The Simplified Wealth of Nations of Adam Smith, Book 5, Chapter 3: Tax Reform
Chapter 3f: Solutions -- Tax Reform
68 The revenue might be very much increased without increasing the burden on most of the people through:
a more equal land-tax
a more equal tax on house rents
alterations in the current customs and excise system, as those mentioned in Chapter 2
It would only distribute the burden more equally on all.
This increase would not totally liberate the public revenue or even totally compensate the further accumulation of the public debt in the next war.
69 A much bigger revenue increase might be expected by extending the British tax system to all the empire's provinces inhabited by people of British or European descent.
This perhaps could only be done by admitting a fair and equal representation of all those different provinces into the British Parliament, consistent with the principles of the British constitution.
The representation of each province would be in proportion to the proceeds of its taxes in the same way as British representation is proportional to the proceeds of the taxes levied on Great Britain.
So great a change is presently opposed by:
the private interest of many powerful individuals
the confirmed prejudices of the people
These are obstacles which may be very difficult or impossible to surmount.
Without pretending to determine whether such a union be practical or not, it might be proper to consider:
how far the British tax system might be applicable to all the provinces of the empire
what revenue might be expected from it if so applied
how this kind of general union might affect the happiness and prosperity of those provinces.
At worst, such a speculation can be regarded as a new Utopia.
It is less amusing but not more useless and chimerical than the old one.
70 The four principal branches of the British taxes are:
Land-Tax on the Empire
71 Ireland is certainly as able to pay a land-tax as Great Britain.
Our American and West Indian plantations are more able to pay a land-tax than Great Britain.
Where the landlord is not subject to tithe nor poor-rate, he is more able to pay the land tax.
The tithe, where there is no modus, and where it is levied in kind, reduces more what would otherwise be the landlord's rent than a land-tax of really 5 shillings in the pound.
Such a tithe will be found in most cases to be more than 1/4 of the real rent of the land.
If all moduses and all impropriations were removed, the complete church tithe of Great Britain and Ireland could not be less than £6-7 million.
If there were no tithe in Great Britain or Ireland, the landlords could afford to pay £6-7 million additional land-tax without being more burdened than at present.
America pays no tithe and could therefore very well afford to pay a land-tax.
The lands in America and the West Indies are in general not tenanted nor leased out to farmers.
They could not therefore be assessed according to any rent-roll.
The lands of Great Britain, in the 4th of William and Mary, also could not be assessed according to any rent-roll.
They were assessed according to a very loose and inaccurate estimation.
The lands in America might be assessed according to:
a very inaccurate estimations
an equitable valuation from an accurate survey made in Milan, Austria, Prussia, and Sardinia.
Stamp and Customs Duties on the Empire
72 Stamp-duties might be levied without any variation in all countries where the following are nearly the same:
the forms in the law process
the deeds which transfer real and personal property
73 The extension of the custom-house laws of Great Britain to Ireland and the plantations would be the most advantageous to both provided it was accompanied with an extension of the freedom of trade, as in justice it should be.
All the invidious restraints which presently oppress the trade of Ireland and distinguish American enumerated and non-enumerated commodities would entirely end.
The countries north of Cape Finisterre would be as open to American produce as countries south of that Cape are to some American produce at present.
Because of this uniformity in the custom-house laws, the trade between all the parts of the British empire would be as free as its present coasting trade.
The British empire would thus afford within itself an immense internal market for the produce of all its provinces.
This great extension of market would soon compensate Ireland and the plantations all that they could suffer from the increase of the customs duties.
Excise Taxes on the Empire
74 Only the excise would vary in its application in the empire's different provinces.
It might be applied to Ireland without any variation because the produce and consumption of Ireland is exactly of the same nature with Great Britain's.
The produce and consumption of America and the West Indies is so very different from those of Great Britain.
The application of excise in those countries would require some modification in the same way as in its application to England's cyder and beer counties.
75 American beer is made from molasses and is different from British beer.
It makes a big part of the common drink of the Americans.
Unlike British beer:
it can be kept only for a few days
it cannot be prepared and stored up for sale in big breweries
Every private family must brew it for their own use in the same way they cook their own food.
Subjecting every private family to the odious visits and examination of tax-gatherers, in the same way we subject alehouses and public breweries, would be inconsistent with liberty.
If it were necessary to tax American beer for the sake of equality, it might be taxed by:
taxing its raw materials at the place of manufacture, or
laying a duty on the importation of its raw materials into the colony where it would be consumed
If neither of these methods was found convenient, the following could be adopted:
Each family might compound for its consumption of this liquor according to:
the number of persons in the family, or
This is the same way as private families compounding for the malt-tax in England
the different ages and sexes of those persons
This is the same way as
How taxes are levied in Holland
How Sir Matthew Decker proposes that all taxes on consumable commodities should be levied in England
I have shown that this mode of taxation not very convenient when applied to goods of speedy consumption, but it is still better than nothing.
Besides the duty of 1 penny a gallon imposed by the British Parliament on molasses importation of into America, there is:
a provincial tax of 8-pence the hogshead on their importation into Massachusetts Bay in ships from any other colony
another tax of 5-pence the gallon on their importation from the northern colonies into South Carolina
76Sugar, rum, and tobacco are not necessities.
They are therefore extremely proper subjects of taxation.
If a union with the colonies were to take place, those commodities might be taxed:
before they leave the manufacturer or grower, or
before they are delivered to the consumer, merchant retailer, or merchant exporter
Those commodities would be deposited in public warehouses at the place of manufacture and at all their ports of destination.
They will remain there under the joint custody of the owner and the revenue officer until they were to be sent out to the consumer, retailer, or exporter.
Those commodities would go duty free when sent out for exportation after proper security is given that they will really be exported.
These are perhaps the main commodities to require a big change in the present British tax system after a union with the colonies.
77 It is impossible to exactly ascertain what might be the revenue which this tax system on all the colonies might produce.
By means of this system, more than £10 million of revenue is annually levied in Great Britain on less than 8 million people.
Ireland has more than 2 million people.
The 12 American provinces contain more than 3 million people.
Those accounts might have been exaggerated to:
encourage their own people, or
intimidate the people of Great Britain
We shall suppose that our North American and West Indian colonies together have no more than 3 million people.
The whole British empire in Europe and America contains no more than 13 million people.
If this tax system raises a revenue of more than £10 million on less than 8 million people, it should raise a revenue of more than £16,250,000 on 13 million people [13 * 1.25]).
Supposing that this system could produce this amount, the revenue raised in Ireland and the plantations for defraying the cost of their respective civil governments must be deducted from this revenue.
The cost of the civil and military establishment of Ireland, together with the interest of the public debt, amounts to less than £750,000 a year.
This is the average of the two years which ended March 1775.
Before the start of the present disturbances, the revenue of the principal colonies of America and the West Indies amounted to £141,800.
In this account, the revenue of Maryland, North Carolina, and all our recent acquisitions is omitted.
We may estimate it to be between £30-40,000.
For the sake of even numbers, let us suppose that the revenue necessary for supporting the civil government of Ireland and the plantations was £1 million.
There would remain a revenue of £15,250,000 for:
defraying the general expence of the empire
paying the public debt
But if £1 million could spared in peacetime from Great Britain's present revenue, £6,250,000 could very well be spared from this improved revenue to pay that debt.
This great sinking fund, too, might be increased every year by the interest of the debt which had been discharged the year before.
In this way, the sinking fund might increase very rapidly.
In a few years, it would be sufficient to:
discharge the whole debt
completely restore the empire's current debilitated and languishing vigour
The people might be relieved from some of the most burdensome taxes.
The labouring poor would thus be enabled to:
send their goods cheaper to market
The cheapness of their goods would increase the demand:
consequently, for the labour that produced them
This increase in the demand for labour would:
increase the population of the labouring poor
improve their circumstances
Their consumption would increase and with it, the tax revenue arising from their consumption.
78 The revenue from this tax system might not immediately increase in proportion to the population size subjected to it.
For some time, great indulgence would be due to those provinces which were subjected to burdens they were not accustomed to.
Even when the same taxes were levied as exactly as possible everywhere, they would not produce a revenue proportional to the population size.
In a poor country, the consumption of the principal commodities subject to customs duties and excise is very small.
In a thinly inhabited country, smuggling opportunities are very great.
The consumption of malt liquors among the lower class in Scotland is very small.
The excise on malt, beer, and ale there produces less than in England in proportion to:
the rate of the duties
The duty on malt is different because of a supposed difference of quality.
In these particular branches of the excise, there is not much more smuggling in the one country than in the other.
The duties on the distillery and more of the customs duties produce less in Scotland than in England, in proportion to the population, because of:
the smaller consumption of the taxed commodities
In Ireland, the lower class is still poorer than in Scotland.
It is almost as thinly inhabited.
In Ireland, therefore, the consumption of the taxed commodities might be still less than Scotland,in proportion to its population size.
Smuggling is nearly the same.
In America and the West Indies, the lowest class of white people are in much better circumstances than the lowest class in England.
Their consumption of all their usual luxuries is probably much greater.
The blacks who make most of the southern colonies and those of the West India islands are slaves.
They are in a worse condition than the poorest people in Scotland or Ireland.
We must not on that account, imagine that:
they are worse fed, or
their consumption of articles subjected to moderate duties is less than that of the English lower class
In order that they may work well, their master's interest is to feed them well and keep them in good heart in the same way as his working cattle.
Almost everywhere, the blacks accordingly have their allowance of rum and molasses or spruce beer in the same manner as the white servants.
This allowance would probably not be withdrawn though those articles should be subjected to moderate duties.
The consumption of the taxed commodities, relative to the population size, would probably be as great in America and the West Indies as in any part of the British empire.
The opportunities of smuggling would be much greater because America is much less populated than Scotland or Ireland, relative to its area.
Smuggling opportunities in the most important branch of the excise can be almost entirely removed if the revenue presently raised by the malt and malt liquor duties were levied by a single malt duty.
Smuggling opportunities would be very much reduced if:
the customs duties were confined to a few of the articles of the most general use and consumption, instead of being imposed on almost all the articles of importation
the levying of those duties were subjected to the excise laws
Because of those two very simple and easy alterations, the customs duties and excise might probably produce a revenue as great relative to the consumption of the least and most populated provinces, as they do at present.