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1 The Tax Review 1 (1940)

handle is hein.tera/tafoutaxt0003 and id is 1 raw text is: SERIEs A MAY 1940 THE TAX REVIEW A Publication of the Tax Foundation, Inc., New York, N. Y. The Basic Issue Available measures indicate that the role of gov- ernment in the economy is substantially greater than a decade ago. Heavier tax burdens and larger public debts are a reflection of the changing role of govern- ment. Further narrowing of the private sector of the economy can occur only at the risk of losing some of the elements that are characteristic of a dynamic economy. Heavy overhead burdens affect business initiative and act as deterrents to the assumption of risks. These burdens must be controlled, if transition to a different form of economic order is to be avoided. High governmental costs are in part attributable to the demands of groups interested in specific pur- HE LONG-RUN TREND in the cost of govern- ment has been upward. Over a period of a century and a half the rate of increase has been greatly in excess of that for population. Of the numerous factors that have tended to bring about a higher level of govern- mental costs, participation in major wars and the pro- nounced change in the proportion of the population classified as urban rank among the most important. Wars inevitably mean higher costs, not only during their duration but for many years thereafter, if not permanently. Increasing debts, higher interest costs, pensions and re- habilitation programs, together with the dislocation of the price level characteristic of a war period, have resulted in the establishment of a new plateau for federal expenditures after each major war. By way of illustration, federal expen- ditures for 1870 were $310 million, as compared with $63 million for 1860. For 1923 federal expenditures were $3,295 million, while for 1915 they amounted to $761 million. For 1923 interest payments on the federal debt alone were greatly in excess of federal expenditures for all purposes in the prewar years.' 'Interest payments for the fiscal year 1923 were $1,056 million. In the five fiscal years 1912 to 1916, total federal expenditures ranged from $690 million to $761 million. poses of expenditure. An organized movement for economy sponsored by taxpayers is essential as a bal- ance against these demands. Qualitative analysis of budgets with a view to bringing public expenditures into conformity with what the community can reas- onably afford should be a basic objective of economy groups. Among the issues involved in the economy move- ment are the conditions of home ownership, the burden of business taxes and the preservation of the public credit. Ultimately, the problem is one of con- trolling the degree of socialization. The one basic issue is whether we wish to continue the way of life we have known. The increasing degree of urbanization that has marked our development as a nation has affected the number and quality of public services available to the average citizen. Systematic police and fire protection, parks and other rec- reational facilities, and longer school terms are merely a few of the items that place costs in cities at a higher level than those in rural communities.' THE POSTWAR YEARS Although public expenditures and tax collections were catapulted to unprecedented levels as a result of the World War, the situation in the United States during the decade ended in 1930 was not extreme. Federal finances regained an even keel soon after the close of the War. Substantial reductions in federal debt were effected, some taxes were eliminated, and rates for other federal taxes were reduced. It is true that reductions in federal debt were offset by the increasing indebtedness of state and local governments. Borrowings by these jurisdictions, however, differed from those of the Federal Government during the war years in 'The significance of large cities was shown by the data for 1932 compiled by the United States Bureau of the Census. Per capita costs for all cities over 30,000 were $58.81, as compared with $29.13 for those with 8,000 to 30,000 population.

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