UNCLE SAM'S DUTY IS CLEAR

The Federal Constitution provides that the Nation shall be responsible for certain definite requirements. Among them are the following:

1. Provide for the common defense.

2. Promote the general welfare.

3. Establish post offices and post roads.

4. Regulate commerce among the several States.

Speaking before the Senate Committee on Post Offices and Post Roads in 1921, General Pershing said:

The country road will be of tremendous value in time of war roads must be relied upon to obtain the needed food supplies.

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Ever since the cooperative work began on the building of the Federal-aid highway system all roads constructed with Federal funds have been required to be so constructed that the culverts and bridges shall meet the needs and requirements of the Army. Likewise, when the system was approved, the War Department was consulted as to what roads would meet the greatest national need in any line of defense.

Who would try to demonstrate that the condition of the highway has no effect upon the general welfare? Schools, churches, medical service, social betterment-all are tied up in this problem. There is a whole sermon in the "better understanding" between communities and States which has come about by the tremendous increase in interstate travel on the highway. It seems but yesterday when a very limited number felt that they could afford the education which alone can come through travel.

From the beginning of the Government the Postal Service has been a purely national function. Without railroads the highways and waterways were the sole source of carrying on this work for the people. With the introduction of rural delivery mail service the use of the highway has been greatly augmented.

The Federal Government is now using 1,205,572 miles of highway every day in this service and yet is assisting the States in the improvement of about 200,000 miles. In the use of this mileage 30.060,816 individuals are being served, and yet there are still over 14,000,000 to be added as the service can be extended. Five years ago 43 per cent of the rural carriers used horse-drawn vehicles. To-day there are but 15 per cent using horses. The time involved in delivery of rural mail has been reduced one-half.

At this point, I want to present to each of you a chart which describes this Postal Service.

Since the adjournment of the last Congress the United States Supreme Court has handed down three decisions-one from Maryland, one from Washington, and one from Indiana-all clearly upholding Federal control over the highways. A summary of these decisions is as follows:

The first was Michigan Public Utilities Commission v. Duke, decided January 12, 1925, 266 U. S. 571, on appeal from the United States District Court, Eastern District of Michigan, which had granted an injunction restraining said commission from enforcing against Duke Act No. 209, Public Acts of 1923 of Michigan. Duke had three contracts to transport from Detroit, Mich., to Toledo, Ohio, automobile bodies made at the plants of three manufacturers in

Detroit for the use of an automobile manufacturer in Toledo. The Supreme Court affirmed the decree of the district court, holding that the State law violates the commerce clause.

The other two cases are A. J. Buck v. E. V. Kuykendall, director of public works of the State of Washington, 267 U. S. 307, and George W. Bush & Sons Co. v. William M. Maloy and others, constituting the Public Service Commission of Maryland, 267 U. S. 317, both decided March 2, 1925. Buck, a citizen of Washington, wished to operate an auto stage line over the Pacific Highway between Seattle and Portland, as a common carrier for hire exclusively for through interstate passengers and express. He applied to the director of public works of Washington for the certificate of public convenience and necessity required by chapter III, 1921 laws of Washington. This certificate was refused. That part of the Pacific Highway which lies within the State of Washington was built with Federal aid. The plaintiff (Buck) claimed that the action taken by the officials of the State of Washington violated rights conferred by the Federal aid statutes and guaranteed both by the fourteenth amendment and the commerce clause of the United States Constitution. The court held that the State statute contravened the commerce clause of the Constitution and defeated the purpose of Congress expressed in the legislation giving Federal aid for the construction of interstate highways. The decision in the Maryland case followed that in the Buck case.

The United States District Court for the district of Indiana, Fort Wayne division, rendered a decision the latter part of July, 1925, in the case of the United States of America v. J. P. Babcock et al, Equity No. 24. The defendant is engaged in the construction of a drainage canal under a contract authorized by the Superior Court of Allen County, Ind., on petition of certain landowners. He prepared a temporary wooden bridge as required by his contract and disclaimed any liability to permanently bridge the ditch to be cut across the Lincoln Highway between Fort Wayne and the Ohio State line. The Indiana State highway act provides that no State highway shall be torn up without the written consent of the State highway director. No such permit was obtained. No provision has been made for permanently bridging the ditch, and there is a controversy as to who shall do it. The State officials and the State courts admit they have no power to prevent the highway being cut through. The United States, therefore, filed suit to restrain defendant from cutting through the highway without provision first being made for the proper replacement of the highway proposed to be cut through. The court,

in granting the injunction, used, in part, the following language:

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*

Reason, equity, and justice demand that some responsible person, department, or agency should be ready and willing to repair as expeditiously as possible the cut made in this pavement by the drain, * *. It is not necessary in this decision to decide whose duty it is to repair the highway. That may properly be left to the State courts. It is only necessary to decide for the purpose of this action that no one, whether acting under private contract or under an order from a State court, has the right to destroy this national highway, which is used in interstate traffic and for carrying the mails, *

So much for the constitutional provisions.

HOW FEDERAL FUNDS ARE DISTRIBUTED

When the Congress decided to contribute toward highway improvements the process of distributing Federal appropriations was made to the several States and not to certain roads. The method finally adopted for the distribution was on the basis of one-third according to the ratio which the area of each State bears to the total area of all the States; one-third in the ratio which the population of each State bears to the total population of all the States, as shown by the latest available Federal census; and one-third in the ratio which the mileage of rural delivery routes and star routes in each State bears to the total mileage of rural delivery routes and star routes in all the States.

Much time was given to the study of the most equitable method for distribution of the Federal funds. Post-road mileage was immediately admitted as one factor, for the Federal Government was every day using thousands of miles of the highways for the distribution of mail. Population was agreed upon as one which naturally carried with it also the relationship to wealth, for they coincide to a great degree. Area was chosen because it carried with it the problem of the growth of the States in their development and the further fact that the Federal Government owns much area in States which can not add to population or road miles on that account.

Taxable property was eliminated as an element for consideration because there is no equalized method of assessment of property for taxable purposes. Some States assess on one-third value, some on one-half value, and some try to assess on full value. The Federal Government, having no power over these varying methods, could not righteously use taxable property as one of the elements in selecting a plan of distribution of Federal funds.

Wealth of States was not recognized, since population gives virtually the same element. Total wealth alone could not be considered, for then the real purpose of Federal appropriations to equalize the funds between States would be frustrated.

But the Federal Government did not stop with an appropriation. November 9, 1921, will stand out as one of the great days in congressional action on the entire highway program. In addition to making an appropriation to be expended in cooperation with the States, the law approved on this day provided for a definite system of roads to be constructed with funds from both the Federal and State treasuries. This system was limited to 7 per cent of each State's total road mileage. Seven per cent was chosen because it was found that this was the least mileage that would connect all the county seats and main market centers. This certainly is a small enough mileage viewed from every angle of Federal responsibility-Postal Service, interstate commerce, or national defense. Provision was made to extend the first 7 per cent as it was completed, realizing that some States already had improved a considerable road mileage and therefore would be entitled to an early extension of the system.

NOT AN UNEQUAL BURDEN TO STATES

The opposition to the continuation of this road-building program entered into between the States and the Federal Government emanates from people in certain States on the ground that it is not a Federal function, and also that they are unequally taxed to meet the appropriations.

A very careful study of the matter of contributions to the Federal Treasury clearly demonstrates that no State pays more than its real wealth and population. Probably the ideal way of considering the real business affairs of the Nation as transacted by present-day methods would be to discard all State lines and consider New York, Boston, Philadelphia, Baltimore, New Orleans, St. Louis, Chicago, San Francisco, etc., as clearing-house centers. But we have been in the habit of so long telling what this State does and what that State

has accomplished that certain results are tabulated as by States, when in reality some States would actually starve if it were not for their neighbors. They have plenty of gold in the till, but no hills on which to graze cattle. Some of the richest States in the Union do not annually produce one-half of 1 per cent of the basic wealth so necessary to our very national existence.

I wish, without further discussion on that point, to discuss with you a booklet entitled, "Who Pays Uncle Sam's Bills?" in which this matter is thoroughly discussed. There are also some charts which illustrate fully the points brought out in the booklet. There is an illustration, for instance, showing that on the 15th of May, 1925, of the total amount of deposits in New York City banks, $2,218,027,000, 38 per cent represented deposits by banks outside of New York State. The statement further shows that the Union Pacific and Southern Pacific railroads pay their income taxes in New York. For instance, the Union Pacific in 1923 paid an income tax in New York of $4,500,000, and yet this road does not operate east of Omaha and Kansas City-half the length of the continent from New York State. Yet all of their Federal taxes were paid in New York State. Another instance is that of the United States Steel Corporation, which in 1923 paid an income tax of $16,000,000 in New York. The Steel Corporation has 145 plants and warehouses, only two of which are located in New York State. You will find in the booklet a complete list of the stockholders of the United States Steel Corporation by States, and you will notice that more of its stockholders resided in Pennsylvania than in New York. There are something like 30 corporations listed in this booklet. Most of the business of these corporations is from outside of the State of New York. The returns given this last week in the New York Times of the business of those corporations show that most of it is business outside of the State of New York. The business has greatly increased the last year over the preceding year, so that the figures would be much larger than they now appear.

Covering these points, allow me to quote to you from this study made by our association :

WHO PAYS UNCLE SAM'S BILLS?

When the Federal Government wants funds to meet its obligations, it calls upon its citizens, irrespective of residence, to pay according to their means. States, as such, have no obligations and tabulation of receipts for the Federal Treasury, by States, is misleading, unfair, and in many cases far from the truth as to who meets the assessments.

Some people can be born in one State, educated in another, and attain business success in another-always at home, and proudly American. Others are like one of the early fathers, who, going 12 miles west of Boston, celebrated the event by erecting a stake on which he had inscribed "Thus far shall civilization go and no farther."

CLAIM AN UNEQUAL BURDEN TO STATES

In recent months a concerted effort has been made to try to prove that Federal cooperation with the States in certain endeavors is vicious, leads to extravagance, and compels certain States to contribute to the Federal Treasury amounts beyond a just requirement. It is not the purpose of this article to discuss the merits or demerits of Federal financial cooperation with the States in certain endeavors. But it is our purpose to attempt

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to show that, while there are States given credit for very large payments into the Federal Treasury, and the bookkeeping total seems to give them grounds for such assumptions, in reality it is property often thousands of miles away from the bookkeeper's desk which furnishes the taxable wealth from which the seeming excess of contributions is made.

In entering the protest against Federal cooperation with the States in various enterprises tables have been widely published to prove that a few States really furnish more than 75 per cent of the entire amounts collected by the Federal Government for these purposes, and that they receive in return but a very small portion of what they pay into the Treasury. At the same time other States are given sums far in advance of what they pay.

Since the larger part of these Federal contributions of late years has been for highways, these highway appropriations have been singled out as especially unfair.

GROUP STUDY BY STATES

In reality no State pays more into the Federal Treasury than is indicated by its wealth and population.

The total receipts of the Federal Treasury, in a major part, come from internal revenue and customs duties. These two items last year constituted 83.27 per cent of the entire receipts. Since we have no way of prorating the tariff returns to the several States, this leaves us to consider internal revenue as the source from which the States pay funds direct to meet the bills of the Federal Government. Last year internal revenue represented almost 70 per cent of the total Federal receipts.

It is impossible to make a study of this situation except by certain comparative methods. To make tabulations showing the entire 48 States is unnecessary and to do so simply overburdens the line of investigation and makes it more difficult for one to follow the relationship of the several States. We have therefore taken 15 States from which to make certain deductions-the first 15 States leading in various things around which center the basis for collecting funds for Federal appropriations. The items used for comparison are basic wealth, national wealth, population, and internal

revenue.

The first 15 States in basic wealth are given because, while they may not pay the Federal Treasury as much as some States which are called "industrial' and are, therefore, capable of producing larger incomes, basic wealth is of vital importance to the entire Nation and States providing such wealth need the fullest development. By basic products is meant the value of one year's production of wealth from minerals, forests, animals, and agriculture. Basic wealth gets the least return for its products. Many crops are perishable and must take the market price offered.

Naturally, we think that States having the greatest amount of total wealth should pay the largest sums to run the Government and population in relation to total wealth is an element for consideration.

There are 22 States in these four groups and it should be noted that the following States are always a part of the four groups given: California, Illinois, Indiana, Michigan, Missouri, New York, Ohio, Pennsylvania, Texas, and Wisconsin.

Two States are in all groups but one: Massachusetts and New Jersey, each not being in the basic wealth group.

Four States are in two groups: Iowa, Kansas, and Minnesota in both basic and total wealth, and North Carolina in population and revenue paid.

Six States are in one group only: Connecticut and Virginia in revenue payments; Georgia and Kentucky in population; and Oklahoma and West Virginia in basic wealth.