FINANCIAL POLICY. The aim of financial policy can be summed up as the attainment of adequate revenue, a revenue adequate to fiscal needs and responsive to changes in them. This involves the questions of distribution of sources of revenue and elasticity of income.
The separation of government into national and local authorities, with the interposition of a third class of regional authorities in the case of Federal States, brings with it a division of ex penditures and the need of adequate revenues for each form of government. The ideal of inde pendence in action within their several fields can only he realized when to each are assigned certain independent sources of revenue. Without such revenues these authorities become mere disburs ing offices lacking vitality. The problem of proper revenue is the most serious one which eonfm-onts the maintenance of a distribution of authority sanctioned by usage or proposed by legislation. It is a question of practical statesmanship. which must in each country take into consideration the facts of national dvelopment. and cannot be de cided upon general financial or political prin ciples.
The question at issue is partly one of law mill partly one of fact. What sources of income does the law allow to the several bodies, and are these in fact suitable? In the United States the Con stitution gives the Federal Government the power to collect taxes, duties, imposts, and ex cises. but prohibits it from imposing a capitation or other direct tax except in proportion to the population. This in fact excludes the Federal Government from the field of direct taxation, which is left to the States. Should the nationali zation of railroads demanded in many quarters ever become a fact, it would withdraw from the States an important and renumerative ohjeet of taxation. Given the present functions of the Federal Government, the revenue opportunities have proved ample fm- its purposes.
In the states the revenue is more per plexing.. Except that they may not impose ems tons duties, there is no limitation upon the power of the states. But since the needs of the State governments are relatively small as com pared with those of local governments, the rela tion of the two is of great importance. It can
not be said that there is anything like a system in the actual distribution of revenue sources be tween the two forms of government. It must, however, be obvious that the orderly development of each requires that well-defined sources of in come be assigned in such a way as iD satisfy the more rapidly increasing necessities of the local governments.
A revenue system should therefore supply cur rent needs, should increase in productiveness as those needs increase, and should moreover be regular in its returns and capable of meeting the fluctuations of financial necessities. The customs revenue is peculiarly subject to fluctuation, and a State which relies solely upon it is exposed to serious embarrassment. This is well illus trated in the financial history of the United States, and depicted iu the table of receipts of the United States, given above.
Imports on which these revenues are based fol low the vicissitudes of trade, and reflect the hope or fear of tariff changes. Far more regular has been the productiveness of the internal revenue taxes imposed by the United States. To meet these fluctuations of revenue from certain sources, as well as to meet fluctuations in the need for money, the financial system of every nation needs some elastic element, some tax whose productive ness can be reduced or augmented, as the ease may be. The United States may be said to have such a source of revenue in the internal revenue system. When drawn upon for the increased ex penditure for the war with Spain, the effect upon the revenue was rapid and considerable. But no where else has this element of elasticity attained the importance which it has assumed in England, where the income tax is used for this end. In the United States it has not been necessary to increase or reduce taxation frequently, since in the past thirty years there has generally been a surplus revenue which has been applied to debt reduction.