THE CAPITAL LEVY

If we cannot look forward to any great measure of relief through these channels, to what then must we look?  By far the most important alternative remedy which has been put to us is that of a Capital Levy; it has the enormous virtue that it would repay on one level of prices the debts incurred at that level; in short, it would give back one pair of boots at once for every pair it has borrowed, instead of waiting and stretching out over future generations the burden of two pairs.  It is so attractive that one cannot wonder there is a tendency to slur over its less obvious difficulties.

Advocates of this scheme fall into two camps, whom I would distinguish broadly as the economist group and the Labour Party, and if you will examine their advocacy carefully, you will see that they support it by two different sets of contentions, which are not easily reconciled.  The economists lay stress upon the fact that you not only pay off at a less onerous cost in real goods, but that it may, considered arithmetically or actuarially, be “good business” for a payer of high income-tax to make an outright payment now and have a lighter income-tax in future.  Very much of the economists’ case rests indeed upon the argument drawn from the outright cut and the arithmetical relief.  It will be seen that this case depends upon two assumptions.  The first is that the levy in practice as well as in theory is an outright cut, and the second, that it is not repeated, or rather that the income-tax is really effectively reduced.  But if you look at the programme of the other supporters of the Capital Levy you will not find any convincing guarantees of its non-repetition.  I have not seen anywhere any scheme by which we can feel politically insured against its repetition.  You will find plenty of indication that some intend to have both the levy and a high tax as well, the new money to be employed for other social purposes.  The arguments based upon arithmetical or actuarial superiority of the levy for your pocket and for mine may therefore rather go by the board.  But I am not going to discuss either the question of political guarantees or the possible future socio-financial policy of the Labour Party.  I will merely ask you to consider whether the levy is likely to be in practice the outright cut that is the basis of the chief and most valid contention for it.  Please understand that I am not attempting to sum up all the many reasons for and against this proposal, but only to deal with the particular virtue claimed for it, bearing upon the increasing burden of the debt as prices decline.

Any taxation scheme dependent upon general capital valuation, where the amount to be paid is large—­say larger than a year’s revenue—­falls, in my judgment, into the second or third rate category of taxation expedients.  Whenever we are living in uncertain times, with no steadiness of outlook, valuation of many classes of wealth is then a tremendous lottery, and collection—­which takes time—­may be no less so.