§9. V. In short, a tax on land and buildings proportional to their value has partly the effect of a tax on the product of certain industries: partly, again, so far as the land or buildings taxed are `producers' wealth', it has the effect of a tax on the instruments of certain industries. To whatever extent it operates in either way, it comes within the large class of what we may call Taxes on Production; which occupies the most important place in modern systems of taxation. This class includes, besides (1) the important taxes before referred to on the manufacture and sale of material products, also (2) taxes on conveyance, (3) payments (fees, licenses, &c.), for leave to practise certain trades and professions, and (4) a great part of the taxes (by means of stamps) on the transfer of property---so far as these, falling with more weight on traders, may be regarded as largely taxes on trade. Such taxes on special lucrative callings are generally intended to fall, not on the persons who exercise them, but on the ultimate consumers of the commodities that the former furnish, or assist in furnishing; and it is obvious that industrial competition will tend to cause this transfer of the burden, so far as it tends to equalize remunerations. Still the transfer ought not to be assumed, in estimating the incidence of taxes, without important qualifications. We may indeed take it as broadly true, in most cases, that the burden of a long-established tax on production does not rest on the class of persons who actually pay it;---though even here it must be borne in mind that, owing to the limited knowledge that producers' have of each other's remunerations, industrial competition, however open. and active, cannot tend to bring about any exact equalization of earnings; it can but operate roughly to prevent large and palpable differences. But it is only under special circumstances that a new tax on production can be completely and at once transferred to the consumer. For, firstly, whenever the rise in price required to effect the transfer involves a material reduction in the sale of the commodity taxed, some initial loss to producers must result; which will be greater, ceteris paribus, in proportion to the extent of the reduction. We have thus an additional reason for selecting, in the imposition of fresh taxes, commodities for which substitutes cannot easily be found and with which consumers will not willingly dispense, in order that the incidental loss to producers may be as small as possible. Again, the extent of loss to producers caused by a reduction in the demand for their commodities varies very much according to the degree of mobility of their capital:---thus it is usually less for traders than for manufacturers and agriculturists; which is a reason, from a strictly national point of view, for taxing imports, ceteris paribus, rather than the products of native industry.
But again: the tendency of industrial competition to transfer the burden of taxation from producers to consumers will not operate where the former are enjoying extra profits to an amount exceeding that of the tax; whether through monopoly, natural or artificial, or through the possession of scarce natural resources or social opportunities. Thus a moderate tax on the produce of famous vineyards would have no tendency to be transferred to the consumer; the owners of the vineyards would still produce as much as they can and get the market-price for it, as they do now, so that the whole of the tax would be substantially paid out of their incomes. Where, however, a monopoly has been constituted by means of a grant of special rights and privileges granted by government, an exceptional payment by its owners should not be regarded as, in substance, strictly a tax; it is rather a share in the extra profits of the monopoly reserved to the community,
It is to be noted further, that in the case of temporary and partial monopolies, protected only by the difficulties of profitable competition, it must often be very uncertain where the burden of a tax on the monopolised production really rests, after a certain interval from its original imposition. For the tax tends to operate as an additional obstacle to competition; but the force it exercises in this direction can hardly ever be known for certain. Thus the burden of a tax imposed on the receipts of a railway company, if it were practically free from the restraint of actual or prospective competition, would fall on the shareholders: for if it were profitable for them to raise their fares after the tax had been imposed, it would have been equally profitably for them to do this independently of the tax. But so far as the tax tends to remove the fear of competition, it gives a power of raising fares which pro tanto compensates for its burden.
Finally we must observe that taxes on commodities when laid in certain ways may actually benefit certain classes of the producers or sellers of such commodities, by giving them advantages in the competition with other producers. Thus a tax on the materials of production or on products in an early stage of manufacture, or on articles of trade some time before they are sold, has a certain tendency to increase the advantage of large capitalists, as it causes more capital to be required for a given amount of business. Hence the consumer may lose by such a tax, through a rise in price, considerably more than is gained by the exchequer; the employer being able to obtain ample wages of management, as well as interest, for the extra capital employed. Licenses again, so far as the charge for them is fixed independently of the amount of business, are similarly advantageous to large employers.
Book III, Chapter 8, Section 8] Public Finance
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