Justification for Capital Levy:

It is opined that the huge deadweight and unproductive war debt be liquidated by a heavy once for all tax to repay the debt. A special levy is also justified on the premise that those who made large amount of profits during war should pay the government in order to enable it to clear off the debts. Moreover, during war the poorer sections of the society, the soldiers make sacrifices while the business and capital class earn windfall profits. Therefore, it is quite rational to impose a heavy dose of tax on the capitalists. A capital levy can also be justified, as it is anti-inflationary due to taking away of the surplus purchasing power from the rich business and investor class.

Capital levy is justified on equity ground also. The enhanced inequalities due to and during the War can be reduced by imposing a capital levy. The real burden of public debt would increase if a depression follows the war. Under such circumstances, the government bondholders will gain. Therefore, it is logical to levy a special levy like the capital levy to liquidate the debt once for all. The outright repayment of the national debt by imposing a capital levy would provide a psychological relief to the people as they need not pay additional doses of taxation in future to repay the debt.

In the absence of such a heavy levy, the people have to pay taxes for years together which may cause adverse effects on incentives to work, save and invest. Hugh Dalton strangely justified the imposition of capital levy both on the grounds of social justice and also from the point of view of relieving the debt burden of the posterity.