Page 5, 21st April 1939

21st April 1939

Page 5

Page 5, 21st April 1939 — Monday is Budget Day
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Monday is Budget Day

WHO PAYS MOST THE RICH OR POOR
We would urge all our readers to consider carefully on the eve of Budget Day this striking investigation of our financial system. Under the circumstances we make no apology for printing an article considerably above the usual length.
WHO really pays the most in taxes, the rich oz the poor?
Next year we are going to have a very heavy peace-time Budget, and it may be that new taxes will be imposed. It is pertinent, therefore, with this steadily rising national bill, for us to enquire upon whose shoulders the burdens really fall, and whether the rich are really being " soaked " in the way certain economists would have us believe. To do this let us examine, our modern system of taxation and discover exactly who pays it, and also who gets the benefits of it.
To-day we have two kinds of taxation, national and local, the latter being generally termed " rates "; and so great have these
By Francis Hunt
last now become that it is necessary for us to consider them quite as much as our national taxes when .% -e are studying the incidence of our communal expenditure.
The total income from rates levied by local authorities in Great Britain in the fiscal year 1935-36 was approximately £185,000,000,1 while the national revenue was £753,000,000, making a total of 1938,000,000, or about 120 17s. per head of the population.
The means by which this colossal sum is collected can be broadly divided into three categories, namely, direct and indirect national taxation, and rates (the latter, of course, being really only a supplementary property tax).
Now one of the biggest items of our expenditure is for Debt charges, that is, interest, management and sinking funds in connection with our National Debt. This last stood at 18,144,128,417 on March 31 of this year,2 to which has to be added the loans outstanding to municipalities, which at the end of the fiscal year of 1936 were 1904,394,5523 (S cotland excluded).
In the Budget a sum of 1224,000,000 is earmarked for debt charges, of which no less than 1211,000,000 is for interest, and only £12,000,000 for the sinking or redemption fund, which will not help us very much if we go on borrowing at our present rate. Now the thing is, what is this National Debt, to whom is it owed, and why don't we pay it off?
DEMOCRACY'S DEBT It would be true to say that the history of the National Debt is largely that of democracy, inasmuch as it is far easier for Governments which have to face an electorate every few years to finance their projects with loans, than it it is to pay them out of current revenue and so cause a rise in taxation, which may make them unpopular and get them defeated at the polls.
At the same time, there is an argument for floating loans rather than raising taxes, which is a very plausible one, and if repeated often enough will be believed.
It goes something like this : Our rearmament programmes, building schemes and social services will have a beneficial effect upon posterity. Without the first there is not likely to be any posterity, we shall all be blown to pieces by some foreign power, while the second and third will make the posterity so preserved healthier and happier. Therefore It is only just that posterity should bear part of the cost of these things, so let us float a loan, ANCIENT UNPAID DEBTS Undoubtedly this is a very good chain of reasoning, but unfortunately for this generation its predecessors also thought of it and put it into practice, with the result that we are still paying, amongst other things, for the liberation of the slaves in 1835, the Irish famine of 1847, and the Russian War of 1865.
Even so, in 1914 the debt was only 1649,000,000, or 118 per head of the population, compared with £183 to-day, and this incidentally completely ignores our foreign commitments in respect of other nations' loans which we have guaranteed, such as the 11,331,000 for which we are still liable in respect of the expenses of Turkey during the Crimean War. Sir Ernest Benn computes that if all our liabilities were counted up the debt would work out at about 1500 per head.} So what? Why, perhaps you will ask, should be worry about it, we of the 90 per cent, of the people who are not likely ever to have enough of this world's goods to need bother about, let alone a debt which is so big that we can scarcely comprehend it?
Well, we should worry about it, you and I, for the reason that while it is true the State may be able to hand this debt on to our successors, the payment of the interest on it is very much a thing of the present, because of every £1 we contribute in taxes and rates, roughly 55. goes to the moneylenders.
TAXING THE RICH TO PAY THE RICH
Now, broadly speaking, these moneylenders are the rich who have lent (or invested, if you wish), their spare money in State loans, and who, year by year, draw between them this sum of 1211,000,000 in interest. It is true that trade unions and other societies run by the working classes invest their funds in these Government securities, but these altogether do not represent more than s small fraction of the National Debt.
So if the rich are taxed more heavily than the poor it will be seen that they get back quite a healthy chunk of the national revenue which they help to raise, and this brings us to the question, do the rich pay in more to the Exchequer than they get out, and If so, how much, and how is it affecting the distribution of wealth?
WHO PAYS MOST ? And Who Benefits Most?
The incidence of our taxation on the various classes is by no means easy to get at, In so far as direct taxes are concerned, i.e., income and surtax, and death or estate duties, this is fairly clear in its incidence. The exemption limit of income from tax in 1935-6 was £125. (We are taking this fiscal year because it is the latest for which complete figures are available.) Of the somewhere about 19,000,000 possessors of income in this country, only 8,100,000 had incomes over the £125, and of these
4,750,000 were relieved by the operation of allowances, leaving only 3,360,000 who had to pay income tax for that year.5 Of this 3,350,000, 88,951 had incomes over the £2,000 mark and were mulcted for surtax.8 Turning to estate duties, of the approximately 560,000 who died in the
year under review only about one-quarter of them left estates over the exemption limit of MO. From this it will be seen that in so far as the direct taxes are concerned, constituting about 50 per cent. of the national revenue, these undoubtedly fall on the minority of rich people.
With regard to indirect taxes, however, the incidence of these is by no means so easy to trace. A rich man does not consume any more, probably, of some of our essential foods and drinks than a working man, and therefore taxes on tea, wheat or, say, butter, would cost all of us about the same amount.
There have been two attempts by successive Governments in 1913 and again in 1925 to assess exactly upon whom these indirect taxes fall, and from the results of these very exhaustive investigations, known as the Colwyn Reports, it has been computed that, after making due allowances for changes both in our social habits and our fiscal system, in the year 1935 a family of five people paid a sum of 116 18s. per annum in indirect taxes, i.e., taxes on drink, tobacco, matches, tea, sugar, entertainments and other such levies.?
Mr Colin Clark, the famous economist, in his book, National Income and Outlay, has followed up this reckoning by analysing with great thoroughness the incidence of both national and local taxation upon the well-to-do classes and the working classes, the latter consisting of all possessors of incomes of not more than 1250 per annum.
He has divided the sources of revenue into three categories, taxes falling directly on to the working classes, viz.: workers' contributions to State insurance, indirect taxation at 116 18s. per family of five, and rates on working class houses; secondly, taxes falling on the well-to-do people, income area surtax, estate duties, duties on petrol for private cars, rates on business premises, employers' contributions to State insurances, excess profits duty, rates on better-class dwellings, and certain of the indirect taxes; and lastly, Mr Clark has ptit certain taxes, such as stamp duties, duties on commercial vehicles, and some custom and excise levies in a category which he calls " diffused taxes," and these are distributed between the other two classes.
From the above calculations it is found that the working classes in the year 1935 contributed 33 per cent. of the total national and local revenue. Their share of the national income, incidentally, was somewhere about 57 per cent., and numerically these under-1250 per annum people represent about 87 per cent. of all those in receipt of incomes.8
HOW THE MONEY IS SPENT Having considered the incidence of the various taxes, let us now turn to what they are spent on with a view to seeing who benefits the most. Here, broadly speaking, one can say that the working classes alone benefit from unemployment payments, war pensions, old age pensions, widows' pensions, health services, education and housing subsidies, while the upper social stratum gets the Interest on the national and municipal debts, and mainly the benefit of what is spent on highways.
Altogether, if we add these things up and strike a balance we find that the working classes provide about 79 per cent. of the cost of the State services beneficial to themselves.
This rather effectively silences those who would tell us that the rich are being despoiled to provide for the poor, and Mr Clark's figures are confirmed by the fact that over a period of years very little change has actually taken place in the distribution of the national wealth.
In 1911-13 it was computed that 5 per cent. of the inhabitants of this country over 25 years of age bad between them cornered 85-90 per cent. of the total wealth, while in 1924-30 this was still about 80 per cent, and an analysis of the National Income over the same period of years will show equally little change in the manner it is distributed. Certainly taxation has resulted in some redistribution taking place during the last 20 or so years, but it is comparatively little, there actually being now considerably more multi-millionaires in this country than there were before the War.




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