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Home -> Merlin Harold Hunter -> Outlines of public finance -> Chapter 20 continue

Outlines of public finance - Chapter 20 continue

1. Preface

2. Chapter 1

3. Chapter 1 continue

4. Chapter 2

5. Chapter 2 continue

6. Chapter 3

7. Chapter 3 continue

8. Chapter 3 continue

9. Chapter 4

10. Chapter 4 continue

11. Chapter 4 continue

12. Chapter 5

13. Chapter 5 continue

14. Chapter 5 continue

15. Chapter 6

16. Chapter 6 continue

17. Chapter 7

18. Chapter 7 continue

19. Chapter 7

20. Chapter 7 continue

21. Chapter 9

22. Chapter 9 continue

23. Chapter 10

24. Chapter 10 continue

25. Chapter 10 continue

26. Chapter 11

27. Chapter 11 continue

28. Chapter 11 continue

29. Chapter 12

30. Chapter 12 continue

31. Chapter 13

32. Chapter 13 continue

33. Chapter 13 continue

34. Chapter 14

35. Chapter 14 continue

36. Chapter 14 continue

37. Chapter 15

38. Chapter 15 continue

39. Chapter 15 continue

40. Chapter 16

41. Chapter 16 continue

42. Chapter 17

43. Chapter 17 continue

44. Chapter 17 continue

45. Chapter 18

46. Chapter 18 continue

47. Chapter 18 continue

48. Chapter 19

49. Chapter 19 continue

50. Chapter 19 continue

51. Chapter 19 continue

52. Chapter 20

53. Chapter 20 continue

54. Chapter 20 continue

55. Chapter 20 continue

When the final results are known the list of dead will,
of course, be much larger. Many who are accounted for
above in the wounded and missing columns will have to
be reckoned with the dead. Various estimates have been
made as to what the number will be that will have to be
transferred, but the most conservative would raise the
list of dead to nearly 13,000,000 men. The task of placing
an economic value upon this loss of life is, of course, diffi-
cult. The economic worth of men is different, and varies
for different countries. Various authorities have attempted
to place an estimate upon the value of human lives, yet
these estimates have ranged anywhere from $1,000 to
more than $6,000. In his estimation of the value of lives
lost, Professor Bogart chose estimates which varied for
the different countries, and assumed that one half the
wounded would be incapacitated. On the basis of this
calculation the value of human life given up in the war
was more than $33,551,000,000. While this is necessarily
more or less arbitrary, that it at least errs on the side of
conservatism, if at all, is seen when the value of the men
lost is arrived at by using the average worth of an individ-
ual as estimated by the various authorities. By this cal-
culation the total loss amounts to more than $45,000,-

Other Indirect Costs. No attempt will be made to go
into detail in describing the numerous other indirect costs.
Many of them have been known and felt by every reader.
One which will have to be reckoned with for years to come
will be the effects of disease whose start can be traced
to the camps or trenches. While the medical staff was no
doubt more efficient, and greater precautionary measures
were taken than in any previous conflicts, yet the burden
of disease will not be inconsiderable. The hardships borne
by the civil population, moreover, has decreased their
stamina and vitality so that they are a more ready prey
to disease, and a marked increase in the death rate has
already been noted. The psychic, and often the physical


burden endured by the families of the men in the service,
and which are still being endured where the men did not
return, is of course incapable of measurement. Such
phases of war must be accepted and silently borne without
counting the cost.

One or two other phases, however, present features of
a nature more concrete. An estimate can be placed upon
the value of goods destroyed, and everyone can think of
services that the states might have rendered with the
funds which were used up in the war. Then there was a
loss sustained by neutral countries, the loss from dis-
turbed production in all countries, and the loss from the
continued upheaval in the industrial and political world.
To the costs which have been enumerated should be
added, also, the vast amount spent by civilian organiza-
tions in the various phases of war work. The activities
of such organizations as the Young Men's Christian Asso-
ciation, the Red Cross, the Salvation Army, and the
Knights of Columbus, as well as the many societies for
various phases of war relief, are well known.

In concluding this survey of the cost of war, nothing
more significant can be done than to give Professor
Bogart's summary of his carefully estimated direct and
indirect costs of the Great War, followed by his conclusion.


Total direct costs, net $186,333,637,097

Indirect costs:

Soldiers $ 33,551,276,280

Civilians 33,551,276,280

Property costs:

On land 29,960,000,000

Shipping and cargo 6,800,000,000

Loss of production 45,000,000,000

War relief 1,000,000,000

Loss to neutrals 1,750,000,000

Total indirect costs $151,612,542,560

Grand Total $337,946,179,657


The figures presented in this summary are both incomprehensible
and appalling, yet even these do not take into account the effect of
the war on life, human vitality, economic well-being, ethics, morality,
or other phases of human relationships and activities which have been
disorganized and injured. It is evident from the present disturbances
in Europe that the real costs of the war cannot be measured by the
direct money outlays of the belligerents during the five years of its
duration, but that the very breakdown of modern economic society
might be the price exacted. 1

1 Bogart, p. 299. See note, p. 494.



246. The Fiscal Burden Will Continue to Be Large.
In the preceding chapters an attempt has been made to
give an outline of the growth of public expenditures, of
the development of revenue systems to meet this growth,
and of some of the problems which have been encountered
because of this rapid growth in the amount of expendi-
tures and revenues. The public has become accustomed
to large expenditures our first billion-dollar Congress a
few years ago caused considerable comment, yet no one
expects that a single Congress will again spend so little.
The expenditures of the Federal government, at that time,
were little noticed because of the reliance upon indirect
taxes customs duties and internal revenues for practi-
cally the entire amount of its income. While these taxes
are no less burdensome than direct taxes, yet the burdens
are not known, and consequently cause less objection from
those who pay them. Indirect taxes, therefore, are of
advantage to the state, in that large sums may be raised
with practically no complaint from its citizenship. They
are objectionable, however, in that their incidence cannot
be accurately determined; hence it is difficult to use them
extensively in a system of taxes which is expected to con-
form to the principles of justice.

Change in Public Activity. As civilization and states
develop, two tendencies appear states take on a greater
number and variety of functions, and direct taxes occupy
a place of greater fiscal importance in the revenue system.
These have been amply illustrated in the United States.


The functions of government have been gradually ex-
tended, previous privately conducted industries have
been taken over by the various political units, and the
services often given free or at a small fraction of the
actual cost.

The most extensive illustration of this changed condi-
tion is found in education and in highways. The patrons
of the districts no longer build schoolhouses and hire
teachers, nor are the users of the highways longer incon-
venienced by tollgates. Such services are now freely
given, but entail, necessarily, a situation which calls for
additional revenue. Another situation which has devel-
oped in the United States is the disappearance of the dif-
ferentiation between the functions of various states and
those of the Federal government. The Federal govern-
ment can now aid in the construction of highways, in the
advancement of education, in the eradication of disease
and destructive insects, without the fear of being criti-
cized for interfering with the rights of the states.

The states more and more take the attitude that they
will accept the residual functions that is, let the Federal
government do what it will and they will do what is left.
This gradual extension of the activities of the Federal
government to services of such a tangible nature that the
citizens can appreciate and measure some of the benefits,
has made it possible to enlarge the use of direct taxes.
The constitutional provisions placed extensive limitations
upon the use of this form of revenue, but amendments
and court interpretations have practically destroyed the
former prohibitory restrictions. The removal of the re-
strictions was sanctioned because of the services of a
tangible nature that the Federal government was ren-

Present Public Burdens. The present burdens inflicted
by the Federal government are so familiar as to need little
comment. In 1900 the per capita expenditure was about
five dollars; in 1915 about eight dollars; while in 1920 it


was about thirty-five dollars. This, of course, is abnormal,
but it cannot be expected that the burdens will ever re-
turn to the pre-war basis. The war has added burdens
which will continue to be felt for decades to come. The
interest and sinking fund charges are now larger than the
total expenditures before the war, and will continue to be
felt. These, with the constant expansion of functions,
will continue to keep the exactions of the Federal govern-
ment from its citizens at a high figure.

Increased expenditures are found also in the states and
local political units. Each of these conditions is an illus-
tration that a government is an institution of increasing
cost. Even though no more functions be undertaken,
the per capita cost increases as the population grows.
But states and cities also, due to the demands of their
inhabitants, are increasing the services which they render.
Figures were given to show this increase, and there is no
indication but that it will continue.

There is, Jhowever, a difference between an increased
tax and an increased burden a situation which has been
especially applicable in the last few years. When com-
modity prices rise for individuals, they rise, pan passu,
for the state. This means that the state may supply
exactly the same services, but at a greater cost, which
will be reflected in the higher taxes. From the standpoint
of the taxpayer it will mean that he is paying in a cur-
rency of less purchasing power, and hence the burden will
be no greater than when the taxes were less. While taxes
have increased in all states and cities, in most cases the
increase has not been in proportion to the general rise in

247. Different Political Units Will Use the Same Bases
for Taxes. The Constitution of the United States is
rather insistent upon a separation of sources of revenue
for the Federal government and for the states. Thus
customs duties were reserved entirely for the use of the
central authorities, while close restrictions were placed


upon the use of direct taxes. Excise taxes were allowed
and have been used extensively since the Civil War.
The states are not forbidden to use this source of revenue,
but they have left it to the almost exclusive use of the
Federal government for so long that the presumption has
been against their entering this field. Direct taxation of
property was looked upon as the primary legitimate
source of revenue for the states and local political units,
and for many years the systems remained almost true to

Overlapping of Sources. The changed economic and in-
dustrial conditions and the enlargement of the functions
of the government called for changes which have taken
place very rapidly in the last few years. These have
taken two opposite directions one toward an overlap-
ping of sources of revenue, and the other toward a separa-
tion of these sources. The first can be noticed in the case
of the Federal government. It has not been content to
secure funds to meet its increased needs by an extended
use of customs and excise taxes, but has continued to
reach out to other fields. This has taken place until the
net income and profits of corporations, inheritances, and
the income of individuals are called upon to help supply
the bases for the funds.

The state authorities have looked upon this expansion
with no little concern, and have frequently voiced strong
objections. Some of the sources, as profits and inheri-
tances, were tapped to supply the extraordinary demands
of war, and may be given up quickly, yet no one expects
but that income taxes will be a permanent feature of Fed-
eral fiscal machinery. Even before the Federal govern-
ment began its expansion of sources, the states had ceased
to place entire reliance on property taxes. The other
sources of importance which have been adopted are taxes
upon corporations, inheritances, and various classes of
licenses. Incomes are taxed in some states, and it is likely
that this source will become more popular as a method of


state levy. Thus there has developed an overlapping of
the sources of Federal and state revenues which is likely
to continue.

Separation of Sources. There has been much agitation,
on the other hand, for a separation of the sources of rev-
enue for states and localities. It has been suggested that
the property taxes should be left to the localities, while
the state seek its revenue from such sources as corpora-
tions, inheritances, licenses, and incomes. Some progress
has been made in this direction, but in most states, while
the local governments rely upon property as the chief
source of revenue, the state governments have not en-
tirely removed property taxes from their category of rev-
enues. Recently, moreover, local political units have
shown a tendency to expand their source of revenue to
include a number of licenses, many of them upon the
same objects which have been the basis of license taxes
imposed by the states. The licenses which are levied
against automobiles and against various occupations by
both states and municipalities are good examples of this
tendency. Duplication of taxes upon the same base by
the different political units, even though it may involve
a form of double taxation and make the shifting of taxes
more difficult to trace, appears to be gaining a stronger
foothold in our fiscal system, and will doubtless be a per-
manent feature.

248. The Social Point of View Has Gained in Promi-
nence. Tax systems may and must be looked at from
many angles from the revenue standpoint, the ease of
administration, the effect upon the individual or industry
upon which the burden is placed, and from the social con-
sequences. In the formation of fiscal systems some one
of these phases generally has an outstanding influence.
In a system of indirect taxes, for example, much impor-
tance is attached to the consideration of revenue and the
administrative problems. Frequently a consideration of
the individual has been the center of thought each indi-


vidual should bear tax burdens in accordance with his
ability. And through the attempt to apply this idea of
ability, the studies of shifting and incidence, of proper ad-
ministrative machinery, and of the effects of borrowing,
have resolved themselves into studies of the individual
and his burdens.

Faculty and Utilitarian Principles. In recent years the
idea of faculty has begun to take on a more expansive
aspect, and social considerations are beginning to have a
place. The fact is being recognized that privileges granted
by the state are factors which contribute to the ability to
meet burdens, and these are being included in the basis
for taxes. This takes a variety of forms, but two of the
best examples occur hi the taxation of the privilege of
inheritance and in the privilege of corporate organization.
This same tendency is also seen hi the wide extension of
the use of the license system, and hi the use of taxes for
sumptuary and regulatory purposes. While taxes may
not be the best method of handling undesirable practices,
yet their use for this purpose shows that social aspects
have received consideration.

More consideration is also being given to the general
social effects of taxes, or what was designated in an earlier
chapter as the utilitarian principle. It is recognized, for
example, that two industries may have exactly the same
ability to meet burdens, yet the curtailment of one by a
tax, or the increase hi the price of its products through a
process of shifting, would work a much greater hardship
upon society than would a similar tax placed upon the
other industry. Consequently, in the formulation of fiscal
principles, more attention is being directed to the ultimate
effects and burdens, and a greater effort is being made to
secure the greatest good to the greatest number.

249. The Employment of Fiscal Experts Is Encouraging.
The formulation of fiscal legislation, not many years
ago, was characterized by the selfishness and caprice of
politicians. The men who secured berths on committees,
empowered with the business of shaping fiscal legislation,
were generally qualified as politicians rather than in the
fundamental principles and facts of Public Finance.

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