FEDERAL FINANCE, TAXATION, AND MONEY
The National Taxing Power.—The lack of the power of Congress to levy taxes was, as we have seen, one of the chief weaknesses of the Articles of Confederation, voluntary contributions by the states being the chief source of revenue for the national government. When, therefore, the framers of the Constitution came to deal with this subject, they wisely provided that Congress should have power to levy and collect its own revenues. The power conferred is almost absolute, the only limitations being that no duties shall be levied upon exports; that excises and duties levied on imports shall be uniform throughout the United States, that is, they shall be the same in amount on a given article everywhere; and that where direct taxes are levied, they shall be apportioned among the states on the basis of population.
Forms of Federal Taxes.—The two general forms of taxes recognized by the Constitution are direct and indirect taxes. The only direct taxes, in the sense of the Constitution of the United States, are poll taxes, and taxes on real or personal property, all of which are required to be apportioned among the states on the basis of population, whenever they are levied.
On account of the obvious injustice of levying a tax on the states on the basis of population, inasmuch as there might easily be twice as much property in one state as in another having the same population, this method has fallen into general disuse. Indeed, it has been resorted to by Congress only five times in our history, and then only for very short periods in each case. It does not seem likely that this method of federal taxation will ever again be resorted to.
Until recently the two principal sources of federal revenue have been duties on imports, and internal revenue, or excise taxes, on certain articles produced in this country.
Customs Duties.—Specific and Ad Valorem.—Customs duties are taxes levied on articles imported into the United States from abroad. They are of two kinds, specific and ad valorem. Specific duties are those levied on the articles according to their weight or measurement without regard to their value. Thus a duty of one and a half cents a pound on imported tin plate, or five cents a pound on dyestuffs, or ten cents a yard on silk would be specific. An ad valorem tax is one levied with reference to the value of the article. Thus a duty of 50 per cent on the value of imported woolen goods is an example of an ad valorem duty. Sometimes both forms of duty are levied on the same article.
In favor of the specific duty is the ease of collection, since the article has only to be weighed or measured and then assessed. But it is often inadequate, since one yard of cloth or one pound of dye may be many times more valuable than another, and so with many other articles. One practical objection to the ad valorem method is the opportunity which is afforded for fraud in the matter of valuation, since in many cases it is difficult to ascertain the real value of the article taxed.
The Protective Tariff.—From the beginning of our existence as a nation, reliance upon customs duties as a chief source of revenue has been a part of our established policy. In 1921 the receipts from this source were $308,025,102; and in many earlier years they were nearly half of the entire ordinary income of the national government. Great diversity of opinion, however, has existed in regard to what articles should be taxed and the amount that should be imposed. The Republican party has always insisted upon a tariff not only for revenue but also for protection to American industries and American labor against the cheap labor of the Old World. The Democratic party, on the other hand, has generally opposed the protective feature and insisted upon a tariff primarily for revenue.[35]
The Preparation of a Tariff Bill devolves upon the ways and means committee of the house of representatives, where all revenue bills must originate.[36] In 1916 Congress provided for the creation of a bi-partisan Tariff Commission to investigate the operation of tariff laws and to make reports with a view to furnishing Congress with information for its guidance in the preparation of tariff bills.
The Maximum and Minimum Principle.—In 1909 Congress adopted for the first time the maximum and minimum principle of fixing tariff rates. The law provided for a maximum and a minimum rate on many articles and authorized the President to apply the minimum rate to goods imported from countries which extend the same concession to articles imported by their citizens from the United States and to apply the maximum rate to others.