The Simplified Wealth of Nations of Adam Smith, Book 5, Chap. 2, Article 4: General Taxes -- Taxes on Luxuries
Chapter 2o, Article 4: General taxes -- Taxes on luxuries
Taxes on Luxury Commodities
Taxes on luxuries generally are paid piecemeal.
- In the time and mode of payment they are the most convenient of all taxes.
- On the whole, such taxes are perhaps as agreeable to the first three taxation maxims as any other tax.
- They offend in every respect against the fourth.
Such taxes always take out or keep out from the people's pockets more than almost any other taxes in four different ways:
- 207 Their levying requires many custom-house and excise officers.
- Their salaries and perks are a real tax on the people.
- This cost is more moderate in Great Britain than in most other countries.
- In the year ending July 5, 1775, the gross produce of the excise duties in England was £5,507,308l. 18s. 8¼d.
- It was levied at a cost of little more than 5.5%.
- From this gross produce, the bounties and drawbacks paid on the exportation of excisable goods must be deducted.
- This reduces the net produce below £5 million.
- The levying of the excise duty on salt, which is under a different management, is much more expensive.
- The net customs revenue does not amount to £2.5 million.
- It is levied at a cost of more than 10% in the officers' salaries and other incidents.
- But the perks of custom-house officers are everywhere much greater than their salaries.
- At some ports, these are more than double or triple those salaries.
- If the officers' salaries and other incidents amount to more than 10% on the net customs revenue, the total cost of levying that revenue may amount, in salaries and perks, to more than 20% or 30%.
- The excise officers receive few or no perks.
- The administration of excise is a more recent establishment.
- In general, it is less corrupted than that of the customs.
- The length of time has introduced and authorized many abuses.
- By charging on malt the whole revenue presently levied by duties on malt and malt liquors, more than £50,000 can be saved from the annual cost of the excise.
- A much bigger savings can be made by:
- confining the customs duties to a few kinds of goods
- levying those duties according to the excise laws
- The net produce of that year, after deducting all expences and allowances, was £4,975,652l. 19s. 6d.
- 208 2-Taxes on luxury commodities obstruct or discourage certain industries because they discourage consumption.
- If it is a locally-made commodity, less labour is employed in making it.
- If it is a foreign commodity, the same commodities made at home might gain some advantage in the home market.
- More local industry might be turned towards making them.
- But it necessarily discourages other local industries.
- The dearer the consumers in one country pay for the surplus of another, the cheaper they necessarily sell their own surplus.
- Their own surplus produce becomes of less value and they have less encouragement to increase its quantity.
- All taxes on consumable commodities reduce the quantity of productive labour below what it otherwise would be:
- in making those home commodities which are taxed
- in making home commodities for buying those foreign commodities which are taxed
- Such taxes always alter the natural direction of national industry.
- They always turn it into a channel less advantageous than natural.
- 209 3 - Smuggling frequently causes forfeitures and other penalties which entirely ruin the smuggler.
- A smuggler would have been an excellent citizen if his country's laws did not turn trade into a crime.
- In corrupt governments where there is much unnecessary expence and misapplication of the public revenue, the laws which guard taxes are little respected.
- Few are scrupulous about smuggling when they can find any easy and safe opportunity to smuggle.
- In most countries, it is a hypocrisy to pretend to have any scruple about buying smuggled goods.
- Instead of gaining credit with anybody, it only exposes such persons to the suspicion of being more dishonest than others.
- Thus, the smuggler is often encouraged to continue a trade which he is taught to consider as somewhat innocent.
- When the severe revenue laws catch him, he is frequently disposed to violently defend what he regards as his just property.
- From being at imprudent at first, he finally often becomes one of the hardiest and most determined lawbreakers.
- By the smuggler's ruin, his capital, which previously employed productive labourers, is absorbed in the state's revenue or in that of the revenue officer.
- It is employed in maintaining unproductive labourers.
- It reduces the society's general capital and useful industry.
- 210 4 - Such taxes expose dealers to oppression, trouble and vexation through the odious examination of the tax-gatherers.
- Vexation is certainly an expence which every man wants to be free of.
- Excise laws are more effective for taxation than customs, but causes more vexations.
- When a merchant has paid the customs duties for his imported goods, he is not liable to any further trouble from the custom-house officer.
- But dealers have no respite from the continual examinations of the excise officers.
- Thus, excise duties and excise officers are more unpopular than customs duties and custom-house officers.
- Those excise officers develop a hardness of character which custom-house officers frequently do not have.
- This observation might be a mere suggestion of smugglers who are prevented by their diligence.
The inconveniences from taxes on consumable commodities fall as light on the British as on those of other countries with expensive governments.
- Our state is not perfect, but it is as good or better than the states of most of our neighbours.
Because of the notion that duties on consumable goods were taxes on merchants' profits, those duties were repeated on every successive sale of goods in some countries.
- If the profits of the merchant importer or merchant manufacturer were taxed, it seemed just to tax the profits of all the middlemen between them and the consumer.
- The famous alcavala of Spain was established on this principle.
- At first, it was a tax of 10%, afterwards of 14%, and is at present of only 6% on the sale of all movable or immovable property.
- It is repeated every time the property is sold.
- Its levying requires many revenue officers to guard the transportation of goods from one province to another and from one shop to another.
- It subjects the dealers of all kinds of goods, every farmer, manufacturer, merchant and shopkeeper, to the continual visit and examination of the tax-gatherers.
- Through the greater part of a country in which a tax of this kind is established nothing can be produced for distant sale.
- The produce of every part of the country must be proportioned to the consumption of the neighborhood.
- Ustaritz imputes the ruin of Spanish manufactures to the alcavala.
- He might have also imputed the decline of agriculture to it because the alcavala was also imposed on rude produce.
In Naples, there is a similar tax of 3% on the value of all contracts, including contracts of sale.
- It is lighter than the Spanish tax.
- Most of the towns are allowed to pay a composition in lieu of it.
- They levy this composition in a way that does not interrupt their interior commerce.
- The Neapolitan tax is not as ruinous as the Spanish alcavala.
The uniform system of taxation, with a few small exceptions, in all of the United Kingdom, leaves its interior commerce almost entirely free.
- The inland trade is almost perfectly free.
- Most goods may be carried from one end of the kingdom to the other without:
- requiring any permit
- questioned, visited, or examined by the revenue officers
- There are a few exceptions which do not interrupt any important branch of the inland commerce.
- Goods carried coastwise require certificates or coast-cockets.
- If you except coals, however, the rest are almost all duty-free.
- This freedom of interior commerce is the effect of the uniformity of the tax system.
- It is perhaps one of the principal causes of the prosperity of Great Britain.
- Because every great country is necessarily the best and most extensive market for most of the produce of its own industry.
- If the same freedom from the same uniformity, could be extended to Ireland and the plantations, the state's grandeur and the empire's prosperity would probably be greater.
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- In 1772, the old malt-tax produced £722,023:11:11
- The additional £356,776:7:9¾
- In 1773, the old tax produced £561,627:3:7½
- The additional £278,650:15:3¾
- In 1774, the old tax produced £624,614:17:5¾
- The additional £310,745:2:8½
- In 1775, the old tax produced £657,357:0:8¼
- The additional £323,785:12:6¼
- The total was £3,835,580:12:0¾
- The average of these four years £958,895:3:0 3/16
- In 1772, the country excise produced £1,243,128:5:3
- The London brewery £408,260:7:2¾
- In 1773, the country excise produced £1,245,808:3:3
- The London brewery £405,406:17:10½
- In 1774, the country excise produced £1,246,373:14:5½
- The London brewery £320,601:18:0¼
- In 1775, the country excise produced £1,214,583:6:1
- The London brewery £463,670:7:0¼
- The total was £6,547,832:19:2¼
- The average of these four years was £1,636,958:4:9½
- To which adding the average malt-tax, or £958,895:3:0 3/16
- The total of those taxes amounts to £2,595,853:7:9 11/19
- Tripling the malt-tax would produce a new total of £2,876,685:9:0 9/16
- It would increase the old total by £280,832:1:2 14/16
In 1774, the cyder tax produced only 3083l. 6s. 8d, short of its usual amount.
Next: Chapter 2p: French Taxation