peaceful settlement of controversies between nations would be recognized and accepted as the final determination thereof. If this were done it would not necessarily mean the entire abandonment of armies and navies, but it would so far remove the possibility of international wars as to make unnecessary the expenditure of the stupendous sums which are now being collected from the people in the form of taxes and expended for the purpose of maintaining armed peace. The money expended for this purpose is not the only measure of the cost of armed peace. Think for a moment of what the American people have lost during the past eight years, in consequence of the increased expenditure of more than a billion dollars during that time for the purpose of preparing for war in order that war may be prevented."

It is important to note that we are not only spending threefourths of our total revenue in the payment for past wars and for warlike preparations, but also that there is a strong tendency to increase the relative amount voted for military purposes. Under the second adminstration of President Roosevelt, the per capita appropriation for the army was $3.66, — more than two and a half times the amount appropriated under Mr. Cleveland's administration. Under Mr. Roosevelt, the naval appropriations, measured in relation to the population, were three times as great as under Mr. Cleveland; and at the same time there was an increase of fifty per cent in the expenditure for fortifications.

This increase in appropriations for military purposes has been especially rapid since the Spanish War. The average annual army appropriations for the eight years just preceding the Spanish War amounted to $24,000,000; for each of the eight years ending in the fiscal year of 1910, the average amount totals the enormous sum of $83,000,000. During this same period the annual average appropriations for the navy have risen from $27,500,000 to more than $102,400,000.

In defence of this rapid increase in expenditures for warlike preparations, it is urged that special precautions must be taken to defend our new insular possessions and to protect our world-wide commerce. It is also contended that as long as the great nations of Europe, with whom we are now in open commercial competition in the world's markets, steadily increase their military and naval expenditures we cannot allow our army and navy to fall behind. In his message of December 3, 1907, President Roosevelt declared that inasmuch as the Hague conference had failed to take up the

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.

2

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.

3

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.*

For the social implications of this power, see Readings, pp. 283 and 331.

2 Veazie Bank v. Fenno, 8 Wallace, 533.

For an example, Readings, 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.

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 cases. 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

1

1 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.

2

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

1 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 reëxamination of the question in connection with the income-tax law of 1894, 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 1909, Congress passed and referred to the state legislatures an amendment to the federal Constitution authorizing Congress to impose an income-tax without apportionment. See above, p. 71.

Readings, p. 323.

3 See above, p. 352.