The Times. Published on Tuesday and Friday Afternoons. FRIDAY, JANUARY 12, 1923. THE CAPITAL LEVY.

Franklin Times, Volume 10, Issue 798, 12 January 1923, Page 4

The Times. Published on Tuesday and Friday Afternoons.

FRIDAY, JANUARY 12, 1923. THE CAPITAL LEVY.

"We nothing extenuate, nor aught set down in malice.”

Therr am many aspirations and ideals in Labour's political programme with which we have much sympathy, and in the atlainmenl of which we would gladly co-operate. No mailer to wlial parly one may give alliegance, any sound, equitable and practical measure for Hie betterment ol the workers warrants sympailmlie consideration and support. In these days there are but few men in public, life, of whatever partisan colour they may be, who do not willingly recognise the just claims of Labour. Unfortunately however, some of 1 1 lie proposals formulated by the political leaders of Labour are neither just nor practicable, and it not infrequently happens lluil those who oppose these illusory schemes are really the host friends of Ihe workers. For example, in the Mother Country, as here, there arc Labour politicians who profess to believe that a levy on capital would prove an effective remedy for many of our economic ills. In the British Labour Party’s manifesto, issued in connection with the recent election, this doctrine was given a prominent place. The proposal is that the Slate should demand and collect a special contribution, on a steeply graduated scale rising to as much as 40 per cent, from individuals and businesses according to Hie amount of their capital from 5000 upwards. If is argued that; by this means a very large sum could be promptly' _ collected, by means of which tiie National Debt could be reduced and the burden of interest upon it proportionately diminished. The Biglit Hon. Sir John Simon, while frankly expressing his approval of much that appeared in the manifesto, just as frankly condemned this particular proposal. He was convinced that in the existing national situatjon a Capital Levy would oecasion overwhelming injury td the wage-earners themselves, and to all whose happiness depended upon finding or keeping employment. The the wageearners of New Zealand who have been attracted by the same fallacious and dangerous idea, Sir John Simon’s clear-cut exposition of the fallacy should prove enlightening . Sir John invited attention to the following practical points:— 1. What is meant by capital in this connection?

The capital of a business does not consist of a balance at a bank upon which a cheque can be drawn to pay the Capital Levy when the demand note arrives. The capital of a business is represented by its buildings and machinery, its plant and fittings, its patents and its trade marks, and it may include its goodwill. In most cases the important part of its assets are in the form of debts owing to the business which have not yet been collected.' It by no means follows that because a business is solvent and flourishing it could pay over to the State on demand a substantial fraction of its capital. It follows that the imposition of a Capital Levy, and, indeed, any serious threat of its being imposed, is calculated to produce the gravest consequences on the ability of a business to provide employment and carry on its trading operations. A' firm which was thinking of extending its works would, in the event of sucli a proposal, desist; an enterprise which was barely paying it s way would have the strongest reasons to shut (town; and it follows that apart altogether from any question of justice or any difficulties of machinery, the effects of such a scheme at the present time would be bound to create such immense disturbances that unemployment, instead of being cured, would be intensilied. Indeed, it is not too much to say that a business which, could without embarrasment pay over a substantial part of its capital must be over-capitalised. In every other case it could only do so at the expense of reducing its activities and of diminishing its power of giving employment. 2. The suggested analogy with Death Duties is wholly fallacious, for the simple reason that the Capital Levy would Do imposed upon everybody, whereas everybody does not die at once.

The graduated duties which were imposed by Sir William Harcourt’s Budget in the Liberal Parliament in .1894, and have been even more steeply graduated since, can only be paid because one man’s property is not liable to tax at the same time as everybody’s else’s. Even so, it frequently happens that Death Duties can only be paid by selling off part of the property taxed. But if if is to be sold there must be somebody who is prepared to buy. If everybody is exposed to such a tax as this" Capital Levy at one and the same time, it becomes impossible to raise the tax by sale, and indeed the valuation .which has been made of the property is falsified by the imposition of the tax.

An illustration makes this clear. If in a town containing 100,000 houses a hundred houses are for sale, each of these houses may be properly valued by assuming that, while the owners jnay want to sell them, there may be people, who want to buy them. But if everybody with houses want to sell them at the same time, the valuation (and the Capital Levy can only operate after everybody’s assets have been valued) is no longer a true measure of what the house is worth. V>. The real effect of a Capital Levy at Hie present time may be illustrated by assuming that the contribution is collected in the form of an additional Income Tax. It is not the State which determines whether taxpayers pay their tax out of capital or income: the Income Tax is so called not because the Slate compels us to pay it out of our income, hut merely because the amount of the tax is measured by reference to our income. If the in-

conio-tax payer has spent his income, or jf he lias no cash available to meet the demand note, he pay it. by disposing of a portion ol' his capital. Let us, then* state the proposal for Captain Levy in terms of Income Tax and see what the result would be. If a man’s capital is earning 5 per cent, interest, and if the Capital Levy in his case is 20 per cent, the Capital Levy which he would be called upon to pay is the same thing as an income tax of eighty shillings in the £ ! I am not arguing whether it would be just to exact so high a contribution. The question for the wageearner to consider is—what is likely to be the effect of such a .demand upon, prospects of employment ? It is surely obvious that the intricate and elaborate machinery of British commerce would' be so shaken that its working would largely stop, and the probable consequences expressed in terms;, of unemployment are appalling to contemplate. 4. It is quite true that; the possiility of some form of Capital Levy of war-made wealth was thought worthy of discussion, and examination by men who were not Socialists soon after the armistice. Many students came to the conclusion that the difficulties of machinery were in any event so great that it was not necessary to consider either the expediency or the consequences of the proposal. But in any case the situation after the armistice was quite different from the situation to-day. Then we were still in a period] of/ apparent “boom” of trade; values were greatly inflated ; and employment was extraordinarily; good. Since then trade has passed through the severest trials; values have shrunk; unemployment is terribly prevalent. A Capital Levy is at best ani exceedingly serious operation for the patient, and the present condition of British industry and employment is such that| the patient could never, stand a serious operation. f This simple connected argument of Sir John Simon’s should convince the mass of thoughtful workers in this Dominion of the fallacious i character of any scheme designed to raid Capital, which, after all, is the life-blood of all industry.