This section is from the "The Subvention In The State Finances Of Pennsylvania" book, by Frederic B. Garver.
The probable effect of the reckless and unsound financial policy of the state during these years upon the amount and character of the subventions cannot be readily determined. At first sight it would seem likely that the unsuccessful outcome of the venture in public ownership, and the resulting embarrassment of the treasury, would lead to parsimony in state expenditures. Hence the time would be very unfavorable for the introduction of permanent annual subventions.
On the other hand, many of the political events of the time made the period 1826 to 1844 an exceedingly favorable one for the establishment of subventions. The complete confidence of the officials, and of the public generally, in the ultimate success of the canals16 led them to anticipate large profits and to increase state appropriations for practically all purposes during this period. Furthermore, the entrance of the state into the industrial field and the expenditure of large sums on the canals very naturally tended to break down existing prejudices against wider state activity and to justify other forms of public enterprise not previously engaged in.
The development of an adequate state tax system at this time would, of course, have made subventions possible and would, in large part, have avoided bankruptcy during the period 1842 to 1844. The failure to levy taxes was due, in part, as has been stated, to the belief that the people were either unable to bear heavy taxation, or that they were unwilling to submit to it. And the politicians, who were very much interested in the advancement of the internal improvement schemes, naturally feared to endanger the popularity of such projects by levying obnoxious direct taxes to pay interest on money borrowed for the construction of the improvements. Again, the state was embarrassed by its inability to collect the taxes that were levied, even when it needed them most. At no time before the tax act of 1844 was passed did the central treasury have machinery adequate for the collection of direct taxes, and even after that date, the development of such machinery required much time and many amendatory acts to put it in smooth running-order. The following quotation from the annual message of Governor Porter, in 1844, illustrates the inefficiency of collection: "The amount of taxes levied and paid into the State Treasury, under existing laws was as follows: In the year 1841, the amount levied was $416,794.85; there was paid into the treasury during that year $33,292.77. In 1842, the tax levied was $659,512.47; the amount paid in the same year was $486,635.85. In 1843, the amount levied cannot be ascertained with accuracy, in consequence of failures on the part of county commissioners in several counties to make returns to the proper office; but making an estimate from the best data that can be obtained, it will not fall short of $945,000,00. The tax paid into the treasury the past year was $553,911.38. " *17 The governor also explained that he had no means of enforcing the execution of the tax laws in those counties where local negligence or local opposition resulted in inadequate collection. *18
16 For expressions of such belief see messages of governors: Governor Wolf, 1833, Pennsylvania Archives, IV Ser. VI, 125; Governor Ritner, 1836, idem, p. 309. For a less sanguine view see message of Governor Porter, 1840, idem. p. 594.
Without attempting to pass judgment upon the causes of the unfavorable outcome of the Pennsylvania experiment in government ownership of the means of transportation, we may yet characterize the financial policy of the state for the period 1826 to 1844. In the first place the period was marked by a great increase in the activities of the state government. Expenditures for the canals, as compared with previous outlays by the state, were enormous; payments for general government also grew rapidly; and a spirit of optimism and of liberality pervaded the legislature and other branches of government. How important was the influence of the large expenditures for the public works in accustoming the people to more liberal appropriations for other departments cannot, of course, be determined, but it is safe to say that when millions were paid out annually for canals, less attention would be given to smaller payments, even though they were characterized by extravagance and by inadequate control.
The second characteristic of the period was the method employed to raise funds to meet these increasing expenditures. The role of the direct taxes was still a minor one, and the state depended for its receipts upon loans, upon bonuses paid by the Bank of the United States, and upon the surplus deposited with the commonwealth by the federal government. The people were not made to feel, by heavy direct taxation, the effect of large expenditures. The principal check upon extravagance known to public finance was thus absent.
In the third place the spirit of optimism and financial irresponsibility that seemed to pervade the entire community led in public as well as in private finance, to a growing disregard for the principles of sound accounting and of commonsense business practice.
It is evident that in so far as the financial policy of the state involved indiscriminate appropriations the way was open for both permanent and occasional grants. Furthermore, the aversion of the people to local direct taxation would naturally lead those who sought to introduce new local services, or to develop existing ones, to appeal to the more liberal state government for aid. And finally the lack of responsibility in state finances would permit the establishment of such subventions as were introduced without the application of central audit or control.
17 Pennsylvania Archives, IV Ser. VI, p. 994.