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money is to be paid in full compensation for all tax or tithe；
the tax becomes； in this case； exactly of the same nature with
the land…tax of England。 It neither rises nor falls with the rent
of the land。 It neither encourages nor discourages improvement。
The tithe in the greater part of those parishes which pay what is
called a Modus in lieu of all other tithe is a tax of this kind。
During the Mahometan government of Bengal； instead of the payment
in kind of a fifth part of the produce； a modus； and； it is said；
a very moderate one； was established in the greater part of the
districts or zemindaries of the country。 Some of the servants of
the East India Company； under pretence of restoring the public
revenue to its proper value； have； in some provinces； exchanged
this modus for a payment in kind。 Under their management this
change is likely both to discourage cultivation； and to give new
opportunities for abuse in the collection of the public revenue
which has fallen very much below what it was said to have been
when it first fell under the management of the company。 The
servants of the company may； perhaps； have profited by this
change； but at the expense； it is probable； both of their masters
and of the country。
Taxes upon the Rent of House。
The rent of a house may be distinguished into two parts； of
which the one may very properly be called the Building…rent； the
other is commonly called the Ground…rent。
The building…rent is the interest or profit of the capital
expended in building the house。 In order to put the trade of a
builder upon a level with other trades； it is necessary that this
rent should be sufficient； first； to pay him the same interest
which he would have got for his capital if he had lent it upon
good security； and； secondly； to keep the house in constant
repair； or； what comes to the same thing； to replace； within a
certain term of years； the capital which had been employed in
building it。 The building…rent； or the ordinary profit of
building； is； therefore； everywhere regulated by the ordinary
interest of money。 Where the market rate of interest is four per
cent the rent of a house which； over and above paying the
ground…rent； affords six or six and a half per cent upon the
whole expense of building； may perhaps afford a sufficient profit
to the builder。 Where the market rate of interest is five per
cent； it may perhaps require seven or seven and a half per cent。
If； in proportion to the interest of money； the trade of the
builder affords at any time a much greater profit than this； it
will soon draw so much capital from other trades as will reduce
the profit to its proper level。 If it affords at any time much
less than this； other trades will soon draw so much capital from
it as will again raise that profit。
Whatever part of the whole rent of a house is over and above
what is sufficient for affording this reasonable profit naturally
goes to the ground…rent； and where the owner of the ground and
the owner of the building are two different persons； is； in most
cases； completely paid to the former。 This surplus rent is the
price which the inhabitant of the house pays for some real or
supposed advantage of the situation。 In country houses at a
distance from any great town； where there is plenty of ground to
choose upon； the ground…rent is scarce anything； or no more than
what the ground which the house stands upon would pay if employed
in agriculture。 In country villas in the neighborhood of some
great town； it is sometimes a good deal higher； and the peculiar
conveniency or beauty of situation is there frequently very well
paid for。 Ground…rents are generally highest in the capital； and
in those particular parts of it where there happens to be the
greatest demand for houses； whatever be the reason of that
demand； whether for trade and business； for pleasure and society；
or for mere vanity and fashion。
A tax upon house…rent； payable by the tenant and
proportioned to the whole rent of each house； could not； for any
considerable time at least； affect the building…rent。 If the
builder did not get his reasonable profit； he would be obliged to
quit the trade； which； by raising the demand for building； would
in a short time bring back his profit to its proper level with
that of other trades。 Neither would such a tax fall altogether
upon the ground…rent； but it would divide itself in such a manner
as to fall partly upon the inhabitant of the house； and partly
upon the owner of the ground。
Let us suppose； for example； that a particular person judges
that he can afford for house…rent an expense of sixty pounds a
year； and let us suppose； too； that a tax of four shillings in
the pound； or of one…fifth； payable by the inhabitant； is laid
upon house…rent。 A house of sixty pounds rent will in this case
cost him seventy…two pounds a year； which is twelve pounds more
than he thinks he can afford。 He will； therefore； content himself
with a worse house； or a house of fifty pounds rent； which； with
the additional ten pounds that he must pay for the tax； will make
up the sum of sixty pounds a year； the expense which he judges he
can afford； and in order to pay the tax he will give up a part of
the additional conveniency which he might have had from a house
of ten pounds a year more rent。 He will give up； I say； a part of
this additional conveniency； for he will seldom be obliged to
give up the whole； but will； in consequence of the tax； get a
better house for fifty pounds a year than he could have got if
there had been no tax。 For as a tax of this kind by taking away
this particular competitor； must diminish the competition for
houses of sixty pounds rent； so it must likewise diminish it for
those of fifty pounds rent； and in the same manner for those of
all other rents； except the lowest rent； for which it would for
some time increase the competition。 But the rents of every class
of houses for which the competition was diminished would
necessarily be more or less reduced。 As no part of this
reduction； however； could； for any considerable time at least；
affect the building…rent； the whole of it must in the long…run
necessarily fall upon the ground…rent。 The final payment of this
tax； therefore； would fall partly upon the inhabitant of the
house； who； in order to pay his share； would be obliged to give
up a part of his conveniency； and partly upon the owner of the
ground； who； in order to pay his share； would be obliged to give
up a part of his revenue。 In what proportion this final payment
would be divided between them it is not perhaps very easy to
ascertain。 The division would probably be very different in
different circumstances； and a tax of this kind might； according
to those different circumstances； affect very unequally both the
inhabitant of the house and the owner of the ground。
The inequality with which a tax of this kind might fall upon
the owners of different ground…rents would arise altogether from
the accidental inequality of this division。 But the inequality
with which it might fall upon the inhabitants of different houses
would arise not only from this； but from another cause。 The
proportion of the expense of house…rent to the whole expense of
living is different in the different degrees of fortune。 It is
perhaps highest in the highest degree； and it diminishes
gradually through the inferior degrees； so as in general to be
lowest in the lowest degree。 The necessaries of life occasion the
great expense of the poor。 They find it difficult to get food；
and the greater part of their little revenue is spent in getting
it。 The luxuries and vanities of life occasion the principal
expense of the rich； and a magnificent house embellishes and sets
off to the best advantage all the other luxuries and vanities
which they possess。 A tax upon house…rents； therefore； would in
general fall heaviest upon the rich