Mexico Missouri message., 1917-06-14
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-Fiow the Taxes Should
Be Apportioned.
BY EDWIN r. A. sELIeMAN,
McVickar Professor of Political Econ.
omy. Columbia University.


resentatiyes 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.
| 10,42OOOO The amendment to the i'll
come tax. which was tackled on to the
| bill during the discussion in the House,
was expected TO yield another $4,000,
600 or $5OOOOOOO.
In discussing the House bill, two
| problems arise:
|. How much should be raised by
taxation?
II. In what mannar should this sum
| be raised?
|. How Much Should Be Raised by
Taxation?
How was the figure Of Sl,S0O,OO00O0
| arrived at? The answer is simple. When
| the Secretary Of the Treasury came to
estimate the additional war expenses
for the year 1017-1S he calculated that
they would amount to some SG,GO0-
100000, Of which S300OO00,0O0 was to
be allotted to the allies, and $1,000
100000 was to be utilized for the do
mestic 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 S1,S00,O00,-
co.,
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 eXpenli-
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 generations;
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 n
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
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 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 aB follows
]. Excessive taxes on consumption
will cause popular resentment.
2. Excessive taxes OH industry will
disarrange business, damp enthusiasm
e and restrict the spirit of enterprise AT
S the very time when the opposite is
l needed.
), 3. Excessive taxes on incomes will &c
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
tional and philanthropic enterprises
Moreover, these sources of support
= would be dried up precisely at the timt
4 when the need would be greatest
v 5. Excessive taxation at the outset ot
! the war will reduce the elasticity avail.
able for the increasing demands that
are soon to come.
e Great 5ritain's Policy.
e Take Great Britain as an example
n During the first year of the war she
K increased taxes only slightly in ordei
to keep industries going at top notch
During the second year she raised by
new taxes only 0 per cent. of her wal
expenditures. During the third veal
a she levied by additional taxes (ovel
1t and above the pre-war level only
" slightly more than II per cent of he
a war expenses.
"a If we should attempt to do as mLel
!, In the first year of the war as Grea
Britain did in the third year it woul(
d suffice to raise by taxation S1.230,O00,
IS 600 If, in order to be absolutely OF
d the safe side, II seemed advisable I,
y increase the sum to S1,500,000,000. thi
J. should, in our opinion, be the maxi
mum.