All that is long passed, unless we have the temerity to compare such ancient skullduggery with reparations, extraterritoriality, charges for maintaining armies of occupation, absconding with property, grabbing of natural resources, control of arteries of trade and other modern techniques of conquest. It may be argued that even if taxation had an unsavory beginning it could have straightened itself out and become a decent and useful citizen. So, we must apply ourselves to the theory and practices of taxation to prove that it is in fact the kind of thing above described.First, as to method of collection, taxation falls into two categories, direct and indirect. Indirect taxes are so called because they reach the state by way of private collectors, while direct taxes arrive without bypass. The former levies are attached to goods and services before they reach the consumer, while the latter are in the main demands upon accumulations of wealth.
It will be seen that indirect taxation is a permission-to-live price. You cannot find in the marketplace a single satisfaction to which a number of these taxes are not attached, hidden in the price, and you are under compulsion either to pay them or go without; since going without amounts to depriving yourself of the meaning of life, or even of life itself, you pay.
The inevitability of this charge on existence is expressed in the popular association of death and taxes. And it is this very characteristic that commends indirect taxation to the state, so that when you examine the prices of things you live by, you are astounded by the disproportion between the cost of production and the charge for permission to buy. Somebody has put the number of taxes carried by a loaf of bread at over one hundred; obviously, some are not ascertainable, for it would be impossible to allocate to each loaf its share of taxes on the broom used in the bakery, on the axle-grease used on the delivery wagon.
Whiskey is perhaps the most notorious example of the way products have been transmuted from satisfactions into tax gatherers. The manufacturing cost of a gallon of whiskey, for which the consumer pays around twenty dollars, is less than a half-dollar; the spread is partly accounted for in the costs of distribution, but most of the money which passes over the counter goes to maintain city, county, state and national officials.
The hue and cry over the cost of living would make more sense if it were directed at taxation, the largest single item in the cost. It should be noted too that though the cost-of-living problem affects mainly the poor, yet it is on this segment of society that the incidence of indirect taxation falls most heavily. This is necessarily so; since those in the lower earning brackets constitute the major portion of society they must account for the greatest share of consumption, and therefore for the greatest share of taxation. The state recognizes this fact in levying on goods of widest use. A tax on salt, no matter how small comparatively, yields much more than a tax on diamonds, and is of greater significance socially and economically.
It is not the size of the yield, nor the certainty of collection, which gives indirect taxation preeminence in the state's scheme of appropriation. Its most commendable quality is that of being surreptitious. It is taking, so to speak, while the victim is not looking. Those who strain themselves to give taxation a moral character are under obligation to explain the state's preoccupation with hiding taxes in the price of goods. Is there a confession of guilt in that? In recent years, in its search for additional revenue, the state has been tinkering with a sales tax, an outright and unequivocal permission-to-live price; wiser solons have opposed this measure on the ground of political expediency. Why? If the state serves a good purpose the producers will hardly object to paying its keep.
Follow an importation of raw silk, from importer to cleaner, to spinner, to weaver, to finisher, to manufacturer, to wholesaler, to retailer, each one adding his mark-up to the price paid his predecessor, and you will see that in the price milady pays for her gown there is much more than the tariff schedule demands. This fact alone helps to make merchants and manufacturers indifferent to the evils of protection.Merely as a matter of method, not with deliberate intent, indirect taxation yields a profit of proportions to private collectors, and for this reason opposition to the levies could hardly be expected from that corner. When the tax is paid in advance of the sale it becomes an element of cost which must be added to all other costs in computing price. As the expected profit is a percentage of the total outlay, it will be seen that the tax itself becomes a source of gain. Where the merchandise must pass through the hands of several processors and distributors, the profits pyramided on the tax can run up to as much as, if not more than, the amount collected by the state. The consumer pays the tax plus the compounded profits. Particularly notorious in this regard are customs duties.
Tacit support for indirect taxation arises from another byproduct. Where a considerable outlay in taxes is a prerequisite for engaging in a business, large accumulations of capital have a distinct competitive advantage, and these capitalists could hardly be expected to advocate a lowering of the taxes. Any farmer can make whiskey, and many of them do; but the necessary investment in revenue stamps and various license fees makes the opening of a distillery and the organizing of distributive agencies a business only for large capital.
Taxation has forced the individually owned and congenial grog shop to give way to the palatial bar under mortgage to the brewery or distillery. Likewise, the manufacture of cigarettes is concentrated in the hands of a few giant corporations by the help of our tax system; nearly three-quarters of the retail price of a package of cigarettes represents an outlay in taxes. It would be strange indeed if these interests were to voice opposition to such indirect taxes (which they never do) and the uninformed, inarticulate and unorganized consumer is forced to pay the higher price resulting from limited competition.
Direct taxes differ from indirect taxes not only in the manner of collection but also in the more important fact that they cannot be passed on; those who pay them cannot demand reimbursement from others. In the main, the incidence of direct taxation falls on incomes and accumulations rather than on goods in the course of exchange. You are taxed on what you have, not on something you buy; on the proceeds of enterprise or the returns from services already rendered, not on anticipated revenue. Hence there is no way of shifting the burden. The payer has no recourse.
The clear-cut direct taxes are those levied on incomes, inheritances, gifts, land values. It will be seen that such appropriations lend themselves to soak-the-rich propaganda, and find support in the envy of the incompetent, the bitterness of poverty, the sense of injustice which our monopoly economy engenders. Direct taxation has been advocated since colonial times (along with universal suffrage), as the necessary implementation of democracy, as the essential instrument of "leveling."
The opposition of the rich to direct taxation added virulence to the reformers who plugged for it. In normal times the state is unable to overcome this well-knit, articulate, and resourceful opposition. But, when war or the need of ameliorating mass poverty strains the purse of the state to the limit, and further indirect impositions are impossible or threaten social unrest, the opposition must give way. The state never relinquishes entirely the prerogatives it acquires during an "emergency," and so, after a series of wars and depressions, direct taxation became a fixture of our fiscal policy, and those upon whom it falls must content themselves to whittling down the levies or trying to transfer them from shoulder to shoulder.