The Simplified Wealth of Nations of Adam Smith, Book 5, Chap. 2, Article 4: General Taxes -- Sales Taxes
Chapter 2j, Article 4: General taxes -- Sales taxes
147 The impossibility of taxing people according to their revenue by any capitation led to the invention of taxes on consumable commodities.
The state, not knowing how to directly and proportionally tax the revenue of its subjects, taxes it indirectly by taxing their expence.
Their expence is supposed to be proportional to their revenue.
It is taxed by taxing the consumable commodities that they buy.
148 Necessities are commodities needed to support life.
It is whatever is needed by even the lowest class of people for decency according to the country's custom.
For example, a linen shirt is strictly speaking not a basic necessity.
The Greeks and Romans lived very comfortably without linen.
But presently, a creditable day-labourer would be ashamed to be in public without a linen shirt.
Its lack would denote poverty which only people with extremely bad conduct fall into.
In England, custom has also rendered leather shoes necessary.
The poorest creditable person would be ashamed to appear in public without them.
In Scotland, custom has rendered them necessary to the lowest order of men, but not to women.
Without discredit, those poor women can walk barefoot.
In France, they are unnecessary for men and women.
The lowest rank of men and women appear publicly in wooden shoes or barefoot without any discredit.
Under necessities, I mean both those things which nature and the established rules of decency have rendered necessary to the lowest rank of people.
All other things are luxuries.
These luxuries are not reproachable on their temperate use.
For example, beer and ale in Great Britain and wine in the wine countries, are luxuries.
A man of any rank may abstain totally from such liquors.
Nature does not render them necessary to support life.
Custom does not render it indecent to live without them.
149Whatever raises the price of necessities must raise wages, so that the labourer may still be able to buy those necessary goods.
A tax on necessities raises their price higher than the amount of the tax.
Because the dealer who pays the tax must get it back with a profit.
Such a tax must lead to a rise in wages proportional to this rise of price.
150 A tax on necessities operates exactly in the same way as a direct tax on wages.
In the long-run, it must always be advanced by the employer in the higher wages of his workers.
If he is a manufacturer, he will charge this rise with a profit on his goods.
The final payment of the tax, with this overcharge, will fall on the consumer.
If he is a farmer, the final payment with a like overcharge, will fall on the landlord's rent.
151 It is otherwise with taxes on luxuries, even on the luxuries of the poor.
The rise in the price of luxury commodities will not cause wages to rise.
Tobacco is a luxury of the poor and the rich.
A tax on tobacco will not raise wages.
Tobacco is taxed:
3 times its original price in England, and
15 times in France.
Those high duties have no effect on wages.
Tea and sugar have become luxuries of the poor in England and Holland.
Chocolate has become luxuries of the poor in Spain.
Taxes on them have no effect on wages.
The liquor taxes imposed in Great Britain in the current 18th century do not have any effect on wages.
The rise in the price of porter was caused by an additional tax of 36 pence on the barrel of strong beer.
It has not raised the wages of common labour in London.
These were 18 pence and 20 pence a day before the tax, and are not more now.
152The high price of luxuries does not reduce the ability of the poor to bring up families.
On the sober and industrious poor, taxes on luxuries act as sumptuary laws.
They moderate their use of superfluities.
This forced frugality perhaps increases their ability to bring up families.
The sober and industrious poor generally:
raise the biggest families
supply the demand for useful labour
Not all poor are sober and industrious.
The dissolute and disorderly might continue to indulge in luxuries without regarding the distress it might bring on their families.
Such disorderly persons seldom rear up big families.
Their children generally perish from neglect, mismanagement, and the scantiness or unwholesomeness of their food.
If their children survive the hardships from the bad conduct of their parents, such bad conduct commonly corrupts their morals.
Instead of being useful to society, they become public nuisances by their vices and disorders.
The high price of the luxuries of the poor might increase the distress of such disorderly families and reduce their ability to bring up children.
It would probably not much reduce the country's useful population.
153 Any rise in the average price of necessities must reduce the ability of the poor to bring up big families and supply useful labour, unless such price is compensated by a rise in wages.
154 Taxes on luxuries do not raise the price of other commodities.
Taxes on necessities raise wages.
They tend to raise the price of all manufactures and reduce their sale and consumption.
The high price of necessities for the poor must be compensated by an increase in their wages.
They are finally paid, always with an overcharge, partly by:
landlords in their reduced land rent
rich consumers in the high price of goods
Taxes on luxuries are finally paid by the consumers.
They fall indifferently on wages, profits, and rent.
The middle and upper classes, if they understand their own interest, should always oppose all taxes on necessities and direct taxes on the wages of labour.
The final payment of such taxes all fall on themselves, with a big overcharge.
They fall heaviest on landlords who always pay double:
as landlords, by the reduction of their rent, and
as rich consumers, by the increase of their expence.
Sir Matthew Decker
Sir Matthew Decker observes that certain taxes are sometimes repeated and accumulated four or five times in the price of certain goods.
This is perfectly correct in taxes on necessities.
In the price of leather, you must pay for:
the tax on the leather of your own shoes,
the tax on the leather of the shoes of the shoemaker and the tanner,
the tax on salt, soap, and candles which they consume while employed in your service, and
the tax on the leather which the salt-maker, soap-maker, and candle-maker consume while employed in their service.
155 In Great Britain, the principal taxes on necessities are those on salt, leather, soap, and candles.
156 "Salt is a very ancient and a very universal subject of taxation."
It was taxed among the Romans and is presently taxed in Europe.
Nobody could sensibly feel even a heavy tax on salt because it was consumed so little and could be bought gradually.
In England, it is taxed at 40 pence a bushel or three times its original price.
In other countries, the tax is higher.
Leather is a necessity.
The use of linen renders soap as a necessity.
In countries where winter nights are long, candles are necessary.
In Great Britain:
leather and soap are taxed at three halfpence a pound
This is 8-10% if the original price of leather and 20-25% the original price of soap.
candles are taxed at a penny or 14%-15% of the original price
Such taxes are lighter than salt taxes, but still very heavy.
Such heavy taxes on those luxuries must increase the expence of the industrious poor and must raise their wages.
157 In a country where the winters are so cold as in Great Britain, fuel is a necessity.
It is used for:
dressing victuals, and
the comfort of workers who work indoors.
Coals are the cheapest of all fuel.
The price of fuel is so important to British labour that manufactures have confined themselves to the coal provinces.
Manufacturers in non-coal provinces are not able to work so cheap because of the high price of coal there.
In some manufactures such as glass and metals, coal is a necessary instrument of trade.
A bounty might be reasonable on the transportation of coals from where they abound to those where they are wanted.
But the legislature has imposed a tax of 39 pence a ton on coal carried coastways, instead of a bounty.
This tax is more than 60% of the original price at the coal-pit.
Coals carried by land or by inland navigation pay no duty.
Where they are naturally cheap, they are consumed duty free.
Where they are naturally dear, they are loaded with a heavy duty.
158 Such taxes raise the price of subsistence and wages.
Yet they afford a big and easy revenue to government.
There may be good reasons for continuing them.
The bounty on corn exports raises corn prices and produces the similar bad effects.
Instead of bringing any revenue, it becomes a very great cost to government.
The following have all the bad effects of taxes on necessities:
The high duties on foreign corn imports
The absolute prohibition of importing live cattle or salt
They produce no revenue to government.
The public just needs to be convinced of the futility of such regulations, for them to be repealed.
159 Taxes on necessities are much higher in other countries than in Great Britain.
Duties on flour when ground at the mill, and bread when baked at the oven, take place in many countries.
In Holland, the money price of the bread consumed in towns is doubled by such taxes.
In lieu of a part of them, the people in the countryside pay every year so much a head according to the sort of bread they are supposed to consume.
Those who consume wheaten bread pay 3 guilders 15 stivers or 6 shillings and 9-pence halfpenny.
Taxes such as these raised the price of labour and ruined most Dutch manufactures.
Similar taxes, though not quite so heavy, take place in the Milan, Genoa, Modena, Parma, Placentia, and Guastalla, and in the ecclesiastical state.
A French author has proposed to reform the finances of his country by replacing taxes on necessities with other taxes.
"There is nothing so absurd, says Cicero, which has not sometimes been asserted by philosophers."
160 Taxes on meat are more common than those on bread.
Meat is not a necessary of life.
It is known from experience that grain and vegetables with the help of milk, cheese, butter or oil (where there is no butter) can afford the most plentiful, wholesome, nourishing, and invigorating diet without any meat.
Decency does not require any man to eat meat as requires wearing a linen shirt.
161 Consumable commodities may be taxed in two ways.
The consumer may pay an annual sum for consuming goods of a certain kind.
The consumable goods which last a long time before they are consumed are most properly taxed this way.
The coach-tax and plate-tax are examples of this tax.
The goods may be taxed while they remain with the dealer before they are delivered to the consumer.
Goods which are consumed immediately are taxed this way.
Most duties of excise and customs are examples of this tax.
162 A coach may last 10 or 12 years with good management.
It might be taxed once and finally before it leaves the coach-maker.
It is more convenient for the buyer to pay 960 pence a year for the privilege of keeping a coach than to pay 9,600 pence or 11,520 pence all at once to the coach-maker.
This is the total cost of the tax during the life of the coach.
In the same way, a service of plate may last more than a century.
It is easier for the consumer to pay 60 pence a year for every 100 ounces of plate, near 1% of the value, than to redeem this long annuity at 25 or 30 years purchase.
Doing so would enhance the price by 25-30%.
The taxes on houses are more conveniently paid by moderate annual payments than by a single heavy tax.
163 Sir Matthew Decker proposed that all commodities should be taxed this way.
The dealer would advance nothing.
The consumer would pay a certain annual sum for the licence to consume certain goods.
This aimed to promote all branches of foreign trade, particularly the carrying trade.
It would remove all import and export duties.
It would enable the merchant to employ his whole capital and credit to buy the goods and freight of ships.
No part of his capital or credit would be diverted towards paying taxes.
This method of taxing goods of immediate consumption is liable to four very important objections.
The tax would be more unequal.
It would not be proportional to the cost and consumption of the taxpayers.
The taxes on ale, wine, and liquors are finally paid by the consumers in proportion to their respective consumption.
If the tax were paid by purchasing a licence to drink those liquors, the sober would be taxed more heavily than the drunk.
A family which served great hospitality would be taxed more lightly than a family who entertained fewer guests.
Paying for an annual, half-yearly, or quarterly licence to consume certain goods would very much reduce the convenience of taxes on goods of speedy consumption the piecemeal payment.
3.5 pence is presently paid for a pot of porter.
The taxes on malt, hops, and beer, with the extraordinary profit of the brewer may perhaps amount to 3 halfpence.
If a worker can conveniently spare those three halfpence, he buys a pot of porter.
If he cannot, he buys only a pint.
Since a penny saved is a penny got, he gains a farthing (0.25 pence) by his temperance.
He pays the tax piecemeal:
as he can afford to pay it,
when he can afford to pay it
Every payment is perfectly voluntary.
Such taxes would operate less as sumptuary laws.
After the licence is bought, the buyer's tax would be the same whether he drank much or little.
If a workman paid all at once, by yearly, half-yearly, or quarterly payments, a tax equal to what he at present pays on all the porter he drinks, the sum might distress him very much.
Without a grievous oppression, this mode of taxation could never produce a revenue equal to that derived from the present mode, which is not oppressive.
In several countries, immediately-consumable commodities are taxed this way.
In Holland, people pay for a licence to drink tea.
The tax on bread is levied there in the same way.
164 The excise duties are imposed briefly on local goods for home consumption.
They are imposed only on a few sorts of goods of the most general use.
There can never be any doubt om:
the goods subject to those duties, and
the duty which each species of goods is subject to.
They all fall on luxuries except the duties on salt, soap, leather, candles, and green glass.