Churchill's "Tax Switch"

I've been doing some research on the details of the 1909 budget and how it was promoted and received. And one of the most fantastic resources I've found, which anyone interested in the debate between "economic liberalism" and "social liberalism" ought to have a look at is the Project Gutenburg online edition of Winston Churchill's "Liberalism and the Social Problem".

It is the transcript of a series of speeches and essays given and written by Churchill himself between 1906 and late 1909 when he was President of the Board of Trade in Asquith's government and chief attack dog it seems for Lloyd-George's liberal reform agenda. They give a great insight into what that government was attempting to do, and the attitudes of those who opposed them.

In one passage, from "The Spirit of the Budget" given at Leicester on Sept 5th 1909, Winston explains the new ethos of taxation the government is trying to introduce. No longer will tax-assessors merely ask "how much have you got" and take a proportion, but also "how did you get it" and taxes may vary based on whether you gained that wealth by foul means or fair:

That is the main aspect of the Budget to which I wish to draw your attention. But there is another significance of the highest importance which attaches to the Budget. I mean the new attitude of the State towards wealth. Formerly the only question of the tax-gatherer was, "How much have you got?" We ask that question still, and there is a general feeling, recognised as just by all parties, that the rate of taxation should be greater for large incomes than for small. As to how much greater, parties are no doubt in dispute. But now a new question has arisen. We do not only ask to-day, "How much have you got?" we also ask, "How did you get it? Did you earn it by yourself, or has it just been left you by others? Was it gained by processes which are in themselves beneficial to the community in general, or was it gained by processes which have done no [378]good to any one, but only harm? Was it gained by the enterprise and capacity necessary to found a business, or merely by squeezing and bleeding the owner and founder of the business? Was it gained by supplying the capital which industry needs, or by denying, except at an extortionate price, the land which industry requires? Was it derived from active reproductive processes, or merely by squatting on some piece of necessary land till enterprise and labour, and national interests and municipal interests, had to buy you out at fifty times the agricultural value? Was it gained from opening new minerals to the service of man, or by drawing a mining royalty from the toil and adventure of others? Was it gained by the curious process of using political influence to convert an annual licence into a practical freehold and thereby pocketing a monopoly value which properly belongs to the State—how did you get it?" That is the new question which has been postulated and which is vibrating in penetrating repetition through the land.[20]

[379]It is a tremendous question, never previously in this country asked so plainly, a new idea, pregnant, formidable, full of life, that taxation should not only have regard to the volume of wealth, but, so far as possible, to the character of the processes of its origin. I do not wonder it has raised a great stir. I do not wonder that there are heart-searchings and angry words because that simple question, that modest proposal, which we see embodied in the new income-tax provisions, in the land taxes, in the licence duties, and in the tax on mining royalties—that modest proposal means, and can only mean, the refusal of the modern State to bow down unquestioningly before the authority of wealth. This refusal to treat all forms of wealth with equal deference, no matter what may have been the process by which it was acquired, is a strenuous assertion in a practical form, that there ought to be a constant relation between acquired wealth and useful service previously rendered, and that where no service, but rather disservice, is proved, then, whenever possible, the State should make a sensible difference in the taxes it is bound to impose.

It seems to me that this is a clear example of where the ethos of 1909 applies just as much today as it did then. Over the intervening century we have come to rely most on income and consumption taxes as if someone's salary or purchases are the best measure of their wealth and what they ought give and take to and from the wider community. But it's a lazy approximation. Policy makers in all parties are now recognizing, once again and possibly for the first time really since the People's Budget, that other factors are at play - whether someone is gaining by exploiting externalities or quasi-monopoly power.

Land taxes (that's taxes on all species of economic land) go part of the way and do neatly and automatically differentiate between wealth gained by promoting economic growth and that gained by riding on the back of others' economic needs, without making a moral or ideological judgement on whether someone's own efforts should be worth the reward they get.