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Fund, how man ged,

and sixty-two, and all other United States bonds which have been purchased by the Secretary of the Treasury with surplus funds in the Treasury, and now held in the Treasury of the United States, shall be canceled and destroyed, a detailed record of such bonds so canceled and destroyed to be first made in the books of the Treasury Department.

Any bonds hereafter applied to said sinking fund, and all other United States bonds redeemed or paid hereafter by the United States, shall also in like manner be recorded, canceled, and destroyed, and the amount of the bonds of each class that have been canceled and destroyed shall be deducted respectively from the amount of each class of the outstanding debt of the United States.

In addition to other amounts that may be applied to the redemption or payment of the public debt, an amount equal to the interest on all bonds belonging to the aforesaid sinking fund shall be applied, as the Secretary of the Treasury shall from time to time direct, to the payment of the public debt, as provided for in section five of the act aforesaid. And the amount so to be applied is hereby appropriated annually for that purpose out of the receipts for duties on imported goods.

This was not an abandonment of the sinking fund, but only a different method of procedure in relation to it.

Under the requirements of this act, all bonds purchased for this fund are canceled and destroyed, but an accurate account is kept thereof, and of all subsequent purchases for the same purpose, and of the semi-annual interest on the whole, as though the bonds were in existence.

Within each fiscal year coin received from duties to the amount of one per cent. of the entire debt of every kind, including bonds, notes, and all other obligations, and also coin equal to the amount of the interest on all the bonds previously purchased for the same purpose and canceled, is applied to the purchase of outstanding bonds, and although the bonds themselves, the mere evidences of indebtedness, are destroyed, the amount thereof is carried to the account of the sinking fund, which is thus kept up and treated as a solemn obligation of the Government. The account fixes and determines the amount of coin equal to that which would be the interest on all the bonds purchased therefor, and which must be by law, and, in fact, is semi-annually ap

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 have 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.

the debt in about

thirty years.

But the sinking fund itself will extinguish the entire will extinguish 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 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.



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

Taxation of banks holding bonds.

Taxation of

tal is invested in United States bonds..

Savings banks

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


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; Bank 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.) 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. Coite, 6 Wallace, 594; Provident Institution v. Massachusetts, 6 Wallace, 611.)

may be taxed on

their deposits,

although invest

ed in United States securities.

Laws expressly exempting Uni

tions from taxation by State authority.

The act of February 25, 1862, chapter 33, section 2, exted States obliga- pressly 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.

United States

notes exempt from taxation.

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.

Government may

tax bonds.

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 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 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.

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The policy to pay



The following extracts from the messages of Presidents off the debt, long 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.

Washington, 1790.


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

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