(1) Receipts from industrial sources in the broad sense include all rents from wealth owned, interest on loans made, and proceeds of sales from enterprises conducted, by the government. In feudal times, these were mostly obtained in the form of rents from the private domains of kings and nobles. In many early and medieval states these sources of receipts were adequate to the need of government; then they decreased in many countries, both relatively and absolutely, because of the sale of publicly owned wealth (lands and mines) and with the recent extension of the functions of government have again increased very rapidly. Now industrial revenues come not only from the rents of forests, mines, docks, lands, and buildings, but from profits in the operation of industrial enterprises such as waterworks, railways, mines, and factories, and from interest on funds deposited in banks or otherwise invested. At present the industrial revenues of the aggregate governments of the United States (national, state, and municipal) amount to about a fifth of all revenue receipts. Since the middle of the nineteenth century the number and variety of the industrial enterprises undertaken by governments has been steadily increasing, and this increase has been most marked in the cities. The change in this respect in the United States, great as it has been, has been proceeding more slowly than in the European countries.
In 1913 the receipts of this nature (earnings of departments and of public service enterprises) were nearly $500,000,000. The larger part of this sum comes to the national government ($288,000,000), mostly from the post-office department. Most of the remainder comes to the minor divisions ($176,000,000), and but little to the states. The total "earnings" (this means here receipts, not profits) of public service enterprises in incorporated places were $120,000,000.
§ 6. #Governmental receipts from loans.# The funds to invest in these commercial undertakings are originally obtained in nearly all cases from public loans. Almost every unit or division of government may become a borrower to provide for its citizens at once certain needed advantages and improvements when the funds are not at hand and immediate taxation is deemed too heavy a burden.[2]
The indebtedness (less funds available for payment of debt) of the aggregate governments of the United States in 1913 was:
Nation …………………………… $1,028,000,000
States …………………………… 346,000,000
Minor divisions ……………………. 3,476,000,000
——————-
Total ……………………………. $4,850,000,000
The larger part of nearly every national debt has been incurred for purposes of war and preparation for war, while nearly all public debt other than national has been created for the purpose of peaceful social and industrial development. The debts of the American states have partly been made necessary to meet deficits in current expenses, but largely of late to erect public buildings, purchase forest lands, improve roads, and construct canals. The minor divisions are counties, cities, villages, boroughs, towns, townships, school districts, drainage, irrigation, and levee districts, fire districts, poor-relief districts, road districts, and various other subdivisions of states and of counties. Every one of them has more or less legal power to incur debts and to levy taxes for the purpose of paying the interest and of repaying the principal. The purposes for which the debts are incurred by specially organized districts are sometimes indicated in the names (e.g., drainage, irrigation), while the regular political divisions of counties, cities, villages, towns, townships, incur debts for a large variety of objects, such as streets, sewage disposal, water supply, electric light or gas plants, school houses, libraries, and other public buildings. Large expenditures for these purposes are necessary because the local governments are undertaking new functions, and either existing equipment (such as waterworks systems, and street railways) must be bought from private companies or new ones must be built. They are necessary further because the rapid growth of population calls for an immediate "capital investment," the payment of which may be, through borrowing, more easily spread over a series of years (e.g., in the extension of streets and paving, and in the provision of school houses for the children).
§ 7. #Nonrevenue character of receipts from loans.# The proceeds from loans (and certain other items of sales) are called nonrevenue receipts, because they are but in anticipation of receipts from other sources. The economic theory of such loans is essentially the same as that of private loans, but it is the people of the political district collectively that are the borrowers. To get the present uses of goods they sell their promise to make future payments totaling a larger amount. The loan is the present worth of those promises. In the case of loans made for local purposes, provision is now usually made for their complete repayment within a definite number of years, usually 10, or 20, or 30. Meantime interest is payable annually or semi-annually, and from some source an additional sum is collected to repay a part of the loan, sometimes by redeeming a certain part annually, sometimes by accumulating a sinking fund until that amounts to the whole debt.
The minor divisions in the United States are thus constantly creating debts at the rate of about $2,000,000,000 each year and at the same time paying former debts in instalments, in a total amount somewhat less than this. In the case of some municipal investments which are commercial enterprises (such as those supplying gas, electricity, and water), these annual payments can be made out of the profits; in the case of others, the payments come from special assessments upon the owners; and in most other cases they are collected by the usual methods of taxation. In America, a large part of these costs are, by the law of special assessments, placed upon the owners of adjacent lands, whose outlays are usually more than offset by the increased value of their lands as a result of the improvements. In this case also, the present investment is in anticipation of the future incomes which the owners of the improved lands will get.[3]
§ 8. #Revenues from taxation.# Much the largest part of the receipts of most governments, apart from loans, and in many cases nearly all such revenue receipts, come from taxation. Tax (as a verb) meant originally to touch or handle, then to estimate or appraise, and then to charge a burden upon some one, especially to impose a payment of services, goods, or money upon persons or property for the support of government.[4] Taxation is the legal process of taking income, services, or wealth from private persons for public uses.
Taxes are of various kinds, but they always are incomes, or wealth representing future incomes, transferred from private ownership of the taxpayers to the government. In rare cases, more than the net current income of a certain kind may be taken for public uses. As economic income has many sources, it may be intercepted at many different points, and taxation may take various forms. The differences are so manifold that it is difficult to classify particular taxes satisfactorily.