Taxes On Consumption : Their Classification.
Direct Consumption Taxes.


THE income tax, as developed in the present century,
marks the highest point attained in the methodising and
skilful use of direct taxation. From the rude land, property,
and poll taxes up to the existing system of charging the net
receipt of the subject, regarded is a whole or its several
.parts, there has been ^n unmistakable^ improvement in
"justice, productiveness, elasticity, and that absence of irrita-
tion that is so important from the political point of view.
The natural order of advance is in a great measure the
historical course of financial movement. If existing direct
taxation is very far from being perfect, it is, at least, better
now than it ever was before. The true aims to be reached
are better understood, and there is a more intelligent effort
made towards their realization. In the present and imme-
diately succeeding chapters we have to see how far another
large department of taxation has received the benefits of
like improvements. We have spoken of the taxes already
discussed as being ' primary V since they include all pos-
sible parts of the sole normal source of taxation income.
In contrast to them, the great mass of charges imposed on
consumption and enjoyment, on transfers and juristic acts
is secondary, since in a thorough analysis its several ele-
ments may be decomposed into taxes on some form of
income. But the realities of practical Finance do not easily adapt themselves to this mode of treatment ; whatever be
the ' source ' of taxation, its ' objects ' are many, and the
mode of imposition is too important a circumstance to be
entirely neglected.

The same conclusion is attainable from another direction.
The classification of taxes most in favour in Germany 1
places first those that fall on wealth in the making, and next
those imposed on its possession, and under either of these
heads the various taxes already examined would be grouped.
To these it, however, consistently adds an additional set of
taxes levied on wealth in the using, and it is to the study
of this form of taxation that we must now proceed. On
both historical and financial grounds it is to the full as im-
portant as the taxation of income and property.

2. The great body of taxes on consumption is capable of
division on several different grounds. Thus the kind of com-
modity used may be employed as the basis of arrangement,
giving the classes of (i) eatables, (3) drinks, and (3) other ar-
ticles 2 . The sub-division of the second class into alcoholic
and non-alcoholic drinks, and of the third into raw materials
and manufactured articles naturally follows. Another mode
of arrangement divides taxes according as they fall on ne-
cessaries, conveniences, or superfluities, and is supported by
reference to the important differences in the economic and
social effects of these different kinds of charges. From
a financial point of view, however, the best grouping is
that according to the mode in which the tax is levied. It
may (i) be obtained at once from the consumer, in which
case it is, in one use of the term, direct. It may, on the
other hand, (2) be charged within the country on the manu-
facturers or dealers, who are expected to shift the burden
to the consumers. Or again, it may (3) be realized by a
state monoply of the industry or sale ; while finally it may
(4) be collected at the frontier. It is true that the same
article may be differently treated in different countries 1 ,
but this circumstance does not affect the general principle.
In fact, it is quite safe and convenient to follow the usual
fiscal practice and deal separately with (i) the immediate
taxation of enjoyments and commodities, (2) the excise or
internal duties, and (3) the customs.

The order just given is also the best to adopt in a
scientific inquiry, as the immediate taxation of consump-
tion is the closest to the direct taxes on property and
income, the border-line being in some cases indistinct.
This absence of quite precise boundaries has been more
than once noticed ; the difficulty that it places in the way
of rigid lines of demarcation is best escaped by placing the
nearest groups in close connexion with each other. The
real relations are in this way best perceived, and the
grounds for the actual classification are better understood.

3. Historically the system of direct taxes on consumers
can be traced very far back. The levies of commodities in
kind by the sovereign may, where they consist of articles
used by the contributors, be regarded either as taxes on
produce or on consumption, though the former is the more
natural interpretation. In like manner the taxation of
movable property may be regarded as a charge on its use.
Thus the tax on consumers' capital in the shape of furni-
ture, plate, and works of art is plainly the same in effect as
a tax on their use. Taxes on direct consumption and use
seem to have originated in the sentiment to which sumptuary
laws are due the desire to repress luxurious expenditure.
The first measure of the legislator was to prohibit ; when
that failed, the next was to tax the supposed injurious
expenditure 2 .

1 Tobacco, e. g. is free in India, subject to excise in the United States and
Germany, monopolized in France and Italy, and taxed by the customs in
England.

8 Cp. Cato's over-valuation of articles of luxury after the repeal of the Lex
Oppia, and his taxation of them.

There is thus a double origin for the existing taxes of
this kind ; they are stray remains, either of the older
property taxes, or of sumptuary enactments. With one
doubtful exception their financial value is slight. No
modern country derives any noteworthy revenue from their
use. The reasons for this small return are to be found
partly in the development of the excise, under which most
commodities are taxed in the hands of the producer or
trader. By adopting this method the state gains the double
advantage of having to deal with a smaller number of per-
sons who can be watched with comparative ease, and of
avoiding the annoyance that direct taxation causes.
Direct taxes on consumption seem to combine the defects
of the two classes of taxes as described in an earlier
chapter l . They have the unpopularity and inelasticity of
direct taxes, without the equality and defmiteness that are
the chief recommendations of the latter. Industrial progress
has further curtailed their area. They are the readiest way
of reaching commodities produced and consumed at home,
but this once large group of articles has shrunk to a
very narrow space. The factory system has been destruc-
tive to the method of direct taxation on the consumer.
Where large industry prevails the employment of an excise
has very decided advantages ; e. g. the concentration of
breweries has made the license tax on home brewing insig-
nificant. It may also be remarked that the system of
indirect taxation through producers tends to promote
production on a large scale. Heavy taxation on an in-
dustry is a grave danger to the smaller producers 2 .

There is, however, another reason for the decline of the
direct consumption taxes. They have been in many cases
imposed on luxuries, or, at least, on the consumption of a
limited class. The power of changing the direction of
expenditure is here at its greatest, so that even a moderate

1 Bk. iii. ch. 4. 8, 9.

2 Leslie, Financial Reform, 241-2. This is one of the many instances in
which economic forces act and react on each other.
tax diminishes consumption very rapidly. This fact ex-
plains the small productiveness of the old assessed taxes in
England, though a limited field of action is still left to this
particular fiscal expedient.

4. One important tax, which might be regarded as
coming under the present head, has been considered at an
earlier stage. This is the tax on dwelling houses when
levied on the occupier. A very plausible case could be
made out for this view. A house is as much a commodity
as other more perishable articles, and it may fairly be
classed among necessaries. A great part of the taxation
so collected comes out of the occupiers' pockets, which
lends further support to the conception of it as a consump-
tion tax. It is, however, on the whole, more convenient to
deal with it in immediate succession to the land tax, and in
connexion with the taxation of buildings in general. The
difficulties that arise respecting its incidence, and the un-
doubted fact of its falling back, under certain conditions,
on ground rent seem to justify that course. We may
therefore limit any notice of it in this place to a reference
to the earlier discussion x .

The other English taxes of the same character ori-
ginated in the i8th century. Carriages, men-servants,
dogs, and armorial ensigns were brought under taxation,
and have continued in the same position up to the present.
Plate, horses, watches, clocks, and hair powder have also
for a longer or shorter time been made contributory. The
bare enumeration of these several items shows sufficiently
the character of the taxation. It is imposed on certain
kinds of expenditure, which, if not superfluous, are, at least,
not necessary, and only possible where a considerable
amount of wealth exists. The plate tax, so long as it con-
tinued, was a tax on one part of consumers' capital. The
licenses for killing game, and the later one for guns are
strictly ' taxes on enjoyment,' and might indeed be placed
under the taxes on 'acts,' but they find a more natural
place in the present group.

The fiscal history of this group of taxes is instructive. At
first separately levied by special commissioners, they were
formed by Pitt into the ' assessed taxes,' and used by him
as the basis of his * triple assessment/ which was substan-
tially a property tax. Its failure showed the defects of the
system, and led to its replacement by the income tax. In
the present century, after many alterations and extensions
of exemption, the system of assessment has disappeared,
and that of licenses been substituted, while the latest event
in their history has been the transfer of the taxes to local
bodies in 1888. Points for criticism abound in respect to
the English consumption licenses x , and the taxes that pre-
ceded them. In the first place they are unproductive.
The most important, the carriage duty, gives an annual
average of 550,000, the dog tax only reaches 340,000,
and the remaining imposts make up the general average of
1,360,000. They are far better suited for the purposes
of local taxation, and their transfer may be unreservedly
approved of. But the further question arises as to their
fitness for use in any part of the financial system. They
have the great disadvantage of being very often unequal as
between persons. It requires much watchfulness to prevent
evasion in the case of sporting and gun licenses, and ar-
morial ensigns, particularly the latter. The tax on male
servants is so far a check to their employment, and special
exemptions have to be made for occasional hirings. The
carriage tax is rather complex and often presses unfairly on
some classes. There is either the alternative of including
all vehicles to the injury of trade and agriculture, or where,
as at present, there are large exemptions, the difficulty of
administration is increased. A more comprehensive tax,
such as the horse and wheel tax, proposed in 1888, would
avoid much of this difficulty, and as a local resource would
have the merit of making the users of roads contribute
towards their maintenance, but its unpopularity and com-
plicated incidence are both against it. The dog tax is
perhaps, on the whole, the least objectionable, on account
of its service as a measure of police, but for that very reason-
its rate to be effective should be so low as to deprive it
of any great financial value 1 . The conclusion suggested
on the whole is that which recognises the consumption
licenses as a possible local contribution, but one entirely
unfit for imperial taxation. It might be possible within
limits to give the local authorities the privilege of select-
ing the particular articles to be taxed, and regulating
their number and the rates of charge by the needs of the
particular district.

5. France has made a more sparing use of direct con-
sumption taxes, and when employed they have had a
sumptuary aim. Those established under the Directory
were given up in 1807. Some, however, have been re-intro-
duced : thus the horse and carriage tax was passed in
1862. A local dog tax was enacted in 1855, and the legis-
lation as to game licenses dates from 1844. The tax on
servants has not been restored. Among taxes that may
be placed in the present category is that on societies, intro-
duced in 1871 20 per cent, on the subscription of the
members which is practically direct.

The revenue derived from these imposts is small, being
about i, 200,000 2 , though as, with the exception of the
horse and carriage tax, they serve as measures of police,
it may be expedient to retain them.

The development of direct taxation of consumption in

1 The Irish rate of zs. (with 6d. additional for stamp) is for this reason
better than the English one of JS. 6d.

2 The respective contributions are



Game licenses . . . 450,000
Horse and Carriage tax . . 400,000
Dog tax .... 300,000
Tax on Societies . . . 60,000.
other countries is less marked. Taxes on dogs, servants,
and carriages, are a part of the optional communal re-
sources in Italy, but their yield is unimportant. The dog
tax, e.g. was in 1883 only applied in about 1400 communes,
and produced less than 25,000.

Prussia tried these forms of taxation between 1810 and
1814, but abandoned them at the latter date. The tax
systems of the Empire present some variety in the use of
these taxes, so far as they have been continued. The dog
tax is a communal receipt in Prussia ; it is a state one in
Bavaria and Wlirtemberg. The amount obtained from
these direct taxes is inconsiderable.

In the United States the direct consumption taxes are
assigned either to the States or smaller divisions, and they
vary from State to State. The almost universal employ-
ment of the general property tax does in practice bring
most of the objects of consumption taxes under charge.
Some of the licenses so extensively used fall on enjoyment
rather than on trade or production, but they are insigni-
ficant in their yield.

6. From the foregoing (unfortunately incomplete)
notice of the past and present taxation of this kind, we get
a confirmation of the view already expressed that it is a
decaying form of impost. No modern State has managed
to raise a large revenue by its aid ; on the contrary, its
relative importance is much less than formerly. There is
quite enough evidence available to prove that it can with-
out inconvenience be surrendered to the local bodies whose
requirements make all new resources desirable, and who at
the same time have not to meet sudden changes in expen-
diture. It may even be questioned whether the American
or German State is not too large a division. The town or
rural commune, or at highest the county, department, or
circle (Kreis), is the proper area for the application of the
direct consumption taxes collected within it.

There is in fact a kind of resemblance between the poll
taxes and those now under discussion. Both are employed
rather freely in early communities, but decay as Society ad-
vances. The causes that reduce their services are different,
though the result is the same. The poll tax is both unjust
and unproductive where wealth is unequally distributed :
taxes on enjoyments and luxuries are too easily evaded to
be of practical use in an advanced financial system.