An Expenditure Tax
An Expenditure Tax
The idea examined in this book-- that the taxation of individuals should be based on their expenditure, and not on their income is by no means a new one. The case in equity for taxing people in accordance with what they consume rather than what they earn was succinctly put 300 years ago by Hobbes. It was re-stated, on rather different grounds, just over one hundred years ago in the Principles of Political EconomybyJohn Stuart Millwho argued the case at length on several occasions, particularly before the Select Committee on Income and Property Tax of 1861. Mill's advocacy was taken up by a row of distinguished economists like MarshallandPigouinEngland, Irving Fisher in the United StatesandLuigi EinaudiinItaly. There can be few ideas in the field of economics which are so revolutionary in their implications and yet can look back on so respectable an ancestry.
It is fair to add that the full implications of the case were unknown to the economists of earlier generations-- indeed could hardly have been revealed in their full vigour until the experience of our own generation with heavy and steeply progressive income tax rates together with the general progress of theoretical understanding combined to bring sharply into focus considerations which were completely unsuspected in earlier discussions.
Full exploration of the problem was delayed also by the persistent conviction that studying the merits of such a tax was largely an academic exercise-- it was taken for granted that the administrative difficulties involved in assessing people on their spending were too great for this 'ideal' system of taxation to be put into practice. ThusMill himself, having declared before the Select Committee that the only 'perfectly unexceptionable and just principle of income tax' is to 'exempt all savings', went on to say that the 'amount of saving cannot be got at in an individual case,' and all that a tax system could do in deference to the principle is to tax those incomes more leniently which can be presumed to give rise to more savings, since they are . . .