People often say that a Capital Levy merely imagines everybody dying at
the same time. This parallel is wrong in degree when you are considering
the ease of paying duty or of changing the market values by a glut of
shares, and it is still more wrong when you are thinking of ease of
valuation. When a man is dead, he is dead, and in estimating the death
duty you have not to bother about how long he is going to live! But
every time you value a life interest and take a big slice of it for tax
you are probably doing a double injustice. The charge is incorrect for
two taxpayers. On a flat rate of tax this difficulty might be made less,
but the essence of any effective levy is a progressive scale. Moreover,
whether you are right or wrong about Robinson's tax, he has nothing in
hand with which to pay it. He has either to raise a mortgage on his
expectation (on which he pays _annual_ interest) or pay you by
instalments. So far as his burden is concerned, therefore, there is no
outright cut. You will be getting an annual figure over nearly the whole
class of life interests and reversions. It is difficult to see how one
can escape making adjustments year after year for some time in the light
of the ascertained facts, until the expiry of, say, nine or ten years
has reduced the disparities between the estimated valuations and the
facts of life to smaller proportions.
Next come those valuations which depend for their accuracy upon being
the true mid-point of probabilities. A given mine may last for five
years in the view of some experts, or it may go on for fifteen in the
view of others, and you may take a mid-point, say ten, and collect your
tax, but, shortly after, this valuation turns out to be badly wrong,
_though all your valuations in the aggregate are correct_. While the
active procedure of collecting the levy is in progress for a number of
years these assessments will simply shout at you for adjustment. There
are other types of difficulty in assessment which involve annual
adjustment, but you will appreciate most the necessity for care in the
collection. Enthusiastic advocates for the levy meet every hard case put
forward where it is difficult to raise money, such as a private
ownership of an indivisible business, by saying: "But that will be made
in instalments, or the man can raise a mortgage." But the extent to
which this is done robs the levy of all the virtues attaching to
outrightness, for each instalment becomes, as the years roll on,
different in its real content upon a shifting price level, and every
payment of interest on the mortgage--to say nothing of the ultimate
repayment of that mortgage--falls to be met as if reckoned upon the
original currency level. Then those classes of wealth which are not
easily realisable without putting down the market price also require
treatment by instalments, and those who wish to put forward a logical
scheme also add a special charge upon salary-earners for some years--a
pseudo-capitalisation of their earning power.
A really fair and practicable levy would certainly be honeycombed with
annual adjustments and payments for some period of years, and one must
consider how far this would invalidate the economic case of the
"outright cut," and make it no better than a high income-tax; indeed far
worse, for the high income-tax does at least follow closely upon the
annual facts as they change, or is not stereotyped by a valuation made
in obsolete conditions. Imagine three shipowners each with vessels
valued at £200,000, and each called upon to pay 20 per cent., or
£40,000. One owning five small ships might have sold one of them, and
thus paid his bill; the second, with one large ship, might have agreed
to pay £8000 annually (plus interest) for five years; while the third
might have mortgaged his vessel for £40,000, having no other capital at
disposal. At to-day's values each might have been worth, say, £50,000,
but for the tax. The first would actually have ships worth £40,000, so
he would have borne the correct duty of 20 per cent. The second would
have £50,000, bringing in, say, £5000 annually, and would be attempting
to pay £8000 out of it, while the third would be paying £2000 a year out
of his income and still be faced with an 80 per cent. charge on his
fortune! His assessment is computed at one point of time, and liquidated
at another, when its incidence is totally different.
If one cannot have a levy complete at the time of imposition, it clearly
ought not to be launched at a time of rapidly changing prices. But that
is, perhaps, when the economic case for it is strongest.