permission of foreign ship-owners and foreign governments to send them where we will.

With a view to meeting these pressing necessities of our commerce and availing ourselves at the earliest possible moment of the present unparalleled opportunity of linking the two Americas together in bonds of mutual interest and service, an opportunity which may never return again if we miss it now, proposals will be made to the present Congress for the purchase or construction of ships to be owned and directed by the government similar to those made to the last Congress, but modified in some essential particulars. I recommend these proposals to you for your prompt acceptance with the more confidence because every month that has elapsed since the former proposals were made has made the necessity for such action more and more manifestly imperative. This need was then foreseen; it is now acutely felt and everywhere realized by those for whom trade is waiting but who can find no conveyance for their goods. I am not so much interested in the particulars of the programme as I am in taking immediate advantage of the great opportunity which awaits us if we will but act in this emergency. In this matter, as in all others, a spirit of common counsel should prevail, and out of it should come an early solution of this pressing problem.

There is another matter which seems to me to be very intimately associated with the question of national safety and preparation for defense. That is our policy towards the Philippines and the people of Porto Rico. Our treatment of them and their attitude towards us are manifestly of the first consequence in the development of our duties in the world and in getting a free hand to perform those duties. We must be free from every unnecessary burden or embarrassment; and there is no better way to be clear of embarrassment than to fulfil our promises and promote the interests of those dependent on us to the utmost. Bills for the alteration and reform of the government of the Philip

pines and for rendering fuller political justice to the people of Porto Rico were submitted to the sixty-third Congress. They will be submitted also to you. I need not particularize their details. You are most of you already familiar with them. But I do recommend them to your early adoption with the sincere conviction that there are few measures you could adopt which would more serviceably clear the way for the great policies by which we wish to make good, now and always, our right to lead in enterprises of peace and good will and economic and political freedom.

The plans for the armed forces of the nation which I have outlined, and for the general policy of adequate preparation for mobilization and defense, involve of course very large additional expenditures of money,-expenditures which will considerably exceed the estimated revenues of the government. It is made my duty by law, whenever the estimates of expenditure exceed the estimates of revenue, to call the attention of the Congress to the fact and suggest any means of meeting the deficiency that it may be wise or possible for me to suggest. I am ready to believe that it would be my duty to do so in any case; and I feel particularly bound to speak of the matter when it appears that the deficiency will arise directly out of the adoption by the Congress of measures which I myself urge it to adopt. Allow me, therefore, to speak briefly of the present state of the Treasury and of the fiscal problems which the next year will probably disclose.

On the thirtieth of June last there was an available balance in the general fund of the Treasury of $104,170,105.78. The total estimated receipts for the year 1916, on the assumption that the emergency revenue measure passed by the last Congress will not be extended beyond its present limit, the thirty-first of December, 1915, and that the present duty of one cent per pound on sugar will be discontinued after the first of May, 1916, will be $670,365,500. The balance of June last and these estimated revenues come,

therefore, to a grand total of $774,535,605.78. The total estimated disbursements for the present fiscal year, including twenty-five millions for the Panama Canal, twelve millions for probable deficiency appropriations, and fifty thousand dollars for miscellaneous debt redemptions, will be $753,891,000; and the balance in the general fund of the Treasury will be reduced to $20,644,605.78. The emergency revenue act, if continued beyond its present time limitation, would produce, during the half year then remaining, about forty-one millions. The duty of one cent per pound on sugar, if continued, would produce during the two months of the fiscal year remaining after the first of May, about fifteen millions. These two sums, amounting together to fifty-six millions, if added to the revenues of the second half of the fiscal year, would yield the Treasury at the end of the year an available balance of $76,644,605.78.

The additional revenues required to carry out the programme of military and naval preparation of which I have spoken would, as at present estimated, be for the fiscal year 1917, $93,800,000. Those figures, taken with the figures for the present fiscal year which I have already given, disclose our financial problem for the year 1917. Assuming that the taxes imposed by the emergency revenue act and the present duty on sugar are to be discontinued, and that the balance at the close of the present fiscal year will be only $20,644,605.78, that the disbursements for the Panama Canal will again be about twenty-five millions, and that the additional expenditures for the army and navy are authorized by the Congress, the deficit in the general fund of the Treasury on the thirtieth of June, 1917, will be nearly two hundred and thirty-five millions. To this sum at least fifty millions should be added to represent a safe working balance for the Treasury, and twelve millions to include the usual deficiency estimates in 1917; and these additions would make a total deficit of some two hundred

and ninety-seven millions. If the present taxes should be continued throughout this year and the next, however, there would be a balance in the Treasury of some seventysix and a half millions at the end of the present fiscal year, and a deficit at the end of the next year of only some fifty millions, or, reckoning in sixty-two millions for deficiency appropriations and a safe Treasury balance at the end of the year, a total deficit of some one hundred and twelve millions. The obvious moral of the figures is that it is a plain counsel of prudence to continue all of the present taxes or their equivalents, and confine ourselves to the problem of providing one hundred and twelve millions of new revenue rather than two hundred and ninety-seven millions.

How shall we obtain the new revenue? We are frequently reminded that there are many millions of bonds which the Treasury is authorized under existing law to sell to reimburse the sums paid out of current revenues for the construction of the Panama Canal; and it is true that bonds to the amount of approximately $222,000,000 are now available for that purpose. Prior to 1913 $134,631,980 of these bonds had actually been sold to recoup the expenditures at the Isthmus; and now constitute a considerable item of the public debt. But I, for one, do not believe that the people of this country approve of postponing the payment of their bills. Borrowing money is short-sighted finance. It can be justified only when permanent things are to be accomplished which many generations will certainly benefit by and which it seems hardly fair that a single generation should pay for. The objects we are now proposing to spend money for cannot be so classified, except in the sense that everything wisely done may be said to be done in the interest of posterity as well as in our own. It seems to me a clear dictate of prudent statesmanship and frank finance that in what we are now, I hope, about to undertake we should pay as we go. The people of the country are entitled to know just what burdens of

taxation they are to carry, and to know from the outset, now. The new bills should be paid by internal taxation.

To what sources, then, shall we turn? This is so peculiarly a question which the gentlemen of the House of Representatives are expected under the Constitution to propose an answer to that you will hardly expect me to do more than discuss it in very general terms. We should be following an almost universal example of modern governments if we were to draw the greater part or even the whole of the revenues we need from the income taxes. By somewhat lowering the present limits of exemption and the figure at which the surtax shall begin to be imposed, and by increasing, step by step throughout the present graduation, the surtax itself, the income taxes as at present apportioned would yield sums sufficient to balance the books of the Treasury at the end of the fiscal year 1917 without anywhere making the burden unreasonably or oppressively heavy. The precise reckonings are fully and accurately set out in the report of the Secretary of the Treasury which will be immediately laid before you.

And there are many additional sources of revenue which can justly be resorted to without hammering the industries of the country or putting any too great charge upon individual expenditure. A tax of one cent per gallon on gasoline and naphtha would yield, at the present estimated production, $10,000,000; a tax of fifty cents per horsepower on automobiles and internal explosion engines, $15,000,000; a stamp tax on bank cheques, probably $18,000,000; a tax of twenty-five cents per ton on pig iron, $10,000,000; a tax of twenty-five cents per ton on fabricated iron and steel probably $10,000,000. In a country of great industries like this it ought to be easy to distribute the burdens of taxation without making them anywhere bear too heavily or too exclusively upon any one set of persons or undertakings. What is clear is, that the industry of this generation should pay the bills of this generation.