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.
The fair face of the outright and graduated levy would be marred in many
ways. First, there are cases affected by valuation. The valuation of a
fixed rate of interest on good security is easy enough. The valuation of
a field or a house in these days presents more difficulty, but is, of
course, practicable. In practice, however, people do not own these
things outright. They have only an interest in them. This is where the
rub comes. A very large part of the property in this country is held in
life interests, and on reversions or contingencies. It is not a question
of saying that a given property is worth £10,000 and that it forms part
of the fortune of Jones, who pays 40 per cent. duty. The point is that
the £10,000 is split between Jones and Robinson. Jones maybe has a life
interest in it, and Robinson a reversionary interest. You value Jones's
wealth by his prospect of life on a life table, and Robinson has the
balance. But the life table does not indicate the actual likelihood of
Jones's life being fifteen years. It only represents the actuarial
average expectation of all the lives. This may be useful enough for
insurance dependent on the total experience, but it may be a shocking
injustice to the individual in taxation. Only some 10 per cent. of the
Joneses will live for the allotted time, and for the rest your valuation
and your tax will be dead wrong, either too much or too little. Jones
will be coming to you two years after he has paid, or rather his
executors will come to you and say: "We paid a tax based on Jones living
15 years, and he has died; this ought, therefore, to be shifted to
Robinson."