Every country must, to carry on its national services, raise taxes from its citizens, and those taxes, though levied in money, translate themselves, of course, into goods, that is, economic values attached to material objects.

We say that the State “raises,” say, a hundred million pounds in taxation from its citizens a year, for “State Purposes”; and when you come to look into what is actually got by the State and how the State uses what it has got, it means that the State levies so many boots and so much bread, and so much housing material and so much clothing, and spends this again in maintaining State servants, that is, in clothing and housing and feeding soldiers and policemen, and civil servants and school teachers, and so on.

But in the modern world, and for the last two hundred years or so, nearly all states have also had to raise taxation in order to pay interest upon the State loans.

A State loan, or national debt, arises in this way. The State needs a great quantity of goods for a particular purpose—usually for the very unproductive purpose of waging a war. It has to get a lot of metal for its munitions and guns, and quantities of food to feed the soldiers, and coal to transport them. Now there are two ways in which a state gets these. The first is to get the whole amount, as it is needed, directly from the people, by a very heavy tax levied at the time. That was what was done for hundreds of years before the second method was attempted. The king of a country, wishing to wage war, would ask his subjects for contributions, and he could not wage war upon a scale more than these contributions would meet.

But about two hundred years ago there began (and since then has very largely increased), the second method, which is that of national loans.

The State is, let us say, taking in ordinary taxation from its citizens about one-tenth of their produce. Suddenly it finds itself involved in a much higher expenditure, amounting to, say, half the produce of the country. If it asked for half the produce right away as a tax people might refuse to pay it, or it might make the policy of the State—the war, for instance, which the Government wanted to wage—so unpopular that the State could not pursue that policy or wage that war. So the Government had recourse to borrowing from the citizens, promising to pay, to those who lent, interest in proportion to what they borrowed, as well as the capital itself. Thus they would take in taxation for a war money from a farmer equivalent to ten loads of wheat; but they would also borrow from him one hundred loads of wheat, promising to give him as interest five loads of wheat every year for any number of years until they should ultimately pay back the whole hundred loads as well.

When these national loans began the Governments honestly intended to pay back what they borrowed. But the method was so fatally easy that, as time went on, the debt piled up and up until there could be no question of repaying it: all the State could do was to pay the interest out of taxation. It remained indebted to private rich men for the principal, that is, the whole original sum, and meanwhile, through further wars, this hold of the rich men upon all the rest of the community perpetually increased.

The “National Debt”—as it came to be called—remained a permanent institution, in connection with which all the citizens had to be taxed in order to provide interest for the rich lenders. Latterly these burdens of national debt have become overwhelming, and at the present moment about a twelfth of everything that English people produce is taken from them and handed over as interest to the comparatively few wealthy residents in England and abroad who lent great sums to the Government during the war.

It is true that whenever a loan is raised the Government provides not only interest but what is called a “sinking fund”—that is, an extra amount of taxation every year which is dedicated to paying back the whole of the loan slowly. But long before a loan is paid off some new occasion arises compelling the Government to borrow again on a large scale, and the total debt perpetually increases.

The result is that all the great modern European nations are now loaded with a debt really larger than any of them can bear, and that therefore they have all taken steps to lighten that burden by various tricks not at all straightforward. Some of them pay back in money which appears the same as the money which they borrowed, but which has a very different value. They have borrowed for a war, say, £1,000, representing 100 tons of wheat. Then they debase the currency, so that a sum still called £1,000 will only buy 20 tons of wheat, and in this way they can pretend to pay the lender back, although they are really cheating him of four-fifths of what he lent. Two countries, Germany and Russia, have pushed this so far that the lenders are now not really paid anything at all. A man who lent the German Government, for carrying on the war, money which during the war would have bought a million tons of wheat, is now (October, 1923) paid back in money called by the same name but able only to purchase a tenth of a ton—which is the same as saying that he is not paid back at all.

Of all European countries that fought in the war our own has been the most honest in this matter, but even in England a man who lent the equivalent of 1,000 sheep, say, and who was promised interest at the rate of 50 sheep a year, is only getting 25 sheep a year on account of the change in the value of money.

In this matter of loans we must distinguish between internal loans and external loans. An internal loan is borrowed from one’s own people. It involves taxing and impoverishing one set of citizens in order to pay interest to and enrich another set. But the country as a whole is no poorer. An external loan is borrowed from foreigners, and the interest on it is dead loss to the country. Also, it cannot be paid in debased currency. A government can cheat its own nationals by paying them in false money. But it has to pay foreign lenders in real money. A foreign loan is real. It must be (as a rule) paid in gold. England thus pays millions a year to America.

Now from State loans let us turn to State taxation, which has to-day for its most permanent object the payment of interest on internal and external loans.

How does the State tax its citizens?

Taxation levied by the State is divided into two kinds—called direct and indirect.

Direct taxation is the taxation levied upon the money which the person who pays it has at his disposal.

For instance: If you have £1,000 a year and the State makes you declare that and then taxes you £100 every year, that is direct taxation.

Indirect taxation takes the form of levying a tax on the manufacturer of an article or on the importer of an article, which tax he passes on to the person who consumes it, by an addition to the price of the article. Thus, when you buy a pound of tea or a bottle of wine you are paying indirect taxation. The price which you paid for the tea is so much for the real value of the tea and so much more (though you do not feel or know it at the time) which has been paid on the tea as it came into England at the ports. The brewers who make beer have got to pay the Government so much for every gallon they make, and this is passed on to the people who buy the beer by an extra amount put on to the price.

The wisest men who have discussed how taxes should be levied laid down four rules which, unfortunately, no Government has kept to as it should. It is worth while knowing those rules, because they are a guide to what good taxation should be.

These rules are:—

For instance: it is much easier to pay £100 a year in small sums which fall due at frequent intervals than to pay the whole £100 upon demand in one lump.

For instance: if I put a tax upon everyone who crosses a particular bridge, I shall have to appoint and pay someone to collect the tax at the bridge, and I shall probably have to pay inspectors to go round and see that these bridgemen do their duty and do not cheat. If I tried to levy a tax of this kind on a great many bridges that are not much used the cost of collecting would be very high compared with the revenue produced. But if I put a tax on every cheque issued by a bank, that tax is collected with hardly any expense. All the Government has to do is to say that no cheque will be valid unless it carries a stamp. The banks stamp all their cheques with this stamp, and when they sell a cheque book to a customer they take the value of the stamps from him. All the Government has to do is to find out the number of cheque books issued, and ask for the money from the banks.6

It is much better, obviously, to make people pay for their luxuries than for their necessities. It is oppressive to make people pay for their necessities, which even the very poor must have, and it is juster and altogether better to make people pay for things which they need not have. Thus, when the tax was first levied upon tea it was a tax upon a luxury, for only rich people then drank tea. But to-day, when the poorest people must drink it, it is unjust to tax it, for it is a necessity.

Unfortunately, it is very difficult to keep to this rule in any modern country, because the amount of taxes required is so large that unless one taxes the necessities one will not get enough money for the requirements of the State: thus tea and sugar, beer and tobacco, all of them necessities of the poorest people, are enormously taxed. Our poor people in England are much more heavily taxed than any people in the world.

4. Taxes should fall proportionately to the wealth of the taxed, that is, the sacrifice should be equally felt by all. This rule is easy enough to keep when taxation is light. For a very slight tax on poor men—who are the vast majority of the State, suffices to bring in the small revenue needed, and a severe tax on rich men is but an addition. But when taxation must be heavy to meet the requirements of the State—say more than a twentieth of poor men’s incomes—then the rule is difficult to keep. For either you get insufficient revenue if you spare the poor, or you must tax the poor on a scale which no increase of the taxation on the rich can really equal. When taxation is too heavy, you must either ruin the rich or crush the poor. And that is why heavy taxation has destroyed so many States.

5. The last rule about taxation is that it should be certain; and this means that the State should be certain of getting what it ought to get, and that the people who pay should know what they have to pay and not be left in doubt and anxiety.

For instance: the tax on tobacco in this country is a certain tax. It is levied on a comparatively small number of ships’ cargoes which enter the country with tobacco, because we do not grow tobacco in England, and the sum which the importers pay is automatically passed on to the purchasers. The State knows by experience how much tobacco the people will buy in the country in the year, and the people who buy tobacco know what they mean to spend, and can, if they choose, ascertain how much of this goes in taxation. But the same tax on tobacco in France is not a certain tax, because the French grow a lot of their own tobacco—in fact, most of it. The people who grow tobacco naturally try to hide the total amount of their crop from the Government inspectors, and a great number of these inspectors have to be going about the whole time actually counting each leaf on each plant and rummaging in the bins to see that none is gone.

An example of a most uncertain and unjust tax for the taxpayer in our own country is the Income Tax, because it is difficult to prevent unfixed people from hiding their profits or from concealing from the tax collectors amounts which they have earned. Also the honest citizen with an established and known position can be bled to the full, while the rogue and adventurer, the speculator and dealer escapes. But it is a certain tax from the point of view of the Government, because they know on the average what a penny on the Income Tax will produce one year with another, and are not concerned with justice but with a calculable revenue.

Before we leave this discussion it is worth while mentioning an odd idea which a few very earnest and active people have got hold of, called the “Single Tax.”

It is really much more a part of the theory of Socialism than a system of taxation. Still, as it has come to be called the “Single Tax” we will treat it under that head.

The idea of the single tax is this:—Rent, or the surplus value of a site, whether it be due to the extra fertility of farm land or to the extra convenience of town land, is, say the Single Taxers, not the product of the individual who owns the land.

If I own a barren piece of heath on which I cannot get any rent for agriculture, and then a railway is built passing through it and a station is built on the heath, many town workers who want to live in the country will take houses which will be built near this station and live in these houses, running up and down from town for their work. In a few years this barren heath which brought me in nothing will be bringing in many thousands a year, for a little town will have sprang up, and I shall be able to charge rent to all the people who live there upon my land.

The Single Taxers say that, since I did nothing towards making the extra value, but that extra value has been made by the growth of population and by the activity of the whole community, I have no right to these rents. In the same way they say that I have no right to the rent of a very fertile field compared with a bad field which pays little or no rent, because it was not I that made the soil fertile.

So they propose that all the rents of the country should be levied as a tax. They say that no other taxes are needed. If I have money from dividends in an industrial concern I can keep all that without paying any taxes on it, and I can be let off taxes on tobacco and drink and everything else of that sort. But anything I get as rent for land I must pay over to the State. I may still be allowed to call myself the owner of the land, but I must be taxed an equivalent to the rent which it produces.

These people have never been able to apply their theory, and the reason is pretty clear. It would work most unjustly, considering that people buy and sell land just as they do any other commodity, and that a man who had put all his money into rents in land would be ruined by this system, while another man with exactly the same amount of money, who had put it into a business, would go scot free. If you were starting a new country it might be possible to begin with the Single Tax system, but even then you would be up against the fact that people like owning land because such ownership gives them independence. But at any rate it is theoretically possible to apply this system in a new country. In an old country it is quite out of the question.