<SPAN name="toc305" id="toc305"></SPAN>
<SPAN name="pdf306" id="pdf306"></SPAN>
<h2><span>Chapter III. Of Taxes On Commodities, Or Indirect Taxes.</span></h2>
<SPAN name="toc307" id="toc307"></SPAN>
<h3><span>§ 1. A Tax on all commodities would fall on Profits.</span></h3>
<p>
By taxes on commodities are commonly meant those
which are levied either on the producers, or on the carriers
or dealers who intervene between them and the final purchasers
for consumption; the phrase being, by custom, confined
to indirect taxes—those which are advanced by one
person, to be, as is expected and intended, reimbursed by
another.</p>
<p>
Taxes on commodities are either on production within
the country, or on importation into it, or on conveyance or
sale within it, and are classed respectively as excise, customs,
or tolls and transit duties. To whichever class they belong,
and at whatever stage in the progress of the community
they may be imposed, they are equivalent to an increase of
the cost of production; using that term in its most enlarged
sense, which includes the cost of transport and distribution,
or, in common phrase, of bringing the commodity to market.</p>
<p>
When the cost of production is increased artificially by a
tax, the effect is the same as when it is increased by natural
causes. If only one or a few commodities are affected, their
value and price rise, so as to compensate the producer or
dealer for the peculiar burden; but if there were a tax on all
commodities, exactly proportioned to their value, no such
compensation would be obtained; there would neither be a
general rise of values, which is an absurdity, nor of prices,
which depend on causes entirely different. There would,
however, as Mr. McCulloch has pointed out, be a disturbance
of values, some falling, others rising, owing to a circumstance,
the effect of which on values and prices we formerly
discussed—the different durability of the capital employed
in different occupations. The gross produce of industry consists
of two parts; one portion serving to replace the capital
consumed, while the other portion is profit. Now, equal
capital in two branches of production must have equal expectations
of profit; but if a greater portion of the one than
of the other is fixed capital, or if that fixed capital is more
durable, there will be a less consumption of capital in the
year, and less will be required to replace it, so that the profit,
if absolutely the same, will form a greater proportion of the
annual returns. To derive from a capital of $1,000 a profit
of $100, the one producer may have to sell produce to the
value of $1,100, the other only to the value of $500. If on
these two branches of industry a tax be imposed of five per
cent <span lang="la" class="tei tei-foreign" xml:lang="la"><span style="font-style: italic">ad valorem</span></span>,
the last will be charged only with $25, the
first with $55; leaving to the one $75 profit, to the other
only $45. To equalize, therefore, their expectation of profit,
the one commodity must rise in price, or the other must fall,
or both.<SPAN id="noteref_343" name="noteref_343" href="#note_343"><span class="tei tei-noteref"><span style="font-size: 60%; vertical-align: super">343</span></span></SPAN> Commodities made chiefly by immediate labor
must rise in value, as compared with those which are chiefly
made by machinery. It is unnecessary to prosecute this
branch of the inquiry any further.</p>
<SPAN name="toc308" id="toc308"></SPAN>
<h3><span>§ 2. Taxes on particular commodities fall on the consumer.</span></h3>
<p>
A tax on any one commodity, whether laid on its
production, its importation, its carriage from place to place,
or its sale, and whether the tax be a fixed sum of money for
a given quantity of the commodity, or an
<span lang="la" class="tei tei-foreign" xml:lang="la"><span style="font-style: italic">ad valorem</span></span> duty,
will, as a general rule, raise the value and price of the commodity
by at least the amount of the tax. There are few
cases in which it does not raise them by more than that
amount. In the first place, there are few taxes on production
on account of which it is not found or deemed necessary
to impose restrictive regulations on the manufacturers
or dealers, in order to check evasions of the tax. These
regulations are always sources of trouble and annoyance, and
generally of expense, for all of which, being peculiar disadvantages,
the producers or dealers must have compensation
in the price of their commodity. These restrictions also frequently
interfere with the processes of manufacture, requiring
the producer to carry on his operations in the way most
convenient to the revenue, though not the cheapest or most
efficient for purposes of production. Any regulations whatever,
enforced by law, make it difficult for the producer to
adopt new and improved processes. Further, the necessity
of advancing the tax obliges producers and dealers to carry
on their business with larger capitals than would otherwise
be necessary, on the whole of which they must receive the
ordinary rate of profit, though a part only is employed in
defraying the real expenses of production or importation.
The price of the article must be such as to afford a profit on
more than its natural value, instead of a profit on only its
natural value. Neither ought it to be forgotten that whatever
renders a larger capital necessary in any trade or business
limits the competition in that business, and, by giving
something like a monopoly to a few dealers, may enable
them either to keep up the price beyond what would afford
the ordinary rate of profit, or to obtain the ordinary rate of
profit with a less degree of exertion for improving and cheapening
their commodity. In these several modes, taxes on
commodities often cost to the consumer, through the increased
price of the article, much more than they bring into
the treasury of the state. There is still another consideration:
the higher price necessitated by the tax almost always
checks the demand for the commodity; and, since
there are many improvements in production which, to make
them practicable, require a certain extent of demand, such
improvements are obstructed, and many of them prevented
altogether. It is a well-known fact that the branches of
production in which fewest improvements are made are
those with which the revenue-officer interferes; and that
nothing, in general, gives a greater impulse to improvements
in the production of a commodity than taking off a tax which
narrowed the market for it.</p>
<SPAN name="toc309" id="toc309"></SPAN>
<h3><span>§ 3. Peculiar effects of taxes on Necessaries.</span></h3>
<p>
Such are the effects of taxes on commodities, considered
generally; but, as there are some commodities (those
composing the necessaries of the laborer) of which the values
have an influence on the distribution of wealth among different
classes of the community, it is requisite to trace the
effects of taxes on those particular articles somewhat further.
If a tax be laid, say on corn, and the price rises in proportion
to the tax, the rise of price may operate in two ways: First,
it may lower the condition of the laboring-classes; temporarily,
indeed, it can scarcely fail to do so. If it diminishes
their consumption of the produce of the earth, or makes
them resort to a food which the soil produces more abundantly,
and therefore more cheaply, it to that extent contributes
to throw back agriculture upon more fertile lands or less
costly processes, and to lower the value and price of corn;
which therefore ultimately settles at a price, increased not
by the whole amount of the tax, but by only a part of its
amount. Secondly, however, it may happen that the dearness
of the taxed food does not lower the habitual standard
of the laborer's requirements, but that wages, on the contrary,
through an action on population, rise, in shorter or longer
periods, so as to compensate the laborers for their portion of
the tax, the compensation being of course at the expense of
profits. Taxes on necessaries must thus have one of two
effects: either they lower the condition of the laboring-classes,
or they exact from the owners of capital, in addition to the
amount due to the state on their own necessaries, the amount
due on those consumed by the laborers. In the last case, the
tax on necessaries, like a tax on wages, is equivalent to a peculiar
tax on profits; which is, like all other partial taxation, unjust,
and is specially prejudicial to the increase of the national
wealth.</p>
<p>
It remains to speak of the effect on rent. Assuming
(what is usually the fact) that the consumption of food is not
diminished, the same cultivation as before will be necessary
to supply the wants of the community; the margin of cultivation,
to use Dr. Chalmers's expression, remains where it
was; and the same land or capital, which, as the least productive,
already regulated the value and price of the whole
produce, will continue to regulate them. The effect which a
tax on agricultural produce will have on rent depends on its
affecting or not affecting the difference between the return
to this least productive land or capital and the returns to
other lands and capitals. Now, this depends on the manner
in which the tax is imposed. If it is an
<span lang="la" class="tei tei-foreign" xml:lang="la"><span style="font-style: italic">ad valorem</span></span> tax, or,
what is the same thing, a fixed proportion of the produce,
such as tithe for example, it evidently lowers corn-rents. For
it takes more corn from the better lands than from the worse,
and exactly in the degree in which they are better, land of
twice the productiveness paying twice as much to the tithe.
Whatever takes more from the greater of two quantities than
from the less, diminishes the difference between them. The
imposition of a tithe on corn would take a tithe also from
corn-rent: for, if we reduce a series of numbers by a tenth
each, the differences between them are reduced one tenth.</p>
<p>
For example, let there be five qualities of land, which
severally yield, on the same extent of ground and with the
same expenditure, 100, 90, 80, 70, and 60 bushels of wheat,
the last of these being the lowest quality which the demand
for food renders it necessary to cultivate. The rent of these
lands will be as follows:</p>
<p>
The land producing 100 bushels will yield a rent of 100-60, or 40 bushels.<br/>
That producing 90 bushels, a rent of 90-60, or 30 bushels.<br/>
That producing 80 bushels, a rent of 80-60, or 20 bushels.<br/>
That producing 70 bushels, a rent of 70-60, or 10 bushels.<br/>
That producing 60 bushels, will yield no rent.</p>
<p>
Now let a tithe be imposed, which takes from these five
pieces of land 10, 9, 8, 7, and 6 bushels respectively, the fifth
quality still being the one which regulates the price, but returning
to the farmer, after payment of tithe, no more than
54 bushels:</p>
<p>
The land producing 100 bushels reduced to 90 will yield a rent of 90-54, or 36
bushels.<br/>
That producing 90 bushels reduced to 81, a rent of 81-54, or 27 bushels.<br/>
That producing 80 bushels reduced to 72, a rent of 72-54, or 18 bushels.<br/>
That producing 70 bushels reduced to 63, a rent of 63-54, or 9 bushels.</p>
<p>
and that producing 60 bushels, reduced to 54, will yield, as
before, no rent. So that the rent of the first quality of land
has lost four bushels; of the second, three; of the third,
two; and of the fourth, one: that is, each has lost exactly
one tenth. A tax, therefore, of a fixed proportion of the
produce lowers, in the same proportion, corn-rent.</p>
<p>
But it is only corn-rent that is lowered, and not rent estimated
in money, or in any other commodity. For, in the
same proportion as corn-rent is reduced in quantity, the corn
composing it is raised in value. Under the tithe, 54 bushels
will be worth in the market what 60 were before; and nine
tenths will in all cases sell for as much as the whole ten tenths
previously sold for. The landlords will therefore be compensated
in value and price for what they lose in quantity, and
will suffer only so far as they consume their rent in kind, or,
after receiving it in money, expend it in agricultural produce;
that is, they only suffer as consumers of agricultural produce,
and in common with all the other consumers. Considered as
landlords, they have the same income as before; the tithe,
therefore, falls on the consumer, and not on the landlord.</p>
<p>
The same effect would be produced on rent if the tax,
instead of being a fixed proportion of the produce, were a
fixed sum per quarter or per bushel. A tax which takes a
shilling for every bushel takes more shillings from one field
than from another, just in proportion as it produces more
bushels; and operates exactly like tithe, except that tithe is
not only the same proportion on all lands, but is also the same
proportion at all times, while a fixed sum of money per
bushel will amount to a greater or less proportion, according
as corn is cheap or dear.</p>
<p>
There are other modes of taxing agriculture, which would
affect rent differently. A tax proportioned to the rent would
fall wholly on the rent, and would not at all raise the price
of corn, which is regulated by the portion of the produce
that pays no rent. A fixed tax of so much per cultivated
acre, without distinction of value, would have effects directly
the reverse. Taking no more from the best qualities of land
than from the worst, it would leave the differences the same
as before, and consequently the same corn-rents, and the
landlords would profit to the full extent of the rise of price.
To put the thing in another manner: the price must rise
sufficiently to enable the worst land to pay the tax, thus enabling
all lands which produce more than the worst to pay
not only the tax, but also an increased rent to the landlords.
These, however, are not so much taxes on the produce of
land as taxes on the land itself. Taxes on the produce,
properly so called, whether fixed or
<span lang="la" class="tei tei-foreign" xml:lang="la"><span style="font-style: italic">ad valorem</span></span>, do not affect
rent, but fall on the consumer, profits, however, generally
bearing either the whole or the greatest part of the portion
which is levied on the consumption of the laboring-classes.</p>
<div style="break-after:column;"></div><br />