FINANCE, STATE SYSTEMS OF Expenditures.—Approximately 55 per cent of the aggregate government expenditures in the United States were disbursed by local governments in 1902-almost three-fifths by cities. Besides costs of administration, the local expenditures were mainly for education, roads and bridges, courts and prisons, char erty, and prepare tax lists at rates which will yield the requisite sums including the apportioned quota for county and state taxes. The town treasurer, directly or through tax collectors, receives revenues and transmits to county and state treasurers their respective quotas. He holds the town revenues, and, subject to warrant of the selectmen, pays township ex-ities, interest on debt, and health. Cities and penditures, keeping detailed records of all receipts and disbursements. The fiscal functions and administration of New England counties widely vary, being nil in Rhode Island. County expenditures and tax levies are fixed in New Hampshire and Connecticut by county members of the legislature, elsewhere by county commissioners, with subsequent legislative enactment in Massachusetts. A county treasurer receives, holds, and, subject to warrant of the county commissioners, disburses, the funds of the county. towns have additional expenses for fire protection, sewers and drainage, lighting and parks. Distribution between county and minor divisions varies widely, counties bearing more in proportion as townships are less developed and urban population relatively small. Revenues. For the whole country, the general property tax yielded (1902) most of the local revenues; viz., in cities of over 25,000, 81.4 per cent; in cities of 8,000 to 25,000, 76.6 per cent, in counties 79.9 per cent, other minor divisions 80.7 per cent. Subventions and South. In the southern states, county grants, licenses (chiefly liquor), and poll taxes boards supervise county finances, determine the gave almost the whole remainder. Except in expenditures and fix tax levies, adding state cities, the bulk of poll taxes and the major taxes on general property-commonly by spe- part of license taxes other than liquor were cifying rates (mills) for each main object of obtained in southern states. Subventions for expenditure. They assess the much used li- various purposes, especially education, are cense taxes, and sometimes act as boards of granted by most states. The recent tendency equalization and correction for tax assessments. in some states towards centralization of variIn Georgia-as in Connecticut, New Hamp-ous taxes is often accompanied by division of shire, Indiana and Arkansas-separate officials the proceeds with local governments. Cities fix tax levies, thus separating this function obtain revenues from similar sources, also from appropriations. Elective assessors and largely from fees, municipal services and spedeputy assessors value and assess locally tax- cial assessments. able property and prepare tax lists. Taxes are received by collectors, sheriff, or treasurer, and held usually in separate funds by the county treasurer, who, subject to warrant of the county board, makes disbursements. The county auditor, or clerk, audits bills. See ASSESSMENT OF TAXES; BUDGETS, STATE AND LOCAL; COUNTY GOVERNMENT; EXPENDITURES, STATE AND LOCAL; FINANCE, STATE SYSTEMS OF; PUBLIC ACCOUNTS; TAXATION, SUBJECTS OF; TOWNS AND TOWNSHIPS. References: J. A. Fairlie, Local Government Middle States and West.-In the mixed sys- in Counties, Towns and Villages (1906), Pt. tems of New York, Pennsylvania and many II, chs. v, vii, Pts. III, IV; "State Supervision western states, the characteristic features of of Local Finance” in Am. Pol. Sci. Assoc., Protownship and county systems are variously ceedings, 1905, 151-163; R. L. Ashley, Am. combined. The township system is also repre- Federal State (1903), chs. xx, xxi; F. J. Goodsented in the South. County fiscal functions now, City Government in the U. S. (1904), increase in relative importance in most Newch. xiii; D. F. Wilcox, Municipal Franchises, England states and dominate in the West. II (1911), Pt. IV, ch. xliv; U. S. Census Economy and efficiency of centralized administration for such services as education, charities, and roads explain this tendency. County boards usually equalize aggregate assessments between districts, but sometimes they make adjustments between individuals. Office, Special Report on Wealth, Debt, and FINANCE, STATE SYSTEMS OF Diversity of State Systems.-Original sim- | following measures elsewhere successful, still ilarity of economic conditions, constitutional tend to assimilate state systems. Nevertheless limitations, administrative organization and functions gave wide uniformity of state systems of finance, though variations were abundant in local systems. Efforts at reform, by perplexing diversity of systems grows out of changing economic conditions, urban growth, diversification of interests, different methods of taxing new forms of property, and constitu FINANCE, STATE SYSTEMS OF Di tional limitations. Where apparent similarity | cent; other licenses, 5.5 per cent; subventions exists, variety actually arises from different and grants, 1.7 per cent; poll taxes, 1.4 per methods of classification and accounting, and cent. Recent changes reduce somewhat the renders comparisons deceptive or impracticable. percentage from general property taxes, inThe resulting diversity of state fiscal systems, creasing that from special taxes. especially of revenues and administration, is While general property yields about half of such that only a separate exposition in detail the total, yet proportions range from nothing for each state could be completely accurate. | (Connecticut, Delaware) to 90-96 per cent Expenditures. The general expenditures of (South Carolina, Utah, North Dakota, Oklathe states and territories aggregated (1902) homa). South Carolina supplements general $185,600,000-somewhat less than the total ex- property taxes with commercial revenues, using penditures of counties, one-third that of cities, but slightly other forms. Over two-thirds of four-fifths that of other minor divisions. One- the states-including all the south central and third of the states' total went for education, western (except Montana), and most of the common schools absorbing 75 per cent. north central and south Atlantic, with New rectly for education some states expend little Hampshire in the north Atlantic divisions(Tennessee 2, Massachusetts 5, per cent), oth- receive above half of their general revenues ers more than half their totals (New Jersey, from this source. But, while general property Delaware, Michigan, Texas). Proportions for usually includes "all property, both real and common schools range from almost nothing personal," yet both legal exemptions and defi(Indiana) to practically all educational ex- nitions of real and personal property widely penditure (New Jersey). These variations at- vary among states. Thus Vermont exempts tach to varying degrees of decentralization. personalty of residents which is located in The enumerated expenditures for common another state. Deductions for debt and mortschools are practically subventions paid to lo-gages are allowed variously, or not at all. cal governments which maintain such schools. Many states tax corporations separately by The remaining two-thirds of the aggregate gen- special methods-several using the general eral expenditures went: for insane, 11 per property tax but slightly for state purposescent; for charities, 10 per cent; for legislation while some state constitutions make all franand administration, 8.6 per cent; for penal in- chises taxable under general property. Differstitutions,, 7.6 per cent; for courts, 6 per cent; ences in classification make impossible accurate for interest, 5.3 per cent; military, highways, statistical comparisons-especially the ratio of sewers and drainage, agriculture, police and realty to personalty-between the several inspection, parks and recreation, health conser- states. Obvious inequalities of assessed valuvation, etc., took the rest. Under most of ation (see) cause widespread discontent with these different heads, expenditures by the sev- this tax as a main source of state revenue. eral states range from nothing or almost noth- Two reforms much urged are in some measure ing, to proportions doubling the average. Dif- realized: (1) separation of sources, raising ferent methods of accounting contribute to state revenue primarily from corporations,' lithese statistical variations. Efficiency and newly censes, fees, and leaving land and tangible assumed functions of more centralized adminis- property for local taxation (Connecticut, Delatration continually increase state expenditures ware, Pennsylvania, West Virginia); (2) under every head, without arresting the growth classification of property, and low tax rates of local expenditures. Besides general expendi- on those classes which evade higher uniform tures, further payments by states (1902), ag- rates. Several states now have low flat rates gregating $86,000,000, were composed mainly on moneys and credits (Maryland, Pennsylvanof investments ($27,300,000), book transfers ia, Indiana, Minnesota). Constitutional limi$25,800,000, debt redemption 17,500,000, reve- tations, especially one requiring that all kinds nues collected for other civil divisions $10,400,- of property be taxed at a uniform rate, hamper 000. Excepting debt redemption, these pay- most states, or make constitutional amendments inequally distributed among states, rep-ments a preliminary to such reforms. resent little actual charge for state uses on current revenues. Revenues. Certain classes of state revenue connected with debt refunding, book transfers, various temporary receipts on account of local governments and disposal of state property, are nominal results of accounting methods or occasional resources. Omitting these, state revenues are classified as general and commercial. The percentage of aggregate general revenues derived by states and territories (1902) from the main sources was: general property tax, 51.7 per cent; special property and business taxes, 32.7 per cent; liquor licenses, 6.1 per Special property taxes are derived from inheritances and mainly corporations. These and intimately related business taxes together yield one-third of all general revenues. States usually tax corporations under general property, but increasingly by special methods designed more simply, directly and equably to reach various forms of corporate property. To this tendency, state constitutions interpose obstacles. Hence few states have completely dif ferentiated corporation taxes from general property. Nine-tenths of the aggregate special property taxes, including inheritance (1902), were raised by four states where separation FINANCE, STATE SYSTEMS OF of sources was extensively realized (Massachu- tion of varying efficiency, never adequate, resetts, Connecticut, Pennsylvania, New York). Business taxes variously share the nature of special property and license taxes, and apply to corporations and individuals. They supplement general property taxes, especially in southern states, differing from state to state; and partly supplant general property, corporation and license taxes. About three-fourths of the states have inheritance taxes. Many states exempt, other fix low rates for direct heirs. Rates are usually progressive collaterally, rarely as to value of estate. Collection is often lax, total yield, therefore, moderate but increasing. New York's law of 1910 applied (double) progressive rates much below those in Great Britain. Circumvention by change of residence induced the governor to recommend repeal. The law of 1911 moderated the rates. See APPROPRIATIONS, AMERICAN SYSTEM OF; ASSESSED VALUATIONS, COMPARATIVE; AssessMENT OF TAXES; AUDITOR, STATE; BUDGETS, STATE AND LOCAL; COMPTROLLER, STATE; COST OF GOVERNMENT IN THE UNITED STATES; DEBT, PUBLIC, ADMINISTRATION OF; EXPENDITURES, STATE AND LOCAL; PUBLIC ACCOUNTS; PUBLIC PROPERTY; PURCHASE OF PUBLIC SUPPLIES AND PROPERTY; REVENUE, PUBLIC, COLLECTION OF; REVENUE, PUBLIC SOURCES OF; TAX COMMISSIONERS AND TAX COMMISSIONS, STATE; STATE DEPARTMENTS, HEADS OF; TAXATION, SUBJECTS OF. adjust such inequalities. Some states more hopefully employ tax commissioners (see) to similar ends. Corporation taxes are variously assessed, increasingly under the "unit rule," by special boards which include with growing frequency tax commissioners and other experts. Corporations commonly so taxed are railway, telegraph, telephone, sleeping car, express, often street car companies. Where taxed by special methods, the capital stock, or gross or net earnings, is the basis. Some states prohibit, some compel, taxation of "corporate excess," or franchise, value. Individual shareholders in such corporations are rarely taxed separately. Corporate tangible property is commonly taxable in localities where situated. Bank stock is usually assessed at the bank against individual shareholders. Corporation and license taxes are with increasing frequency Many states leave liquor licenses wholly for collected by state officials, especially officials local use. New York, Pennsylvania, Ohio, Mas- who issue licenses, and in some cases such revsachusetts together obtained (1902) over three-enues are wholly or partly returned to local fourths of the aggregate raised for state pur- governments. poses from that source. Business licenses yielded important sums to Wisconsin, Pennsylvania, Texas, Louisiana and a few other states, chiefly in the south Atlantic and south central divisions, and largely from sources covered in some states by business and corporation taxes. Poll taxes yield state revenues only in Indiana, and the south Atlantic, south central and western divisions. Several states have income taxes of insignificant yield. Wisconsin levied an income tax to be effective 1912, progressive in rate, to supplant personal property taxation. Administration.-State systems of administration are differentiated primarily by the References: U. S. Census Bureau, Special relative degrees of decentralization and by dif- Report on Wealth, Debt, and Taxation, 1909, ferences in the main forms of revenue, involv- Pt. III, Pt. IV, 953–974, Tables 9, 10, 12; J. A. ing differences in methods of control and ac- Fairlie, Report on Taxation and Revenue Syscounting. States are assuming a larger share tem of Illinois, 1910, chs. ix, x; C. C. Plehn, in expenditures and administration, both of Introduction to Public Finance (1911), 197– which have rested mainly with local govern- 203, Pt. III, ch. viii; Nat. Tax. Assoc., "State ments. Expenditures are effected usually by and Local Taxation" in Int. Conferences, the state treasurer (see) and auditor. Sev- Annual Proceedings (since 1908); R. T. Ely, eral states seek more effective supervision Taxation in Am. States and Cities (1888), Pts. by vesting in a board of control (see) large II, IV; J. Bryce, Am. Commonwealth (1910), powers over all expending agencies. Revenue I, ch. xliii; E. R. A. Seligman, Essays in Taxaadministration centers in a state comptroller tion (1897), chs. ii, vi, viii, xiii; Johns Hop(see), or auditor and treasurer. Differences kins University, Studies in State Taxation in the functions and powers of these several (Maryland, North Carolina, Kansas, Mississipagencies attach especially to general property, pi, Georgia, 1900); R. C. McCrea, "Taxation corporation, business or license taxes. Ad- of Personal Property in Pennsylvania” in ministration of general property taxes, mainly | Quart. Journ. Econ., XXI (1906), 52–95; J. under local systems (see), hinges on assessed E. Brindley, "Recent Tax Legislation in Iowa" valuation (see). Where apportioned, each in ibid, XXVI (1911), 178-182; W. Eldred, township fixes the state rate, and unequal "Taxation of Intangible Property in Minnevaluations affect only its contributions for sota" in ibid, XXVI (1911), 182-185; T. S. county purposes. But where, in more central- Adams, "Wis. Income Tax" in Am. Econ. Reized systems, the state government fixes view, I (1911), 906–909; K. K. Kennan, “Wisthe uniform rate to be added to local assess- consin Income Tax" in Quart. Jour. Econ., ments, unequal valuations corresponding XXVI (1911), 169–78; J. H. Gilbert, "Tax Aply increase or reduce local contributions portionment in Oregon" in Pol. Sci. Quart., for state purposes. Boards of equaliza- XXVI (1911), 271-289; E. L. Bogart, "Recent FINANCIAL POLICY OF THE UNITED STATES Tax Reforms in Ohio" in Amer. Econ. Review, | in the several states by Comptrollers, TreasI (1911), 505-518; J. A. Fairlie, "Taxation urer, Tax Commissioners; Am. Year Book, in Illinois" in ibid, I (1911), 519-534; reports 1910, and year by year. E. H. VICKERS. FINANCIAL POLICY OF THE UNITED STATES advocated with increasing force as a controlling principle in the making of tariffs. Duties have been laid upon thousands of different kinds of commodities so that the revenue is derived from a great variety and number of trade op The financial policy of the Federal Govern- | revenue, but since 1816 protection has been ment differs in a marked degree from that of the leading European nations because of the separation of powers between the national and state governments. This affects both revenue and expenditures, and more particularly the latter. The underlying principles which deter-erations, and this, in turn, causes wide and mine this division of financial activities are described elsewhere (see FINANCIAL POWERS, CONSTITUTIONAL BASIS OF). The most significant constitutional provision (Art. I, Sec. ix, ¶4), which has, of necessity, driven the Federal Government to indirect taxation, is that, until the passage of the Sixteenth Amendment (see) all direct taxes (see TAXES, DIRECT) were apportioned; while in expenditures, the exercise of certain powers by states has relieved the National Government of responsibilities which come upon other large countries. The financial policy of the United States may conveniently be discussed under four headings: (1) revenue; (2) expenditure; (3) indebtedness; (4) participation in private business. Revenue. For financial support the Government has rested almost entirely upon indirect taxes, as customs receipts on imports, and internal revenue or excise duties; and until the close of the Civil War the former was almost the sole reliance. From the organization of the Government until 1910 inclusive, the total ordinary receipts were 20,320 millions; of this, 11,195 millions came from customs; 8,445 millions from internal revenue; 28 millions from direct taxes; 362 millions from sales of public lands; 1,391 millions from miscellaneous "ources; 96 per cent of the total has been thus derived from customs and internal revenue. Internal revenue duties were long regarded as emergency income, to be used only temporarily, as in case of war. When import duties were adopted as the main source of financial supplies, it was almost inevitable that the revenu system should be utilized to further industrial and commercial policies. There is no system of taxation which so keenly affects business relationship as does the collection of duties on goods coming into a country, for it discriminates against certain merchandise in favor of other competing products. A domestic tax, however, places the same burden upon all home producers and relatively does not change their positions as competing rivals (see PROTECTION, THEORY). The revenue system was, therefore, early diverted into an agency to protect domestic industry. At first protection was incidental to sometimes violent fluctuations in receipts. As income cannot be predicted within reasonable limits of accuracy, the Treasury has never been in a stable position. Surpluses and deficits have been unexpectedly large, and each has created embarrassing problems. Taxation of domestic industry by internal revenue duties has been less restricted. In the two earlier levies of internal revenue taxes (1791 and 1814) duties were imposed upon distilled spirits, carriages, manufacture of snuff and sugar, and auction sales; and in the Civil War period, upon almost every form of the manufacturing, mercantile and transportation industries. After the war, duties were practically limited to whisky and tobacco. As the objects have been few, it has been possible to gauge in advance their productivity, and in so far these taxes have contributed to an orderly budget. Unlike European nations, the Federal Government has made but little use of an income tax (see). Until the Civil War it was not suggested, and its benefits, when then adopted, were retained for only a short time. During the past twenty years there has been an increasing desire to add this prop to the financial desire to add this prop to the financial system, system, but constitutional dificulties until 1913 barred the way. One financial resource the Federal Government has neglected to employ— its great national domain. For one brief period (1830-1835) the Treasury receipts from the sales of public lands were large, in one year exceeding that from any other source; but as a whole the income has been insignificant. Intentionally it has been the policy to dispose of public lands on easy terms to settlers, and revenue has been a secondary object. Only within recent years has the country been aroused to consider the advantage of a stricter policy, whereby national resources owned by the Government may be conserved and used to yield a public revenue (see CONSERVATION). Expenditures.-Until recently the policy of the Government in the matter of expenditures has been almost exclusively devoted to the maintenance of the primary agencies of Gov FINANCIAL POLICY OF THE UNITED STATES ernment-its executive, judicial, and legisla- to mistaken notions in regard to the benefits tive branches; to the support of a diplomatic of an enlarged monetary medium, than to a and consular service abroad; to the care of desire to escape just obligations. An inflexible Indians; the improvement of rivers and har- tax system has made it difficult for the Govbors; to pensioning soldiers who have engaged ernment to meet sudden emergencies; and the in the nation's wars; to the payment of in- apparent lack of loanable capital has frequentterest on debts, wholly due to the necessities ly tempted Congress to rely upon Treasof war; and to protection of the nation's sov- ury notes, but with the exception of the legal ereignty by an Army and Navy. From 1810 tender (see) notes of the Civil War, they have to about 1835 various proposals were made always been quickly funded; moreover, with for national roads and turnpikes, and one was the exception of the greenbacks, they have built (see CUMBERLAND ROAD). Until the Civil borne interest. They are, therefore, to be reWar, however, the nation kept closely to the garded as short-term certificates of indebtedness above named objects. In 1862 Congress author- rather than as paper money. In more recent ized that grants be made for the establishment years there has been a greater tolerance of a of agricultural colleges (see MORRILL GRANT), public debt, due to the necessities of the nabut payments for this purpose did not directly tional banking system which requires bonds involve taxation, for the expenditures were to for a basis of circulation. But the national be made from the proceeds of sales of public debt of the United States is small compared lands. The burdens of the Civil War checked with those of other countries. In the United any disposition, if there was one, to expend States the per capita national debt in 1910 was money on other than the primary duties of $11.42; in the United Kingdom, $82.38; in government. France, $150.09; in Germany, $17.38; and in Canada, $45.09. After 1880 a surplus revenue stimulated proposals of expenditure which covered a wide range, among which federal grants to common school education received zealous, though unsuccessful, support. Congress still held to the traditional policy and applied its funds to the creation of a new Navy; and rather than embark on new policies, it refunded to the states $15,000,000 of direct taxes collected during the Civil War; just as fifty years earlier it distributed back to the states a surplus derived from unexpected sales of public lands (see). With the beginning of the twentieth century the Government, through legislation by Congress, reached out in new directions; it engaged in the construction of the Panama Canal; extended the work of the Department of Agriculture into new fields; and showed a disposition to engage in humanitarian services which formerly would have been left to the states to perform. The indications are that the expenditures of the Government will extend over a much wider range of application. | Debt. The American people have never favored the perpetuation of a large national debt. In the earlier years of the republic this feeling was influenced in some sections by the belief that public indebtedness magnified federal power and responsibility at the expense of state sovereignty. Counter convictions as to payment of the national debt have rarely been put to the serious test of sacrifice because American revenues have continued so ample, often more than was expected. Notwithstanding these qualifications, Congress has been solicitous to provide for prompt payment of indebtedness. Bonds (see) have run for short periods as compared with indefinite loans of foreign nations. The issue of Treasury notes (see) may appear to be an exception, but acceptance of this method of providing for immediate financial needs has been due rather Participation in Business.-The Federal Government carries on several great enterprises, particularly the Post Office; but the chief influence over business which the Treasury has exerted has been upon the money market, and indirectly upon commercial affairs, through the possession of large balances of idle public money. The proper use of such state funds in its earlier aspects was concerned with the security of public funds; later, it has included the service which the Treasury could render by making its resources temporarily available for private use. The withdrawal of large sums by taxation in excess of current expenditures, if kept in government vaults, lessens by so much the amount of loanable capital in its most available form, that of money. After the establishment of the sub-treasury system (see) in 1846, the Treasury gave little concern to the money market; and after the Civil War it had abundant use for all its funds. In 1873, however, on the celebrated Black Friday, the Secretary of the Treasury, on the personal direction of the President, broke the corner in gold by selling gold in the public market out of the Treasury. Between 1880 and 1890 the question became more serious, for surpluses threatened to pile up a huge accumulation in the Treasury. The difficulty was temporarily met by buying bonds at a premium at considerable pecuniary sacrifice to the government, as the price of the bonds was lifted to an artificial level. Then for a short time the deposits (see) in banks were increased, and the money was returned to commercial channels, but the Republican administration in 1889 reversed the policy. Renewed prosperity in 1898 again brought the question into prominence, and deposit in banks was chosen as the solution. The Treasury became more and more involved with the business |