Book V, Chapter II, 8

Transfers of every kind of property from the dead to the living, and transfers of immovable property—land and houses—from one living person to another, are transactions that by their nature are either public and widely known or cannot remain hidden for long. Such transactions may therefore be taxed directly. The transfer of stock or movable property between living people through a loan of money is often a secret transaction and can always be made one. It cannot easily be taxed directly. It has been taxed indirectly in two ways: first, by requiring the deed containing the obligation to repay to be written on paper or parchment on which a specified stamp duty has been paid, failing which it is invalid; second, by requiring, under the same penalty of invalidity, that it be entered in a public or secret register, with duties imposed on the registration. Stamp duties and registration duties have also often been imposed on deeds transferring every kind of property from the dead to the living, and on those transferring immovable property between living people—transactions that could easily have been taxed directly.

The vicesima hereditatum, or twentieth penny on inheritances, imposed by Augustus on the ancient Romans, was a tax on transfers of property from the dead to the living. Dion Cassius, [ Lib. 55. See also Burman. de Vectigalibus Pop. Rom. cap. xi. and Bouchaud de l’impot du vingtieme sur les successions.] the author whose account of it is least obscure, says it was imposed on all inheritances, legacies, and gifts made in expectation of death, except those going to the nearest relations and to the poor.

The Dutch tax on inheritances is of the same kind. [See Memoires concernant les Droits, etc. tom i, p. 225.] Inheritances passing to collateral relatives are taxed, according to degree of kinship, at rates from five to thirty per cent. of the whole value inherited. Testamentary gifts, or legacies, to collateral relatives are subject to the same duties. Those passing from husband to wife, or wife to husband, are subject to the fiftieth penny. The luctuosa hereditas, the mournful inheritance passing from descendants to ascendants, is subject only to the twentieth penny. Direct inheritances, or those passing from ascendants to descendants, pay no tax. For children living in the same house as their father, his death seldom brings any increase in revenue and often brings a substantial decrease, through the loss of his labor, his office, or some life-rent estate he may have held. A tax that compounded their loss by taking any part of their inheritance would be cruel and oppressive. It may, however, sometimes be otherwise for children who are said, in Roman law, to be emancipated and, in Scots law, to be foris-familiated: that is, children who have received their portion, established families of their own, and live on funds separate from and independent of their father’s. Whatever they received from his estate would truly add to their fortune and could perhaps be subject to a tax, without more inconvenience than accompanies all duties of this kind. The feudal law’s incidental dues were taxes on transfers of land both from the dead to the living and between living people. In ancient times they formed one of the chief branches of crown revenue throughout Europe.

The heir of every direct vassal of the crown paid a duty, generally a year’s rent, on receiving investiture of the estate. If the heir was a minor, all the estate’s rents during the minority went to the superior, with no obligations beyond maintaining the minor and paying the widow’s dower if there was a dowager on the land. When the minor came of age, another tax called relief was still due to the superior, generally amounting to a year’s rent as well. A long minority, which nowadays so often frees a great estate from all its debts and restores a family to its former splendor, could then have no such effect. The usual effect of a long minority was waste of the estate, not relief from its debts.

Under feudal law a vassal could not alienate his land without his superior’s consent, and the superior generally extracted a fine or payment in return. This fine, arbitrary at first, came in many countries to be fixed at a certain fraction of the land’s price. In some countries where most other feudal customs have fallen into disuse, this tax on the transfer of land still makes up a very substantial part of the sovereign’s revenue. In the canton of Berne it amounts to as much as a sixth of the price of every noble fief, and a tenth of every ignoble one. [Memoires concernant les Droits, etc, tom.i p.154] In the canton of Lucern the tax on land sales is not universal, but applies only in certain districts. Yet anyone who sells land in order to leave the territory pays ten per cent. of the whole sale price. [id. p.157.] Taxes of the same kind on the sale of either all lands or lands held under particular tenures exist in many other countries and make up a greater or smaller part of the sovereign’s revenue.

Such transactions can be taxed indirectly through either stamp duties or registration duties; those duties may or may not be proportioned to the value of the property transferred.

In Great Britain stamp duties vary less according to the value of the property transferred (an eighteen-penny or half-crown stamp suffices for a bond for the largest sum of money) than according to the nature of the deed. The highest do not exceed six pounds per sheet of paper or skin of parchment; these high duties fall chiefly on grants from the crown and certain legal proceedings, regardless of the value involved. In Great Britain there are no duties on registering deeds or writings apart from the fees of the officers who maintain the register, and these seldom exceed reasonable payment for their labor. The crown receives no revenue from them.

In Holland [Memoires concernant les Droits, etc. tom. i. p 223, 224, 225.] there are both stamp duties and registration duties, which in some cases are proportioned to the value of the property transferred and in others are not. Every will must be written on stamped paper whose price is proportioned to the property disposed of; thus stamps range from three pence or three stivers a sheet to three hundred florins, equal to about twenty-seven pounds ten shillings in our money. If the stamp costs less than the testator ought to have used, his estate is confiscated. This is in addition to all their other inheritance taxes. Apart from bills of exchange and certain other commercial bills, all other deeds, bonds, and contracts are subject to a stamp duty. This duty, however, does not rise in proportion to the value at stake. Every sale of land or houses, and every mortgage on either, must be registered and, on registration, pay the state a duty of two and a-half per cent. of the sale price or the mortgage amount. This duty extends to the sale of all ships and vessels of more than two tons burden, whether decked or undecked. These, it seems, are regarded as a kind of house on the water. The sale of movable goods, when ordered by a court of justice, is subject to the same duty of two and a-half per cent.

In France there are both stamp duties and registration duties. The former are regarded as part of the excise duties and, in provinces where they apply, are collected by excise officers. The latter are regarded as part of the crown domain and are collected by another group of officers.

These forms of taxation through stamp duties and registration duties are quite modern inventions. Yet over the course of little more than a century stamp duties have become almost universal in Europe, and registration duties extremely common. No art passes more quickly from one government to another than that of draining money from the people’s pockets.

Taxes on transfers of property from the dead to the living fall both immediately and ultimately on the recipients. Taxes on land sales fall entirely on the seller. The seller is almost always compelled to sell, and must therefore accept what price he can get. The buyer is scarcely ever compelled to buy, and will therefore offer only a price he likes. He considers what the land will cost him in tax and purchase price together. The more he must pay in tax, the less he will be willing to offer as a price. Such taxes therefore fall almost always on someone in need, and must often be very cruel and oppressive. Taxes on the sale of newly built houses, where the building is sold without the land, generally fall on the buyer, because the builder must ordinarily make his profit or abandon the business. If he advances the tax, therefore, the buyer must ordinarily reimburse him. Taxes on the sale of old houses generally fall on the seller for the same reason as taxes on land sales: in most cases either convenience or necessity compels him to sell. The number of newly built houses brought to market each year is governed more or less by demand. Unless demand enables the builder to earn his profit after covering all expenses, he will build no more houses. The number of old houses that happen to come on the market at any given time is governed by accidents, most of which have nothing to do with demand. Two or three major bankruptcies in a commercial town will bring many houses to market that must be sold for whatever they will fetch. Taxes on the sale of ground rents fall entirely on the seller for the same reason as taxes on land sales. Stamp duties and duties on registering bonds and contracts for loans fall entirely on the borrower, who in fact always pays them. Duties of the same kind on legal proceedings fall on the litigants. For both parties, they reduce the capital value of the matter in dispute. The more it costs to acquire any property, the less its net value must be once acquired.

All taxes on transfers of property of every kind, insofar as they reduce that property’s capital value, tend to diminish the funds destined to maintain productive labor. They are all more or less wasteful taxes: they increase the sovereign’s revenue, which seldom maintains anyone but unproductive laborers, at the expense of the people’s capital, which maintains only productive ones.

Such taxes, even when proportioned to the value of the property transferred, are still unequal, because equally valuable properties do not always change hands with equal frequency. When they are not proportioned to that value, as is true of most stamp duties and registration duties, they are more unequal still. They are not arbitrary in any respect, but are, or can be, perfectly clear and certain in every case. Though they sometimes fall on someone not very able to pay, the time of payment is in most cases reasonably convenient for him. When payment falls due, he will in most cases have more with which to pay. Collection costs very little, and generally imposes no inconvenience on contributors other than the unavoidable one of paying the tax. Stamp duties are not much complained of in France. Registration duties, which the French call the Controle, are. It is alleged that they give rise to much extortion by the officers of the farmers-general who collect the tax, which is to a great extent arbitrary and uncertain. Abuses of the controle form a principal charge in most of the pamphlets written against the present French financial system. Uncertainty does not, however, seem intrinsic to taxes of this kind. If the popular complaints are justified, the abuse must arise less from the nature of the tax than from a lack of precision and clarity in the wording of the edicts or laws imposing it.

Registering mortgages, and rights over immovable property generally, provides great security to creditors and purchasers and is extremely beneficial to the public. Registering most other kinds of deeds is often inconvenient and even dangerous to individuals, without bringing any benefit to the public. Registers that, by common agreement, must be kept secret ought certainly never to exist. The credit of individuals ought never to depend on a security so frail as the integrity and religious conscience of junior revenue officers. But where registration fees have become a source of revenue for the sovereign, registration offices have commonly multiplied without limit, both for deeds that ought to be registered and for those that ought not. France has several different kinds of secret register. This abuse may not be a necessary effect of such taxes, but must be acknowledged to be a very natural one.

Stamp duties such as those in England on cards and dice, newspapers and periodical pamphlets, etc. are properly taxes on consumption; their ultimate burden falls on those who use or consume these goods. Stamp duties such as those on licenses to retail ale, wine, and spirituous liquors, though perhaps intended to fall on retailers’ profits, are likewise ultimately paid by the consumers of those drinks. Although these taxes bear the same name and are collected by the same officers and in the same way as the stamp duties mentioned above on transfers of property, they are of an entirely different nature and fall on entirely different funds.

ARTICLE III.—Taxes on the Wages of Labor.

Transfers of any kind of property from a dead person to a living person, and transfers of land and houses between living people, are public and well known by nature, or cannot be hidden for long. They can therefore be taxed directly. Transfers of stock or movable property between living people through loans are often secret and can always be made secret. So they are hard to tax directly. They have been taxed indirectly in two ways. First, a document promising repayment may be required to use paper or parchment on which a stamp duty has been paid, or it is invalid. Second, it may have to be entered in a public or secret register, again on pain of invalidity, with a fee charged for registration. Stamp and registration duties have also often applied to deeds transferring any property from the dead to the living, and land or houses between living people. Those transactions could easily have been taxed directly.

Augustus imposed the vicesima hereditatum, or twentieth penny of inheritances, on the ancient Romans. It taxed transfers of property from the dead to the living. Dion Cassius, [ Lib. 55. See also Burman. de Vectigalibus Pop. Rom. cap. xi. and Bouchaud de l’impot du vingtieme sur les successions.] the writer whose account of it is least unclear, says it applied to all inheritances, legacies, and deathbed gifts, except those going to the closest relatives and the poor.

The Dutch inheritance tax is similar. [See Memoires concernant les Droits, etc. tom i, p. 225.] Inheritances going to relatives outside the direct line are taxed at rates from five to thirty per cent. of their whole value, depending on how closely the people are related. Gifts by will, or legacies, to those relatives face the same duties. Transfers from husband to wife or wife to husband are taxed at the fiftieth penny. The luctuosa hereditas, the mournful inheritance of ascendants to descendants, is taxed only at the twentieth penny. Direct inheritances, from descendants to ascendants, are untaxed. When a father dies, children living in his household seldom gain revenue, and often lose a great deal of it. They may lose the income from his work, his office, or a life-tenure estate he held. A tax that took away some of their inheritance and made this loss worse would be cruel and oppressive. Children whom Roman law calls emancipated and Scotch law calls foris-familiated may be different. They have received their share, started their own households, and live on resources separate from their father’s. Any inheritance they receive from him really increases their wealth. It might perhaps be taxed without causing more inconvenience than taxes of this kind normally cause. Feudal-law casualties were taxes on transfers of land both after death and between living people. In earlier times, they were a major source of crown revenue throughout Europe.

The heir of every direct vassal of the crown paid a duty, generally a year’s rent, to receive formal possession of the estate. If the heir was a minor, the superior received all the estate’s rents throughout the minority. The superior had only to maintain the child and pay the widow’s dower if a widow had a claim on the land. On reaching adulthood, the heir owed the superior another tax, called relief, also generally a year’s rent. Nowadays a long minority often clears a great estate of its debts and restores the family’s former prosperity. In those days it could do no such thing. Its usual result was to waste the estate rather than free it of debt.

Under feudal law a vassal could not sell or transfer land without the superior’s consent. The superior usually extracted a fine or payment for granting it. At first this fine could be set at will, but in many countries it came to be fixed as a share of the land’s price. In some countries where most other feudal practices have fallen out of use, the tax on transferring land still provides a substantial part of the ruler’s revenue. In the canton of Berne it is as high as one-sixth of the price of noble fiefs and one-tenth of the price of low-status fiefs. [Memoires concernant les Droits, etc, tom.i p.154] In the canton of Lucern the land-sale tax is not universal; it applies only in certain districts. But a person selling land to move out of the territory pays ten per cent. of the full sale price. [id. p.157.] Similar taxes on sales of all land, or of land held under certain forms of tenure, exist in many other countries and contribute varying amounts to rulers’ revenues.

Such transfers can be taxed indirectly through stamp duties or registration duties. Those duties may or may not be proportional to the value of the property transferred.

In Great Britain, stamp duties depend less on the value transferred than on the type of deed. An eighteen-penny or half-crown stamp, for example, suffices for a bond involving even the largest sum of money. The highest duty is no more than six pounds per sheet of paper or skin of parchment. These high duties mainly apply to grants from the crown and certain legal proceedings, regardless of the value involved. Great Britain has no duty for registering deeds or other documents apart from fees paid to the registry officers. Those fees are seldom more than fair payment for their work. The crown receives no revenue from them.

Holland [Memoires concernant les Droits, etc. tom. i. p 223, 224, 225.] has both stamp and registration duties. In some cases they are proportional to the value transferred; in others they are not. Every will must be written on stamped paper whose price is proportional to the value of the property distributed. A stamp may cost as little as three pence or three stivers per sheet, or as much as three hundred florins, about twenty-seven pounds ten shillings in our money. If the testator uses a cheaper stamp than required, the inheritance is confiscated. This penalty comes on top of all the other inheritance taxes. Apart from bills of exchange and certain other commercial bills, all deeds, bonds, and contracts pay stamp duty. That duty does not rise in proportion to the value involved. Every sale of land or a house and every mortgage on either must be registered. Registration carries a state duty of two and a-half per cent. of the sale price or mortgage amount. The same duty applies to sales of all ships and vessels with a capacity of more than two tons, whether decked or not. These seem to be treated as houses on the water. Sales of movable goods ordered by a court also face a duty of two and a-half per cent.

France also has both stamp and registration duties. Stamp duties are treated as a branch of excise aid and collected by excise officers in the provinces where they apply. Registration duties are treated as part of the crown’s domain and collected by different officers.

Taxation through stamps and registration is a fairly recent invention. Yet in little more than a century stamp duties have become nearly universal in Europe, and registration duties have become very common. No skill is learned faster by one government from another than taking money out of people’s pockets.

Taxes on transfers of property from the dead to the living are paid, both immediately and ultimately, by the people who receive it. Taxes on land sales fall entirely on sellers. Sellers are almost always compelled to sell and must accept the price they can get. Buyers are hardly ever compelled to buy, so they offer only a price they are willing to pay. They consider the combined cost of the land and the tax. The more tax they must pay, the less they will offer for the land. Such taxes therefore almost always fall on someone in need, and can often be very cruel and oppressive. A tax on sales of newly built houses, when the building is sold without the land, usually falls on the buyer. Builders generally need to make a profit or quit the business. So buyers generally repay any tax that builders advance. A tax on sales of old houses usually falls on sellers for the same reason as a land-sale tax: convenience or necessity usually makes them sell. The number of newly built houses offered for sale each year depends more or less on demand. If demand does not let builders profit after covering all costs, they stop building houses. The number of old houses offered at any moment depends on chance events, mostly unrelated to demand. Two or three major bankruptcies in a trading town will put many houses on the market, and they must be sold for whatever price they fetch. Taxes on sales of ground-rents fall entirely on sellers, just as taxes on land sales do. Stamp and registration duties on bonds and contracts for borrowed money fall entirely on borrowers and are in fact always paid by them. The same kinds of duties on legal proceedings fall on the parties to the lawsuit. They reduce the capital value of the property in dispute for both parties. The more it costs to obtain property, the lower its net value once obtained.

All taxes on property transfers that reduce the property’s capital value tend to reduce the funds available to support productive labor. To varying degrees, they are wasteful taxes. They increase the ruler’s revenue, which seldom supports anyone but unproductive workers, at the expense of people’s capital, which supports only productive workers.

Even if these taxes are proportional to the property’s value, they remain unequal. Properties of equal value are not transferred equally often. If duties are not proportional to value, as most stamp and registration duties are not, they are still more unequal. They are not arbitrary, however: in every case their amount is, or can be, entirely clear and certain. They sometimes fall on people with limited means. But in most cases payment comes at a reasonably convenient time, when those people have just acquired more with which to pay. Collection costs very little. Apart from the unavoidable burden of payment itself, it generally causes contributors no inconvenience. In France, people complain little about stamp duties. They do complain about registration duties, which they call the Controle. It is said that the officers of the farmers-general who collect them often demand excessive amounts, making the tax largely arbitrary and uncertain. Abuses of the controle feature prominently in most pamphlets attacking France’s present financial system. Yet uncertainty does not seem inherent in taxes of this kind. If the complaints have a real basis, the abuse arises less from the tax itself than from unclear and imprecise wording in the edicts or laws imposing it.

Registering mortgages, and rights over land and buildings generally, gives creditors and buyers considerable security and greatly benefits the public. Registering most other kinds of deeds is often inconvenient and even dangerous for individuals, while offering the public no benefit. Any register that admittedly needs to be secret should surely not exist at all. A person’s credit should never depend on a safeguard as weak as the honesty and religious conscience of low-ranking revenue officers. But when registration fees become a source of revenue for a ruler, registry offices usually multiply without limit. They handle both deeds that should be registered and deeds that should not. France has several kinds of secret register. This abuse may not be inevitable, but it is certainly a natural result of such taxes.

English stamp duties on cards, dice, newspapers, periodical pamphlets, etc. are really taxes on consumption. People who use or consume the goods ultimately pay them. Stamp duties on licenses to sell ale, wine, and spirits at retail may be intended to fall on retailers’ profits. But consumers of the drinks ultimately pay these duties too. They share a name, collection officers, and method of collection with the stamp duties on property transfers discussed above. Yet they are quite different taxes and fall on quite different sources of revenue.

ARTICLE III.—Taxes on the Wages of Labor.