Chap: 2c: Taxes on Land Produce

Taxes On The Produce of Land

57 Taxes on the produce of land are in reality taxes on rent.

  • They are finally paid by the landlord though they may be originally paid by the farmer.
  • When a certain part of the produce is paid as tax, the farmer computes what the yearly value of this part is likely to be.
    • He makes a proportional abatement in the rent to pay to the landlord.
  • All farmers compute beforehand what the yearly church tithe will amount to.
    • Church tithes are a land-tax of this kind.

58 The tithe and every other land-tax of this kind are very unequal taxes.

  • A certain portion of the produce being equivalent to a very different portion of the rent.
  • In some very rich lands, the produce is so great that half of it is enough to replace the farmer’s capital with ordinary profits.
    • He can pay the other half as rent to the landlord if there were no tithe.
  • But if 10% of the produce is taken from him as tithe, he must abate 1/5 of his rent.
    • Otherwise he cannot get back his capital with the ordinary profit.
  • In this case, the landlord’s rent will only be 4/10, instead of being half or 5/10 of the whole produce.
  • On the contrary, in poorer lands, the produce is so small and the cultivation cost so great that it requires 4/5 of the whole produce to replace the farmer’s capital with ordinary profits.
    • Though there was no tithe, the landlord’s rent could be no more than 1/5 or 2/10 of the whole produce.
  • But if the farmer pays 1/10 of the produce as tithe, he must reduce the landlord’s rent to only 1/10 of the whole produce.
  • On the rent of rich lands, the tithe may sometimes be a tax of no more than 1/5, or 4 shillings the pound.
    • On poorer lands, it may sometimes be a tax of 1/2 or 10 shillings the pound.

59 The tithe is frequently a very unequal tax on the rent.

  • It is always a great discouragement to the landlord’s improvements and the farmer’s cultivation.
  • When the church shares so very largely in the profit without spending for improvement or cultivation:
    • the landlord cannot make the most important and expensive improvements
    • the farmer cannot raise the most valuable and expensive crops
  • For a long time, European tithes caused the cultivation of madder to be confined to the United Provinces.
    • Those Provinces were Presbyterian countries and exempt from this destructive tax.
    • They enjoyed a monopoly of that useful dyeing drug against the rest of Europe.
    • A recent attempt to introduce this plant into England was the statute which enacted that 60 pence an acre should be received in lieu of tithes on madder.

60 European Churches and Asian governments are supported by a land-tax based on the produce of the land and not its rent.

  • In China, the sovereign’s main revenue is in 10% of the produce of all lands.
    • This 10% is estimated very moderately.
    • It does not exceed 1/30th of the ordinary produce.
  • The land-tax or land-rent paid to the Muslim government of Bengal before it fell to the English East India Company, was 1/5th of the produce.
  • The land-tax of ancient Egypt also amounted to 1/5.

61 In Asia, this land-tax interests the sovereign in land improvement and cultivation.

  • The sovereigns of China, Muslim Bengal, and ancient Egypt were extremely attentive in building and maintaining good roads and navigable canals to increase the quantity and value of the produce as much as possible.
    • They aimed to provide the most extensive market within their own dominions.
  • The church tithe is divided into such small portions that none of its proprietors can have this kind of interest.
    • The priest of a parish could never find benefit in building a road or canal to a distant place to extend the market for the produce of his own parish.
  • Such taxes, when destined for maintaining the state, have some advantages which balance their inconvenience.
    • When destined for maintaining the church, they only cause inconvenience.
Taxes On The Produce Of Land which May Be Levied In Kind Or In Money

63 The parish priest or a gentleman who has an estate, may sometimes find advantage in receiving tithes and rent in kind.

  • They can both oversee, with their own eyes, the collection and disposal of the tithe or rent because:
    • the quantity to be collected is so small, and
    • the district where it is to be collected is so small.
  • A rich gentleman, living in the capital, would suffer from the neglect and fraud of his agents if his estate rents in a distant province were paid to him this way.
    • The sovereign’s loss from the abuse of his tax-gatherers would be much greater.
  • The most careless private person can perhaps oversee his own servants better than the most careful prince can oversee his.
  • A public revenue paid in kind would be mismanaged by the collectors.
    • A very small part of the tax revenues would ever arrive at the treasury.
  • Some part of the Chinese public revenue was paid this way.
    • The Chinese bureaucrats and tax-gatherers will find their advantage in continuing this payment method which is much more liable to abuse than any payment in money.

 

64 A tax on land produce levied in money may be levied according to:

  • a variable, market price valuation or
  • a fixed valuation
    • For example, a bushel of wheat is always valued at the same money price whatever its market price.
  • The proceeds of a tax levied on the market price will vary with:
    • the changes in the real produce of the land, or
    • the changing state of improvement and cultivation.
  • The proceeds of a tax levied on the fixed price will vary with:
    • the changes in the produce of the land,
    • the value of the precious metals,
    • the quantity of those metals in coin of the same denomination.
  • The proceeds of the tax based on market prices will always be proportional to the value of the real produce of the land.
    • The proceeds of the tax based on fixed prices may bear very different proportions to that value.

 

65 When all payments for a tax are paid with a certain sum of money, instead of a certain portion of the produce, the tax has exactly the same nature as the English land-tax.

  • It neither rises nor falls with the land rent.
  • It neither encourages nor discourages improvement.
  • The tithe in those parishes which pay a Modus in lieu of all other tithes, is a tax of this kind.
  • During the Muslim government of Bengal, a very moderate modus was established in most of its zamindaries or districts, instead of the payment in kind of 1/5 part of the produce,
  • Some of the servants of the East India Company exchanged this modus for a payment in kind, pretending to restore the public revenue to its proper value.
    • This change discourages cultivation.
    • It gave new opportunities for abuse in tax collection.
    • The collection fell very much below normal when they managed it.
    • Those servants may have profited by this change at the cost of their masters and of the country.
Taxes On House Rent

66 House rents have two parts:

  • The Building-rent
  • The Ground-rent

67 The building-rent is the interest or profit of the capital spent in building the house.

  • To put the trade of a builder at level with other trades, this rent should be sufficient to:
    1. Pay him the same interest which he would have gotten if he lent out his capital
    2. Maintain the house or to replace the capital employed in building it within a certain term of years
  • The building-rent is the ordinary profit of building.
    • It is everywhere regulated by the ordinary interest of money.
    • If the market interest rate is 4%, the building-rent requires 6% or 6.5% on the building’s total cost.
      • This might afford enough profit to the builder.
    • If the market interest rate is 5%, it may require 7% or 7.5%.
  • If the builder gets more profit than this, much more capital will be drawn into building.
    • It will reduce its profit to its proper level.
  • If he gets much less than this, so much capital will leave it which will again raise that profit.

 

68 The part of the house-rent which is over the building-rent naturally goes to the ground-rent.

  • If the owner of the ground and the building are different persons, the ground-rent is paid to the ground owner.
  • This surplus rent is the price which the house dweller pays for the advantage of the situation.
  • In country houses far from any town, where there is plenty of ground, the ground-rent will not be worth anything.
    • It will pay no more than what that ground would pay if used in agriculture.
  • In country villas near a great town, it is sometimes much higher.
    • The convenience or beauty of situation is there frequently very well paid for.
  • Ground-rents are generally highest in:
    • the capital, and
    • places with the greatest demand for houses whether for:
      • trade and business
      • pleasure and society
      • vanity and fashion

 

69 A tax on house-rent, payable by the tenant, could not affect the building-rent.

  • If the builder did not get his reasonable profit, he would quit building.
    • This would raise the demand for building.
  • In a short time, it would bring back his profit to its proper level with other trades.
    • Such a tax would not all fall on the ground-rent.
    • It would fall partly on the house dweller and partly on the ground owner.

 

70 For example, if a person rents a house for £60 a year.

  • The house-rent tax is 4 shillings in the pound or 1/5.
  • A house of £60 rent will cost him £72 a year. [60 * 1.2]
    • It is £12 more than what he thinks he can afford.
  • He will content himself with a worse house with £50 rent which only has £10 tax, totalling £60 a year.
    • He will give up the convenience afforded by £10 but will seldom give up the whole £60 convenience.
  • On the whole, this tax reduces the competition for houses of £60 and £50 rent but increases the competition for houses with the lowest rent.
    • The rents for those houses with less competition would necessarily be reduced.
    • None of this reduction, however, could affect the building-rent.
    • All of it must fall on the ground-rent in the long-run.
  • The final payment of this tax would fall partly on:
    • the inhabitant of the house
      • To pay his share, he would give up some of his convenience.
    • the ground owner
      • To pay his share, he would give up some of his revenue.
  • How this final payment would be divided between them is not very easy to ascertain.
    • The division would probably be very different in different circumstances.
    • This kind of tax might affect the house-dweller and the ground owner very unequally.

 

71 The inequality of this tax on the owners of ground-rents would all arise from the accidental inequality of this division.

  • Its inequality on the house-dwellers would arise from:
    • the inequality of this division and
    • the lifestyle cost
      • The proportion of the house-rent to the whole cost of living is varies with the house-dweller’s wealth.
        • It is highest in the wealthiest state and lowest in the poorest degree
  • Basic necessities make up the great expence of the poor.
    • Most of their little revenue is spent getting food.
  • Luxuries make up the main expence of the rich.
    • A magnificent house embellishes all the other luxuries which they possess.
    • A tax on house-rents would fall heaviest on the rich.
    • This inequality is reasonable.
  • It is reasonable that the rich should contribute to the public expence more than in proportion to their revenue.

 

72 The house rents resemble land rents, but is essentially different in one respect.

  • Land rents are paid for their productive use.
  • House rents are paid for their unproductive use.
    • Neither the house nor its ground produce anything.
  • The house rent must be paid from some other source of revenue independent from the house.
  • A tax on house rents falls on the house-dwellers.
    • It must be paid from their revenue whether from wages, profits, or land rent.
    • Such a tax would fall very indifferently on wages, profits, or land rent.
    • It has the same nature as a tax on consumable commodities.
  • In general, house-rent is the best indicator of a person’s spending ability.
  • A proportional tax on house rents might produce a bigger revenue than any European tax on consumables.
  • If the tax was very high, most people would evade it by:
    • renting smaller houses, and
    • spending on other things.

 

73 House rents might easily be ascertained accurately in the same way ordinary land rents are ascertained.

  • Uninhabited houses should pay no tax.
    • Such a tax would all fall on the proprietor.
      • He would be taxed for something which did not give him convenience nor revenue.
  • Houses inhabited by the proprietor should be rated according to the rent which an equitable arbitration might judge them likely to bring if leased to a tenant.
    • It should not be taxed according to its building cost.
    • If rated according to the building cost, a tax of 15-20%, with other taxes, would ruin all rich families.
  • The house rent of the richest families in Great Britain is only 6.5% or 7% of the original building cost.
    • It is nearly equal to the whole net rent of their estates.
    • It is the accumulated expence of several generations spent on great beauty and magnificence.
    • Its value is very small compared to what they cost.

 

74 Ground-rents are a better tax subject than house-rents.

  • A tax on ground-rents would not raise house-rents.
  • It would all fall on the owner of the ground-rent.
    • He always acts as a monopolist.
    • He exacts the highest rent for the use of his ground.
      • Its value varies with the wealth or poverty of his competitors.
      • The most rich competitors are in the capital.
        • Thus, highest ground-rents are always found there.
        • The wealth of those competitors would not be increased by a tax on ground-rents.
        • They would probably not be disposed to pay more for the use of the ground.
  • It is unimportant whether the tax was paid by the inhabitant or by the ground owner.
    • The more the inhabitant pays for the tax, the less he would pay for the ground.
      • The final payment of the tax would all fall on the owner of the ground-rent.
  • The ground-rents of uninhabited houses should pay no tax.

 

75 Both ground-rents and ordinary land rents are a revenue which the owner enjoys without any care of his own.

  • Taxes on such rents would not discourage industry.
  • The national annual produce of society might be the same after such a tax as before.
  • Ground-rents and ordinary land rents are, therefore, revenue which can be best taxed.

 

76 Ground-rents are a more proper subject of taxation than ordinary land rents.

  • Ordinary land rents depend partly on the good management of the landlord.
    • A very heavy tax might discourage this good management.
  • Ground-rents which exceed ordinary land rents all depend on the good government of the sovereign.
    • By protecting the industry of the people, he:
      • enables them to pay more than the real value of the ground which they build their houses on
      • compensates the ground owner more for the loss of letting others use it for housing.
  • It is most reasonable to tax a fund which owes its existence to the good governance by the state.
    • Such a fund contributes more towards supporting that government than other funds.

77 I do not know of any taxes on house-rents in which ground-rents were a separate subject of taxation.

  • The tax contrivers probably found in difficult to ascertain which part of the house-rent should be ground-rent and which should be building-rent.
  • It should not be very difficult to distinguish those two.

78 In Great Britain, house-rent is taxed in the same proportion as land rent by the annual land-tax.

  • The valuation in each parish and district is always the same.
    • Then and now, it is extremely unequal.
  • This tax is lighter on house-rents than on land rents.
  • In some few districts where house rents have fallen considerably, the land-tax of 3 or 4 shillings in the pound has an equal proportion of the real house rents.
  • Untenanted houses are subject to the tax.
  • In most districts, these are exempt from it by the favour of the assessors.
    • This exemption sometimes creates some little variation in the rate of particular houses though that of the district is always the same.
  • Improvements of rent, by new buildings, repairs, etc. go to the discharge of the district, which occasions more variations in the rate of particular houses.

79 In Holland, every house is taxed at 2.5% of its value without regard to:

  • the rent it actually pays or
  • it being tenanted or untenanted

It seems difficult to oblige the proprietor to pay a tax for an untenanted house from which he can derive no revenue.

  • In Holland, the market interest rate does not exceed 3%.
    • 2.5% of the house value is more than 1/3 of the house rent.
    • The house valuations are very unequal and is always below the real value.
  • When a house is rebuilt, improved, or enlarged, there is a new valuation, and the tax is rated accordingly.

80 The contrivers of house taxes in England thought it very difficult to ascertain the real rent of every house.

  • They regulated their taxes according to more obvious circumstances which they imagined would be  proportional to the rent.

English House Taxes

81 The first tax of this kind was hearth-money or a tax of 24 pence on every hearth.

  • To ascertain how many hearths were in the house, the tax-gatherer entered every room in it.
  • This odious visit rendered the tax odious.
  • After the revolution, it was abolished as a badge of slavery.

82 The next tax was a tax of 24 pence on every inhabited dwelling-house.

  • A house with 10 windows was to pay 48 pence more.
  • A house with 20 windows and more was to pay 96 pence.
  • This tax was then so far altered that houses with 20-29 windows were ordered to pay 120 pence.
  • Those with 30 or more windows were to pay 240 pence.
  • The number of windows can be counted from outside without entering the house.
  • The visit of the tax-gatherer was less offensive than the tax of hearth-money.

83 This tax was afterwards repealed and replaced with the window-tax.

  • It had many alterations and additions.
  • At present (January 1775), the window-tax is lays a duty of 36 pence on every house in England and 12 pence on every house in Scotland.
  • In England, this tax increases gradually from:
    • 2-pence is the lowest rate for houses with seven windows or less
    • 24 pence is the highest rate for houses with 25 or more windows

84 The principal objection to such taxes is their inequality which is of the worst kind.

  • They fall heavier on the poor than the rich.
  • A house of £10 rent in a country town may have more windows than a house of £500 rent in London.
  • The dweller in the house with £10 rent is likely poorer, yet the window-tax makes him pay more.
  • Such taxes are directly contrary to my first maxim of taxation.
    • They do not offend much against the other three maxims.

85 The window-tax and all house taxes naturally lower rents.

  • The more a man pays for the tax, the less he can pay for the rent.
  • Since the imposition of the window-tax, however, house rents have risen.
  • The increase in house demand was so great that it raised the rents more than the window-tax could sink them.
  • This demand is proof of:
    • the country’s great prosperity
    • the increasing revenue of its people
  • Without the tax, rents would probably have risen higher.

Words: 3,235

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