CHAPTER XVII

CONGRESSIONAL FINANCE

FINANCE is a sufficiently distinct and important department of legislation to need a chapter to itself; nor does any legislature devote so large a proportion of its time as does Congress to the consideration of financial bills. These are of two kinds : those which raise revenue by taxation, and those which direct the application of the public funds to the various expenses of the government. At present Congress raises all the revenue it requires by indirect taxation,1 and chiefly by duties of customs and excise; so taxing bills are practically tariff bills, the excise duties being comparatively little varied from year to year.

The method of passing both kinds of bills is unlike that of most European countries. In England, with which, of course, America can be most easily compared, although both the levying and the spending of money are absolutely under the control of the House of Commons, the House of Commons originates no proposal for either. It never either grants money or orders the raising of money except at the request of the Crown. Once a year the Chancellor of the Exchequer lays before it, together with a full statement of the revenue and expenditure of the past twelve months, estimates of the expenditure for the coming twelve months, and suggestions for the means of meeting that expenditure by taxation or by borrowing. He embodies these suggestions in resolutions on which, when the House has accepted them, bills are grounded imposing certain taxes or authorizing the raising of a loan. The House may of course amend the bills in details, but no private member ever proposes a taxing bill, for it is no concern of any one except the ministry to fill the public treasury.2

1 During the Civil War, direct taxes were levied (the proceeds of which have, however, been since returned to the States); and many other kinds of taxes besides those mentioned in the text have been imposed at different times. 2 Of course a private member may carry a resolution involving additional expenditure; but even this is at variance with the stricter constitutional doc

The estimates prepared by the several administrative departments (Army, Navy, Office of Works, Foreign Office, etc.), and revised by the Treasury, specify the items of proposed expenditure with much particularity, and fill three or more bulky volumes, which are delivered to every member of the House. These estimates are debated in committee of the whole House, explanations being required from the ministers who represent the Treasury and the several departments, and are passed in a long succession of separate votes. Members may propose to reduce any particular grants, but not to increase them; no money is ever voted for the public service except that which the Crown has asked for through its ministers. The Crown must never ask for more than it actually needs, and hence the ministerial proposals for taxation are carefully calculated to raise just so much money as will easily cover the estimated expenses for the coming year. It is reckoned almost as great a fault in the finance minister if he has needlessly overtaxed the people, as if he has so undertaxed them as to be left with a deficit. If at the end of a year a substantial surplus appears, the taxation for next year is reduced in proportion, supposing that the expenditure remains the same. Every credit granted by Parliament expires of itself at the end of the financial year.

In the United States the Secretary of the Treasury sends annually to Congress a report containing a statement of the national income and expenditure and of the condition of the public debt, together with remarks on the system of taxation and suggestions for its improvement. He also sends what is called his Annual Letter, enclosing the estimates, framed by the various departments, of the sums needed for the public services of the United States during the coming year. So far the Secretary is like a European finance minister, except that he communicates with the chamber on paper instead of making his statement and proposals orally. But here the resemblance stops. Whatever remains in the way of financial legis

trine and practice; a doctrine regarded by the statesmen of the last generation as extremely valuable, because it restrains the propensity of a legislature to yield to demands emanating from sections or classes, which may entail heavy and perhaps unprofitable charges on the country. See the observations of Mr. Gladstone in the House of Commons, March 22, 1886.

This has now become a bulky volume. In it he neither endorses nor criticizes the estimates.

N

lation is done by Congress and its committees, the President having no further hand in the matter,' though he may send messages pressing Congress to vote for money for some purpose which he deems important.

The business of raising money belongs to one committee only, the standing committee of Ways and Means, consisting of nineteen members. Its chairman is always a leading man in the party which commands a majority in the House. This committee prepares and reports to the House the bills needed for imposing or continuing the various customs duties, excise duties, etc. The report of the Secretary has been referred by the House to this committee, but the latter does not necessarily base its bills upon or in any way regard that report. Neither does it in preparing them start from an estimate of the sums needed to support the public service. It does not, because it cannot for it does not know what grants for the public service will be proposed by the spending committees, since the estimates submitted in the Secretary's letter furnish no trustworthy basis for a guess. It does not, for the further reason that the primary object of customs duties has for many years past been not the raising of revenue, but the protection of American industries by subjecting foreign products to a very high tariff. This tariff (further raised in 1890 and 1897, altered in 1909, and reduced in 1913) brought in an income far exceeding the current needs of the government. Two-thirds of the war debt having been paid off, the fixed charges shrank to onethird of what they were when the war ended, yet this tariff remained with few modifications, surpluses constantly accumulating in the national treasury, until in 1890 a Pension Act was passed which increased expenditures so largely as almost to absorb even the growing surplus. The committee of Ways and Means had therefore had no motive for adapting taxation to expenditure. The former seemed likely to be always in excess while the protective tariff stood, and the protective tariff stood for commercial or political reasons unconnected with national finance.2 Of recent finance it would be difficult to speak without entering on controversial ground.

1 Now however the President has received by statute the power of examining the estimates and making recommendations regarding them.

2 For a long time surpluses were got rid of by paying off debt; but when financiers began to hold that a certain portion of the debt ought to be kept on foot for banking and currency purposes, much discussion arose as to how the accu

more.

When the revenue bills come to be debated in committee of the whole House similar causes prevent them from being scrutinized from the purely financial point of view. Debate turns on those items of the tariff which involve gain or loss to influential groups. Little inquiry is made as to the amount needed and the adaptation of the bills to produce that amount and no It is the same with ways and means bills in the Senate. Communications need not pass between the committees of either House and the Treasury. The person most responsible, the person who most nearly corresponds to an English Chancellor of the Exchequer, or a French Minister of Finance, is the chairman of the House committee of Ways and Means. But he stands in no official relation to the Treasury, and is not required to exchange a word or a letter with its staff. Neither, of course, can he count on a majority in the House. Though he is a leading man he is not a leader, i.e. he has no claim on the votes of his own party, many of whom may disapprove of and cause the defeat of his proposals. This befell in 1886, when the chairman of this committee, an able man, and perhaps, after the Speaker, the most considerable person in the Democratic majority, was beaten in his attempted reform of the tariff.

The business of spending money used to belong to the committee on Appropriations, but in 1883 a new committee, that on Rivers and Harbours, received a large field of expenditure; and in 1886 sundry other supply bills were referred to sundry standing committees. The committee on appropriations starts from, but does not adopt, the estimates sent in by the Secretary of the Treasury, for the appropriation bills it prepares usually make large and often reckless reductions in these estimates. The Rivers and Harbours committee proposes grants of money for what are called "internal improvements," nominally in aid of navigation, but practically in order to turn a stream of public money into the State or States where each "improvement" is to be executed. More money is wasted in

mulating balance should be disposed of. The Pension Act, although primarily intended to gratify the survivors of the Northern armies in the Civil War, seems to have been also designed to so deplete the Treasury as to remove one reason for reducing the protective tariff. Since then pension expenditure has increased, military and naval expenditure has increased, and though the tariff has been raised and revenue from customs has grown, expenditure has sometimes (as for instance in 1909) been in excess of revenue.

this way than what the parsimony of the appropriations committee can save. Each of the other standing committees, including the committee on pensions, a source of infinite waste,1 proposes grants of money, not knowing nor heeding what is being proposed by other committees, and guided by the executive no further than the members choose. All the expenditures recommended must be met by appropriation bills, but into their propriety the appropriations committee cannot inquire. Every revenue bill must, of course, come before the House; and the House, whatever else it may neglect, never neglects the discussion of taxation and money grants. These are discussed as fully as the pressure of work permits, and are often added to by the insertion of fresh items, which members interested in getting money voted for a particular purpose or locality suggest. These bills then go to the Senate, which forthwith refers them to its committees. The Senate committee on finance deals with the revenue-raising bills; the committee on appropriations with supply bills. Both sets then come before the whole Senate. Although it cannot initiate revenue-raising bills, the Senate long ago made good its claim to amend appropriation bills, and does so freely, adding items and often raising the total of the grants. When the bills go back to the House, the House usually rejects the amendments; the Senate adheres to them, and a Conference committee is appointed, usually consisting of three senators and three members of the House, by which a compromise is settled, hastily and in secret, and accepted, generally in the last days of the session, by a hard-pressed but reluctant House. Even as enlarged by this committee, the supply voted is often found inadequate, so a Deficiency bill is introduced in the following session, including a second series of grants to the departments.

The European reader will ask how all this is or can be done by Congress without frequent communication from er to the executive government. There are such communications, for the ministers, anxious to secure appropriations adequate for their respective departments, talk to the chairmen and appear

1 The annual expenditure on pensions was in 1887, $75,000,000 (£15,000,000). Under the statute of 1890, it had risen in 1894 to $142,092,818, with 994,762 pensioners on the roll, 39 years after the end of the War of Secession. In 1912, 43 years after the war, it stood at $152,986,433. The total amount expended in pensions for service in the Northern armies during the War of Secession alone had, in 1908, reached $3,533,593,025 (about £707,000,000).