A system of measures by which to obtain a revenue from direct taxes and duties was commenced at the first session of Congress under the provisional Government. The officers who, at the time of the adoption of the provisional Constitution, held any office connected with the collection of the customs, duties, and imposts in the several States of the Confederacy, or as assistant treasurers intrusted with the keeping of moneys arising therefrom, were continued in office with the same powers and subject to the same duties. The tariff laws of the United States were continued in force until they might be altered. The free list was enlarged so as to embrace many articles of necessity; additional ports and places of entry were established; restrictive laws were repealed, and foreign vessels were admitted to the coasting-trade. A lighthouse bureau was organized; a lower rate of duties was imposed on a number of enumerated articles, and an export duty of one eighth of one cent per pound was imposed on all cotton exported in the raw state. At the second session, in May, a complete tariff law was enacted, with a lower scale of duties than had previously existed. On August 19, 1861, a war-tax of fifty cents on each hundred dollars of certain classes of property was levied for the special purpose of paying the principal and interest of the public debt, and of supporting the Government. The different classes of property on which the tax was levied were as follows: real estate of all kinds; slaves; merchandise; bank-stocks; railroad and other corporation stocks; money at interest, or invested by individuals in the purchase of bills, notes, and other securities for money, except the bonds of the Confederate States, and cash on hand, or on deposit; cattle, horses, and mules; gold watches, gold and silver plate, pianos, and pleasure-carriages. There were some exemptions, such as the property of educational, charitable, and religious institutions, and of a head of a family having property worth less than five hundred dollars. An act was passed for the sequestration of the property of alien enemies, as a retaliatory measure, to offset the confiscation act of the United States.
On April 24, 1863, a new act was passed relative to internal or direct taxes. It was designed to reach, as far as practicable, every resource of the country except the capital invested in real estate and slaves, and, by means of an income-tax and a tax in kind on the produce of the soil, as well as by licenses on business occupations and professions, to command resources sufficient for the wants of the country. On February 17, 1864, an amendment to this last-mentioned act was passed. It levied additional taxes on all business of individuals, of copartnerships and corporations, also on trades, sales, liquor-dealers, hotel-keepers, distillers, and a tax in kind on agriculturists. On June 10, 1864, an act was passed which levied a tax equal to one fifth of the amount of the existing tax upon all subjects of taxation for the year.
Within six months after the passage of the war-tax of August 19, 1861, the popular aversion to internal taxation by the General Government had so influenced the legislation of the several States that only in South Carolina, Mississippi, and Texas were the taxes actually collected from the people. The quotas of the remaining States had been raised by the issue of bonds and State Treasury notes. The public debt of the country was thus actually increased instead of being diminished by the taxation imposed by Congress.
At the first and second sessions of Congress in 1862 no means were provided by taxation for maintaining the Government. The legislation was confined to authorizing further sales of bonds and issues of Treasury notes. An obstacle had arisen against successful taxation. About two thirds of the entire taxable property of the Confederate States consisted in land and slaves. Under the provisional Constitution, which ceased to be in force on February 22, 1862, the power of Congress to levy taxes was not restricted by any other condition than that "all duties, imposts, and excises should be uniform throughout the States of the Confederacy." But in the permanent Constitution, which took effect on the same day (February 22d), it was specially provided that "representatives and direct taxes shall be apportioned among the several States according to their respective numbers, which shall be determined by adding to the whole number of free persons—including those bound to service for a term of years, and excluding Indians not taxed—three fifths of all slaves." According to the received construction of the Constitution of the United States, which had been acquiesced in for sixty years, taxes on lands and slaves were direct taxes. In repeating, without modification, in our Constitution this language of the United States Constitution, our Convention necessarily seems to have intended to attach to it the meaning which had been sanctioned by long and uninterrupted acquiescence—thus deciding that taxes on lands and slaves were direct taxes. Our Constitution further ordered that a census should be made within three years after the first meeting of Congress, and that "no capitation or other direct tax shall be laid, unless in proportion to the census or enumeration hereinbefore directed to be taken."
So long as there seemed to be a probability of being able to carry out these provisions of the Constitution fully, and in conformity with the intentions of its authors, there was an obvious difficulty in framing any system of taxation. A law which should exempt from the burden two thirds of the property of the country would be as unfair to the owners of the remaining third as it would be inadequate to meet the requirements of the public service. The urgency of the need, however, was such that, after great embarrassment, the law of April 24, 1863, above mentioned, was framed. Still, a very large proportion of these resources was unavailable for some time, and, the intervening exigencies permitting of no delay, a resort to further issues of Treasury notes became unavoidable.
The foreign debt of the Confederate States at the close of the war was twenty-two hundred thousand pounds. The earliest proposals on which this debt was contracted were issued in London and Paris in March, 1863. The bonds bore interest at seven per cent. per annum, in sterling, payable half-yearly. They were exchangeable for cotton on application, at the option of the holder, or redeemable at par in sterling, in twenty years, by half-yearly drawings, commencing March 1, 1864. The special security of these bonds was the engagement of the Government to deliver cotton to the holders. Each bond, at the option of the holder, was convertible at its nominal amount into cotton at the rate of sixpence sterling for each pound of cotton—say four thousand pounds of cotton for each bond of a hundred pounds, or twenty-five hundred francs; and this could be done at any time not later than six months after the ratification of a treaty of peace between the belligerents. Sixty days after the notice, the cotton was to be delivered, if in a state of peace, at the ports of Charleston, Savannah, Mobile, or New Orleans; if at war, at points in the interior of the country, within ten miles of a railroad, or a stream navigable to the ocean. The delivery was to be made free of all charges, except the export duty of one eighth of one cent per pound. The quality of the cotton was to be the standard of New Orleans middling. An annual sinking fund of five per cent. was provided for, whereby two and a half per cent. of the bonds unredeemed by cotton should be drawn by lot half-yearly, so as finally to extinguish the loan in twenty years from the first drawing. The bonds were issued at ninety per cent., payable in installments. The loan soon stood in the London market at five per cent. premium. The amount asked for was three million pounds. The amount of applications in London and Paris exceeded fifteen million pounds.
Great efforts had previously been made by agents of the United States Government to reflect upon the credit of the Confederate States, by resuscitating an almost forgotten accusation of repudiation against the State of Mississippi, and especially by an emissary sent to Great Britain, than whom no one knew better how false were the attempts to implicate my name in that charge. The slanderous tongues of Northern hatred even went so far as to style me "the father of repudiation." How unjust all such assertions were, will be manifest by a simple statement of the case.[193]
We should not omit to refer once more to the most prolific source of sectional strife and alienation, which is believed to have been the question of the tariff, or duties upon imports. Its influence extended to and affected subjects with which it was not visibly connected, and finally assumed a form surely not contemplated in the original formation of the Union. In the Articles of Confederation, the first Constitution of the United States, the theory was that of direct taxation, and the manner was to impose upon the States an amount which each was to furnish to the common Treasury to defray expenses for the common defense and general welfare.
During the period of our colonial existence, the policy of the British Government had been to suppress the growth of manufacturing industry. It was forcibly expressed by Lord North in the declaration that "not a hobnail should be made in the American colonies." The consequence was that in the War of the Revolution our armies and people suffered so much from the want of the most necessary supplies that General Washington, after we had achieved our independence, expressed the opinion that the Government should by bounties, encourage the manufacture of such materials as were necessary in time of war.