18 
LAND 6? WATER 
December 26, 1918 
The Levy on Capital : By Hartley Withers 
INTEREST in the subject of the Levy on Capital lias 
lately been re\-ivcd by correspondence upon it between 
Mr. "Henry BelJ, of' Llo>'ds Bank, and Mr. Arthur 
Henderson, M.P. Mr. Bell oi^ned the ball by a letter 
to the Labour lead<T pxainting out that the latter's 
political programme included a levy on capital, for the 
repayment or reduction of the National Debt ; that he 
(.^Ir. Bell) had no prejudices against any plan to effect this 
purpose, which seemed t(5 promote the interests of trade 
and industry, and of the community as a whole ; but that 
the proposed levy seemed to him likely to have "precisely 
the opposite effect, and that to a disastrous degree." Pro- 
ceeding to concentrate liis criticism to the point of the 
unfairness invoh-cd to large sections of the people, Mr. Bell 
prop<junded the following questions to Mr. Henderson : — 
" I. Two persons, 'A' and 'B,' have each of them 
for a period of twent\' years enjoyed an average income 
of £i,ooo a year. 'A,' being unmarried and having no 
encumbrances, and having, moreover, desired to 'liave 
a good time,' has spent the whole of his income. 'B,' 
on the other hand, being married and of a prudent and 
thrifty disposition, has saved and invested half his 
income, and has lived on the other half plus the interest 
on his savings, which have added to his income year by 
year. He has thus accumulated a capital sum of 
£io,ooo with which to provide for the old age of himself 
and his wife and to start his children in their careers. 
" Now, r do not suppose that we shall differ as to which of 
these two men has lived the more useful life or has deserved 
better of the State. Even from the merely material point 
of view, 'B' has in fact contributed larger sums in direct 
taxation than 'A' because he has paid income-tax not only 
on his original income, but also on the interest derived from 
his saWngs. 
"What possible justice can there be in now subjecting 
him to a tax on his hard-earned capital from which 'A' 
would be entirely exempt ? 
"2, Again, a sea captain who has retired after fort\- 
years of service has accumulated during that time a 
provision of £5,000 for his old age. He has only been 
able to do this (for the mariner's rate of pay is none too 
generous) by continuous and earnest thrift and self- 
denial. A comrade in a hke position, who has spent 
every penny he has earned, is in his old age dependent 
on the generosity of his relations and friends, and may 
even become a charge on the State. 
"What possible justice can there be in taxing the capital 
of such a man's hard-earned savings ? " 
Justice can only be done to Mr. Henderson's answer by 
quoting if; in full. It is as follows : — 
"33 Eccleston Square, S.W.i, 
" December 9th, 1918. 
" Sir, — I am much obliged for your letter of the 2nd instant, 
to which only my absence from London and great pressure of 
business has prevented me from replying by return. 
"The Labour Party desires that the whole or a large part 
of the burden of indebtedness with which this nation is 
charged — over and above such reparation and compensation 
as may be made by the Central Empires— should be borne 
by an assessment according to capital fortunes, instead of an 
assessment according to annual incomes. This is the pro- 
posal commonly referred to as a levy on capital or the 
conscription of wealth. 
"I may point out, however, in reference to your remark 
that such a proposal would have a disastrous effect, that in 
this project of a capital levy, the Labour Party is committing 
itself to no invention of its own, but is merely supporting the 
suggestion made by the political economists— see the signifi- 
cant series of articles in favour of the proposal in the Economic 
Journal, the quarteriy of the Royal Economic Society, for 
March last— which is not without considerable adhesion 
among financiers. 
"I come now to the particular cases you put to me as 
demonstrating its unfairness and its injurious effects on 
character and thrift. 1 should like to point out, to begin 
with, that you are assuming that the proposed capital levy 
is to be the only tax that is levied. The Labour Party is not 
able to make any such assumption. It seems clear that 
besides a considerable amount of indirect taxation— which 
has the approval of the Labour Party only in so far as it 
falls on luxuries of which it is not desirable to increase the 
consumption — there will necessarily have to be an income- 
tax on the one hand, and death duties on the other. The 
Labour Party holds that the whole burden of taxation should 
be made to "fall, according to the dictum of the economists, 
in proporrion to "ability to pay.' 
"I now take your ca.ses. 'A,' the thriftless bachelor, who 
spends all his income is contrasted with 'B,' the prudent 
husband and father y/ho saves half his income, and thereby 
accumulates £10,000. Is it fair that -'A' should escape, and 
' B ■ have to pay ? May I point out that it is the present 
system of taxation — not "the Labour Party's proposal — which 
has this result ? At present, apart from taxation on their 
earned incomes, so long as these last, 'A' pays nothing, 
and 'B' the very heavy tax on his income from the £10,000 
invested. He even has to pay the tax on his earned income 
at a higher rate than the thriftless 'A' has to do just because 
of his prudent thrift in having accumulated the £10,000. 
"What the Labour Party proposes is to reduce this penalty . 
on thrift. The capital levy will enable the income-tax to be 
reduced probably to its pre-war rate, so that 'B,' whilst 
paying his tiny quota to the capital levy, will be spared the 
considerable annual payment that he now has to make as 
income-tax on his £10,000 of investments. The thrifty 'B' 
will, under the Labour Partj^'s proposals, be left in enjoyment 
of a larger net income than he now has. 
" So with your thrifty sea captain with £5,000. At present 
he is severely mulcted by the heavy income-tax, which will 
have to be further increased if there is no capital levy. Sub- 
stitute the capital levy for this income-tax, and the thrifty 
sea captain wUl find he has more left to live on than he has 
now. 
"I venture to suggest that in deciding that 'it would be 
difficult to fond a form of taxation which would militate more 
against thrift, or would operate with greater injustice,' you 
had perhaps not considered how very seriously the present 
income-tax incurs this criticism ; nor yet weighed to what 
an extent your objection is affected if you take the capital 
levy as a substitute for a ten-shillings income-tax. 
"I agree with you in thinldng that what we have to do is 
to produce additional wealth and to accumulate further 
capital ; but I would point out that it is not by these means 
that the National Debt can be reduced. That can only be 
done by taxation, and what the Labour Party — following 
the pohtical economists — desires is that the taxation should 
be assessed according to the abihty to pay. That is the 
case for the capital levy. — Yours faithfully, 
"Arthur Henderson." 
The weakness of this answer, by so able a defender of the 
levy as Mr. Henderson, is a measure of the strength of the 
case against it. He quotes the Economic Journal for March 
last as evidence that the levy was suggested by political 
economists, and was not invented by the Labour Party ; 
but he forgets to mention that the interview between Mr! 
Bonar Law and the Labour representatives, who put the 
proposal before him, took place in the previous November. 
This, however, is a detail. Who was the inventor is not the 
question, but whether the proposal is fair. Nor is Mr. 
Henderson's quite unwarranted accusation that Mr. Bell 
assumes that the capital levy is to be the 'only tax that is 
levied,' (!) any more to the point. What is to the point is 
this : that Mr. Henderson's endeavour to demonstrate the 
fairness of the levy in the case of Mr. Bell's exanvple, is, 
with all deference to the former, amazingly weak. The Labour 
Party proposes to amend the penalty on thrift, involved 
by present income-tax arrangements, not by refonning the 
income-tax, but by reducing it out of a levy on the accumula- 
tions of the thrifty (among others). 
Every one must admit that accumulated wealth, especially 
if mherited, is a fair subject for heavier taxation than earned 
mcome. But attempts to take away blocks of it in order to 
redeem debt seems to me to involve so much injustice to 
the small saver, who is providing for his old age or for his 
dependents, and to be so hkely to discourage future saving that 
the effects would almost certainly be disastrous. Mr Pethick 
Lawrence argues very plausibly that the small saver would be 
benefited by the reduced income-tax more than he would lose 
by the levy ; but this argument is based on two quite unwar- 
ranted assumptions : (i) that the lew on capital would never 
happen again, and (2) that tiie whole of the rehef that it 
effected by reducing debt charge would be applied to the 
benefit of the income-tax payer. So likely, isn't it ? 
