This compares favorably even with the British figures. But it conclusively shows how impossible it is even with the best of will, to raise more than a relatively small part of war expenses from war taxes; especially during the early period of a war.
CHARACTER OF WAR TAXATION
The next point of interest is that of the character of the war taxes imposed by the various countries. Here again we notice a very great difference. In all of the European belligerents on the continent, at least as much additional revenue was raised from direct, as from indirect, taxation. In France about as much new revenue came from indirect taxation or taxes on consumption as from direct taxation or taxes on wealth.
The situation is still less satisfactory in the other continental countries.
In England, on the other hand, a different path was pursued from the beginning. While it is true that a considerable increase of revenue was derived from indirect taxes like customs and excise, the chief reliance was placed on the increase of the income tax, on a new war profits tax and finally, although to a minor degree, on an increase in the inheritance tax.
When we come, however, to the situation in the United States we find the democratic movement so strong that the overwhelming proportion of the new tax revenue was derived from direct taxation on wealth rather than from indirect taxation on consumption. In the great Revenue Act of 1917 over 79 per cent. of the new tax revenue came from direct taxation, principally the income tax and the excess profits tax. In the second great Revenue Act of 1918, the proportions were still more favorable, the amount ascribable to direct taxation in 1919 being almost 81 per cent.
| UNITED STATES | ||||
|---|---|---|---|---|
| Internal Revenue Receipts | ||||
| In millions of dollars | ||||
| Year ending June 30 | 1918 | Per Cent. | 1919 | Per Cent. |
| Income and profits taxes | 2,839 | 2,596 | [20] | |
| Munition manufacturers tax | 13 | |||
| Estate tax | 47 | 82 | ||
| Corporate capital stock tax | 25 | 29 | ||
| —— | —— | |||
| Total taxes on wealth | 2,924 | 79.1 | 2,707 | 70.5 |
| Distilled spirits | 318 | 365 | ||
| Fermented liquors | 126 | 118 | ||
| Tobacco | 158 | 206 | ||
| Stamp taxes | 19 | 37 | ||
| Transportation | 71 | 234 | ||
| Insurance | 6 | 15 | ||
| Excise taxes | 37 | 78 | ||
| Soft drinks | 2 | 7 | ||
| Admissions | 26 | 51 | ||
| Miscellaneous | 8 | 22 | ||
| —— | —— | |||
| Total taxes on consumption, transactions and commodities | 771 | 20.9 | 1,133 | 29.5 |
| Total | 3,695 | .... | 3,840 | .... |
[20] As the new taxes are payable in instalments, about 2 millions of the 1919 tax will not be received until the fiscal year 1920. Making allowance for this the proportion of taxes on wealth really ascribable to the year 1919 rises to 80.6 per cent.
With the impossibility of securing more than a comparatively small proportion of the war expenditures from taxation, it accordingly became necessary to resort to borrowing. This was consequently done by every country on a gigantic scale; although here again the fiscal and economic conditions in the various countries were so different that they employed quite diverse expedients.
Great Britain provided at the outset of the war for immediate needs by the selling of short time securities, principally Treasury Bills. Before long these had amounted to such a sum that it became necessary to issue long time bonds. Accordingly, subscriptions were invited to the first war loan, which was issued on March 1, 1915, followed by the second war loan on June 1, 1915. These bore interest at the rate of 3½ and 4½ per cent. and the amount issued was $1,703,000,000 and $2,883,000,000 respectively. On February, 1916, a continuous issue of War Savings Certificates was inaugurated. On April 15, 1917, the third war loan was issued at 4 per cent., followed on June 1, by the issue of 5 per cent. bonds. Of these $4,811,000,000 were issued.