in which tariffs originate is that of raising revenue. The idea of using them for protection is an afterthought. And before considering the protective function of tariffs it will be well to consider them as a means for collecting revenue.
Chapter 6 — Tariffs for Revenue
It is usually assumed, even by the opponents of protection, that tariffs should be maintained for revenue. Most of those who are commonly called free traders might more properly be called revenue tariff men. They object, not to the tariff, but only to its protective features, and propose, not to abolish it, but only to restrict it to revenue purposes. And if not useful for protection, the only justification for any tariff is that it is a good means of raising revenue. Let us inquire as to this.
Duties on imports are indirect taxes. Therefore the question whether a tariff is a good means of raising revenue involves the question whether indirect taxation is a good means of raising revenue.
As to ease and cheapness of collection indirect taxation is certainly not a good means of raising revenue. While there are direct taxes, such as taxes on real estate and taxes on legacies and successions, from which great revenues can easily and cheaply be collected, the only indirect taxes from which any considerable revenue can be obtained require large and expensive staffs of officials and the enforcement of vexatious and injurious regulations.
So with the collection of indirect taxes upon imports.
Land frontiers must be guarded and sea-coasts watched; imports must be forbidden except at certain places and under regulations which are always vexatious and frequently entail wasteful delays and expenses; consuls must be maintained all over the world, and no end of oaths required; vessels must be watched from the time they enter harbor until the time they leave, and everything landed from them examined, down to the trunks and satchels and sometimes the persons of passengers.
But in spite of prohibitions, restrictions, searchings, watchings, and swearings, indirect taxes on commodities are largely evaded, sometimes by the bribery of officials and sometimes by the adoption of methods for eluding their vigilance, which though costly in themselves, cost less than the taxes. All these costs, however, whether borne by the government or by the first payers (or evaders) of the taxes, together with the increased charges due to increased prices, finally fall on consumers, and thus this method of taxation is extremely wasteful, taking from the people much more than the government obtains.
A still more important objection to indirect taxation is that when imposed on articles of general use (and it is only from such articles that large revenues can be had) it bears with far greater weight on the poor than on the rich. Since such taxation falls on people not according to what they have, but according to what they consume, it is heaviest on those whose consumption is largest in proportion to their means. As much sugar is needed to sweeten a cup of tea for a working girl as for the richest lady in the land, but the proportion of their means which a tax on sugar compels each to contribute to the government is in the case of the one much greater than in the case of the other. So it is with all taxes that increase the cost of articles of general consumption. They bear far more heavily on married men than on bachelors; on those who have children than on those who have none; on those barely able to support their families than on those whose incomes leave them a large surplus. If the millionaire chooses to live closely he need pay no more of these indirect taxes than the mechanic.
Even if cheaper articles were taxed at no higher rates than the more costly, such taxation would be grossly unjust; but in indirect taxation there is always a tendency to impose heavier taxes on the cheaper articles used by all than on the more costly articles used only by the rich. This arises from the necessities of the case. Not only do the larger amounts of articles of common consumption afford a wider basis for large revenues than the smaller amounts of more costly articles, but taxes imposed on them cannot be so easily evaded. Even where discrimination of this kind is not made in the imposition of indirect taxation, it arises in its collection. Specific taxes fall more heavily upon the cheaper than the costlier grades of goods, while even in the case of ad valorem taxes, under-valuation and evasion are easier in regard to the more valuable grades.
That indirect taxes thus bear far more heavily on the poor than on the rich is undoubtedly one of the reasons why they have so readily been adopted. The rich are ever the powerful, and under all forms of government have most influence in forming public opinion and framing laws, while the poor are ever the voiceless. And while indirect taxation causes no loss to those who first pay it, it is collected in such insidious ways from those who finally pay it that they do not realize it. It thus affords the best means of getting the largest revenues from the body of the people with the least remonstrance against the amount collected or the uses to which it is put. This is the main reason that has induced governments to resort so largely to indirect taxation. A direct tax, where its justice and necessity are not clear, provokes outcry and opposition which may at times rise to successful resistance; but not only do those indirectly taxed seldom realize it, but it is extremely difficult for them to refuse payment. They are not called on at set times to pay definite sums to government agents, but the tax becomes indistinguishably blended with the cost of the goods they buy. When it reaches those who must finally pay it, together with all costs and profits of collection, it is not a tax yet to be paid, but a tax which has already been paid, some time ago, and many removes back, and which cannot be separated from other elements which go to make up the cost of goods. There is no choice save to pay the tax or go without the goods.
If a tax-gatherer stood at the door of every store and levied a tax of twenty-five percent on every article bought, there would quickly be outcry; but the very people who would fight rather than pay a tax like this, will uncomplainingly pay higher taxes when they are collected by storekeepers in increased prices.
It is no wonder that princes and ministers anxious to make their revenues as large as possible should prefer a method that enables them to "pluck the goose without making it cry," nor is it wonderful that this preference should be shared by those who get control of popular governments; but the reason which renders indirect taxes so agreeable to those who levy taxes is a sufficient reason why a people jealous of their liberties should insist that taxes levied for revenue only should be direct, not indirect.
It is not merely the ease with which indirect taxes can be collected that urges to their adoption. Indirect taxes always enlist active private interests in their favor. The first rude device for making the collection of taxes easier to the governing power is to let them out to farm. Under this system, which existed in France up to the Revolution, persons called farmers of the revenue buy the privilege of collecting certain taxes and make their profits, frequently very large, out of the greater amount which their vigilance and extortion enable them to collect. The system of indirect taxation is essentially of the same nature.
The tendency of the restrictions and regulations necessary for the collection of indirect taxes is to concentrate business and give large capital an advantage. But even in the absence of such regulations indirect taxation tends to concentration. Indirect taxes add to the price of goods not only the tax itself but also the profit upon the tax. The need of larger capital for dealing in goods that have been enhanced in cost by taxation, the restrictions imposed on trade to secure the collection of the tax, and the better opportunities which those who do business on a large scale have of managing the payment or evading the tax, tend to concentrate business, and, by checking competition, to permit large profits, which must ultimately be paid by consumers. Thus the first payers of indirect taxes are generally not merely indifferent to the tax, but regard it with favor.
That indirect taxation is of the nature of farming the revenue to private parties is shown by the fact that those who pay such taxes to the government seldom or never ask for their reduction or repeal, but on the contrary generally oppose such propositions. The manufacturers and dealers in tobacco and cigars have never striven to secure any reduction in the heavy taxes on those articles, and the importers who pay directly the immense sums collected by our customs-houses have never grumbled at the duties, however they may grumble at the manner of their collection.
That indirect taxes may sometimes serve purposes other than the raising of revenue I do not deny. The license taxes exacted from the sellers of liquor may be defended on the ground that they diminish the number of saloons and lessen a traffic injurious to public morals. And so taxes on tobacco and spirits may be defended on the ground that the smoking of tobacco and the drinking of spirits are injurious vices, which may be lessened by making tobacco and spirits more expensive, so that (except the rich) those who smoke may be compelled to smoke poorer tobacco, and those who drink to drink viler liquor. But merely as a means of raising revenue, it is clear that indirect taxes are to be condemned. Since they cost far more than they yield, bear with the greatest weight upon those least able to pay, add to corruptive influences, and lessen the control of the people over their government.
If we do not need a tariff for protection we need no tariff at all, and for the purpose of raising revenue should resort to some system which will not tax the mechanic as heavily as the millionaire, and will not call on the man who rears a family to pay on that account more than the man who shirks his natural obligation, and leaves some woman whom in the scheme of nature it was intended that he should support, to take care of herself as best she can.