The midland journal. (Rising Sun, Md.) 1885-1947, 1917-06-15
HOW SHALL We
PAY FOR THE WAR?
A Constructive Criticism on the
House Revenue Bill.
LOANS BETTER THAN TAXES
Five Reasons Why Excessive Taxes at
the Outset of War Are Disadvantage
ous-Great Britain Example Worthy
of Emulation-How the Taxes Should
Be Apportioned.
BY EDWIN r. A. sELIeMAN,
McVickar Professor of Political Econ
nnv Columbia University.

omy, Columbia University.
On May %, 1917, the House Of Rep
resentatives passed an act ''to provide
revenue to defray war expenses and
for other purposes" In the original
bill as presented by the Committee Of
Ways and Means, the additional reve-
nue. to be derived was estimated at ST.
S1O.42O,OOO. The amendment to the In
come tax, which was tackled on to the
bill during the discussion in the House,
was expected to yield another 100000
600 or $5O,OOO,00O.
In discussing the House bill, two
problems arise:
l. How much should be raised by
taxation?
II. In what manner should this sum
be raised?
|. How Much Should Be Raised by
Taxation?
How was the figure of 81, 100000
arrived at? The answer is simple. When
the Secretary of the Treasury came to
estimate the, additional war expenses
for the year 1918, he calculated that
they would amount to some $6,6O0,-
100000, of which $3,O00,O00,O00 was to
be allotted to the allies, and $780,
100000 was to be utilized for the do
nestle purposes. Thinking that it
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 81 800, 0OO,-
900.
There are two extreme theories, each
of which may be dismissed with scant
courtesy. The one is that all war ex-
penditures should be betrayed by loans,
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 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
nestle war expenditures by taxes, the
question arises whether he did not go
too far.
The relative proportion of loans to
taxes is after all a purely business
proposition. Not to rely to a large ex-
tent on loans at the outset of a war is
mistake.
Disadvantages of Excessive Taxes.
The disadvantages of excessive taxes
at the outset of the war are as follows
1. 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 q serious diminution of the In
comes which are at present largely
drawn upon for the support of educa-
tiopal and philanthropic enterprises.
Moreover, these sources of support
would be dried up precisely at the time
| when the need would be greatest