Mr. SHERMAN. So that the money to raise the sinking fund was not raised by bor rowing. If it was raised by taxation and directly applied, the effect is the same as if invested in commissioners. The only reason whyI make any remark about the sinking fund is that this bill contains a provision applying a specific sum every year to the canoeation of bonds under laws to be hereafter framed. I have thus stated, I fear with too much detail, that any plan should embrace these ideas: the funding the debt, the reductiop of interest, and the ultimate payment of principal and here a difference of opinion arose whether this landshould be prescribed by Congress or whether it should be left mainly to the SecyTreasury. I objected to the law passed here a month or two ago, and the Senfrom Maine did not think my objections well founded. But I still think was right. My objection did not arise from an want of confidence in the Secretary, for I now the present Secretary will not abuse this trust. at it grew out of what I considered the right of the people to know precisely the terms of the loan. ahat bill authorized the Secretary to sell a bond, principal and interest payable in gold, running not to exceed 40 years, and bearing an interest not to exceed 6%., to be free from State and local tax, and which he might sell under par. Now, I did not wish to admit for a moment, in the form of a law, the possibility of any Secretary selling such a bOlltrQVEll at par, and certainly not under par. It was a cheapening of the public credit to provide for such a loan and without renewing the controversy, I ask, is it not better in legislating on this important question, $3.000,000,000, to put in the form ofinlvaowlvainng on the face of the statute the terms and conditions upon which your public agents shall sell your bonds? It seems so to me, and therefore, if this bill contained no new provisions, I should think it important, and highly important, that the terms finally agreed upon and fixed by the SecyTreasury, after full consideration, should be embraced in the form of law so as to be binding upon him and his successors, so that no change should be made without the consent of Congress. I do not propose, however, nor do I ask the repeal of that law, but I think that when the plan is agreed upon, it should assume the form of law, leaving, however, the general provisions which passed a shorttime ago to stand to meet emergencies and exigencies now unforeseen. The further question which I now desire to submit to the Senate is, whether this bill presents a plan by which these objects can be accomplished. If it were left to my own hopeful view of things I would strike out two or thrce clauses of this bill. I would not extend the exemption from taxation to the income tax. I would preserve the form of our laws in regard to the convertibility clause, vesting the power in the U.S. to pay off this debt after a certain time, say ten years. I would insert a proviso which was in the old law of 1796, authorizing the U.S. to pay off the principal. But the SecyTreasury, who is to execute this law, is of opinion that he cannot negotiate a 5%. loan upon these terms and therefore he would not undertake it. He has the power under the general law we have passed to negotiate a loan at 6%., or one at aless rate, but he thou ght he could not negotiate a 5%. loan without additional legislation. I am not sure of that. I believe that if you pass a bill of this kind fixing the rifle of interestat 5%., with the general stiulations contained in this bill, we shall be a le, though perhaps with some difficulty and after some time, to save the one er cciit. without giving any additional benefits. He thought not, however. The question now is, not whether we shall give him this law, but whether we shall compel him to issue a 6%. rather than a 5%. loan, unless we give him the terms and privileges contained in this bill. If I was called upon to rescribe the form, being probablyn. more hope ul man than he or many of those around me, I would insist that the Government of the U.S. should not pay in any event over 5%. interest, and that a clean loan should be negotiated for that amount, and that it should be something like the ten 40 loan, within easy conversion, so that if inten years we could negotiate a loan at a less rate of interest we might have power to do it. But he thought that in order to enable him to nego tiate a 5%. loan he must have two provisions, one giving him authority to issue a 30 year loan, to postpone the payment of the principal not to exceed 30 years; and, the other to exempt these securities from the income tax of the U.S. Those were the two conditions upon which he thou lit he could negotiate a 5%. loan. hen I came to examine them, I found that these two conditions could amount to but very little less. The income tax levied by the U.S. now upon national securities pays to us less than one 10th of1%. of the public debt. By the terms of the tax law the holders of these bonds are compelled to pay income as upon other property, but all the bonds that are held by persons whose aggregate income is less than $600 go free of tax; all the bonds that are held abroad are free of tax; all the bonds that are held by banks, insurance companies, and corporations are held free from this income tax. No corporation pays an in come tax; the income tax is levied only upon individuals. The result is that the bonds of the U.S., you may say the great mass of them, are held in such a way that they pay no income tax. The Secretary says: “If you will surrender the trifling amountyoucol lect from incomesderived from Governmentsecuri ties. I may be enabled to save you one6th of all the interestpaid upon the public debt." When that proposition was made, it seemed to me perfectly obvious that we ought to adopt it. There is another reason. The income tax is, in its nature, temporary. There is scarcely a doubt but what that income tax will disap pear like many of the other taxes in a short period of time. The time, in my judgment, is not for distant when a tax on a few slides of luxury will pay the interest on the public debt and pay our expenses. I have no doubt we shall go through the same process of legislation that our ancestors did after the war of the Revolution, and as those who went before us did after the war of 1812. All these taxes will disappear in a short period of time, and perhaps a tax on whisky and tobacco and on imported goods, a few simple taxes, with perhaps the income tax added, may be able to pay the interest on the public debt and the expenses of the Government. Therefore the on y question was whether we should surrender this small matter in order to accomplish a great object. It seems to me we ought to do it. If the SecyTreasury can O to work and negotiate this loan by surrendering this small income tax, and thus effect a saving of interest equivalent to 20%. of all the interest paid by the U.S., it is certainly a very good bargain, and it does not require a very shrewd man to see it. The other provision was that there ought to be a fixed period before which the principal should not be aid. That was a point upon which I mysel long hesitated; and I agreed to it for this reason, and it is a very obvious one if Senators will apply their minds to it: but a.very small portion of the public debt can be converted now into a 5%. loan. Why? Because but a small portion of it is due. The holders of the 7 thirties will avail themselves of their privilege to convert them into five twenties. There is not very much pressing upon the SecyT Treasury, but whatever it is, he must pay it, and he must issue some form of loan, and the only question is whether it shall be a 5% or a 6%. If you do not pass this bill be is compelled to issue a 6%. loan because he cannot negotiate any other. He says he cannot, and that is the general judg ment. It is the general judgment of gentlemen who oppose this bill that he cannot nego tiate a 5 or cent. loan of any kind even with this bill), and therefore that he will be compelled to issue a 6%. The very fact that he is not compelled to borrow a large sum of money enables him to go into the market now like a rich man who has a boundless inheritance, a large estate, on which he wants to borrow a very small sum of money; he can get it on good terms, but he says he cannot get it unless the payment of the principal is postponed for 20 or 30 years. Suppose he does issue 200 million or 500 million 5%. bonds under this bill; the objection is that we may want to ay off the principal sooner. Surely we would) pay off the 6%. bonds 1st, and we cannot expect to pay 08 all this enormous debt withiu 30 years. All the bonds that he could probably issne within ayear or two would fall very far short of the amount that would still remain unpaid under the most. can tax the stock of the favorable circumstances in 30 years from this time. Next year, after he has established a 5%. loan under this bill, it may be that he can go into the market and get a better loan still, a bette: bond, on more favorable terms, and thus reduce the rate of interest on the balance of the debt as it matures. I have no doubt he can do it. I now come to consider an objection to this bill made With a good deal of force, especially by aliy Democratic friends, that the loans of the U.S. are eXempt from State taxation. Although this is a very important question, it has never been discussed in the senate, and I think that unless Senators have been required to examine the decisions of the courts of the U.S., they probably have not seen how far the courts have gone in settlinglthis question. I lay it down as a premise that in the absence of all stipulations about taxation in a law, no State can tax a Government security; it is entirely inconsist out With the supreme power of the national Government to borrow money. This question is settled more clearly than almost any question of constitutional law which has ever been mooted in this Government. The 1st case involving it that came before the SCOTUS was the celebrated case of McCulloch vs. The State of Maryland, in which the principle was decided that no tax could be evied by aState upon any agent employed by the national Government in the execution of its vested powers. That case, however, did not reach the particular point that I am now discussmg, but subsequently the caseof Weston as: The City Council of Charles ton arose in 1829, and is reported in 2 Peters, page 449, and upon the very point now in discussion. Chie Justice Marshall was still upon the beach, the same judge who had de cided the case of McCulloc vs. The State of Maryland. The city of Charleston, under the authority of a law of the State of SCarolina, levied a tax upon bonds of the U.S. held by a citizen of Charleston. The question was submitted to the supreme court of the State of SCarolina, an it was de cided there by a majority that the State had a right to tax a Government security or the in come derived from it. A dissentin opinion was given by one of the judges of that court which is highly creditable to him, and Pthink presents the case very clearly. I Wlll read a short extract from that opinion before I read anything fr m the decision of Chief justice Marshall. his case arose at the beginning of the nullification crusade, and the very principles subsequently involved in the contest through which wc have recently passed were then under discussion in SCarolina. Judge Huger, in giving his dissenting opinion, said: “I am unwilling, on so important a question merelyto expressmy dissentfrom the Judgment of the court. It is now for the 1st time agitated and ought to be fully discussed, that it might be better understood. It affectathe useof a power.asessen tial to the General Government in periodsof difficulty and danger, asanyotherwhich the peoplehnva delegatedto it. If the ciai council of Charleston U.S.s, on nomine, the Statese an; and iftho Statese an, it is impossible not to perceivethat the fise aloperationsof the general Governmentmay be completelyfrustrated by the States. It will be in vain for Congressto pass nets authorizing the SecyTreasury to borrow money, if the holders of their stock can be taxed for having done so by the States. Congress imf ay offerten%. for loans, but who Wlll lend. t?c, Statese an appropriate the whole to their own use. He then rocceds to show that the power to tax at all involves the power in the States to nullify by taxation the power of the national Government to borrow money, and says: “No Government, not revolutionary, has ever attemptedto tax its own stock.and, among others, for two very satisfactoryreasons: "1. Becausesuch a tax must necessarily operate injur.io Buese lyauuspeotnhearllefiustiunrfealcotaansv;ioalnaTTon of in so doing and therefore immoral and contract “ Under the lnfluencoof these reasons. the Legislature of this State has refusedtotax thestockof the U.S.; but it appears t liut the city council of Charleston have thought differently, and have taxed it." i C I S i i C S “ If they can do soLnt all.theymay extent; do so to any it is equally“ inl their powor to tax 20% or 100%. as one biil4%. What shall covernt icir discretionit is impossible to foresee. State ora fewStatesmayconcur in a policy atvariance With that of the Government, nay. in h0 llllly to it. This. unfortunately, hasbeen already Witnessed." He prophesies the very case that occurred a few years afterward in that State: " They ma. indeed.be indisposedto dissolve the Union and edemawar, when they might have no ObJCCUODto counteract Congress and control its measures by the exerciseof a power strictly constitutional. 7 10th sof the stocks of the U.S.are owned in the citiesof Boston.NewYork, Philadelphia, Baltimore and Charleston." and then he proceeds to discuss the power of cities and States to tax the Government stock, and shows that if it were conceded, the single State of New lork might have it in its power to destroy the Government of the U.S. by preventing it from borrowing money. The case was brought up to the SCOTUS, where it was elaborately discussed by Mr. Hayne and Mr. Legarc, thenaine nv the ublest counsel in the country. IWill read from the decision of Chief Justice Marshall: " This brings us to the mainquestion. Is the stock neued for loans madeto the government of the U.S.liable to betaxed by Statesand corporations 7 “Congress has.power to borrow money on the credit. otthe U.S. " The stock it issues is the evrdenceof n debtereated by the exerciseof this power. The tax in question is a tax upon the contract subsisting between the Government and the indjyidual. It bears directly upon that contract while subsistingandin full force. hopoweroperates upon the contract the instant it is framed, and must imply a right to affect that contract. If the States and corporations throughout the Union possess the power to tax n contruct for the laopnpnlpicfat money what shall arrestthis grlnriplo in its to every other contract? Vhat. measure pan Government adopt which will not be exposedto its influence? But it is unnecessaryto pursue this principle through its diversified application to all the contractsand to the various operations of government. No onecan be selected which is of more i nvgitnmline tneeryeost to the credit of the U.S. No power has beenconferredby the American people up their Government the free and unburdened exercise of which more deeply effects every member of our Republic. In war. whon the honor. the safety, the independenceof the nation are to be defended, when all its resourcesare to be strained to the utmost, credit must be brought in aid of taxation, and the abundant revenueof peace and prosperity must be anticipated to supply the exigences, the urgentdemandsof the moment.” Then he goes on to discuss the question at great length, and comes to the conclusion, in which the court was unanimous, that in the absence of all stipulation on the subject no State could be allowed to tax a Government security, simplybecause to do so would enable the States to destroy the power of the national Government, prevent it from prosecuting war, and from maintaining the authority of the U.S. This principle has never been controverted and never been doubted by any judge on the bench of the SCOTUS It has been acquieseed in h every judge who has sat upon that bone. It has never since been controverted by any State of the Union. It has never been attempted by any party in the Union to set aside that decision. his exemption is so clear a principle of constitutional law, in my Judgment, that it cannot be assailed or gain said. The same question was main brought before the SCOTUS in a case from the State offennsylvonia, when Chief Justice Taney sat upon the bench the case of Dobbins v.9. The Commissioners of Eric county. The court again reaffirmed the same principle, referring to this case, repeating it, an applying this doctrine to a tax levied by the State of Pennsylvania on a Government officer. Again the question was.brought before the SCOTUS during the recent war, in a case reported in 2 Black the case of the Bank of Commerce as, in my hand. The Tax Commissioners of NewYork city, I where the opinion was given by Mr. Justice Nelson. The question arose there as to the power of the State of NewYork to tax government securities in the possession of the Bank of Commerce, a corporation of that State and the Supreme Court unanimously decided that a tax could not be levied in an form, from the very nature of the case, on a govern ment security. It. should be remembered, too, that u to the time of this last decision no provision lhad been contained in any loan law expressly declaring that the Government securities should be exempt from State and local taxation. It was decided upon the general principle involved, and without regard to any stipulation made by Congress. This last decision was in 1802, and it was that winter, for the 1st time, that we put in the stipulation in one of our loan laws. The question was asked, why put in this stipulation if the law was so clear? The answer was just as conclusive, that as we were compelled to borrow money it was importantto inform in the most authentic manner all who chose to loan it, of their rights and privileges under the Constitution. No doubt many a man, upon the faith of the direct pledge of Congress, superadded to the decisions of the Supreme Court, loaned us his money in time of war, when he would not have done it if it was to be subject to local taxation. I might. add, if it was necessary to add to these authorities, that the same question was up again during the last term, and again de cided in the same way, in the case I now hold This case was the taxation by the State of NewYork of the shares of a national bank; and a majority of the court drew a distinction between a tax upon n. share in the bank and a tax upon a Government security, and they also based their decision upon the express declaration of Congress that these shares should be taxed. The ChiefJustice, however, and Judge Wayne and Judge Swaync differed, and held that from the nature of the security itself, in any form or sha e the Government security could not be taxe. The majority of the court drew the distinction between the shares in the bank and the bonds held by the bank, and allowed the shares to be taxed. In my judgment, such was the intent of Congress. It was a subject that was very much discussed and mooted here at. the time, and although I was opposed to the tax, yet it was finally car ried. the distinction made by the court was taken by Senators that the taking of shares in a bank was a reinvestment of the funds and a change of the form of security. I say, then. that no Senator should vote against this bill, or any bill of a similar character, on the idea that it is not now wise to exempt Government securities from State taxation. That is the settled principle ofconstitutional law, whether it is put in your laws or not; and the only question is whether by omit ting to put it in you will give the lenders the power to make a better bargain with you.