The diamond drill., 1918-02-09
BY EDWIN r. A. sELIcMAN.

- HpPoTtiouods
BY EDWIN r. A. SELIGMAN,
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 ST.
S10.420,OO0. 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
5000 or $5O,OO0,0OO.
In discussing the House bill, two
problems arise:
I. How much should be raised bJ
taxation?
III. In what manner should this sum
be raised?
4. How Much Should Be Raised by
Tasation7
How was the figure OF 81, 800, 600, 900
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 $1,000
100000, OF which $1,000 100000 was TO
be allotted to the allies. aud $780,
100000 was TO be utilized for the do
nestle purposes. Thinking that 1t
would be a fair proposition 10 divide
this latter sum between loans and
taxes, he concluded that the amount
TO be raised by taxes was s1s0oOO0..
600.
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.
II 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
Y DO borne by this years taxation.
Meeting all war expenses by taxation
makes the taxpayers In one or tive
years bear the burden OF benefits that
ought to be distributed at least over q
decade within the same generation.
In the second place, when expcndi
lures approach the gigantic sums OF
present-day warfare, the tax-only pol
icy would require more than the tota
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. Bu
where tho disasters are so great ant
at the same time so unnecessary, th'
tax-only policy may be declared i'm
practicable.
Secretary McAdoo had the right In
stinct and highly commendable cour
age I'm deciding that a substantial por
tlon. Mt least, OF the revenues shoul'
be derived from taxation. But whel
he hit upon the plan OF $3.50 per cent
that is, OF raising one-half OF all do
nestle war expenditures by taxes, th
question arises whether he did not 8
too far.
The relative proportion OF loans {
taxes ia after all purely busines
proposition Not TO rely TO a large eS
tent on loans at the outset OF war
A mistake.
Disadvantages of Excessive Taxes.
The disadvantages OF excessive take
at the outset of the war are as foIiows
1. Excessive taxes on consumptio
will cause popular resentment
2. Excessive taxes on industry wi
disarrange business, damp enthusiasm
and restrict the spirit OF enterprise Q
J the very time when the opposite
J needed.
a Excessive taxes on incomes VIII d
plete the surplus available for inves
ments and interfere with the placing {
the enormous loans which will be nece
sary I'm any event.
A. Excessive taxes on wealth wi
cause a serious diminution OF the u
comes which are at present largel
drawn upon for the support OF educ'
tional and phllanthropic enterprise
Moreover, these sources OF suppol
would be dried up precisely at the tim
when the need would be greatest
8. Excessive taxation at the outset |
the war will reduce the elasticity sval
49,
are soon TO come.
Great 5ritsin's Policy.
Take Great Britain as an exampl
During the first year of the war 81
increased taxes only slightly, I'm ord'
20 keep Industries going at top note
During the second year she raised
new taxes only 2 per cent. of her WI
expenditures. During the third yet
she levied by additional taxes (ov'
and above the pre-war leveD on
slightly more than IL per cent OF h
war expenses.
If we should attempt 20 do as mu'
I'm the first year of the war as Gre
Britain did In the third year it wou
suffice to raise by taxation $1,2o0,Oo'
n 600. If, In order 10 be absolutely
Y the safe side, It seemed advisable
increase the sum to Si,JO0000,Oo0. IN
~an.,tJ On our onlniOn be the ma