Chap. VII: Consequences of Taxes when the Amount of them is properly applied

We have now seen the objects affected by taxes, and the inconveniences which result to those who are obliged to pay them.

It comes next to be examined, whether taxes of all kinds be not a great load upon a people, a grievous infringement of their liberty, the means of bringing many honest and industrious people to great distress, and a great discouragement to marriage. I answer without hesitation, that taxes may be, and most commonly are accompanied with all these and many more inconveniences; but I must add, that they proceed from the abuse, and not from the nature of taxes.

In my inquiries, I have constantly in my eye, how man may be governed, and never how he is governed. How a righteous and intelligent statesman may restrain the liberty of individuals, in order to promote the common good; never how an ignorant and unrighteous statesman may destroy public liberty, for the sake of individuals.

Raising money by taxes must always be burdensome, less or more, to those who pay it; and the advantages resulting from taxes can proceed only from the right application of the money when it is raised.

When individuals only draw a profit from the inconvenience of taxes, the public loses, no doubt; because taxes are paid for the advantage of the public, not for that of private people. If the money raised be more beneficially employed by the state, than it would have been by those who have contributed it, then I say the public has gained, in consequence of the burden laid upon individuals; consequently, the statesman has done his duty, both in imposing the taxes, and in rightly expending them.

Taxes, in this last view, may be considered as a saving out of every private fortune, in order to procure a public fund to be expended for the public benefit.

I have frequently recourse to the familiar examples of private oeconomy, in order to make applications from it to the political; which, however different it may appear, will be found easily deducible from the same principles.

Let me suppose two persons, (A) and (B), living in the same neighbourhood, of the same rank and fortune, enjoying great superfluity, but spending yearly the whole of their income in different ways.

Let the income of both be supposed to be 2100 l. sterling; and let the branches of their expence be ranged under six different heads. Let (A) be supposed to spend upon the first 100 l. on the second 200 l. on the third 300 l. on the fourth 400 l. on the fifth 500 l. on the sixth 600 l. in all 2100 l.

Let us suppose (A) to enjoy in every one an ample sufficiency.

(B), on the other hand, spends upon his first article 1600 l. and upon each of the other five, no more than 100 l. Here the first article of (B's) expence is sixteen times greater than any of the rest; and by the supposition, 100 l. is supposed to denote an ample sufficiency upon each article.

I come to (A), and I say to him, you disapprove of the extravagance of your neighbour (B) upon his first article of expence, where he spends sixteen parts of his income, and where you spend but one; and yet you must allow that upon every other article of his expence, he is a better oeconomist than you. Would it not be for your interest to bring the other articles of your expence down to his standard, without increasing any thing upon your first article, which is already within the compass of what may be called sufficient.

To what purpose, says (A), would you advise me to so strict an oeconomy? And what should I do with so great a saving on my annual income? Be in no pain about that. I shall lay it out for you in discharging your debts; in providing for your children, and giving them a good education; in improving your estate; repairing your house; making up your inclosures; all shall be usefully spent; and out of 600 l. a year, you shall have every thing necessary for your family.

Here is the representation of a scheme between a good statesman and a people whose interest he consults.

After the imposition of taxes, the individuals of a state, who have already a determinate income, begin to pay greatly more than they used to do for every thing they consume. A great part of this additional price goes to the public, and is thereby laid out for national purposes. The whole of such expences is thrown into circulation, as much as if the rich proprietors had laid it out themselves upon articles entirely adapted to their own taste.

Is it not evident, that in this way of appropriating the income of a country, it must produce a more extensive encouragement to industry of all kinds, than if the proprietors only had spent it? They never would have thought of becoming merchants, or of setting up manufactures for the supply of foreign markets: their whole expence would have been calculated to supply their own wants real or imaginary; and it would have been indifferent to them whether these were supplied by natives or by strangers.

Let us apply this doctrine to common experience. Let us compare the nature of circulation in a trading town, with that of a country place, where many gentlemen of large fortunes reside. How extensive the objects of the first! how contracted those of the latter!

Let us compare again the exigencies of government, with those of a trading city, what a variety of new wants here occur to be supplied, which the city never could have occasion for?

I have shewn how the great amount of taxes comes to be taken from the income of those individuals whose fortune is already made, or whose daily profits are considerable: I have suggested how circumscribed the expence of this class must be, when considered with respect to the employment it procures to the body of a people. Does not the experience of former ages show how apt private opulence is to sink into treasures, when a taste for industry does not animate the lower classes to create new objects of desire in the wealthy? Wherein is a state benefited by the luxurious gratifications of the rich, unless it be by the employment they procure for those who provide the objects of luxury? Those very gratifications are, in one sense, taxes upon the rich in favour of the industrious: they increase expence, and throw money into circulation. In Spain and Portugal, where industry is not introduced among the lower classes, the strangers are they who in effect levy such taxes upon them. Were the taxes they pay, properly applied for the encouragement of the arts, instead of being appropriated to private purposes, and to the enriching of private men, whose taste for expence is always circumscribed to the objects of their own wants, how soon should we see them vying with us in every market of Europe, and supplying themselves as far as their country is calculated for it.

The reciprocal wants of industrious nations, resemble the reciprocal wants of tradesmen; all may be employed in supplying one another, as well as themselves.

When a due proportion of the amount of taxes is properly laid out in premiums, for the encouragement of the industrious, the prices of labour upon articles of exportation, may be brought so low, that all nations who do not follow the like policy, must languish and decay. Luxury at home will then cease to hurt the foreign trade of the nation. In her treaties of commerce, she may throw open her ports to many articles of foreign consumption, without incurring any inconvenience from such allowances; while on the other hand, she will reap the greatest advantages from a reciprocal permission.

The example by which I have illustrated the nature of public contributions, must not be understood to tally with respect to proportion. It would be both ridiculous and impossible to reduce all the expences of rich men to the barely sufficient. All I meant was, to shew how taxes, when properly applied, may be considered as public oeconomy; and how the levying of them has no direct tendency to hurt a nation in point of ease and prosperity.