Section 9, clause 4. History of direct taxes. No capitation, or other direct, tax shall be laid unless in proportion to the census or enumeration hereinbefore directed to be taken. We have seen how this rule became a part of the Constitution as one of the compromises necessary to secure its acceptance. Direct taxes have been levied and apportioned among the States by Congress several times; but it is not likely that another such tax will be enacted under the present Constitutional rule. This is because the sectional inequalities in population do not correspond with inequalities in wealth (ie., ability to pay the tax). The more populous States are also the more wealthy, but the per capita wealth is much greater there than in those States where population is less dense. Consequently, in the agricultural States of the South and West, the burden of taxation would be unjustly heavy. In 1798 Congress levied a direct tax of two million dollars and apportioned it among the States in proportion to their population. The objects taxed were houses, land, and slaves, and the collection was made by Federal officers. In 1813, when another direct tax of three million dollars was levied, the same objects were taxed, but the law provided that each State might assume and collect its own quota. A similar provision was included in the law of 1815, levying a direct tax of six million dollars, but most of the States did not avail themselves of the privilege. The direct tax of 1861 (twenty million dollars) was apportioned among the States and levied upon land alone. All but a few of the States that paid the tax collected it by their own officers. It was not possible to collect this tax in many of the southern States, so in 1891 the amounts that the other States had paid were refunded to them. Income taxes constituted an important feature of the internal-revenue system that was put into operation during the Civil War. In each of the several laws en acting these taxes, provision was made for the exemption from taxation of a small income, as $800 at first, and later, $600. For incomes above these figures, the rates were generally made progressive; for example, the law of 1862 taxed incomes above $600 and less than Income $5,000 at the rate of 5 per cent., those from $5,000 to $10,000, 7 per cent., and those above $10,000, 10 per cent. These taxes were repealed after 1872. It will be noticed that Congress treated these income taxes as indirect, making the rates uniform throughout the United States. This was in accordance with judicial decisions, which made all taxes, except those on persons and land, subject to this rule. Following these precedents, Congress enacted, in 1894, an income-tax law providing that all incomes over $4,000 should pay a tax of 2 per cent. on the excess above that amount. The following year, contrary to all former decisions in which the meaning of the words "direct tax" had been determined, that term was declared by the Supreme Court to include such income taxes as were levied by the law of 1894. Consequently, since Congress had not determined the total amount to be collected and apportioned it among the States according to their population, this law was declared unconstitutional. taxes. Law of 1894 de clared untional. constitu Legacy, or inheritance, taxes were included in the revenue measures of the Civil War period, but they were repealed soon after its close. This form of taxation was revived by the law of 1898. Inheritances Legacy are divided into four classes, according to the degree of relationship between the decedent and the inheritor; the rates increase as the relationship becomes more distant. We have now reviewed the various forms of taxation employed by the National government to secure revenue. taxes. Article I, section 7, clause 1. Revenue bills in Congress. National expenditures. In the enactment of laws that impose taxes, Congress is governed by the Constitutional provision that All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills. The framing of revenue bills is entrusted to the most important House committee, that on Ways and Means. Their bills are frequently known by the name of the chairman of the committee. In the Senate the Finance committee considers and recommends amendments to bills for raising revenue. These important measures, as finally passed, are in most cases the result of compromises between the two houses, arranged by conference committees. We have seen that the collection of National taxes is accomplished by an army of Federal officials whose jurisdiction extends into every corner of the country. We have seen that the objects of taxation are very numerous, so that every individual aids, directly or indirectly, in the support of the National government. The ease with which our immense revenue is raised seems marvellous to citizens of the Old World countries, where conditions of life are harder. Indeed, so great have been the ability and the willingness of the people to bear these burdens that the National government has more than once been embarrassed by an excess of revenue. Under these conditions it is not surprising that laxity in making expenditures has been common and that great extravagance and wastefulness have frequently resulted. In Congress, appropriation bills, that is, bills provid ing for the expenditure of public money, may originate in either house; but the important general appropriation bills originate in the House of Representatives. These bills are really framed by the committees to which they are referred, and are based upon estimates furnished by public debt. When the ordinary revenues of a government are not Section 8, clause 2. bonds. To borrow money on the credit of the United States. Money is borrowed, ordinarily, by the sale of bonds. These are of the same nature as the promissory notes by which individuals obtain loans. National bonds National state the promise of the United States to pay a certain amount, at a stated time, with interest. A "registered" bond contains the name of the owner, and this is a matter of record at the Treasury Department. When this bond is transferred, the record must be changed. Coupon" bonds are usually payable to bearer; they have attached to them a number of coupons equal to the number of interest payments due during the term of the bond. United States bonds have been issued in various denominations, ranging from twenty dollars to fifty thousand dollars each. The Kinds of bonds. The sale of bonds. Redemption. Refunding operations. The publicdebt statement. term of a bond is not always a fixed number of years. Some of the Civil War bonds were payable at the option of the government after five but within twenty years from the date of issue. These were called "five-twenty's" (5/20's). The bonds issued in 1898, to obtain money for the Spanish War expenses, were twenty's." "ten The There are two ways of negotiating the sale of bonds. government may fix its price and sell to all buyers on the same terms. Or, the total amount of money to be raised may be determined, and then, by negotiation with bankers or capitalists, the government may secure the best terms that it can. After being issued, National bonds are either held by individuals and corporations as investments, or they become the objects of trade and speculation, being bought and sold by bankers and brokers on the stock market. Their values fluctuate somewhat and are subject to daily quotation. If a bond sells for its face value it is at "par." Bonds quoted at 117 are at a "premium"; that is, they bring $117 for every $100 of their face value. Those quoted at 98 are at a "discount." When bonds fall due, the government "redeems" them at their face value. Or, they may be continued at a lower rate of interest. A large amount of five per cent. bonds that were due in 1881 were continued, by agreement, at three and one-half per cent., and some that fell due in 1891 were continued at two per cent. Provision is made by law for the purchase of bonds by the government before they are due. For this purpose, the Secretary of the Treasury is authorized to use a portion of the National revenues; this is called a "sinking fund." There is still another way in which the burden of our National debt has been decreased. Soon after the time when the 5/20 Civil War bonds became payable at the option of the government, the holders were given the privilege of choosing whether their bonds should be redeemed, or be exchanged for new ones, of the same amounts, at lower rates of interest. The latter alternative was accepted for many hundreds of millions of our bonds; so the burden of interest was reduced from six per cent. to five, four and one-half, and later to four per cent. This operation was called refunding the debt. The "Statement of the Public Debt," issued monthly by the Treasury Department, summarizes our National debt under three heads the interest-bearing debt, the debt on which interest has ceased since maturity, and the debt bearing no interest. The first of these includes by far the largest part of our National indebt : |