6. If government lays an income tax, is it right that incomes below a certain amount, say $1,000, should escape the tax?

7. Should the expenses of a Fourth of July celebration be paid out of the public funds?

8. "Suppose you own a farm worth $5,000 and owe $4,000 toward the purchase price; how much are you worth? On how much should you pay taxes-$1,000, $5,000, or $9,000?"

9. State the evils of parsimony in public expenditures; the evils of extravagance. Which are the more dangerous? Read Prov. xi, 24. 10. Does the constitution of this State declare any general principle in reference to taxation?

Topics for Special Work.-Popular Taxation: 4, 293-318. Excises: 19, 169-181. Customs Duties: 19, 182-207. Municipal Franchises: 30, 456-463.

XXXVI

NATIONAL FINANCE

The Extent of the Federal Taxing Power. Nowhere else does the nature of the relation between the State and the federal government appear more clearly than in their power in reference to taxation. Recognizing that revenue is the life-blood of government, the framers of the Constitution gave to Congress an almost unlimited power to tax (44), and at the same time reserved to the States the power of raising their own revenues in their own way in such amounts and for such purposes as they might deem wise and proper. They restricted the taxing power of Congress in only three particulars: they provided (1) that duties and excises must be uniform throughout the United States (45); (2) that direct and capitation taxes must be apportioned among the States according to population (66); and (3) that duties cannot be laid on articles exported from any State (67). Except only as it is limited by these three provisions, Congress is free to levy any kind of tax it may see fit for any amount it may desire.

National Expenditures. At the opening of every regular session, Congress receives the report and recommendations of the Secretary of the Treasury, containing detailed estimates of the sums necessary for the support of the national government. With these estimates one may begin the study of national finance. They are prepared by the heads of the several departments, each stating the amount of money which he thinks his department will need during

the next fiscal year.1 The estimates of expenditure for the fiscal year 1910 will give an idea of the magnitude of national finance:

Though the Secretary of the Treasury presents to Congress the "Book of Estimates" containing the details of these enormous estimates, not a dollar of the estimates can be raised constitutionally without the consent of the Congress (69). As a matter of practice, the consideration of the estimated expenditures begins in the House of Representatives, where the recommendations found in the Book of Estimates are referred by the Speaker to the proper committees.

The committees virtually control federal expenditures. There is no limitation upon their power of appropriation, except that any appropriation for the support of the army shall not be made for more than two years (56). They take the estimates submitted by the Secretary of the Treasury and do with them as they please. Sometimes they accept them, sometimes they modify them, but often they ignore them altogether. It is their function to prepare

1 The fiscal or financial year begins July 1 and extends to

July 1 of the following year.

bills providing for the expenses of the government; and in this exercise of their duty they are entirely independent of executive authority. Quite often they invite treasury officials to assist them and advise them, but they are under no constitutional obligation to do so. The committees express their judgments in reference to the proper expenditures in the form of appropriation bills. These, like all other bills, must run the gauntlet of legislation. They must pass both houses and receive the signature of the President. When they have received the signature of the President and have become laws, the first step in national finance has been taken: it has been determined how much money shall be spent for the support of the federal government.

Federal Taxation-(Indirect). The second step in national finance is taken when Congress passes the laws for raising the money which it has decided to spend. While private individuals ordinarily estimate their income first and then decide upon their expenditures, governments are accustomed to estimate their expenditures first and to attend to the matter of income afterward. Bills for raising national revenue must originate in the House of Representatives (36), because the House directly represents the people. Post-office bills and bills relating to the mints and to the sale of public lands may originate in the Senate, and any revenue bill whatever may be modified to almost any extent in the Senate. The House Committee of Ways and Means has exclusive control of bills for raising revenue. Since this committee prepares the tax bill for the nation, it is justly regarded as the most important committee in Congress.

In the beginning of its history the federal government adopted the policy of raising its revenue by indirect taxation, and only in times of war has it departed from its original plan. The first Congress (1789) established a tariff (p. 329)-a law imposing customs duties on imports -and all succeeding Congresses have followed its example.

Tariff or customs duties are collected, by government officials, at ports of entry, from the importers of foreign goods. The duties are ad valorem when they are levied at a certain rate per cent. on the money value of the goods at the original place of shipment. They are specific when levied on articles according to quantity or number. For example, if the duty on gloves is forty per cent. ad valorem, a box containing six dozen pairs of gloves worth fifteen dollars a dozen produces a tax of thirty-six dollars. If the duty on gloves is specific, at eight dollars per dozen, the box of gloves in question produces a tax of forty-eight dollars.

The customs tax yields more than half of the national revenue, and more than half of the customs duties are collected at the port of New York. The customs tax is levied upon several hundred articles, but most of the tariff revenues are collected from manufactures of wool, cotton, silk, iron, copper and tin, and from sugar, fruit, liquor, wines, cigars, drugs and chemicals (p. 333). Among the articles admitted free of duty are: coffee, tea, anthracite coal, books over twenty years old, dyewoods and fertilizers.

Federal revenues not raised by duties on foreign goods are for the most part derived from excises-taxes on articles produced in the United States-and from a corporation tax, which is regarded as an excise. For a long time in our history excises were unpopular and were seldom levied. At the outbreak of the Civil War, however, when large sums had to be speedily raised, internal taxes became necessary, and almost every article, trade and profession was taxed. When the war was over the excise was made much lighter. At present only such articles as alcoholic liquors, tobacco, cigars, cigarettes, snuff, oleomargarin and playing-cards are subject to the internal revenue tax.

The Collection of Federal Taxes. Customs taxes are collected at about one hundred and twenty ports of entry by United States treasury officials known as collectors of customs. When the customs for any reason are not paid