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Sources of Revenue to the Federal Government

SOURCES OF REVENUE TO THE FEDERAL GOVERNMENT. While many questions which present themselves to the financier have not been considered in the foregoing pages, it is believed that all of the important fiscal principles have been made the subject of discussion. This being the case, we are prepared to enter upon the task of constructive analy sis. In suggesting a revenue system pertinent to the present conditions of the American people it is not claimed that the plan outlined is the only one worthy of consideration. Prin ciples are inexorable, but plans and programmes are matters of ingenuity. One who has proceeded far enough in his study to understand the nature of fiscal adjustments must recognise that there are several ways in which the revenue system of this country could be remodelled with advantage; and it will add something to the liberty with which we proceed in this chapter, which is devoted to the construction of a revenue system, to say that its object is pedagogical rather than advisory. The best possible review of complicated principles is to undertake to apply them, and such is pri marily the purpose of the analysis which follows. It is pos sible, also, that new light may be shed upon the character of these principles by endeavouring to weld them into a sys tem, for then will their relations to each other be more clearly exposed.

73. Some General Considerations. It may be well at the outset to remind ourselves of certain general conclusions already arrived at.

From a consideration of the requirements of a good revenue system it was learned that the income placed at the disposal of the State must be moderate and not excessive; that it must be elastic for a sovereign government and certain for a local government; and that it must conform to the political organization of the State to which it applies.

From the analysis of the nature of the tax the legal re quirements of a tax were fully explained, and a practical interpretation given to the phrase " justice and equity in matters of tax "; and this latter point was further elucidated in the chapter upon " Apportionment of Taxes." From the chapter upon the " Classification of Taxes " the nature of each kind of tax was made clear, as also the rela tion of the several classes of taxes to each other, and the kind of taxes that could be used together in a general revenue system was determined.

From an investigation into the general results of taxes the idea that a tax should be equitable in payment as be tween citizens was expanded so as to include the thought that a just system of taxation must conform to social needs, and certain conclusions were arrived at respecting the manner in which taxes work by which the financier was excused from some of the most troublesome claims that have been made respecting equity in taxation from the individual point of view.

From the chapter just closed the peculiar character of the several classes of taxes that must be employed in framing a revenue system was yet more clearly presented.

In our discussion of the general property tax reasons were presented why separate sources of revenue should be assigned to the commonwealths and the minor civil divisions. It may now be remarked that this conclusion was a special applica tion of the general principle of segregated sources of revenue, a principle which may be profitably applied, with more or less strictness, as between all the grades of government that together make up the American State. The first step, there fore, in formulating a general revenue system is to assign sources of revenue to the several grades of government.

An appropriate assignment of revenue sources will depend in large measure upon the amount of revenue which any particular grade of government may require as compared with the other centres of public authority. Referring again to the census figures of 189o, it appears that the aggregate of public income for that year amounted to $979,590,915, di vided 'between the four grades of government as follows: By comparing the amounts required by each grade of government with the aggregate governmental expenditure it appears that the Federal Government covers into its treasury 40.8 per cent of the aggregate, while the State governments or commonwealths cover into their treasuries 11.8 per cent, the minor civil divisions 13.5 per cent, and the municipalities 33.9 per cent. So far as the governmental

functions are concerned it is the theory of American law that the States were originally the residence of all sovereign authority, and that they now retain all authority not dele gated to the Federal Government. This being the case, it seems at first a little strange that the States require only 11.8 per cent of the aggregate of moneys collected; but this is explained by the fact that, since the adoption of the Federal Constitution, there has been a decided shifting of political influence. The Federal Government has grown in impor tance because it is the representative of the national idea, while the local governments have grown because they carry with them the industrial development of the nation. At the present time the commonwealths are practically, though not legally, administrative units subordinate in every essential par ticular to the highest necessities of the Federal State. It is true that they are the source of all authority for local governments, that is to say, for the municipalities and the minor civil divi sions. Inasmuch, however, as this authority is commonly expressed by them through general laws rather than by special charters, and inasmuch as it is the political theory of the English-speaking people to bring the exercise of political power as closely as possible to the people upon whom it is exercised, the commonwealths do not take a very active part in the business of administration. We find, then, in an analysis of the political situation a reason why the States need so small a proportion of the aggregate of public income, and, as it is a reason that seems to lie in the nature of the case, its observed result may be accepted as indicating a more or less permanent condition, which a financier should recognise in making his assignments of sources of revenue.

Referring again to the table given above, it appears that the income of the Federal Government calls for a per capita payment of $6.39, that of the State governments of $1.86, of the minor civil divisions of $3.01, and of the municipalities of $18.or. The per capita payment for the support of government of all grades is $15.64. This fact also may have some bearing upon the question of the proper source from which the revenue of the several grades of govern ment should be drawn, and must be held in mind through out the analysis. It would seem, for example, since the pay ments are the greatest where the social relations are most intense—that is to say, in the cities—that there would be some propriety in opening up to the cities as a peculiar source of revenue that fund of values which the growth and the life of the cities have caused to be created. Reference is here made to all forms of municipal monopolies.

In addition to the above suggestions, which are general in their application, perhaps the controlling consideration in the assignment of sources of revenue is found in the public functions which each grade of government performs. For the presentation of this thought we shall inquire directly re specting the source of revenue pertinent to the Federal, the State and the local governments.

74. Assignment of Revenue to the Federal Govern ment. The Federal Government stands for nationality. It represents the sovereignty of the people. It has exclusive jurisdiction over international controversies and is intrusted with the power of declaring war and of concluding peace. The fiscal needs of such a government are easily understood. Certainty of revenue and elasticity of revenue are the marks of a fiscal system adjusted to the needs of a sovereign State. Certainty of revenue is required that the government may carry itself with dignity and perform its customary duties with economy and ease; elasticity of revenue is required that it may at all times be prepared for exigencies. The former of these demands is one which a federal government recog nises in common with all grades of government, although it is relatively more important for a sovereign State than for an administrative district; the latter, however, is peculiar to an imperial government, since this is the only government exposed to the possibility of serious fiscal exigencies.

system, taxes, grades, tax and authority