it forward to public notice as an object for praise, as a measure boldly conceived and happily executed." The only writer to question in detail the merits of the underlying principle was Gray, who undertook the rather arduous task of showing that "the profits on home trade and all mortgages, whether private or public, do not form any part of national income," and that they therefore ought to be exempted from the operation of the law.2

In his original scheme Pitt had calculated the total taxable income of the country at one hundred millions. He therefore expected to realize the sum of ten millions from the ten per cent tax. Very soon, however, it was seen that these figures were excessive, and Pitt accordingly reduced his estimate to seven and one-half millions. But even this proved too high. The tax actually yielded in 1799 only a little over six millions, producing a little more in 1800, and a little less in 1801.3 This was, however, a very great improvement over the less than two millions produced by the triple assessment, showing the great advantages of an income tax over an expenditure

tax.

The public discontent with the tax, led as usual by the metropolis, was very pronounced. In March, 1802, shortly before the conclusion of peace, the City of London submitted a petition, praying for the repeal of the tax and couched in very violent terms. The press and public meetings all over the country voiced similar sentiments, and when hostilities came to an end, by the treaty of Amiens, in May, 1802, Addington (later Lord Sidmouth), who had succeeded Pitt

1 "Nor should it be forgotten," he adds, "that it was approved, if not originally suggested, by the great body of the merchants, bankers, and traders of the capital and Liverpool.". An Investigation of Mr. Morgan's Comparative View of the Public Finances, from the Beginning to the close of the late Administration. By Daniel Wakefield. London, 1801, p. 24. field, see also supra, p. 85.

As to this last statement of Wake

2 The Income Tax scrutinized, and some Amendments proposed to render it more Agreeable to the British Constitution. By John Gray. London, 1802, p. 23. 3 The exact figures of the annual yield will be found in the appendix, infra, p. 115.

a

as Chancellor of the Exchequer, repealed the tax as unbefitting a time of peace, although he was compelled to make good the deficiency in the revenue by new excises and import duties, as well as by an increase of the assessed taxes. In his budget speech of April 5, 1802, he was, however, warm in its praises, stating that "it was to the wisdom which originated the tax, and the firmness which induced the House to persist in it, that the country was indebted for the comforts we now had." "1 As soon as the tax was abolished, the commissioners decided to destroy all the papers in their possession, fact which Frend thought "proves that honour still remains, and may it ever remain in the breast of an Englishman."2 Morgan, writing a few months later, could not refrain from ejaculating: "Happily for the nation this odious tax has been lately repealed."3 But Courtenay was more just, when in his reply he stated that "the income tax was among the measures which were called for at such a crisis, by an able and undaunted minister, and carried into execution by the country, with equal spirit and good sense."4 Courtenay, however, praised Addington for his decision "to leave at liberty this

66

1 Parliamentary History, vol. xxxvi, p. 448. 2 We are told that the papers were carefully collected and cut into pieces with large stationers' shears, then thrown into large bags, and conveyed with equal care to a paper manufactory, where, under the inspection of a commissioner, they were committed to the mash tub: and he did not leave them till they were reduced to a pulp."— The Principles of Taxation: or Contribution according to Means; in which it is shewn that if every Man pays in Proportion to the Stake he has in the Country, the present Ruinous and Oppressive System of Taxation, the Custom House, and the Excise Office may be abolished, and the national Debt Gradually and Easily paid off. By William Frend. London, 1804, p. 3. The body of this book is, with a few omissions, the same as Frend, Principles of Taxation, 1799, quoted above on p. 76; but the long preface of thirty pages is entirely different.

3 A Supplement to a Comparative View of the Public Finances, containing an Account of the Management of the Finances to the present Time. By William Morgan. London, 1803, p. 86.

* Observations upon the present state of the Finances of Great Britain; suggested by Mr. Morgan's Supplement to his "Comparative View," and by Mr. Addington's Financial Measures. By Thomas Peregrine Courtenay. London, 1803, p. 5.

great resource, to be resorted to upon any future emergency." " It was not long before the emergency declared itself.

§6. The Act of 1803

In 1803 the war broke out anew, and Addington was soon compelled to resort to the old device. In his budget speech of June 13, 1803, he declared his intention to propose "a tax upon property," although he was careful to add: "I wish it to be distinctly understood that I consider these duties as applicable to war only, and I intend to propose that they should cease within six months after the restoration of peace.' He also called the tax one "on the lands and property," and again on "rents and funds." A short but important debate now took place on July 13-14. Addington had proposed to make the abatements below £150 applicable only to incomes from personal labor, but Pitt, who was now the leader of the opposition, objected, and the Chancellor finally gave way, extending the reduction to all classes.3 In another respect, also, Pitt was successful. Addington had originally embodied his scheme in two bills, one of which dealt with the income from the funds, or government securities. Pitt objected to this dismemberment of the tax, and Addington was compelled to recast the measure and to present it in a single bill. The attempt of the opposition, however, to exempt the income from the public funds did not prevail although, as we shall see, the foreign holders of government securities were not made liable to the tax. To the objections raised by the opponents on account of the lack of discrimination, Addington replied that "equality of taxation was a thing not to be brought about by human wisdom." The

1 Observations upon the present state of the Finances of Great Britain: suggested by Mr. Morgan's Supplement to his "Comparative View," and by Mr. Addington's Financial Measures. By Thomas Peregrine Courtenay. London, 1803, p. 5.

2 Parliamentary History, vol. xxxvi, p. 1596. 8 Op. cit., Session of 1802, iii, pp. 740, 749.

* Op. cit., vol. xxxvi, p. 1662.

bill as amended became law on August 11, 1803, under the sig nificant title of "An Act for Granting to his Majesty until the sixth day of May next after the ratification of a definitive treaty of peace, a contribution of the profits arising from property, professions, trades and offices." 1

The law of 1803 introduced a fundamental change in the method of assessment. As this new method is virtually identical with the one followed at the present time, it deserves a somewhat more elaborate description. The alteration consisted in the fact that the taxpayer was no longer assessed directly on his total income regarded as a lump sum, but that his income was now divided into a convenient number of categories or schedules, and that in each schedule the tax was imposed as far as possible upon the source of the income; that is, upon the person who paid the sum which became the income of the party in question. In other words, the tax was stopped at the source. Thus the tax on the owner of the land or of the house was paid by the tenant, who deducted it from the rent; the tax on persons in the employ of the government or of public corporations was paid by the latter, and was deducted from the amounts payable. The exact nature of the alteration and the reasons why the change was made are set forth in an interesting publication which was issued under official auspices.2 The old income tax, we are told, "called upon the ultimate proprietor to account for that portion of his property, from all and whatever sources it was derived." Unfortunately, however, as we are told, this method

3

1 43 George III, 122.

2 An Exposition of the Act for a Contribution on Property, Professions, Trades, and Offices; in which the Principles and Provisions of the Act are fully considered, with a View to facilitate its Execution, both with respect to Persons chargeable, as Persons liable, to the Tax by way of Deduction, and the Officers chosen to carry it into Effect. London, 1803.

3 "Comprehending all, without distinguishing any of the sources, it laid an equal contribution on the mass of annual acquirement. . . . It involved the whole, however intricate or extensive, in one account, to be furnished by the party. The produce of trade and commercial adventures, the laborious and industrious avocations, was mixed with the produce of property, requiring neither the skill nor industry of the proprietor to attain or preserve. It was imposed, not

did not work successfully. "It has so happened that this wise and judicious measure, in its operation on the interest of individuals, was found to depend too much on the imperfection of human nature. It became unequal in the execution, and thereby defeated its own principle." In order to obviate these difficulties, and "to preserve and protect the principle of equality," the new method was devised. "As the former was imposed on the general account of income derived from all the sources; the present duty is imposed on each source by itself, in the hand of the first possessor, at the same time permitting and authorizing its diffusion through every natural channel in its course to the hand of the ultimate proprietor. The present measure, then, must be considered as a tax on the first produce, gradually subsiding itself into a tax upon the income of the ultimate proprietor; affecting in its immediate object the hand that acquires, but extending by direct motion to the hand which converts the income so acquired. . . . By these means its object is attained with more facility and certainty, and with less intricacy and disclosure, diminishing the occasions of evasion by the means of execution." 1

After explaining more in detail the operations of this principle of stoppage at source, the exposition concludes: "Thus the charge is gradually diffused from the first possessor to the ultimate proprietor; and one of the greatest causes of defalcation, arising from the necessity of protecting private transactions from exposure, experienced under the Income Act, is avoided; at the same time protecting the private transactions of life from the public eye, whilst the revenue is more effectually guarded." 2

In order to distinguish the new tax as much as possible from its predecessor, another name was given to it. Addington, as we have seen, called it in turn a tax upon property, a tax on land and property, or a tax on rents and funds. The law

on its first acquirement, but after its separation into all the channels to which it was destined, on the ultimate possessor." — Op. cit., p. 2.

1 Op. cit., pp. 3, 4.

2 Op. cit., p. 5.