Semi-weekly herald., 1917-07-05
BY EDWIN r. A. sELlemAN.

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
bin as presented by the Committee Of
Ways and Means. the additional reve
nue. to be derived was estimated ut 81,
Sl042O,o00. The amendment TO the In
come tax, which was tackled on TO the
bill during the discussion in the House
was expected 10 yield another $4,000.
00o or S5O0Oo000
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?
l. How Much Should Be Raised by
Taxation?
How was the figure of 81, 800. 600, 600
arrived at? The answer is simple. When
the Secretary of the Treasury came to
estlmnte the additional war expenses
for the year 1017.1S. he calculated that
they would amount to some $4,000.
100000, of which S3.000,O00.O0o was to
be allotted to the allies. and So, 500.
100000 was to be utilized for the do
nestle purposes. Thinking that II
would be fair proposition to divide
this latter sum between loans and
taxes, he concluded that the amount
10 be raised by taxes was S1.s00,GOO.-
600.
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 untenabe
II 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
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 70 be endured. But
where the disasters are so great and
at the same time so unnecessary, the
tnx-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, Mt least, of the revenues should
be derived from taxation. But when
be hit upon the plan of $3.50 per cent
that IS. of raising one-half of all do
mcstic war expenditures by taxes, the
question arises whether he did not go
too far
Tho relative proportion of loans to
taxes is after all purely business
proposition. Not to rely to large ex-
tent ON loans nj 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:
1. Excessive taxes on consumption
viii cause popular resentment
Excessive taxes on industry will
disarrauge 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
nlete 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 cduca-
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 tho elasticity avail
able for the increasing demands that
arc coon to come.
Crest eritain's Policy.
Take Great Britain us 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 o per cent OF her war
expenditures. During the third year
she levied by additional taxes lover
and above The pre-war IeveD only
slightly more than IL per cent. OF her
war expenses.
II we shonld attempt to do as much
I'm the first year of the war as Great
Brltnin did In the third year 1t would
suffice u raise by taxation s1.2J0 600,
600 IT, 10 order to be absolutely on
the snfe side II seemed advisable to
increase the sum to Si.500.O00O00, this
should. In cur opinion. be the maxi
mum