Taxes Upon the Profit of Particular Employments explained

What happens

Themes in this chapter

• Role of Government

  Smith analyzes how government taxes on particular employments affect different economic agents, ultimately falling on consumers or landlords, and discusses the feasibility and fairness of such taxes.

• Social Class and Inequality

  The chapter highlights how uniform taxes on retailers favor large dealers over small ones, and how the personal taille discourages cultivation, harming farmers, landlords, and the public.

• Free Trade and Market Competition

  Smith argues that taxes on particular employments can reduce competition, leading to monopolies and higher prices for consumers, as seen with the proposed shop tax.

Characters to notice

• Great Britain

  Mentioned as the country imposing taxes on hawkers, pedlars, hackney coaches, chairs, and alehouse licenses, and later a tax on men servants.

• The French

  Referenced in the context of the personal taille and the Vingtieme tax in France.

• The Europeans

  Mentioned in the historical context of feudal government and the emancipation of bondmen across Europe.

• Holland

  Cited as an example where taxes on men and maid servants are taxes on expense, not stock.

• The Romans

  Implied in the reference to ancient poll-taxes on bondmen common all over Europe.

• The Masters

  Mentioned in the context of poll-taxes on slaves, where masters know the number of their slaves and pay accordingly.

Key passages

• “A tax, however, upon the profits of stock employed in any particular branch of trade, can never fall finally upon the dealers ... but always upon the consumers, who must be obliged to pay in the price of the goods the tax which the dealer advances; and generally with some overcharge.”

  A tax on profits from a specific trade is never ultimately paid by the traders themselves, but by consumers through higher prices, often with an extra markup.

  Smith explains the incidence of taxes on particular trades.

• “When a tax is imposed upon the profits of stock in a particular branch of trade, the traders are all careful to bring no more goods to market than what they can sell at a price sufficient to reimburse them for advancing the tax.”

  When a tax is levied on a specific trade, traders limit supply to ensure prices cover the tax, shifting the burden to consumers.

  Smith describes the market response to such taxes.

• “But when a tax is imposed upon the profits of stock employed in agriculture, it is not the interest of the farmers to withdraw any part of their stock from that employment.”

  Unlike taxes on trade, taxes on agricultural profits do not lead farmers to reduce their stock, as they need it to cultivate their land and pay rent.

  Smith contrasts the effects of taxes on trade versus agriculture.

• “The farmer, however, must have his reasonable profit as well as every other dealer, otherwise he must give up the trade. After the imposition of a tax of this kind, he can get this reasonable profit only by paying less rent to the landlord.”

  Farmers need a normal profit; after a tax, they can only achieve this by reducing the rent they pay to landlords.

  Smith explains how agricultural taxes ultimately fall on landlords.

• “Every tax, however, is to the person who pays it a badge, not of slavery, but of liberty. It denotes that he is subject to government, indeed, but that, as he has some property, he cannot himself be the property of a master.”

  Paying a tax is a sign of freedom, not servitude, because it shows one owns property and is not owned by another.

  Smith distinguishes poll-taxes on freemen from those on slaves.