Tax is a term wide enough to include all payments imposed by the government of a state on the persons and property within its jurisdiction. The revenue of a state is often derived in part from property held and managed by public authorities: the silver mines of Laurium belonged to the Athenian republic; and in the middle ages the king of England drew a large income from his crown-lands. Again, the revenue of a state is derived in part from payments for services performed—from the fees paid by suitors in the courts, the profits of the post-office, &c. If an adequate income could be obtained from these sources, it would not be necessary to levy taxes at all; but no modern government has been able to subsist without taxation. In England the usage of six hundred years has established the rule that taxes are not to be levied unless with consent of parliament; and the House of Commons, as representing the general body of taxpayers, has taken the lead in voting money to the government, and in pointing out the ways and means by which the money is to be raised. It is the 'power of the purse' which makes the House of Commons politically supreme. The general principles to be applied by a taxing authority are tolerably plain and obvious. Taxes should be productive; it is not good policy to harass any interest for the sake of a small gain. They ought to be easily collected; it is not wise to allow the expenses of collection to eat up the tax. They ought to be just; that is to say, the sacrifice demanded from the individual citizen should be proportioned to his means. But abstract justice must be largely qualified by regard for usage; any sudden change in the incidence of taxation causes a disturbance of business, and so tends to diminish the wealth of the community. The chief object to be kept in view is the raising of the revenue required for public purposes, but taxation may be used for other ends. For example, taxes on intoxicating liquor and other luxuries are often defended on the ground that they discourage and restrict the sale of the articles taxed. Protectionists advocate high customs duties for the purpose of excluding foreign goods from competition with native industry. There are also many politicians who think that taxation may be used to correct social inequalities and to undo the effect of what seem to them to be unjust laws. The disciples of Mr Henry George would nationalise the land by taxing the owners at the rate of 20s. in the pound. Graduated taxation is recommended on the ground of abstract justice; it is suggested, for instance, that the income-tax and succession duty on an estate of £10,000 a year should be ten times as heavy as on an estate of £1000 a year. Schemes of this kind are attended by considerable practical difficulties; for high taxes lead to evasion and concealment, and rich men may even be tempted to remove themselves and their capital to another country.
Direct taxes (income-tax and succession duty for example) are paid by a person who cannot shift the burden of payment to another; indirect taxes (customs and excise for example) are paid by one person, while the burden falls on another. The duty on tea is paid by the importer, but he raises his price to cover the duty; it is therefore in fact paid by the consumer. Direct taxation is preferable, because it is levied on property, and can be adapted to the taxpayer's means. Indirect taxation is more easily raised; labouring people especially object to be called upon to pay money, while they are hardly conscious of the large contribution they make to the revenue in the shape of tea-duty and tobacco-duty. Where a government relies on customs and excise duties, it is good policy to refrain from taxing the necessaries of life and the raw materials of industry, and to put the duties on articles of luxury, such as beer and spirits, or tea and coffee. The amount of such duties must be fixed with care; for a high duty checks consumption, a low duty encourages it; for this reason a high duty is often less productive than a low one. Besides the taxes imposed by a national government (the Queen's taxes, as they are called in England) local authorities are usually permitted to levy rates and duties. In some countries octroi or import duties are paid on goods brought into a town; but the octroi is even more objectionable than a duty on foreign produce, inasmuch as it tends to discourage trade between different parts of the same country.
In taxation, as in other matters, the nations of modern Europe have followed closely the precedents of the Roman empire. The revenue of the emperor was raised by means of a tributum or land-tax, customs duties varying from one-fortieth to one-eighth of the value of goods imported, excise duties on certain trades, and a tax on legacies and successions. On the fall of the empire the prevalence of feudal ideas led to a complicated system of territorial exactions; the towns were able to purchase their freedom, but the peasantry were grievously burdened. The formation of strong national governments brought little relief to the people, except when, as in England, there was a representative body strong enough to limit the demands of royal power. France under Louis XIV. may be quoted as a typical example of the evils caused by unjust taxation, unjust exemption of privileged classes, and a bad system of collection; the taxes were farmed out to private speculators, and the necessaries of life were rendered outrageously dear; the salt-tax especially is always named among the worst abuses of the old régime. The economists of the 18th century recalled the minds of statesmen to true principles, while practical reformers like Turgot showed them 'how to pluck the goose without making it cry.' Since the revolt of the English colonies in America (a revolt caused by an impolitic attempt to tax self-governing communities without their consent), and the abolition of feudalism in France at the Revolution, the revenue laws of civilised countries have been greatly altered and improved. In the United Kingdom customs duties are now levied on a few articles, none of which can be described as necessaries; excise duties, once highly unpopular, are levied only on intoxicating liquor, and on some more or less privileged trades and professions; the income and property tax, remodelled by Sir R. Peel in 1842, is fairer and more searching than the old land-tax; the probate and succession duties help to relieve trade and industry at the expense of realised property. Complaints of the incidence of taxation are still very common, and no political question is more keenly discussed. There is much difference of opinion as to land, some contending that land-values should be more heavily taxed, others again maintaining that the land is unfairly burdened, and that personal property should be made to contribute to local rates.
For particulars of the revenue of modern governments, see the Statesman's Yearbook and the works there referred to; also the articles in this work on the various countries (Great Britain, United States, &c.). Adam Smith and Ricardo are still the highest English authorities on the principles of taxation. See also A. J. Wilson's Resources of Modern Countries (1878); Goschen on Local Taxation (1873); S. Dowell, Taxation and Taxes in England from the Earliest Times (2d ed. 4 vols. 1888); works on the law of taxation in the United States by Burroughs (1876) and Cooley (1877); Boutwell, Taxation System of United States (1863); R. T. Ely, Taxation in America (1888); J. Dean Goss, The History of Tariff Administration in the United States (1891); French works by Parieu (1866) and Roussel (1883); German works by Schäffle (1880), Roscher (1886), Meyer (1884), Mangoldt (1886); also works noted at POLITICAL ECONOMY, and the articles on Aids, Benevolence, Budget, Corn Laws, Customs Duties, Excise, Free Trade, Income-tax, Land Laws, Legacy, National Debt, Poor-laws, Protection, Smuggling, Tonnage and Poundage, &c.