that on all earned incomes, when the total income exceeds £2000 and does not exceed £3000, the tax should be Is. instead of Is. 2d. Another new feature in the law was the granting of relief in the case of children. Where the total income is not over £500, a relief from income tax equal to the amount of the tax upon £10 is permitted for each child under the age of sixteen.1 An important change was also made in Schedule A. It was now provided that if the owner of any land including farm-houses and buildings or any house, the annual value of which does not exceed £8, shows that the cost of maintenance, repairs, insurance, and management, on the average of the preceding five years, has exceeded in the case of land one-eighth part of the annual value, and in the case of houses one-sixth part of that value, he shall be entitled to a repayment of the tax on the excess, not exceeding in the case of land one-eighth part, and in the case of houses, one-twelfth part of the tax on the annual value.2 This brings the maximum total allowance for repairs and maintenance up to twenty-five per cent of the annual value of the property in both cases. If a person occupies his own house, the net annual value is still considered as income. Furthermore, the exemption accorded to friendly societies and trades unions is enlarged so as to apply in all cases where the amount does not exceed £300 gross insurance, or £ 52 by way of annuity.* Finally, the law contains an important provision, withdrawing the right of exemption and abatement or relief from any person who is not resident in the United Kingdom, with the exception of officials of the government, missionaries, and individuals who remain abroad because of their health. It provides, however, that the tax on interest or dividends of any securities of a foreign state or a British possession which are payable in Great Britain shall not be assessed

1 Sec. 68.

2 Sec. 69.

In the case of farm property the old allowance of one-eighth plus the new allowance of one-eighth equals one-quarter or twenty-five per cent; in the case of houses the old allowance of one-sixth plus the new allowance of one-twelfth equals one-quarter or twenty-five per cent. • Sec. 70.

when the owner of the securities does not reside in Great Britain.

Thus was accomplished the second great reform of the income tax. Henceforth not only differentiation, but graduation, is to be an avowed feature of the English system. Moreover, virtually all the important suggestions offered by the departmental committee for the reduction of fraud have now been enacted into law. It is worthy of especial note that a system of allowances for children, which, as we remember, was a part of the original income tax of 1799, and which worked so badly that it was soon abolished, has now again been introduced. It is a striking testimony not only to the recognition of the more modern ideas as to the social functions of an income tax, but also to the increased confidence that is felt by the British government in the administrative features of the tax. What was utterly impossible a century ago has now become entirely feasible.

§ 9. Conclusion

The English income tax has lasted in its present shape for well-nigh three-quarters of a century. The most striking fact in its history is the great change that has taken place in public sentiment. Slowly and very gradually the original and inveterate repugnance to the tax has been overcome, and has given way to a recognition of its inevitableness and to an appreciation of the great function that it has to perform in English fiscal and social life. This change in sentiment is due in part to the evolution that has occurred in England, as elsewhere in Europe, in the general attitude with regard to the social functions of taxation. But it is also in perhaps even greater degree due to the improvements that have been made in the underlying principle, as well as in the administrative machinery, of the tax; so that what was originally considered insupportable has now come to be regarded as not only endurable but proper.

That the income tax is administratively ideal is indeed far

from the truth. We still find occasional complaints. Fry, for instance, has called attention to several matters, some of which subsequently formed the subject of consideration by the departmental committee.1 Stamp maintains that the system, with its wholesale survivals of the verbiage of the eighteenth century acts, its maze of averages and bases of calculation, its quaint references to alum and mundic, forms one of the most difficult branches of the law, constituting a sealed book to all but experts, and an exasperation to the lay mind.2 Another writer characterizes it as the "most dishonourable and humiliating tax that has ever been put upon a willing and generous nation." 3 A recent anonymous writer speaks of "methods about which there is infrequently anything that is creditable and often much that is tyrannical," and thinks that "the ingenuity of the collectors in gaining advantage over the taxpayers is really most wonderful. Their guile is superb."4 No tax, however, is really popular, and as against these magazine writers we may on the whole take as more typical the judgment of Armitage-Smith, the author of a recent British treatise, "that the method of collection is simple and economic, that the tax is highly productive, and that it satisfies fairly all the canons of Adam Smith. It has now become an established element in the British tax system, and democratic tendencies strengthen its position." 5

If we attempt to summarize the features of the English income tax which are responsible for its undoubted success, we might state them as follows:

First, the happy blending of regard for local interests and for

1 T. Hallett Fry, Income Tax Anomalies. London, 1903; and the same author's The Income Tax Burden. London, 1904.

2 J. C. Stamp, "Economic Aspects of Income Tax Change," in The Economic Review, vol. xix (1909), p. 420.

3"The Tyranny of the Income Tax," Blackwood's Magazine, vol. 178 (1905), Pp. 279-284.

4"Anomalies of Income Tax Collection," in Chambers's Journal, 1907, pp. 321, 324.

5 Principles and Methods of Taxation. By G. Armitage-Smith. London, 1906, pp. 64, 65.

1

fiscal productiveness. The original assessment of the tax, it will be remembered, is placed in the hands of appointees of the Land Tax Commissioners, and these Land Tax Commissioners are non-salaried representatives of the local gentry. It was rather by accident that England stumbled into this method at the very outset of the income tax, at the close of the eighteenth century; but with the characteristic British fondness for old customs, it has survived to the present day. The taxpayers feel that their interests are in a sense looked after by their own representatives, and yet the interests of the revenue are guarded by careful supervision on the part of representatives of the central government. On the one hand the danger of too much bureaucracy is eliminated; on the other hand the risk of inadequate yield is averted.

Second, the ingenious system of the utilization of experts through the medium of the Additional Commissioners. The weak point in every income tax is in the assessment of business incomes. If this be left to ordinary administrative underlings, there is great danger either of ineffectiveness or of inquisition. Great Britain has been able to avoid both of these perils in large measure, by the system of Additional Commissioners, who, as we know, are frequently drawn from the ranks of the most prominent business men in the community, and who consider the service both a duty and a privilege. The public spirit which animates this part of the administration, and which attracts to the service the aid of what may be called outside experts, cannot be too highly commended. It is in no small degree responsible for the comparatively smooth working of the law.

Third, the absence of inquisitorial procedure. One of the most difficult things in fiscal matters is to avoid on the one hand the Charybdis of lax administrative methods, which must everywhere result in a travesty of the law, and on the other hand the Scylla of drastic methods, the very rigidity of which is apt to defeat itself. A long experience has enabled the English administrators to steer their course skilfully between

1 Cf. supra, page 58.

come tax.

these two perils. The early complaints against the inquisitorial character of the tax have long since well-nigh completely disappeared; and yet the effectiveness of the administration and its success in minimizing fraud have, as we know, grown more and more pronounced from decade to decade. Fourth, the system of stoppage at source. This is perhaps the chief cause of the great success of the English inThe original lump-sum income tax was, as we know, abandoned as unworkable, and it has been the universal testimony of all English officials that any attempt to return to this early and discredited system would be fraught with disaster. If there is any one point to which the British authorities tenaciously cling, it is this system of dividing the tax into schedules, and of seeking, as far as possible, to secure the revenue by stoppage at source.

Fifth, the studied moderation of the rate. England has always sedulously refrained from incurring the risk which, as we shall see, has actually befallen some other states, of so straining the possibilities of the system as to imperil the revenues. For several decades, while the permanence of the tax was not yet assured, it is perhaps easily explicable that the rate should have hovered around three to four per cent. But even in recent decades, where the tax has become an acknowledged permanent part of the system, the normal rate has been kept down to five or six per cent. To take away six per cent of a man's income by what has become almost the sole example of general direct taxation cannot be considered in any way excessive. It is this moderation of the rate that has contributed not a little to the success of the tax.

Sixth, the introduction of differentiation. We have seen that almost from the inception of the tax the policy of assessing all the different kinds of income at the same rate gave rise to strenuous objections. For many weary decades the eloquence of Gladstone, in opposition to what have since turned out to be the imaginary dangers of a change, was sufficient to prevent all serious attempts at reform. But with the