When Congress met in special session under the call of Mr. Lincoln July 4, Secretary Chase found it necessary to declare that while the laws still permitted loans amounting to $21,393,450, the authority was unavailable because of the limitation that the securities, whether bonds or Treasury notes, should be issued only at par, on the basis of six per cent. interest. Practically therefore no power existed to borrow money. While, on the first of the month then current, there was a nominal balance in the Treasury of $2,355,635, charges by reason of appropriations for the account of the preceding fiscal year were outstanding to the extent of $20,121,880. The short loans already made, constituted also an immediate claim, and these amounted to $12,639,861. All these burdens were to be borne in addition to the demands of the year, which, as already demonstrated, would be one of extended military operations and of costly preparations and movements at sea. The total for which the secretary asked that Congress might provide resources, reached according to his estimates the sum of $318,519,581 for the fiscal year. Far-seeing men believed that even this enormous aggregate would fall short of the actual demand.
Mr. Chase proposed that $80,000,000 be raised by taxation, and $240,000,000 by loans. The suggestion was already urged that even a larger proportion of the money needed, should be raised by taxation. But unwillingness to create friction and opposition doubtless entered into the considerations which determined the recommendations of the secretary. He proposed to rely upon the tariff for a large share of the basis of credit, and, while adding to its provisions, to impose a direct tax, and to levy duties upon stills and distilled liquors, on ale and beer, on tobacco, spring- carriages, bank-notes, silver ware, jewellery, and legacies.
Congress made haste to consider and substantially to carry out the recommendations of Secretary Chase. The legislators were not inclined to go farther than the head of the Treasury suggested. No practical proposition was made for a broader scheme of taxation. The tariff, as has been indicated, was enlarged. A bill was passed, levying a direct tax of $20,000,000, to be apportioned among all the States, of which the sum of $12,000,000 was apportioned among the States which had not seceded from the Union. Instead of the scheme of internal taxes which Mr. Chase had proposed, an income tax was substituted, to be collected on the results of the year ending April 1, 1862, and assessed at three per cent. on all incomes in excess of $800; but before any collections were made under it, the broader internal-revenue system went into effect. Direct taxes had been tried in 1800 and again in 1814, but the receipts had always been disappointing. The results under Secretary Chase's proposition were altogether unsatisfactory; and on the 1st of July, 1862, an Act was passed limiting the tax to one levy previous to April 1, 1865, when the law should have full force. The estimates of collections were set at $12,000,000 annually, or very near that sum. For four years, 1862-1865 inclusive, the receipts were only $4,956,657: in 1867 they became $4,200,233, and then dribbled away.
THE NATIONAL LOAN ACT OF JULY, 1861.
Inadequate as is now seen to be the legislation of 1861 with reference to actual revenue, the receipts fell far below the calculations of experts. For the fiscal year 1862 the customs amounted to only $49,056,397, and the direct tax to $1,795,331; and the total receipts, excluding loans, were only $51,919,261 instead of $80,000,000, as expected under the estimates of the Treasury. The plea may perhaps be pressed in defense of Congress, that financial legislation, laggard as it was, ran before popular readiness to raise money by taxes. There was a wide-spread opposition among the strongest advocates of the war, to all measures which would, at an early stage, render the contest pecuniarily oppressive, and hence make it unpopular.
President Lincoln in his message at the opening of the special session had called upon Congress for $400,000,000 in money, and 400,000 men. Mr. Chase's figures were $320,000,000. He doubtless deemed it wise to ask for no more than Congress would promptly grant. As the struggle proceeded, it was demonstrated that those calculated most justly who relied most completely on the popular purpose to make every sacrifice to maintain the national integrity. This was however the period of depression after the first battle of Bull Run, of hesitation before casting every thing into the scale for patriotism.
The eloquent fact about the Loan Bill is that Congress made haste to enact it. It was introduced into the House of Representatives on the 9th of July. On the next day Mr. Stevens, chairman of the Ways and Means Committee, called up the bill, and, upon going into committee of the whole, induced the House to limit general debate to one hour. In the committee the entire time was occupied by Mr. Vallandigham of Ohio, in criticism on the President's message and on the general questions involved in the prosecution of the war. Mr. Holman of Indiana addressed to the gentleman from Ohio two inquiries bearing on the purpose of the latter to aid in maintaining the Union. No response was made to the speech of Mr. Vallandigham. The committee rose, and the bill was passed by a vote of 105 to 5. In the Senate no discussion took place, certain amendments looking to the perfection of the measure were adopted, and the bill was passed without division. The House at once concurred in the Senate amendments, and the act was consummated by which the first of the great war loans was authorized.
This Act became law on the 17th of July. Its provisions created a system by which the Secretary of the Treasury might offer bonds not exceeding $250,000,000 in the aggregate at seven per cent. interest, redeemable after twenty years; or he might issue Treasury notes payable three years after date, and bearing seven and three- tenths per cent. interest,—the notes not to be of less denomination than fifty dollars. A separate section permitted the secretary to offer not more than $100,000,000 abroad, payable in the United States or in Europe. The same Act authorized for a part of the sum not exceeding $50,000,000, the exchange for coin or the use in payment of salaries or other dues, of notes of less denomination than fifty dollars but not less than ten dollars, and bearing interest at the rate of three and sixty-five one-hundredths per cent. payable in one year; or these might be payable on demand and without interest. This loan might therefore be in bonds for sale in this country or in a different form for sale abroad; or, second, it might be in Treasury notes of not less than fifty dollars each, bearing seven and three-tenths per cent. interest; or, third, a part of the loan not exceeding $50,000,000 might be in notes of even as low denomination as ten dollars at three and sixty-five one-hundredths per cent.; and, finally, this latter part might be in notes without interest payable on demand. The bonds were to run at least twenty years; the seven-thirties three years; and the three-sixty-fives were payable in one year, and exchangeable into seven-thirties at the pleasure of the holder. A supplementary Act was passed Aug. 5, 1861, which permitted the secretary to issue six per cent. bonds, payable at the pleasure of the United States after twenty years, and the holders of seven-thirty notes were allowed to exchange their notes for such bonds. The minimum of the denominations of Treasury notes was reduced to five dollars, and all the demand notes of less denomination then fifty dollars were receivable for payment of public dues. By Act of Feb. 12, 1862, the limit of demand notes was raised to $60,000,000. In this modified form the statute directed the movements of the Treasury during the autumn of the first year of the Rebellion.
SECRETARY CHASE'S REPORT, 1861.
In his report, dated December 9, 1861, the Secretary of the Treasury related the steps which he had taken to raise money under these laws. Mr. Chase informed Congress that "his reflections led him to the conclusion that the safest, surest, and most beneficial plan would be to engage the banking institutions of the three chief commercial cities of the seaboard to advance the amounts needed for disbursement in the form of loans for three years' seven-thirty bonds, to be reimbursed, as far as practicable, from the proceeds of similar bonds, subscribed for by the people through the agencies of the national loan; using, meanwhile, himself, to a limited extent, in aid of these advances, the power to issue notes of smaller denominations than fifty dollars, payable on demand." Representatives of the banks of New York, Boston, and Philadelphia united to give moneyed support to the government. The secretary opened books of subscription throughout the country. The banks subscribed promptly for $50,000,000, paying $5,000,000 at once in coin, and agreeing the pay the balance, also in coin, as needed by the government. For this loan the banks received seven-thirty notes, and the proceeds of the popular loan were transferred to them. The sales to the public amounted to little more than half that sum; but the banks, when called upon, made a second advance of $50,000,000. By these and other agencies, Mr. Chase was able to present an encouraging summary of the Treasury operations.