, 1917-07-05
HOW SHALL WE
PAY FOR THE WAR?
a Constructive Criticism on the House
Revenue Bill-EXcessive Taxes
Are Not the Best Way.
HOW SHALL WE
BY EDWIN r. A. -SELIGMAG..
McVickar Professor of P.l .pa. a,
omy, Columbia Univrrsitv

On May 70, lDIi, the House OF Keep
resentatives passed an act 10 provide
e to defray war expenses and
for, other purposes In the Original.
bill as presented by the Committee Oi
Ways and Means. the additional Icyc
nue. to be derived was estimated at 81.
S10,42O.OOO. The amendment to the in
come tax, which was tucked on to the
bill during the discussion in the House
was expected to yield another S+0.0OO.
900 or S%50,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?
1. How Much Should Be Raised by
Taxation7
How was the figure Of Sl,SOO.UO0. 0UO
arrived at? The answer is simple. Whcl
the Secretary of the Treasury came to
estimate the additional war expenses
for the year l917-1S, he calculated that
they would amOunt to some $4,000.
100000, of which $1,000, 100000 was to
be allotted to the allies. and $4,000.
100000 was to be utilized for the do
nestle purposes. Thinking that II
would be n fair proposition to divide
this latter sun between loans and
taxes, he concluded that the amount
to be raised by taxes was Sl.SDO.OOO.
900.
There are w extreme theories, each
of which may be dismissed with scant
courtesy. The one is that all war ex
penditures should he betrayed by loans.
and the other is hat all war expendi
lures should be betrayed by taxes
Each theory is untenable.
1t is indeed true that the burdens OF
the wal 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 mt least over II
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 thar the total
surplus Of social income. Were his
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 he declared i'm
practicable.
Secretary McAdoo had the right in.
stinct and highly c~ommendable cour-
age in deciding that a substantial pur-
tion, at least, of the should
be derived from taxation. But when
he hit upon the plan of 5000 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 IA purely business
proposition. Not to rely to n large ex-
tent on loans at the outset of a war is
a mistake.
Disadvantages OF Excessive Taxes.
The disadvantages Of excessive taxes
mt the outset of the war are as follows
l. Excessive taxes on consumption
will cause popular resentment.
2. Excessive taxes OH 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.
Et,.,,t, ot,g i,t.vr,,n ,.gaI, H. -
the enormous loans which will be neces-
sary in any event.
4. Excessive taxes on wealth will
cause n serious diminution Of the in
comes which are It 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.
s. Excessive taxation at the outset of
the war will reduce the elasticity avail
able for the increasing demands that
are soon to come.
Great 5ritain'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 ut 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 leveD only
slightly more than Il per cent. of her
var expenses.
II we should attempt to do us much
in the first year of the war as Great
Britain did in the third year it would
suffice to raise by taxation 81, 100000.
900. If, in order to be absolutely ON
the safe side. il seemed advisable to