The Differential Tax

The first question which a practical man will ask of one who desires to restore private property is how are you going to do it without violence and injustice? At present, in the industrial world, the mass of those who produce do not own: they live on a wage. Even in the agricultural world most of those who used to be free men are caught in the mesh of usury, and are without institutions for maintaining their independence. How can you, without violence and injustice, change a state of society, however bad, which has crystallized so thoroughly, and is hard set in its mould?The answer to this main question is that the prime instrument for effecting the change is the Differential Tax.The principle of the Differential Tax is that a different proportion of taxation, as well as a different amount, may be applied to men in different circumstances. For instance, if you apply an income tax of zero to incomes under $2,000, of 5 per cent between $2,000 and $5,000 of 10 per cent between $5,000 and so on, that is a differential tax. Or again, if you charge an amount of $5 for taking out one license for a particular purpose, $15 for taking out two licenses, $50 for taking out three, and so on, you are applying a differential tax to licenses.There is nothing revolutionary today about the idea of the Differential Tax. We are all used to it and we all practice it. The trouble is that we do not practice it for the one really useful end it may serve, which is the better distribution of property. When a very rich man dies in England or in France today, half his property may go to the State, but the State does not use that windfall for the re-establishment, as owners, of men now destitute. It uses such capital sums to supplement its own income-expenditure. It spends the estate duties on salaries, social services, public works, and not upon financing the re-establishment of property which is the one thing it ought to do in the case of a tax specially aimed against excessive accumulation.The ways in which Differential Tax can be used to re-establish private property in the mass of men are various, according to the form of evil attacked. One obvious and primary way is to establish a Differential Tax upon the passage of property by sale: make it easier for the poor man to buy and the rich man to sell. Such a principle, applied to agricultural land, has already had excellent effects on certain parts of Europe, where the soil had fallen into few hands. When large property buys up small, let the tax be heavy. When small property buys fragments of large property and so helps to divide up property, let the tax be light and at last non-existent.In the same way Differential Tax can help to eliminate gradually—and, what is more important, to check at source—the growth of exaggerated distributing centers, big departmental stores and chain stores. The State grants a license, for instance, for the sale of tobacco. It makes that license cheap for the small man who runs a tobacco store, and more and more expensive for the big store which only makes tobacco one of the items among the innumerable ones it sells. The State taxes the individual business such and such an amount. When a chain starts in several towns, or in many places of the same large town, let each store in that chain be taxed progressively higher as the number of the stores in the chain increases until, at a certain limit, the tax makes the growth of chain stores impossible.The same principle would apply to financial corporations, the tax falling in inverse proportion to the number of their bona fide members.A similar principle could be applied to one of the most powerful instruments for concentrating property in few hands, I mean advertisement. A certain area of advertisement, a certain frequency of repetition, paying so much let any abnormal increase thereof pay a larger sum. I have cited elsewhere the French tax which levies a few cents on every hoarding, but fails to distinguish between a sky sign as big as a house and a placard hung outside a window.There is no department of economic activity to which this principle of the Differential Tax cannot be applied. It may be just or necessary to limit the amount of a novel differential tax to new developments; to let, for instance, the large advertiser already possessed of certain spaces for his activities retain them without extra cost. The value or necessity of working gradually applies here as it does to everything. But let the principle be fairly stated, rendered familiar and maintained. Until quite recently, in the development of modern capitalism, the Differential Tax has not been applied at all save for the purpose of revenue, never for the purpose of construction. Now it is precisely for the purpose of construction that the Differential Tax is most valuable. It is especially valuable in the region of sale of property.But the principle carries with it a corollary which must not be shirked. We cannot apply the Differential Tax unless we have assessments of property. In very many countries such assessments are already the rule. Quinquennial assessments, for instance, showing the amount held by each citizen or family or business every five years, provide a basis for a just application of the Differential Tax to the sale and purchase of real estate.A man with an assessment of X dollars worth of real estate is in negotiation with a man with a quinquennial assessment of 10 (X) dollars. If the small man sells to the larger man let the bargain carry a tax of so much, but if the small man buys from the larger man let the transfer carry only half as much tax. This principle underlay the very wise provisions of the late Mr. George Wyndham’s great Land Act for Ireland. It took an imperfect form, a bonus being offered by the large man to the small man, but the underlying idea is sound, for the underlying idea is to break up the great estates and increase the number of small ones.There are two arguments against the use of the Differential Tax, arguments frequently repeated and of considerable weight—but not conclusive. The first argument is directed against the complexity of such a scheme, the second is based upon the ease of evading the tax.The answer to the first is that little novel machinery is required, nor any great added complexity to the existing fiscal arrangements of most countries. Thus, when it was argued recently in England that the Differential Tax on the sales of land would require widespread and detailed investigation into values and situation, it was at once answered that the Treasury was already in possession of the information. Under what is called Schedule A of the English Income Tax the Treasury knows every year what value of real estate is in the hands of what citizens. The figures are not published but they exist.As to evasion, that is a point which is repeated whenever any new tax is proposed. Obviously some taxes are easier to evade than others. The income tax and estate duty perhaps the easiest of all. But no evasion will take place if the penalties for evasion are sufficiently severe and the conditions sufficiently defined. Moreover the evasion of the Differential Tax in the great majority of cases is difficult. If the chain store be registered under various names, those cannot be unknown to the taxing authority, and what is more, the use of various false names would destroy half the efficacy of the chain. The department store cannot conceal the number of its departments and under a license system could not sell anything unknown to the taxing authorities. One fixed principle must certainly be maintained and will be the hardest of all to maintain, under the severe fiscal pressure which modern States suffer. That is the principle of earmarking the product of the Differential Tax for the purpose of starting the better distribution or property: for financing the same, for the granting of bonuses, for the founding of guaranteed corporations and the rest. The Differential Tax has a chief function to perform in the disintegrating of large accumulations and the consequent fostering of small accumulations. It has also a secondary task to perform, which is the allocation of its receipts to the main purpose of the whole scheme. In both cases it is a necessary instrument for the wider distribution of property which should be the aim of all sound social reform today.