the money raised by taxation is devoted. For instance, a part of the national revenue of this country is expended in providing secret service money, and in paying large salaries and pensions to those who possess sinecure offices. However strongly individuals may object to this expenditure of public money, they are obliged to contribute as much to the revenue as if they most warmly approved it. There is practically no injustice in this; at least so far as regards those persons who possess the privilege of Parliamentary representation. Adam Smith's Four Canons of Taxation. In Adam Smith's Wealth of Nations he laid down four canons of taxation, the due observance of which secures minimum hardship tọ the tax-payer and maximum revenue to the state. These four canons are too long to be here transcribed in full. The following is a summary of them:— Ist. Every subject ought to contribute to the revenue a sum proportionate to the income which he enjoys under the protection of the State. 2nd. Taxes ought to be certain, not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought to be clear and plain to the contributor and to every other person. 3rd. Every tax ought to be levied at the time and in the manner in which it is most convenient for the contributor to pay it. 4th. Every tax ought to be so contributed as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the State. The application of the First Canon. The first of these canons cannot be observed in respect to each individual tax. It would be impossible to adjust each tax in proportion to the means of the tax-payer, or his ability to pay. For instance, a family of six persons who had only just sufficient income to live on, would probably consume as much, or even more tea than a wealthy family of half the size. The poorer family therefore pays much more duty on tea in proportion to its income than the wealthy family. It is obviously impossible for any government to provide against cases of this sort. If it were attempted, thousands of government officials would have to be employed in the inspection and investigation of special cases, and probably the whole amount raised by the tax would be consumed in paying the salaries of these officials. Thus in attempting to carry out Adam Smith's first canon, the government would be led into a flagrant violation of his fourth canon. The equality of taxation is best preserved, not by attention to one particular tax, but by endeavouring to make the aggregate amount of taxation paid by different classes of persons proportionate to the incomes they enjoy. Thus in the case just noticed though the poor family pays more duty on tea, in proportion to its income, than the rich family, it would pay less as income-tax, and less in duty on all articles of luxury, such as wine and spirits, In this way a rough kind of equality is preserved. The application of the Second Canon. Adam Smith's second rule, that taxes ought to be certain and not arbitrary, is of very great importance. When traders are uncertain how much duty they will have to pay on the commodities in which they deal, an air of uncertainty and speculation is thrown over commercial transactions; men depend more on their luck than on their sagacity and prudence, and trade becomes a gigantic system of gambling. The violation of this rule is the great disadvantage of ad valorem duties on imported commodities in comparison with duties of a fixed money value. The Third Canon. The third rule is obviously necessary to ensure the minimum of hardship to the tax-payer. If taxes are levied at a time which is unnecessarily inconvenient to the tax-payer, an injury is inflicted on him without any compensating benefit to the community at large. All taxes on commodities are really paid by the consumer, because they form part of cost of production. The consumer therefore pays the tax at a time when it is convenient to him to do so, viz. when he makes the purchase: if it were an inconvenient time for him to pay the tax he could abstain from purchasing the commodity. Taxes on commodities are, however, in the first place paid by the seller. Thus if a man buys a pound of tea, a part of the price is the duty which is levied by the State on this commodity. The retail trader has already paid the duty when he purchased the tea. If he had had to pay for it in ready money it might have been an extremely inconvenient time for him to pay the tax, but he probably effected the purchase with a bill of exchange for three or six months; at the end of this time he will have sold the tea to his customers, and thus have obtained the means to redeem his bill. "A tax on the rent of land, or of houses, payable at the same time at which such rents are usually paid, is levied at a time when it is most likely to be convenient for the contributor to pay; or when he is most likely to have wherewithal to pay." (Adam Smith.) The Fourth Canon. The utility of Bonding Houses. The fourth rule is intimately connected with the third. If a tax is levied at a time when it is inconvenient for the contributor to pay, it is nearly sure to take much more from the pockets of the tax-payer than it yields to the revenue of the State. When inconvenience of paying a particular tax is obviated by special arrangement, the discrepancy between the amount yielded to the State and that taken from the tax-payer is diminished. Thus if a merchant who imports taxed commodities does not wish to sell them immediately, he can place them in a bonding house. As long as they remain in bond he pays no duty upon them. They can remain in bond until they are sold; the merchant therefore pays the duty at a most convenient time to himself, viz. at the time that he sells the commodities and is in receipt of their price. Let us see what influence is thus produced on the price of commodities. Suppose a wine-merchant imports £1000 worth of wine, and that the duty on the wine is £500. He places the wine in a bonding house, where it remains six months, when it is sold. If the wine-merchant makes a profit of 20 per cent. per annum on his capital this wine will be sold for £1600. This will be composed of the following items : Original cost of wine 10 per cent. six months' profit on wine merchant's outlay...... Duty on the wine....... £1000 100 500 £1600 Now if the wine-merchant had had to pay the duty directly the wine arrived in the dock, its price, after six months, would be £1650 instead of £1600; because the merchant would have employed £500 more capital on which he would expect to receive interest at the rate of 20 per cent. per annum. The items of the price of the wine will then be as follows: .......... Price of wine, including duty £1500 150 £1650 The purchaser of the wine would therefore pay in consequence of the duty £50 more than ever reaches the revenue of the State1. Taxes on Raw Materials. In accordance with Adam Smith's fourth rule, taxes on commodities should not be levied on the raw material, but on the manufactured goods. If, for instance, it were considered desirable to put a tax on cotton, the tax should not be levied on raw cotton, but on the manufactured material. Cotton in the process of manufacture passes through the hands of a considerable number of traders. If the tax is levied on the raw material, each one of these different traders has to pay the tax, and the interest on the outlay of him of whom the purchase is made. If A, the importer, pays £1000 in duty on cotton, he expects when he 1 It has been objected to this statement that the State loses by this transaction all that the consumer gains; that if the duty had been paid directly the wine was imported, the State would have had the £500 six months sooner, and could thus have gained the six months' interest on that sum. But this argument assumes that the State can lay out its money at as high an interest as the private merchant. We have estimated the wine-merchant's annual profits to be 20 per cent. The State could not probably obtain more than 3 per cent. Half a year's interest on £500 at 3 per cent. per annum is £7. 10s. Therefore, though the State might gain this amount if the duty had been paid six months earlier, the consumer would in consequence have to pay the £50 extra for his wine, out of which sum the State would only benefit to the extent of £7. 10s. £42. IOS. would have to be paid in consequence of the tax more than ever reaches in any shape the revenue of the State. sells it to B to have the ordinary rate of profit, say £10 per cent., on this outlay. B therefore pays £1100 in consequence of the duty, and when he sells it to Che expects 10 per cent. interest on this 1100; C therefore pays £1210. Every time the material changes hands the amount paid in consequence of the duty increases at compound interest, until when it reaches the consumer, who really bears the burden of the tax, the amount added to the price of the commodity in consequence of the tax may be double the sum which is received by the State treasury. In order, therefore, to carry out Adam Smith's fourth rule commodities ought to be taxed as nearly as possible at the time when they are purchased for consumption; for the burden of the Tax being really borne by the consumer, he ought not to be made to pay the interest on the additional outlay (caused by the tax of the numerous merchants through whose hands a commodity passes in process of manufacture. The proposal contained in Mr Gladstone's budget of 1880 to abolish the mak tax and substitute for it a tax on beer, was quite in accordance with Adam Smith's fourth Canon. Direct Taxation on Commodities is impracticable. Some have thought that the interest of the consumer would be des marced if the taxes on commodities were collected in the shoes where they are sold. For instance, that if a woman word 1827 a shop to buy a pound of tea, the shopkeeper shouse say the price of the tea is 25. 6d, and the tax is 6d. Bu, this plan in arcempting to carry out Adam Smith's fourth wat wand mevitady violate it more completely than it is YOUN & De present system. Armies of Government ANNAN, WHAT Salaries would probably equal, if not exceed do wae amount vielded by the tax, would have to be Parvana omaered in looking over shopkeepers' books, Pastaining that the right amount of duty had been davo pre di dhe shookeepers to the state. Even this great vý amazing mange aradade de powerless to prevent some of Ab akts daing the yielding-up of the duty. To plske dilamos olecriar a tax should be levied at a time Ax Ayammadja a na éspersed amongst a large num PURI SAKNICA dut when it is amassed in large |