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TAXATION AND FINANCE
THE raising and appropriation of revenues is always one of the leading subjects of controversy in state constitutional conventions. This function of government has been a source of logrolling and jobbery of every kind, great and small; and the tendency, everywhere manifest, to misappropriate funds and to rush headlong into debt has forced the adoption of many constitutional provisions in behalf of the taxpayer. No safeguard seems to be too minute to be unworthy of a constitutional sanction: the legislature of Alabama must even buy its fuel according to the rules laid down in the fundamental law of the commonwealth.
The early state constitutions gave the legislatures a free hand, but the reckless abandon with which money was raised and spent soon gave the taxpayers pause, and they began to devise plans for stopping one form of malversion after another, only to find the legislature ingenious enough to discover new loopholes. Before taking up the actual methods for raising and disbursing state revenues, it will be necessary, therefore, to consider the general character of the limitations under which the state legislature must work.
The ancient rule that money bills must originate in the lower house once so prominent in Anglo-Saxon polity - is now laid down in less than one-half of our state constitutions. A number of them, in fact, specifically state that any bill may originate in either house: "Any bill may originate in either house of the legislature and all bills passed by one house may be amended by the other," runs the New York constitution; but as a general practice the senate concedes to the lower house the right of initiating measures for raising revenues and often general appropriation bills as well.' It can hardly be said, however, with due respect 1 Agger, The Budget in the American Commonwealth (Columbia University Studies), p. 22.
for this ancient and honorable doctrine on money bills, that it constitutes any safeguard against careless and corrupt finance in legislatures; and it must be admitted also that it has slowly been declining in public esteem.
Perhaps the most important safeguard against reckless finance is the precise limitation. on indebtedness imposed quite generally by the recent constitutions. New York, for example, fixes the debt limit at $1,000,000; and, except for certain urgent reasons to suppress insurrection and wage war the legislature can create an additional debt only for a specified purpose, which must be submitted to a popular vote and receive a majority of all the votes cast for and against it.1 Ohio goes further: after establishing the debt limit at $750,000 the constitution provides that no other debt whatsoever may be created by or on behalf of the state, except debts to repel invasion, suppress insurrection, defend the state in war, or to redeem the present outstanding indebtedness. Coupled with this definite limitation, there is usually a clause requiring the legislature, on creating a new debt, to make provision for meeting it when it falls due.
The various devices for restricting the debt-contracting powers of state legislatures have had a decided effect in reducing and controlling expenditures. The total outstanding debt of all the commonwealths in 1870 was $325,866,898; in 1890, $223,107,883; and in 1902 the total debt of the states and territories was only $234,908,873. Massachusetts now comes first with a debt of $78,097,595; New York second with $41,230,660; and Virginia third with $24,986,959. A few of the states, Illinois, Iowa, Michigan, Nebraska, Oregon, and South Dakota, were reported in 1908-1909 as having no indebtedness at all. It certainly may be said that the finances of the American commonwealths are on a sound basis so far as indebtedness is concerned.
In a majority of states some provision is made for uniformity in taxation. This varies from state to state. In Pennsylvania all taxes must be uniform upon the same class of subjects within the territorial limits of the authority laying the tax. Ohio adheres to a still older principle: "Laws shall be passed taxing
1 See Readings, p. 461.
2 It is the common practice for the state to exempt from tax the buildings and certain other property of religious, educational, and charitable institutions.
by a uniform rule all moneys, credits, investments in bonds, stocks, joint stock companies, or otherwise; and also all real and personal property according to its true value in money," — except certain public bonds, the property of some institutions, and personal property of any individual to an amount not exceeding $200. In West Virginia, taxation must be equal and uniform throughout the state, and all property, both real and personal, must be taxed in proportion to its value; and no species of property from which a tax may be collected can be taxed higher than any other species of property of equal value.
To secure regularity and publicity in legislative appropriations, it is now quite common to embody in the constitution any or all of the following principles. Money shall be paid out of the treasury only in pursuance of an appropriation by law; every law imposing a tax must specify the object to which the income is to be devoted; the yeas and nays must be taken on the final passage of a money bill and recorded; the credit of the state may not be given or loaned to any private person or association; the governor may veto single items in the appropriation bill; the general appropriation bill may embrace nothing but appropriations for the ordinary expenses of the state executive, legislative, and judicial departments and for some other specific purposes; no appropriation shall be made for a longer term than two years; and no revenue bill may be passed during the last five days of the session.
Finances are handled in our state legislatures in much the same way as they are in Congress, and with similar results with regard to confusion and absence of responsibility. There is usually in each house a committee on ways and means and another dealing with appropriations. In about half the states it is the custom to raise revenues under a general law which stands in force from year to year. In these states the appropriations of the legislative sessions are totalled and a rate fixed on the evaluated property that will cover the expenditures. Such 1 See Readings, p. 459.
2 This power is possessed by more than one-half of the governors and used quite freely, much to the distress of the politicians, but an executive veto of an appropriation is rarely overruled. Agger, op. cit., p. 96; Readings, P. 447.
a practice works best, of course, when the general property tax is in use. In the other states, at least some portion of the revenue system is reenacted at each session of the legislature, while the remainder is derived under general and continuing laws. For example, New York has indicated by law certain sources of revenue for state purposes, such as stock transfer, inheritance, franchise, and corporation taxes, and these taxes are collected from year to year without reënactment unless, of course, the legislature sees fit to modify any of the provisions.
As in Congress, so in the state legislature there is no finance minister responsible for the entire budget, and consequently there is the same lack of coördination between income and outgo. In many states where the revenue is derived from a levy on general property, the value of which has been fairly well established by assessment, it is comparatively easy to provide for the revenue after all of the appropriations have been totalled at the close of the session, but this affords no way of checking up expenditures against income while the legislature is making appropriations. Indeed, it is not possible to know the total amount appropriated until some time after the adjournment of the legislature until the governor has exercised his right of vetoing items.
In the absence of a finance minister in the legislature there is a large variety of methods adopted attacking the problem of appropriations. The official report of the state auditor, treasurer, or finance officer - showing the receipts and expenditures for the preceding year, the balance in the treasury, and the amounts required by the various departments — gives the legislature some clew to the situation, but in practice it affords only a starting-point, so that the legislature is soon far adrift. Alabama has attempted to give a little more coördination in the finances by providing that: "The governor, auditor, and attorneygeneral shall, before each regular session of the legislature, prepare a general revenue bill, to be submitted to the legislature for its information, and the secretary of state shall have printed for the use of the legislature a sufficient number of copies of the bill so prepared, which the governor shall transmit to the house of representatives as soon as organized, to be used or dealt with as that house may elect. The senate may propose amendments to revenue bills."
In the matter of appropriations,' our state methods are in worse confusion, if possible, than the national methods. The appropriations for purposes of simplification - may be divided into three groups: (1) permanent appropriations, such as are made to some public institutions or commissions, and do not require reënactment from year to year; (2) general appropriations for legislative, executive, and judicial expenses and for some specified purposes such as the payment of interest on public debt; and (3) miscellaneous appropriations for special objects provided by separate statutes.
The first of these - the permanent appropriations — make little trouble, because they are fairly definite in character. There, however, is a constant heavy pressure to increase the amount.
The general appropriation bill is now less trouble than it used to be, for it is, as a general rule, limited by the constitution to certain specific purposes, as indicated above; and in many states the vicious practice of attaching to appropriation measures, laws relating to extraneous matters, for the purpose of forcing them through the legislature, is forbidden. The general appropriation bill is usually prepared by the committee on appropriations in the lower house, but it is almost always hammered sadly out of shape in the house and the senate.
The miscellaneous appropriations afford splendid opportunities for log-rolling and extravagance, and they seldom receive anything like adequate scrutiny. Furthermore, measure after measure relating to some public purpose or branch of the administration is passed with little or no debate on the cost involved in the execution of the law. These measures are introduced in large numbers by private members of the legislature, and there is generally no person or committee charged with the duty of inquiring into the expense which such laws carry with them. For example, an important change is made in the ballot, involving a large printing and administrative charge; the discussion centres on the political aspect of the question; and perhaps a majority of those who vote for the measure are wholly unaware of the addition made to the expenses of the state. Such a measure, of course, is not an appropriation bill in a strict sense, but its effect is to increase the charges which the legislature and local authorities must meet.
1 For the objects for which appropriations are made, see below, p. 719.