The Willamette River Case: Costs 215 



related to the amount of such funds. It is true that when funds 

 are raised by taxation, they are not supplied voluntarily, but rather 

 in response to the implicit threat of coercion embodied in taxing 

 authority. A certain marginal sacrifice is faced by the taxpayer, 

 whether measured by his time preference (if he borrows for con- 

 sumption purposes) or the alternative opportunities for returns 

 (if he invests his savings). But not even these rates are determina- 

 tive in the final analysis of the cost with which we are concerned 

 here. 



The center of attention is rather the difference between these 

 rates (average of 5.5 per cent in our computations) and the rate of 

 return to the investment for which the taxes were raised. As an 

 extreme example: If a small amount of funds raised by taxation 

 were invested by the federal government in some enormously high- 

 return opportunity open only to it, and these returns were adequate 

 to provide in perpetuity for all of the public services normally 

 required of the government, it would be difficult to argue that 

 elimination of all future taxes would not compensate for supplying 

 in the current year the small sum necessary to accomplish this 

 objective. Similarly, if the rate of return to the federal investment 

 exceeded the opportunity cost of the funds raised, periodic repay- 

 ment of investment funds with interest to the U. S. Treasury would 

 justify, under our assumptions, an equivalent reduction in taxes. 

 Costs would arise only if the returns to the federal investment were 

 less than the opportunity costs of funds raised by taxation. ^^ 



Except for the purely local question of probable shifts in tax 

 burdens, we are primarily interested here in the incidence of costs 

 on two fronts. First is the difference between the opportunity costs 

 of capital raised by taxation and the assumed financial rate of 

 return to federal hydroelectric power development — corrected for 

 the difference between the fifty-year and the ideal term of amortiza- 

 tion discussed above. Second is the effect of shifts in the incidence 

 of federal tax liabilities. 



The problem may be stated thus: With public development 

 taxes would have to be increased (or could not be reduced), and 



" If we are concerned with efficiency alone, economic returns must equal 

 opportunity costs, whether financial returns do or not. But if no shifting of 

 tax burdens is to be experienced, financial returns, and corresponding repay- 

 ments to the Treasury, will have to be equivalent to the opportunity costs. 



