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plied to the purchase of other bonds for the same account, in addition to the amount of one per cent. of the entire debt.

There have never been any trustees, managers, or commissioners of this fund, the whole business being done in the Treasury Department, under the direction of the Secretary of the Treasury, without cost or expense of any kind to the Government. It was deemed best to cancel and destroy the bonds themselves, rather than keep them in existence in the custody of the Treasurer; the obligation of the Government to use an amount of coin equal to the interest thereon, in the purchase or payment of other bonds, being as well evidenced by the books of the Department as by printed securities, and the danger of reissue being thereby avoided.

The great revenues of the country in excess of the expenditures lave enabled the Secretary to purchase bonds much more extensively than the sinking-fund law absolutely requires, and the debt has been more rapidly reduced than by the operation of that fund alone.

But the sinking fund itself will extinguish the entire Will extinguish national debt in about thirty years, or soon after the close of the debt in about the nineteenth century, the exact time depending upon the price at which the purchases may be made in future. If the Government should at any time be obliged to pay a large premium, as it has done heretofore to extinguish former debts, which premium in some cases has exceeded twenty per cent. in coin, the operation of the sinking fund will be somewhat less effective than it has been in the past.

The Government must, under this law, continue to be a regular purchaser of its bonds, thus making a constant, well known, and certain market for the same.

thirty years.

3.

TAXATION OF UNITED STATES BONDS AND OTHER OBLIGATIONS.

It was decided by the Supreme Court in the year 1829, Decisions of Subefore there were any statute provisions on the subject, in the preme Court. case of Weston v. The City Council of Charleston, (2 Peters, 449,) that a tax by a State on United States stock is unconstitutional and void. Chief Justice Marshall, in giving the

opinion of the court, says: “The tax on Government stock is thought by this court to be a tax on the contract, a tax on the power to borrow money on the credit of the United States, and consequently repugnant to the Constitution, and that principle is recognized in the case of the Bank of Commerce v. New York City, (2 Black, 620,) and in other

cases.

Taxation of banks holding bonds.

Taxation of

tal is invested in United States bonds.

their deposits,

ed in United States securities.

A tax by a State on State banks, upon a valuation equal to the amount of their capital stock paid in or secured to be paid in, was decided to be a tax on the property of the institution, and where that property consists of stocks of the Federal Government the law laying the tax is held void. (Bank of Commerce v. New York City, 2 Black, 620; Bark Tax Case, 2 Wallace, 200, explained in Provident Institution v. Massachusetts, 6 Wallace, 629.)

But national banks may be taxed by States without regard banks whose cap to the fact that part of their capital is invested in United

States bonds, under the provisions of the national banking

law of June 3, 1864, section 41. (See notes to that section.) Savings hanks A State law, taxing savings banks a percentage on the may be taxed on average amount of their deposits, although a portion of the although invest- same is invested in securities of the United States, is a tax

on the franchise of the bank and not on its property, and so is valid. (Society for Savings v. Coite, 6 Wallace, 594; Provident Institution v. Massachusetts, 6 Wallace, 611.)

The act of February 25, 1862, chapter 33, section 2, exUni ted States obliga pressly provides that “all stocks, bonds, and other securi

ties of the United States held by individuals, corporations, or associations, within the United States, shall be exempt from taxation by or under State authority;the act of June 30, 1864, chapter 172, section 1, that “all bonds, treasury notes, and other obligations of the United States shall be exempt from taxation by or under State or municipal authority;' and several other acts contain similar provisions.

The Supreme Court, in the case of Bank v. Supervisors, (7 Wallace, 26,) decided that United States notes or legaltender notes are obligations within the meaning of the acts exempting United States obligations from State and municipal taxation.

Laws expressly

tions from taxation by Stat3 allthority.

United States

notes exempt from taxation.

Government may

the Funded Loan.

As to all bonds and securities of the United States, except United States those of the Funded Loan, the exemption is only from taxa- tax bonds. tion by State or municipal authority, and not by the Federal Government; and the latter for many years did lay an income tax upon the interest received by its citizens on such securities, and has the right to do so again.

But the bonds of the Funded Loan are by the express Except those of terms of the act of July 14, 1870, and by the language of the bonds themselves, "exempt from the payment of all taxes or duties of the United States, as well as from taxation in any form, by or under State, municipal, or local authority.” This exemption is as extensive as the legislative power can make it, and entering into the original contract, by being incorporated into the act under which the bonds are issued and into the language of the bonds also, secures to the holders of the bonds of this loan, unlike those of any other loan ever issued by the Government, the full amount of interest thereon, without deduction by taxation in any form whatever, either by the States or the national Government itself.

CHAPTER VII.

ESTABLISHED POLICY OF THE COUNTRY, COEVAL WITH THE CON-
STITUTION, TO MAINTAIN THE PUBLIC CREDIT, TO GRADUALLY
PAY THE PRINCIPAL OF ALL LOANS, AND TO AVOID A PERMA-
NENT NATIONAL DEBT.

1. Extinguishment of the public debt.
2--9. Extracts from messages of the

Presidents.
10. The country free from public debt.

II. Premiums paid to redeem debts before

maturity. 12. Reduction of the existing debt. 13. List of loans heretofore contracted.

1.

EXTINGUISHMENT OF THE PUBLIC DEBT.

off the debt, long established.

The following extracts from the messages of Presidents The policy to pay of the United States, who for the time being generally rep

resent the prevailing sentiment of the people who elect them, indicate the policy of the country adopted in the early days of the national Government, and ever since steadily pursued, for a period of nearly a century, to maintain faithfully the public credit, not only by prompt payment of the interest, but by the gradual extinguishment of the principal also of all national loans, whether contracted under ordinary or extraordinary circumstances, or for usual and permanent or temporary and special purposes.

2.

WASHINGTON'S SECOND ANNUAL MESSAGE TO CONGRESS, DECEM

BER 8, 1790.

Washington, 1790.

"Allow me, moreover, to hope that it will be a favorite policy with you not merely to secure a payment of the interest of the debt funded, but as far and as fast as the growing resources of the country will permit ,to exonerate it of the principal itself. The appropriations you have made of the western lands explain your disposition on this subject, and I am persuaded that the sooner that valuable fund can be made to contribute, along with other means, to the actual reduction of the public debt, the more salutary will the measure he to every public interest as well as the more satisfactory to our constituents."

3.

WASHINGTON'S FOURTH ANNUAL MESSAGE, NOVEMBER 6, 1792.

“I entertain a strong hope that the state of the national Washington, 1792. finances is now sufficiently matured to enable you to enter upon a systematic and effectual arrangement for the regular redemption and discharge of the public debt, according to the right which has been reserved to the Government. No measure can be more desirable, whether viewed with an eye to its intrinsic importance, or to the general sentiment and wish of the nation.'

4.

WASHINGTON'S SIXTH ANNUAL MESSAGE, 1794.

"The time which has elapsed since the commencement of Washington, 1794 our fiscal measures, has developed our pecuniary resources so as to open the way for a definitive plan for the redemption of the public debt. It is believed that the result is such as to encourage Congress to consummate this work without delay. Nothing can more promote the permanent welfare of the nation, and nothing would be more grateful to our constituents. Indeed, whatever is unfinished of our system of public credit, cannot be benefited by procrastination; and, as far as may be practicable, we ought to place that credit on grounds which cannot be disturbed, and to prevent that progressive accumulation of debt which must ultimately endanger all governments.

5.

WASHINGTON'S SEVENTH ANNUAL MESSAGE, 1795.

"Whether measures may not be advisable to reinforce the Washington, 1795. provision for the redemption of the public debt, will naturally engage your examination. Congress have demonstrated their sense to be, and it were superfluous to repeat mine, that whatsoever will tend to accelerate the honorable extinc

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