Payette enterprise. (Payette, Canyon Co., Idaho) 1909-1935, 1917-07-19
BY EDWIN r. A. sELiGMAN,
NJ vickar Professor of Political Econ

| Mo vickar 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.
| $40, 10000. The amendment to the In
come tax, which was tackled on to the
bill during the discussion In the House,
600 or $5O,OOO.OOO.
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?
I. How Much, Should Be Raised by
Taxation7
How was the figure of 81, 800, 100000
arrived at? The answer is simple. When
the Secretary Of the Treasury came to
estimate the additional war expenses
for the year 1917-1S, he calculated that
they would amount to some S6,600,-
100000, Of which S3,0OO,O0O,0O0 was to
be allotted to the allies, and $780,.
100000 was to be utilized for the do
nestle purposes. Thinking that 1t
would be a fair proposition to divide
taxes. he concluded that the amount
to be raised by taxes was 1900, 0O0,-
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 a
decade within the same generation.
In the second place, when e1pendi-
lures approach the gigantic sums of
present-day warfare, the ta1-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
policy may be declared i'm
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 |
be 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
100 far.
The relative proportion of loans to
axes is after all purely business
Not to rely to large ex-
CIV oh boaho az INC outSet VI d war 10 !
/ mistake.
Disadvantages of Excessive Taxes.
The disadvantages Of excessive taxes
It the outset Of the war are as follows:
I. Excessive taxes on consumption
will cause popular resentment.
2. Excessive taxes on industry will
lisarrange business, damp enthusiasm J
md restrict the spirit of enterprise at.
he very time when the opposite is
leeded.
3. Excessive taxes on incomes will de-
lete the surplus available for invest
nents and interfere with the placing of
he enormous loans which will be nece.s-
airy in any event.
4. Excessive taxes on wealth. will
ause serious diminution Of the in
ONES which are at present largely
rawn upon for the support of educa-
Ional and philanthropic enterprises.
forever, these sources of support
Iould be dried up precisely at the time
'hen the need would be greatest.
5. Excessive taxation at the outset of
10 war will reduce the elasticity avail
bio for the increasing demands that
70 soon to come.
Great Britsin's Policy.
Take Great Britain as an example.
'uring the first year of the war she
Icreased taxes only slightly, In order 4
} keep industries going at top notch.
uring the second year she raised by
ew taxes only o per cent. of her war
rpenditures. During the third year
10 levied by additional taxes lover
nd above the pre-war leveD only
tightly more than II per cent. of her
ar expenses.
II we should attempt to do as much
the first year OF the war as Great
ritain did in the third year 1t would
Iflce to raise by taxation $1,250,000-
70. II, In order to be absolutely on
o safe side. IL seemed advisable to
crease the sum to $1,000, 100000, this
lould. In our opinion, be the maxi
um.