Take, for instance, protectionism. What support it
has, beyond the mere selfish desire of sellers to
compel buyers to pay them more than their goods are
worth, springs from such superficial ideas as
that production, not consumption, is the end of effort;
that money is more valuable than money’s-worth, and
to sell more profitable than to buy; and above all from a
desire to limit competition, springing from an
unanalyzing recognition of the phenomena that necessarily
follow when men who have the need to labor are deprived
by monopoly of access to the natural and indispensable
element of all labor. Its methods involve the idea that
governments can more wisely direct the expenditure of
labor and the investment of capital than can laborers and
capitalists, and that the men who control governments
will use this power for the general good and not in their
own interests. They tend to multiply officials, restrict
liberty, invent crimes. They promote perjury, fraud and
corruption. And they would, were the theory carried to
its logical conclusion, destroy civilization and reduce
mankind to savagery. ... read the whole
letter
8. A tax upon shoes, paid in the first
instance by shoe manufacturers, enters into
manufacturers' prices, and, together with the usual rate
of profit upon that amount of investment, is recovered
from wholesalers. The tax and the manufacturers' profit
upon it then constitute part of the wholesale price and
are collected from retailers. The retailers in turn
collect the tax with all intermediate profits upon it,
together with their :usual rate of profit upon the whole,
from final purchasers -- the consumers of shoes. Thus
what appears on the surface to be a tax upon shoe
manufacturers proves upon examination to be an indirect
tax upon shoe consumers, who pay in an accumulation of
profits upon the tax considerably more than the
government receives.
The effect would be the same if a tax upon
their leather output were imposed upon tanners. Tanners
would add to the price of leather the amount of the tax,
plus their usual rate of profit upon a like investment,
and collect the whole, together with the cost of hides,
of transportation, of tanning and of selling, from shoe
manufacturers, who would collect with their profit from
retailers, who would collect with their profit from shoe
consumers. The principle applies also when taxes are
levied upon the stock or the sales of merchants, or the
money or credits of bankers; merchants add the tax with
the usual profit to the prices of their goods, and
bankers add it to their interest and discounts.
For example; a tax of $100,000 upon the
output of manufacturers or importers would, at 10 per
cent as the manufacturing profit, cost wholesalers
$110,000; at a profit of 10 per cent to wholesalers it
would cost retailers $121,000, and at 20 percent profit
to retailers it would finally impose a tax burden of
$145,200 — being 45 per cent more than the
government would get. Upon most commodities the number of
profits exceeds three, so that indirect taxes may
frequently cost as much as 100 per cent, even when
imposed only upon what are commercially known as finished
goods; when imposed upon materials also, the cost of
collection might well run far above 200 percent in
addition to the first cost of maintaining the machinery
of taxation.
It must not be supposed, however, that the
recovery of indirect taxes from the ultimate consumers of
taxed goods is arbitrary. When shoe manufacturers, or
tanners, or merchants add taxes to prices, or bankers add
them to interest, it is not because they might do
otherwise but choose to do this; it is because the
exigencies of trade compel them. Manufacturers,
merchants, and other tradesmen who carry on competitive
businesses must on the average sell their goods at cost
plus the ordinary rate of profit, or go out of business.
It follows that any increase in cost of production tends
to increase the price of products. Now, a tax upon the
output of business men, which they must pay as a
condition of doing their business, is as truly part of
the cost of their output as is the price of the materials
they buy or the wages of the men they hire. Therefore,
such a tax upon business men tends to increase the price
of their products. And this tendency is more or less
marked as the tax is more or less great and competition
more or less keen. ...
4. CONFORMITY TO GENERAL PRINCIPLES OF
TAXATION
The single tax conforms most closely to the essential
principles of Adam Smith's four classical maxims, which
are stated best by Henry George 19 as follows:
The best tax by which public revenues can be raised is
evidently that which will closest conform to the
following conditions:
- That it bear as lightly as possible upon production
— so as least to check the increase of the
general fund from which taxes must be paid and the
community maintained. 20
- That it be easily and cheaply collected, and fall
as directly as may be upon the ultimate payers —
so as to take from the people as little as
possible in addition to what it yields the
government. 21
- That it be certain — so as to give the least
opportunity for tyranny or corruption on the part of
officials, and the least temptation to law-breaking and
evasion on the part of the tax-payers. 22
- That it bear equally — so as to give
no citizen an advantage or put any at a disadvantage,
as compared with others. 23 ...
b. Cheapness of Collection
Indirect taxes are passed along from first
payers to final consumers through many exchanges,
accumulating compound profits as they go, until they take
enormous sums from the people in addition to what the
government receives.26 But the single tax takes
nothing from the people in excess of the tax. It
therefore conforms more closely than indirect taxation to
the second maxim quoted above.
26. "All taxes upon things of
unfixed quantity increase prices, and in the course of
exchange are shifted from seller to buyer, increasing
as they go. If we impose a tax on money loaned, as has
been often attempted, the lender will charge the tax to
the borrower, and the borrower must pay it or not
obtain the loan. If the borrower uses it in his
business, he in his turn must get back the tax from his
customers, or his business becomes unprofitable. If we
impose a tax upon buildings, the users of buildings
must finally pay it, for the erection of buildings will
cease until building rents become high enough to pay
the regular profit and the tax besides. If we impose a
tax upon manufactures or imported goods, the
manufacturer or importer will charge it in a higher
price to the jobber, the jobber to the retailer. and
the retailer to the consumer. Now, the consumer, on
whom the tax thus ultimately falls, must not only pay
the amount of the tax, but also a profit on this amount
to everyone who has thus advanced it — for profit
on the capital he has advanced in paying taxes is as
much required by each dealer as profit on the capital
he has advanced in paying for goods." — Progress
and Poverty, book viii, ch. iii, subd.
2.
...
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