ABSTRACT
McCulloch's treatment of public finance problems was more comprehensive than that of any of his predecessors. Fundamentally it was concerned with fiscal policy in relation to ensuring the maintenance of growth. Taxation must not be too heavy overall or it would interfere with growth; but properly arranged it could be a stimulus to growth increasing the supply of both effort and savings. The desirable system was a widely based regime of moderate indirect taxes extending even to postage. This would interfere as little as possible with growth. Although McCulloch recognized to some extent that indirect taxes involved distortions of the price system and were regressive he believed, as an ability-to-pay theorist, that they had, if sufficiently widespread and moderate, the ability to produce revenue with a minimum of ill-effects. This in turn led him strongly to oppose Gladstone's concentration of taxation which involved a substantial narrowing of the tax base. It involved significant effects on the prices of a few basic consumption goods: and because McCulloch, unlike Ricardo, recognized that wages often did not adjust to tax-induced changes in the price of wage goods, he believed this unjust and likely to lead to social unrest. In so far as Gladstone relied on income tax this was a further reason leading McCulloch to condemn his tax policy because McCulloch had for long dismissed the income tax as less satisfactory for growth than indirect taxation. Not only were there significant administrative problems but income taxes stimulated only saving whereas consumption taxes stimulated both saving and effort. Moreover, if an income tax was not proportionate it would subvert the economic motivation so essential to
1 First 1816 Essay, pp. 38-9; second 1816 Essay, pp. 206 and 209-11; Scotsman, November 14, 1818, p. 361; ibid., June 12, 1819, p. 189; ibid., January 29, 1820, p. 36; ibid., June 17, 1820, p. 197; ibid., February 23, 1822, p. 57; ibid., March 9, 1822, pp. 76-7; ibid., June 8, 1822, p. 181.
