for its introduction is precisely the desire
to make capital contribute its due share. In some of the
South German States a special capital tax has been deve-
loped. Bavaria has a capital tax besides its income tax,
and both Wiirtemberg and Baden have somewhat similar

The great objection to a separate tax on the yield of
capital is the extreme difficulty of making it effective. The
necessary result of the ease with which it is escaped is
injustice in its distribution. The French tax on valeurs
mobilises falls on the shares of companies ; it is a corpora-
tion tax and tends to discourage those associations. In-
vestments abroad are much more easily kept out of the
tax collector's ken, and thus the progress of home invest-
ments is checked. On the whole the reasonable conclusion
is that the distinct tax on interest has no place alongside
of the land, building, and business taxes that form so large
a part of the fiscal receipts.

Its incidence, which in the case of a complete and com- prehensive tax on interest is on thejhglders, (unless in so
far as the supply of capital is checked by the lower returns),
is affected by the partial form that it usually takes. A tax
on e.g. mortgages lowers the profitableness of that parti-
cular kind of lending, and will therefore force the mortgagors
to pay at a higher rate under the penalty of getting a less
amount of accommodation. Then the incidence will pro-
bably be partly on landowners requiring loans, partly on
capitalists in general, as some of the capital that would
have gone to land will seek other outlets and lower the
rate in them. The same reasoning applies to other similar
cases, taxation of corporations or any special use of capital.
The question, already noticed in connexion with land, of the
wiping out of the tax by the sacrifice of the capital of the
original holders presents itself here. Stocks or shares sub-
ject to a tax must sell for less than if they were free from it,
and it may be thought that the transactions of the Stock
Exchange speedily discount these public charges and esti-
mate the taxed shares on their net revenue. In dealing with
this case two considerations deserve notice, (i) the ever
present possibility of the repeal or alteration of the tax, and
(2) the extent to which other primary forms of revenue are
burdened with like charges. If revenue from land, buildings,
capital, and personal exertions is all subject to the same
charge there can be no depression of their relative values.
The so-called c throwing off' (Abwalzung) of taxation means
simply that taxation as a whole is a deduction from the.
resources of the country where it is imposed.

7. The scantiness of direct and special taxation on loan
floating capital is further accounted for by the greater
prominence of industry as an object for the financier.
Pure interest is not so readily taxed as profits ; the older
English writers have in fact preferred not to separate this
compound element of income. Taxation of profits takes
the joint yield of capital and business ability for its object,
a course justified by the close connexion that exists in
reality. The financier must deal with external character-
istics, and as rent has to be taxed through land, so have
earnings to be selected in preference to the more refined
elements of interest and employers' gains. The actual
taxes on industrial receipts may indeed include the several
factors of rent, interest, wages, and employers' gain, since
both land and labour may contribute to the creation of
what is popularly and legally described as * profit.'

The original form of this taxation is found in the licenses
for trade so common in earlier times. Traders who at first
were supposed to pay the import and export duties imposed
on their commodities were besides subjected to duties for
pursuing their particular avocation. The whole mediaeval
system of incorporations and guilds, which survived till the
French Revolution, placed certain burdens on those engaged
in industry, and the modern ' tax on business ' may regard
this as its precursor. Within the present century there has
been a marked development of this form of taxation, in-
fluenced very much by the French system to be presently

Some very difficult questions are raised by the taxation
of profits, questions that it is to be feared can in practice
admit of only a partial solution. Foremost of these is the
ascertainment of profits. Valuation of land and of build-
ings is a complicated and expensive process, but it is light
compared with the task of measuring the fluctuating gains
of industrial production. It would sometimes be impossible
for the taxpayer himself to say what were his gains in a
given year, but a greater difficulty lies in his unwillingness.
The unchecked declaration of the contributor is quite in-
effectual, while official assessment involves a considerable
amount of arbitrary interference with private affairs. Taxes
on industry and profit as distinct from a general Income
Tax are usually based on certain legal presumptions. The
letting value of the area occupied, the character of the
business, the number of persons it employs, the population
of the district in which it is carried on, may be used
separately or in combination as indices of taxable capacity.
None of these tests can be expected to give an exact result,
but they tend to obviate the dangers of fraud on the one
hand and inquisition on the other. Productiveness and a
tolerable approach to just distribution are the two essentials
in taxation : the unfairness that the use of presumptions
must more or less cause is perhaps on the whole a less evil
than the encouragement to dishonesty that self-assessment
gives. Moreover the gains of industrial occupations are
now too large a part of the national revenue to be allowed
to escape taxation without causing greater injustice than
their exemption would remove. Profits hold the place that
land revenues formerly occupied.

8. The actual taxation of profits in England apart from
the license duties on particular trades and occupations is
carried out by Schedule D of the Income Tax. The former
element is a small one and is mixed up with various direct
taxes on consumption. Thus out of nearly 3,000,000
received for the local authorities in the year 1889-90 on
account of licenses, 1,200,000 belonged to taxes levied
on consumption, leaving 1,800,000 for industrial taxation,
the similar taxes in Ireland and Scotland being about
400,000 net, and as the total return of licenses has not
within the last fifteen years varied more than 3 per cent, we
may take 2,200,000 as representing the normal contribution
from this source, which so far as England and Wales are
concerned is a local resource since 1888 1 . Schedule D,
which at the present rate of 6d. gives a yield of 6,000,000,
is the main tax on profits, but to it the taxation of farmers'
profits under Schedule B should be added, though the
latter has some points of connexion with the strict land
tax under Schedule A, since the assessment is based on

1 More exact figures are

Trade Licenses, 1,797,600;
Consumption and enjoyment ditto, ^1,196,819.

Some small licenses on manufactures have been retained by the central
government, viz. brewers, distillers, tobacco manufacturers, and medicines. The
largest sum obtained by licenses (^3,622,217) was in 1879, tne smallest
03,497>636) in 1880.
the rent 1 , and the real incidence of the tax is not clear.
The yield from this Schedule is not more than 250,000.
We thus get a total taxation of less than 9,000,000.

9. The French system of taxation of profits commenced
with the law of March 1791 2 . One of the first measures of
the Constituent Assembly had been the abolition of the
restraints on industry, and no intention of taxing it other-
wise than through the general tax, which the mobilier was
intended to be, existed. Fiscal necessities forced the
establishment of the Droit de Patente, which, like the
mobilier, was estimated on the letting value of the establish-
ment, the tax to be 10 per cent, for rentals under 400
livres, 12! per cent, for those between 400 and 800, and
finally 15 per cent, for those above 800 livres. Abandoned
in 1793 it was restored in a different form in 1795. Subse-
quent changes in 1796-78 established the outlines of the
present system, which has however been developed by a series
of later measures 3 . The tax applies to all occupations and
professions not specially exempted. It is divided into a fixed
and a proportional duty and, unlike the other direct taxes,
it is 'rated,' not 'apportioned.' Of its four classes or
' tables ' one (D) is imposed on salaries ; the others em-
brace the various kinds of trades. The so-called ' fixed '
duty is really graded. For the first class (Table A) its
amount depends on (i) the kind of trade and (2) the
population of the commune in which it is carried on, e. g.
a trader in the first group of Table A in a commune with
over 100,000 inhabitants pays 12 (300 francs), one in the
eighth group only ics. (i 2 francs). Were they in a commune
with less than 2000 inhabitants they would pay 28^. (35
francs) and is. 8 would be exempt from the proportional tax. In the second

1 Half the rent in England and Wales and one-third in Ireland and Scotland
is taken as the profit of the farmer, who however, if he prefers, may be assessed
under Schedule D.

2 Under the Ancien Regime industry was taxed through the personal Taille
and the Vingtiemes,

3 Most important is the law of 1844, amended in 1853, 1872, and 1880.
class (Table B) special rates are laid down, ranging from
80 to i 9 according to business and population of commune.
The third class (Table C) has a fixed duty for each trade,
with additions for each workman employed.

The proportional duty is a certain percentage on the
letting value of the trader's residence and establishment,
varying from 10 per cent, to 1\ per cent, on the first
class, 10 per cent, on the second, and in the third varying
from 6-60 per cent, to 2 per cent, imposed at different
rates on residences, warehouses, and factories. Thus a
pin manufacturer who falls under the third group of
Table C pays 18 francs, plus 3-60 francs per workman
employed, 5 P er cent, on his residence and separate
shop, and 2j per cent, on his factory. A Paris banker
(Table B) pays 2000 francs and 10 per cent, on his house
and bank 1 .

The object of this very complicated system is evidently
to escape the arbitrary pressure of officials. External
marks supply the materials for assessment, and prevent
the honest from suffering through the evasions of other
tax payers. There is in addition an advantage given to
the more successful producers and traders, as their extra
gains are free from taxation. The State assumes that,
in a given situation, so much profit will be made, and
taxes accordingly ; any defect or excess concerns the
trader alone.

Certain gaps in the patente tax are noticeable, especially
that caused by the absence of agriculturists. The farmer
is free from this tax ; his profits do not contribute to the
services of the state. The impot fonder is a tax on rent
in the main, and cannot be regarded as counterbalancing
the taxation of industrial profits.

In spite of its complication, inequalities, and failure to
include agricultural profits, the Patente has the two great
advantages of being productive, and not very unpopular.
As a contribution to the State it has risen from less than
1,000.000 in 1830 to over 2,000,000 in 1860, and over
4,000,000 in 1885. The additional centimes for local
purposes have grown from being under 30,000 in 1830 to
900,000 in 1860, and 2,500,000 in 1885. With the small
extra items there is thus a total amount of about 6,800,000
obtained from this source l . Licenses are also used in the
French financial system, but their return, under 500,000
in 1883, was only slightly over it in 1889. To these
should be added the duty on mines, which does not
amount to 100,000.

10. Italy, as already stated, has followed England in
adopting the Income tax. Profits come under Schedule B,
which comprises ' mixed revenues ' as distinct from those
due to capital or personal action solely, and their taxation
is very imperfectly carried out. Profits are taxed at f only
of their amount.

The German states have developed a tax on industry
(Gewerbesteuer), probably suggested by the French Patente.
The Prussian tax was established in 1810, and modified
after the French war in 1820. Its present arrangement
groups contributors into three classes : (i) traders and
manufacturers, (2) hotel and inn keepers, and (3) hand-
workers who employ assistants. The rate of duty varies
according to the population, there being four different
scales. A medium rate is fixed for each trade on this
basis, and the total amount for the district (arrived at by
multiplying the medium rate by the number of contributors),
is redistributed by the local authorities. Some industries
are, besides, specially charged, while agriculturists and the
professional classes are exempt. The influence of the

1 More accurate figures are

FRANCS (ooo's omitted).










The additional centimes include those for State purposes, which amounted to
27,973,000 francs in 1885. Patente is clearly traceable, but the tax is much less im-
portant. In 1810 it returned only 90,000, by 1864 it had
risen to ,580,000, and in 1887-8 to 1,000,000, i.e. less
than one-sixth of the Patente^ or of Schedule D l .

Bavaria, Baden, and Wiirtemberg all employ the tax
on industry, modelled in the main on the French and
Prussian system, but there is a decided tendency to prefer
the income tax, or, at least, use it in addition.

Austria and Hungary have also the trade tax ; in
the former it gives about 1,000,000, in the latter about

11. The principal features of the taxation of profits, as
actually carried out, show that vvo alternative methods are
open. Either the taxpayer may be assessed on his (sup-
posed) real net receipts, or certain external indications may
be taken as a guide. The former is generally found where
profits are taxed through a general income tax. England
and Italy supply us with the leading examples. The
difficulties in the way of arriving at the true net profits
have hindered other countries from completely following
this course. The French method has seemed, if less
equitable in the abstract, yet in reality fairer. It does
not in Mill's phrase ' tax conscience.' Nevertheless there
is a cumbrousness and, in part, a want of elasticity about
it. The long list of trades coming under the Patente, with
the great varieties in the permanent and the proportional
charges, must add to the labour of administration. Its
inequalities must also be great. Neither the population
of the district, nor the rent of residence and business
premises, can give anything more than a faint presump-
tion of profits. The Patente is very far from being a pro-
portional tax on industrial gains. It rather resembles a
charge on certain necessaries of the business, such as
buildings, labour, or motive power. It accordingly marks
a lower stage in the development of taxation. The fair
assessment of profits may be at present beyond the power
of financial administration, but efforts should be made in
that direction. It may be suggested that the external
marks, which are now regarded as conclusive, should be
used as presumptions, whose weight will be affected by
other conditions, and it is probably by this method that
advance will actually be made.

Another noticeable feature of the continental taxation of
industry is its aid to local revenues. The 2,500,000 that
the Patente gives to the French departments and communes
is paralleled on a smaller scale in the case of Germany.
There the local revenues are recruited partly by additions
to the direct taxes, and, with some exceptions, this applies
to the taxation of industry 1 . Austria follows the same
method, by which a branch of income that is free in
England is compelled to contribute to the public revenues
of the locality in which it is situated. We have already
seen reason to reject the plan of taxing income, or its
separate parts, locally, and it appears better to use the
license system for the purpose of recruiting local funds.
Thus the Patente and licenses in France might be so re-
modelled as to create (i) a general tax on trade incomes,
(2) a considerable local receipt from the ' fixed ' part of the
Patente, in combination with a further development of the
existing licenses.

12. The incidence of taxes on industry is not quite
so definite as writers on Finance often suppose. Pure
or economic profit is made up of two distinct elements,
and the extent to which the receiver of interest and the
earner of employer's gain can shift taxation is not the
same. In the actual forms of taxation a proportional
tax on profit may cut off more of one element than of
the other in different cases. Thus the distribution of
the burden between interest and earnings may be un-
equal, but as regards outsiders, shifting to them can only
be effected by the possible check to accumulation of
capital. Where, however, taxation is not proportioned
to pure profit the effect may be very different. It is
not hard to understand that taxation so unequal as the
Patente may drive out some of the producers, and enable
the survivors to shift the charge to consumers. The tax
becomes one of the expenses of production. Again, the
local inequalities may allow of higher gains in some dis-
tricts, and cause higher prices in others, in which latter
case the consumer suffers. Differences between trades
may, and probably will, affect the distribution of industry,
and thereby cause a diffused incidence too complicated
to trace. The same consequences must follow the use
of taxes with different rates within a connected area like
Germany. Specially heavy taxation in one State may
actually, in some degree, increase the profits of producers
elsewhere, by raising the price of the commodity within
one district ; but it is still more likely to press on the
producers subject to it.

On the whole, the taxation of industry has not ap-
proached as closely to a tax on pure profit as that on land
has to a tax on economic rent. This circumstance is partly
due to the greater complication of the matter, but also
to the less perfect development of fiscal methods.

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