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Authors: Norman Stone
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inflation, but these measures did not work, since neither the Tsarist régime nor the Provisional Government had the popular base that alone would have enabled them to demand sacrifices.
Taxation, 7 for instance, was barely increased. Before 1914, it had been mainly indirect, and, despite legends to the contrary, relatively trivial. One-fifth of the budget revenue had come from indirect taxes before the war, less than one tenth from direct taxes (mainly on land and property); most of the rest had come from State monopoly enterprises—spirits on the one side, railways on the other. The war brought havoc to the system, since expenses were in ludicrous disproportion to receipts. Yet the government had itself abolished the trade in spirits, which gave it one-third of its revenue before the war; and shrank from imposing taxes on matches, sugar, kerosine to make up. It was only towards the end of 1915 that a variety of such indirect taxes came to make up the loss caused by abandonment of the trade in spirits; and it is thought that the agricultural community gained roughly 1,000 million roubles from prohibition.
It was clearly desirable to substitute a direct tax on income for these indirect taxes. But the government shrank from operating such taxes. An income-tax would hit the section of the community that would invest its savings in industry, or government loan; and would thus merely ensure that the money would reach the government by a roundabout bureaucratic route instead of the simple route through the banking system. In any case, in a country where most people, being peasants, kept their own books and so could not be properly reviewed for purposes of direct taxation, the operation of direct taxes would demand a vast bureaucratic machine that could only be very expensive, and possibly counter-productive. * These arguments were deployed, with effect, by the liberal economists and the propertied classes generally. Much the same arguments were used against the introduction of a tax on excess profits, such as was being gradually introduced in other countries. It was no doubt true that some businesses were making large profits. But it was also true that the government requiredconsiderable enterprise on its suppliers’ behalf, and should therefore be prepared to reward them. Moreover, excess-profits had to cover conversion of industry to war-work, whether directly or through investment in the Stock Exchange; and they would also have to cover the post-war reconversion of industry, and the period of excess-loss that would automatically follow the collapse of the boom. In other words, whatever the demagogic advantages of excess-profits-taxes, they could be damaging to business. It is true that the British operated an ostensibly effective wartime excess-profits-duty. But they had to do so with an allowance for post-war excess-losses; and when these duly came, after 1920, many of the excess-profits-taxes had to be reimbursed. Sir Josiah Stamp, who had been responsible for their operation, regarded the whole enterprise as little more than a forced loan from business to government, and felt that it had quite possibly made a loss. 9 These considerations counted for much in Russia, and direct taxation was never more than a gesture. An income tax was introduced in 1916. It took ten per cent of incomes greater than 400,000 roubles per annum. An excess-profits-duty was also brought in at the same time, again with generous allowances. The income tax gave 130 million roubles, the excess-profits-due, 56 million: together, less than enough to pay for a week-end of war. *
In the circumstances, the only way of connecting wartime expenditure with the nation’s wealth appeared to be loan. 10 The Tsarist régime launched six war-loans, with a nominal value of 8,000 million roubles, and the Provisional Government launched a seventh, the Liberty Loan, for 4,000 million: in theory, as effective a way of sucking back excess paper-money as taxation, and
Taxation, 7 for instance, was barely increased. Before 1914, it had been mainly indirect, and, despite legends to the contrary, relatively trivial. One-fifth of the budget revenue had come from indirect taxes before the war, less than one tenth from direct taxes (mainly on land and property); most of the rest had come from State monopoly enterprises—spirits on the one side, railways on the other. The war brought havoc to the system, since expenses were in ludicrous disproportion to receipts. Yet the government had itself abolished the trade in spirits, which gave it one-third of its revenue before the war; and shrank from imposing taxes on matches, sugar, kerosine to make up. It was only towards the end of 1915 that a variety of such indirect taxes came to make up the loss caused by abandonment of the trade in spirits; and it is thought that the agricultural community gained roughly 1,000 million roubles from prohibition.
It was clearly desirable to substitute a direct tax on income for these indirect taxes. But the government shrank from operating such taxes. An income-tax would hit the section of the community that would invest its savings in industry, or government loan; and would thus merely ensure that the money would reach the government by a roundabout bureaucratic route instead of the simple route through the banking system. In any case, in a country where most people, being peasants, kept their own books and so could not be properly reviewed for purposes of direct taxation, the operation of direct taxes would demand a vast bureaucratic machine that could only be very expensive, and possibly counter-productive. * These arguments were deployed, with effect, by the liberal economists and the propertied classes generally. Much the same arguments were used against the introduction of a tax on excess profits, such as was being gradually introduced in other countries. It was no doubt true that some businesses were making large profits. But it was also true that the government requiredconsiderable enterprise on its suppliers’ behalf, and should therefore be prepared to reward them. Moreover, excess-profits had to cover conversion of industry to war-work, whether directly or through investment in the Stock Exchange; and they would also have to cover the post-war reconversion of industry, and the period of excess-loss that would automatically follow the collapse of the boom. In other words, whatever the demagogic advantages of excess-profits-taxes, they could be damaging to business. It is true that the British operated an ostensibly effective wartime excess-profits-duty. But they had to do so with an allowance for post-war excess-losses; and when these duly came, after 1920, many of the excess-profits-taxes had to be reimbursed. Sir Josiah Stamp, who had been responsible for their operation, regarded the whole enterprise as little more than a forced loan from business to government, and felt that it had quite possibly made a loss. 9 These considerations counted for much in Russia, and direct taxation was never more than a gesture. An income tax was introduced in 1916. It took ten per cent of incomes greater than 400,000 roubles per annum. An excess-profits-duty was also brought in at the same time, again with generous allowances. The income tax gave 130 million roubles, the excess-profits-due, 56 million: together, less than enough to pay for a week-end of war. *
In the circumstances, the only way of connecting wartime expenditure with the nation’s wealth appeared to be loan. 10 The Tsarist régime launched six war-loans, with a nominal value of 8,000 million roubles, and the Provisional Government launched a seventh, the Liberty Loan, for 4,000 million: in theory, as effective a way of sucking back excess paper-money as taxation, and
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