CHAPTER XII. PROTECTION JUDGED BY THE CANONS OF TAXATION.

Such taxation, as indirect taxation spread over a large field of commodities, cannot distribute the charge equitably; it is an income tax levied on all consumers without abatement or exemption. Protection introduced in our country, then, would throw out the whole of our carefully arranged scheme of taxation; would tax, not according to the circumstances of the tax payer, but according to the circumstances of the producer; and so give a legitimate grievance against those who benefited by the high prices.

SUPPOSE, then, we grant that Protection is taxation of the people; that it is of the nature of a subsidy given to producers: it must, as such, be gauged by the ordinary canons of taxation. Is it good taxation or bad? Does it spread the inevitable charge equitably?

It might be an argument for it if it could assure the community a better distribution of the charge of taxation. But all our experience of indirect taxation is that its incidence is entirely indeterminate. When we put a full income tax on incomes above £700, and a degressive rate on certain incomes under it, and no tax at all on incomes under £160, we at least know where we are. We have made the attempt to free small incomes, to put a moderate rate on moderate incomes, and to lay the heavy end of the charge on the rich. But if we tax consumption—as is done in indirect taxation—we cannot secure this.¹ If liquor is taxed, and the rich man is a teetotaller, he escapes; if the poor man spends a third of his income on liquor, he pays enormous taxation.

But if a man is forced to pay taxes on all goods he buys, and if the amount of tax which the goods contain is determined, not by anything in the circumstances of the consumer, but simply by the needs—often, I am afraid, the needs of inefficiency—of the producer qua producer, what guarantee is there that there will be even an approach to equitable taxation? If the poor man buys woollens, and the woollen manufacturers are protected by 100 per cent. duty, while the rich man buys silks, and the silk manufacturers are protected only by 50 per cent. duty, how can this work out but inequitably?

This disposes of the shallow idea that Protection takes from the rich and gives to the poor. It is difficult to see how raising the prices of everything, and raising them unequally, affects the poor more favourably than it affects the rich. In the matter of prices, it is the rich who know where to find the bargains, not the poor. Given one man who spends his wage on a small range of articles, as compared with another man who can distribute his income over a very wide range, it is evident who can avoid the dear, and double on the cheap.

The objection was well put by Fawcett: “A protective duty, by making the commodity on which it is imposed, unnecessarily dear, virtually levies a tax from all those who purchase it. When such commodities are in general use, the effect of the duty is precisely the same as if an income tax were levied from the entire community. Such a tax cannot, however, be adjusted or equalised as is the case with the income tax in our own country. Small incomes cannot be exempted; for, however poor a man may be, the tax will fall with unerring certainty on all that portion of his income or his wages which is expended in the purchase of the protected articles. But, besides, when, by protection, the instruments and the plant of industry are made more costly, their products become necessarily more expensive.”¹

When we pay a tax for police, we get police service in return for it. And, if a man is considering whether he should take a house in any particular city or not, he always asks, “What police rates shall I have to pay?” He first, as a natural man, thinks of police rates as a burden, and then, as an economic man, he puts against that what he gets in return, the security which the police give him. So when an Englishman emigrates to the United States, he finds and grumbles, as a natural man, that he has to pay-much higher prices for almost everything he buys. But, as an economic man, he asks himself what he gets in return for the high prices. If he finds that he gets no better goods, he seeks some other explanation. Possibly he finds it in the fact that, in his own business, whatever it is, he gets high prices for the goods he makes. But, again, he has to weigh against this, the high price he has to pay for all his material where similar material is taxed on entry, the high wages he pays because high prices need high wages to pay the high prices, and so on. In short, he never thinks that high prices are an unmixed good; he finds all sorts of makeweights against them. He is told then that the duties put on goods are taxes levied on the citizens to ensure the prosperity of the citizens. He is not stupid enough to think that taxes, as taxes, are anything but money taken out of his pocket—deductions—and so he asks how the deduction on the one hand is balanced by the “value received” on the other. If it is simply a game of raising prices all round how can that do him any good, unless the system allows him to impose more taxes than his neighbours?

It comes down to this: Can the wealth of a country be increased by its tax system? The first aspect of taxation is deduction from income; and, to this extent, the citizen is poorer by his taxation. But the sums handed over to the government, even after allowing for the expense of collection, may be used by the government more wisely and beneficently than they could be by the private citizen, and wealth thus economised is wealth gained. It all depends on how the money is used. If Protection is taxation of this kind, then Protection is justified in the same way as our Telegraph service is justified: the citizen pays sixpence for services which, we may say, he could not get otherwise for less than sevenpence. If this economy cannot be proved, then the argument for Protection must be that of the Infant Industry;—that the tax is the seed which the husbandman buries in the ground with tears, in the hope of, some time, rejoicing in a more abundant harvest. If this argument is not proven, what is to be said for the tax? What is the sense in paying sixpence to the government to get back sixpence? Who pays for collecting the sixpence? And if a penny is paid for collecting the sixpence, is not the net result this;—that the citizen pays sixpence to get back fivepence?

There is, then, one great objection to any change in our fiscal system which would reintroduce Protection in however modified a form, and I do not think it has been fully weighed. It is that it would make a serious change in our system of taxation. The taxation of a country is always one of its greatest problems. With all its faults, we in Great Britain have probably the most perfect tax system of any nation. It did not come to us out of the brain of one man. It is the result of the labour and study of Chancellor after Chancellor, each thinking how he could adjust the taxes so as to raise larger and larger sums, and yet throw the burden on those who were best able to bear it—to tax according to Ability. We have, as the backbone of our system, the degressive Income Tax, to get at the incomes of the well-to-do and yet not burden the smaller incomes unduly—a tax which can be increased on due occasion with least disturbance to industry. We have the Death Duties, a kind of cumulative income tax, designed to further get at the larger incomes; and these follow the principle of Progression, so that the very rich pay very heavily, and pay at the time they feel it least—that is, when they can feel nothing at all. We have the Indirect Taxes to get at incomes which escape—taxation which can be avoided by the thrifty poor, and strikes particularly at those who buy superfluities and luxuries. We have the Postal and Telegraph services, by which a man pays strictly according to the measurable Benefit that he gets.

Of course, these are merely the great broad lines of theory on which our system is conducted. It does not always work out equitably. But, at least, it has a principle, and its defects are the subject of anxious thought and attempted remedy. And, besides, when a tax is old and can be counted on, it is generally found that the burden has gradually been shifted and shifted till it rests where there is a surplus which can bear it. It has, moreover, the crowning merit that it cuts the cloth according to the coat. The government does not first get a sum of money, and then think how it is to spend it. It finds what the necessary services will cost, and then imposes taxes to raise the necessary sum.

And is all this old and thought-out system to be interfered with by a form of taxation of which no one can say on whom it will fall? All that is known is that it will fall upon those who buy certain goods and in proportion to their purchases: that the home producers will be permitted to tax their consumers in high prices—all their consumers, rich and poor. And, of the amount that will be raised in this way, all we can know is that, if the taxation be successful in its end—that is, the keeping out of foreign produce—it will yield nothing.

It is only when we consider this indirect taxation aspect of it, as well as the directly protective one, that we understand how an American economist should describe Protection as “at the same time a social abuse, an economic blunder, and a political evil.”¹ It exhibits such faith in the power, and wisdom, and impartiality of governments, while, at the same time, it makes impartiality impossible. Government, with our money, can maintain an army and navy to protect us against invasion—justice and police to protect us against criminals—poor rates to protect us against starvation. Therefore, government can protect us against Competition! And then, the government, being given this terrific power, delegates it; allows producers to collect the taxes and police their own interests. It is simply another form of the old abuse of “farming out the taxes”—giving individuals a right to supply the city with bad water, and bad gas, and inefficient service, at non-competitive prices.

One admirable feature of our British taxation is that it gives us no class to complain of. Before the abolition of the Corn Laws, whenever there was depression of any sort, there was one target for all attacks—the landowners; those who were supposed to be keeping up the price of food in their own interests. But under our present system, even in the misery of a strike, when the poor man has to cut his expenses down to bare bread, he cannot feel resentment against any class which is making his bread dear. We see distillers, brewers, publicans grow rich, but we do not ascribe it to the high prices they charge us. When a man is reminded that he is paying part of his taxes every time he buys tobacco, he feels no grievance against any one connected with the tobacco trade. It may be that he is a very heavy smoker, and so is paying more taxation than he need pay, but, at any rate, it is like money spent at a bazaar—“for a good cause.” He knows that the government will do its best to use his money in the interests of everybody. But if it were ever to come into his head, that he was paying taxes in order that some tobacco company should make a profit; if he were further to suspect that, although he might be a very poor man, he was paying a very high price for his necessaries in order to add to the fortune of some millionaire;—he would have a real grievance, and that even though he paid just a very little in taxation every time he bought a dutiable article.

What needs to be emphasised is that the amount of taxation which one pays in a protected country is not determined, as it should be, by the circumstances of the taxpayer, but by the circumstances of the home producer. This annihilates the very idea of taxation. Take Tinplates. Suppose the American government had consciously resolved to spend their £5,000,000 on rooting this industry in America. There was nothing against that in itself: the Americans may be presumed to know their own business. But they should have said to themselves: This is taxation; we must see that the payment of these £5,000,000 falls on the right people; that, at the very least, the rich pay the heavy end of it. As it is, they have levied it in such a form that everybody who buys a tin of canned anything has to pay according to his purchases. No one knows where such a tax will light with most severity: we only know that it is the poor who must buy, and the rich who can choose not to buy. Then, making tin-plates dear, they damage their own growing trade in canned fruits; that is to say, they fix the tinplate trade as a parasite on the canned fruit trade. Finally, their steel makers throw their steel below cost into England, and our makers selling cheap tinplates to Germany, Canada, Australasia, etc., give these countries the canning trade.

But why, it may be asked, do the consumers in protected countries not rebel against the system if it be, demonstrably, so bad?

Two reasons have been suggested, at any rate as regards America. One is that, where there is no tax on food, the badness of the system does not come home to the poor. The other is that, even if Americans were aware of the truth, they would rather submit to taxation than be thrown back, as they fancy they would be, to the dull monotony of purely agricultural life.

I suggest a third. It is that the great mass of the people do not compare prices—have not, indeed, knowledge sufficient to enable them to do so. Without knowing the prices of goods in other countries, they cannot compare home prices. Nor can they judge of prices of different things within their own country, for they do not know what should be cheap and what must be dear. One knows how thoroughly deceived a man may be in an auction room. He is tempted to buy this, that, and the other thing by the assurance that they are cheap; but the shop prices are not within his range of experience, and, when he goes home, he may find that he has paid twice what he should. Very much the same is it in a protected country where there is no experience of anything else than a range of prices dictated by the interests of the producing classes.

¹The ordinary, but necessarily very rough, calculation is that the poor pay three-fourths of the taxes on consumption.

¹Free Trade and Protection, p. 118.

¹Sumner, Protectionism, Preface, p. vi.