Excise Taxes

¹⁷⁸ High taxes frequently afford a smaller revenue to government than moderate taxes=

• by reducing the consumption of taxed commodities, and
• by encouraging smuggling.

¹⁷⁹ When the reduction of revenue is caused by the reduction of consumption, the only remedy is to lower the tax.

¹⁸⁰ When the reduction of the revenue is caused by smuggling, it may be remedied by:

1. Reducing the temptation to smuggle

This temptation can only be reduced by lowering the tax.

2. Increasing the difficulty of smuggling

The difficulty of smuggling can be increased only by establishing a better system of administration to prevent it.

¹⁸¹ The excise laws obstruct and embarrass the smuggler more effectively than the customs laws.

By introducing into the customs a system of administration similar to that of the excise, the difficulty of smuggling might be very much increased. This change can be very easily done.

¹⁸² The importer of commodities liable to any customs duties could be allowed to carry them to his own private warehouse or to lodge them in a warehouse at:

• his own expence, or
• public expence, but under the key of the custom-house officer and never to be opened but in his presence.

If the merchant carried them to his own warehouse:

• the duties would be immediately paid and never drawn back, and
• that warehouse would be always subject to the custom-house officer’s visit and examination.

He will ascertain if the amount in it matched the duty paid. If he carried them to the public warehouse, no duty would be paid until they were taken out for home consumption. If taken out for exportation to be duty free, proper security would always given that they will be really exported.

The dealers in those commodities are always:

• subject to the custom-house officer’s visit and examination, and
• obliged to justify by proper certificates the payment of the duty on the goods in their shops or warehouses.

The excise-duties on imported rum are presently levied this way.

The system could extended to all duties on imported goods, provided that those duties were like the excise duties.

• Those duties should be confined to a few sorts of goods of the most general use and consumption.

If they were extended to all goods, as at present, there would be not enough public warehouses.

• The merchant would be forced to trust very delicate and perishable goods only into his own warehouse.

¹⁸³ Taxation would always be an instrument of revenue and never of monopoly if:

• such a system could prevent smuggling, and
• every duty was occasionally altered to afford the greatest revenue to the state.

A revenue equal to the present net customs revenue might be drawn from the import duties of a few sorts of goods of the most general use and consumption.

Customs duties might gain the same simplicity, certainty, and precision of excise duties.

Under this system, the revenue lost by the re-entry of goods which have been drawn back, would be all saved.

• This savings would alone be very big.

If it were added the abolition of all export bounties on home produce, where those bounties were not in drawbacks of excise duties, the net customs revenue might be equal to what it was before.

Price Deflation

¹⁸⁴ If by such a change of system, the public revenue suffered no loss, the country’s trade and manufactures would certainly gain a very big advantage.

This would render most commodities, including necessities and raw materials, perfectly free.

• It could be transported to and from all parts of the world with every advantage.

The free importation of necessities reduces their price in the local market.

• This would reduce the money price of labour, without reducing its real recompense.

The value of money is in proportion to the quantity of necessities it will buy.

• The value of necessities is independent of the quantity of money which can be had for them.

The reduction in the money price of labour would be attended with a proportional reduction in the money price of all home manufactures.

• Home manufactures would gain some advantage in all foreign markets.

The price of some manufactures would be reduced in a still greater proportion by the free importation of raw materials.

If raw silk could be imported from China and India duty free, the silk manufacturers in England could greatly undersell those of France and Italy.

• There would be no need to prohibit the importation of foreign silks and velvets.

The cheapness of their goods would secure to our own workers:

• the possession of the home market, and
• a very great command of the foreign market.

Even the trade in the taxed commodities would be much more advantageous than at present.

If those commodities were delivered out of the public warehouse for foreign exportation and exempted from all taxes, their trade would be perfectly free.

• Under this system, the carrying trade would enjoy every possible advantage.

If those commodities were delivered out for home consumption, the importer would not need to pay the tax until he could sell his goods.

• He could always sell them cheaper than if he had to pay it at importation.

Under the same taxes, the foreign trade of consumption might be done with much more advantage.

¹⁸⁵ Sir Robert Walpole tried to establish an excise scheme on wine and tobacco similar to my proposal.

• It was supposed to be an introduction of a more extensive scheme of the same kind.

Faction and smuggling merchants raised a violent and unjust clamour against that bill, so he dropped it.

• None of his successors dared to resume the project from fear of exciting another clamour.

¹⁸⁶ The duties on imported foreign luxuries for home consumption sometimes fall on the poor.

They fall principally on the middle or upper-middle class.

Examples of such duties are those on foreign wines, coffee, chocolate, tea, sugar, etc.

¹⁸⁷ The duties on the cheaper luxuries for home consumption fall equally on all classes in proportion to their respective expence.

The poor pay the duties on malt, hops, beer, and ale, according to their own consumption. The rich pay those duties according to their own consumption and that of their servants.

¹⁸⁸ The whole consumption of people in the lower and lower-middle classes are much greater in quantity and value than the consumption of those of the middle and upper-middle classes.

The whole expence of the lower class is much greater than that of the upper classes.

1. Almost all the capital of every country is distributed among the lower class as wages of productive labour.

2. A big part of the revenue from rent and profits is distributed among the lower class as wages and maintenance of menial servants and unproductive labourers.

3. Some profits belong to the same rank as a revenue from the employment of their small capitals.

The combined profits made by all the small shopkeepers and retailers is very big. It makes a very big part of the annual produce.

4. Some rent belongs to the same rank.

A big part belongs to the lower-middle class. A small part belongs even to the lower class. Common labourers sometimes possess an acre or two of land.

The expence of those lower classes are very small individually. But collectively they make the largest portion of their society’s total expence. What remains of the national annual produce for the consumption of the upper class are always much less in quantity and value.

The taxes on expence which fall on the upper class are on the smaller portion of the annual produce.

Such taxes are likely to be much less productive than:

• those which fall indifferently on the expence of all classes, and
• even those which fall chiefly on the expence of the lower clases or the larger portion of society’s annual produce

The excise on the materials and manufacture of home-made fermented liquors is the most productive of all the taxes on expence. This excise falls on the expence of the common people. In the year ending July 5, 1775, the gross produce of this excise was 3,341,837 pounds.

¹⁸⁹ It must always be remembered, that it is the luxurious and not the necessary expence of the lower class that should be taxed.

The final payment of any tax on their necessary expence would all fall on the upper class. It would fall on the smaller portion of the annual produce, not on the greater portion.

Such a tax must either raise wages or lessen the demand for labour.

It could not raise wages without throwing the final payment of the tax on the upper class. It could not lessen the demand for labour without lessening the national annual produce.

The national annual produce is the fund from which all taxes must be finally paid.

However, as this tax reduced the demand for labour, it must always raise wages higher than they otherwise would be.

The final payment of this enhancement of wages must always fall on the upper class.