The patriot. [volume] (Indiana, Pa.) 1914-1955, 1917-06-16
BY EDWIN r. A. sELIeMAN,

by EDWIN h a. S6LIGmANI
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 81.
sc, 10000. The amendment to the in
come tax, which was tackled on to the
bill during the discussion III the House.
was expected to yield another $4,000
600 or $5OyOOOOOO
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?
!. How Much Should Be Raised by
Taxation?
How was the figure Of $1,SO0,0O0, 900
arrived at? The answer is simple. When
the Secretary OF the Treasury came to
estimate the additional war expenses
for the year 1918, he calculated that
they would amount to some $6,600,-
100000, of which $3,OO0OOO,OOO was to
be allotted to the allies, and $780,
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 $1,SOOOOO.-
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 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 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-
tion, 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
mestic 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 a large ex-
tent on loans at 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
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.
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 a 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
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 TO raise by taxation S1.25O,OOO,
000 If, in order to be absolutely on
the safe side. it seemed advisable TO
increase the sum to S1,5OO,O00OOO, this
should, in our opinion, be the maxi
mum.