Home >> The-science-of-finance >> Administration Of The Tax to Voluntary Aids >> Revenue

Revenue

REVENUE.

The investigation respecting expenditures having been brought to a close, it now becomes our task to consider the nature and the sources of public income, and to search for those administrative rules and general principles by which the necessary revenue of the State may be secured in the manner most advantageous to all interests concerned. The problems of public income naturally classify themselves according to the sources from which this income flows, and on this account a consideration of the possible sources of public revenue will be the most natural and helpful introduction to the discussion of these specific problems.

37. Classification of Public Revenue. Main Divi sions. The revenue which flows into the treasury of a State is of three sorts. It may be a direct revenue, a derivative revenue, or an anticipatory revenue. By direct revenue is meant all revenue that accrues to the State from public owner ship in productive property, or public management of pro ductive industry, or which falls to it by virtue of its sovereign character or corporate personality. By derivative revenue is meant revenue which forms in the first instance a part of the income of the citizen, but which is paid by him to the State in satisfaction of some revenue law. In this instance the citizen rather than the State is the owner of the property, or the manager of the industry, or the recipient of actual benefices. The distinction between direct and derivative revenue becomes clear when it is noted that direct revenue, so far as it is indus trial revenue, constitutes a positive addition to the social in come, while derivative revenue, although it augments the in come of the State, is in reality a transfer of a part of the earn ings of the citizens to the State. An analysis of direct revenue leads to a consideration of Public Domain and Public Indus tries, and of awards and gratuities; an analysis of derivative revenue leads to a study of the nature and principles of Taxa tion in all of its forms.

In addition to direct and derivative revenues the State may secure funds through the use of its credit; that is to say, it may borrow money. This revenue is properly characterized as an ticipatory revenue. It is secured through the creation of a debt, and in any sound system of finance is recognised as the first step toward an increase in taxes or a higher return from public property or public industry. Public credit as a source of income to the State cannot be understood except one is familiar with the principles that control direct and derivative revenue. Its legitimate use is confined to making headway against a fiscal exigency or to the providing of capital for pub lic investment. These are both unusual conditions. The ad vent of an expensive war may constitute a fiscal exigency and justify the use of public credit. The policy of building a great system of canals or railways may be accepted as an example of what is meant by the investment of public capital, and the capital for investment will in all probability be secured by the sale of bonds. In both classes of cases the occasion of the ex penditure is out of the ordinary. In neither is the revenue secured a final revenue, but carries with it the necessity of se curing an equal amount at some time in the future with which to pay back the money borrowed. It is thus evident that an ticipatory revenue is different in its nature and its use from or derly revenue, and that for this reason it should receive sepa rate consideration.

The advantage of a separate study of public credit is em phasized when it is seen that the principles which properly dominate the administration of public finance in ordinary times and for orderly and continuously recurring expendi tures, are not, in all respects, the principles to which the public treasury should be adjusted in times of fiscal exigency, or when for any reason unusual expenditures are to be made. To put the case concisely, there is a system of orderly finan ciering and a system of exigency and investment financiering, each of which is subject to its own peculiar principles so far as income is concerned. In this fact is found a second reason for a separate treatment of public credit.

The foregoing analysis shows that all questions of public income may be discussed under one of the three following heads : i. Direct revenue, which leads to a consideration of public domains and public industries.

2. Derivative revenue, which leads to an analysis of the principles and a study of the practice of taxation.

3. Anticipatory revenue, which leads to an investigation into the principles of public credit.

(2) Comparison of Direct and Derivative Revenue. It will be of great assistance in our effort to gain a comprehensive view of the general subject of public revenue if we inquire a little more closely respecting the character of direct and deri vative revenue, and carry their comparison and analysis a step further. In this we shall confine ourselves in the first instance to a consideration of the regular and orderly sources of public income.

Public domains and public industry are alike in that the payment made into the treasury on account of them are made in return for a definite and specific privilege or ser vice. Where government owns land and assigns it by lease for cultivation, public revenue is a rental paid by the tenant. Where government owns and administers the forests, the revenue which it secures arises from the sale of lumber or charcoal. Where government owns and manages a system of railways the revenue accuring is collected through sale of transportation. A stamp placed upon a letter is the price for carrying the letter, and the government collects its postal revenue from the sale of stamps. The significant fact in all these cases, as in others that might be mentioned, is, that the citizen presents himself before the agent of the State as a pur chaser of some privilege or service, and the amount he pays holds some definite relation to the quantity and quality of the service rendered. The relation between the citizen and the State is the " contractual " relation. The payment is freely made at the time of purchase and the citizen knows what he gets for his money. In this regard revenue by taxation is of an entirely different sort. It arises from payments made for a general and not for a specific service, and the service sup ported by the payment cannot be measured in any way to the citizen. The service is general in its character, and any at tempt to measure it out to the citizen in proportion to pay ments would result in the destruction of the service itself.

Another distinction between direct and derivative revenue is that the former is voluntary while the latter is coercive. Much confusion has arisen in treatises upon finance on ac count of the different ways in which these words are used. By some a voluntary payment is understood to be a payment no greater in amount than could be demanded for a specific ser vice were the price of the service determined by competition. This conception of the phrase necessitates a separation of the made for the service from which the State hopes to se cure a general as well as a specific revenue into two parts—the one covering cost, the other reckoned as a profit. The former is said to constitute a voluntary payment, the latter a coercive payment, and on this account the profit to government on a commercial industry is said to be a tax. This distinction, al though plausible when presented in this manner, is of slight advantage. No important administrative rule can be based upon it, nor is it sufficiently characteristic to be easily carried through a scientific treatise. Wherever a monopoly exists, whether or private, an extraordinary profit is liable to make its appearance; but one would not on that account care to say that he who purchases from a monopoly is coerced to make the payment. It is of course true that if he desires the com modity he must meet the conditions of the only agency that can supply him with it. He must pay the monopoly element as well as the cost element in the price in order to secure the goods, but one cannot say on this account that he is coerced in the one case more than in the other. Payment of the mo nopoly element in a price is merely the condition of his secur ing the commodity or service in question; but he may if he choose forego the purchase, and so be free from the payment of either. The point is this : Coercion which springs from one's desire to possess or enjoy a definite thing is wholly dif ferent,in its origin, in its character, and in the results which follow from it, from the coercion exercised by the government when it secures revenue from taxes. The one is the coercion of a specific desire, the other is the coercion of a sovereign power. The one finds its compelling force in the free choice of the individual, the other in the sovereign will of the State. A classification of revenue which fails to distinguish between commercial and political coercion can only lead to confusion. It is hoped in this treatise to avoid such confusion by refusing to acknowledge at the outset the alleged similarity between profits accruing from a government industry and taxes im posed upon private industry.

It appears from the above discussion that derivative and direct revenue differ from each other in that the one is built from payments for a specific service, and is made voluntarily by the citizen; the other is built from periodic payments, with only the general advantages of government in mind, and is a coerced payment in the legal sense of that word.

A third distinction, though it is administrative and prac tical rather than general in character, is found in the fact that direct revenue is frequently assigned to special expenditures, while derivative revenue is commonly thrown into a general fund out of which all general appropriations for the public service are paid. The tendency is strong towards the prac tice of a consolidated fund.

(3) Bequests and Indemnities. Besides revenue from public domain and public industry, there are two other sources of revenue which are direct in character. The State may in its corporate capacity be the recipient of gratuities either from citizens or from other States. Such, for example, is the bequest of Smithson to the Federal Government for the establishment of the Smithsonian Institution. Such also is the bequest of land from the Federal Govern ment to the States for the support of common-school and university education. Further illustrations of public revenue by gratutities are found in the frequent gifts made by individuals to municipalities in the form of parks, or for the purchase of fountains, statuary, pictures, and the like. 'Com monly, however, revenue from this source is appropriated to some specific service in the articles of bequest; and while it adds to the property of the State, and is of great significance for the development of the people, it does not in any way re lieve the demands upon the people for the support of the or dinary functions of government. It is referred to in this con nection that our analysis of public revenue may be complete. It is a revenue that accrues on account of the corporate character of the State by which it is enabled to become the trustee of funds designed for social benefit.

Another source of unusual or accidental revenue is found in the indemnities which a conquering nation is apt to demand from a vanquished people at the close of a war, in the judg ment of international boards of arbitration, or in the agree ments entered into by nations in case one nation for any reason claims damages from another. After Franco Prussian War Germany received five milliard francs from France as a war indemnity. Japan also secured an indemnity of one billion yen from China as one of the conditions of granting peace. It may be said, indeed, to have become an established practice that the conquering nation should receive indemnity for the cost of a war. From the financial and in dustrial point of view it is more than questionable whether the nation that receives the indemnity is thereby benefited. It is apt to induce habits of extravagance and to lead to the estab lishment of services which, when the indemnity fund is ex hausted, will necessitate an increase in the rate of taxation; or, should this evil be avoided, a government will find great difficulty in expending so large a sum of money without dis turbing the orderly course of trade. On the other hand, should the government which receives the indemnity en deavour to avoid this evil, it is likely that by withholding so considerable a sum from the ordinary circulation it will affect injuriously commercial conditions. In view of the possible difficulties which attend the receipt and expenditure of a na tional indemnity, it is not strange that the board of directors of the Bank of Japan should have presented to the council of the bank this question : How may the Chinese indemnity be employed to the greatest advantage and the least disadvan tage? There is perhaps in the entire range of financial problems no question more attractive because of the possi bilities which it presents for broad generalization than this question of revenue by indemnity. It does not, however, bear that relative importance, when compared with other questions, which justifies further mention of it in this treatise.

(4) Fees and Assessments. Assuming that all revenue is either derivative or direct, where should fees and assessments be classed? Before undertaking to answer this question it would be well to make sure that the terms themselves are un derstood. A fee is a payment made to the State on the occa sion of some specific service rendered by the State to the citi zen, the service, however, being non-commercial in character. Two or three illustrations will make this clear. The payment demanded for recording a deed or mortgage, or for any legal process, is a fee; so also is the payment required to secure a passport or license (this latter, however, should not be con founded with a license tax), or for the issue of a teacher's cer tificate or diploma; so also is the payment for connecting with a public sewer, or for the privilege of purchasing light and water from a municipality. All these payments and many others for like services, or permits, are called fees. They are, however, in no sense the price paid for the service rendered or the permit granted. While it is true that they recognise a specialization in the service, they are in no sense a quid pro quo. The amount fixed bears no relation to the importance of the service, and only in a few cases to the quantity or the quality of the service. For the most part, services which are made the occasion of a fee do not permit of quantitative assessment; nor is the purpose of the government in demanding a fee that the aggregate of moneys thus secured shall equal the expendi ture incident to the service.

As further characterizing fees it maybe said that the service rendered by the government for which a fee is charged is not commonly the comprehensive or fundamental service which the State has in mind in the adjustment of its governmental machinery. It is rather a service which arises incidentally in connection with some comprehensive governmental function. Thus the maintenance of foreign relations is a general govern mental function, but the granting of a passport or the vise of an invoice is merely incidental in the administration of foreign affairs. The maintenance of justice in the business relations of citizens is one of the fundamental aims of political organi zation; the recording of a deed or of a mortgage, on the other hand, is required in order to render justice in commercial deal ings easy and sure. In the same way the fee for a diploma is incidental to the administration of public education; so also the fee for a sewer connection is incidental to the administra tion of the health department of a municipality.

In view of the above considerations it appears that a fee is more properly classed under the head of derivative revenue than of direct revenue; that is to say, it is allied to a tax and not to a price. Although paid on the occasion of a special service, it is not paid because of that service, but rather be cause the government selects a certain occasion in the per formance of its general functions for the levy of a special tax, and levies that tax to the individual with whom at the time it comes in contact.

A special assessment is defined by Professor Seligman as " a compulsory contribution levied in proportion to special benefits designed to bear the cost of special improvements to property undertaken in the public interest." This definition implies, first, that the improvement which is made the occasion of payment is primarily for the benefit of the public, and secondarily for the benefit of the individual on whose property the improvement abuts. The paving of a street, for example, ' while it adds to the value of abutting property, is usually re garded as a work pertaining to social rather than to private economy. In a very free sense, an assessment is in this par ticular allied to a fee. The service rendered by government to the individual who makes the payment is of secondary im portance as compared with the general service involved. In practice, however, the assessment differs from a fee in that it is attempted to assign a payment to the individual in proportion to the benefit received. The definition implies in the second place that a special assessment constitutes a " compulsory con tribution " which shows that, although the payment is a quid pro quo, it is not a price for service rendered. The transaction lies within the domain of social and not of free economy. Nor is the compulsory character of the assessment confined to the fact of payment. The decision as to the character of the im provement, as well as to the time at which it shall be under taken, rests with the public authorities. In a double sense, therefore, an assessment may be regarded as a compulsory payment.

Our conclusion then is that assessments like fees are allied to taxes and are, on that account, to be classified as special forms of derivative revenue; at the same time they are in a greater or less degree adjusted to the idea of a special service, and for that reason should be granted an analysis separate from the general discussion of taxation. In this, however, we cannot go so far as do many German writers of prominence who recognise fees and assessments as a distinct source of public revenue.

The classification of public revenue which gives form to the present treatise is the following: (5) Revenue from Expropriation. It will be observed by one familiar with the literature upon this subject that the above classification of public revenue fails to include revenue from expropriation. Under this phrase is included the process of taking property through the exercise of the right of eminent domain. The reason for declining to recognise expropriation as a phase of revenue is that the State cannot, by any con ceivable use it may legally make of the power of eminent do main, increase its income. The utmost it can do is to enforce

an exchange of property. The government has a right under this sovereign power to take from a citizen whatever is ac counted essential for a public purpose, but it is under obliga tion to return to him an equivalent for what it takes. In case an equivalent is not given in return, the act becomes either spoliation, which is an abuse of law, and therefore not to be considered among the sources of orderly revenue, or confisca tion, which rests upon an entirely different power than the power of eminent domain. For these reasons property ex propriated from private to public use is not counted as a public revenue.

(6) The Lawyer's Classification. It will be further ob served that the classification here set forth pays no regard to the legal authority upon which the State rests its appeal for revenue, and in this respect differs from what (for want of a better name) may be termed the lawyer's classification. It is not intended to convey the impression that questions of constitutional right are of no importance in the adjust ment of a fiscal system; they are of the utmost importance, as was clearly pointed out when the fiscal axioms were under consideration. Especially in the United States, where the courts have the last word on the constitutionality of a law or the legality of a method adopted for its enforcement, is it es sential that the financier have clear and distinct views upon questions of legal authority. When, however, one observes the inextricable confusion into which the courts have drawn the nomenclature of finance by endeavouring to classify public revenue according to the governmental powers brought for ward for their legal support, he is justified in expressing a doubt as to the advantage of the classification. The truth is that a given revenue may rest upon any one of several powers according to the purpose for which it is levied; or, indeed, it may rest on several powers at the same time. Duties on im ports, for example, may appeal to the taxing power, to the power to regulate commerce, or to the general welfare clause of the Constitution for legal justification, or it may appeal to all of these powers which the Constitution confers on Congress; but the duty is a duty in any case. The fees imposed on hack drivers or newsboys may rest entirely on the police power, and a lawyer might urge that power to the exclusion of all others in the defence of the ordinance; but the fact that the fee is de pendent on police regulation does not take it out of the cate gory of taxes. It is right for lawyers to classify the sovereign power of the State, and to rest their arguments in support of the various forms of revenue upon one or all of those powers; but to define revenue in the language of legal pleading must inevitably lead to confusion. The nature of revenue is one thing, the nature of legal authority to set revenue machinery in motion is quite another. It is believed that the classifica tion of revenue according to its nature will enable the student to obviate many difficulties that might otherwise arise.

38. Comparison of Public and Private Industry. The foregoing analysis aims to disclose the general characteristics of public revenue. As further suggestive of the fundamen tal conceptions involved we shall now proceed to a cursory comparison of public and private industries, and to inquire if the general attitude of government toward the public is changed in any marked degree on account of the fact that it presents itself in connection with an industrial enterprise.

There are but two reasons why government should care to undertake an industrial enterprise : the one is that it may be of service to the citizen, the other that it may obtain a revenue for itself. The building and control of a railway is typical of the former; the French tobacco monopoly may be mentioned as an illustration of the latter. One must not think, however, that these two aims cannot be present in the same undertak ing. Indeed, it is the rule rather than the exception that both objects are held in mind in connection with such industries as the government chooses to undertake; and, while it may be true that this renders the administration of the public business more difficult than would otherwise be the case, it must be al lowed that the advantage to the public is on this account greatly increased. It is certainly wise to obtain revenue in such a manner as to render incidental benefits whenever that is possible.

Naturally the administrative rules which appeal to the financier will vary according to the purpose for which the in dustry is undertaken. If revenue be the chief object, the po licy of control will tend to adjust itself to what is known as strict business methods. The principle of private financiering will be put in practice so far as that may be done in view of the sovereign character of the State. This generalization brings to the front a very important question : In how far is it pos sible for the State to divest itself of its sovereign character when it invests itself with the role of an undertaker? Many writers assert that no essential difference exists in matters of business between the State and the individual, and they proceed in their discussion of public industries as though government were at liberty to adopt as its own the business policy of a corporation or of an individual, and to adjust its charges upon strictly business considerations. One may, however, doubt the pertinency of such a conclusion. In every sphere of its activity the government stands for the whole people. The State is obliged from the necessity of its own nature to regard the general effect, as well as the immediate result, of its acts, and on this account it is debarred from ad justing a business policy to the principles of private financier ing. It cannot, for example, resort to any of those devices by which trade is enticed from a private concern performing the same or analogous services. This is true because the com petitor of the government is a part of the State, and the State is obliged to recognise that damage to such a competitor is damage to itself. The State is as much interested in the suc cess of what its citizens undertake as in the success of its own business enterprises, and for this reason is obliged to assume the comprehensive or social point of view, and to consider the general and ultimate, as well as the particular and immediate„ results of its business policy.

As further illustrative of the peculiar character of a public enterprise, it may be said that a public industry cannot recog nise the wholesale principle in dealing with its customers, since it has no right to discriminate in price in favour of the large and against the small buyer. It is a fundamental principle of democratic government that all citizens should stand as equals before it, and it would be as dangerous to disregard this prin ciple in the administration of industry as in the dispensation of justice.

If the distinction thus brought to notice be accepted (and it must be admitted that many writers on finance fail to recog nise it), it follows that public utility rather than industrial profit must be the ruling consideration in all public industries. The State has no private interest and cannot follow, without modi fication, the rules of a private business. The phrase " private price " or " quasi-private price " finds no place in discussing an industry carried on by government. The private price is commonly the competitive price, and is always fixed with a view to the highest possible profit; the public price is a governmental price, and is adjusted to the idea of the highest social utility. It may be that, incidentally, the same charge will be made by government aiming to secure social utility as would be the case if the industry were ad ministered upon a competitive basis; but the process of get ting at the charge is so different in the two cases that one is justified in asserting that the charges themselves stand for essentially different concepts and represent essentiafly dif ferent social forces.

The practical outcome of the fact that the State cannot divest itself of its sovereign character, even though it under take a business for the purpose of securing a profit, is that public industries will, as a rule, be organized as legal and ex clusive monopolies. In no other way can that symmetry in organization and harmony in administration be maintained which are essential to a just regard of the social interests. There are of course exceptions to this rule. The government might, for example, own and administer a railway, not for the purpose of revenue or with a view of rendering a direct com mercial service, but in order to establish and maintain the conditions of equity for the conduct of industries intrusted to individuals and corporations. To speak specifically, the State might choose to own a railway in order to coerce competing railways to charge a just price or to provide conditions of normal competition between merchants and manufacturers. Even in such cases, however, the industry owned by the government does not subject itself to the law of competition; on the contrary, it makes use of competition in order to con trol competition. In all cases it is the governmental principle, rather than the commercial principle, to which the administra tion of a public industry looks for guidance.

The difference between a public and a private industry would be yet more clearly disclosed by inquiring respecting the principles upon which the government must rely in ad justing the price for such commercial services as it renders, but as this question is made the subject of special discussion in a subsequent chapter it will not claim our attention in this connection.

39. Marks of a Good Revenue Bystem. In order to pre pare for deciding properly the technical questions which come up in the discussion of the various sources of public revenue, it may be well at this point to consider the marks of a good revenue system. The most important of these are as follows: First. A good revenue system must be adequate to the just wants of the State. This is more than a truism. Not only must the government be able to secure such moneys as it needs, but it must be able to do this easily and without ap parent effort. Difficulty in securing revenue acts as an obstacle to the performance of any duty which may be assigned to government; while, on the other hand, the impression that the State is in possession of adequate funds, or may easily secure an increase in revenue, brings to it such strength and dig nity that tasks which would otherwise be difficult in their performance are accomplished with ease. Especially is this true in the case of diplomatic negotiations. The effect of an argument depends more upon the power of the nation which asserts it than upon the reasonableness of the argument itself; and in these days of expensive military and naval equipment national power is in large measure dependent upon money or the ability to command money. In case government desires to enter upon a contract calling for large payments, also, a full treasury will enable it to secure lower bids than might otherwise be the case. Or, suppose the currency system of the State to be in any way dependent upon the maintenance by the government of a bullion reserve, a deficit under such circumstances, or even the danger that a deficit may arise, might easily result in commercial embarrassment. Other il lustrations present themselves, but the above are adequate to show the importance of a revenue system which secures an ample income without apparent effort. The first mark of a good revenue system is that it succeeds in getting the money.

Second. The second mark of a good revenue organization is that the financial policy of a State presents itself as a system and not as an aggregation of independent and un related acts. It is a fundamental principle of government that the burden of the State should rest equitably upon all citizens; but it is impossible to secure such a distribution of the burden unless all of the many ways in which revenue machinery touches the citizen are classified, compared, and reduced to a system. The persistent effort on the part of legislation to avoid " double taxation " shows the necessity of regarding every law as a part of a comprehensive whole. The suggestion here presented will meet with universal approval, though in practice it is almost as universally disregarded. The financier is not at liberty, according to the theory of equity held by democratic peoples, to judge of a law for raising revenue without considering it in its relation to the entire revenue system.

A few applications of this principle will show its meaning more clearly. Should the State undertake an industry which is especially lucrative for the sake of securing revenue, thus presenting itself as a competitor to citizens engaged in the same industry, it should exercise great care lest in adjusting its system of taxation it impose a burden upon its competitor from which it itself is free. That is to say, the taxes which it levies upon private industries must be levied in view of its own industrial undertakings. Again, some taxes which could not be justified in and of themselves are capable of easy justifi cation when considered as a part of a comprehensive revenue system. In 1789, for example, when the first tariff act was under discussion in Congress, the objection was urged against imposing a duty on salt that this would bear grievously upon the mountaineers of North Carolina and Virginia. The reply to this objection was that, according to the scheme of taxa tion under discussion, this was the only tax which would reach the citizens in question. Again, many duties are im posed as compensatory duties; that is to say, duties which would be unnecessary considered by themselves, but which become necessary in order to provide the conditions under which revenue from other sources may be protected. The Federal Government, for example, imposes a duty upon the manufacturer of spirits within the United States; it must, in order to enable this industry to bear the tax and at the same time maintain itself against foreign competition, impose a corresponding duty upon the importation of spirits. The revenue system of every country is replete with illustrations of complementary and compensatory laws, and of laws designed to avoid double taxation, all of which goes to show that a sound fiscal system will be well balanced and comprehensive.

Third. The third mark of a good revenue system is one which appeals more directly to a country organized as a federation, like the United States, than to a country more highly centralized for the purpose of administration, like France. Not only should the fiscal policy of a particular grade of government present itself as a comprehensive whole, but the several corporate bodies which together make up " the State " should exercise great care lest the revenue domain of the one encroach upon the revenue domain of the other, and by so doing bring confusion and inequalities into what otherwise might be a sound financial organization. To speak specifically, the third mark of a good revenue system is harmony and balance between the central and local govern ments, between the local governments themselves, and be tween the several organs of local government.

This point may be the best presented by considering the situation as it exists in the United States. There are in this country four grades of government, each of which has as signed to it a certain definite set of public functions. These governments are the Federal Government, the State govern ments, the chartered municipalities, and the local govern ments resting on general statutes. There is at present no separation of the sources of revenue corresponding to this separation of public duties. It is true that by the Federal Constitution customs revenues are set aside for the Federal Government, and, with the exception of the State of Texas, the public domain is the property of the United States; for the rest, however, there exists the greatest confusion. The evils which follow from this unsystematic method of proce dure present themselves at every point in the discussion of revenue problems. Whether or not definite sources of revenue should be set aside for the exclusive use of the vary ing grades of government is a question which calls for more extended discussion than can be bestowed upon it in this con nection. It is, however, clear that some form of harmonious action between the several governments concerned is essen tial to the best results in a comprehensive revenue system. This is a mark of a revenue policy which it is especially im portant for the people of the United States to recognise.

Fourth. The fourth mark of a good revenue system is that it must provide for elasticity in the revenue at the point where elasticity is needed. It is not sufficient, in order that a revenue system may be elastic, that public income shall be capable of easy increase in a time of emergency; it is equally important that income may be easily reduced when the emergency shall have passed away. Elasticity as a quality of a revenue sys tem does not appeal with equal force to all grades of govern ment. It is relatively of most significance for those govern ments that are exposed to emergencies and exigencies in the performance of their assigned functions. To speak explicitly, this means that those governments that are clothed with the power of declaring war and concluding peace are the ones for whom elasticity in revenue is of the most importance. In the United States, for example, the revenue system of the Federal Government should regard this characteristic as of very great importance. A municipal government or a county government, on the other hand, may practically ignore elas ticity of revenue in the organization of revenue machinery.

Many other qualities there are of a good revenue system, but these will come up incidentally in connection with the dis cussion of the special questions as they present themselves. Those qualities of which mention has been made are the ones that pertain to the revenue system regarded as a comprehen sive whole.

public, government, service, system and payment