Book V, Chapter II, 7

A tax of this kind, when proportioned to the dealer’s trade, is ultimately paid by the consumer and does not oppress the dealer. When it is not so proportioned, but is the same for every dealer, it is still ultimately paid by the consumer; yet it favors the large dealer and somewhat oppresses the small one. The tax of five shillings a week on every hackney coach, and that of ten shillings a year on every hackney chair, are proportioned closely enough to the scale of their keepers’ respective businesses, insofar as those keepers advance the tax. Neither favors the large dealer nor oppresses the smaller one. The tax of twenty shillings a year for a license to sell ale, forty shillings for a license to sell spirituous liquors, and forty shillings more for a license to sell wine, being the same for all retailers, must necessarily give some advantage to the large dealers and impose some hardship on the small ones. The former must find it easier than the latter to recover the tax in the price of their goods. The modest size of the tax, however, makes this inequality less important; and many people may consider it reasonable to discourage, to some extent, the multiplication of small alehouses. The proposed tax on shops was to be the same for every shop. It could hardly have been otherwise. To proportion a shop’s tax with any reasonable accuracy to the scale of its trade would have required an inquiry wholly intolerable in a free country. Had the tax been substantial, it would have oppressed small dealers and forced almost all retail trade into the hands of large ones. With the competition of the former removed, the latter would have held a monopoly of the trade; and, like all other monopolists, would soon have combined to raise their profits far beyond what was needed to pay the tax. The ultimate burden, instead of falling on the shopkeeper, would have fallen on the consumer, together with a considerable surcharge for the shopkeeper’s profit. For these reasons the proposal for a tax on shops was abandoned and replaced by the subsidy of 1759.

What is called the personal taille in France is perhaps the most important tax on the profits of stock employed in agriculture levied anywhere in Europe.

In Europe’s disorderly condition under feudal government, the sovereign had to content himself with taxing those too weak to refuse payment. The great lords, though willing to assist him in particular emergencies, refused to submit to any permanent tax, and he was not strong enough to compel them. The occupiers of land throughout Europe had originally been, for the most part, bondmen. Over much of Europe they were gradually emancipated. Some acquired landed property held by some base or ignoble tenure, sometimes under the king and sometimes under another great lord, like England’s old copyholders. Others, without acquiring ownership, obtained leases for terms of years on the lands they occupied under their lord, and so became less dependent on him. The great lords seem to have looked upon the prosperity and independence attained by this lower order of men with malicious and contemptuous indignation, and readily agreed to let the sovereign tax them. In some countries the tax was confined to lands held as property under an ignoble tenure; in this case the taille was called real. The land tax established by the late king of Sardinia, and the taille in Languedoc, Provence, Dauphine, and Britanny; in the generality of Montauban and the elections of Agen and Condom, as well as in some other French districts, are taxes on lands held as property under an ignoble tenure. In other countries the tax fell on the supposed profits of everyone farming or leasing someone else’s land, whatever the tenure by which its owner held it; in this case the taille was called personal. In most of the French provinces known as the countries of elections, the taille is of this kind. The real taille, because it falls on only part of a country’s land, is necessarily unequal, but is not always arbitrary, though on some occasions it is. The personal taille, because it is intended to be proportioned to the profits of a particular class of people whose profits can only be guessed at, is necessarily both arbitrary and unequal.

In France, the personal taille currently (1775) imposed each year on the twenty generalities known as the countries of elections amounts to 40,107,239 livres, 16 sous. [Memoires concernant les Droits, etc tom. ii, p.17.] The proportion of this sum assessed on the different provinces changes from year to year according to reports to the king’s council on whether the crops have been good or bad, as well as on other circumstances that may increase or diminish their respective ability to pay. Each generality is divided into a number of elections; the proportion of the sum assessed on the whole generality allocated to the different elections likewise changes each year according to reports to the council about their respective ability to pay. It seems impossible for the council, however well intentioned, to proportion either of these assessments with reasonable accuracy to the actual ability of the province or district on which it is laid. Ignorance and misinformation must always mislead even the most upright council to some degree. The share of the assessment on the whole election that each parish must bear, and the share of the assessment on his particular parish that each person must bear, likewise change from year to year as circumstances are thought to require. Those circumstances are judged in the first instance by officers of the election and in the second by officers of the parish; both are to some extent under the direction and influence of the intendant. Not only ignorance and misinformation but friendship, partisan hostility, and private resentment are said often to lead these assessors astray. Clearly, no one subject to such a tax can ever know before his assessment what he will have to pay. He cannot even know after being assessed. If someone who should have been exempt has been taxed, or someone has been taxed beyond his proper share, both must pay for the time being; but if they complain and establish their claims, the whole parish is assessed again the following year to reimburse them. If a contributor goes bankrupt or becomes insolvent, the collector must advance that person’s tax, and the whole parish is assessed again the following year to reimburse the collector. If the collector himself goes bankrupt, the parish that elected him must answer for his conduct to the receiver-general of the election. But since it might be troublesome for the receiver to pursue the entire parish, he selects five or six of its wealthiest contributors and compels them to make good the loss caused by the collector’s insolvency. The parish is then assessed again to reimburse those five or six. Such reassessments always come on top of the taille for the particular year in which they are imposed.

When a tax is imposed on the profits of stock in a particular branch of trade, all the traders take care not to bring more goods to market than they can sell at a price sufficient to repay what they advanced in tax. Some withdraw part of their stocks from that trade, leaving the market less amply supplied than before. The price of the goods rises, and the ultimate burden of the tax falls on the consumer. But when a tax is imposed on the profits of stock employed in agriculture, farmers have no interest in withdrawing any of their stock from that employment. Each farmer occupies a certain amount of land for which he pays rent. A certain quantity of stock is needed to cultivate that land properly; by withdrawing any part of this necessary quantity, the farmer is unlikely to improve his ability to pay either rent or tax. To pay the tax, it can never be in his interest to reduce his output and thereby supply the market less amply than before. The tax will therefore never enable him to raise the price of his produce enough to recover his payment by shifting the ultimate burden to the consumer. Yet the farmer, like every other dealer, must make a reasonable profit, or he must abandon the business. After a tax of this kind is imposed, he can obtain this reasonable profit only by paying the landlord less rent. The more he is obliged to pay in tax, the less he can afford in rent. A tax of this kind imposed during a lease may undoubtedly distress or ruin the farmer. When the lease is renewed, the burden must always fall on the landlord.

In countries subject to the personal taille, the farmer is commonly assessed in proportion to the stock he appears to employ in cultivation. He is therefore often afraid to keep a good team of horses or oxen, and tries to cultivate with the poorest and most wretched farming implements he can find. So little does he trust the fairness of his assessors that he feigns poverty and wishes to appear barely able to pay anything, for fear of being forced to pay too much. By this miserable policy he does not perhaps always pursue his own interest in the most effective way: he probably loses more through reduced output than he saves in tax. Though this wretched cultivation undoubtedly leaves the market somewhat less well supplied, the small rise in price it may bring is unlikely even to compensate the farmer for his reduced output, much less enable him to pay more rent to the landlord. The public, the farmer, and the landlord all suffer to some degree from this degraded cultivation. As I have already had occasion to observe in the third book of this Inquiry, the personal taille tends in many ways to discourage cultivation and thus to dry up the chief source of every great country’s wealth.

What are called poll taxes in the southern provinces of North America and the West India islands—annual taxes of a fixed amount per enslaved person—are properly taxes on the profits of a particular kind of stock employed in agriculture. Since most planters are both farmers and landlords, the ultimate burden falls on them in their capacity as landlords, without any reimbursement.

Taxes of a fixed amount per bondman employed in cultivation seem to have been common throughout Europe in ancient times. A tax of this kind still exists in the empire of Russia. It is probably for this reason that poll taxes of every kind have often been described as badges of slavery. To the person who pays it, however, every tax is a badge not of slavery but of liberty. It shows that he is subject to government, certainly, but also that, since he has some property, he cannot himself be someone’s property. A poll tax on slaves is entirely different from a poll tax on free people. The latter is paid by the people on whom it is imposed; the former by a different group of people. The latter is either wholly arbitrary or wholly unequal, and in most cases both; the former, though unequal in some respects because different slaves have different values, is in no respect arbitrary. Every master who knows how many slaves he owns knows precisely what he must pay. Nevertheless, because these different taxes have the same name, they have been regarded as having the same nature.

The Dutch taxes on male and female servants are taxes not on stock but on expense, and in that respect resemble taxes on consumable commodities. The tax of a guinea per male servant recently imposed in Great Britain is of the same kind. It falls most heavily on the middle ranks. A man with two hundred a year may keep one male servant. A man with ten thousand a year will not keep fifty. It does not affect the poor.

Taxes on the profits of stock in particular employments can never affect the interest on money. Nobody will lend money at a lower rate to those engaged in taxed employments than to those engaged in untaxed ones. Taxes on the revenue arising from stock in all employments will, in many cases, fall on the interest on money if the government tries to levy them with any degree of accuracy. The vingtieme, or twentieth penny, in France is a tax of the same kind as what is called the land tax in England; in the same manner, it is assessed on revenue from land, houses, and stock. Insofar as it affects stock, its assessment, though not especially rigorous, is far more exact than that of the portion of the English land tax imposed on the same fund. In many cases it falls entirely on the interest on money. In France money is frequently invested in what are called contracts for the constitution of a rent: perpetual annuities redeemable at any time by the debtor upon repayment of the sum originally advanced, though the creditor cannot demand redemption except in particular cases. The vingtieme does not seem to have raised the rate of these annuities, though it is levied on all of them with precision.

APPENDIX TO ARTICLES I. AND II.—Taxes on the Capital Value of Lands, Houses, and Stock.

While property remains in the same person’s possession, whatever permanent taxes may have been imposed on it have never been intended to diminish or take away any part of its capital value, but only part of the revenue it yields. When property changes hands, however—whether it passes from the dead to the living or from one living person to another—taxes have often been imposed on it that necessarily take away part of its capital value.

When a tax of this kind is proportional to a dealer’s trade, the consumer ultimately pays it, and it does not burden the dealer unfairly. When every dealer pays the same tax regardless of trade, the consumer still ultimately pays it. But it favors large dealers and puts some pressure on small ones. The tax of five shillings a week on each rented coach and ten shillings a year on each rented chair is proportional enough to the business done by the people who provide them. It neither favors large dealers nor burdens small ones. A license to sell ale costs twenty shillings a year, a license to sell spirits forty shillings, and a license to sell wine another forty shillings. Because every retailer pays the same amount, large dealers inevitably gain some advantage and small ones bear some burden. Large dealers can recover the tax through their prices more easily. But the tax is moderate, so this inequality matters less. Many people might also think it reasonable to discourage the spread of small alehouses. The proposed tax on shops was supposed to be the same for every shop. It could hardly have worked otherwise. To match a shop’s tax reasonably closely to its trade would have required an investigation that a free country could not tolerate. A substantial tax would have burdened small shops and driven nearly all retail trade into the hands of large dealers. Without competition from small dealers, large ones would have had a monopoly. Like other monopolists, they would soon have joined together to raise their profits far beyond what was needed to pay the tax. The consumer, rather than the shopkeeper, would ultimately have paid it, along with a substantial extra profit for the shopkeeper. For these reasons, the shop-tax proposal was abandoned and replaced by the subsidy, 1759.

The personal taille in France is perhaps the most important tax anywhere in Europe on profits from stock used in agriculture.

When feudal government prevailed in a disorderly Europe, rulers had to settle for taxing people too weak to refuse. Great lords were willing to help a ruler in particular emergencies but refused any permanent tax, and the ruler could not force them to pay one. Most people who occupied land throughout Europe were originally bondmen. They gradually gained freedom across much of Europe. Some came to own landed estates under a low-status form of tenure, sometimes under the king and sometimes under another great lord, like England’s old copyholders. Others did not acquire ownership but obtained leases for a number of years on the land they held under their lord. This made them less dependent on him. The great lords seem to have viewed this lesser group’s growing prosperity and independence with spite and contempt. They readily agreed to let the ruler tax them. In some countries the tax applied only to land owned under a low-status tenure. In that case the taille was called real. The land tax introduced by the late king of Sardinia, and the taille in Languedoc, Provence, Dauphine, and Britanny, in the generality of Montauban, and in the elections of Agen and Condom, as well as other French districts, tax land owned under such a tenure. In other countries, the tax was based on the supposed profits of everyone farming leased land owned by someone else, regardless of the owner’s form of tenure. In that case the taille was called personal. This is the kind of taille found in most French provinces known as the countries of elections. Because the real taille applies to only some of a country’s land, it is inevitably unequal. It is not always arbitrary, though sometimes it is. The personal taille aims to track the profits of a particular group, but those profits can only be guessed at. It is therefore inevitably both arbitrary and unequal.

At present (1775), the annual personal taille imposed on the twenty French generalities known as the countries of elections is 40,107,239 livres, 16 sous. [Memoires concernant les Droits, etc tom. ii, p.17.] The share charged to each province changes each year. It depends on reports to the king’s council about how good or bad the harvest has been and about other circumstances that might raise or lower its ability to pay. Each generality is divided into several elections. The share charged to each election also changes each year, based on reports to the council about its ability to pay. Even with the best intentions, the council seems unable to match either assessment reasonably closely to a province’s or district’s real ability to pay. Ignorance and false information will always mislead even the most honest council to some degree. The shares that each parish must pay of its election’s assessment, and that each person must pay of the parish’s assessment, also change from year to year as circumstances supposedly require. Election officers judge the circumstances for parishes, and parish officers judge them for individuals. Both groups are more or less under the intendant’s direction and influence. It is said that ignorance and false information often mislead these assessors, as do friendship, political hostility, and private grudges. Clearly, no one subject to this tax can know what they will owe before assessment. They cannot even be sure afterward. Someone wrongly taxed despite being exempt, or charged more than their share, must pay for now. If their complaint succeeds, the whole parish is assessed again the following year to repay them. If a contributor goes bankrupt or cannot pay, the collector must advance the tax. The whole parish is assessed again the next year to repay the collector. If the collector goes bankrupt, the parish that chose him is responsible to the election’s receiver-general. Rather than pursue the whole parish, the receiver may select five or six of its richest contributors and make them cover the loss. The parish is then assessed again to repay those five or six. All these additional assessments come on top of the taille for the year in which they are charged.

When a tax is placed on profits from stock in a particular trade, its dealers take care not to bring more goods to market than they can sell at prices that recover the tax they advanced. Some withdraw part of their stock from that trade, leaving the market with fewer goods. Prices rise, and consumers ultimately pay the tax. A tax on profits from agricultural stock works differently. Farmers have no reason to withdraw stock from farming. Each farmer rents a certain amount of land and needs a certain amount of stock to cultivate it properly. Taking away any of that necessary stock will not make the farmer better able to pay the rent or the tax. Cutting production to pay the tax, and therefore bringing fewer goods to market, can never be in the farmer’s interest. So the tax cannot let farmers raise the price of their produce and pass its ultimate cost to consumers. Yet farmers, like other dealers, must earn a reasonable profit or leave the business. Once this tax is imposed, they can earn that profit only by paying their landlords less rent. The more they must pay in tax, the less rent they can afford. Imposing such a tax in the middle of a lease may certainly put the farmer in difficulty or ruin them. When the lease is renewed, the burden must always fall on the landlord.

Where the personal taille applies, a farmer is usually assessed according to the stock they appear to use in cultivation. Farmers therefore often fear keeping a good team of horses or oxen. Instead, they try to farm with the poorest, most miserable equipment they can use. They distrust the fairness of their assessors so much that they pretend to be poor and want to look barely able to pay anything, for fear of being made to pay too much. This wretched strategy may not serve their interests very well. They probably lose more from reduced production than they save on tax. Poor cultivation undoubtedly leaves the market somewhat less well supplied. But any resulting small price rise is unlikely even to compensate farmers for their lost output, much less allow them to pay landlords more rent. The public, the farmer, and the landlord all suffer to some extent from this degraded cultivation. As I have already noted in the third book of this Inquiry, the personal taille discourages cultivation in many ways. It therefore dries up the main source of wealth in every large country.

What are called poll taxes in the southern provinces of North America and the West India islands are annual taxes of a fixed amount per enslaved Black person. Properly speaking, they tax the profits of a kind of stock used in agriculture. Since most planters are both farmers and landlords, they ultimately pay the tax as landlords, without being repaid.

Taxes charged per bondman employed in cultivation seem once to have been common across Europe. Russia still has such a tax. Perhaps that is why poll taxes of every kind have often been called marks of slavery. Yet for the person who pays it, every tax is a mark not of slavery but of freedom. It shows that the person is subject to government, but also that a person who owns some property cannot themselves be owned by a master. A poll tax on enslaved people is entirely different from one on free people. The tax on free people is paid by the people taxed; the tax on enslaved people is paid by someone else. The former is either completely arbitrary or completely unequal, and usually both. The latter is unequal in some ways, since enslaved people have different market values, but it is not arbitrary. Every master knows how many enslaved people they own and exactly what they must pay. Because both taxes share a name, however, people have treated them as the same kind of tax.

Dutch taxes on male and female servants tax spending, not stock, and in that respect resemble taxes on consumable goods. Great Britain’s recently introduced tax of a guinea per male servant is similar. It falls hardest on people of moderate means. Someone with two hundred a year might employ one male servant. Someone with ten thousand a year will not employ fifty. The tax does not affect the poor.

Taxes on profits from stock in particular businesses can never affect the interest rate on money. No one will lend at a lower rate to people in taxed businesses than to people in untaxed ones. Taxes on revenue from stock in all businesses will often fall on interest when governments try to collect them with any precision. France’s vingtieme, or twentieth penny, is similar to England’s land tax. It is assessed in the same way on revenue from land, houses, and stock. Its assessment on stock is not very strict, but is much more precise than the English land tax’s assessment on that source of revenue. In many cases it falls entirely on interest. In France, money is often invested in what are called contracts for the constitution of a rent: perpetual annuities that debtors can redeem whenever they repay the original sum, but that creditors cannot demand be redeemed except in particular cases. The vingtieme does not seem to have raised the rate on these annuities, although it is levied precisely on all of them.

APPENDIX TO ARTICLES I. AND II.—Taxes on the Capital Value of Lands, Houses, and Stock.

While property remains with one owner, permanent taxes imposed on it have never been intended to reduce or take any of its capital value. They take only some of the revenue it produces. But when property changes hands, whether from the dead to the living or between living people, taxes have often been imposed that necessarily take away some of its capital value.