The Harrison times., 1917-06-16
BY EDWIN r. A. seLlGMAN,

BY EDWIN r. A. sEllGMAN,
McVtckar Professor Of Political Econ
omy Columbia University.
On May %. 1917, the House Of Rep
reSpulativeS passed an act to provide
revenue 10 defray war expenses and
for other purposes" In the Origina
bill rs presented 10y the Committee OF
Ways and Means, the additional reve
nue to be derived was estimated at 81,
SlO,42OOOO. The amendment to the in
come tax, which was tackled on 10 the
bill during the discussion in the House
was expected TO yield another $4,000,
900 or $50OOO,OO0.
In discussing the House bill. two
problems arise:
|. How much should be raised by
taxation?
II. In what manner should this sun
be rnised2
l. How Much Should Be Raised by
Taxstion2
How was the figure of 81 ,SO0,0O0,0OO
arrived at? The answer Is simple. When
the Secretary Of the Treasury came tC
estimate the additional war expenses
for the year 1917-lS, he calculated that
they would amount " some $500.
100000, Of which $3,0O00O0,0O0 was to
be allotted to the allies, and $4,000,
100000 was to be utilized for the do
nestle purposes Thinking that II
would be a fair proposition to divide
this latter sum between loans and
taxes, he concluded that the amount
to be raised by taxes was Sl,SOO,OOO,
900.
There are two extreme theories, each
of which may be dismissed with scanl
courtesy. The one is that all war ex
penditures should be betrayed by hans
and the other is that all war expendi
lures should be betrayed by taxes
Each theory Is untenable
1t Is indeed true that the burdens OF
the war should be borne by the pres
ent rather than the future generation
but this does not mean that they should
be borne by this years taxation
Meeting all war expenses by taxation
makes the taxpayers in one or two
years bear the burden Of benefits that
ought to be distributed at least over a
decade within the same generation.
In the second place, when expendi-
lures approach the gigantic sums of
present-day warfare, the tax-only pol
Icy would require more than the total
surplus Of social income. Were this
absolutely necessary, the ensuing hav-
oc in the economic life Of the cOmmuni-
ty would have to be endured. But
where the disasters are so great and
at the same time so unnecessary the
tax-only policy may be declared i'm.
practicable.
Secretary McAdoo had the right in
stinct and highly commendable cour.
age in deciding that a substantial pOr.
ton, at least Of the revenues should
be derived from taxation. But when
he hit upon the plan Of $3.50 per cent,
that is, Of raising one-half Of all do.
mestic war expenditures by taxes, the
question arises whether he did not &c
too far
The relative proportion Of loans to
taxes is after all purely business
proposition. Not to rely TO large ex
tent on loans at the outset Of war is
a mistake.
Disadvantages Of Excessive Taxes.
The disadvantages Of excessive taxes
at the outset of the war are as follows
l. Excessive taxes on consumption
will cause popular resentment
2 Excessive taxes on industry will
disarrange business, damp enthusiasm
and restrict the spirit Of enterprise at
the very time when the opposite is
| needed
3. Excessive taxes on incomes will de-
plete the surplus available for invest.
ments and interfere with the placing OF
the enormous loans which will be neces-
sary in any event.
4, Excessive taxes on wealth will
cause a serious diminution Of the in
comes which are at present largely
drawn upon for the support Of educa
tional and philanthropic enterprises
Moreover, these sources Of support
would be dried up precisely at the time
when the need would be greatest.
S, Excessive taxation at the outset Of
the war will reduce the elasticity avail.
able for the increasing demands that
are soon to come.
Great Britair's Policy
Take Great Britain az an example
During the first year Of the war she
increased taxes only slightly, In order
to keep industries going at top notch.
During the second year she raised by
new taxes only . per cent Of her wat
expenditures. During the third year
she levied by additional taxes (oyer
and above the pre-war leyeD only
slightly more than II per cent OF her
war expenses,
II we should attempt to do as much
I'm the first year Of the war as Great
Britain did In the third year It would
suffice to raise by taxation $l250000,'
900 II, In order 10 be absolutely on
the safe side 1t seemed advisable to
Increase the sum to 81 1,500,000,000, this