Article I. Preliminary Notions

97. What a tax properly is. In order that it may suffice for the various functions belonging to it from its province, social authority needs no small resources. According to the division already introduced by Adam Smith, who is regarded as the father, as it were, of economic science, it receives these either from its own goods or industry, or from the fortunes of the citizens. Its own goods are of various kinds, such as lands, forests, mines, and monopolies which social authority exercises by itself or through others; and they are sometimes called the fiscal domain of the State (if the State is in question), in order that it may be distinguished from the public domain, which embraces those goods which, being in the possession of no private person, are destined for public and non-lucrative uses: thus squares, public roads, and public gardens.

For a long time, certainly in many regions, political authority was able to meet public expenditures from the revenues of the fiscal domain. Hence in France permanent taxes began to be exacted together with the levy of a permanent army—that is, in the year 1444—and in England they were unknown before the seventeenth century was ending. Today, in the Principality of Monaco, we still have an example of sufficiently complete immunity, since the concessionaires of games must suffice for almost all expenditures. But this is a singular exception; and the common rule now holds that by exactions by far the greatest part of the public treasury is amassed.¹

¹ Economists by no means disapprove this. Indeed, they rather judge that, if you except a few heads, such as the coining of money, in which a public cause for monopoly intervenes, it contributes to general prosperity that the State alienate these goods. Cf. L. Cossa, op. cit., sect. 3, pt. 1, ch. 3.

From the fortunes of the citizens, however, the State exacts contributions which are of two kinds. Some are paid by those to whose advantage some action or work of public authority immediately redounds, so that they may compensate the expenses made for their own benefit. Of this kind is the money to be given by those crossing bridges and navigating through rivers and canals, etc., so long as it does not exceed what the public treasury had to expend. These contributions are called in French fees and tolls.

Others are imposed upon citizens without an advantage of this kind immediately received: these are taxes properly so called.

Materially, therefore, we can describe taxes or imposts as: Things estimable at a price, or—since in our regions this is now almost their sole form—monies which citizens are bound by law to furnish or pay, without an immediate relation to their private advantage, but so that public expenditures may be met.

In some revenues which the State receives, a twofold or even threefold rationale can inhere. Let us consider, for example, the administration of justice. It is a matter which concerns the common good and which at the same time, where a civil suit is conducted, redounds to the special advantage of certain persons. Hence the expenses are fittingly furnished in part by those who were the cause of the suit, and in part by the universal community. And in actual fact, the monies to be paid by litigants do not equal those which the treasury must expend to appoint judges.

Similarly, when the State administers railways and the conveyance of letters, etc. (the postal service), it can seem to exercise a profitable industry, or to provide for public utility through an office which nevertheless benefits certain persons particularly. Therefore, if those who, for example, are carried by railways pay scarcely that which corresponds to the expenses, this money is rather to be regarded as a fee. But if the State makes a profit from this administration, the same money can be regarded either as a price properly so called, such as would have to be paid to some private society, or as a tax. And it will certainly be a tax if the public charge exceeds the price which a private person could ask. In this manner the treasury in France exercises the tobacco monopoly (the tobacco administration).

98. Various less principal notions which pertain here.

Within taxes are distinguished the basis (the base), the assessment (status; the assessment base), the apportionment, and the “incidence,” which many divide into direct and indirect. The latter, following de Parieu, they call the shifting (repercussion, reflection) of the tax.

Although these terms are not understood in the same manner by all, their proper force nevertheless seems capable of being indicated precisely thus:

The basis is every thing (in the broad sense) upon which a tax is imposed—for example, servants, furniture, salt.²

² Taxes upon servants, furniture, and salt.

Sufficiently akin to this is the rationale of the assessment. For the assessment of a tax designates either the very manner in which a thing is subjected to a tax, or the very placement of the tax upon some basis; or also, objectively, the very resource upon which the tax is directly imposed. Accordingly, if taxable revenues which were previously estimated from presumptions are now defined by direct inquiry, the assessment of the tax is changed according to the former signification of the word. But according to the latter signification, for a tax whose basis is beverages, its assessment will be partly their production, partly their sale. These activities produce wealth. Similarly, prospective profit (commercial profit) is the assessment of the tax which is exacted from one practicing a trade or commerce (the business-license tax).

Apportionment is the rationale by which the burden of individuals is defined.

The incidence of a tax, according to the more common opinion, is its fall upon the person whom it burdens. Since, however, not rarely the one from whom the tax is sought is not the same as the one who bears the burden, there are some who call direct incidence that which falls upon the person who immediately pays the tax—for example, upon the merchant who discharges the fee for a license to conduct business (who pays the business-license dues); while indirect incidence³ would be that which falls upon him who, although he contributes nothing to the treasury, is nevertheless burdened in reality. In the example adduced, this will be the purchaser of the merchandise, if a proportionate part of the aforesaid tax to be paid is computed in the just price. Others call the former incidence legal, and the latter real (effective).

³ The doctrine concerning indirect incidences was not unknown to Molina, disp. 667, no. 7, and disp. 669, no. 2, nor to C. de Lugo. Cf. vol. 2, disp. 36, no. 25.

Concerning incidences, overly absolute opinions were published by writers who contended that they assigned to each tax its own true incidence, while now there is sufficient agreement that the matter is very intricate and obscure.⁴ In general it can be said that the burden is borne by him against whom is the law of what is offered and demanded (the law of supply and demand), or by him in whose power there is less discretion concerning the price, because he is pressed by a greater necessity of completing the contract. Thus, if you are compelled to sell a house in order to pay a debt, the burden of the tax to be paid on this occasion must be sustained by you rather than by the buyer. For even if he is held by civil law to certain expenses, he will deduct these from the sum which he determined to pay as the price. On the contrary, one who manufactures things (the manufacturer) is not rarely able to transfer the tax to the buyers.

⁴ “Its real incidence exceeds the visible limits of its assessment and is distributed in a thousand ways, without it being possible to follow its movements exactly.” Stourm, op. cit., Preface. “The shifting, undoubtedly most intricate, is erroneously appraised by many theorists.” L. Cossa, op. cit., sect. 3, pt. 2, ch. 5.

N.B. Shifting does not take place immediately, but an interval is necessary. From another quarter, because of the various shiftings which take place, provided the tax system has been sufficiently complex, economists judge that the matter is, as it were, composed of itself in such a way that all pay taxes in equal proportion. Hence that rule, to which theologians consent, though for another cause:⁵ that the tax system is not changed without danger; and that the more ancient taxes are, the more just they are. I would prefer to say per se, for neither can this be understood too absolutely. Cf. Cauwès, no. 1240.

⁵ For ancient taxes appear to theologians to be adorned with a presumption of justice. Cf. St. Alphonsus, bk. 3, no. 617. And perhaps they took this from ch. Pervenit 5, De Censibus (III, 39), where, however, antiquity merely establishes a presumption of a legitimate cause, which otherwise would have to be proved by the collector.

99. Divisions of taxes.

a) According to the performance which is exacted, a tax which is to be furnished through some work of the person himself⁶ is distinguished from one which is to be paid from goods.⁷ Today money must generally be furnished. The former kind could be called personal, the latter real; but cf. below the other acceptation of these words which is more commonly used today.

⁶ Personal services, such as formerly were compulsory labor services (corvées), and as are still now the obligation of military service, of lodging soldiers, etc.

⁷ Payments from property.

b) According to the basis and assessment, they distinguish:

α) A direct and an indirect tax.⁸ We shall hand down the notion of these expressions which pleases jurists, for economists disagree. Moreover, according to our laws, a direct tax is one which, after individual intervals, is exacted from a person designated by name;⁹ while an indirect tax is any other tax.¹⁰ Cf. Cauwès, op. cit., no. 1229.

⁸ Cf. Cauwès, no. 1229. Concerning the scientific origin of the distinction, cf. H. Denis, L’impôt [The Tax], p. 346.

⁹ For example, the land tax, the tax upon rental value, the business-license tax.

¹⁰ For example, inheritance duties, and especially duties upon production, customs duties, or duties upon consumption.

β) A personal tax and a real tax. A personal tax reaches a person either insofar as he is a citizen—thus an equal or simple exaction upon heads (simple capitation)—or insofar as he has a certain measure of resources.¹¹ A real tax, on the contrary, directly reaches a determinate possession or industry, insofar as it is to be paid, without regard to resources, by any possessor of the thing, merchant, etc. It can be imposed upon possessions and upon the production of things;¹² upon their movement or transfers (upon circulation);¹³ and upon their consumption. Cf. H. Denis, L’impôt [The Tax], pp. 71–76; Cauwès, no. 1229.

¹¹ The tax upon the totality of incomes.

¹² The land tax, the tax upon capital, and the tax upon industrial profits.

¹³ Duties upon transport, customs duties, and transfer duties.

γ) A tax is called sumptuary when it is imposed upon things pertaining to luxury; its end can also be to restrain excessive luxury. Taxes upon alcohol and harmful drinks are reduced to this class.

c) According to their apportionment, there is a tax whose total to be obtained by the treasury is directly determined, toward which the proportional share of each individual is then exacted (tax by apportionment); and a tax concerning which it is directly established what part of his goods each person must pay, so that the total collected can vary. This latter method, which is more perfect and today nearly universal, is called in French a rate-based tax.

d) Finally, according to the manner in which what is to be paid is determined, the assessment of some taxes is made directly, whether from the declaration of the subject, from the judgment of officials, or from both together; the assessment of others, on the contrary, is made indirectly from indications or presumptions. In Belgium, the land tax offers an example of the former method; the personal tax, of the latter. Cf. below, no. 102, a and b.

100. Quantity of taxes.

They agree upon this rule: except in a necessity of a higher order, a tax ought in quantity to remain below the total income, lest society otherwise be reduced little by little to poverty.

Hence, although there are many bases, income is called the sole subject matter capable of bearing taxation;¹⁴ and, according to the portion of the proceeds consumed in paying taxes, these are called heavy or light.

¹⁴ “The only taxable subject matter is income.”

Yet you should not therefore think that a tax must be directly imposed upon incomes alone. Indeed, there is in force a tax which is called one upon the principal (capital), on account of the method of taxation by which the principal rather than the income is considered.

Without common detriment, however, something can be taken from the principal of an inheritance to be divided among collateral blood relatives, since those goods then accrue to plainly distinct patrimonies. (Heirs in the direct line rather preserve the same patrimony as the predecessors from whom they receive the goods.)

The weight of taxes, however, is not to be assessed from their quantity taken absolutely by itself; rather, the resources of society and the benefits procured through the taxes must be considered. Thus, for example, although the taxes of France today exceed sixfold those which were exacted in the year 1789, they concede that the citizens are no more burdened now than a century ago. Cf. Denis, op. cit., p. 39; Cauwès, no. 1226.

According to Leroy-Beaulieu,¹⁵ the burden of taxes is light when it does not exceed one-twentieth (5 or 6 percent) of the incomes received; it is moderate when approximately 8 percent is exacted; heavy when it exhausts one-tenth of the incomes; immoderate when it exceeds 14 percent.

¹⁵ Op. cit., bk. II, ch. 1. Observe that in this computation incomes are taken according to their absolute amount (gross income), and not after necessary expenses have been deducted (net income).

Accordingly, the burden of taxes is thought light in Belgium¹⁶ (5–6 percent); moderate in England (8½); heavy in France (11½–12); almost immoderate in Italy (14 percent).

¹⁶ D. Denis nevertheless considers taxes to be relatively heavier in Belgium than in the year 1831.

101. Various systems of taxation.

a) Certain rules for exacting taxes are handed down which are drawn from morals, the good administration of the commonwealth, and economic utility.

The moral rules reduce to this: that taxes be imposed by legitimate authority, in view of the common good, and be apportioned among citizens in an equitable manner; then, that they favor neither vices nor frauds. If vices can in some manner be restrained through certain methods of taxation, this benefit is not to be neglected. It is not established, however, that taxes have much efficacy for this end.

The political rules require taxes: a) which suffice for expenditures and are conveniently adapted to their variety; b) whose collection is easy and not hateful to citizens.

The economic rules require that taxes harm the temporal prosperity of society as little as possible.

b) Come, then, the systems of taxation vary:

α) According to the number of bases: for some commend taxes of a single kind which directly affect proceeds;¹⁷ while others prefer various kinds of exactions. The latter argue especially from political rules, while the former praise the simplicity and greater justice with which, under a single system, the total burden is distributed among the citizens.

¹⁷ A general tax upon income. Taxes in the broader sense (fees) would nevertheless be retained, as would any which perhaps became necessary for a higher rationale of protecting morals or industries: such as certain sumptuary duties and some customs duties.

Yet the assessment of incomes is a very difficult matter, which provides occasion for many errors. Hence that celebrated simplicity appears rather fictitious, and it is permissible to doubt the greater justice.

This is certain: today taxes everywhere are too great for a single method of taxation to be possible; it is altogether necessary to conceal their weight by various and especially indirect exactions. Cf. the Scholion, no. 117.

β) According to the portions assigned to direct and indirect taxes. Direct taxes excel in simplicity, certainty, and the lesser expense with which they can be exacted; and, moreover, in them the rationale of distribution is less arbitrary. Indirect taxes, however, are more productive and are borne more lightly.

An apt combination of both kinds therefore appears to be advisable.

γ) According to the formal rationale of distribution.

For this changes according as there is a greater abundance of real or personal taxes, and according as the proportional share to be paid is established as the same for each person or as greater for the wealthier (the proportional and progressive system).

102. Principal characteristics of the prevailing system.

Everywhere taxes are established with great variety and by a rather empirical method: some direct, others indirect; some real, others personal. And personal taxes are for the most part still commanded of citizens uniformly in proportion to their incomes; in certain regions, however, the proportional shares to be paid already increase in some manner according to the means of each.

Yet how not merely the share but the very total of the taxes exacted from each individual is to be related to the unequal capacities of incomes is still altogether uncertain. The very multitude of taxes obstructs this computation.

In Belgium, for example, the following are exacted:

a) The land tax (contribution foncière), which, from a cadastral assessment,¹⁸ is to be paid by the owner on account of lands or houses possessed.

¹⁸ In French, le cadastre designates the catalogue of all landed properties.

b) The tax which is called personal (contribution personnelle et mobilière). It is based upon the rental value of the house, upon doors and windows, upon the value of movable furnishings, upon servants and horses,¹⁹ insofar as all these things are presumed to be signs of income. For incomes are the true assessment-base of this tax.

¹⁹ Formerly, until the law of 26 July 1879, it was also based upon hearths.

c) The tax which is called the business-license tax (la patente), and is to be paid by one practicing certain crafts or industries.

Thus far, concerning direct taxes. Indirect taxes, however, are:

d) Taxes upon the manufacture, movement (circulation), and consumption of finished things (products). The duties by which consumption is burdened are called excise duties. Movement is burdened through customs duties. Hence, more generally, the terms customs and excise duties designate these indirect taxes.

e) Taxes upon inheritances (inheritance duties).

f) The tax which takes its name from the public stamp with which paper destined for certain uses must be imprinted (stamp and posting duties).

g) Taxes which are paid in sales and exchanges of things (transfer duties).

h) A tax contained in certain monopolies (state administration, monopoly). For it is a tax insofar as it deprives citizens of the faculty—estimable at a price—of practicing certain crafts, and insofar as not rarely more must be paid than the common price. In Belgium we have the state administration of the posts and of gunpowder. Elsewhere, for example in France, tobacco and matches also are reserved to the treasury.

How greatly indirect taxes exceed direct taxes in their importance will be sufficiently apparent if you consider that, during the year 1899, the treasury received 50,795,325 francs from direct taxes and 411,200,252 from indirect taxes.

In not a few other regions, together with exactions similar to those of Belgium, a general tax upon incomes is now in force, in which a certain method of increasing progression is generally observed, besides the immunity conceded to modest fortunes. Thus in England (Income Tax), in Austria, in Prussia (Einkommensteuer [income tax]), in Switzerland, in Italy, etc. Those taxes, however, are subject to various interpretations, so that those who oppose the progressive form²⁰ contend that in these there is almost nothing contrary to their position.²¹ Besides, if you except Italy, where 12 or 13 percent is exacted, this method of taxation remains within very mild limits, so that no one must pay more than 4 or 5 percent.

²⁰ For the sake of brevity, henceforth, in designating present-day systems, we shall use the modern appellations proportional system, progressive system, etc.

²¹ Cf. Cauwès, no. 1267 c.

To one considering the laws in force in various regions, it becomes clear that in most, as in Belgium, the method by which burdens are divided between movable and immovable goods is far from equality. For a special tax is imposed upon immovable goods and their transfers, while the certificates—shares, bonds—by which one has a part in commercial companies, etc., are transferred with almost no burden. Many deservedly deplore this and complain of it; except that, because of the difficulty of assessing how much each person possesses in money or securities, the correction of this defect presents no slight difficulty.