[T]he inevitable consequences of being too fond of glory; – TAXES upon every article which enters into the mouth, or covers the back, or is placed under the foot; taxes upon everything which is pleasant to see, hear, feel, smell, or taste; taxes upon warmth, light and locomotion; taxes on everything on the earth, and the waters under the earth, on everything that comes from abroad or is grown at home; taxes on the raw material; taxes on every fresh value that is added to it by the industry of man; taxes on the sauce which pampers man’s appetite, and the drug which restores him to health; on the ermine which decorates the judge, and the rope which hangs the criminal; on the poor man’s salt, and the rich man’s spice; on the brass nails of the coffin, and the ribands of the bride; at bed or board; couchant or levant, we must pay. The schoolboy whips his taxed top; the beardless youth manages his taxed horse, with a taxed bridle, on a taxed road; – and the dying Englishman, pouring his medicine, which has paid 7 per cent, into a spoon which has paid 15 per cent, flings himself back upon his chintz bed, which has paid 22 per cent, and expires in the arms of an apothecary who has paid a license of a hundred pounds for the privilege of putting him to death. His whole property is then immediately taxed from 2 to 10 per cent. Besides the probate, large fees are demanded for burying him in the chancel; his virtues are handed down to posterity on taxed marble; and he is then gathered to his fathers to be taxed no more.55
How far this reliance on taxing consumption helped or hindered British economic growth remains a matter for debate. The Hanoverian tax system certainly encouraged exports (which were not only duty free, but in some cases subsidized by bounties); but it is doubtful that the large transfers from consumers to untaxed rentiers had beneficial macroeconomic effects.56 It is striking that contemporary critics of Spanish and Dutch finance – among them Adam Smith – believed that excessive reliance on taxes on consumption tended to push up labour costs and inhibit internal trade.57
The seventeenth-century Swedish Chancellor Axel Oxenstierna called indirect taxes ‘pleasing to God, hurtful to no man, and not provocative of rebellion’. Some modern political scientists agree, arguing that consumption taxes are less ‘visible’ and hence less politically sensitive than direct taxes.58 Yet no state can subsist for long on indirect taxes alone: in a tax system which is too regressive, the conflict of interest between a powerful, propertied patriciate and a poor, powerless populace will sooner or later lead to unrest – a point apparent to Machiavelli in the light of Florentine experience.59 Protests against indirect tax were a recurrent feature of life in early modern Europe. Tax figured among the grievances that sparked off the revolt of the Netherlands against Spain, the German Peasants’ War, the Comuneros uprising in Hungary and a variety of disturbances in Ottoman lands between 1590 and 1607.60 In 1630 a new salt tax had to be withdrawn after protests in the Basque country. In 1647 there were riots in Palermo and Naples against new excise taxes.61
Nowhere were such protests more frequent than in ancien régime France. The combined squeeze on peasant incomes of rising taxes and rising rents triggered the uprising of the Pitauds against the gabelle in Guyenne in 1548; while collection of the 5 per cent sales tax known variously as the sol pour livre, the pancarte or the subvention générale had to be abandoned twice – in 1602 and 1643 – because of popular resistance, and as late as the 1660s was still only collectable by force in the provinces of Dauphiné and Guyenne.62 In 1648 a major rebellion in France began with a tax strike against Cardinal Mazarin’s new fiscal measures.63 Among the other revolts against taxation in early modern France were the revolt of the Croquants in Quercy in 1624; the revolt of the Guyenne towns against the wine sales tax in 1635; the revolt of the Nu-pieds in Normandy against the abolition of their exemption from the gabelle in 1639; and the Breton revolt against the papier timbré in 1675.64 Historians since Tocqueville have, of course, seen taxation as one of the key factors in the origins of the French Revolution; though the regressiveness of the tax system before 1789 owed more to the many exemptions and anomalies in the system of direct tax (see below) than to the overall level of the tax burden.
As Edmund Burke observed, ‘To tax and to please, no more than to love and to be wise, is not given to men.’ Not surprisingly, the proliferation of the excise in Hanoverian Britain was also the cue for popular protests. In 1733 a mob besieged parliament chanting ‘No slavery – no excise – no wooden shoes!’ in a temporarily successful protest against Sir Robert Walpole’s Excise Bill.65 Yet Hanoverian Britain is interesting partly because such protests never escalated, as they did elsewhere, into large-scale revolt. This partly reflected the fact that ‘necessities of the poor’ were taxed relatively lightly: duties were higher on spirits, wines and tobacco than on beer, candles, soap, starch and leather, while the only agricultural products taxed were hides, malt, horses and tallow.66 When eighteenth-century rural crowds imposed ‘popular taxation’ (i.e. ‘just’ prices) on wheat, flour and bread, it was the free market, not fiscal policy, they were reacting against.67
The difference between the British and French experience in the eighteenth century suggests that it is not the level of indirect taxation which matters but the range of commodities that are liable to taxation. In the nineteenth century, taxes on bread continued to be a key cause of unrest among the urban poor. Nothing better illustrates the enduring political importance of the bread tax than its role in generating support for the German Social Democratic Party in Wilhelmine Germany. In fact, the regressive impact of the tariff on imported grain was much less than the socialist press claimed. Tariffs accounted for only 10 per cent of total public sector revenue in 1913; and according to modern calculations the effect of protection was to raise the price of bread by no more than 8 per cent, equivalent to around 1.5 per cent of the average working-class family’s income.68 But the claim that ‘dear bread’ was paying for ‘militarism’ – that the revenue from grain tariffs was financing the construction of the Kaiser’s navy – proved to be a potent vote-winner, and was a major contributory factor in the SPD’s election triumph in 1912. In a similar way, what scuppered Joseph Chamberlain’s campaign for Tariff Reform after 1900 was the association of tariffs with high bread prices before the repeal of the Corn Laws. At Liberal meetings in 1905, old women whose memories stretched back to the 1840s were hauled onto the platform to remind voters of the bad old days before Free Trade.
By contrast, taxes on legal and other transactions – often called ‘stamp taxes’ – have seldom been controversial, because by their nature they tend to fall on the better-off. The French state in particular came to rely heavily on these: by 1913 stamp and registration taxes accounted for more than a fifth of total revenue.69 The exceptions that prove the rule were, of course, the duties on legal documents, newspapers, cards and dice imposed on the American colonies by the Stamp Act of 1765, which provoked so violent a reaction that they were hastily repealed. As we shall see, however, it was the constitutional propriety of the taxation more than the financial burden that caused the trouble.70
Modern governments have learned something from the past. In late-twentieth-century Western Europe, the development of the Value Added Tax has given the state a lucrative new form of indirect tax which consumers have been remarkably ready to pay and businesses have been remarkably ready to administer. Between 1979 and 1999 the share of total British revenue from VAT has doubled and now stands at nearly 16 per cent.71 At the time of writing (2000), 55 per cent of consumers’ expenditure is liable for VAT at a rate of 17.5 per cent. In France VAT is even more important, bringing in some 45 per cent of total revenue.72 The relative lack of resistance to VAT can be explained in several ways. First, governments have been careful to reduce or forgo the tax on politically sensitive goods. In Britain, for example, food and water are zero-rated, as are medicines on prescription, books and newspapers. Rents, school fees, bets and funerals (among other things) are all exempt; while domestic fuel is taxed at a lower rate. Second, the rate has been increased in careful stages. Third
, it has been linked to reductions in other taxes. When it was introduced in Britain in 1972 the rate was just 8 per cent. In 1979 it was raised by the new Thatcher government to 15 per cent, but with the ostensible aim of financing a popular reduction in the basic rate and higher rates of income tax. In 1991 the increase to the present level was ‘sold’ as part of a package to replace the unpopular Community Charge.73 When the government sought to levy VAT on domestic fuel, it attempted to phase it in, beginning at a lower rate of 8 per cent. As the Major government’s majority in the House of Commons was whittled away, it proved impossible to raise this rate any further.
As a result of such finesse, VAT is not (as is sometimes assumed) a regressive tax.74 However, the old and distinctly regressive excise lingers on in Britain in the form of the immensely high duties on tobacco, alcohol and fuel. Together, excise duties and VAT account for 88 per cent of the price of a gallon of diesel, 82 per cent of the price of a packet of cigarettes and 64 per cent of the price of a bottle of spirits.75 As a result, the overall burden of indirect taxation is in fact slightly regressive in Britain: in 1995 a father of two on less than average earnings paid 13.5 per cent in VAT and other indirect taxes; whereas a father of two on more than average earnings paid 12.8 per cent.76 Put differently, in 1993 households in the bottom fifth of the population paid around 30 per cent of their disposable income in indirect taxes; for those in the top fifth, the figure was closer to 15 per cent.77 In particular, the tax on tobacco is regressive, as lower income groups not only spend a bigger proportion of their income on cigarettes, but also smoke more.78 Other countries tax smoking, drinking and driving, of course; but few tax them so punitively. In the United States, taxes on these simple pleasures amount to a mere 2.6 per cent of total government revenue. The equivalent figure for Britain is 12.2 per cent.79
The high British excises on tobacco, alcohol and fuel are no longer intended solely to raise revenue: they are also intended to deter people from consuming the commodities in question for medical and environmental reasons. Unfortunately, as could easily have been predicted, the high rates of duty have tended to encourage smuggling as much as to discourage consumption; while revenue has fallen in relative terms (in the case of tobacco, from 15 per cent of total taxation in 1947 to less than 3 per cent by 1990).80 Nor should the efficacy of VAT be exaggerated. A substantial part of the so-called ‘black economy’ exists because small businessmen wish to avoid becoming liable for VAT and other taxes which fall on enterprise. According to European Union estimates in 1998, the ‘shadow’ labour market in Britain is equivalent to around 12 per cent of GDP. Detailed research on the Austrian economy suggests that the avoidance of indirect tax has been an increasingly important motive for the growth of the black economy.81 As in the case of import duties, there are limits to how much money can be raised from taxes on consumption and value added, particularly in a world of highly mobile people and goods: witness the fuel protests of 2000.
‘PICKING OVER THE FRUITS’: DIRECT TAX
The simplest form of direct tax is the poll tax, which requires a payment from everyone. Poll taxes were a feature of English finance in the fourteenth century and again in the mid-seventeenth; the French ancien régime also had its capitation (first introduced in 1695) from 1701 until 1789.82 The ‘soul tax’ was the basis of Russian taxation from the time of Peter the Great until the Revolution.83
The difficulty with poll taxes is that they are regressive, requiring the poor to give up a much larger proportion of their income than the rich. For this reason they too have sometimes provoked tax revolts. These occupy a special place in English history because it was a poll tax – a shilling per head on all adults over 15 except beggars – that triggered the 1381 Peasants’ Revolt; and because it was the introduction of the Community Charge to England that struck the fatal blow to Margaret Thatcher’s position as prime minister in 1990.
For this reason, poll taxes have more often been imposed on minorities than whole populations. The Athenians imposed a poll tax on foreign-born residents only.84 The early Abbasid caliphate collected a poll tax from all non-Muslims, though this had to be abandoned as more and more infidels responded to the obvious incentive by converting to Islam.85 The Holy Roman Empire demanded a poll tax from Jewish communities.
One direct tax that very clearly exempts the poor is a land or property tax, which is imposed in proportion to an individual or community’s holding of real estate. This was the basis of the Anglo-Saxon geld levied to finance the defence of the kingdom against the Danes.86 It was also the basis of the ‘subsidies’ that developed in both England and France to help finance their crusades and wars in the twelfth and thirteenth centuries, with payment of tax by landowners substituting for their notional obligation to perform military service for the crown.87 The French taille was a geographically apportioned tax assessed on landed incomes; augmented by various surtaxes, it was still the biggest direct tax in France as late as 1780. More than 60 per cent of the revenues collected by Suleiman the Magnificent from Ottoman-controlled Egypt in the sixteenth century came from the land tax.88 Likewise, the land tax in Tokugawa Japan amounted to 40 per cent of rice product and may have yielded as much as a quarter of national product.89 In Mughal India at the end of the reign of Akbar the land tax amounted to around a sixth of national product.90
In many ways, the land tax is the natural tax for a mainly agrarian society. Indeed, to the French Physiocrats, a tax on the net income from land was the sole necessary tax.91 Joseph II of Austria also dreamt of reforming Habsburg finances on this basis. However, more commercial societies have also taxed land, though differentially: the Dutch United Provinces taxed agricultural land at 20 per cent of rental values, but built-on land at just 12.5 per cent. Business profits were tax-free.92 Before the First World War, Lloyd George too advocated a levy on land values and a capital gains tax on land, though his aim was redistribution of land once the national land valuation had been completed.
The disadvantages of a land tax are twofold: first, it discriminates against landowners as compared with holders of financial and other movable assets; secondly, it requires accurate knowledge on the part of the tax assessors of the structure of land ownership and the productivity of individual holdings. The latter is the greater defect: for in the time that it takes to carry out an accurate survey of landownership, who knows how many acres will have changed hands? Even in the Italian city-states this proved problematic. Fifteenth-century Florence based its property tax on a survey of property ownership, the catasto, which was regularly updated (eight times between 1427 and 1495) before finally being abandoned in favour of a simple 10 per cent tithe.93 Cardinal Wolsey’s attempt to arrive at an accurate survey of English wealth – ‘the Great Proscription’ of 1522 – had to be abandoned in the face of aristocratic opposition.94 The assessment that formed the basis of the 1692 English land tax (approximately a fifth of total rents) rapidly became out of date because of the eighteenth-century agricultural revolution, though the ‘quotas’ derived from it continued to be used until the 1790s. In the words of Adam Smith, a land tax necessitated ‘the continual and painful attention of government to all the variations of the state and produce of every different farm in the country’.95 French fiscal reformers of the ancien régime dreamt of a new cadastral survey, but were put off by the thought that it would take more than three thousand surveyors to do the job.96 A survey was finally initiated by Napoleon in 1808; it was already out of date by the time it was completed forty-two years, eleven million proprietors and 126 million plots of land later.97 Thereafter, the tax on which it was based was not only whittled away by rising productivity but also became less fair because no account could be taken of differential improvements. By 1914 the land tax brought in a mere 2.3 per cent of total revenue.98
One way around this problem is to levy taxes on property at the time it is inherited. As Lloyd George wryly remarked: ‘Death is the most convenient time to tax rich people.’ Ancient Rome had such an inheritance tax
(the British slang ‘death duty’ is more vivid), which was levied at a rate of 5 per cent and accounted for a little more than the same proportion of total revenues.99 Although commonly seen as a twentieth-century innovation in Britain, it was in fact as early as 1853 that so-called ‘succession duties’ were extended to real estate. And although the Liberal Chancellor Sir William Harcourt usually gets the credit (or blame) for introducing modern ‘death duties’ in 1894, his Conservative predecessor George Goschen had anticipated him in 1889 with his 1 per cent duty on all estates above £10,000 in value. As critics predicted, this was the thin end of the wedge. By the time of Lloyd George’s ‘People’s Budget’, raising ‘death duties’ had become almost routine for left-of-centre Chancellors. Even conservatives on the continent turned to the inheritance tax. When the German government sought to increase the Reich’s share of direct taxation (which was largely in the hands of the federal states), the first major proposal was for an inheritance tax. In both cases, there was fierce but ultimately vain opposition from aristocratic interests.
Though inheritance tax rates rose to punitively high levels for the rich in the course of the twentieth century, there have never been enough rich people – to be precise, enough rich people without accountants – to raise significant sums. Today inheritance tax brings in less than 1 per cent of total public revenue in both Britain and America, and conservative politicians in both countries have begun to argue for its extinction.
The main alternative to inheritance tax has been some kind of general tax on income which, in its simplest form, requires the same proportional sacrifice from everyone, regardless of the source of their income. The first of Adam Smith’s four ‘canons’ of taxation was that ‘the subjects of every state ought to contribute towards the support of the government, as nearly as possible, in proportion to their respective abilities; that is, in proportion to the revenue which they respectively enjoy under the protection of the state’.100 A similar formulation formed part of the French revolutionaries’ ‘Declaration of the Rights of Man and the Citizen’. Taxes must be ‘apportioned equally among all citizens according to their capacity to pay’.101 This was hardly a new concept. In ancient times, tax was often set at a tenth of annual income. Such was the form of the eighth-century Abbasid ushr;102 the fourteenth-century English tithe on the clergy as well as the parliamentary ‘tenth’ (supplemented later by a fifteenth);103 the Venetian decima;104 the short-lived eighteenth-century French dixième, later the vingtième.105 The first English attempt at an income tax was a 20 per cent levy on all incomes introduced in 1692.106 But it is Pitt’s income tax of 1798 – again a 10 per cent levy – which is usually seen as the real milestone in the history of taxation, ultimately providing nearly a third of the additional revenue needed to win the wars with France.107
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