§5. The discussion in the preceding section has illustrated a special difficulty of drawing the line between ``earnings of Government'' and ``taxes''. We have now to observe that the general distinction between these two terms is not quite so clear as it appears at first sight. No one, I suppose, would apply the term ``taxes'' to payments for goods or services furnished by Government which the payer is left perfectly free to take or to leave---except so far as the price of the service is materially raised by the governmental monopoly---; even where, if the commodities are purchased at all, they must be purchased from the government, as in the case of payments for postal services. But, if so, it seems doubtful whether a payment of this kind acquires the character of a tax merely because it is made compulsory; as, for instance, where landowners are compelled to take a share in the cost of works of drainage or irrigation carried on by Government. On the other hand some economists hold that all taxes---i.e. all compulsory contributions of individuals to their government---ought to be regarded as payments for services received; and that the burden of taxation ought to be distributed on the principle which is ordinarily accepted in the case of such payments: viz. that every individual should pay in proportion to the cost or utility of the services rendered to him. And I quite admit that this is the most consistent way of treating the problem of taxation from an individualistic point of view, so far as the services rendered by Government admit of being thus individualised. But I find it to a great extent impossible to apply this principle in the case of the most important---and actually most costly---functions of government. Take (e.g.) the case of defence against foreign foes;---modern wars are undertaken not mainly for protection of the life and property of individuals, but for the maintenance of national existence, extension of empire, &c.; and it is surely impossible to apportion the advantages thus purchased among the individual members of the community. Similarly, how are we to decide who profits by the sumptuous expenditure of the monarch and the royal family in a monarchical country? It would be going too far to affirm that all members of the nation are equally concerned in maintaining either its international position, or its monarchical constitution; still I cannot but regard as hopeless the attempt to apportion the cost of either among different classes on the principle of payment in proportion to services rendered. I hold, therefore, that at any rate for the taxation required to defray the expenses of the Court, and of the army and navy and diplomatic service and the interest on national debts incurred for warlike purposes, some other principle of distribution must be sought.
The case is different with the expense of the administration of justice and the police. But though both judges and policemen are continually engaged in rendering special services to certain individuals, there is much force in the contention of Bentham and Mill, ``that those who are under the necessity of going to law are those who benefit least, not most, by the law and its administration''. It may be expedient, indeed, in order to check litigation, that the cost of administering justice should fall largely on individuals; as is actually the case so far as the services of solicitors and barristers are paid by the litigants. But it is at any rate desirable that as little as possible of this expense should fall on innocent individuals---innocent, that is, not only of violation of rights but even of undue litigiousness. It seems clear, therefore, that the support of the Judicature and police cannot, at least in the main, be defrayed by fees from the persons whom judges and policemen are more obviously occupied in protecting. At the same time, I do not think that the principle of apportioning the tax-payer's contribution to the services which he receives is so completely inapplicable here, as it is in the case of taxes for national defence: indeed we must, I think, have recourse to it to a certain extent when we come to deal with the question of determining the area of incidence of taxation.
The ordinary answer to the question, ``who ought to pay taxes to a government'' is Adam Smith's,---``the subjects of the State'' governed: but when the same question is raised in reference to a local tax, the ordinary answer is ``the persons residing or possessing property in the district''; and a comparison of the two answers shews the need of qualifying the first. It seems clearly just that aliens residing or possessing property in any country should pay something towards the expenses of its government; and if so, unless aliens are to be fined as such, it is clearly just that they should pay proportionally less to their own government; and the only satisfactory way of determining the ratio in which their contribution ought to be divided between the two governments is by regarding it as a price paid for services received. An Englishman residing in France is much less concerned than a Frenchman with French expenditure on armaments; but he has as much interest as a Frenchman has in the expenditure for maintaining internal order and promoting wellbeing in France; and be is also benefited by this latter outlay if without residing in France he merely holds property there. It seems therefore most proper that at least a rough division should be made of the taxes ordinarily paid by an English capitalist into three parts; one part to be paid by him to the English government wherever be may reside or hold property; another to the government of the country in which he resides; while the third should be proportioned to the property that he enjoys under the protection of his own, or any other, state.
The same principle, again, may be applied---and actually has been applied to a considerable extent---in determining the division between general and local taxation within any country. Where expenditure defrayed by taxes benefits the inhabitants in a certain locality almost exclusively, and other persons only so far as they resort to the place---thereby usually benefiting its trade---it is manifestly just, that the taxes should be correspondingly localised; as, for instance, in the case of expenditure on streets, and bridges so far as they are not maintained by tolls. Where on the other hand a more considerable share of the utilities produced tends to be diffused through the community, though residents in a certain locality benefit more than others, a division of the cost between local and general taxation is on similar principles equitable: thus (e.g.) it is reasonable that the pecuniary aid given by Government to elementary education should be furnished partly from national, partly from local, resources, so far as it is given on strictly individualistic principles that is, with the view of benefiting persons other than the children educated. A similar division of cost would seem to be also equitable in the case of Poor-relief; but here considerations of justice appear to be overborne in England by the special need and difficulty of maintaining a very strict economy in poor-law administration.
To sum up: I do not think that any sharp line can be drawn between taxes, ordinarily so called, and any compulsory payments for services received from Government; and I accept generally the principle of fixing the amount of the individual's contribution to Government so as to correspond as closely as economic management allows to the cost of the services performed by Government to him, so far as such services can be properly regarded as rendered to individuals. At the same time I think that this principle can rarely be applied, except in a rough and partial way, to any payments that are ordinarily called taxes; and that even where it is most applicable, it must often be overborne by other considerations,---sometimes by the economic advantage of more uniform rates of payment, sometimes by the desirability of reducing the burden laid on the poorer class of contributors. Nor does it seem that there is necessarily any sacrifice of justice, even from an individualistic point of view, in throwing a part of the cost of services which men are compelled to purchase on persons other than the recipient; since from this point of view the only admissible reason for compelling any individual to purchase such services is that the interests of others will be damaged if he is allowed to dispense with them; hence it seems not unfair that these others should bear a part of their cost. And, finally, there is a large part of governmental expenditure---much the largest part in our European nations, loaded with war-debts, and armed to the teeth---the utility of which cannot he thus distributed among individuals. Let us proceed then to consider the method by which Government ought to raise the contributions required for such public expenditure as cannot reasonably or conveniently be provided for by charging individuals in proportion to services rendered; so far as there is no public income adequate to such needs derived from land or other wealth owned by the community or from the profits of governmental business. It will be convenient to call this the method of `taxation' in the strictest sense.[Back to:][PPE, Book III, Chapter 8, Section 4] Public Finance