Germany before the war

by baron Beyens

VIII.

“We must conduct affairs in such a way,” says the official German secret report, published in the 1914 Yellow Book and dated March 19, 1913, the day after the army bill of that year was passed, “that, under the weighty pressure of powerful armaments, enormous sacrifices, and a strained political situation, an outbreak of hostilities would be looked upon as a deliverance, because, like the war of 1870, it would be followed by several decades of peace and prosperity.”

The new financial burdens were indeed heavy, even for a nation which, like the German, was visibly growing richer and richer. The expenditure involved in the new army bill was of two kinds. The one, amounting to some £50,000,000, graduated over a period of three years, would not be renewed; the other represented a permanent annual disbursement, estimated at £24,510,000 until 1915, and £11,600,000 after that date.

Where were these vast sums to be found in a country already overburdened with taxation? The Imperial Treasury had no more than £5,000,000 left over from the receipts of preceding years. The Chancellor could not resort to fresh taxes on food and drink. Moreover his hands were tied by a motion, put forward by Herr Bassermann and Herr Erzberger in the previous year, and passed by the Reichstag. This motion bound the Government to frame, before March 31, 1913, a scheme of taxation on property, in other words on wealth. “But a general Imperial tax on property,” the Finance Minister, Herr Kühn, had declared in the course of the debate, “would have been an encroachment upon the financial sovereign rights of the federated States, and the Imperial Government could not enter upon this path without injuring the federal character of the Empire.” It must not be forgotten that Prussia, being the most important of the federated States, would have been the first to suffer from a blow directed at her fiscal independence.

An internal loan of £50,000,000 was not feasible, in view of the state of the market, in which even the most promising loans of German municipalities found great difficulty in getting placed. It was out of the question, on the other hand, to appeal to the foreign investor. He would not have lent a penny for the increase of German armaments, which were already causing a great deal of anxiety abroad.

The Finance Minister thought he had solved the problem by submitting to the approval of the Reichstag a large batch of finance measures of the most varied type.

First of all he proposed certain devices for the covering of permanent expenditure. Then he moved an increase in the assessment of matricular contributions paid by the federated States, on whose shoulders a fresh share of the burden was thus thrown. Finally, to redeem the promise made to the Reichstag in 1912 with regard to a property-tax, Herr Kühn suggested imposing a tax on increments of wealth and capital in those federated States which should not themselves have introduced such a tax by 1916, and whose resources were not enough to pay the higher rate of matricular contributions that was now demanded.

In order to meet the non-recurring expenses, the Government bill—this is its truly original feature—proposed an extraordinary tax on property and income, to be paid for the next two years. This Wehrbeitrag (Defence Contribution) was really a special war levy, imposed on capitalists in the midst of peace, when the political sky of Germany was not in any way overcast. It was a tax on the patriotism of the well-to-do classes, an urgent appeal to national sentiment. That the response would be enthusiastic the Government did not doubt for a moment. The assessment of property began at the very low minimum of £500, that of income at the very high minimum of £2,500.

In the debate on the first reading the Finance Minister’s scheme was coldly received by the Liberal elements. It soon became clear that the vote for financial cover, which the Chancellor wished to obtain by the beginning of July at the latest, would not be passed unless he resigned himself to accepting drastic amendments. Herr von Bethmann-Hollweg, anxious to push the matter through as quickly as possible, acknowledged that the Government proposals might be modified.

The Budget Committee went to work with a vengeance. For the Wehrbeitrag, it raised the minimum of taxable property to £2,500 with an income of over £100, and, making the tax progressive, it taxed incomes of over £250, provided they exceeded by £50 a sum representing five per cent. of the taxpayer’s capital. For the valuation of real estate it adhered to the principle of fictitious capitalization, multiplying the incomes by 25 instead of 20, a co-efficient proposed by the Government and considered too favourable to the landed proprietors. The Princes were subjected to the extraordinary tax in the same way as private citizens; the assurance given by princely families, that they would contribute of their own free will, was not regarded as sufficient. On the other hand, against the advice of the Liberals, estates held in mortmain were exempted. The tax was to be collected in three instalments: the first, one month after the preliminary assessment, i.e. on December 31, 1913, the second in 1915, and the third on February 15, 1916.

A large number of the taxpayers were called upon to contribute to this “Defence Levy,” within two years, a third or more of their income. For manufacturers, bankers, commercial companies, and others who had capital in reserve, this sacrifice was not very hard to make. A landed proprietor, however, who lived on the income derived from his estate, would be compelled either to cut down expenses or to raise money on a mortgage. In the same way, a person who depended on the modest proceeds of his investments would have to sell or mortgage a portion of his holdings.

For permanent expenditure, the Committee rejected the increase in matricular assessments proposed by the Government, on the pretext that the Empire ought not to beg for alms from the federated States. On the other hand, it accepted, with some modifications of detail, the principle of taxing increments of wealth and capital. It exempted princely families, but not limited companies.

At the second and third readings, the Reichstag adopted the resolutions of its committee. On 30th June, the date recommended by the Government, the bill for financial cover was passed, as I have said above, by a notable majority, composed of the Liberal and Socialist groups, with which the Centre had combined, the Conservatives forming the bulk of the opposition.

It was a great victory for the more advanced elements, Progressive and Socialist. The Centre and the National Liberals rallied to their standard, being convinced that it was impossible to revive the Bassermann-Erzberger proposal. In point of fact, the bill passed by the Reichstag proceeded, to a great extent, upon the same lines as the measure proposed by these two deputies. A series of direct taxes, on an enormous scale, now swelled the resources of the Empire, while their yield, in accordance with the Bismarckian policy, was almost entirely reserved for the individual States. The Socialists would have liked to go further and throw the whole weight of this burden upon the shoulders of the privileged classes.

After all, the Reichstag vote was, in a way, a breach of the federal compact, and an invasion by the Imperial Parliament of the rights of individual States. It marked a stage in the journey towards complete unification of the Empire by means of fiscal processes. This encroachment by the central power was not accepted without a murmur by Saxony and the southern States. Their deputies in the Reichstag were forced to bow to the higher necessities pleaded by the Government, and to ratify a measure which claimed to be in the interests of the nation as a whole. It may be said that from this time onward the fiscal independence of the federated States ceased to exist.

The anger of the Conservatives found vent in the columns of their newspapers and the speeches of their leaders. Their representatives in the Reichstag, clinging to the Government scheme, had voted in sheer desperation against the new tax on increments of wealth and capital, nominally because it infringed the autonomy of the individual States, really because, in striking at increments in wealth due either to a rise in site-values or to inheritance in direct line, it assailed their position, privileged till then, as landed proprietors.