Opposed to those who advocate the extensive use of loans for financing a war are the advocates of the extensive use of taxation. Since the burden must be met from taxes eventually, whatever the method adopted at the time, the extensive use of taxes from the beginning is considered to have many advantages. Since loans, in a material sense, do not decrease the burden which falls upon a people engaged in conducting a war, the taking of the necessary amount by taxation would not cause a greater burden than borrowing. One significant result of postponing taxes by borrowing is to make them much heavier in the end.

Taxation and Prices. - The extensive use of taxes, on the other hand, will be conducive of much good. The burden to the government and its citizens will be materially lessened. The probability of inflation which comes from loans is lessened, consequently the resulting rise in price does not occur, and neither the government nor individuals must pay increased prices for the products which they demand. It may be possible to use the tax system also as a means for stabilizing prices. Before the advent of war, individuals have been accustomed to spend their incomes for certain classes of goods. After the advent of the war they cannot buy as many goods because production has been deranged to supply the materials necessary for the prosecution of the war. The result is likely to be an increase in price for the materials which are available for individual consumption. If, however, taxation were increased in proportion as the available goods were decreased, then prices would tend to remain the same and no burden would be felt. The individual gets just as many goods, the only difference being that he does not have to turn over more money to get them.

Drastic taxation at the beginning of a war may accomplish other benefits for its prosecution than the supplying of revenue. One of the necessary adjustments, and one which must be made quickly, is the transfer of men and women workers from nonessential industries to the production of war materials. A taxation so severe that little would be available to be spent for nonessentials, would cause the production of such commodities to cease, and their producers to seek places where there is a demand for their services. This would not only supply the needed workers, but would take them from those industries from which they can best be spared.

Exaggerated Objections. - Some objections to the extensive use of taxes are frequently exaggerated. Much is still made, in some quarters, over the fact that borrowing is the time-honored method of financing a war. But with the successive breaking of historic precedence during the Great War, this statement bears no weight, unless reasons be advanced for continuing the policy. The objection that taxation will have a deterrent effect upon industry, at a time when it needs all possible encouragement, is more searching. As to this situation, however, much will depend upon the kind of the tax, the height of patriotic zeal, the possibilities of evasion, and similar considerations. War is a period of prosperity for the industries which survive, and they are, to an increased extent, able to meet the burden. Large returns are received from war contracts, prices are rising, and profits are swelling, while the derangement of industry causes hesitation in the investment of the newly created capital. A tax which is wisely imposed may take a large part of this war-created wealth without causing any check upon the exertions of » labor or capital. Taxes may, indeed, often be a spur to greater effort, so as to secure a larger differential margin after the tax is paid.

Individual Attitude. - If patriotism is running high, there is scarcely a limit to the tax burdens which individuals and industry will willingly bear. If the motivating force in production is patriotism rather than private gain, there need be no fear of seriously handicapping productive enterprise by heavy taxes. After the war, however, this patriotic motive will have passed, and it may be much more difficult to put into effect a satisfactory scheme of taxes. Those who are most able to bear the burden will be much more concerned about shifting it to other shoulders. To be successful during a war, a tax system should be accompanied by an efficient administrative machine, so that justice can be secured in reaching all the sources which should contribute. Not only should all the sources be reached, but evasion of the tax should be made difficult, and it should be made difficult for the burden to be shifted to others than those who should bear it. To accomplish this in its entirety, of course, is impossible, but the more nearly the ideal is approximated, the more just and successful will be the use of taxes.

Equalization of Burden. - The extensive use of taxes tends to equalize the burden of a war upon the different classes of citizens to a much greater extent than the use of extensive borrowing. Not only is this true of the civilian classes, but the burden is more equally divided between the soldier and the civilian. Suppose, for instance, two citizens, at the beginning of a war, each of whom is receiving a salary of $10,000. One goes to the front and gives up his salary; the other remains at work and buys bonds with all above mere living expenses. As far as monetary sacrifice is concerned, each is giving up the same amount. The situation changes, however, after the war. The returned soldier enters his old position, and both are taxed to pay for the bonds held by the one who remained at his job. To have equalized the burden, the amount taken from the civilian should have been in the form of taxes rather than loans.

Consideration of Expediency. - Much care must be used in formulating a tax system which will meet both the requirements of justice and expediency. That system will most nearly approximate justice which imposes an equal burden upon all classes. To go the limit which justice might sanction, however, might not be expedient. A government, for example, might be justified in taking all the returns of industry which have arisen from war activities, or even all returns which are not specifically needed for reinvestment in essentially war activities. The effect of such a policy on economic activity might be disastrous, and so expediency suggests an approximation of justice through the use of steeply progressive tax rates. A more extensive use can be made of taxes upon business, with less burden, than upon other bases, because there is less risk in business undertakings. A larger percentage of necessities is being produced for which the market is more assured, than for other classes of goods. Expediency would sanction, also, the use of taxes upon commodities, but because of their regressive nature their use should be tempered by the requirements of justice.