5. Financial Legislation and Budgetary Practice.— Modern governments carry on their financial operations under well-defined constitu tional checks and budgetary practices. Certain general rules of financial procedure are laid down within which legislatures may vote taxes and legalize appropriations or incur debt. The study of these rules forms a fourth and last part of the subject of public finance.
The rise of constitutional arrangements in respect to financial matters undoubtedly orig. inated in England, and it is said that the Eng lish system has served as a model for the other European countries. While this is only partly true the English budgetary practice will serve as a convenient point of departure for our study of the United States.
By the word budget is meant a comprehen sive report and balance sheet of the past and estimated receipts and expenditures of the gov ernment for the next fiscal year. Such a state ment forms the basis of legislative action on revenue and appropriation in practically every civilized country except the United States. In England, for instance, the budget for the fiscal year is prepared by the Chancellor of the Ex chequer as a member of the Cabinet upon the basis of reports made to him by the heads of departments. This contains a statement of the revenues and expenditures for the past year, together with an estimate of the revenues and the proposed expenditures for the coming year. The government then defends the proposed budget against criticism, modifying it where necessary, but resigning from power and re sponsibility if the opposition overturns their plans.
Contrast with this highly centralized and responsible method the decentralized and irre sponsible practice of the Federal government of the United States. A report is made to Con gress to be sure by the Secretary of the Treas ury, based upon data submitted by the various department heads, but until recently there was no certainty that the report was trustworthy, and even now Congress is but little influenced by the estimates of the executive department. According to our theory of separation of gov ernmental functions there is no connection be tween the executive and legislative departments and Congress prefers political independence to financial orderliness. The result is that tax laws and appropriations are determined by political rather than fiscal considerations.
Another striking point of difference between the English and American systems lies in the fact that in the English budget both revenue and expenditures are determined by the same body, while in the United States the taxing and spending powers are allotted to two differ ent sets of committees. Under the English system there is thus possible a well-balanced budget in which the Ministry of Finance, re sponsible for adjusting outgo to income, is able to avoid either surplus or deficit. At the same
time the device of a variable rate for the in come tax makes possible an exceedingly ac curate equilibrium.
In the House of Representatives in the United States there are some eight different committees which bring in 14 different appro priation bills, of which six are prepared by the Committee on Appropriations. As each of these committees is under the temptation to swell its bill asking for appropriations in order to mag nify its own importance, there is constant pres sure to extravagance. And when it is remem bered that still a different committee, that on Ways and Means, has charge of revenue bills, it is not difficult to see that a well-balanced and harmonious budget is all but impossible under such a system. Not only is there no careful correlation between revenue and appropriations as a whole, but the relation between different categories of appropriations is haphazard and unscientific as they are under the control of different sets of men.
The remedy for these evils is of course the adoption of a budget system for our Federal government. President Taft in 1912 requested Congress to provide for a budgetary form of statement of the annual report of the Secretary of the Treasury, and to follow such procedure in their financial legislation, but without avail. Probably nothing will be done in this direction until the force of public opinion compels Con gress to adopt business methods and forms.
The State legislatures shadow forth, rather dimly, the same financial procedure that is found in Congress. It is practically impossible to speak of a scientific budget in any of the States. More progress has been made, on the other hand, in our municipal government, where under the highly centralized administration of the commission or city manager plans of gov ernment a budget becomes possible. In the ma jority of our cities, however, but little more progress toward this fiscal ideal can be recorded than in the case of our State legislatures. They are still in a chaotic state of transition.
Bibliography.— Adams, H. C., 'Science of Finance> (New York 1898) • Bastable, C. F., Public Finance' (3d ed., London 1908) : Bul lock, C. J., 'Selected Readings in Public Fi nance' (Boston 1907); Cohn, G., 'Science of Finance' (trans. from the German by T. B. Veblen, Chicago 1895) ; Daniels, W. M., 'Ele ments of Public Finance' (New York 1899); Jeze, G., (Cours des finances' (2d ed. Paris 1913; Leroy-Beaulieu, P., 'Science des Fi nances' (Paris) ; Plehn, C. C., 'Introduction to Public Finance' (3d ed., New York 1912); Seligman, E. R. A., 'Progressive Taxation in Theory and Practice' (Princeton 1908) ; Wag ner, A., Pinanzwissenschaft) (Berlin).