FINANCIAL POWERS, CONSTITUTIONAL BASIS OF

world, and new devices were invented whereby the Treasury could exert an influence upon the money market, particularly during the administration of Secretary Shaw which extended from 1902 to 1907.

money market. The deposit of customs receipts as well as internal revenue receipts in banks has consequently been authorized; and a desire to place all the Government funds at the disposal of a banking agency is one of the arguments advanced in favor of a central bank (see BANK, CENTRAL) which shall hold Government deposits and act as the fiscal agency of the Treasury.

See APPROPRIATIONS, AMERICAN SYSTEM OF; BUDGETS, FEDERAL; COST OF GOVERNMENT IN UNITED STATES; DEBT, PUBLIC, ADMINISTRATION OF; DEBT, PUBLIC, PRINCIPLES OF; ExPENDITURES, FEDERAL; FINANCIAL POWERS, CONSTITUTIONAL BASIS OF; FINANCIAL STATISTICS; LEGAL TENDER CONTROVERSY; REVENUE, PUBLIC, COLLECTION OF; SUB-TREASURY SYSTEM; TARIFF ADMINISTRATION; TARIFF POLICY OF THE UNITED STATES.

According to A. P. Andrew, who has made a special study of this period, this administration "was marked by at least six significant departures from the paths of his predecessors:" (1) placing government money with banks upon other security than government bonds; (2) exempting banks from maintaining the legal reserves against Government deposits; (3) transferring to banks public money which had already been turned into the Treasury; (4) artificially stimulating the importation of gold; (5) deliberately withdrawing money from banks in certain seasons in order to redeposit it later; (6) forcing alternately the enlargement and retirement of the note issue, References: Among general financial discusby changing his order about deposit security sions are: A. S. Bolles, Financial Hist. of the as the Secretary saw fit. His policy was criti- U. S. (2d ed., 1884-1886); A. D. Noyes, Forty cised and some of these innovations will prob- Years of Am. Finance, 1865–1906 (1907); D. ably not be repeated. But there is a general | R. Dewey, Financial Hist. of the U. S. (3d ed., belief that the Treasury cannot maintain a 1907); bibliographies in D. R. Dewey, Financial position of isolation, and that statutory meth-Hist. of the U. S.; Channing, Hart and Turner, ods should be authorized, so as to bring the Guide to Am. History (1912). Treasury into closer relationships with the

DAVIS R. DEWEY.

FINANCIAL POWERS, CONSTITUTIONAL BASIS OF

The principal financial powers of the Federal | protection of domestic industry, is now largely Government as expressly defined in the Con- academic. Congress alone decides as to what stitution may be classified as follows: (1) to tax: (2) to expend money (Art. I, Sec. viii, ¶ 1); (3) to borrow (Art. I, Sec. viii, ¶ 2); (4) to coin money (Art. I, Sec. viii, ¶ 5).

Federal Taxation.-Congress is given power to impose all kinds of taxes, "to pay the debts and provide for the common defense and general welfare of the United States." Such taxes must be uniform throughout the country. Direct taxes, with the exception of income taxes exempted from the rule by the Sixteenth Amendment (1913), must be apportioned according to population; export duties are forbidden; and revenue bills shall originate in the House of Representatives, "but the Senate may propose or concur with amendments."

The present discussion is confined to the definition and interpretation of the above clauses as developed by experience. There has been much discussion as to whether the power of taxation is unlimited or restricted by the clause, following a comma, "to pay the debts and provide for the common defense and general welfare." The approved interpretation is that of limitation to those objects, viz., payment of debts, common defense, and general welfare. The discussion which formerly had a vital interest, particularly in its relation to the constitutionality of levying duties for

Prac

will promote general welfare; it therefore tax-
es not only for education (see), but for exposi-
tions (see), parks in remote sections of the
country, the protection of seals whose skins can
be used only by the wealthy; the preservation
of game (see) on a National Bison Range; or
for the erection of monuments (see).
tically, therefore, the federal power of taxation
is unlimited, except in one particular; by
judicial interpretation it has been held that
Congress cannot tax the instrumentalities of
state governments; for example, it may not
tax the income of a state judicial officer, the
processes of state courts, or state bonds, or a
municipal corporation in respect to its revenue.

The provision that taxes shall be uniform
| refers to uniformity in all parts of the country,
not to uniformity of incidence; one rate may
be imposed upon an individual and another
upon a corporation, provided that they bear
alike in all sections. This clause has created
some embarrassment in dealing with the new
insular possessions, the Philippine Islands and
Porto Rico, but the Supreme Court has decided
that as these possessions are not foreign coun-
tries, the ordinary tariff duties on imports do
not apply. There is difficulty in the levying of
direct taxes (see TAXES, DIRECT), due to un-
certainty as to the meaning of the term direct.

FINANCIAL POWERS, CONSTITUTIONAL BASIS OF

The courts have decided that while a tax on individual income is a direct tax, a tax on the income of corporations (see CORPORATIONS, TAXES ON) is indirect; so, too, a tax on state bank note circulation (see BANK NOTES). The adoption of the Sixteenth Amendment in 1913, however, authorized the Federal Government to levy a tax on incomes, and the income tax was established by Underwood Tariff Act (see). Although the Constitution undoubtedly intended that the House of Representatives should bear the main responsibility in framing revenue measures, the development of congressional procedure has practically nullified that requirement. The Senate not only freely amends bills, but in one instance, 1871, completely revised a House bill by substituting for a brief bill of four lines covering rates on two commodities, a measure of general revision, twenty pages in length. In all of the recent tariff bills the Senate has been powerful in the final determination of rates.

Federal Appropriations and Expenditures. The only constitutional references to the expenditure of money are that no money shall be drawn from the Treasury except in consequence of appropriations made by law; and that appropriations for the Army shall not be for a longer term than two years (Art. I, Sec. ix, ¶ 7; Sec. viii, ¶ 12). Under the general division of powers between the executive and administrative branches, the President is given little opportunity to participate in the framing of a budget (see), and this separation, by many considered unfortunate, is partly responsible for the haphazard adjustment of revenue and expenditure characteristic of American finance.

court held that the issue of legal tender notes is incident to the right of coinage.

Powers of the States. The provisions of the Federal Constitution relating to the financial powers of states are not explicit (AMENDMENT X); and it has been left to the courts to develop principles under constitutional interpretation which shall guide the states in shaping their financial policies. The only express declaration in the Constitution (Art. I, Sec. x, 2) on taxation prohibits states from levying import or export duties, except what may be necessary to execute inspection laws, nor shall they lay any duty on tonnage. States cannot tax any of the instrumentalities of the Federal Government; they may not tax land or buildings owned by the National Government, or bonds or currency issued by it, unless Congress waives its sovereign right and grants the privilege, as it has (1894) in the case of Treasury notes. That part of the capital stock of a national bank invested in United States bonds may not be taxed to the bank, though shareholders may be taxed on their certificates of stock. Nor can federal officials be taxed on their official income. A corporation chartered by Congress, if undertaking functions of the Federal Government, may not be taxed; thus the property of branches of the Second United States Bank was exempt, and so the franchise and property of the Pacific Railroad which was engaged in carrying mails and troops during the Civil War.

The exclusive power of Congress to regulate foreign and interstate commerce (Art. I, Sec. viii, ¶ 3) deprives states of the right to tax commercial operations between this and foreign countries or between states. A state cannot levy a special tax on sales made by importers or dealers in goods not produced or manufactured in the state, or bills of exchange drawn in one state and payable in another, or an occupation tax on telegraph companies, or tax locomotives and cars used as vehicles of interstate commerce. According to the Fed

Federal Power to Borrow. The power to borrow is unlimited as to method. Congress may borrow by the sale of bonds or by the issue of Treasury notes either with or without interest. Under this power it has been decided that Congress may charter a bank which may act as an agency in securing public loans (McCulloch vs. Maryland); and the applica-eral Constitution (Art. IV, Sec. ii, ¶ 1) the tion of this principle justifies the creation of national banks which are obliged to invest in Government securities. So unrestricted are the conditions under which the Government may borrow, that the Supreme Court has decided that promissory notes bearing no interest may be made legal tender; the power to borrow money includes the power to issue obligations in any appropriate form; and, if desired, in a form adapted to circulation from hand to hand in the ordinary transactions of commerce and trade (see LEGAL TENDER CONTROVERSY).

Coinage. Under coinage it has been held by some that the power does not refer exclusively to the making of metallic money, but also includes the issue of paper money. This opinion has been endorsed by a federal judge (Justice Strong, 52 Pa. 67); and in the legal tender case (see), Juilliard vs. Greenman (1884), the

citizens of each state are entitled to all the privileges and immunities of citizens of the several states; taxes, therefore, cannot be imposed in abridgment of these privileges. A state cannot tax citizens of other states at higher rates than it imposes on its own citizens; nor can a state impose taxation which is repugnant to treaty obligations. Corporations are not citizens within the meaning of the clause of the Constitution; consequently the rule of uniformity is not here imperative. In general the financial powers of all local governments are delegations from the state governments, and they are subjected to the same constitutional limitations as the states.

A fundamental right underlying the Constitution, but which has been given distinct enunciation by the Fourteenth Amendment, since its adoption in 1868, has had an important

FINANCIAL STATISTICS

FINANCIAL STATISTICS

Year

FINANCIAL STATISTICS

TABLE I. MONETARY CIRCULATION, NOT INCLUDING TREASURY HOLDINGS (1800-1910)

1810

1 Estimated; probably the larger part of it is lost or destroyed.

TABLE III. AMOUNT OF EACH KIND OF MONEY IN THE UNITED STATES (1865-1909)

1865

1870

1875

1900

1905

1909

TABLE VI. IMPORTS AND EXPORTS OF GOLD, SHOWING NET BALANCE (1864-1912)

TABLE VII. RELATION OF NEW YORK CITY NATIONAL BANKS TO ENTIRE NATIONAL

BANKING SYSTEM (1870-1909)

TABLE VIII. NUMBER OF BANKS IN THE UNITED STATES (1880-1909) 1

(National, State, Savings and Private Banks and Trust Companies)

1 Materials in Statistics for the U. S. (issued by National Monetary Commission, 1910).