American Falls press. [volume] (American Falls, Idaho) 1907-1937, 1917-06-22
BY EDWIN R. A.. s|ELloMAN,
McVickar Professor of Political Econ
omy, Columbia University.

On May %, 1917, the House OF Rep
resentatives passed an act 80 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 $4,000
900 or S5O,OOO,OOO.
In discussing the House bill, two
problems arise:
1. How much should be raised by
taxation?
II. In what manner should this sum
be raised?
l.. How Much Should Be Raised by
TaNation2
How was the figure Of $1~.SOO,OO0.OOO
arrived at? The answer is simple. When
the Secretary Of the Treasury came to
estimate the additional war expenses
for the year 1917-1S, he calculated that
they would amount to some $4,000
100000, Of which S3,OOO,OOO,O0O was to
be allotted to the allies. and $1,000
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 S%1.s00.OO0.-
600.
There are two extreme theories, each
Of which may be dismissed with scant
courtesy. The one IS that all war ex-
pe%nditures should be betrayed by loans,
and the other is that all war expendi-
lures should he betrayed by taxes.
- Each theory is untenable.
1t is indeed true that the burdens of
the war should he 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 10y 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 tota
surplus of social income. "ore ta.'
absolutely necessary, the ensuing hay
oc in the economic life of the cOmmuni
ty would have to he endured. Blu
where the disasters are so great anC
at the same time so unnecessary. thu
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 whe
be hit upon the plan Of $3.50 per cent
that is. of raising one-half of all dc
nestle wal expenditures by taxes, IN
question arises whether he did not &
TOO far.
The relative proportion of loans
taxes is after all a purely bushes
proposition. Not to rely TO a large e'
tent on loans at the outset Of a war
a mistake.
Disadvantages of Excessive Taxes.
The disadvantages Of excessive tax
at the outset of the war are as follow.
1. Excessive taxes on consumptiC
will cause popular resentment.
.. Excessive taxes ON industry wi
disarrange business, damp enthusiasts
and restrict the spirit Of enterprise
the very time when the opposite
needed.
3. Excessive taxes on incomes will d
plete the surplus available for inves
ments and Interfere with the placing
the norm loans which will he nect
sary in any event.
T. Excessive taxes on wealth W
cause a serious diminution of the j
comes which are at present large
drawn upon for the support of educ
tional and philanthropic enterprise
Moreover. these sources Of suppC
would be dried up precisely at the til
when the need would be greatest.
5. Excessive taxation at the outset
the war will reduce the elasticity ava
able for the increasing demands th
are soon to come.
Great Britain's Policy.
Take Great Britain as an examp
During the first year of the wal $
increased taxes only slightly. IN ord
10 keep Industries going at top noti
During the second year she raised
new taxes only 0 per cent. OF her "
expenditures. During the third ye
she levied by additional taxes 10Y
and above the pre-war leveD OF
slightly more than Il per cent. OF |
war expenses.
II we should attempt to do as mu
In the first year Of the war as Gr'
Britain did I'm the third year II wOI
suffice to raise by taxation $1,2J0,0t
900. II, in order to be absolutely
the safe side, it seemed advisable
increase the sum to 81 .5O0.0O0,O00, I
should. in our opinion. be the ms