Bemidji Daily Pioneer Newspaper, June 22, 1917, Page 6

§ HOW SHALL WE PAY FOR THE WAR? A Gonstructive Criticism on the House Revenue: Bill. LOANS BETTER THAN TAXES Five Reasons Why Excessive Taxes at the Outset of War Are Disadvantage- ous—Great Britain Example Worthy of Emulation—How the Taxes Should Be Apportioned. By EDWIN R. A. SELIGMAN, McVickar Professor of Political Econ- omy, Columbia University. On May 23, 1917, the House of Rep- resentatives passed an act “to 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 §1,- 810,420,000. The amendment to the in- come tax, which was tacked on to the bill during the discussion in the House, was expected to yield another $40,000,- 000 or $50.000,000. In discussing the Heuse bill, problems arise: I. How much should be raised by taxation? II. In what manner should this sum be raised? I. How Much Should Be Raised by Taxation? How was the tigure of §1.800,000,000 arrived at? The answer is simpie. Wnen the Secretary of the Treasury came to estimate the additional war expenses for the year 1917-18, he calculated that they would amount to some $6,600,- 000,000, of which $3,000,000,000 was to be allotted to the allies, and 000,000 was to be utilized for the do- mestic 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 $1.800,000.- 000. Thete are two extreme theories, each of which may be dismissed with scant courtesy. The one is that all war ex- penditures should be defrayed by loans. and the other is that all war expendi- tures should be defrayed by taxes. Each theory is untenable, It 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 Pe borne by this year's 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 expendi- tures approach the gigantic sums of present-day warfare. the tax-only pol- iey 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 im- practicable. Secretary McAdoo had the right in- stinct and highly commendable cour- age in deeiding that a substantial por- tion, at least, of the revenues should be derived from taxation. But when he hit upon the plan of 50-50 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 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. 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 availabie 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 serfous 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 sutsst 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 iincreased taxes only slightly, in order #0 keep industries going at top notch. During the second year she raised by mew taxes only 9 per cent. of her war expenditures. During the third year she levied by additional taxes (over and above the pre-war level) only slightly more than 17 per cent. of her WAr expenses. If we should attempt to do as much in the tirst year of the war as Great Britain did in the third year it would suffice to raise by taxation $1,250,000.- 000. If, in order to be absolutely on the safc side, it seemed advisable to increase thie sum to $1,500.000.000, ¢his stiould, in our opivion, be the maxi mum. two ! In considering the apportionment o the extraordinary burden of taxes in war times certain scientific principles are definitely established: How Taxes Should Be Apportioned. (1) The burden of taxes must be spread as far as possible over the whole community so as to cause each individual to share in the sacrifices ac- cording to his ability to pay and ac- sording to his share in the Government. (2) Taxes on consumption, which are necessarily borne by the community at large, should be imposed as far as pos- sible on articles of quasi-luxury rather than on those of necessity. (3) Excises should be imposed as far as possible upon commodities in tne hands of the final consumer rather than upon the articles which serve pri- marily as raw material for further production. (4) Taxes upon business should be imposed as far as possible upon net earnings rather than upon gross re- ceipts or capital invested. (5). Taxes upon income which will necessarily be severe should be both differentiated and graduated. That is, there should be a distinction between earned and unearned incomes and there should be a higher rate upon thke larger incomes. It is essential, however, not to make the income rate so excessive as to lead to evasion, administrative difficulties, or to the more fundamental objections which have been urged above. (6) The excess profits which are due to the war constitute the most obvious and reasonable source of revenue dur- ing war times. But the principle upon which these war-profit taxes are laid must be equitable in theory and easily calculable in practice. The Proposed Income Tax. The additional income tax as passed by the House runs up to a rate of 60 per cent. (This is a sum unheard of in the history of civilized society. It must be remembered that it was only after the first year of the war that Great Britain increased her income tax to the maximum of 34 per cent, and that even now in the fourth year of the war the income tax does not exceed 42% per, cent. It could easily be shown that a tax with rates on moderate incomes sub- stantially less than in Great Britain. and on the larger incomes about as high, would yield only slightly less than the $532,000,000 originally estimated in the House bill. It is to be hoped that the Senate will reduce the total rate on the highest in- comes to 34 per cent, or at most to 40 per cent, and that at the same time it will reduce the rate on the smaller in- comes derived from personal or profes- slonal earnings. If the war continues we shall have to depend more and more upon the in- come tax. By imposing excessive rati now we are not only endangering the future, but are inviting all manner of difficulties which even Great Britain has been able to escape. Conclusion. The House bill contains other funda- mental defects which may be summed up as follows : (1) It pursues an erroneous principle in imposing retroactive taxes. (2) It selects an unjust and unwork- able criterion for the excess-profits tax. (3) It proceeds to an unheard-of height in the income tax. (@) It imposes unwarranted burdens upon the consumption of the commu- nity. (5) It is calculated to throw business into confusion by levying taxes on gross receipts instead of upon commodities. (6) It fails to make a proper use of stamp taxes. (D It follows an unscientific system in its flat rate on imports. (8) It includes a multiplicity of pet- ty and unlucrative taxes, the vexatious- ness of which is out of all proportion to the revenue they produce. * - Ll . - - . The fundamental lines on which the House bill should be modified are sum- med up herewith: () The amount of new taxation should be limited to $1.250,000.000—or at the outset to $1.500.000.000. To do more than this would be as unwise as it is unnecessary. To do even this would be to do more than has ever been done by any civilized Govern- ment in time of stress. (2) The excess-profits tax based upon a sound system ought to yield about (3) The income-tax schedule ought to be revised with a lowering of the rates on earned incomes below $10.000, and with an analogous lowering of the rates on the higher incomes, so as not to exceed 34 per cent. A careful cal- culation shows that an income tax of this kind would yield some $450,000.- 900 additional. (4) Theé tax on whisky and tobacco ought to remain approximately as it is, with a yield of about $230,000.000. These three taxes, together with the stanip. tax. at even-the-Jow rate.of the Hopse bill, and: with an improved-ag- tomobile tax, will yleld over $1,250,- 000/000; ‘'which is the amount of mouey thought desirable,. The above program would be in bar- mony ‘with ‘an approved scientific sys- tem. It will do away with almost afl of the complaints that are being urged 1gainst the present. It will refrath from taxing the consumption’ of the poor. It will throw a far heavier burdem upon the rich, but will not go to the extremes of confiscation. It will ob- viate interference with business and will" Keep unimpaired the social pro- ductivity of the community. It will establish a just balance be- tween loans and taxes and will not succumb to the danger of approaching either the tax-only policy or the loan- only policy. Above all. it will keep an undisturbed elastic margin, which | must be more and more heavily drawn Qpon as the war proceeds. Copyright 1917 The House of Kuppenheimer N Men. practically all colors. They are made right, fit right enough to wear on any occasion. All new styles. BEMIDIJI, very Man ExpeciS Good Service and Full Value When He Buys His Glothes He Is Sure to Realize His- Most Grltical Expactations When We Dress Him The complete satisfaction of our patrons is, and always has been, the first consideration of our business effort. handle only thoroughly tested makes such as “Kuppenheimer,” '‘Sophmore” and “Style Plus” clothes—makes that are beyond intelligent and reasonable criti- cism, that are known and worn everywhere and that have always proved to be absolutely reliable. The fabrics from which our Men's and Young Men's Suits and Top Coats are made are of excellent quality and comprise practically all- weaves and colors. In every instance they are substantial and the highest grade that can be employed in the construction of garments that are sold at Or near our prices. and sizes for all men. 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This is a fac-simile of the RED CROSS WEEK slides which are be- ing displayed free of charge by all motion picture theaters in Minnesota to give prominence to the campaign for two million dollars ($2,000,000) as Minnesota’s part of the ‘“Hundred Million Dollar Special War Fund,” to be subscribed in the United States during the week June 18 to 25. The state campaign is being managed from headquarters in Minneapolis with Governor J. A. A. Burnquist as chairman. Reports from headquarters indicate that Minnesota will greatly over-subscribe its quota. It is the only seperate organized city for the national campaign. HOLLISTER'S ROCKY MOUNTAIN TEA IS GOOD FOR YOU Everybody needs a laxative once in a while. Most people need one frequently. Whenever you need a laxative, get Hollister’'s Rocky Mountain Tea. It relieves constipation. Works day or night,— thoroly—ecertainly. No pain—no griping. Sold at good drug stores. Prepared by Hollister Laboratories Madison, Wisconsin BARKEN'S DEUG STORE m_ AR S _,f; iIIIIIIIIIIlIlIlIlIIIlIIlIIIIIIlIII“IIIIIIIIIIIIIIIIII|IIIIIIIIIIIIIIIIlIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII—II ‘..THE FLIES” (LT} If there’s anything that makes a person FEEL like using strong language, it’s a few pesky flies that buzz around and tickle one's nose and ears or face when they are trying to rest, eat, read or sleep. Where did they come from? Usually some ¢rack where a screen door or window wasn’t tight or a hole in the wire or an open UNSCREENED door or window.' Aside from the nuisance and bother they make, think of the danger they carry on their feet. Screen Them Out Look and see if there are any cracks around or holes in your screens, and get new ones where necessary. Read, eat, rest and sleep in comfort this season. We have screens in all sizes for both doors and windows, Smith-Robinsen Lumber Co; - ‘“One Board or a Carload” i D“‘ibi\;-