OUR WAR TAXES COMPARED WITH WAR EXPENDITURES We come finally to the experience of the United States. When the United States entered the war it was confronted by two rival theories of public finances. One was to the effect that the war expenses should be defrayed entirely by war loans, as had been the case in the early years of the Civil War and as was true of many of the belligerents during this war. The other theory was that the war expenditures ought to be defrayed entirely out of war taxes. This was equally extreme and perilous as the former theory, and labored under the additional disadvantage of being impossible of achievement. The President went so far as to adopt the fifty-fifty theory, namely, that half of the war expenditures ought to be defrayed from taxation. The prodigious profits made during the beginning years of the European war and the resulting prosperity throughout the country enabled Congress to levy taxes far higher than had before been attempted in our history. Even with an immense addition to taxation, however, the proportion of war expenses derived from war taxes was relatively small. Here, again, we must observe the same caution as in the case of the British figures. We must not compare total expenditures with total taxes, but war expenditures with war taxes. War expenditures are easily ascertained by deducting for each year the amount of the expenditures for the last year of peace, the year ending June 30, 1916. In the case of war taxes, however, it is more exact to deduct from the total revenues the tax revenues for the year ending June 30, 1915. For during the year 1915--16 a number of taxes were already levied in preparation for our possible entrance into the war. As a matter of fact, during the first quarter of war ending June 30, 1917, the proportion of war expenditures derived from war taxes was less than one-third or 30 per cent. If we exclude loans to Allies on the assumption that they will all be repaid some day, the showing is somewhat better--as two-thirds of the expenditures of that period consisted of such loans. As soon, however, as we struck our full gait the situation was less satisfactory. The proportion of war expenditures derived from war taxes during the year 1917--18 was less than one-quarter or more exactly only 24.8 per cent. and if we again exclude loans to Allies, only 30 per cent. In the last year of the war the showing was still less favorable. If we take the expenditures for the entire period of our participation in the war the figures are respectively 21.7 per cent. and 27 per cent. For the entire period of our participation in the war, less than one-fourth (or exactly 23.3 per cent.) of the war expenditures were paid out of war taxes. And if the loans to Allies are again excluded the proportion is still under one third, or more exactly 32.5 per cent. [Illustration: Copyright Underwood & Underwood =Lord Reading=