The Appeal. [volume] (Saint Paul, Minn. ;) 1889-19??, 1917-08-04
HOW SHALL WE
PAY FOR The: WAR?
A Constructive Criticism ON the
House Revenue Bill.
LOANS BETTER THAN TAXES

wv Neaso"o why {EACeSSIve axes at
tho Outset of War Are Disadvantage
ous-Great Britain Example Worthy
. Of EmuIation-Howt the Taxes Should
Be Apportioned. y
BY EDWIN r. A. sELlGMAN,
McVickar Professor Of Political Econ
omy, Columbia University.
On May %, 1917, the House of Rep
resentatives passed an act Ito 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
600 or $50OOO,O0O.
In discussing the House bill, two
problems arise:
i. 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 S1,8OOOOO 600
arrived at? The answer is simple. When
the Secretary Of the Treasury came to
estimate the additional war expenses
for the year 1917-1s be calculated that
they would amount to some $6,6OO,-
100000, of which $3Ooo000,0oo was to
be allotted to the allies, and $780,
100000 was to be3 utilized for the do
nestle purposes: Thinking that it
would be fair ,sroposition to divide
this latter sum gDatween loans and
taxes, he concluded that the amount
to be raised by taxes was $1.8O0,OOO..
OOO
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 ds.f led 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, wien 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 commu1:i-
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 20
! 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
q 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. 49,.
| 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 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 heeIasticity avail
able for tho increasing demands that
are soon to come.
Great Britain,s Policy.
Take Great Britain as 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 war
| expenditures. During the third year
she levied by additional taxes lover
and above the pre-war leveD only
slightly more than II per cent. of her
war expenses.
in the first year of the war as Great
Britain did in the third year it would
suffice to raise by taxation $3.50, OOO.-
900. II, in order to be absolutely on
the safe side, it seemed advisable to
increase the sum to 81, 500, 600, this
should. in our opinion, be the maxi
| mum.