Page:Encyclopædia Britannica, Ninth Edition, v. 9.djvu/196

186 FINANCE bills was made. But the residue of the means from which the interest on the annual increment of debt was payable was derived from taxes on consumption and stamps, i.e., from indirect sources. The actual debt created during the American war was nearly 97i millions. The sum received from loans was 75^ millions, and the annual sum needed for the interest on this debt was a little over 4 millions. In 1786 Pitt, after inviting the attention of parliament to the magnitude of the debt, and the necessity for reducing it, proposed to revive and make permanent the machinery of a sinking fund. The minister had taken counsel with Dr Price, who for some years previously had been lamenting the downfall of Walpole s sinking fund, and urging that by borrowing at simple interest great accumulations might be formed at compound interest, and that thereby the debt would be ultimately extinguished. Pitt s proposal was that the exchequer should pay a million annually in quarterly instalments to six eminent persons, who should invest the sum in the purchase of stock, and that this payment should have precedence over any other issues of the exchequer, except the interest on the debt. He intended that the interest on this fund should accumulate with the annual receipts, and he calculated that in twenty-eight years the fund, with accumulated interest, would yield an annual surplus of four millions. When this sum was reached, the interest was to be at the disposal of parliament. An amendment was proposed on Pitt s proposal by Fox, to the effect that when at any future time a loan was pro posed, say of six millions, the commissioners, if they had sufficient funds at their disposal, might purchase a sixth of the stock. It was accepted by Pitt, and formed the process by which, during the great Continental war, the commissioners of the sinking fund continued to lend their balances and the annual sum which they received from the Government to the state, thus piling up an imaginary obligation of the nation to itself, which seemed to extinguish public debt, but which would certainly be treated as a fiction, as indeed came to be the case, when the great war was over. The efficiency of the sinking fund consisted entirely in the extent to which, by requiring an income which should be in excess of expenditure, it necessarily diminished debt. Its delusiveness arose from the fact that the actual funds which it had accumulated were actually invaded under the pressure of war-taxation and expenditure, and that its nominal continuance was accompanied by the creation of a fictitious loan, the process of which was burdened by the expenses of an office. Other schemes were adopted subsequently, more or less similar to the old sinking funds, in later times, to which we shall allude presently. For a short time before 1793, when England began her longest and costliest war, the English funds rose greatly in value, chiefly, it is said, because they were con ceived to be the safest investment which could be found for those who were flying from the Continent in dread of actual or prospective violence. But immediately on the outbreak of hostilities with France the country was put to the severest straits. In the year 1793 a serious com mercial panic occurred, accompanied with an unparalleled number of bankruptcies. Loans of enormous amounts were raised as the war went on ; the current expenses of Government were met by credits on the bank ; and at last, on February 27, 1797, the Privy Council ordered the Bank of England to suspend cash payments. For twenty-three years afterwards the suspension was continued. Up to 1796 the additional burdens which were imposed to meet the interest on loans and to defray some of the annual charges of the war were raised almost entirely from indirect taxation on consumption, sometimes on production, but not on property. But in this year Pitt proposed to levy duties on the succession to real and personal estate. Knowing that his budget would meet with hostile criticism, he determined to divide his bill, and impose the projected tax on real and personal estate by separate enactments. The tax on personalty was accepted with very little re monstrance, though a few solid objections were urged against the measure. But the country party strongly resented the proposed tax on real estate. They absented themselves from the House, and nearly left Pitt in a minority. The minister felt that he must give way to them, and postponed his bill for granting duties on realty in succession for three months, thus virtually abandoning the project. The discrepancy, therefore, between the liabilities of real and personal estate, when they become the subject of devise or succession, has never been remedied. It is true that an attempt was made by Lord Lauderdale to suspend the operation of the Act which had been passed, till such time as the anomaly might be rectified. But he was ruled to be out of order, on the ground that no bill after it has been passed can be repealed or modified in the same session. Like many similar Acts, the legacy duty was tentative, and the rates of tax were progressively raised according to the proximity of blood in which the legatee or heir stood to the testator or ancestor. In order to compel the making of wills, and to obviate the risk that persons might avoid a testamentary disposition with a view to escape the legacy duties, exceptional probate duty was imposed on those estates which were administered without a will. Apart from the manifest inequality of a tax which omitted to charge succession duty upon real estate, especially at a time in which the value of such estate was rapidly rising, objections were alleged against the tax en the ground that it was likely to inflict inconvenience or injury in the case of persons engaged in trade by the com pulsory exposure of their circumstances, and because it was sure to breed discontent. More subtle was the objection taken by Lord Lauderdale, and afterwards by Mr Bicardo, on the ground that it was a tax on capital, and therefore injurious to the development of wealth. The answer to this objection is, however, simple. It is impossible for a Government to tax that which cannot be saved, but must be consumed in order that industry may be continuous. Now that which may be saved is either consumed in superfluities, and therefore may be made the subject of direct or indirect taxation, as the case may be, or is saved and employed as capital, or accumulated as reserve. In other words, not only is it not true that capital should not be taxed, but it is true that nothing but that which is or may be capital can be taxed. More valid than this objection to legacy duties is that which can be alleged from the fact that, under existing circumstances, it is easy for the wealthy to evade the tax by a donatio inter vivos. The attempt to evade duties or liabilities on successions is a very old practice in England. One of the earliest, after the Great Charter perhaps the earliest, written law in English history, the Statute of Marlebridge, is intended to defeat attempts to evade feudal dues by such donations. There can be no doubt that similar practices prevail at present. Nor can they be pre vented until voluntary gifts and transfers are registered, published, and rendered traceable at last to the officers of the revenue, who might have powers to visit with penalties in addition to ordinary duties all conveyances and transfers made at such a date previous to the death of the donor as would indicate that the gift could reasonably be interpreted to imply an intention of evading legacy duty. But at the same time it cannot be stated too often that, first, it is not always the best system of taxation which must be adopted, but the best possible system, since communities require to