If the surplus shall hereafter be as large as the Treasury estimates now indicate, the 3 per cent bonds may all be redeemed at least four years before any of the 4-1/2 percents can be called in. The latter at the same rate of accumulation of surplus can be paid at maturity, and the moneys requisite for the redemption of the 4 percents will be in the Treasury many years before those obligations become payable.
There are cogent reasons, however, why the national indebtedness should not be thus rapidly extinguished. Chief among them is the fact that only by excessive taxation is such rapidity attainable.
In a communication to the Congress at its last session I recommended that all excise taxes be abolished except those relating to distilled spirits and that substantial reductions be also made in the revenues from customs. A statute has since been enacted by which the annual tax and tariff receipts of the Government have been cut down to the extent of at least fifty or sixty millions of dollars.
While I have no doubt that still further reductions may be wisely made, I do not advise the adoption at this session of any measures for large diminution of the national revenues. The results of the legislation of the last session of the Congress have not as yet become sufficiently apparent to justify any radical revision or sweeping modifications of existing law.
In the interval which must elapse before the effects of the act of March 3, 1883, can be definitely ascertained a portion at least of the surplus revenues may be wisely applied to the long-neglected duty of rehabilitating our Navy and providing coast defenses for the protection of our harbors. This is a matter to which I shall again advert.
Immediately associated with the financial subject just discussed is the important question what legislation is needed regarding the national currency.
The aggregate amount of bonds now on deposit in the Treasury to support the national-bank circulation is about $350,000,000. Nearly $200,000,000 of this amount consists of 3 percents, which, as already stated, are payable at the pleasure of the Government and are likely to be called in within less than four years unless meantime the surplus revenues shall be diminished.
The probable effect of such an extensive retirement of the securities which are the basis of the national-bank circulation would be such a contraction of the volume of the currency as to produce grave commercial embarrassments.
How can this danger be obviated? The most effectual plan, and one whose adoption at the earliest practicable opportunity I shall heartily approve, has already been indicated.
If the revenues of the next four years shall be kept substantially commensurate with the expenses, the volume of circulation will not be likely to suffer any material disturbance; but if, on the other hand, there shall be great delay in reducing taxation, it will become necessary either to substitute some other form of currency in place of the national-bank notes or to make important changes in the laws by which their circulation is now controlled.