Twenty Years of Congress, Vol. 1 / From Lincoln to Garfield, with a Review of the Events Which Led to the Political Revolution of 1860

by James Gillespie Blaine

THE INTERNAL-REVENUE SYSTEM.

Grateful as was the relief to the people from legal-tender notes, it was apparent to Congress that a government cannot, any more than an individual, maintain a state of solvency by the continuous issuing of irredeemable paper. Money must not merely be promised, it must be paid. The Government therefore required a strong, efficient system of taxation—one that would promptly return large sums to the Treasury. From customs, an increasing revenue was already enriching the Government vaults, but the amount derivable from that source was limited by the ability of the people to consume foreign goods, and wise economists did not desire an enlarged revenue the collection of which was at war with so many domestic interests. The country therefore turned by common instinct to a system of internal duties,—to incomes, to excise, to stamps. In the extra session of the preceding year, Congress had, by the Act of August 5, 1861, laid the foundation for a system of internal revenue by providing for a direct tax of twenty millions of dollars on the real estate of the country, and for an income tax of three per cent. on all incomes in excess of eight hundred dollars per annum. But the appointment of assessors and collectors under the bill had been postponed "until after the second Tuesday of February, 1862," which was practically remanding the whole subject to the further consideration of Congress before any man should be asked to pay a dollar of tax under the law. The intervening months had not decreased but had on the contrary largely developed the necessities of the National Treasury, and enhanced the necessity of a stable revenue system. The exigency had become so great that Congress was compelled for the first time in our history, to resort to the issue of government notes as a legal-tender currency. Promptness and decision were essential to the preservation of the National credit. The sources, the extent, the limitations of the taxing power were closely examined by Secretary Chase in his report and the subject was remanded to Congress for determination.

The Constitution gives to Congress to power to levy imposts, and prohibits it to the States. It gives also to Congress the power to levy internal taxes and excises, leaving to the States the right to do the same. It is one of the traditions of the Convention which met in Philadelphia in 1787 to frame the Federal Constitution, that Mr. Hamilton remarked in a conference of its leading members that if the power to levy impost and excise should be given to the new government, it would prove strong and successful. If the power were not to be given he did not desire to waste his time in repeating the failure of the old Confederation, and should return at once to New York. It was undoubtedly his influence which secured the wide and absolute field of taxation to the General Government. He well knew that direct taxes are onerous, and as the majority insisted on levying them in proportion to population, as in the old Confederation, their use as a resource to the General Government was practically nullified. Such a system involved the absurdity that men taken per capita average the same in respect to wealth, and that one hundred thousand people in New York should pay no more tax than the same number in Arkansas. Statesmen and financiers saw from the first that the direct tax clause in the Constitution would be valuable only in forcing the use of the excise. But for the dread of this, the States would not have yielded all the sources of indirect taxation to the National Government.

When appointed Secretary of the Treasury, Mr. Hamilton insisted upon the prompt levy of excises. He induced the first Congress to lay a tax on all distilled spirits. If made from molasses or sugar or other foreign substance, the tax should be from eleven to thirty cents per gallon according to the percentage above or below proof. If made from domestic products, the tax should be from nine to twenty-five cents per gallon. The first was practically a tax on rum, the second on whiskey. This excise was followed in subsequent years by duties on carriages, on snuff, on property sold at auction, on refined sugar, and by the sale of stamps. Other articles were in after years added to the list, and to aid the Treasury during the period of the second war with Great Britain, a heavy imposition of internal duties was resorted to as the most prompt and efficient mode of replenishing the hard pressed Treasury.