income tax of seven shillings in the pound upon every kind of income alike, seemed to have taken its place among the recognized institutions of the country, and to be equally impregnable by ministers and by amateurs."1 The only change in the administration of the tax during the next few years was that by the law of 1849 the Commissioners of Stamps and Taxes, to whom was intrusted the supervision of the income tax as well as of the other internal taxes in general, were now converted into the Board of Inland Revenue which has ever since administered the income tax.2

In 1851 the income tax was for the third time expiring. While the fiscal situation was more favorable than in 1848, Sir Charles Wood maintained that it was preferable to drop some of the remaining taxes on consumption rather than to abandon the income tax. In his budget speech of February 17, 1851, he accordingly recommended the renewal of the income tax at its old rate for another three years. This was now combated by Lord Stanley, later the Earl of Derby, in his speech of February 28. "I hold it to be an object not only of vital importance but one to which the faith of successive ministers has been pledged, that the income tax should not be permitted to degenerate into a permanent tax."3 Although the government carried its point, Hume introduced a motion that the tax be limited to one year instead of three years, in order to enable a committee to be appointed to consider the general character of the tax and the desirability of differentiation. On May 2 his motion prevailed, and a few weeks later the Select Committee was appointed. The act of 1851 made only a slight change in the tax, providing that when

1 Stafford Northcote, op. cit., p. 107.

2 12 and 13 Vict., c. I.

3" Without that pledge," he added, "there is not a man living who believes that the House of Commons in 1842 would have consented to the imposition for an hour, of a tax which has always been held to be a resource in time of war, which has always been deprecated in time of peace, and which, take it as you will, leave it as you please, must be full of anomalies and inconveniences, pressing variously upon different classes of the community with a complicated injustice that no modification can altogether remove."

actual profits fell short of the assessment under Schedule B, an abatement should be allowed in the case of tenant farmers.1

The agitation which culminated in Hume's successful motion is well reflected in the pamphlet literature. Shortly after the parliamentary debate of 1848 an anonymous author advocated a tax not simply on "realized property," but on "all property" or "capital," defining this as "everything having a money value." 2 "A man's nominal income," he thought, "is very far indeed from being a test of his ability to bear taxation." He held that incomes from professional earnings and trade should be reduced to an equitable value by the process of capitalization at a varying number of years' purchase. Heathfield advanced a slightly different scheme in which he suggested a tax on property combined with a succession duty. "The proposal to charge property and not income," said Heathfield, "proceeds, in part, from a strong sense of the inexpedience, especially in a commercial country, of an annual inquiry into the affairs of individuals. There is a natural and reasonable repugnance to such a system." 4 MacGregor, who was convinced of the impracticability of the scheme of differentiation, as proposed by Horsman, preferred a "duty upon the rents and profits of all realized property," which he was quite willing to have arranged according to a progressive schedule.5 Phipps strongly criticised MacGregor's scheme, maintaining that "profits of trade, so far as they represent the interest of the fixed and floating capital invested in it, are just as legitimately taxable, under the denomination of profits of realised

1

14 and 15 Vict., c. 12, sec. 3.

2 Two Letters to a Member of Parliament; containing Suggestions for a Property Tax upon an Improved Basis; with Remarks upon the principal Speeches in defense of the present Income Tax, during the late Debates. By R. S. B. London, 1848, p. 9. 8 Ibid., pp. 6, 25.

* Means of Extensive Relief from the Pressure of Taxation, on the Basis of a Charge of Five per cent on all Property in the United Kingdom, Real and Personal. By Richard Heathfield. London, 1849, p. 20.

5 Financial Reform: A Letter to the Citizens of Glasgow, from John MacGregor, M. P., with an Introduction and Supplementary Notes. London, 1849.

property, as is the interest of money in the funds." Phipps thought that the alleged inequality of the income tax could be easily removed by joining to it a general inheritance tax. 2 Babbage, on the other hand, based his defence of the income tax on the theory "that taxation ought to be proportional to the cost of maintaining those institutions without which no property or industry can be protected, or even exist."3 Babbage drew the conclusion that, as all kinds of income occasion a similar cost to the government, they should be taxed equally and, furthermore, that all exemptions should be done away with. "Abolish all exemptions - or else reduce the exemption to the lowest possible point, and disqualify from voting all electors who claim the exemption."4 In a second edition of his work,5 published three years later, he went so far as to state that exemptions lead "directly towards true socialism." Professor Heron, who defended the income tax as certainly not "nearly so inquisitorial in its nature as the excise," 6 objected to differentiation on the "scientific" ground that "all should pay to the government at the same rate for the security which enables them to enjoy a unit of income during a unit of time."7 But he maintained that since "income is literally all that comes in to a man in the year," it "must include property coming in by way of gift, inheritance, etc." Thus he thinks that "it is self-evident that this solves the suggested difficulty as to the inequality of taxation upon incomes of the same amount, arising from sources essentially different in their nature."8 MacLeod took a somewhat similar position in an able and well-written production, in which he stated as

1 A few Words on the three Amateur Budgets of Cobden, MacGregor and Watson. By the Honourable Edmund Phipps. London, 1849, p. 12.

2 Op. cit., pp. 18-19.

3 Thoughts on the Principles of Taxation, with reference to a Property Tax, and its Exceptions. By Charles Babbage. London, 1848, p. 7. For the general theory of cost of service, see Seligman, Progressive Taxation, 2d ed., 1908, part ii., chap. ii. 4 Op cit., p. 18. 5 London, 1851, p. iii. Principles of Taxation, delivered at Queen's College, 1850. By Denis Caulfield Heron. Dublin, 1850, 7 Op. cit., p. 89. 8 Op cit., p. 99.

6 Three Lectures on the Galway, in Hilary term,

p. 80.

his conclusion that "the popular objections to a uniform income tax have all been examined and found invalid, in the case of a temporary, as well as in that of a perpetual, tax."1

§ 5. The Select Committee of 1851

Hume met with considerable difficulty in getting his committee together; but after it was once formed, the committee listened to so many witnesses that it was unable to make any report during the session of 1851. It was accordingly reappointed. The testimony covers two stout volumes and is almost entirely confined to the question of the desirability of differentiating the rate of the tax according to the kind. of income. Among the most important witnesses were actuaries like Hill, Williams, Scott, Brown, Jellicoe, Edmonds, Hardy, and Neison. Some of these maintained that the trouble arose from calling the tax a "property and income" But virtually all agreed that there should be a distinction in the rates between what was variously called professional, or industrial, or temporary, or perishable, or terminable, or life, or labor, or variable, or fleeting income on the one hand, as over against what was called permanent, or imperishable, or perpetual, or certain, or spontaneous, or property income on the other. And almost all agreed that the way to accomplish this was to reduce all incomes to a capital basis

tax.

1 Remarks on some Popular Objections to the present Income Tax. By John MacPherson MacLeod. London, 1849, p. 22.

2 First Report from the Select Committee on the Income and Property Tax; together with the Minutes of Evidence and Index, 1852. London, 458 pp. Second Report from the Select Committee on the Income and Property tax; together with the Proceedings of the Committee, Minutes of Evidence, Appendix, and Index. London, 1852, xxxiv, 520 pp.

A good summary of the evidence is found in Elements of Taxation; to which are added a Summary of the Evidence adduced before the Parliamentary Committee on the Property and Income Tax. And also a complete Analysis of the Finance Accounts of the United Kingdom, for the year 1851. By X + Y. Authors of the Prize Essay on Direct Taxation. London, n.d. [1853]. An extended criticism of most of the witnesses is found in The People's Blue Book: Taxation as it is, and as it ought to be. By Chas. Tennant. London, 1853. This went through several editions. Cf. esp. the 4th ed., 1872, pp. 628-650.

L

by capitalizing the various incomes at different rates. In agreement with the actuaries, we find Farr, the expert on life statistics, and Jeffery, who represented the Liverpool Financial Reform Association. On the other hand, the principle of differentiation was opposed by Babbage and Warburton, the latter endeavoring to fortify his position by recondite algebraical reasoning. John Stuart Mill, also one of the witnesses, thought that there ought to be a differentiation, but considered the plan of capitalizing incomes fallacious. He objected to graduation as strongly as he supported differentiation. Mill advanced the theory that savings ought to be exempt from the income tax, so that a tax would really be one on expenditure. He confessed, however, that such a scheme would be quite impracticable. Three Americans, Messrs. Dudley Selden, Ashbel Smith, and Colonel Johnson, described the system of the general property tax as it existed in New York and Texas, and seemed to make a decided impression on the chairman, although their testimony as to the operation of the law was not universally favorable. The most valuable evidence, however, was given by the English income tax officials, like Pressly and Welsh, who, after showing the immense superiority of the stoppage-at-source system over the earlier method of assessment, stated that it would be extremely hazardous to tamper with the existing administrative arrangements, and declared that all the various schemes. that had been propounded were utterly impracticable.1

The Chairman, Mr. Hume, proposed an elaborate draft report, suggesting and explaining certain changes. He desired that the tax be adjusted in accordance with the value

1 Referring to the proposition to introduce a general property tax, for instance, Pressly stated: "Instead of being an Act to impose a tax on property, I fear it would only be an Act for collecting voluntary contributions in aid of the support of the State.” — Op. cit., vol. ii, p. 252. Referring to the actuaries, he stated: “I am satisfied that you will never get a return of the capital, and that you will make the tax much more inquisitorial and odious than it is at present."— Ibid., p. 255.

2 The report was republished by the Liverpool Financial Reform Association as New Series, no. 4, of the Financial Reform Tracts under the title, The Draft Report proposed by Joseph Hume, Esq., the chairman of the Select Committee on the Income and Property Tax. Liverpool, n. d. [1852].