As these voluntary contributions could, however, not be permanently depended upon, Pitt was led regretfully, but none the less firmly, to abandon his original project, and to propose a new tax to be levied directly on income itself.

§3. Pitt's Conversion to the Income Tax

On December 8, 1798, Pitt introduced his new scheme and touched upon the general principle which underlay it. “It is in vain," he tells us, "to disguise that, by the causes to which I have alluded, the full advantage of the principle has not been obtained. The wishes and the interest of individuals, I am sure, must unite in demanding a more comprehensive, a more equal, and a more vigorous application of a principle, the rare advantages of which we have been able to ascertain, if we have not yet been so fortunate as to enjoy." Originally, we are told, he “felt it materially important to follow some durable, some apparent and sensible criterion, by which to apportion the burden." But now it had become necessary "to prevent those frauds which an imperfect criterion and a loose facility of modification have introduced; to repress those evasions so disgraceful to the country, so injurious to those who honourably discharge their equal contribution, and, above all, so detrimental to the great object of national advantage which it is intended to promote." He therefore declared it to be his intention to propose "that the presumption founded upon the assessed taxes shall be laid aside, and that a general tax shall be imposed upon all the leading branches of income," for the purpose of "obtaining, by an efficient and comprehensive tax upon real ability, every advantage which flourshame, that in a moment like the present, in a contest so vitally interesting to every individual and to the nation, there have been men base enough to avail themselves of the general modifications which were intended to relieve those who might have been called upon to contribute beyond their means, to avoid that fair assessment which corresponded with their circumstances, I am happy to find that the honor of the nation has been vindicated by the noble and generous aid of voluntary contribution."

1 Speeches, vol. ii, p. 430.

ishing and invigorating resources can confer upon national efforts." 1

The project of a direct tax on all incomes was novel. Very shortly after the passage of the triple assessment, an anonymous writer suggested, indeed, a "general contribution upon a broad basis."2 But the context shows that he desired it to be restricted to the landowners and fundholders. In the same way Cooke, in his so-called income tax scheme, made a distinction between different classes of revenue, and advocated a tax only on "permanent or acquired property." It was reserved for Pitt, however, to suggest that all incomes, from whatever source derived, be taxed, and be taxed alike. In one of his most forceful passages, we find an eloquent defence of the justice of taxing the income from government securities, which had hitherto been exempt from taxation.5 "I should say to the stockholders, as one of the public if you expect from the state the protection which is common to us all, you ought also to make the sacrifice which we are called upon to make. It is not pecul

1 Speeches, vol. ii, pp. 431–433.

2 Consolatory Thoughts on Taxation or Contribution, in Three Letters to a Member of the House of Commons. By the author of Thoughts on Taxation and a new System of Funding. London, 1798, p. 9.

3 Op. cit., p. 6.

"To provide for the exigencies of the state, let property, permanent or acquired, and which produces a certain income to the possessor, be only assessed." The just Proportion which each Class of the People, from the Peasant to the Peer, have in the Support and Prosperity of the State. Or Test of Taxation; and a Schedule for Assessment on Income, resulting from a mathematical Investigation of the Value of Property Acquired, and that Fluctuating in Trade. Addressed to every Individual of the British Empire. By N. Cooke. 2d ed., London, 1798, p. 24. Cooke was willing to add to the tax on permanent property a tax on annuities, pensions, and church livings (p. 25); but he held repeatedly that trade and commercial incomes must be exempt (p. 13). Cf. also the anonymous Thoughts on Taxation, in the Course of which the Policy of a Tax on Incomes is impartially investigated. London, 1798.

Since the time of William and Mary, the Loan Acts had provided that government annuities should be free of all taxation. The Annual Land Tax Act, which included "annuities payable out of the public revenue," exempted "annuities of yearly payments by any Act or Acts of Parliament specifically exempted from the payment of taxes or aids." — 38 George III, c. 5, sec. 3 (1797).

iar to you, it does not belong to the quality of your income, but it is made general and required from all; you could not embark your capital in any other species of security in which it would not be subject to the same charge. I do not know what objection the stockholder could make to this appeal."1

On the third reading of the bill, Pitt took up in considerable detail the three chief objections urged against the scheme. Because of the great rôle that these objections played in after years, we may be pardoned for explaining Pitt's replies somewhat fully.

Referring to the contention that indirect taxes should be preferred, Pitt stated that such an increase of tax on consumption as would yield the requisite amount of revenue was not only impracticable, but would introduce "evils ten times more severe than those which are imputed to this measure." 2 In reply to the second objection, namely, the charge of inquisitorial procedure, Pitt closed his argument by putting the question. "Does the honourable gentleman really think that no precaution whatever ought to be taken to avoid those scandalous evasions which there is but too much reason to expect may be attempted?"3 Finally, taking up the point that the proposed scheme did not discriminate between the various kinds of income according to their nature or duration, Pitt maintained that the inequalities complained of "arise out of the nature of society, and the distribution of its rank, and the classification of its property." In the course of his argument Pitt advanced what later on became known as the "leave-them-as-you-find-them" theory of taxation.5 Referring to two individuals, one of whom receives his income from land and the other from industry, Pitt asked: "What does the new tax do? Are they not left in relation to each other precisely as they were before? The tax creates no new inequality. The justice or injustice remain

1 Speeches, vol. ii, p. 444.

2 Speech of December 14, 1798, in Speeches, vol. iii, p. 3.

8 Op. cit., p. 6.

4 Op. cit., p. 8.

5 As to this theory, see Seligman, Progressive Taxation, 2d ed., p. 231.

"1

precisely as they were. To complain of this inequality is to complain of the distribution of property; it is to complain of the constitution of society. To attempt to remedy it, would be to follow the example of that daring rabble of legislators in another country. . . . To think of taxing these two species of incomes in a different ratio, would be to attempt what the nature of society will not admit; what has never been practised in the course of four thousand years.' So far as the alleged distinction between annuities and income from fixed property is concerned, Pitt replied: "A permanent estate, which is represented as never dying, and, as it were, the property of a man after his death, contributes on every exigency which may occur; the income from labour and industry is extinguished; it contributes but once; it is no longer the property of the same person; while the other, which is considered as the same property, is subject to renewed demands." This reasoning, Pitt added, "may be thought refined; but the answer is justly applicable in the case where the reason, why fixed property should contribute more, is founded on its supposed permanency, in addition to the fleeting character of the other."2 Pitt closed his impassioned appeal in the following words: "The inequalities objected to are not peculiar to its nature; they arise from our social state itself, and the correction of that order we cannot, as we ought not, attempt to alter. It would be a presumptuous attempt to derange the order of society, which would terminate in producing confusion, havoc, and destruction, and with a derangement of property, terminate in the overthrow of civilized life." 3

Although Pitt's eloquence carried parliament with him by a large majority, his plan aroused considerable opposition. The metropolis was not any more favorable to the new project than to the old one. The Lord Mayor, Aldermen, and Common Council of London adopted a resolution at the General Court on December 19, 1798, in which, while 1 Seligman, Progressive Taxation, 2d ed., p. 9. 2 Speeches, vol. iii, p. 13.

Op. cit., pp. 14–15.

indeed nominally approving of the principle of the bill, and acknowledging "that all taxes ought to be equitable and proportionably levied according to the property of individuals," they took exception not only to the measures devised for carrying the principle into execution, but stated that the proposition to tax "the precarious and fluctuating income arising from the labour and industry of persons in trade, professions, etc., in the same proportion as the permanent annual income proceeding from landed and funded property, is most partial, cruel, and oppressive."

These ideas were taken up by Frend, who declared himself struck by the "palpable injustice" of Pitt's scheme.2 Frend propounded his general theory that "taxation is equitable, when each member is taxed in proportion to his means of paying the tax," explaining the principle further by stating, very much as Pitt did, that "taxation, to be equitable, must leave the subjects, when the tax is taken from them, precisely in the same relative situation to each other, in which they were the moment before the tax was paid."4 In contradistinction to Pitt's contention, however, Frend attempted to show by elaborate computations that the same proportion of taxable means takes a very different rate of taxation from the various categories of income derived from property.5 He also objected to the "peculiar progression for inferior in

1 "That the said bill proposes to establish an inquisitorial power unknown in this country inconsistent with the principles of the British Constitution — and repugnant to the feelings of Englishmen." —The resolutions are printed on p. xv of the book of Frend mentioned in the next note.

2 Principles of Taxation. By William Frend. London, 1799, p. iv.

3 Op. cit., p. 2.

4 Op. cit., p. II.

5 "To be equitable, the subjects must pay in proportion to their taxable means, and these means should be to each other, in the moments before and after the payment of the tax, in the same relative situation. They cannot be in the same relative situation, unless their taxable means of income, productive and unproductive capital, are diminished in the same proportion. This is done by assigning the value of productive and unproductive capital, and taking the income for one year : then, after the deduction from the whole of a certain sum, a certain part of the remainder is to be taken for the tax."-Op. cit., p. 40.