Professional Documents
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Introduction To Public Finance
Introduction To Public Finance
TO
PUBLIC FINANCE
BY
NtIn lliarlt
THE MACMILLAN COMPANY
LONDON: MACMILLAN Jr: CO., LTD.
1902
.AU Muflia r68M'ved
COPYRIGHT, 18(16,
By TIlE MACMILLAN COMPAXY.
Notill'oob tllnss
I. S. Culhing t. Co. - Benriek k Smith
Norwood M&II. U.S.A.
PREFACE
PART I
PUBLIC EXPENDITURE
CHAPTER I
THE NATURE OF THE STATE j ITS FUNCTIONS AND THEIR
CLA.SSIFICATION
CHAPTER II
EXPENDITURE EXCLUSIVELY FOR THE COMMON BENEFIT
CHAPTER III
EXPENDITURE FOR THE BEXEFIT OF IN"DIVID"['AU!
PART II
PUBLIC REVENUES
CHAPTER I
THE CHARACTER AND CLASSIFICATIO:s' OF PUBLIC REVENUES
CHAPTER II
I THE CLASSIFICATION OF TA.XES A.ND FEES; DEFPUTIONS
CHAPTER VII
CCSTO)IS DUTIES
CHAPTER VIII
PROPERTY TAXES
CHAPTER IX
PERSONAL TAXES
CHAPTER X
THE INclDExCE OF TAXATION
CHAPTER IX
FEES AND INDUSTRIAL EARNINGS
PART TTl
PUBLIC INDEBTEDNESS
CHAPTER I
CHAPTER II
CHAPTER III
PART IV
FINANCIAL AD.lfINfSTRATION
CHAPTER I
THE R'GDGF:T ; An:mNISTRATIOX OF EXPENDITURE i CONTROL AND
AUDIT
CHAPTER II
COLT.BeTTON OF THE REVENUES; CUS·tODY OF THE FUNDS; AND
TUE PUBLIC ACCO(JNl'8
CHAPTER III
Fnuscaf. ADMINlSTRA1'ION OF WAn j ILLt'STRATED BY THE EXl'E-
RIENCE OF TUE 1JNITED STA.TES IN THE 'VAn WITH SPAIN
INTlWDUCTION
masterly manlier.
INTRODUCTION 7
CHAPTER I
THE NATURE OF THE STATE, ITS FUNCTIONS AND
THEIR Cl.ASSIFTCATrox
CHAPTER II
EXPENDITURE EXCLUSIVELY FOR THE COMMOS
BE~EFIT
--
efficient ser~ice. This lavish expenditure may be
fully justified on political grounds, but as it involves
great waste, both directly and indirectly, by exam-
ple, it cannot be justified on economic or fiscal
grounds.' It is a general fiscal principle, applicable
as well to this part of expenditure as to any other,
that the expenditure should not be larger than is
necesHary to secure the most efficient service. The
justification of this lavishness, therefore, must be
found, if anywhere, in the creation of some equal
utility recognised by Political Science. The excep-
tions made in practice to the general rule of econ-
omy do not extend heyond the heads of the admin-
1 Rau, Finanzwissenschaj't, sec. 46.
36 INTRODUCTION TO PUBLIC FINANCE PA.RT I
CHAPTER III
EXPENDITURE FOR THE BENEFIT O}~ INDIVIDUALS
CHAPTER I
OHAPTER II
THE CLASSIFICATIO:N OF TAXES AND ImES;
DEFINITIO~S
the actual value, and then fixing the rate upon (his
artificially constructed base.
The rate may be proportioned, apportioned, pro-
gressive, degressive, or regressi ve.
'Vhen the rate is proportioned, it is the same per
cent of all property. "'hen it is appor- "Propor-
tioned " rate;
tioned, the total amount to be raised is "appor-
ascertained and then distributed, share tioned" rate.
for shal'e, on each unit of the base.
A tax is progressi vc when the rate increases more
rapidly than the base; that is, when a higher per
cent is assessed upon the higher values "Progre8-
than upon the lower. This progression sive" rate.
may be regular and start from the very smallest base,
or one unit. For example, the rate may increase
i.n some geometrical ratio, while the base increases
in an arithmetical ratio. Of course any set of ratios
may be chosen. The progression may be irregular
in several different ways. Thus the progression
may go by stages; i. e. between certain limits, in
arbitrarily fixed groups, the rate may be proportional,
but increase gradually with each higher group. Or
the progression may affect only certain parts of the
base. That is, a certain minimum may be taxed pro-
po~·tionally, then a certain part taxed progressively,
and the proportional rate may set in again after a
certain high point has been reached. Again, a cer-
tain minimum may be altogether exempt, and the
rate after that progressive.
The rate is degressive when the progression grows
102 INTRODUCTION TO PUBLIC FINAl'v'CE PART II
CHAPTER III
THE TAX SYSTE:rtI
I
taxes and the great expense and friction of collecting
them soon led to their partial abandonment. Prop-
erty then remained the basis. The value of property
seemed clearly to depend on its revenue-yielding
power. It is a matter of comparative indifference
which is taken. Hence the idea embodied in the
famous dictum of Adam Smitb: "The subjects of
every State ought to contribute toward the support
of the government, as nearly as possible, . . . in
proportion ~o the revenues which they respectively
CHAPTER IV
THE DEVELOP}IE~T OF TAXATIO~ BEFORE THE
IKDUSTRIAL H.EVOLUTIO~
K
130 INTRODUCTION TO PUBLIC FINANCE PART n
----
.taille was both real and personal. On
the one side it was -.based on the revenue from landed
property; on the other, it was based on the faculty
of the tax-payer, measured by the revenues from his
landed property, and active rents, as well as the prod-
ucts of his own industry. This tax, suppressed in
1790, yielded 44,737,800 livres the year before.
Necker obtained 91,000,000 livres froIll it. Nobles
and clergy were exempt.
The vingtiemes consisted of one or more twcntieth
parts of the revenues from either landed or movable
property. This tax had a varied history. At first
it was used with the t~ille, but when that tax was
7'he vingti- made permanent under Charles VIII.
emcs. the vingtieme disappeared. It was re-
vived in 1710 by Louis XIV. as a war tax. It
remained as the occasional resource of the treasury
up to the Revolution. Only the cl"rgy were ex-
empt. It produced 46,000,000 livres (Necker 55,-
000,000).
The capitation, or system of poll taxes, was· the
variable tax of the ancient monarchy. It dates
The capita- from 1695. It was at first regardcd as a
tiun. temporary expedient, but was continued
to the Revolution. It was assessed according to a
tariff of twenty-two classes. But the hase was fre-
quently changed. The clergy were exempt, the
CHAP. IV DEVELOPlIfENT OF TAXATION 131
£150; after that the full rate was paid. Each per-
son was required to declare his whole income and
could claim reimbursement for any tax stopped at
the source if he could show that his total income
,vas below the. minimum. This tax, set aside in
1816, was restored in 1842, as a substitute for the
indirect taxes, removed in consequence of the de-
mand for commercial freedom. The rate is changed
from time to time as the needs of the government
change.
SEC. 4. Local taxation in England has Leen
partly independent of royal taxation. England
has not followe!] the continental plan of collecting
revenues for local purposes in the form of additions
Th, poor ral, to the national taxes. 'Vhile the weight
the prototype of national taxation fell upon customs
Qj local lazes
in England. uuties, excises, and certain direct taxes,
measured roughly by income, local taxation was
based exclusively upon revenues from real estate.
The prototype of all local taxation was the poor
rate. Previous to the reign of Elizabeth local ae-
ti vities were of such a character that they could
be discharged from feudal dues. In the manorial
villages and the boroughs with senii-feudal guild,
and close corporation governments, which owned
landed property, feudal incomes paid the few public
expenses. But the removal of the monasteries, hos-
pitals, and other charitable foundations, thrcw upon
public charity a number of well-developeu paupers;
and the rapidly changing character of industry and
CUAP. IV DF.VEf.QPJlfENT OF TAXATION 139
of economic life constantly gave rise to the problem
of what to do with the unemployed, who at times
became very numerous. The result was the famous
poor law of 1601. The principle of the tax for the
support of the poor had been of slow growth. In
the reign of Henry VIII. the giving of alms was
prohibited, and collections for the impotent poor of
the parish were required to be made in each church.
In 1547 the Bishops were authorise,l to prosecute
all persons who refused to contribute for this 'pur·
pose, or should dissuade others from contributing.
In the fifth year of Rlizabeth the .Justices of Peace
were made judges of what constituted a reasonable
contribution for this purpose. After 1572 regular
compulsory contributions were levied. Out of a I!
purely voluntary contribution then, there emerged
in two·thirds of a century a compulsory tax. The
basis of this tax was the annual rental value of
real property. The tax was collected not from the
owner but from the occupier. Most of the other
taxes for local purposes which have developed in
England since then are of the same general char-
acter. They are too nnmerons to mention here.
Besides the direct taxes, there were a few indirect
ones, market dues, road tolls, coal and wine duties.
SEC. 5. In the American colonies we Peculiar con-
meet with entirely now conditions. Pub- ~ition~ in the/-
I .o.mC1'lcan co
lie needs were simple and few, and were onies.
\,mostly local in character. Customs duties were. for .
the most part controlled by the mother country m
1-10 lAr TRODUCl'ION TO PUBLIC FINANCE I'ART II
of Massachusetts, p. 18.
2 Wa.lker, "The Bases of Taxation," Pol. Sci. QuaT., Vol. .IIL
142 INTRODUCTION TO PUBLIC FINANCE PART II
CHAPTER V
'l'HE DEVELOPME:NT OF TAX SYSTEMS SINCE 'I'HE
ISDUSTRIAL REVOLUTION
1 Seeley's Life and Times of Stein, Vol. I., pp. 187-297. Morier,
"The Agrarian Legislation of Prussia during the Present Century,"
in Probyn [Editor]. Systems of Land Tenw'e in Various Countries,
pp. 306-316. See Selections in Rand.
CHAP. \' DEVELOPMENT OF TAX SYSTEMS 151
CHAPTER VI
EXCISES
SPECIAL TAXES.
Rl:lte o( tax
Rectifiers of less than 500 bbls. a year...... : ............ . ~100.00
Rectifiers of 500 bbis. a year, or more ................. ... , 200.00
Retail liquor dealers.................................... 25.00
Wholesale liquor dealers .... ............................ 100.00
Retail dealers in malt liquors. .. . ..... .. . . . .. . . . . .... . . .. 20.00
Wholesale dealers in malt liquors .. .... '" .. .. .. . . . .. . ... 50.00
Manufacturers of stills. .. . .. . .. . . . .. .. . ... . .. .. .. ...... . 60.00
And for ~tilLs or worms, manufactured, each.............. 20.00
Brewers, annual manufacture le~s than 500 bbls.. . .. . . . . . . 50.00
Brewers, annual manufacture 500 bbls., or more.... ..... .. 100.00
Spirits are taxed in a similar way and so are the dealers therein.
In the ease of tobacco the import duty forms the tax on the com-
modity, and the manufacturer pays a. license graded according to
the size of his business.
Tobacco manufacturers:
80,000 .100,000 .
60,000 " 80,000 " ............. 21
............. 26
0
6
0
0
100,000........................... 31 10 0
178 INTRODUCTION TO PUBLIC FINANCE PART II
Rate or tu:
~ranufacturers of oleomargarine .•........•.•••.....••••. $600.00
Hetail dealers in oleomargarine.. .. . . . . . . . . . .. • . . . . . . . . .. 48.00
'Vholesale dealers in oleomargarine .......••.•.•.•.•..... 480.00
FERMESTED LIQlJORS.
OLl:OXA.RGARISE.
Rate of ta.:.:
Domestic, per pound...................... . ........... $ .02
Imported, per pound.. ..... .. . .... .•. ... .... ..... .. .. .. .. .16
OPIUM.
Pla.ying cards, per pack, containing not more than 52 cards.. $: .02
CHAPTER VII
CUSTO:MS DUTIES
CHAPTER VIII
PROPERTY TAXES
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216 INTRODUCTION TO PUBLIC FINANCE l'ART II
CHAPTER IX
PERSONAL TAXES
.
'
,
242 INTRODUCTION TO PUBLIC FINANCE PART 11
CHAPTER X
THE I~CIDENCE OF TAXATION
1 See Bastable l pp. 388, 389, for the same idea j also Ross, "A
new Canon of Taxation," Political Science Quarterly. VII. This
is no very new canon. Adam Smith said: "Taxation should re-
tard as little as possible the growth of wealth."
252 INTRODUCTION TO PUBLIC FINA}/CE PART II
.,
CHAP. X INCIDENCE OF TAXATION 255
upon agricultural land, therefore, falls upon the (
farmers. In the United States, inasmuch as the
farmers are seldom the owners of any In the United
considerable amount of untaxed personal IState3 the
armer3 are
property, they bear far more than their oo,"'axed. /
proportionate share of the commonwealth taxes and
often also of the local taxes.
\Vhen land is used for other purposes than agri-
culture, it is generally best consiuereu in connection
with the buildiugs on it. The incidence Incidence of a
of the general property tax on houses taz on build-
and the lanu they oceupy will vary from illg8.
locality to locality with the demand for such houses
and the supply. Houses cannot be readily torn down
or fundamentally altered without great loss: conse-
quently if the supply of rentable houses is larger
than the demand, the tax on the buildings will fall
wholly on the owner. It can be shifted to the tenant
only when the supply of houses is very limited. In
America these two eases are both frequently illus-
trated.
The incidence of that part of the general prop-
erty tax which is assessed upon personal property
or upon invested capital is very difficult The incidence
to trace. If the tax were we]] and uni· onper80nal
versally assessed upon all such capital, property.
it could not, regularly, be shifted from the owner
at all. There is no free field for this capital to
invade. But when the tax is evaded by a con-
siderable proportion of the capital, then the tax
256 INTRODUCTION TO PURl1C FIJl/ANCF. PART U
CHAPTER XI
FEES AND INDUSTRIAL EAR~INGS 1
CHAPTER I
CHAPTER II
FOR}IS OF PUBLIO DEBTS
1 Most writers ma.ke use of these terms; few have defined them
---
forced loan. It must be observed, however, that it
is a loan only when the government making such
issues, directly or indirectly, promises to redeem the
notes at some future time. Othcrwisc no debt has
been created. 'Vhen such money is issued with the
purpose of retaining it in circulation permanently, it
is not, in intention at least, a debt; but it is a form
of forced payment more akin to a tax. Even when
there is a promise to redeem the money at some
future time, this forced loan shows few of the funda-
mental features of a debt. Every debt involves the
use of credit.' Now from tbe subjective side there
is little or no credit involved in this case. The
trnst or confidence amounts to nothing more than a
belief in the stability of the government and a readi-
ness to obey its anthority. From the objective side
the creditor, if we may call him such, receives a
claim that is satisfiable not from the goods of the
debtor as in othcr cases, but from thc goods of the
community, and that by law. Unlike money of
H final redemption" these notes cannot properly
be said to be based even upon cnstomary credit.
From both points of view, then, these so-called
1 Formal credit, to use Professor Sherwood's term j see note, p. 283.
298
, INTRODUCTION TO PUBLIC FINANCE PART III
CHAPTER III
NEGOTIATION, rAYMENT OF INTEREST, CONVERSION,
AND REDEMPTION OF DEBT
been paid but for the sinking fund. There is, in-
deed, no source from which the debt can be paid
but taxation 01' similar llet reveuue. So great v..-as
the faith of the government in -this scheme that it
e?ntinued the payments to the sinking fund even
while borrowing for the war of 1793 and after.
The fallacy of Dr. Price's arguments was pointed out
by Professor Robert Hamilton of Aberdeen in 1813.
Shortly after that, it was estimated that, as a result
of the sinking fund system kept up during a period
of borrowing, the government had, between 1785 to
1829, borrowed £330,000,000 at 5 per cent to pay
a debt of the same size at +} per cent. The scheme
was then ahanuoned, never to he re:::;umed. Prom
this time on only genuine surpluses were applied
to the payment of the debt. This abandonment
of the idea of Price and Pitt, however, had a rather
disastrous result, in that it largely suspended debt
payment in favour of tax remission. Since 1875
England has tried a new plan. Without commit·
CHAP. III REDEJJfPTJON OF DEBT 31D
CHAPTER I
. THE DUDGET; AD)IINISTHATIO}l" OF EXPENDITURE;
CONTRor~ AND AUDIT
CHAPTER II
COLLECTION OF THE REVE~ES, CUSTODY OF THE
FUNDS, AND THE PUDLIC ACCOUNTS
Total. 6600,000,000
OTHER BIBLIOGRAPHIES
[Most of the larger treatises mentioned above contain numer-
ous references and many bibliographies. The three following
lists of books are easily availahle for English and American
students.] .
'Vhit,e's translation of Cossa's Taxation. pp. 181-193.
Bowker and lIes. Readers' Guide in Economic, Social and
Political Science. Putnam, 1891. Pp. 66-73.
Seligman's Essays in Taxation. pp. 62, 63, and 263, 264.
INDEX
Charitable expenditure, 53, 54. See Cont.rol and A udit, English, 333.
Poor relief. Control of private enterprise, 52;
Charles the Bald, 123. of the purse, 72.
China, 81. Convenience of tax-payer. 345.
Church fees, 264. Conversion of debt.s, 314.
City. See ~funicipality. Cooley, Judge '1'. M., 113.
Ci vic housekeeping, 28. Corn law, 160, 195.
Civil list, 33. Corporation taxes, 163, 216. 226.
Civil war, cost of, 46; income tax, Oorvees, 131.
213, Cost of collection, m. [court.
Classification, 10; of expenditure, Courts, 6-1-, 261. See Suprep:a6
27, 28; of debts, 2U8-301; fees, Court. of claims, 336.
83,94; of revenues, Gf); of taxes,Crane and ~loses, 2 n.
83,85,86. Credit, 281-288; in time of war,
Cla!uI tax, 151. See Poll tax. 358-370. See Uebts.
Cohn, 6, 9n., ]0,28,99,110,172 n .• Criminals, 56.
WI, 191J It., 21;5, 294. Crown,2/i, 3-1.
Colbert, 129, 199. Custums dulies, 103,182 ft.; reve-
Collateral inheritance tax. See nue from, 188; fall on cOllsumer,
Inheritance tax. 18H; fall on foreigner, lWj fall
Collection, 37, 340-342. on importer, 190; cullection of,
Colonial policy of England, 202; 3·H; .l!;nglish, 134, IGO, 193, 196;
taxation, 117, 13!)-H2. French, HID ff.; German, 198; in-
Columbia College Studies, 117 n., cidence of, 253; U. S., 20111.;
llO, HI, 265. Virginia, H2. See Tariff. I
Commerce, 51. Customs union, ID7.
Commissioner of general land
office, 335. DaMgeld, 132.
Common benefit, 11-13, 15, 28, 83. Death duties, 162, 227. See Inheri4
See Benefit theory, tance tax.
Common penny. 126. Debts, public, classified, 298-301;
Commonwealth legislatures, 40. conversion of, 314; payment of,
Commutation, 70. 315; economic effect of, 2!"JO; size
COltlp~rative method, 7. of, 278, 279; of the treasury, SOO.
Compensatory theory, 120. See Credit., Indebtedness.
Comptroller, 335. Declaration, 238. 344.
Compulsion, 22. Deductive method, 7.
Compulsory revenues, 76. T)e/ective classe~, 14.
Congress, cost of, 39 i nnance cum- Defencc, 43.
mittees, 330. Deficiency bills, 333.
ConsoJidatell fund, 349. Deficit finanC'Jering, 21, 281. See
Constitution uf U. S., 241. Debts.
Constitutionalism, 26, 71, 72. Definitions, 100; of public finance,
Consular service, 3G. 1.
Consumption, 8; taxes, 93, 151, Democracy. 22.
170. Derivat.ive revenues, 79.
Contractual revenues, 79, 80. DUme, 129, 1:-n.
Contributions, voluntary, 71. Digressive rate, 101, 102.
Contribution des patent8, 159. Diplomatic service, 36.
INDEX 379
Direct taxps. 8i~89; apportioned Export duties, 183.
U. S .• 364; !\~fjes~ment of, 342; Expropriation, 82.
con:mmptinll taxes, liO; French, Extra-ordillary expenses, 354.
llid. ::ice Classification. Extravagance, 3.}.
Distribution. 14.'>. (subject, 8.
Division, of labour, 23, 24-; of the Faculty theory, 84, 115-1:1), 121,
Domains, 25, 26, 70, 96. l-lO; tax, 116. See Ability.
Dona, 71. Family tax,90, 124. See Hearth tax.
Donative monies, 127. Farmers overtaxed in U. S., 255.
Door and window tax, French, Farming of taxes, 340.
159. See Window tax. Federal taxation, ltG.
Donglas, C. H. J., 141. Fees, 78, !H, 25!1 ff.; administra-
Droit de patent, 100. tive, 95, 263; church, 2().l; eol~
Duties, 103. See Customs. lection of, 262; development of,
260; educational, 2n3; judicial
Economic effect 01 pubHc borr()w~ and legal, 9-1, 261; postal, 2U9;
ing,2!.IO. for services to private indus-
Economics, 1-3. trieR, 2G.'l. See Special assess-
l!:conomic rent. See Single tax. ments.
Education, 48-50. Feudal dues, commuted, 121; a
F.rlncational fee!!, 263. heavy burden, 125; French, 128;
l!:lcvcuth census, t". S., 35, 108,210. feudal expenditure and revenues,
Elizabeth, 76. 25,70; taxation, 123, 121.
Ely, R. T., 73. Fifteenths and tenths, 135.
Em bargo, 203. Final incidence, 1M.
Eminent domain, 82. :Fines and penalties, 82.
English writers, 5; excises, 176 n.; Fiscal administration, 10, 326:
protecU\'e duties, 1~; tax 8yS~ year, 332.
tern, 160. See British Parlia.- Five-twenties, 303.
ment. Floating debts, 293-295.
Equalisation, 314. France,43. See French.
Erwerb,93. :Freedom, 18.
Estimates, 328. Freeman, exempt, 124.
Ethics, 8. Free trade, 203 (see Customs and
Exchequer bills, 307. protection); in land, 116.
EXcises, 103, 169 IT.• 171, 172, 181; French customs duties, 89; direct
cl)lIection of, 342; etymology of, taxes, 158; feudal dues, 128;
1~9 n.; German, 173; incidence revolution, 130; tax gygtem,1."i7:
C1f, 253; in New York, 142. tobacco monopoly, 99, 100.
Excmption, 112, 124. Fuma.rJe, 132. See Uearth tax.
Expansion of State functions, 19. Functions of government, 6. See
Expediency, 12, 73. State.
Expendil.ure, 5, 8; cla;;sincd, 27 if.; Funded debt, 2!J3..-295.
constitutionally controlled, 26; Funds of at".(lOunt, 3.51.
eyolution of, 31; early stages of,
Z2; feudal, 2.5; forced, 20; for GabeUe, 132, 174.
individuals, 53; limited by re- Galatin, 320.
sources, 9; net, 33. See Con~ Gardner, H. B., 353 n.
sumption, taxes on. Geifcken, 48.
380 INDEX
IN PREPARATION
ESSAYS IN THE MONETARY HISTORY OF THE
UNITED STATES
By CHARLES J. BULLOCK, Ph.D.
Assistant Pr'!fts$or 0/ Political Economy. Williams Cvllege
The first of these three essays furnishes the first systematic attempt
to supply an interpretation of the leading facts in the entire monetary
history of the country, maintaining the thesis that during three cen-
turies the agitation for cheap money has been due to the same under-
lying cause, namely the extension of settlements over unoccupied
\Vestern lands, and that consequently hy a process of natural evolution
we are now approaching its end; the two others are brit:fer and contain
the results of original investil-!ations into special topics-the early
paper currency of the Slates of North Carolina and New Hampshire.
01HERS TO FOLLOW