question of limiting armaments, and inasmuch as it was hopeless to try to devise any plan which might have secured the assent of the nations gathered at the Hague, "it was folly for this nation to base any hope of securing peace on any international agreement as to the limitation of armaments. Such being the fact it would be most unwise for us to stop the upbuilding of our navy. To build one battleship of the best and most advanced type a year would barely keep our fleet up to its present force. This is not enough. In my judgment we should this year provide for four battleships." In response to this appeal Congress voted the construction of two battle ships.

Those who urge larger military preparations also contend that the neglect of our army was responsible for the serious loss incurred by inefficient administration and inadequate services during the Spanish War. In the message quoted above President Roosevelt devoted special attention to this question, pointing out that in every foreign war which we have waged an enormous cost in men and money could have been avoided, if in time of peace we had taken wise precautions to maintain the regular army at a high standard of efficiency.

CHAPTER XVIII

TAXATION AND FINANCE

The Power of Congress to Tax1

UNDER the Constitution Congress has a general power to lay and collect taxes, duties, imposts, and excises. Subject to certain rules which we shall consider later, there is no limit on the amount of taxes Congress may lay. The Chief Justice of the Supreme Court, in speaking of a tax which was so excessive as to impair the value of the franchises of state banks, said that it was not within the province of the judiciary to prescribe to the legislative department of the government limitations upon the exercise of its acknowledged powers. If the power to tax is exercised oppressively, he declared, the remedy for the wrong rests with the people who choose the legislature.

1. Some of the restrictions on the exercise of this taxing power are expressly laid down in the Constitution. It is provided in that instrument that all duties, imposts, and excises shall be uniform throughout the United States; and under an interpretation of the Supreme Court, a uniform tax is one which falls with the same weight upon the same object wherever found within the United States. For example, Congress once laid a duty of fifty cents on every passenger coming from foreign countries into the United States, and this tax was held to be uniform, although it was levied principally at a few ports. Again, an inheritance tax is uniform when it is imposed equally upon all inheritances of the same amount and character, though it may so happen that the taxable inheritances may occur in only a few states of the Union during the existence of the law.

2. The second express limitation on the taxing power of Congress is that direct taxes shall be apportioned among the several states according to their respective numbers.

1 For the social implications of this power, see Readings, pp. 283 and 331. Ve Bink #. Fong, 3 Wallace, 533

For an example, Roudings, p. 327

3. The Constitution also provides that Congress shall not lay a duty or tax on articles exported from any state, and that, in the regulation of commerce and revenue, no preference shall be given to the ports of one state over those of another. To prevent discrimination between states, it is further stipulated that vessels bound to or from one state shall not be obliged to enter, clear, or pay duties in the ports of another.

cases.

4. In addition to the express limitations 1 laid down in the Constitution, there is an important implied restriction on the taxing power. Congress cannot tax the instrumentalities or the property of any state. This doctrine has been applied in a number of For example, during the Civil War, Congress levied a tax on the gains, profits, and income of every person residing in the United States; a judge in Massachusetts refused to pay the tax upon his income which was derived from the commonwealth, and the Supreme Court of the United States upheld him in his refusal, declaring that the federal government was thus taxing an instrumentality of a state.

Broadly speaking, there are two forms of taxes in the United States, direct and indirect; and it is always necessary to decide into which of these two categories any tax about to be laid by Congress falls, and, therefore, whether the rule of apportionment according to population or the rule of uniformity shall apply.

I. During the early years of the federal government it was generally understood that there were two kinds of direct taxes — a capitation or poll-tax and a tax on land. It is now held by the Supreme Court, however, that taxes upon income from real and personal property are likewise direct, and therefore constitu

'The taxing power of the federal government must be exercised according to due process of law. See above, p. 151.

'See McCulloch v. Maryland, 4 Wheaton, 316.

In practice the federal government has imposed, as avowedly direct, taxes on real estate and slaves. For example, in 1798, a direct tax was imposed on real estate, and a capitation tax was laid on slaves; and in a few other instances this precedent was followed. In 1861, under the necessity of raising funds to carry on the Civil War, the federal government voted a tax of twenty million dollars to fall on lands and improvements, and divided this amount among the states in proportion to their respective populations as shown by the census. Some of the states assumed the entire quota allotted to them, and after the war the amounts collected were refunded to the states. For this law, see Readings, p. 327.

tional only when apportioned among the states according to their populations. Since the incomes of private persons within the respective commonwealths have no necessary relation to the number of inhabitants, it would be obviously unjust to apply the rule of apportionment. On account of the difficulties of assessing direct taxes and apportioning them among the states, and the resulting injustice, the constitutional limitation is almost a prohibition.

II. Indirect taxes, which are subject only to the rule of uniformity, may be taken to include excise taxes upon commodities, such as whiskey and tobacco; customs duties imposed upon goods coming into the United States from other countries; taxes upon inheritances; license taxes on occupations; duties on the sale of commodities, such, for example, as the stamp tax laid on proprietary articles during the Spanish War;3 stamp taxes such as those on checks, mortgages, and other papers; and, apparently, taxes on incomes not derived from real or personal property.

Revenues and Revenue Bills

Except in time of war or shortage of revenue it has been the general practice of the federal government to rely upon indirect taxation as its prime source of revenue. It was the intention of the Fathers that indirect taxes should be the chief resort of the central government. In common with all statesmen they recognized the natural dislike of the people for any form of tax which must be paid directly out of their own pockets in lump sums to the government. Not only is a direct tax difficult to collect on

During the Civil War a federal tax was laid upon income, gains, and profits by the year, and in Springer v. United States (102 U. S. R., 586) the Supreme Court held that this was an indirect tax, and therefore did not have to be apportioned according to population. The Court said in this case: "Our conclusions are that direct taxes within the meaning of the Constitution are only capitation taxes as expressed in that instrument and taxes on real estate; and that the tax, of which the plaintiff in error complains, is within the category of an excise or duty." Upon reexamination of the question in connection with the income-tax law of 1804, the Court maintained that a tax upon incomes from land is as much a direct tax as if levied upon the land itself at so much an acre, or according to its valuation. Readings, p. 328. In 1999. Congress passed and reterred to the state legislatures an amendment to the focal Constitution authorizing Congress to impose an income-tax without apportionment. See above, p. 71.

account of this natural opposition to it; it is expensive to administer owing to the necessity of repeated valuations of the property on which it falls and to the numerous operations required in laying and collecting it.

An indirect tax, on the other hand, has the advantage of great simplicity. It falls in small amounts upon each article of consumption, and it is easy to lay because it is imposed upon the same articles wherever they are found.

Accordingly, the United States now derives its revenues from two prime sources,' customs duties laid upon imports coming from foreign countries, and internal revenue or excise taxes laid on spirits and tobacco. Of the total gross receipts of the United States in 1907, amounting to $663,000,000 in round numbers, $332,000,000 was derived from customs and $269,000,000 from internal revenue, the remainder coming from the sale of public lands and miscellaneous sources.2

The Constitution definitely provides that all bills for raising revenue shall originate in the House of Representatives, but authorizes the Senate to propose or concur in amendments as in the case of other bills. It was the purpose of the framers of the Constitution to vest the power of imposing taxes in the hands of that branch of the national legislature which was nearer the people on whom the burden must fall. "The House of Representatives," says The Federalist, "holds the purse, that powerful instrument by which we behold in the history of the British Constitution an infant and humble representation of the people gradually enlarging the sphere of its activity and importance and finally reducing as far as it seems to have wished all the overgrown prerogatives of the other branches of the government. This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any Constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance and for carrying into effect every just and salutary measure." 3

In spite of this confident prediction, however, the influence of

'A departure was made in 1909 when a tax of one per cent was imposed upon the net income, over and above $5000, of corporations, joint stock companies, and associations. See the discussion of this law by Professor Goodnow, in The Columbia Law Review, December, 1909.

See table below, p. 372.

3 No. LVIII.