Capital Levy

Capital Levy:

Capital Levy refers to a very heavy tax on property and wealth. It is a once for all tax imposed on capital assets above a certain value. In fact, the capital levy is advocated immediately after the war to repay the unproductive war debts. It is imposed on the net estate on a progressive scale.

Capital Levy is Justified on the Following Grounds:

(1) War debt is unproductive and is a dead weight on the community. Therefore, it is better to relinquish it once and for all by a special levy or a capital levy instead of continuous additional taxation for years, for its repayment.

(2) Capital levy is justified on the ground that those, who made huge profits during war, should contribute to the government for clearing the public debt, without feeling any pinch.

(3) Since, during wartime, the poor suffer more than the rich, hence on the principle of equity, the latter should pay for servicing the public debt.

(4) It is anti-inflationary in its effects because it takes away the surplus purchasing power from the hands of the rich people.

(5) If there is a depression after the war, the burden of public debt in real terms will increase, and, therefore, the holders of government securities will gain. It is, therefore, desirable to impose a capital levy to repay the debt outright.

(6) It is helpful in reducing the inequalities of distribution of income and wealth in the society, generated during wartime. Thus, it helps to make the distribution equitable.

(7) The immediate repayment of public debts, through a capital levy, gives some psychological relief to the people that there will be no more taxation in the future for the purpose of paying debts.

(8) If the public debt, created during a war, is not repaid quickly by imposing a capital levy, it would involve additional taxation for years, which would cause various adverse effects on incentives to work, save and invest.

Dalton, however, suggested a capital levy even for the repayment of a peacetime public debt. Apart from its social justice value, it provides for quick repayment of loans and wipes away the burden of debt from posterity. It is also useful on account of its deflationary character.

However, a capital levy has been opposed on the following grounds:

(1) It is difficult to find out a fair value property accumulated in war times, and hence, it is difficult to tax the wealth which has been accumulated during wartime.

(2) It may prevent the inflow of capital from abroad, which would adversely affect commerce and industry in the long run.

(3) A capital levy seems to be a punishment for thrift, as those who saved and accumulated wealth are only taxed and those who had been extravagant are exempted.

(4) It may shatter the faith of the public in the financial administration of the government and may lead to evasion.

(5) It may adversely affect the willingness to work, save and invest on the people.

However, it is true that capital levy is a quick and equitable method of debt repayment, but some have preferred other methods of debt repayment, because of its adverse effects. For instance, Mrs. Hicks said, “A levy thus amounts to a major surgical operation on the body politics; it will either kill or cure, and very different in its effects from regular dosage or massage applied by the normal tax structure.