Referendum on Financing the War, May 12, 1917


Referendum on Financing the War


Democracy is futile so long as a people, even though possessing the tradition and the forms of self-government, remains inarticulate as to so important a matter as the method of financing the extraordinary obligations of war. At the very birth of self-government in America, at the time of the Revolution, the states established their constitutions by a referendum vote thereon. Today, when the nation is engaged in its first great international enterprise in the name of and for the sake of democracy, it is appropriate that various groups of American citizens (in the absence of any official means of testing the voters' will), should be made articulate by carefully prepared referenda inquiring how the colossal burden of the war expense should be borne.

In the past, wars have left a huge burden of debt. The poor have fought the battles, and when the soldiers have returned and resumed industrial pursuits, they and their children, chiefly, have borne the debt and its interest. One of the most conclusive evidences of the progressive effect of democracy is the indication of a reversal of popular sentiment concerning the relations of public to private interests in war time. There seems to be a widespread determination that eminent financiers shall not claim immense sums in commissions and profits as a result of this war. Our Government has its own financiers. Sentiment seems also thus early determined that there shall be no inordinate private profits on supplies to the Government. War bears hard in many ways upon the masses. Should it be possible for a few to become wealthy because of this war, as has been done during past wars?

The Key to the Best Source of War Revenue.

There are many reasons why the cost of a war should be paid during the war by taxation, and not by creating a debt. Those who invest in war bonds do so chiefly from their current income. This is the key to the best source of revenue -- a tax on incomes in excess of necessity for reasonable comfort in one's customary station of life.

The effect of cutting down huge private incomes as herein contemplated will not interfere with the proper sustenance and schooling of any child, nor will it cripple any of the normal, proper and necessary functions of personal or community life. It may reduce the demand for racing cars and luxurious limousines, and curtail the use of private yachts. Is it not better that the money that would otherwise go into such things should go into "tanks" for the firing line and submarine chasers? Also some butlers may have to be discharged, and the swarms of lackeys and servants in some vast private establishments may have to be reduced. It will be a decided gain if these are added to the ranks of agricultural and munition workers. In war time it is necessary that every force in the nation be brought down to a basis of utility. At a time like this, when civilization is in the balance, the nation is like a household, and it must practice household economies. Indeed the entente nations are becoming amalgamated into a single community of interests in which all must eliminate private extravagance, and present its maximum of real service to the common cause.

Must the Rockefeller, Carnegie and Sage undertakings, and other important philanthropies, be stopped? No; they can easily be continued during the war out of their capital. All those interests have an important stake in the war.

We must do what the other nations in the war have failed to do: we must protect our women and children from privations and long hours of labor and injurious kinds of labor during this emergency. They are of vastly greater importance to the future of the nation than would be the perpetuation of excessive private incomes. If we decide that the latter shall be curtailed, it can easily be done, for there is nowhere in the world that the wealthy could go and continue to receive fabulous incomes, even if they should desire to expatriate themselves. Let us hope that they are as patriotic as they profess to be.

The conscription of income was advocated in a scholarly article upon that subject by O. M. W. Sprague, Professor of Banking and Finance at Harvard University, in the New Republic for February 24th. He suggests starting with a 10% tax on incomes of $1500, increasing by successive stages to 50% on incomes of $40,000, and advancing so as to take all of incomes in excess of $100,000 during the war.

Both Congress and the White House have evidently been interested in and influenced by the discussions on the above mentioned plan of financing the war. But those in control of our Government are still in the dark as to what the most enlightened opinion of the country on this question is. Hence it is desirable to determine this opinion and to publish the result for the information of the Government and all concerned. The first question to be considered is:

Shall incomes in excess of necessity for comfort be conscripted during the war, as the chief reliance for meeting the expenses of this war?

([manicule] See and mark question No. 1 on accompanying ballot.)

What Incomes Shall be Exempt?

Assuming that Congress shall have decided to conscript incomes, it then becomes necessary to establish the point at which the income tax should begin. Many think that the present exemptions ($3,000 for single and $4,000 for married persons) should be reduced; but it is also argued that small incomes already bear an unusual burden in the vastly increased cost of living, which will quite certainly increase much more. And is "married" a sufficient discrimination? Should not dependent children also be [page 2] taken into [account? A?] man who is supporting a family of [growing children?] in war time is certainly doing something [for his?] country.

[With these?] considerations in mind, let us formulate a [scheme that?] will permit the expression of varied opinion. [All] agree that "small" incomes shall be exempted from taxation; but how small? We will also accept the discrimination of $1,000 in favor of a married person, if the wife or husband, as the case may be, is dependent -- not otherwise. And shall we allow, say, $300 for each dependent child? If the allowance of $1,000 for a dependent consort seems considerable, it must be remembered that married people are expected to maintain homes; and homes constitute the foundation of the nation.

Understanding, then, that the exemption of $1,000 for dependent consort and of $300 for each dependent child is to be added, where should the income tax begin? Should it be at $1,000, at $1,500, $2,000, $2,500 or $3,000? It will be noted that in the last case the exemptions added for consort and child would bring the total income exempted up to a point higher than the exemption under the existing income tax law. The same would be true of the next lower amount with exemption added for more than one child.

([manicule] See and mark question No. 2 on accompanying ballot.)


The starting point of taxable incomes being established, what shall the lowest rate be, and what the rate of progression. One per cent., as talked of in Washington, is a very low beginning; and 10%, as proposed by Prof. Sprague, is a very high beginning. What will the leaders of thought say on this point? Shall the minimum income as above indicated be taxed 1% or 2% or 3% or 4% or 5% or 6% or 7% or 8% or 9% or 10%?

([manicule] See and mark question No. 3 on accompanying ballot.)


Having established the minimum income to be taxed, and the minimum rate, what shall the rate of progression be? If the minimum amount for an unencumbered person be $1,000, and if the rate begin at 1% and progress 1% for each $1,000, 50% would be reached at $50,000. To continue the progression beyond 50% at 1% each additional $1,000 would defeat the plan and defeat justice, for 100% would be reached at $100,000, which would take the entire income. Some other plan of progression above 50% would have to be adopted, say an increase of 1% for each $5,000 of additional income until the next turning point is reached (which would be at $150,000). Then reduce the rate of progression again, and so on until the income left after deducting the tax is $100,000, taking all income over that amount, according to Prof. Sprague's plan. The above illustration shows that the subject of progression is a technical mathematical problem, and difficult to present in the form of a definite question.

Maximum Private Income Permitted.

Also we must inquire, where shall the progression stop, the tax taking all income beyond that point? Some private incomes are so large that the proposition of the United States Chamber of Commerce, "40% of the largest incomes," would still leave a very large income to certain persons; so large that these persons would not really share in the sacrifice that should be universal during war time. An official estimate now before the writer shows that 329 persons in this country receive, each, an income of $500,000 or more! The same estimate shows that 13,553 persons in this country receive, each, an income of over $100,000. The House revenue bill just reported places only 8% on incomes between $40,000 and $60,000. It progresses to only 17% between $100,000 and $150,000, and to only 30% between $300,000 and $500,000, and only 33% on incomes of over $500,000.

Certainly if a conscripted man must leave his business, his prospects, and risk his life at a pittance per day and his feed, a conscription of income which leaves $100,000 per year to the taxpayer cannot be complained of. Indeed it would be an incomparably less hardship to live on a maximum income of $50,000 or $25,000 during the war than to accept the hardships and the risks of the conscripted men. Is it less democratic to conscript all private income beyond a certain maximum than to conscript the bodies and lives of men?

Shall the maximum income permitted to an individual during this war be $25,000; or $50,000; or $75,000; or $100,000; or $150,000; or $200,000?

([manicule] See and mark question No. 4 on accompanying ballot.)

In the older countries, a discrimination is usually made between earned and unearned incomes, placing a higher tax on unearned incomes. But in this country the class which lives on unearned incomes has not yet (and may it never) become so distinct as to justify separate consideration.

Shall We Avoid Old Methods?

We are going on the theory of making at least an attempt to equalize the burdens of war. The United States Chamber of Commerce does not proceed on this theory. Its plan is to reduce present exemptions and rise to a maximum of 40% on the largest incomes, and increase the excess profits tax. This would still leave about three-fifths of the cost of the war to be raised by stamps, customs and excises, going back again to old theories and methods.

The herein presented plan of income taxes would alone pay the war expenses "as we go." However, it may be necessary to continue these taxes after the war until the short-term obligations, issued temporarily at the beginning, are paid, which would be only a comparatively short time, and then there would be no war debt. It is unnecessary that the excess profits tax be increased if incomes are conscripted according to some such plan as the above, for the excess profits would usually become excess income, and would be caught by the excess income tax.

Why does Congress impose on men of standard physique between the ages of 21 and 30, the entire duty of fighting this war? The answer is, because they are physically the most fit and able to fight. Why should Congress impose on men receiving incomes far beyond their personal and family necessities the duty of paying the expenses of the war? The answer is self-evident; because they are financially the most fit and able to pay. In fact, they can do so without any actual suffering of any kind, while the physically able men who go to the front must endure extreme hardships, face extreme dangers, and many of them may meet a horrible death, and many more may be seriously wounded. None of these horrors will come to the man who stays at home and is [page 3] required to yield all his income beyond, say, $25,000, $50,000, or beyond the extreme limit of $100,000 per year. He is asked to pay because he is financially able to do so, just as the strong young man is asked to endure hardships and risk his life in fighting, because he is physically able to endure hardships and fight. As to the rest of us, we will have our burdens to bear, too -- none will escape -- none should escape. But the man who yields all his income beyond one of the above mentioned amounts will still be the luckiest of all, for he need suffer no hardship of any kind. War must be fought by those who are able to fight; and the expenses should be paid by those able to pay.

Finally, let us invite an expression on the primary question, put in a different way. Should the proposed conscription of incomes involve a complete departure from the old plan of war finance, such as stamp taxes of various kinds, and increased duties on commodities, excises, postal rates, etc.? Do you want Congress to avoid all such forms of taxation and increases of present taxation in financing the present war? It may be here stated that the official list and estimates of incomes now before the writer show conclusively that sufficient revenue to pay the war expenses can easily be gotten from some such method of income taxation as suggested above, without such taxation being oppressive; and this method of raising war funds does not cause the disturbance of business, markets, prices, etc., as do extensive bond issuing and all other methods of raising war funds.

([manicule] See and mark question No. 5 on accompanying ballot.)


Kindly mark each question on [enclosed] ballot, then date, sign and return the marked ballot in [enclosed] stamped return envelope. This sheet need not be returned. Please do not delay. Results will begin to be reported as soon as a sufficiently large number of votes have been received to indicate the trend of opinion; and supplementary reports will be made from time to time. These reports will be offered to the press and also sent to members of Congress. A complete report will be made in the next (July) issue of "EQUITY."

The editor of "EQUITY" feels the importance of assembling opinions on the above questions from those constituting a large percentage of the best trained minds in this country; and this purpose, it is hoped, will justify what some may regard as a pretentious undertaking on his part. In war time we must not hesitate to serve our country in any and every way we can. There can be no doubt that an assembling of the opinions of our economists, political scientists and sociologists on the above questions would be a patriotic service at the present time. The giving of these opinions will be an exercise of democracy, and democracy is an officially declared stake in this war.

In order to assure fidelity in the count of ballots, and at the same time to maintain within reasonable limits the secrecy that some of the voters may desire, the president of each of the three bodies mentioned, the American Economic Association, the American Political Science Association, and the American Sociological Society, is invited to appoint a member or a committee of members of his respective organization to inspect the ballots and verify the count.

Thank you in advance for your vote, which is sought as an individual expression, and in no sense indicating the opinion of any organization to which you may belong.

Respectfully submitted by


Charles Fremont Taylor, Editor,
1520 Chestnut St., Philadelphia.