Cyclopedia of American Government

FINANCIAL POWERS, CONSTITUTIONAL BASIS OF

world, and new devices were invented whereby | money market. The deposit of customs rethe Treasury could exert an influence upon the ceipts as well as internal revenue receipts in money market, particularly during the admin- banks has consequently been authorized; and a istration of Secretary Shaw which extended desire to place all the Government funds at the from 1902 to 1907.

disposal of a banking agency is one of the According to A. P. Andrew, who has made a arguments advanced in favor of a central bank special study of this period, this administra- | (see BANK, CENTRAL) which shall hold Govtion "was marked by at least six significant ernment deposits and act as the fiscal agency departures from the paths of his predecessors:” of the Treasury. (1) placing government money with banks up- See APPROPRIATIONS, AMERICAN SYSTEM OF; on other security than government bonds; (2) BUDGETS, FEDERAL; Cost OF GOVERNMENT IN exempting banks from maintaining the legal UNITED STATES; DEBT, PUBLIC, ADMINISTRAreserves against Government deposits; (3) TION OF; DEBT, PUBLIC, PRINCIPLES OF; Extransferring to banks public money which had PENDITURES, FEDERAL; FINANCIAL POWERS, already been turned into the Treasury; (4) CONSTITUTIONAL Basis OF; FINANCIAL STAartificially stimulating the importation of TISTICS; LEGAL TENDER CONTROVERSY; REVgold; (5) deliberately withdrawing money ENUE, PUBLIC, COLLECTION OF; SUB-TREASURY from banks in certain seasons in order to re- SYSTEM; TARIFF ADMINISTRATION;

TARIFF deposit it later; (6) forcing alternately the POLICY OF THE UNITED STATES. 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. 8. (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 Iist. 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. 8.; 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 will promote general welfare; it therefore tax. tax: (2) to expend money (Art. I, Sec. viii, es not only for education (see), but for exposi| 1); (3) to borrow (Art. I, Sec. viii, 1 2); tions (see), parks in remote sections of the (4) to coin money (Art. I, Sec. viii, | 5). country, the protection of seals whose skins can

Federal Taxation.-C. gress is given power be used only by the wealthy; the preservation to impose all kinds of taxes, “to pay the debts of game (see) on a National Bison Range; or and provide for the common defense and gen- for the erection of monuments (see). Prac. eral welfare of the United States.” Such taxes tically, therefore, the federal power of taxation must be uniform throughout the country. Di- is unlimited, except in one particular; by rect taxes, with the exception of income taxes judicial interpretation it has been held that exempted from the rule by the Sixteenth Congress cannot tax the instrumentalities of Amendment (1913), must be apportioned ac- state governments; for example, it may not cording to population; export duties are for- tax the income of a state judicial officer, the bidden; and revenue bills shall originate in processes of state courts, or state bonds, or a the House of Representatives, “but the Senate municipal corporation in respect to its revenue. may propose or concur with amendments.” The provision that taxes shall be uniform

The present discussion is confined to the defi- refers to uniformity in all parts of the country, nition and interpretation of the above clauses not to uniformity of incidence; one rate may as developed by experience. There has been be imposed upon an individual and another much discussion as to whether the power of upon a corporation, provided that they bear taxation is unlimited or restricted by the alike in all sections. This clause has created clause, following a comma, “to pay the debts some embarrassment in dealing with the new and provide for the common defense and gen- insular possessions, the Philippine Islands and eral welfare.” The approved interpretation is Porto Rico, but the Supreme Court has decided that of limitation to those objects, viz., pay. that as these possessions are not foreign counment of debts, common defense, and general tries, the ordinary tariff duties on imports do welfare. The discussion which formerly had not apply. There is difficulty in the levying of a vital interest, particularly in its relation direct taxes (see Taxes, DIRECT), due to unto the constitutionality of levying duties for 'certainty as to the meaning of the term direct. FINANCIAL POWERS, CONSTITUTIONAL BASIS OF The courts have decided that while a tax on court held that the issue of legal tender notes individual income is a direct tax, a tax on the is incident to the right of coinage. income of corporations (see CORPORATIONS, Powers of the States.-The provisions of the TAXES ON) is indirect; so, too, a tax on state Federal Constitution relating to the financial bank note circulation (see Bank Notes). The powers of states are not explicit (AMENDadoption of the Sixteenth Amendment in 1913, MENT X); and it has been left to the courts to however, authorized the Federal Government to develop principles under constitutional interlevy a tax on incomes, and the income tax was pretation which shall guide the states in established by Underwood Tariff Act (see). shaping their financial policies. The only ex

Although the Constitution undoubtedly in- press declaration in the Constitution (Art. 1, tended that the House of Representatives Sec. x, 1 2) on taxation prohibits states from should bear the main responsibility in fram- levying import or export duties, except what ing revenue measures, the development of con- may be necessary to execute inspection laws, gressional procedure has practically nullified nor shall they lay any duty on tonnage. States that requirement. The Senate not only freely cannot tax any of the instrumentalities of the amends bills, but in one instance, 1871, com- Federal Government; they may not tax land or pletely revised a House bill by substituting for buildings owned by the National Government, a brief bill of four lines covering rates on two or bonds or currency issued by it, unless Concommodities, a measure of general revision, gress waives its sovereign right and grants the twenty pages in length. In all of the recent privilege, as it has (1894) in the case of tariff bills the Senate has been powerful in the Treasury notes. That part of the capital final determination of rates.

stock of a national bank invested in United Federal Appropriations and Expenditures.- States bonds may not be taxed to the bank, The only constitutional references to the ex- though shareholders may be taxed on their penditure of money are that no money shall certificates of stock. Nor can federal officials be drawn from the Treasury except in conse- be taxed on their official in.come.

A corporaquence of appropriations made by law; and tion chartered by Congress, if undertaking that appropriations for the Army shall not be functions of the Federal Government, may not for a longer term than two years (Art. I, Sec. be taxed; thus the property of branches of ir, 1 7; Sec. viii, 1 12). Under the general | the Second United States Bank was exempt, division of powers between the executive and and so the franchise and property of the Pacifadministrative branches, the President is given ic Railroad which was engaged in carrying little opportunity to participate in the fram- mails and troops during the Civil War. ing of a budget (see), and this separation, by The exclusive power of Congress to regulate many considered unfortunate, is partly re- foreign and interstate commerce (Art. I, Sec. sponsible for the haphazard adjustment of reves viii, 1 3) deprives states of the right to tax nue and expenditure characteristic of Ameri- commercial operations between this and forcan finance.

eign countries or between states. A state canFederal Power to Borrow.—The power to not levy a special tax on sales made by imborrow is unlimited as to method. Congress porters or dealers in goods not produced or may borrow by the sale of bonds or by the manufactured in the state, or bills of exchange issue of Treasury notes either with or without drawn in one state and payable in another, or interest. Under this power it has been de an occupation tax on telegraph companies, or cided that Congress may charter a bank which tax locomotives and cars used as vehicles may act as an agency in securing public loans of interstate commerce. According to the Fed(McCulloch vs. Maryland); and the applica- eral Constitution (Art. IV, Sec. ii, 1 1) the tion of this principle justifies the creation of citizens of each state are entitled to all the national banks which are obliged to invest in privileges and immunities of citizens of the Government securities. So unrestricted are the several states; taxes, therefore, cannot be imconditions under which the Government may posed in abridgment of these privileges. A borrow, that the Supreme Court has decided state cannot tax citizens of other states at that promissory notes bearing no interest may higher rates than it imposes on its own citibe made legal tender; the power to borrow zens; nor can a state impose taxation which is money includes the power to issue obligations repugnant to treaty obligations. Corporations in any appropriate form; and, if desired, in a are not citizens within the meaning of the form adapted to circulation from hand to hand clause of the Constitution; consequently the in the ordinary transactions of commerce and rule of uniformity is not here imperative. In trade (see LEGAL TENDER CONTROVERSY). general the financial powers of all local gov

Coinage. -Under coinage it has been held by ernments are delegations from the state governbome that the power does not refer exclusively ments, and they are subjected to the same to the making of metallic money, but also in constitutional limitations as the states. cludes the issue of paper money. This opinion A fundamental right underlying the Constihas been endorsed by a federal judge (Justice tution, but which has been given distinct enunStrong, 52 Pa. 67); and in the legal tender ciation by the Fourteenth Amendment, since case (see), Juilliard vs. Greenman (1884), the its adoption in 1868, has had an important

FINANCIAL STATISTICS

influence upon state taxation: “Nor shall any State constitutions often impose certain state deprive any person of life, liberty or fundamental restrictions, as that taxation shall property without due process of law” (see DUE be equal and uniform; that all taxes shall be PROCESS LAW). As McClain writes: imposed in exact proportion to the value of “There must be a procedure of some kind to property; that taxation shall be ad valorem; fix the valuation of the property for purposes that the property of corporations shall be taxed of taxation, and some apportionment of taxes the same as that of individuals, that taxes on the basis of such valuation, and the tax. shall be proportional and reasonable. They payer must have some kind of notice to enable make provision for exemptions (see); forbid him to pay before his property is seized. taxation to be applied for certain purposes, as *Due process of law' in this connection means in aid to private corporations; and restrict that taxes must be for a public purpose, and municipalities as to their rate of taxation. imposed and collected in the usual methods The varying principles laid down in the conapplicable in the collection of revenue.” stitutions of different states have given rise to

It is difficult to draw the line between public | different systems of state taxation, which in and private purposes, and often the decision turn have greatly embarrassed tax reform and must be made by the courts. The following the adjustment of revenue measures to new are illustrations of taxes held to be for private social and business needs. Particularly is this purposes: a tax to aid private parties or cor- the case since interstate relationships have porations to establish themselves in business become so intimate. or manufactures; a tax to supply a fund to See IMPLIED POWERS; INTERNAL IMPROVEloan to individuals who suffered from the MENTS; ORDINANCES, EXECUTIVE; REVENUE, Boston fire of 1872; a tax to supply destitute BILLS FOR RAISING; and under CONSTITUTION farmers with provisions and seeds; a tax to OF THE UNITED STATES; Tax; TAXATION; build a dam which might, at discretion, be used Taxes. for private purposes. Notwithstanding these References: E. McClain, Const. Law in the adverse decisions, legislatures expend money U. S. (2d ed., 1910), 119–147, bibliographies, for similar private purposes, and taxes are di- 119, 143; T. M. Cooley, Law of Taration (2d verted to such objects. The difficulty is to ap- ed., 1886), chs. iii, iv, vii, Principles of ply the test at the time of collection of the Const. Law (3d ed., 1898), 55–66, 73–77, tax. As Cooley says, if the tax law on its 86, 90–94; J. N. Pomeroy, Introduction to face discloses no illegality, there can be no the Const. Law of the U. 8. (10th ed., 1888), remedy: “An intent to misapply some of the 270–320; D. R. Dewey, Financial Hist. of the revenue produced cannot be a ground of illegal. V. 8. (3d ed., 1907), 60–70. ity in the tax itself.”

Davis R. DEWEY.

FINANCIAL STATISTICS

Additional statistical tables relating to coin- VIII. Number of banks, national, state, savage will be found under COINAGE AND SPECIE

ings and private banks, and trust CURRENCY IN THE UNITED STATES, and in re

companies, 1880–1909. gard to bank and treasury note issues under IX. Ratio of silver to gold, 1790–1910. PAPER MONEY IN THE UNITED STATES. Statis- X. Banking institutions and their capital, tics in regard to taxation, Government receipts

1870–1910. and expenditures will be found under BUDGETS, XI. National banks, number and capital, FEDERAL; EXPENDITURES, FEDERAL; EXPENDI

loans, deposits and circulation, 1863– TURES, STATE AND LOCAL. Statistics of public

1912. indebtedness will be found under DEBT, PUBLIC, XII. Transactions of the New York Clearing ADMINISTATION OF. The following tables

House, 1855-1910. are here appended:

XIII. Available funds in United States I. Monetary circulation, 1800–1910.

treasury, 1865-1910. II. Paper currency outstanding, 1862-1910. XIV. Public indebtedness, national, state, III. Amount of each kind of money in the

and local, 1870–1902. United States, 1865-1909.

XV. National debt, 1800-1910. IV. Total stock of money 1870-1909.

XVI. Changes in national debt, 1860–1910. V. Gold holdings of the Treasury, 1878– XVII. United States bonds outstanding and 1912.

amount deposited for bank circulaVI. Imports and exports of gold, 1864

tion, 1880-1912. 1912.

XVIII. Receipts and expenditures of Federal VII. Relation of New York City national