Government and Administration of the United States

by Westel Woodbury Willoughby; William F. Willoughby

CHAPTER XVII.

Government Revenue and Expenditure.

Government is an enormous business enterprise, maintained and operated by its citizens, that certain duties of a general interest and benefit may be performed. The magnitude of the work performed necessarily requires the expenditure of vast sums of money. The chief source from which these sums are derived is taxation. Taxes have been defined to be "the legally determined and legally collected contributions of individuals for meeting the necessary and general expenses of the State."[1] In the large majority of cases this is a good definition, but in a few instances it is too narrow. There are some taxes that are levied not primarily for the purpose of raising an income to meet the expenses of the government, but to subserve some other purpose. For instance, the maintenance of our high duties on articles imported into the United States from foreign countries has for its main purpose the protection of our industries from European competition. The large revenues that are derived therefrom are incidental. High liquor licenses, also, are maintained for the express purpose of lessening the consumption of intoxicating beverages.

[Footnote 1: Carl Knies.]

The aim of every good government is to distribute its burdens of taxation, as well as its benefits, fairly and equitably among its citizens. It is the duty of every citizen to assist in the realization of this aim, by an intelligent, honest and disinterested vote. Equality of taxation means equality of sacrifice. Each person should contribute towards the support of the government in proportion to his means and the benefits enjoyed. It is the duty of every citizen, first to see that just and expedient tax laws are passed, then to pay his proper proportion, and lastly, to see that his neighbors likewise contribute their share. To obtain an equitable system of government revenue and expenditure has been the great motive force which, in the past, has urged the people forward in their efforts to secure popular forms of government.

The power to tax is legislative, and, according to our theory, can be exercised only by representatives directly elected by the people. The refusal of England in the last century to extend this principle of "no taxation without representation" to her colonies in America, lost her these possessions. A government to be stable and efficient must possess adequate powers for the collection of its revenue. The miserable condition to which the old Confederation was reduced by reason of the inadequacy of its powers in this respect, has already been discussed. Says Fiske: "Between the old Continental Congress and the government under which we have lived since 1789, the differences were many; but by far the most essential difference was that the new government could raise money by taxation, and was thus enabled properly to carry on the work of governing."[1]

[Footnote 1: Civil Government, p. 77.]

The sources of government revenue other than taxes, are various, and differ in different countries. In our consideration of the revenues and expenditures of our national, state, and local governments we shall have occasion to notice the various means by which their treasuries are filled.

#The Federal Government# raises its revenues independently of the other governing bodies, from different sources, and by a different set of officials. Besides taxation, the principal source of revenue is from the sale of public lands. Federal taxes are of two kinds:

1. Customs duties.

2. Excise or internal revenue duties.

Of these, much the greater sum is raised from customs duties. For the year 1889,[1] the total net receipts were $387,050,058. Of this $223,832,741 was derived from customs, and $130,894,434 from the internal revenue duties. The sale of public lands yielded in that year $8,038,651. The miscellaneous revenues amounted to $24,297,151.

[Footnote 1: For fiscal purposes the year begins July 1st.]

Customs or tariff duties are taxes which have to be paid on a large class of goods imported into this country from foreign countries. These charges are collected by Government collectors, stationed in all our principal seaport cities, who inspect all incoming vessels and determine the amount to be paid, according to the rate determined by Congress. This system constitutes the so-called protective tariff policy of our country. Those commodities not so taxed are said to be on the "free list." How much, and on what articles these duties shall be levied, is the question upon which the Republican and Democratic parties differ; the former favoring high, and the latter low rates, that is to say merely enough to support the Government, or, as it is termed, "a tariff for revenue only."

Internal revenue duties are those taxes collected by the government from its own citizens upon a small class of articles produced in this country. The chief items of this class are distilled liquors, tobacco, and oleomargarine. In 1889, out of the $130,894,434 received from internal revenue, there was derived from spirits and fermented liquor $98,036,041; tobacco, $31,866,861; oleomargarine and miscellaneous, $991,532. These duties are collected by Government collectors stationed in every United States district, who visit the distilleries, collect the taxes, and see that the law is enforced. In several Southern States attempts to evade the law are very frequent and difficult of detection. The expenses of the vast postal system conducted by the Federal Government are very nearly defrayed by the charges made for postage, and the amount received by fees more than equals the expense of the Patent Office.

#The State and Local Taxes# are generally, for convenience, collected at the same time, and by the same officials, but independently of the Federal government. The Constitution of the United States forbids the States to derive a revenue from duty upon goods imported or exported. The States are, therefore, for the most part, restricted to a direct tax on property for the support of their governments.

The general method for raising this tax is as follows: The legislature of the State, having determined what income is needed, apportion this sum among the counties, or, in New England, directly among the townships, in proportion to the value of the property situated within them, or establish a certain percentage tax on all property, to be collected in the same manner. So, similarly, the counties apportion among the cities and townships within their areas, in proportion to the value of their taxable property, not only what they have to pay to the State, but also the sums they have to raise for county purposes. Thus when the township or city authorities assess and collect taxes from the individual citizens, they collect at one and the same time three distinct taxes—the State tax, the county tax, and the city or township tax. Retaining the last for local purposes, they hand on the two former to the county authorities, who, in turn, retain the county tax, handing on to the State what it requires. Thus trouble and expense are saved in the process of collection, and the citizen sees on one tax paper all that he has to pay. The chief tax is the property tax, based on a valuation of property, and generally of all property, real and personal. Of this, by far the greater sum is realized from the tax on real property, (land and buildings on it). Cities and other local subdivisions, as has been stated, are raising their revenues more and more from the sale, taxation, or operation of such public franchises and rights as street-car lines, gas and waterworks. Those who fix the value of taxable property and thus determine the amount the owners are to pay, are called assessors. Those collecting taxes are called collectors. The revenue of the States is seldom large in proportion to the wealth and number of the inhabitants, because the chief burden of administration is borne not by the States, but by the Federal government, on the one hand, and the local subdivisions of the States on the other. The total revenue of all the States is barely one-third that of the Federal government.

#The Expenditures# of all the governing bodies, Federal, State, and local, are kept entirely independent of each other. Those of the Federal government are for the benefit of all the States, while those of the other bodies are only for their own individual benefit. The Federal government receives much more than it expends, and has yearly a surplus on hand in the Treasury. The States and local bodies have in the past expended more than their revenues, making up their deficiency by loans on their credit.

The chief objects of Federal expenditure (in addition to the postal system already considered and for the most part supported by its own revenue) are: 1st, interest on the public debt; 2d, pensions to disabled soldiers; 3d, for the support of the civil branch of the government; 4th, war and naval expenditures.

Total expenditures for the year 1889 were $299,288,988. The chief items were:

1. Interest on the public debt, $41,000,484 2. Pensions, 87,624,779 3. Civil service, 80,664,064 4. War and Navy, 65,815,079 5. Indians, 6,892,207

Money can be expended by the government only after it has been appropriated by Congress in its annual appropriation bills. The appropriation of supplies by Congress is the most important business that it transacts. Every year the heads of all the different departments frame estimates of the amounts of money needed to support their departments during the following year, which estimates they send to the Secretary of the Treasury, who, after considering and revising them, transmits them to Congress in his "Annual Letter." This letter is considered by the Appropriation Committee, whose duty it is to consider and frame bills for the appropriation of moneys. Though guided by these estimates, supplies frequently depart widely from them. After being reported to the House and passed, money bills are sent to the Senate, where they are invariably amended by increasing the appropriations and are returned to the House. A conference committee is then appointed from the House and Senate Committees on Appropriations, who, after mutual concessions, agree upon such appropriations as will be passed by both houses. The House then amends the bill as agreed upon, passes it, and sends it to the Senate again, which in turn passes it, and sends it to the President for his signature. All bills for raising money must, by the Constitution, originate in the House. Besides the appropriations for the expenses of government there is annually authorized a large expenditure for improvement of rivers and harbors. Many of the expenditures authorized by these bills are undoubtedly unnecessary, but they are passed by general consent of the members, each of whom desires to increase his popularity at home by getting public money spent in his district.

The expenses of the State governments are not heavy, and are devoted to but few objects. The chief expenditures are for:—(1) the salaries of officials; (2) judicial expenditures; (3) the State volunteer militia; (4) grants to public schools; (5) public charities and institutions, as prisons, insane asylums, etc., (6) interest on State debts; (7) internal improvements and public buildings.

The methods of appropriations are similar to those employed by the
Federal government.

The expenditures of the local bodies, and particularly cities, are much larger, in proportion to their population, than those of the States, and are increasing at a greater rate than the increase of population. The objects of expenditure are numerous and very important. The chief ones are: (1) Interest on local debts; (2) maintenance and care of the streets and roads; (3) lighting of streets; (4) police; (5) salaries of officials.

The following are outlines of the receipts and expenditures of the State of Maryland for 1888, and for the City of Baltimore for 1887. These figures are given not because they of themselves possess any especial importance, but because from them can be obtained an idea of the activity of a typical State and city.

#Maryland.#[1]—The total receipts from all sources were $2,542,130; and there was paid out $2,016,060. The chief receipts were from:

General Taxes, $793,301
Licenses, 487,969
Corporation Tax, 73,553
Railroad Tax, 58,455
Inheritance Tax, 57,767
Income from Stocks and Bonds owned, 206,175
Fees, 17,585

#Baltimore.#[2]—The gross receipts into the treasury for the year ending December 31, 1887, were $8,446,439, and were chiefly from the following sources:

Taxes, $4,210,112
Public schools, tuition fees, etc., 6,766
Market houses, rent of stalls, 58,287
Wharfage and rent of wharves, 33,561
General licenses, 44,609
Auction duties, 7,431
Dividends on stock in B. & O. R.R., 130,000
Water rents, 745,446
Passenger railway companies, 132,167
From the State for public schools, 147,403
Temporary loan, 1,510,000
Receipts to pay interest on loans, 896,704
Sale of stock, 243,285

The total disbursements were $8,403,930. Of this $4,541,357 was spent on account of expenses of city government, the following being the principal items of expense:

Interest on the public debt, $915,987
Expenses of law courts, 118,906
Expenses of jail, magistrates, &c., . . 103,587
Public schools (less amount paid by State), 594,089
Expenses of poor, 210,739
Police department, 702,882
Street-cleaning department, 263,934
Fire department, 214,226
Street lighting, 221,203
Parks, &c., 52,080
Salaries, 72,624
City council, 52,925

[Footnote 1: Finance Statistics of the American Commonwealths: E.E.
Seligman. Publications of Am. Statistical Asso., Dec., 1889.]

[Footnote 2: R.T. Ely, Taxation in Am. States and Cities.]

Nearly all of our State and local governments, as well as the national government, have contracted large public debts, the interest payments upon which constitute one of the chief items in their lists of expenditures. The present debt of the Federal Government is largely the result of the enormous expenditures occasioned by the Civil War. In 1865, August 31, it reached its highest point $2,381,530,294, with an annual interest charge of $150,977,697. Since then it has been steadily reduced until in 1889 the total interest-bearing debt was but $829,853,990, with an annual interest charge of $33,752,354. The principal of the national debt is mainly in the form of interest-bearing bonds held by the National banks and private individuals. These bonds are of various denominations and are promises of the government to pay the sums named on their face, at the expiration of a certain period. The bonds at present unpaid, and as such constituting the major portion of our national debt, are principally of two kinds; those bearing four and one-half per cent, annual interest and falling due in 1891, and those bearing four per cent, interest and falling due in 1907.

The debts of most of the States were contracted by ill-advised and untimely systems of internal improvements. The total state indebtedness June I, 1890, as shown by the Eleventh Census, was $238,396,590, a decrease of slightly over $58,000,000 in ten years. The tendency now seems to be for States to withdraw from the money market as borrowers, and for the county and city governments to take their place.

The local debts are very large, and have shown a marked increase during the last twenty years. They have been for the most part incurred in improvements and construction of public works, which have in most instances well repaid the debts incurred.