of all business corporations whose primary object is money making. At present the income from internal revenue is derived in the United States mainly from the following taxes: tobacco manufactures, oleomargarine and "process" butter, filled cheese, playing cards, theatre tickets, club-dues, and corporations. An excise tax has always been unpopular. To yield an appreciable amount of revenue, it must be imposed on an article of general consumption, and when thus laid it results in a rise in price, thus throwing the burden of the tax upon the great masses of relatively poor people. The assessment and collection of such a tax, too, require restrictive regulations by the government over manufacturers or dealers, and such regulations are always a cause of annoyance and trouble. However, if the excise is imposed upon only a few articles of luxury, as tobacco and spirituous and fermented liquors, these objections are not of great force.

To meet the needs of war or to meet unusually heavy demands upon the treasury, the field of excise taxes has been greatly extended and made to yield enormous revenues. The so-called luxury taxes of all of the World War belligerents and the heavy excess profits taxes levied by the warring nations are examples of this. All forms of amusement and numerous articles of consumption, not classed as necessities, have been taxed, and necessary articles, which cost above specified amounts, require the payment of a "war tax," usually ten per cent, by the purchaser. Profits of corporations have been subjected to heavy levies to meet the unprecedented expenses of the government.

The war profit taxes in Great Britain were levied upon the profits made by business concerns in excess of the normal profits, as determined from an average of the net profits of any two of the three years immediately preceding the war. From 50 to 80 per centum of such "war profits" was taken by the government to meet its enormous war expenditure. In the United States, by the Revenue Act of 1917, a corporation tax was levied upon net incomes in excess of an 8 per centum

return on the capitalization of the corporation. The Revenue Act of 1918 included a highly complicated war and excess profits proviso which levied an increased tax upon excess profits as determined by the Act of 1917 (as high as 65 per centum in some cases) and an added war profits tax on the British plan.

Taxation: Method of Assessment and Collection of Taxes. Of the method of assessment and collection of taxes little need be said. In ancient times, and under retrogressive governments (as Turkey) in modern times, the practice of "farming out" taxes was common. This consisted in a leasing out of taxes for a fixed sum to a person authorized to collect and retain them. Many abuses flourished under this system: agents of the tax farmers scrupled at nothing to wring excessive amounts from the people; immense and illegitimate for tunes were thus gained; and unhappy communities rose in insurrection against governments permitting such evils. At present the practice of assessment and collection of the taxes by regularly appointed officials of the government is universal in civilized states. The rate of taxation is public, and the opportunities for extortion are reduced to a minimum.

The Budget System for Adjusting Revenue to Expenditure. In adjusting the state revenue to the expenditure, most modern governments have established the "budget" system. The budget consists of a tabulated statement of estimated revenue and estimated expenditure. It is commonly drawn up under the direction of one of the members of the cabinet and presented to the legislative body for approval. Whenever the estimated necessary expenditures exceed appreciably the estìmated revenues, suggestions for increased taxation to cover the estimated deficit often accompany the budget and are likewise presented to the legislative body for action.

The Budget in England and Continental States. For example, in England the chancellor of the exchequer, who is a member of the cabinet, presents to the House of Commons, usually in April of each year, (1) a statement of the actual

results of the revenue and expenditure during the last fiscal year ending March 31, and (2) a statement estimating the revenue and expenditure for the coming twelve months. Parliament acts upon these statements, incorporating in a bill the provisions for any new taxes deemed necessary and advisable. When the reports have been approved, the budget is passed as the Finance Act.

Civil

The third necessary function of government is what may be termed the civil function. The state in the exercise of its civil function regulates the relations, social, economic, and political, between its individual citizens. The exercise of this function. requires that the state provide for the enforcement of contractual obligations, regulate the conditions under which property may be held, sold, or transmitted, maintain the rights of the individual against infringement or encroachment, punish for crime, and decide matters of dispute. This function is a necessary function, because by its exercise the state maintains peace and order within its boundaries.

The judiciary system provided for in the constitution of all states is the means by which this function is exercised. In federal states, such as the United States and Germany, a large part of the exercise of this function falls within the province of the component units, although the state maintains an independent system of courts for cases of specified kinds. In all states the judiciary system is so adjusted that the burden of handling the large number of trivial cases falls upon the local governments or organizations.

STATISTICS AND ILLUSTRATIVE CITATIONS

I

EXTRACT FROM THE FINANCE ACT OF 1894, PROVIDING FOR THE INHERITANCE TAX IN ENGLAND

AN ACT to grant certain Duties of Customs and Inland Revenue, to alter other Duties, and to amend the Law relating to Customs and Inland Revenue, and to make other provision for the financial arrangements of the year.

MOST GRACIOUS SOVEREIGN,

(31st July 1894.)

WE, Your Majesty's most dutiful and loyal subjects the Commons of the United Kingdom of Great Britain and Ireland in Parliament assembled, towards raising the necessary supplies to defray Your Majesty's public expenses, and making an addition to the public revenue, have freely and voluntarily resolved to give and grant unto Your Majesty the several duties herein-after mentioned; and do therefore most humbly beseech Your Majesty that it may be enacted, and be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:

PART I

GRANT OF ESTATE DUTY

1. In the case of every person dying after the commencement of this Part of this Act, there shall, save as hereinafter expressly provided, be levied and paid, upon the principal value ascertained as herein-after provided of all property, real or personal, settled or not settled, which passes on the death of such person a duty, called "Estate duty," at the graduated rates herein-after mentioned, and the existing duties mentioned

in the First Schedule to this Act shall not be levied in respect of property chargeable with such Estate duty.

2. (1) Property passing on the death of the deceased shall be deemed to include the property following, that is to say: (a) Property of which the deceased was at the time of his death competent to dispose;

(b) Property in which the deceased or any other person had an interest ceasing on the death of the deceased, to the extent to which a benefit accrues or arises by the cesser of such interests; but exclusive of property the interest in which of the deceased or other person was only an interest as holder of an office, or recipient of the benefits of a charity, or as a corporation sole;

(c) Property which would be required on the death of the deceased to be included in an account under section thirtyeight of the Customs and Inland Revenue Act, 1881, as amended by section eleven of the Customs and Inland Revenue Act, 1889,2 if those sections were herein enacted and extended to real property as well as personal property, and the words "voluntary" and "voluntarily" and a reference to a "volunteer" were omitted therefrom; and

(d) Any annuity or other interest purchased or provided by the deceased, either by himself alone or in concert or by the arrangement with any other person, to the extent of the beneficial interest accruing or arising by survivorship or otherwise on the death of the deceased.

(2) Property passing on the death of the deceased when situate out of the United Kingdom shall be included only, if, under the law in force before the passing of this Act, legacy or succession duty is payable in respect thereof, or would be so payable but for the relationship of the person to whom it passes. . .

RATES OF ESTATE DUTY

The rates of Estate duty have been twice revised since 1894, once in the Finance Act of 1907, and again in the Finance Act of 1910. The rates in force at present, as stated in the Second Schedule appended to Finance (1909-10) Act 1910, are as follows:

144 & 45 Vict. c. 12.

252 & 53 Vict. c. 7.