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The policy which we as a nation should pursue, and
the policy which we should endeavor to see the necessity of,
may he termed in homely phrase the "Pay as you go, policy ;,T
for squirm as we will, we can not get away from the bitter
fact that the war must he paid for now as truly as it must
he fought now.
Borrowing the money will not, except in so
far as we take stored up savings, defer to posterity the
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payment of the war.
In other words we -must contribute oO
the Government's needs in taxes and spread the payment of
those taxes, so as to make it possible to pay them out of
earnings and savings.
V/hen it comes to securing for the Government the
goods and services it needs, there are obviously two ways
and only two ways that it can be done, either by taxation
or by borrowing, and while I, being human, dislike taxation as much as any one else, I am convinced that by a maximum of taxation, we will accomplish the desired results in
the most certain way, and in the way which will prove the
least burdensome to all concerned.
Because the truth of this statement will not be
readily conceded, let no see if I can not make it plain.
Let us suppose that we were a nation of a million people,
each with an annual income of ten thousand dollars.
If the
Government should call upon us to subscribe to the Liberty
Loan bonds and we each subscribed the same amount, say one
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thousand dollars, the Government would ^ ^ s receive a clean
billion dollars and we or our heirs would receive forty million annually in interest on our investment; hut who would
pay hack the principal at maturity?
Y/hy we, the same people
from whom the Government "borrowed the money.
In other words,
we are the Government, we are lending the money to ourselves
and paying ourselves the interest and eventually repaying the
principal to ourselves at maturity.
if some of us don*t subscribe?
share ana some might do nothing.
But, you will ask, what
Some might do twice their
Well, in that event, what
would happen' would be that the man who did not subscribe
would lose out, because he would still have to contribute
in payment of taxes for the repayment of the money.
In
othei/zords he would be required to pay taxes to meet the
interest on one thousand dollars worth of bonds, even if he
had not subscribed his share.
In the first case cited, each man contributes
voluntarily 10 per cent of his income, or one thousand dollars and he must pay in^taxes each year enough to pay himt'i • /• /"'
self that forty dollars,plus enough more to pay the bonds
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at maturity.
If they run twenty-five years that would be
forty dollars a year more as a sinking fund, or eighty dollars total.
If he does not subscribe and another man takes
his share, then he receives no income from his bonds but
does find himself taxed for his share of the interest and
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sinking fond paymenta.
That simple illustration applies Just as much if
people have different incomes as if they have the same income.
Diversity of interest does not alter the principle.
But, you
will say, some people are taxed more than others, taxes are
unequal, not always fair, etc.
Granted, "but do not imagine
that a man pays no taxes because no direct levy is made upon
him.
them.
Every man pays taxes and there is no way to escape
Even the man who owns only tax exempt bonds must pay
taxes, for the rent you pay, the food you eat, the railway fare
you pay, the electric light hill you pay, the coal you burn,
the clothes you wear, all include taxes as an element in
their cost.
Direct taxes are disagreeable and seem burden-
some, <&x& because it is human to prefer not to look facts
squarely in the face,
It is easier to have the tax hidden
in the price of the things we buy and pay for and the legislator well knows that he will encounter less opposition if
he applies his taxes that way.
To come back to our illustration of a nation of
a million citizens, each with fixed incomes of ten thousand
dollars.
Supposing instead of borrowing the one thousand
from each of us, the Government had chosen to tax each of
us one thousand dollars, spreading the payments out over
several weeks or months, as is done with the Liberty Loan
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payments.
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Would we "be better off or worse?
Decidedly "better,
I believe, and I say this confessing that I dislike paying
taxes as much as any body.
And why, would we be better off?
Because if we meet the Government's requirements by paying
taxes we do not have to tax ourselves to pay interest on the
sums borrowed, and tax ourselves to repay the principal at
maturity.
In other words, in one case we tax ourselves one
thousand each to carry on the war, and having made that contribution it is over and done for; but if we subscribe that
same one thousand dollars to Liberty bonds, we have to tax
ourselves to pay back the money borrowed and interest thereon.
Is it not as clear as day light that in that event we make
a far greater contribution than if we pay as we_go no matter
what it costs!
One of the commonest mistakes is to imagine that
we can make posterity pay for the war.
True, in so far as
expenditures are made for permanent improvements, such as
building ships and docks, railroads or canals, public buildings, etc., which may bring in a revenue or save expense,
which can be repaid, in part or in whole, out of- the earnings or benefits which these betterments may yield, posterity
pays because posterity can use and enjoy the benefits; but
in so far as the expenditures are made for munitions, food,
clothing, and other things which arc consumed during the
period of the war, they must necessarily be paid for by our
citizens during the war.
There is no other way out of it.
If we were fighting this war for aggrandizement, it is conceivable that the acquisition of new territory or the exaction of huge indemnities might conceivably compensate us
for part of our expenditures, but as we have no such thought
in our minds^ it need not be discussed.
The reason why the
war must be paid for by us, and can not be paid for by posterity, may be explained in the pointing out of the essential
fact that what the Government requires to carry on the war
are goods and services.
In other words, the Government needs
the services of soldiers, it needs the services of men and
women to produce the food, to make munitions, clothing, and
to supply the transportation by land and sea, and these
"goods and services" or this "labor and material" are commanded by utilizing the common medium of exchange which we
call money.
Tho theory that a Government can make posterity
pay for its expenditures seems to have become fixed in the
public mind from the analogy of the method of corporate
finance usually followed, to wit, the issuance of bonds and
capital stock.
Thus, if a new enterprise is created, whether
it be a railroad or a mining or manufacturing corporation,
or a groat merchandising undertaking, while the capital is
borrov/od from the public, it is paid back, if the concern
is successful, both as to interest and principal, out of the
profits accruing from the enterprise.
It may be truly said,
in such a case, that posterity bears the burden as well as
enjoying whatever profits the undertaking may yield, while
for the reason already explained, these conditions are not
analogous in the case of a nation which issues bonds in payment for munitions of war, food, clothing and blankets for
the soldiers, or the multitude of other expenses which add
nothing to the wealth of the nation.
In this connection it
is obvious that a large share of the expenditures for which
bonds of the United States are being sold arc in themselves
self-liquidating, in part or in whole.
Thus the advances
made to our allies, the expenditures made for ships and
docks, for railway equipment, for hospitals, Government
buildings, and railroad improvements may bo so classed.
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