Five Mile Beach weekly journal., 1917-06-08
BY EDWIN r. A. sELIeMAN,
McVickar Professor of Political Ecor
omy, Columbia University.

BY EDWIN r. A. SELlGMAN,
Mcvickar Professor of Political Econ
omy, Columbia University.
On May %, 1917, the House of Rep.
re~sentatives passed an act ito provide
revenue to defray war expenses and
for other purposes" In sthe original
bill as presented by the Committee OF
Ways and Means, the additional reve-
nue. to be derived was estimated at ST..
S~10,420,000. 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 $50,OO0,00O.
In discussing the House bill, two
problems arise:
l. How much should be raised by
taxation?
IL. In what manner should this sum
be raised?
!. How Much Should Be Raised by
Taxation7
How was the figure of ST. SOC, O0O, 900
arrived at? The answer is simple. When
the Secretary of the Treasury anne to
estimate the additional war expenses
for the year 1918, he calculated that
they would amount to some $6,6O0,-
100000, of which $3,0O0,o0O,OOO was to
be allotted to the allies, and $780,,
100000 was to be utilized for the do.
nestle purposes. Thinking that il
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, 100000.
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 inT one o two
years bear the burden Ct Sssenehts that
ought to be distributed at least over D
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 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 &c
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
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
will cause popular resentment.
. IFUaAars-A 80 -. H. I'M
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
III a serious diminution of the in
comes which are at present largely
drawn upon for the support of educa-
tional and philanthropie enterprises.
Moreover, these sources of support
would be dried up precisely at the time
when the need would be greatest.
5. Excessive taxation at the outset of
the war will reduce the elasticity avail
able for the 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 8 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.
If we should attempt to do as much
In the first year of the war as Great
Britain did In the third year it would
suffice t0 raise ny toyation CT O5A OO0