Why is the government's favorite way to raise money arguably the most unjust and costly method for citizens?
In Chapter 8, “Tariffs for Revenue,” Henry George accepts, for the sake of argument, that the government needs revenue. He then uses this premise to launch a powerful critique of Indirect Taxes—of which revenue tariffs are a primary example—demonstrating that they are inherently more detrimental to society than Direct Taxes. His prime focus is revealing the insidious effects of this hidden method of taxation.
1. Indirect Taxes Obscure the True Burden 🌫️
The core danger of indirect taxes is their concealment.
Taxation Without Awareness: The tax is placed on the goods themselves and collected by the seller (importer or producer), who then passes the cost, plus a profit margin, on to the consumer. The consumer pays the tax without ever seeing a tax bill or consciously realizing the amount.
The Illusion of Freedom: Because the payment is voluntary—the consumer can theoretically choose not to buy the taxed item—people feel they are not being taxed heavily, making the government's work easier.
The Deception: George argues this is fundamentally an unmanly and cowardly form of tax collection, used by governments that fear revealing the true cost of their operations to their citizens.
2. They Violate the Principle of Equality (Regressive) ⚖️
Indirect taxes inherently violate the principle that taxes should be levied fairly, falling hardest on those least able to pay.
Disproportionate Burden: Taxes on consumption (like a revenue tariff on tea, sugar, or clothing) absorb a much larger portion of a poor family's income than a rich family's.
The Example: A poor laborer spends nearly all his wages on necessities, which bear the tax. A millionaire spends a small fraction of his wealth on those same taxed items. Thus, the poor pay a far greater percentage of their income than the rich, making the system regressive.
3. They Increase the Cost to the Consumer (The Multiplier) 📈
George emphasizes that the consumer always pays significantly more than the government receives. This inefficiency is a defining flaw of the indirect system.
The Cost-of-Collection Multiplier: The initial tax paid to the government is only the first layer. The cost of that tax is then multiplied as the goods pass through the distribution chain:
The importer/wholesaler must advance the tax money to the government.
They charge interest on the advanced tax money to the retailer.
The retailer charges profit on the entire cost, which includes the original tax and the accumulated interest.
The Waste: The consumer ends up paying the government's tax plus accumulated interest and profit on that tax, meaning a large portion of the cost paid by the public is pure waste that never reaches the public treasury.
4. They Corrupt Society and Breed Crime ⛓️
The secretive and complex nature of indirect taxes fosters corruption:
Smuggling: High duties incentivize smuggling and fraud, compelling the government to spend vast amounts on enforcement (customs officials, coast guards, etc.), which is another massive hidden expense.
Erosion of Morality: This system pits the government against honest trade and introduces temptations for both customs officials and merchants, leading to the general lowering of commercial morality.
Conclusion
Chapter 8, focusing on Tariffs for Revenue, concludes that indirect taxes are a poor fiscal choice because they are unjust, inefficient, and demoralizing. They are characterized by their secrecy, their regressive nature, and the vast disparity between what the public pays and what the government actually collects, making them "the very worst mode" of raising public funds.
Which do you consider a greater evil of indirect taxation: its regressivity (the unequal burden) or its secrecy (the hidden cost)?
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