Home >> The-science-of-finance >> Administration Of The Tax to Voluntary Aids >> Concerning the Preparation of

Concerning the Preparation of the Budget


Having considered budgets in their relation to popular government, we are now prepared to enter upon an analysis of their form and to undertake a study of the many detailed questions which arise respecting them. There is no room here for original method in treatment. The general order of presentation seems to be fairly well established, and that order will in the main be adhered to in the analysis that fol lows. It is probable, however, that this analysis may receive a slightly different colouring on account of the fact that all questions of detail will be treated from the point of view of the American Constitution; and, as was pointed out in a previous chapter, this Constitution is peculiar in the care with which the principle of the separation of governmental func tions and the balance of governmental powers are worked out.

A budget passes through three stages in its progress to history; the first pertains to its preparation, the second to its legalization, the third to its execution. The present chapter has to do with the preparation of the budget.

22. By Whom should the Budget be Prepared the first question that arises in connection with the preparation of the budget inquires what public officer or department of government should be charged with the duty of making fiscal estimates and financial proposals, and of presenting them as projects of law. We shall first answer this question in a general way, and then state the practice in England, Ger many, and the United States.

(I) General Considerations. Wherever fundamental law al lows the executive to be an active member of the legislative body the preparation of the budget should be the act of the government, that word being used in its strict parliamentary sense. This is true because the government is directly re sponsible for the fiscal policy of the State, and should be free to control that policy. No other answer is possible in those countries which seek to realize efficiency of administration on the one hand, and the liberty of the subject on the other, through the principle of political responsibility. This will be seen more clearly when we consider the practice in Eng land.

In addition to this general reason for imposing upon the administration the duty of preparing the budget, one or two minor considerations may be mentioned. There is greater likelihood that impracticable theories which look well on paper, but which cannot be realized in practice, will be ex cluded from the fiscal policy if the administration, whose duty it is to execute the budget, shall have a controlling voice in its formulation. Again, the men who are responsible for the administration of the government are, by virtue of their offi cial positions, better acquainted with the details of financial questions than any other body of men, and on this account it may be presumed that the budget if prepared by them will be well adjusted even in its initial stages. Or, should it be recognised in the course of subsequent discussion upon the budget that it has been carelessly prepared, or prepared in ignorance of the real needs of the State, it lies in the work ing of responsible government that the body of men thus convicted of carelessness or ignorance should resign in favour of those who have successfully criticised them. This being the case, it may be assumed that the preparation of the budget by the government insures for this work the best talent placed at the disposal of the public.

Yet another reason for placing the preparation of the budget in the hands of the administration, though it may pos sibly be regarded as an application of the reasons already given, is found in the fact that under such circumstances there is greater likelihood that an harmonious budget will be even tually voted than would otherwise be the case. Harmony or balance is accepted as one of the most important marks of a well-adjusted budget. The harmony in question is of two sorts. The first pertains to a balance between the estimated and the executed budget, while the second has in view a just apportionment of the aggregate of public expenditures to the various lines of public service. An harmonious budget in this sense of the phrase can only be expected where responsibility for the form in which the budget is voted is direct, personal, and complete? Such considerations as these justify the conclusion that where the fundamental law of the State permits the government to come into parliamentary relations with the legislative body, the budget should not only be prepared by the government, but the government should have control over it at all of its stages.

(2) Practice in England. The above considerations reflect fairly well the practice in England. In this country the cabinet, by which the government is administered, is in reality a committee of the House of Commons, and, so far as finan cial measures are concerned, is held to absolute and unlimited responsibility for all its acts. Though a single body, it acts in many capacities. As executive it draws up and presents to the legislature a report upon the manner in which fiscal laws have been administered in the past; as member of the legislature it presents its financial policy as a project of law which of necessity must reflect the public policy for which it asks grants and supplies; as " the government " it pre sents to the legislative body, whose support it seeks, such arguments as may be urged in favour of the policy submitted. Nothing could be simpler or more effective than government by a committee responsible to the popular branch of the legis lature. It is because of its simplicity, its efficiencyi and of the degree of responsibility which it realizes that this organi zation has received so general a support from students of political science.

The above statements, however, do not give full expression to the degree to which the responsibility of the cabinet in England in matters of money is carried. The estimates of the fiscal needs must of course come, in the first place, from the heads of the various departments of government, who, in their turn, are obliged to rely upon the detailed knowledge of subordinate officers who have charge of bureaus or divi sions. Now, according to English practice, the Chancellor of the Exchequer is given a constitutional control over the estimates of the departments and of the subordinate officials. This does not mean that he is granted a legal right to modify their estimates, but, as the theory of responsibility has worked itself out in England, he does, by virtue of the necessity of defending the budget as a whole before the House of Com mons, and of securing support for it from that body, have a controlling voice in determining both the aggregate of grants to be asked, and the apportionment of that aggregate to the several lines of expenditure. This is a characteristic feature of English practice. It is an extreme application of the prin ciple of administrative centralization, and would be incompati ble with the idea of political liberty were it not that the power thus centralized is wielded under the restraints of immediate and direct responsibility. There is perhaps no other country where this principle could work as smoothly and successfully as in England; and the fact that it succeeds in England can not be accepted as proof of its adaptability to other states and other conditions.

(3) Practice in Germany. In Germany, and indeed in all countries whose constitutions are of the monarchical rather than of the popular type, practically the same adjustment is arrived at as in England, so far as the form of procedure is concerned; but the results which follow are essentially dif ferent. Holding in mind the Imperial Constitution rather than the Constitution of the States, the government, in its double capacity of executive and legislature, is charged with the preparation of the budget as a report, and in connection with the Bundesrath of converting this report into a pro ject of law. It is true that the members of the Reichstag are granted the right of initiative, that is to say the right of pro posing finance bills, so that a project of law might, so far as constitutional privilege is concerned, be drawn up and voted independently of the government; but, inasmuch as the Im perial Chancellor is responsible to the sovereign for his ap pointment, and can retain his office even though he fail to be supported by the majority of the popular branch of the legisla ture, and in view of the constitutional principle that the sove reign can alone give authority to law, such a measure would be abortive, except it be accepted by the Imperial Chancellor and made a government measure. It is quite conceivable that as a means of educating the German people to an appre ciation of the true nature of their government the Reich stag might be induced to draw out and to vote a budget of its own making. Such a step, however, would be revolu tionary, and if successful would result in shifting the centre of real power from the sovereign to the representatives of the people. Thus, while it may be true that the German people follow the same general method in the preparation of the budget as the English, the responsibility for this act, both as regards its nature and its residence, is of an entirely different sort. It need hardly be added that under the German sys tem the government exercises an effective control over the many centres from which the parliamentary estimates are drawn. An harmonious budget, therefore, may be expected in Germany, as in England, so far as that result is dependent on the centralization of authority in its preparation.

(4) Practice in the United States. The peculiar feature of the Federal Constitution of the United States, and of consti tutions of the American type, is found in the separation of governmental functions for which it provides. It was be lieved that the best results would follow should each de partment of government be independent in the performance of functions assigned to it. As a result of this adjustment no governmental task whatever can be performed without the concurrent acts of these independent repositories of political authority. In England the House of Commons is sovereign; in Germany the centre of government is Im perial authority; in the United States there is no one department which may be called sovereign or the centre of sovereign authority. In view of the separation of govern mental authority prescribed by the Constitution of the United States, it follows that the budget cannot be prepared as a complete document either by the executive or the legislative branch of government. As a report upon the condition of finances, upon the efficiency of fiscal laws, and as the first step in the estimates for the ensuing fiscal period, it is the act of the executive department; as a project of law, however, it must from the nature of the case be an act of the legislative body. Thus the preparation of the budget in the United States may be accepted as a political process different in character from that of either England or Germany; and, inasmuch as a considerable number of constitutions are framed upon the American model, it is as a type and not as an isolated case that its merits and defects must be considered.

It will be of assistance to describe somewhat in detail the process by which the budget comes into existence in the United States. The Constitution requires that " a regular statement and account of the receipts and expenditures of all public moneys shall be made from time to time," and it goes without saying that this must be the work of the official at the head of the Treasury Department. By the law of May io, i800, it was provided that this report should be laid before Congress at the beginning of each ses sion, and that it should be a report on the subject of finances " containing estimates of the public revenue and the public expenditure, and plans for improving or increasing the revenue "; but it was specifically added in the law that this should be done " for the purpose of giving information to Congress." From the above statement it is evident that the line of separation between the executive and the legislative function for which provision was made by the framers of the Consti tution was regarded as of great importance by subsequent legislators. Were there any doubt of this, ample evidence could be secured from the debates of Congress previous to the law cited respecting the clause which imposes upon the Secre tary of the Treasury the duty of including in his report a fiscal " plan." There were those who objected to this when in 1789 the matter was first brought up. " It might be well enough," said one of the members, " to enjoin upon him [the Secretary of the Treasury] the duty of making out and pre paring estimates, but to go any further would be a dangerous innovation upon the constitutional privileges of this House; it would create an undue influence within these walls, because members might be led by the deference commonly paid to men of abilities who give an opinion in a case they have thor oughly studied to support the minister's plan even against their own judgment." Another member spoke in the course of his argument as follows : " Does not the Constitution ex pressly declare that the House solely shall exercise the power of originating revenue bills? Now what is meant by report ing plans? It surely includes the idea of originating money bills, that is, a bill for improving the revenue, or, in other words, of bringing revenue into the treasury. For if he is to report plans they ought to be reported in a proper form and complete. This is giving an indirect voice in legislative busi ness to an executive officer. . . . But if my construction is true we are giving up the most essential privilege vested in us by the Constitution." As against this view it was urged that so long as Con gress was free to accept or reject the plan of the Secretary as the basis of the legislative bill no constitutional privilege had been abandoned by imposing upon that officer the duty of sub mitting a plan. It was this sensible opinion which finally prevailed. The debate is significant, however, in that it shows that the difference between the budget as a report and the budget as a project of law was early recognised, and that the statesmen who framed the Constitution were loyal to the prin ciple which rendered such a distinction necessary.

The report of the Secretary of the Treasury is a document of from fifty to an hundred pages. It begins with a condensed statement of receipts and expenditures for the year passed, which is commonly followed by a comparative statement showing the decrease or the increase by items during the year. Then come an estimate of revenue and an estimate of expen ditures for " the present fiscal year " upon the basis of existing laws. These estimates, so far as expenditures are concerned, are the totals taken from a detailed and itemized statement of all the branches of the public service, which, as the " Book of Estimates," are submitted to Congress, and which may be regarded as an appendix to the Secretary's report. The formal text of the report begins after the results of the estimates are made known, and presents in a condensed form the condition of the various divisions or bureaus or offices of the Department of the Treasury, and calls attention to recommendations or sug gestions of subordinate treasury officials for the advantage of their respective services. The report of the treasury officials to the Secretary are commonly bound up with the Secretary's report as appendices, making in the aggregate a volume of from twelve to fifteen hundred pages. These reports are designed to give a complete exhibit of the condition of the treasury and of the views of those who are responsible for its efficient administration.

That portion of the Secretary's comments made in obedience to instructions to submit a " plan " for the con sideration of Congress is of course the most interesting and significant. The subjects discussed are as comprehensive and various as the several divisions of the Department of the Treasury, and go far beyond the strict limits of budgetary considerations. Currency, banking, the mint, the independent treasuries, the rules for collecting revenue, and many other kindred topics are subjected to discussion according to the exigencies of the service or the needs of government. There is no public document regularly published which reflects so clearly the current history of the nation as the annual report of the Secretary of the Treasury. On one occasion at least it gives rise to the suspicion of having been written with the purpose of influencing the nation's foreign policy.

But notwithstanding the great importance of this report and of the influence frequently exerted by means of it, the re port itself does not pass beyond the first stage of the formal budget. It is a report for the instruction of the legislative body, nothing more. The fact that is presented in the form of a " plan " and is commonly expressed in the language of a government policy does not change in the least its real character. The " plan " is not recognised by the Constitu tion as a governmental policy, and cannot become such a policy by any act of the executive. It is not too much to say that the Secretary of the Treasury can exercise no constitu tional influence upon fiscal legislation. He has no right to appear upon the floor of the House of Representatives in order to explain or urge his plan; and his appearance in any of the committees of either the House or the Senate is a courtesy, and not a constitutional right. In the United States the budget as a report is absolutely severed from the budget as a project of law. The preparation of the former pertains to the executive, that of the latter to the legislative, department of government.

The report of the Secretary of the Treasury, together with the Book of Estimates, having been submitted to the Speaker of the House of Representatives, it is referred by the Speaker to the appropriate committees, and from this point on until an approved bill is submitted to the President for his signa ture the constitutional control over financial legislation lies entirely in the hands of Congress.

A word may be necessary respecting the committee system in order to explain the preparation of those financial bills which taken together constitute the budget in its second stage. The most important of these committees is that on Ways and Means, which in 1795 was made a standing committee to hold during the session of the Congress by which it was ap pointed, and in 1802 was given a permanent place in the parliamentary organization of the House of Representa tives. As constituted in 1802 the Committee of Ways and Means was charged with two distinct and comprehen sive lines of duty. In the first place it was " to take into consideration all such reports of the Treasury Department, and all such propositions relative to the revenue, as may be referred to them by the House; . . . to inquire ,into the state of the public debt, of the revenue, and of the expendi tures; and to report from time to time their opinion thereon." In the second place it was stated that " it shall be the duty of this committee . . . to examine into the state of the several public departments, and particularly into the laws making appropriations of money, and to report whether the moneys have been disbursed conformably to such laws, and also to report from time to time such provisions and arrangements as may be necessary to add to the economy of the departments and accountability of their officers." It is the first of these lines of duties with which this study is at present especially concerned, that is to say, the task of raising public revenue and of localizing its expenditures. It is significant that the resolution does not call for a report from the Committee of Ways and Means in the form of a bill, but states explicitly that the report shall be a " report of opinion." This doubtless reflects the jealousy with which the House regarded any possible curtailment of its authority. At the present time, however, it is the universal practice of this committee, as also of other finance committees, to report in the form of bills. According to accepted practice the Com mittee of Ways and Means has almost exclusive control over that side of the budget which has to do with the raising of revenue. Its preparation is under the control of the commit tee, and, as a rule, the work is performed in the committee.

Without pausing to call attention to the several experi ments which were tried from time to time, it is pertinent to notice that in 1865 the duties assigned to the Committee of Ways and Means were modified in a marked degree by the creation of a Committee on Appropriations. The mover of the amendment by which this committee was created ex plained that it was designed to divide the work of preparing finance bills between two committees, and in this way to secure greater care and greater economy in the management of the government finances. The duties of this new commit tee as presented in paragraphs 76 and 77 of the Rules of the House are as follows : Rule 76: " It shall be the duty of the Committee on Ap propriations to take into consideration all executive com munications and such other propositions in regard to carry ing on the several departments of government as may be presented and referred to them by the House." Rule 77 : " It shall also be the duty of the Committee on Appropriations within thirty days after their appointment at every session of Congress, commencing on the first Monday of December, to report the general appropriation bills for legislative, execu tive, and judicial expenses; for sundry civil expenses; for consular and diplomatic expenses; for the army; for the navy; for the expenses of the Indian Department; for the payment of invalid and other pensions; for the support of the Military Academy; for fortifications; for the service of the Post-Office Department and for mail transportation by ocean steamers; and in failure thereof the reasons for such failure. And said committee shall have leave to report such bills at any time." It will be noted that among the duties of this committee is that of rendering its report on appropriations in the form of bills, which from the constitutional point of view makes the committee of a decidedly different character from the old committees, which were to report " opinions." It shows that the House of Representatives had abandoned the attempt to " originate " money bills, as that phrase was understood in 1789, and that American practice had moved in the direction of committee responsibility as the solution of the problems of parliamentary procedure imposed upon this country by the separation of governmental powers.

A third committee should be noted in this connection. In 1883 the Committee on Rivers and Harbours was created to study and prepare such bills as pertain to appropriation of moneys for the improvement of rivers and harbours. Two years later this tendency was carried yet further. It happened in that year that the gentleman who had for several years been chairman of the Committee of Ways and Means was at variance with the leaders of his party, and with the adminis tration, upon the subject of the tariff. For certain political reasons, however, it seemed wise for the Speaker of the House to continue him in the chairmanship of that committee. It will be remembered that appropriation bills take precedence of other legislation, being bills of the highest privilege, and the chairman of the Committee on Appropriations did not hesitate to use his power to obstruct any legislation not ap proved by him. At the beginning of the Forty-ninth Con gress it was determined by the Speaker to take from the juris diction of the Committee on Appropriations the majority of the appropriation bills, and after a sharp contest this was done. Thus the bill for the support of the diplomatic service was given to the Committee on Foreign Affairs, the bill for the support of the military establishment was given to the Corn mittee on Military Affairs, the bill for the support of the naval establishment was given to the Committee on Naval Affairs, the bill for the support of the Indian service was given to the Committee on Indian Affairs, and the bill for the support of post-offices and post-roads was given to the Committee on Post offi ces and Post-roads. This left to the Committee on Appropria tions only the executive, the administrative, the judicial, the pension, the District of Columbia, the deficiency, and the per manent appropriation bills. The practice thus established has been maintained to the present time. It thus becomes evident that the tendency in this country is towards the dis persion of responsibility for financial legislation, rather than towards the concentration of responsibility in the hands of a single committee.

Going back now to the main question from which this in quiry started, it appears that the preparation of the budget in the United States is begun by the executive department of government. The communication from the executive de partment may be in the form of a note from the President as well as a report from the Secretary of the Treasury. Only under unusual conditions would other members of the cabinet venture to submit recommendations embracing estimates of expenditures, although, as will shortly be explained, officials of minor offices do make personal appeals to the members of the various appropriation committees for modifications of the Secretary's recommendations. The budget as it leaves the hands of the executive is submitted in the form of (I) a report upon the execution of existing fiscal laws for the past fiscal period; (2) an estimate of the fiscal needs of government for the period about to be entered upon; (3) an outline of the policy upon fiscal affairs which may be accepted as an ex pression of the desire of the administration. This document, or documents, being accepted by the Speaker of the House of Representatives, is referred to the several committees con cerned, to be used by these committees in such manner as they shall see fit. According to the usual practice the re port and the estimates of the Secretary of the Treasury are made the basis of fiscal legislation, but there is no legal or constitutional requirement to this end.

The preparation of the budget in its second stage is wholly a legislative act, and in this country is performed by the ap propriate committees. These committees may adopt the executive recommendation as the basis of their bills, in which case they convert the advice of the executive into a legally expressed governmental policy for the consideration of the legislature; or they may ignore the recommendations of the administration and prepare bills according to their own liking.

(5) Criticisms upon the American Practice. The evils which arise in connection with the American method of preparing money bills are three and as follows : First. The treasury official, who is nominally responsible for the estimates submitted to Congress, is given no consti tutional or legal authority to control them. His duty is largely clerical. Accepting the estimates of the heads of the various independent departments and bureaus of the government, he causes them to be classified and summarized, and transmits the result as the Book of Estimates. He feels no official responsibility for the amounts which it contains, nor is there any guarantee in the manner in which the esti mates are brought together that they reflect the fiscal needs of the government economically administered, or that a just balance is maintained between the appropriations to the va rious branches of the public service, as would be the case were the Book of Estimates recognised as the basis of all legislation upon appropriations. As an individual or as a member of the cabinet, and through cabinet courtesy, he may doubtless in fluence somewhat the estimates of the various departments. In his capacity of auditor also he may call attention to the necessity of greater economy in certain departments than the officials in charge have seen fit to recommend; but inasmuch as the authoritative opinion on expenditures as presented to the legislature is that of the Committee on Appropriations and other committees rather than of the Treasury Department, the Secretary feels no imperative necessity of presenting the esti mates in the shape in which, according to the administrative policy, they ought to become law.t This must be recognised as a serious defect, and one which will inevitably lead to serious evils. Each department, freed from all control, freed also from that sense of responsibility which comes with the contemplation of the ways and means to meet expenditures, and incited by the desire to increase its relative importance in the govern ment by increasing the money voted for its support, will esti mate its needs in a very lavish manner. The aggregate of expenditures asked for will, under such conditions, be greater than under a system which recognises the estimate of the ad ministration as the final and authoritative estimate. If to this be added that the Committee on Appropriations, when it undertakes an analysis of the estimates, consults with the heads of the various departments and bureaus, and even with sub-officials of the departments and bureaus, rather than with the Secretary of the Treasury as the representative of the ad ministration in matters of expenditure, it is easy to see how inter-departmental emulation and private interests will tend to swell the aggregate of expenditures. There is thus dis closed a most serious defect in the American system of prepar ing money bills. This defect might in part be removed should the Committee on Appropriations recognise the Secre tary of the Treasury as the only means of financial communica tion between itself and the administration. Such a ruling would be a reform in the direction of concentration of re sponsibility, and as such would be in perfect harmony with the theory of an effective popular government. This proposal will be further considered when the question of reform is taken up for discussion.

, Second. The second difficulty in the attainment of good results under the American practice is due to the separation of responsibility in the preparation of the budget in the legis lative body itself. The Committee of Ways and Means has praising M. Mange for " sweet temper and rare good sense, qualities of great importance for one who administers public finances," M. Thiers continues his address as follows : " To this praise, if you permit me, I desire to add a slight reproach [" Ah ! ah !"], but very slight. I shall not reproach M. Mange for the lack of any good quality; no ! I shall reproach him for the lack of a certain fault. This fault (I search for a word to characterize it; I am obliged to employ one a little strong, but you will pardon me), this fault which M. Mange lacks is a certais ferocity which I regard as indispensable to a Minister of Finance." Cf. Stourm, Ls Budget, p. 63.

to do with raising revenue; the Committee on Appropriations has to do with expenditures. These are independent com mittees of equal and coordinate authority. Were they both obliged by custom, rule, or law to consult with the head of the Treasury Department relatively little harm would arise from the fact of their independence; but as it is there is no guarantee of harmony between income and expenditure. On the other hand there is every reason to expect a discrepancy between the two sides of the budget. It is true, as was asserted at the time the Committee on Appropriations was created, that this committee may consult with the Committee on Ways and Means, but the liberty to consult is essentially different as a principle in parliamentary organization from the legal necessity of consultation or the legal authority to control. Neither committee is obliged to adjust its discussion to the policy of the other.

It may be said as against this criticism that the Committee on Appropriations has existed since 1865, and that no serious complaints have been heard respecting its action; but it should be remembered that during the thirty years of its life the Federal Treasury has been in constant possession of sur plus funds. How the difficulties arising from the separation of authority will be adjusted when the task imposed on the Committee of Ways and Means is that of augmenting the revenue rather than reducing it is a question upon which the !experience of the United States has as yet thrown no light. The separation of the committee on expenditures from the committee on income, and the removal of both committees from any constitutional influence or legal control of the execu tive department, leads to an unwarranted looseness in all mat ters of fiscal legislation. In this lies the weakness of the

American budgetary system; and if, with the separation of legis lative responsibility above referred to, it is recognised that the Committee on Appropriations is such in name only, owing to the fact that many of the important committees can bring in bills for the expenditure of public moneys, one begins to appreciate the extent to which responsibility for fiscal legisla tion in the 'United States is diffused by the established practice of Congress.

Third. The third defect in the method of preparing the budget as presented in the United States is due to the fact that the authority of the President cannot be brought to bear upon fiscal legislation during its initial stage. Such legisla tive authority as he possesses rests upon his right to veto bills presented for his approval, and this cannot be exercised until the bills have passed both Houses of Congress. The practical result of this is that the President has no voice in the adjust ment of the details of finance bills, and this is equivalent to saying that his opinions are of slight Importance in questions of income and of expenditure.

It was undoubtedly the intention of the framers of the Con stitution that this should be the case, but it is at least open to question whether or not they adequately appreciated the in congruity of the situation. They did not foresee the rise and influence of standing committees. The President is the only officer elected by the people of the entire country. He is the only person who by virtue of his election may be said to repre sent the popular will. The committees, whose powers, as will shortly be pointed out, are almost absolute in the framing of laws, are composed of men who represent congressional dis tricts. Is it not an incongruity that in a matter of such vital importance to the entire nation as the laws for raising and disbursing revenue the men who, by virtue of their position, are the most influential are responsible not to the country at large, but to a small district of a possibly small State? It is a matter of serious complaint that the will of the people as expressed in presidential elections is so tardily reflected in current legislation, and this in large measure is due to the inability of the representative of the people to influence in an official manner the details of bills while yet they are in their formative or plastic state. Nowhere does this evil present itself more clearly than in connection with financial tion.

23. What should be the Date of the Fiscal Year?— Another series of questions brings into view the time element of the budget. What should be the length of the fiscal pe riod? What date should be chosen for the beginning of that period? At what time in the legislative session should the budget be presented? So far as the length of the fiscal period is concerned, the practice seems to be quite uniform. The year—that is to say, a period of twelve months' duration—is accepted as the most convenient period contemplated by fiscal legislation and fiscal administration. This does not mean that for some purposes the year may not be broken into fractional parts, or that for other purposes it may not be used as the submultiple of a longer period. In the great majority of cases, however, the unit of time is the year, and the phrase " fiscal year " is a familiar one in financial discussion. This is but a recognition of the universal practice, the reasons of which are too manifest to require statement.

With regard to the date at which the fiscal year begins there is not the same uniformity in practice. Thus in France the fiscal year is the calendar year. It begins with January 1st and ends with December 31st. Formerly this was the commonly accepted fiscal period, but at the present time the majority of nations have selected other dates. After several experiments England, in 1855, adopted April 1st as the be ginning of her fiscal year, a precedent which has been fol lowed by the German Empire, by Prussia, Wurtemberg, Den mark, and Roumania, as also by other states. The United States used the calendar year as her fiscal until i844,) when a change was made to July 1st. This date was adopted after a somewhat extended discussion as to the relative merits of several proposed periods. Other states which accept July 1st as the beginning of the fiscal year are Spain, Portugal, Norway, Canada, and Mexico. In Belgium the fiscal year, as in France, coincides with the calendar year, but in order to overcome the difficulties incident to this practice, and which, indeed, induced other nations to adopt April 1st or July 1st as the beginning of the fiscal period, Belgium has found it necessary to break the fiscal year for certain pur poses into months, and to recognise le dauziime provisoire as a necessary adjustment in her budgetary system. The choice of the fiscal period, then, does not seem to be entirely an ar bitrary matter; on the contrary, it is a detail of considerable importance.

The considerations by which the date for the beginning of the fiscal year is chosen are the same, in a general way, as those which determine the time at which the budget should be presented to the legislative body. It is of course desirable that the estimates, whether of income or of expenditure, should be as accurate as possible. The budget as estimated should harmonize with the budget as executed. In order, however, to secure this balance between estimated and actual expenditure and income it is of importance that the votes which provide for revenue and legalize expenditure should be taken as short a time as possible before the date at which fiscal laws are to go into operation. There is no way of accomplish ing this except to place the date for the beginning of the fiscal period as short a time as possible after the date when, in or dinary parliamentary practice, the final vote on fiscal bills will be taken. Thus the beginning of the fiscal year should, in a general way, coincide with the end of the parliamentary year.

The importance of allowing as short a time as possible to intervene between the date of the vote upon the budget and the date of its going into operation will be appreciated if the source of discrepancies receives a moment's consideration. It is possible for estimates to err either on the side of income or of expenditure. Revenue from some sources may be ac curately calculated. Thus revenue from a land tax or a poll tax may be accurately determined. Revenue which is likely to accrue from an income tax, also, provided it be of long stand ing in a community, may be estimated with confidence. Yet even here any considerable change in the rate will so modify the inducements to concealment and false statement as to- in validate somewhat the trustworthiness of the estimate. When, on the other hand, the financier is called upon to estimate the probable proceeds of indirect taxes, such as excise duties or duties on imports, he encounters a number of variable factors. Such taxes are paid by the consumers of taxed commodities, and their proceeds consequently fluctuate with the consuming ability of the community. Now this is a variable factor, and one which cannot be determined with any certainty for any considerable length of time before the date at which the esti mate is made. It is essential, therefore, in order to venture a fair guess respecting income, that the guess should be made at a time when the probable industrial condition of the coun try can be foretold with some degree of accuracy. This is the reason why the final estimate—that is to say, the vote of the legislative body on fiscal matters—should be placed as closely as possible to the beginning of the fiscal year.

Expenditures are perhaps capable of greater accuracy of estimate than income, since they are, in a measure, a matter of choice with the government. Thus the expenses of the army or of the navy in time of peace will probably be about the same from year to year. This is also true of the civil list, while payments to the sinking fund and other contractual pay ments are capable of exact calculation. It is, however, impos sible to estimate accurately the expenses of the foreign ser vice, of the judiciary, or indeed of the amount which must be expended any particular year for public works. But it is true of expenditures as of income, that the less time intervening between the estimated and executed budget the greater is the likelihood of harmony and of balance.

A study of the practice among various states bears testi mony to the truth of these considerations. In England, whose financial administration is equal to that of any other country, the time intervening between the first presentation of the budget and the date of its going into operation seldom ex ceeds five months. The circulars calling for estimates from the various departments of state are sent out toward the end of October, and are presented to the House of Commons some time in February. Thus both the estimates and the vote are brought close to the date of execution. In the United States the report of the Secretary of the Treasury must be presented to Congress within ten days after the beginning of each ses sion of Congress, while the committees on Ways and Means and on Appropriations are required to report to the House within thirty days from the time the estimates are submitted to them. Thus from six to seven months may be said to in tervene between the first estimates and the beginning of the fiscal year to which these estimates apply. When, however, it is recognised that the estimates of the Treasury Depart ment are not authoritative, but that these may be and com monly are revised by the committees, it follows that the period between the estimated budget and the beginning of its execu tion is much shorter.

The practice in France does not commend itself to one educated in the stricter schools of English or American finan ciering, since fourteen or fifteen months frequently intervene between the estimates of income and expenditure and the time when the laws based upon those estimates go into opera tion. For example, the administration will begin its estimates for the year 1897 in October or November of the year 1893.

Under such conditions accurate estimates cannot be expected, since it is impossible for any one to tell so, long beforehand what the commercial condition of the country will be. It is not, therefore, surprising that the estimates in France should exert little influence upon financial legislation. Nor is it sur prising to learn that France, of all countries in Europe, does not find it inconvenient to retain January 1st as the date be ginning its fiscal year.

The conclusion of this analysis is that April 1st or July 1st is the best date for the beginning of the fiscal year, since in this manner the least possible time intervenes between the legalization of income and expenditure and the opening of the period to which the laws apply.

24. Respecting the Rules for Making Estimates. The first step in the formation of the budget consists in making estimates of the income and expenditures for the year to be covered by the fiscal legislation of the budget in question. The importance of sound estimates arises from the fact that at no time in its brief history is the budget in so plastic a con dition as during its initial stage; at no time can it be brought so easily to reflect the policy of the government or the interests of the public. Should the budget go far astray in the matter of estimates it would be very difficult, if indeed possible, to bring it into shape during its progress through the legislature, for that body cannot be brought to show an equal interest in all chapters of so comprehensive a scheme of legislation, a fact due in part to the large numbers that compose it, and in part to the local character of the representation which its members sustain. Sound fiscal legislation must begin with a conservative estimate of probable receipts, and a purposeful estimate of probable expenditures.

As Stourm very pertinently remarks, the qualities neces sary for correct estimates are sagacity and integrity : sagacity to see clearly into the future, integrity to declare, with truth what one sees. It is of course impossible to cultivate these qualities, or to secure them at will for the service of the State in case they exist. The most that can be done by the Science of Finance is to inquire respecting the various methods adopted for arriving at correct estimates, and to derive from such an inquiry some suggestions concerning the most appro priate method of procedure.

It is evident that the care with which the financial items of a given period may be estimated depends in large measure upon the proximity of the time at which the estimate is made to the period it is designed to cover. The bearing of this re mark has been already suggested when discussing the date for the beginning of the fiscal year; and from considerations then submitted it is evident that a rule for making estimates that might work well in the case of a nation which, like England, permits but four or five months to intervene between the formulation and the execution of the budget could not be followed with satisfactory results if practised by a nation which, like France, interjects from twelve to fifteen months between the beginning and the end of the process of fiscal legislation. The method followed in England, Italy, Germany, and the United States is practically the same, and consists in providing conditions that invite the exercise of sagacity. The practice in France, on the other hand, discourages the exercise of sagacity because it substitutes for an estimate an arbitrary calculation.

(x) Practice in the United States. As indicating the general practice among nations, the method followed in the United States may serve for illustration. The report of the Secre tary of the Treasury, which is submitted to Congress early in December, gives, first, the covered receipts and expenditures for the fiscal year just passed—that is to say, for the year end ing on the 3oth of the preceding June. From this statement Congress may learn the results of such laws as were in opera tion during the period in question. In addition to this state ment there is next inserted a statement of receipts and ex penditures for the first quarter of the current fiscal year. This brings an accurate statement of income and expendi tures to the close of September 3oth preceding the December in which the report is submitted. The significance of this second statement is that it shows the results for three months of such laws as are in operation at the time Congress is called upon to consider further fiscal legislation. Moreover, the accounts of the Treasury Department are kept in such a man ner that the Secretary knows pretty well concerning the opera tion of these laws during the months of October and Novem her, and is, on this account, in a position to modify the esti mates he is called upon to make by the appearance of any unusual disturbance in the orderly course of receipts or ex penditures. Under such conditions it ought not to be diffi cult to forecast with considerable accuracy the estimates for the remainder of the current year, since, as a matter of fact, the government has before it the actual receipts and expendi tures for five out of twelve months of the period under con sideration.

We have not, however, come to the most difficult task im posed upon the Secretary of the Treasury. The important estimate contained in his report pertains to the fiscal year following the current year in which his report is submitted to Congress; that is to say, his report for the year ending June 3o, 1896, must contain a statement of actual and estimated receipts for the year ending June 3o, 1897, and an estimate of income and expenditures which may be used as a basis of fiscal legislation for the year ending June 3o, 1898. The prac tice usually adopted is to calculate what would be the probable receipts of the government on the assumption that existing laws should be continued, and then to modify this estimate on the basis of proposed changes in the laws or in the services to be undertaken. It is evident that the variable element in such a calculation, and the one which calls for sagacity and intelli gence, arises from the instability of business and commercial conditions. The movements in population affecting the general consumption of a nation may be forecast with a fair degree of accuracy. Beyond this, however, there is no as sured stability in the conditions which determine the produc tivity of taxes. A depression in business prosperity will de crease the revenue to the State, while unusual prosperity will tend to increase that revenue. The strength of the perturbing forces cannot be measured in any arbitrary manner, although the Secretary, in arriving at his estimates, is obliged to as sign a definite influence to each of these forces and to make allowance accordingly.

The accuracy with which governmental receipts may be es timated for a period which lies in the future depends upon the ability of the Minister of Finance to forecast the commercial and industrial life of the period. There is perhaps no other task in connection with the administration of finance that calls for so comprehensive a knowledge of industrial forces, or so minute an acquaintance with statistical data. The accumu lated experiences of successive years will undoubtedly result in the formulation of certain rules that will prove to be of great assistance in making estimates, but these rules should always be used with intelligence and discretion. Such are the considerations urged in support of the theory so generally accepted that the only guarantee of satisfactory estimates con sists in establishing those conditions that invite the exercise of sagacity. This is done by bringing the date of estimate as near as possible to the period for which the estimate is made, since in this manner not only is the task rendered re latively easy, but the results of a slovenly estimate will quickly appear as a censure to him responsible for it.

(2) Practice in France. As a contrast to the general method of procedure followed by the larger number of modern nations, the practice in France bears a peculiar interest. It must be held in mind that the period intervening between the time for which the budget is estimated and the period to which it applies is much longer in France than in other coun tries, and that a careful calculation of probable receipts is on this account rendered more difficult. The broad margin of time between the estimated and executed budget invites a play of the imagination not permitted, at least to so great a degree, under the conditions adopted by other peoples. Such being the situation, it is perhaps natural that France should have adopted an arbitrary rule for arriving at probable re ceipts.

Since the time of the Restoration it has been the accepted practice to report in place of an estimate the covered receipts of the last preceding year. To make clear what is meant the following is quoted from the speech of M. Sadi-Carnot, who was Minister of Finance in 1886. He says : " The direct taxes have been calculated according to the old method, which consists in taking for the basis of the future period the receipts realized during the last period for which the accounts are com plete" (" c'est-i-dire, les recettes de l'annee antepenultieme ").t Such a process cannot, of course, result in presenting to the legislature an accurate statement of probable results which can be used as a basis of fiscal legislation, and its inevitable ten dency must be to invite the legislature, in making appropria tions, to disregard the estimate of receipts submitted in the budget. It would be difficult to conceive of a more pernicious tendency in financial legislation than to proceed in the voting of appropriations or in the revision of revenue laws without a clear appreciation of the receipts which existing laws would be likely to secure.

This embarrassment has been frankly recognised by the publicists of France, and there have been two suggestions designed to remedy this defect. The old rule for estimates having been interrupted by the revolution of 1848 and subse quent events, the question of the proper method of procedure was formally considered in 1854. Speaking of this question the chairman of the Budgetary Commission expressed him self as follows: " The old method of procedure has certain advantages which we do not overlook, but it has the incon venience of contributing to receipts an estimate always inferior to their reality, and of necessitating also an estimate of ex penses upon a scale which is generally known to be below their reality. From this there arises the grave inconsistency of having by the side of the avowed budget a budget held in re serve." To remedy this defect it was proposed to substitute the systeme des majorations, which means in effect that to the covered receipts of the antepenultimate year should be added an estimate of the increase in receipts for the year to which the budget applies on account of the expansion of commerce and trade, or for any other cause known to the Minister. This plan, however, was not followed for any considerable length of time; and when the confusion occasioned by the Crimean, the Italian, and the Mexican wars had passed, and the ques tion of orderly estimate was again considered, the old rule was brought forward and formally accepted. This was in 1863. In 1882 the question was again discussed, and it was proposed by M. Leon Say to revive the practice of estimates, although in a somewhat modified form. His proposal was to accept the average receipts of the five years previous to the date of estimate as the basis of calculation, and to modify the result thus obtained by general considerations which would suggest themselves in attempting to forecast the operations of laws in the future. It would have been interesting to observe what might have been the result of this plan, but unfortunately it was followed for a year only. It is not likely, however, that the practice would have exerted any marked influence upon the financier. The difficulties in the French system are radi cal. The period intervening between known results and the date for estimate is too long, while the accounts of the treasury are so tardily closed that for estimates would in any case be comparatively old. The system invites neither careful estimates nor careful legislation. The practice of other peo ples is rather to be commended.

25. What should be the Form of the Budget Statement t— The third of the technical questions respecting the prepara tion of the budget pertains to the form in which it shall be presented to the legislature. Upon this point it may be said, in the first place, that whatever its form it should be the same from year to year, or at least that no arbitrary or unnecessary changes should be introduced. The reason for this may be easily stated. The rules and customs concerning the passage of money bills should be so firmly established and so well known that no member of the law-making body can plead ignorance, either of the condition of the bill at the time his vote is requested or of the parliamentary effect of his vote, as an excuse for an erroneous decision. An established rule re specting the form and classification of estimates cannot, of course, enable a legislator to avoid error of judgment respect ing the general policy embraced in a proposed law, but it may enable him to understand what is implied by any particular vote on any particular chapter of the budget at any particular stage of its progress. An illustration will make this clear : Suppose that for a series of years the customary appropria tions for United States marshals has been included in that of . the judiciary, and that without proper notification it is changed to some other chapter of the budget. Under such circumstances it would not be strange should some member of the legislature cast his vote for the judiciary appropriation, as suming that by so doing he had made the customary provision for the marshals. It is futile to suppose that every member of the legislature can keep himself informed respecting the details of all bills that claim his suffrage at all their stages of progress towards law. He performs his full duty (except for such bills as he may introduce or as come from the committee of which he is a member) if he keeps himself in touch with the general legislative principles and governmental policies involved in the great mass of bills; and he is justified in assuming that, in the absence of formal notification to the contrary, the rules of procedure, the classification of items, the terminology em ployed, and the like, of regularly recurring bills, will continue the same from year to year. Permanency in the adopted form of a budget is, perhaps, of more importance than the particular form adopted.

That the budget should be introduced as a comprehensive document will doubtless be conceded. This is true because the general condition of a nation's finances must be known before a rational opinion upon any particular proposal re specting either income or expenditure can be entertained. It it necessary, therefore, that a budget statement should begin by an exhibit on a single page of the aggregate of actual re ceipts and expenditures for the year past; the aggregate of receipts and expenditures, actual and estimated, of the year current; and the aggregate of estimated receipts and expen ditures for the year for which laws are to be enacted. This is the general practice of nations, and in this regard the annual report of the Secretary of the Treasury may be ac cepted as a model of concise and comprehensive statements.

To say that the budget statement should be comprehensive does not, however, answer all the questions that arise respect ing its form, for the query still remains respecting the classi fication of income and expenditure most conducive to clear ness of discussion and intelligent legislation. The budget will probably be voted in substantially the form in which it is presented; such, indeed, is the common practice of nations, whatever their political or parliamentary organization. The form that the budget should assume cannot be determined by reference to any one consideration. The question which it presents is partly a question of administrative organization, partly a question of convenience for legislative study, and partly a question that calls for compromise between the finan cial and the political interests involved. The consideration last mentioned is the only one that calls for comment.

The natural demand of the financial interest is that the budget should be clear, simple, easily understood, and of few classifications. About all that the rank and file of the legis lative body is called upon to consider is the aggregate of ex penditures, and the apportionment of this aggregate to the several lines of public service; for, so far as income is con cerned, it can hardly be expected that the individual members of the legislative body will proceed in their analysis of finan cial affairs beyond a study of the general principles underlying the project of the law. It is of course necessary that estimates should rest on a careful scrutiny of details, but, as we have already seen, this task isceither performed,by the government or is intrusted to a specially appointed committee. All this detail must be taken for granted by most of those whose votes legalize income and expenditure. This being the case, it is not necessary that any considerable amount of detail should be included in the budget in the form in which it is presented to the legislative body for general discussion and approval.

A further consideration against too great detail presents itself in case expenditures are voted by chapters and each chapter voted independently, for under such conditions there is great danger that the aggregate of expenditures will not be properly apportioned to the several services calling for sup port. This is primarily a question of how the budget shall be voted, rather than how it shall be presented; but, as leading to a just balance between the items, or clauses of items, which make up the aggregate of appropriations, the financial interest seems to require that the budget should come before the legis lative body in the form of a few comprehensive classifications.

The constitutional interest, which, in the opinion of some writers, demands a compromise with the financial interest, presents the following claim. The budget, it is asserted, is the principal means by which the administration is held in check and the general policy of the government controlled. The classifications should not, therefore, be so comprehensive as to render difficult a test vote upon any question of public policy likely to arise in connection with appropriations. The administrative classification approved by the financial interest is too comprehensive for this purpose. On the other hand, that which by contrast may be termed the legislative classifi cation would be so minute as to destroy the sense of com pleteness which should result from the first reading of a budgetary statement. No general conclusion can be laid down for bringing these two conflicting interests into harmony. Each nation must decide for itself what is wise, resting its decision upon the degree to which the constitutional principle has been developed, and the extent to which other means have been established by which the constitutional influence of the legislature can be made effective as against the executive. This much of a generalization, however, may be ventured if confined in its application to American conditions. Good government in this country at the present time is placed in jeopardy rather by loose methods of business procedure than by an undue extension of administrative influence. The impor tant problem in the United States at the present time pertains to the control of the legislature by the people, and not to the control of the executive by the legislature. The finan cial interest, therefore, is relatively of more importance than the constitutional interest, and should be granted a greater influence in giving form to the budgetary statement. Some progress toward the recognition of sound business principles in financial legislation may be expected from clearness, sim plicity, and permanency in the budget as presented to the legislative body. The question thus brought to notice will receive further attention in connection with the passage of the budget to its vote.

It appears, then, that the basis of an acceptable classifica tion for the budget statement is found in the organization of the government for the purpose of administration. The Book of Estimates should be compiled so as to reflect the departments, bureaus, or offices into which the government is divided. The classification of receipts, also, should be ad justed to the source from which those receipts are drawn. Such a classification would, in the main, meet the con venience of the legislature for the purpose of study and of the administration for the purpose of estimate. Another strong consideration in its support is that it is the only classification which will be likely to continue for any considerable length of time. Our general conclusion, then, respecting the form in which the budget should be presented is that it should be drawn conformable to the administrative divisions of the government, but that these great divisions may with propriety be divided into appropriate chapters, which in their turn re flect the organization within the departments themselves.

fiscal, estimates, committee, report and government