The Willamette River Case: Costs 213 



million.^^ This annual sum, if not met by power consumers, would 

 be shifted to others. 



We have argued that where identical physical facilities are being 

 operated alternatively by the three possible developers, the costs 

 of money and differential tax liabilities mainly account for the 

 differences in charges to customers. The next problem is to deter- 

 mine how best to handle the distributive effects of the tax liabilities. 

 Two approaches to this question may be advanced. 



On the one hand, tax liabilities can be viewed as the result of 

 governmental policy directed toward a redistribution of wealth. 

 We can argue, for example, that in terms of the prevailing value 

 system there is some notion of an "equitable" distribution of 

 income and wealth; that individual and corporate tax liabilities 

 are merely consistent with a governmental responsibility to see that 

 income and wealth — and with these, influence and power — do not 

 become so concentrated as to infringe on democratic processes and 

 contradict prevailing sentiments of justice and equity. If taxes 

 were motivated exclusively by these considerations, we would not 

 be concerned by greater tax liabilities under one method of develop- 

 ment and operation than another, and we might properly ignore 

 the question of the distribution of the costs under alternative 

 approaches. The question would be raised, if at all, only in terms 

 of whether the intended objectives were in fact realized. 



But, there is another view of the proper accounting for tax 

 liabilities. This holds that the federal government is committed 

 to a certain level of public services because specific needs (such as 

 national defense and similar collective goods or services) cannot be 

 obtained by members of the community acting individualistically 

 through market choices. ^^ If we assume that the federal govern- 

 ment is committed to perform such sei"vices, and that tax liabilities 

 arise out of the need for their financing, we have a somewhat 

 different rationale for comparing the differences in costs stemming 

 from tax differentials and their distribution. 



In this study, we adopt the second alternative, and assume that a 

 certain amount of public revenue is required to perform the 



" This would represent construction costs of $22.4 million at an interest rate 

 of 5.5 per cent on an average of one-half of the construction costs over a two- 

 year construction period. 



" See William J. Baumol, Welfare Economics and the Theory of the State 

 (Cambridge: Harvard University Press, 1952). 



