the goods are held in the custody of the collector until the tax is forthcoming. For the purpose of collecting the internal revenue the country is divided into districts. For example, Pennsylvania is divided into four internal revenue districts, in each of which there is a federal collector of internal revenue, assisted by a corps of deputies. The deputies visit the distilleries and breweries and cigar and tobacco manufactories in the district and bring all taxable goods under the workings of the law. The federal government collects its revenue in an economical manner. The cost of collecting the customs is only about three per cent. of the amount collected, while the cost of collecting the internal revenue is even less. The method by which the federal taxes are collected is popular as well as economical. Collectors receive the taxes in factories and custom-houses and do not attract the attention of the public. If they should come directly to individuals to demand the taxes they would doubtless be unwelcome visitors. The direct collection yearly of fortyfive dollars-the approximate amount per voter that is required to support the government-might seem to a man in Texas or in Maine to be a very heavy tax for the support of the government in Washington, and might be accompanied by difficulties. Direct Federal Taxes. Although federal taxation is mainly indirect, direct taxes may nevertheless be laid. In fact, the federal government has upon five occasions (1798, 1813, 1815, 1816, 1861) levied direct taxes. Decisions of the Supreme Court have determined that the capitation or polltax and the tax on land are direct taxes within the meaning of the Constitution (66). The workings of a direct federal tax may be made plain by an illustration. Suppose the federal government wishes to raise eighty million dollars from a land tax. It must apportion this amount to the several States according to their population. New York with a population of eight millions, or one tenth of the entire population of the United States, would pay one tenth of the tax, or eight million dollars; Missouri, with a population of four millions, would pay one twentieth, or four million dollars. Missouri would therefore pay one half as much as New York. This would not be just, for the reason that the total value of the land in Missouri is not half the total value of the land in New York. Because the constitutional provision no longer permits an equitable distribution of a direct tax, it is not likely that the federal government will again resort to this form of taxation. When a direct tax is laid by the federal government, the proper sum is apportioned to each State, which is allowed to collect its share in its own way. If a State should refuse to pay its part, the federal government would send its collectors to distrain upon and sell the property of such taxpayers as refused payment. Here is seen the difference between government under the Constitution and under the Articles of Confederation. The Congress of the Confederation could ask a State for money, but could do no more; the federal government under the Constitution can ask, and, if necessary, may sell property to get the money. In 1894 Congress passed a law levying a tax on incomes; but the Supreme Court of the United States practically nullified the law by declaring that an income tax is a direct tax and must be apportioned among the States according to population. The effect of this decision is to restrict the federal government to excises and customs as the main source of revenue.1 A just and equitable direct tax will not be possible until the Constitution is amended. 1 Mr. H. C. Adams suggests that if the necessity should arise the federal government should increase its revenue by means of a tax on inland and interstate commerce. See his "Finance," p. 296. QUESTIONS ON THE TEXT 1. What are the powers of the federal government and what are the powers of the State in reference to taxation? 2. What three restrictions does the Constitution place upon the taxing power of Congress? 3. What is the "Estimate of Expenditures'' Name some of the items in this estimate. 4. To what extent does the executive department determine appropriations? 5. In which House do bills for raising revenue originate? Why? 6. What is a tariff? What is the difference between ad valorem and specific duties? 7. What articles yield the greater part of the federal revenue? What articles are admitted free of duty? 8. What articles are subject to the internal revenue tax? 9. How are the federal taxes collected? 10. What are the advantages of indirect taxation for federal purposes. 11. What kind of taxes are direct within the meaning of the Constitution? 12. Illustrate the workings of a direct federal tax. 13. How are direct federal taxes collected? 14. Can the federal government levy an income tax? SUGGESTIVE QUESTIONS AND EXERCISES 1. Estimate how much this State contributes to the support of the federal government, assuming that it contributes according to its population? Is this sum greater or less than the amount raised for the purposes of the State government? 2. Do the people who live at a port of entry pay all the taxes that are collected at the custom-house? 3. An orator wishing to illustrate the generosity and patriotism of his people pointed out the fact that three times as much of the internal revenue tax was paid in his State as in any other State. Point out the fallacy of the illustration. 4. Collect all the provisions of the Constitution that bear on the subject of taxation. Compare the Constitution with the Articles of Confederation in respect to taxation. 5. Which would you prefer to pay, direct or indirect taxes? 6. What is meant by smuggling? What articles are easily smuggled? Should taxes on these articles be light or heavy? 7. Name the principal ports of entry in the United States? What is done with the money which is collected at these ports? 8. How much per voter does it cost to support the national government? 9. Is the money you pay for a postage-stamp a tax? 10. Of the articles which are mentioned in the text as being taxed are there any which should go on the free list? 11. Under the Constitution can the Senate originate a bill to revise the tariff? 12. What is the difference between an appropriation bill and a revenue bill? Topics for Special Work.-Taxation in the United States: 21, 550558. Customs Administration: 16, 97-105. Internal Revenue Service: 16, 105-112. Collection of the Revenue: 30, 448-452. XXXVII STATE FINANCE The Taxing Power of the State. In the days of the Confederation the power of the State to tax was full and complete, but by the adoption of the Constitution the taxing power of the State was to some degree restricted and abridged. Since one of the chief objects of the Constitution was to secure easy trade relations between the States, taxation on exports and imports was prohibited to the States and placed under the control of Congress (74). With the view of further protecting the freedom of commerce, the Constitution forbids any State to levy without the consent of Congress any tonnage duty, that is, any tax on the carrying capacity of a vessel (76) -a prohibition which applies to all instruments of commerce. A State cannot impose a tax on "tonnage passing through, from or to a State or foreign country, be it on railway, canal, river, or otherwise." Moreover, since "the power to tax is the power to destroy," a State cannot tax the agencies by means of which the federal government is enabled to exercise its functions: it cannot tax the bonds (p. 288) of the federal government, or its property, such as its lighthouses and post-office buildings, or the salaries of its officers, or the public money in its treasuries, or the metals in its mints. Aside from these restrictions, the State is free to tax all taxable objects within its borders. The Authority for State Expenditures. Although they may differ somewhat in detail, the financial system of the |