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 com-
missioners 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 expend-
itures have enabled the Secretary to purchase bonds much
more extensively than the sinking-fund law absolutely re-
Quires, 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
national debt in about thirty years, or soon after the close of
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 extingüish
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.

3. TAXATION OF UNITED STATES BONDS AND OTHER OBLIGATIONS.

It was decided by the Supreme Court in the year 1829, before there were any statute provisions on the subject, in the 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

Will extinguish the debt in about thirty years.

Decisions of Supreme Court.

Taxation of banks holding bonds.

Taxation of banks whose captal is invested in United States bonds.

Savings banks may be taxed on their deposits, although invested in United States securities.

Laws expressly exempting United States obliga. tions from taxation by State authority.

U 1) ited States notes exempt from taxation.

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 CàS62S. 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; Bask Taac Case, 2 Wallace, 200, explained in Provident Institution v. Massachusetts, 6 Wallace, 629.) But national banks may be taxed by States without regard 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.) A State law, taxing savings banks a percentage on the average amount of their deposits, although a portion of the 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. Coifle, 6 Wallace, 594; Provident Institution v. Massachusetts, 6 Wallace, 611.) The act of February 25, 1862, chapter 33, section 2, expressly provides that “all stocks, bonds, and other securities 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.

As to all bonds and securities of the United States, except those of the Funded Loan, the exemption is only from taxation 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 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.

United States Government may tax bonds.

Except those of the Funded Loam. The policy to pay off the debt, long established.

Washington, 1790.

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. I 1. Premiums paid to redeem debts before
2–9. Extracts from messages of the maturity.
Presidents. 12. Reduction of the existing debt.
10. The country free from public debt. 13. List of loans heretofore contracted.
1.

ExTINGUISHMENT OF THE PUBLIC DEBT.

The following extracts from the messages of Presidents of the United States, who for the time being generally represent 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.

“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 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 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 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

Washington, 1792.

Washington, 1794

Washington, 1795.