Chapter 519: Tax Reform 4
TL: Rui88
“Or…”
Paul’s gaze swept over each of the department officials present.
“Should we cut a certain department’s budget?”
The meeting room fell into a dead silence.
“No! Lord Grayman.”
Hansel was the first to break the silence. “I believe abolishing the tax farming system is imperative.”
“Yes, the old system is already obsolete.”
“We unanimously agree with Lord Grayman’s wise decision.”
The others also quickly reacted.Cut a department’s budget? That was simply intolerable. The Administration Council was currently expanding rapidly, and everyone was desperately taking on more work for their own departments to highlight their importance. An ample budget was essential for that.
Who would be willing to have their budget shrink and be sidelined? Obviously, no one present was.
In comparison, it was better to let that bunch of country squires get skinned.
In fact, it was already well known within the Administration Council that Count Grayman loathed the tax farming system. The Count had expressed his disgust on multiple occasions, in different places and at different times, so his decision today did not come as too much of a surprise to anyone.
However, Hansel quickly identified a problem. Even if the tax farming system was abolished, would it actually be possible to collect more tax revenue?
“Lord Grayman.”
He cautiously raised his question, “Are you planning to raise the tax rate?”
Paul asked back blankly, “Raise the tax rate?”
Hansel posed a hypothetical. “For example, if every person in the domain is required to pay the lord 100 copper shields, when the tax farmer was around, he would collect 110 copper shields from each person. He would give 100 of those to the lord’s mansion and keep the remaining 10 for himself. Now that you’ve gotten rid of the tax farmer and are collecting 100 copper shields directly, from our perspective, the amount we ultimately receive is the same as before the tax farmer was removed.”
Paul laughed out loud. He pointed his finger twice in Hansel’s direction and said, “That is indeed a problem. Fielding, my director of taxation, what do you think?”
Fielding considered for a moment, then explained to the group, “Sir Abbott’s concern is valid. But in theory, without the tax farmers exploiting them in the middle, the common people will have more money left in their hands. This extra money will stimulate their desire to consume, which in turn will promote a prosperous market. This means more goods will circulate, and more products will be manufactured, allowing us to collect more taxes from commerce and industry.”
So that’s how it is. Many people understood in their hearts.
“Abolishing tax farmers is only the first part of the reform.”
Paul continued, “The second part of the reform is to change from taxing per head to taxing based on property and income.”
The poll tax. Everyone knew about this. The subjects in a domain, regardless of age, sex, wealth, or status, were counted by head, and each person had to pay a certain amount. This was the most stable and fundamental source of tax revenue for the lords throughout Ordo, and even for His Majesty the King. Therefore, the population of a domain determined a lord’s strength. The king’s directly-controlled domains had the largest population, which was why the king was the most powerful “lord” in the entire country.
It was just that Alda had vigorously developed industry and commerce in recent years, taxing the goods and manufactured products circulating in the cities. This had relegated the poll tax here to a less prominent position…after all, people could not be produced in a continuous stream like products in a factory. Nevertheless, the poll tax remained one of the Administration Council’s important sources of revenue.
As for property tax, it actually already existed in this era and was quite common. You had to pay tax to the lord for the house you lived in, pay tax to the lord for the land you farmed, and pay tax to the lord when you inherited property from your parents. There were even all sorts of miscellaneous taxes like a livestock tax, a window tax, a hearth tax, and so on. In some domains, you even had to pay a tax to the lord for keeping cats and dogs.
When Hansel first started working for Paul, a very important task of his was to take inventory of the domain’s farmlands, for which he had offended quite a few people.
After Paul gained industry and commerce as an important source of tax revenue, he abolished most of the taxes he found absurd, keeping only a few types like land tax, property tax, and inheritance tax. This was also an important reason why Alda was better able to attract migrants than other domains.
As for income tax, this was the first time anyone present had heard of it. Paul explained to them that it was a tax levied on the profits earned by individuals or groups, such as income from wages and salaries, income from the production and operations of industrial and commercial households, income from contracted and leased operations, income from labor remuneration, interest, income from stock dividends, income from property leases, income from property transfers, and so on and so forth.
“From now on, the salaries that all of you present, as well as your subordinates, receive from your positions will be taxed.”
Paul gave everyone a heads-up.
Old Ford said with some concern, “This might cause some people to harbor resentment towards Lord Grayman. Therefore, everyone must lead by example, provide counseling for the staff in your departments, and pay close attention to what they say.”
“That’s going to be a huge amount of tax!”
Hansel made a rough estimate in his head and was left somewhat speechless. But it made sense. Count Grayman had abolished so many miscellaneous taxes and the poll tax; now that finances were tight, what was wrong with compensating in other areas?
Wait, but the poll tax was abolished, he thought. Whether this income tax could fill that gap and achieve revenue growth remained to be seen in practice.
It was not just Hansel; every participant in the meeting had similar doubts in their minds. If property and income taxes could not make up for the loss of the poll tax, wouldn’t the losses outweigh the gains? Even if they could match the poll tax revenue, it would just be a change of name. What would be the point of the reform?
Count Grayman must have some other trick up his sleeve.
“There is a third part to the reform!”
As everyone expected, Paul continued his announcement.
“Whether it is property tax or income tax, we will henceforth implement a progressive tax rate system.”
Progressive tax rates?
It was the first time anyone had heard such a term.
With the exception of Malron and Old Ford, who had arranged the details of the reform with Paul, everyone wore a puzzled expression.
“Allow me to explain it to you all.”
Paul explained to the group, observing each person’s expression as he spoke.
“Take personal income tax as an example. If a person’s monthly income does not exceed 1 silver shield, then they don’t have to pay tax. If their monthly income is between 1 and 5 silver shields, they will pay 2% in tax. If their monthly income is between 5 and 10 silver shields, they will pay 5% in tax. If their monthly income is between 10 and 20 silver shields, they will pay 10% in tax. If their monthly income is between 20 and 50 silver shields, they will pay 20% in tax. And if their monthly income is above 50 silver shields, they will pay 40% in tax.”
“In short, income is divided into tiers, and each tier is assigned a different tax rate. People with low incomes pay less tax or even no tax at all. People with high incomes pay more tax, and the more they earn, the larger the share they have to pay.”
“Of course, the taxable income tiers and tax rates in my example were just made up on the spot for illustrative purposes. How these tiers should actually be divided, and what the specific tax rate for each tier should be, will require detailed study by the Tax Department to determine.”
The moment Count Grayman’s voice fell, a boom went off in the minds of everyone present, as if something had exploded.