Popular Science Monthly/Volume 50/April 1897/How Can the Federal Government Best Raise its Revenues?

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Popular Science Monthly Volume 50 April 1897  (1897) 
How Can the Federal Government Best Raise its Revenues?
By David Ames Wells




APRIL, 1897.


THE President of the United States, in one of his recent speeches, was reported as saying: "I can imagine nothing more important than a revenue system that will provide money enough to run the Government. We have not had enough money to run this Government for the past three years, under a false system of political economy. So the question is, How shall we raise that money? Do you want to raise it by direct taxation, by taxing the property and lands or the incomes and wages of the people? [Cries of 'No.'] Well, then, the other way to raise it is by taxing the products that come here from Europe in competition with American products."

Assuming the above authoritative utterance as in the nature of a text from which deductions are both warranted and desirable for the purpose of popular instruction, the following points ought to commend themselves at the outset to the American people for consideration: First. Notwithstanding the great and urgent necessity of currency reform, the need of providing a speedy, certain, adequate, and proper revenue for the Federal Government is of immediate importance. Second. No nation exists, or ever has existed, which has such great resources and facilities for obtaining an ample and certain revenue with so little of friction and annoyance to its people and with such a minimum of expense. The amount of our national debt is not alarming, and ought not to be a source of anxiety. As a matter of fact, the United States, notwithstanding its present fiscal disturbance, is in a better financial condition than any of the other great nations of the world, with the exception of Great Britain and Germany. The United States, Great Britain, and Germany are the only governments that within the last twenty years have notably reduced their national debts; all the other nations have notably increased their indebtedness — France, Russia, and Italy taking the greatest relative lead. In every instance the recent increase in the indebtedness of nations is mainly referable to prospective war expenditure, a contingency from which the United States ought to be entirely exempt; for it is as certain as anything in the future can be, that the United States will never enter into war with any foreign country unless unnecessarily provoked. But this is not the opinion of military men, who as a rule rarely look beyond their profession, and of others who desire war with anybody and on any account by reason of prospective personal agrandizement, or increased opportunities for money gain that war would bring to them, conjointly with increased fiscal burdens upon the masses of the people. From March, 1885, the beginning of Mr. Cleveland's first administration, to March, 1889, the public debt was reduced $341,448,449.20, while Mr. Harrison's administration paid off $236,527,660.10. Circumstances, however, for which the second administration of Mr. Cleveland was not responsible, namely, the advocacy of the so-called "silver policy," which impaired national credit, and a Federal Congress which authorized great and unnecessary expenditures, have caused an increase in the bonded or interest-bearing public debt during the three years from 1894 to 1897 of $262,000,000. But this, in view of the resources of the nation, is not a matter for national disquietude; more especially when it is remembered that the uncovered demand (non-redeemable) debt of the nation was at the same time greatly lessened by the accumulation of redeemable instrumentalities in the national Treasury.

Third. Notwithstanding such favoring fiscal conditions, the Federal Government is now and has been for some time past in default of sufficient revenue to defray its current expenditures. For the fiscal year 1890, with an average rate of taxation of $4.74 per capita, its revenues were $105,344,000 in excess of expenditures. In 1895, with an increase in population over 1890 of about 8,000,000 and an average per capita rate of taxation of $6.21, the receipts of national revenue fell short of defraying national expenditures to the extent of $42,805,000.

Fourth. Taxes levied for protection — i. e., for the purpose of reducing imports or narrowing the basis on which customs taxes are levied — can not be rightfully regarded as taxes for revenue. No one will deny that to get revenue from customs we must have imports of dutiable goods. And yet, while admitting this as a general principle, the majority of the men who appear before the "Ways and Means" Committee of Congress generally ask for prohibitory duties on the importation cf articles that compete with their own products. To the extent that protection is made absolute, to just that extent the customs revenue will be destroyed.[1]Taxes levied on the importation of commodities that the country does not produce accrue entirely to the benefit of the national Treasury. Taxes levied on the importation of commodities which compete with domestic products are paid by the people, but benefit the Treasury to a very limited extent or not at all. For example, when in 1869 a tax of five cents per pound was imposed on the import of crude or unmanufactured copper, the customs revenue that accrued to the Government in one year (1879) was only five cents; but the taxes levied on the American people through the increase in the price of domestic copper, and effected mainly through the agency of a gigantic monopoly, aggregated millions during the same period.

One almost insuperable obstacle in the way of formulating and instituting a correct system of revenue which pertains to the Federal Government of the United States, does not find a parallel in the administration of the government of' any other country in which its people are allowed to participate. As a rule, in such other countries political antagonisms, however bitter they may be on the part of legislators, do not embrace or extend to the business of raising the revenues which are considered essential for the support of the state, although no system of revenue has ever been devised, or probably ever can be, that will not to a greater or less degree be made the subject of popular complaint. In this connection the methods adopted as the result of long experience by the British Parliament for raising revenue and authorizing expenditure in anticipation of the necessities of each succeeding year, are most pertinent, and substantially as follows:

The British fiscal year commences on the 1st of April. In the course of the preceding six months the estimates of expenditures for the ensuing year are prepared with great detail by the heads of the different departments of the Government and submitted to the Chancellor of the Exchequer, who corresponds to the United States Secretary of the Treasury. This official, who is always a member of Parliament, after giving the subject careful study and deliberation, communicates the result to the full Cabinet; and then, with its concurrence, which is regarded as an assumption of responsibility on the part of the existing Government, makes what is called a "Budget" speech in the House of Commons, giving his estimates of the prospective receipts of revenue for the ensuing year, and proposing such changes both in respect to revenue and expenditure as the Government may think advisable. The House of Commons next, and at an early day, resolving itself into a Committee of the Whole under the name of "The Ways and Means," discusses generally the proposed estimates and changes, and at a subsequent period, resolving itself into what is called "The Committee of Supply," decides what services shall be undertaken. In this committee the Secretary of State for War and the First Lord of the Admiralty generally move the adoption of the estimates for the army and navy which the Government has submitted, and preface their motions with a statement of the general condition of their respective departments. The conclusions arrived at in committee, are next reported to the House of Commons, and embodied in a bill known as the "Inland Revenue and Customs Bill;" which, after passing both Houses of Parliament and receiving the "royal assent," becomes the act regulating the collection of revenues for the ensuing fiscal year. Most of the British taxes are levied under the authority of permanent acts. Some, however, as the duty on tea and the income tax, are only granted for limited periods. Certain expenditures, also, are sanctioned by legislation once and for all, and are not revoted every year; such as the interest on the public debt, the "dotation" of the Crown, the salaries of the judges, ambassadors, and other high officials, pensions, and compensations to which the public faith has been pledged. Should any unforeseen demands for large expenditures arise subsequent to the passage of the general revenue bill, supplementary estimates are presented to Parliament by the ministry. This, however, only happens when the deficiency is large. When the deficiency is small — as, for example, if the war office finds it necessary to incur certain expenditures in its branch of the service not provided for in the general estimates and bill — it must apply to the Treasury, stating the circumstances, for leave to meet the expenditures by drawing on any surplus that may accrue in other departments of the Government, with the exception that the navy appropriation can not be applied to meet army expenditures, and vice versa. Such permissions, if granted, are only temporary. They are reported to Parliament at the earliest opportunity, and a vote sanctioning its proceedings is asked by the Treasury. When any tax or duty is changed by act of Parliament, the Treasury authorizes the Inland Revenue and Customs officials to levy the modified rates in a manner that seems to them most expedient.

Any surplus of income over expenditure for any year is devoted to the diminution of the public debt, but so carefully and with such system is the business of collecting and of its expending revenue conducted by the British Government, that except under very unusual conditions, the two accounts, separately aggregating at present about $450,000,000 per annum, balance each other with almost marvelous closeness. Thus, for the fiscal year 1893-’94, a period of great fiscal disturbance and trade depression, the revenue collected and expended was within one half of one per cent, in a total of $450,000,000, of the budget estimate, while the amount of revenue paid out to meet expenditures was about one quarter of one per cent less than the estimates; the whole constituting a most striking testimonial, first, of the solidity of the British financial system, and, secondly, of the great sagacity and experience of the able permanent officials on whom the financial administration of the greatest empire and government of the world mainly depends.

Recognizing also that a rigorous supervision of the governmental estimates and warrant for expenditures by the House of Commons is not possible under the circumstances of parliamentary life, an audit department of the civil service has been created, whose business it is to examine the accounts and vouchers of the expenditures in every branch of the public service; and in addition to this, the House of Commons at every session appoints a public accounts committee of its members, consisting of experienced business men, whose duty is to supervise the work of the audit department. Under such a system extravagance, not to speak of peculations, in respect to the public funds is impossible; and general recognition of this fact goes far to explain why the House, irrespective of any political differences of its members, readily grants the sums of money asked by the existing ministry.

There is another feature of the parliamentary government of Great Britain which is well worthy of serious attention on the part of the American public and its representative law makers; and that is, that by a standing order of the House of Commons no member of the House, unless he is charged with the administration of a department, and therefore with the duty of framing the fiscal estimates of such department, can, however eminent, influential, and capable he may be, on his own authority propose in Parliament to grant any sum of public money, however small, to any object, however deserving. The theory of this is, that the Government, which is the ministry in power, is entirely responsible for all public expenditures involving taxation during the term that it is in office; and that to permit private members or political opponents to propose expenditure of the public moneys would not only transfer responsibility from those .who ought to bear it, but would lead to great financial disorder and vast and inexpedient expenditures. The great mass of the civil servants of the British Government are also strictly excluded from seats in Parliament, and until recently were debarred from voting for members; the reason for such provisions being that those who have personal interest in taxation because they have improvable property or incomes from taxes, ought to have no voice, direct or indirect, in the imposition of taxes, on the same principle that judges are considered disqualified for trying cases in which they may have or are presumed to have any personal interest. On the other I hand, in the Federal Congress, where lavish and unexpected grants of public money are constantly made on motions of members not connected with any finance committee, and acting avowedly in behalf of private or local, rather than public, interests; and where the authorization of expenditures is divided among a number of committees so that no group of men is responsible for the aggregate appropriations; it is obviously not; within the power of the executive department of the Government to present and adhere to any previously well-considered scheme of annual taxation and expenditure, or what in most other countries is known as an annual budget.

The following record of recent experiences, which probably could not happen in the legislature of any other civilized country, strikingly illustrates the senseless and costly way in which the fiscal policy of the United States is not infrequently determined. During a comparatively recent fiscal debate in the United States Senate, a Senator advocated certain proposed appropriations of the public money, which were opposed on the ground that they were in the nature of extravagances, by saying that they could not be grievous to the people, "since they would not amount to more than three cents per day per capita." But three cents per day would amount to nearly eleven dollars per head per annum, or over fifty-five dollars for every family of five persons, and there are millions of men and millions of families in the United States whose income is not a dollar a day. Again, how many of the American people are aware that a bill proposing to grant pensions to seventy thousand ex-slaves, on the ground that they were chiefly instrumental in developing the wealth of the country, is reported to be now pending in the United States Senate? Such a bill, if once passed, would establish the principle of pensions for civil service, and by swelling the existing pension list to an inordinate amount would almost justify the assumption, that the main object of a government by the people is the payment of pensions rather than the protection of life and property.

The Prospective Revenue Requirements of the Federal Government. — The aggregate revenues of the Government for the fiscal year 1897-’98 are estimated, on the basis of existing laws, by the Secretary of the Treasury (Report on the State of the Finances, 1896). at $431,327,000; and the estimates of appropriations, exclusive of sinking fund, required for the same period, are $460,916,000; leaving a prospective national deficit of revenue for the next fiscal year of $45,719,000. The total appropriations of the two sessions of the past (fifty-fourth) Congress aggregate $1,043,437,019. Under such circumstances a provision for an annual revenue of more than $500,000,000 is therefore most expedient, and the question at issue of first importance is. How can this sum be raised with the greatest certainty, regularity, and minimum cost to the Government, and with the least inconvenience and friction on the part of the people who will have to provide it? For the Government never has any money — by which alone the expenses of the state can be defrayed — except what the people — citizens or subjects{{—}give or concede to it by voluntary or involuntary action ; while the people, as a whole and in turn, never have any to give except what comes to them as a result of their work, or from an exchange of the products of their work. And such being the case, we are confronted with a homely truth, generally overlooked by writers and legislators on taxation, that what the Government really wants of its people, when it calls upon them for taxes, is work, and that the methods of taxation are only methods for collecting and using the products of work. Furthermore, it ought also to be borne in mind that for every dollar the Government at present expends, the average American citizen must work for at least half a day, or furnish a value equivalent for such an amount of work.[2]

Another matter of almost equal importance for consideration in this connection is the desirability of initiating an adequate revenue system for the national Government, the elements of which shall be rendered in a high degree permanent, by exemption from influences contingent on changes in the political administration, and on temporary commercial and industrial conditions of the country. In fact, it would be difficult to name an influence more certain to be conducive to national prosperity than the realization of such an agency. To obtain a clear understanding of these subjects, the most rational, and indeed the only correct way, is to take up and submit to analysis the most available sources of national revenue, commencing with those that are beyond question the most important. But, preliminary to so doing, attention should be given to the fact that in all civilized nations at the present time the production and consumption of spirits, fermented liquors, and tobacco are recognized as the most legitimate and productive sources from which revenue can be obtained with the minimum of expenes and industrial disturbance. The factors determinative of the productiveness and continued increase of revenue from these sources are mainly two — namely, continued increase of population and continued or increasing ability on the part of the masses to consume. These factors are more influential at the present time in the United States than in any other nation. We are increasing in population in a greater annual ratio than any other country. Our ability to consume, owing to the rapid accumulation and distribution of wealth among the masses, is far greater than that of any other nation. Commercial disturbances and business depressions, which are potent in all other countries in reducing the consumption of luxuries, appear to have comparatively little effect in the United States, and are not of long continuance.

Thus, of the commodities in general use in the United States, the two that have not notably declined in consumption during the almost universal depression of industry in recent years are fermented liquors and manufactured tobacco, more especially in the form of cigarettes.

The single source from which the largest amount of revenue is collected by the Federal Government is distilled spirits, and the experience of the United States in respect to it, although exceedingly curious and interesting, has been but little instructive to either the people or their legislators. From the first imposition of taxes on this commodity under the present revenue system in 1862, unwarranted sentiment, rather than intelligence and regard for the fiscal interest, of the nation, have characterized its treatment. There has been, in the first instance, a comparatively small number of people — 132,871 voting for prohibition in 1895 out of an aggregate of 13,790,572 other voters — who take the position that it is the moral duty of the state to absolutely prevent the manufacture, sale, or use of all alcoholic liquors; a result not possible of attainment except through a radical change in human nature. The results of experience under this head may be briefly summed up as follows : In small communities, where there is a general union of sentiment in favor of extreme temperance, a high degree of prohibition may be temporarily brought about. But, on the other hand, the evidence of the only reliable data available, namely, the tabulated returns of the Internal Revenue Department, which takes cognizance of every gallon of distilled spirits — other than illicit products — manufactured and sold for consumption in the United States, indisputably show, that for the whole country the efforts of the extreme temperance advocates have never exerted any general influence in restraining their manufacture and use; and that, eliminating the temporary influence of hard times and business depressions, the average annual increase in the production and inferential consumption of such spirits, is at a rate equal to or in excess of the average annual increase of population. Thus, during the decade from 1880 to 1889 the aggregate increase in the population of the country and its consumption of tax-paid spirits was nearly concurrent; but from 1888 to 1893 the increase in the production and per capita consumption of spirits was in a ratio much greater than any concurrent increase of population; the whole culminating for the fiscal year 1893 in a tax-paid product of 99,145, 000 gallons, and an average per capita consumption of 1·48 gallons, as compared with a per capita of 1·25 in 1889.

Secondly. We have a general sentiment among both people and legislators, that distilled spirits and alcoholic preparations generally are commodities that can advantageously be made subject to any degree of taxation. If under a given rate the revenue increases, an increase in the rate is held to be desirable; if the revenue falls off, the decrease is attributed to decreased consumption, whereby any loss of revenue is correspondingly compensated by moral advantages. But there is in the enactment of any and every tax a certain rate which, if exceeded, invariably impairs the maximum possible revenue obtainable from it ; and any government that disregards what may be termed the line of wise expediency in fixing such rates, invariably cheats itself and promotes popular immorality. One would think that the experience of the United States had been sufficiently instructive in this matter. But such is not the case. The class of people whom the proverb says "go to the school of experience" have all been there and have paid "high tuition"; they have also exemplified the remainder of the proverb as expressed by Franklin, to wit, that the number of scholars that learn anything in such school "is small, for it is true that we may give advice but can not give conduct." Under such circumstances the following brief notice of some of the lessons that have been taught in this school may be profitable. Thus during the fiscal year 1868, with a tax of two dollars per proof gallon on distilled spirits, the Internal Revenue Bureau in full operation and an annual consumption of the country of at least 60,000,000 gollons, the Government was only able to collect a tax on less than 7,000,000 gallons, leaving to the credit of corruption from the sale of the balance of concurrent annual product, at market rates, of from $80,000,000 to $100,000,000. But with a reduction of the tax to fifty cents per proof gallon the annual revenue, including all taxes on the process of manufacture and sales, increased the first year to $45,000,000, and the second to $55,606,000.

By the Act of August 28, 1894, the rate of tax on distilled spirits, which had been in force for fifteen years and was working satisfactorily, was prospectively advanced from ninety cents to a dollar and ten cents per proof gallon. Note the result. For the first six months of 1894 the average monthly revenue which accrued from the lesser tax was about $8,000,000. Then the prospective profits from the increase of the tax were anticipated to such an extent by speculators, that the revenue increased during the month of July and for the first twenty-seven days of August to $19,064,000 and $31,470,000 respectively, representing an aggregate gift to the speculative interest of about $24,000,000. The increased rate of tax having become operative, the revenue for the month of September declined to the comparatively small sum of $510,696. Stated generally, the total receipts from the direct tax of ninety cents per proof gallon during the fiscal year 1893 was $89,231,000; for 1894, with increased rate for part of the year, it was $79,862,000; for 1895, $74,741,000 ; for 1896, $75,327,897. That a considerable part of this recent decline has been due to a contemporaneous depression of the business of the country is beyond question; but what is to be inferred from the following official statement as to the manner in which the decreased production of spirits in the United States distributed itself during the year 1895: decrease in the production of alcohol, neutral or cologne spirits, 16,065,000 gallons; increase in the production of Bourbon whisky, rye and miscellaneous liquors, 6,924,773 gallons? These figures do not include illicit production, which is certainly very considerable; and one effect of the increase of tax in stimulating this business may be inferred from the fact that the number of illicit stills seized and destroyed increased from 1,016 in 1894 to 1,874 in 1895.

Another point of interest in connection with the increase of the rate of taxation on distilled spirits in 1894, and to a certain extent contingent on such increase, is, that the business of manufacturing whisky has been so stimulated, with a resulting over-production, that the average market price of this commodity, exclusive of taxes, has been reported as below the cost of manufacture, and in accordance with this view of the situation nearly all the large distillers of the country have united in suspending operations.

Under a former rate of duty of ten per cent on the importation of diamonds, $100,000 on duties representing a value of $1,000,000 was reported as collected at the single port of New York. With an increase of duty to twenty-five per cent, little or no revenue is derived from that source.

The best and most reliable data for estimating the maximum revenue resulting from the taxation of distilled spirits is to be found in the experience of the Internal Revenue Department for the fiscal years from 1887 to 1893 inclusive. During these years, under a uniform and stable rate of taxation, a good and efficient administration of the law, and a fairly prosperous condition of the country, the average increase in revenue was nearly $5,000,000 ($4,910,000) per annum; the whole culminating in the fiscal year 1893 in a revenue of $89,231,000. In a report made by the writer to the Secretary of the Treasury in July, 1893, the sequel of any increase in the then existing rate of tax (ninety cents), which was at that time to some extent advocated, was foreshadowed in the following language: "It will favor a recurrence of the disgraceful and disastrous results that characterized the period of experimental taxation in the years immediately succeeding the termination of the war. Certain it is also that an anticipation of participation in an increase of the tax would lead to such a production of spirits as to postpone for one or two years any increase in revenue to the Government." It is needless to say that every prediction thus made has been fully verified, and, encouraged by such success, the following anticipations may be warranted: If our legislators in Congress assembled, agreeing to limit all consideration of the subject to the one point of revenue, will reduce the present rate of tax per proof gallon of distilled spirits from $1.10 (about 825 per cent) to the former rate of ninety cents (690 per cent), with no exemptions, and the industry of the country again become fairly prosperous, the average per capita consumption of 1892 and 1893 may be fairly taken as the basis of future estimates from the greatest and most reliable single source of national revenue. Or, in other words, an annual revenue, under such conditions, approximating one hundred millions may be anticipated in 1899, with a certain regular increase contingent on a normal increase in population of from three to four millions additional per annum.

The Alcohol Exemption Proposition. — A brief notice of a proposition to essentially impair the revenue from distilled spirits by exempting alcohol used in comparatively few manufacturing industries and in the preparation of "medicinal and other like compounds" from taxation is here pertinent. The history of this movement constitutes an extraordinary feature in American fiscal experience, and in brief is as follows: When "an act to reduce taxation, to provide revenue for the Government, and for other purposes" (passed August 28, 1894) was under consideration by the United States Senate, and pending a proposition to increase the revenue by increasing a tax of about 680 per cent on the average prime cost of distilled spirits to a rate of nearly 825 per cent, a Senator, apparently utterly oblivious that the subject involved had years before been thoroughly considered by the United States Treasury Department and declared to be impracticable, submitted a motion permitting the use of alcohol in the arts, or in medicinal or other like compounds, without the payment of any internal revenue tax. The motion in question, after a very brief consideration, was accepted and incorporated in the laws of the United States. The result was that the Secretary of the Treasury reported that in default of any appropriation to defray the expenses of administering the act, and an unsuccessful attempt to frame regulations which would protect the Government, the Treasury Department was constrained to abandon the effort and await further action by Congress. It was also estimated that the expense to the Government of attempting to administer the act would probably be not less than one million dollars per annum; that the loss of revenue contingent on its enforcement would be about ten million dollars yearly, and that the loss of revenue from an increased opportunity for illicit and fraudulent practice would also be very considerable.

Under such circumstances Congress, in 1895, repealed the act of exemption, but subsequently a strenuous effort has been made to re-enact it. The main argument adduced in its favor is that the present cost of alcohol would be largely reduced, whereby certain industries which use it as a raw material would be greatly benefited. That such a result would be in accordance with a general economic principle can not be disputed, and, such being the case, the question is pertinent. Why limit the exemption to the one material, alcohol? Why not equally grant exemption to manufacturers who use wool, coal, the various ores and metals, crude tobacco and the like, as raw materials?

As already pointed out, the taxation of distilled spirits constitutes the largest single source of national revenue, and as such, its consideration by legislators, more especially in view of the present fiscal necessities of the Government, ought to be strictly limited to the one point of ascertaining its greatest availability for revenue. The existing tax of 800 per cent on proof spirits and more than 1,200 per cent on its derivative, alcohol, constitutes a temptation to evade payments which human nature as ordinarily constituted can not withstand. Illicit distillation is admitted to be on the increase in the country, and American ingenuity has been active in facilitating it. It is now proposed to further increase temptation by offering an approximate profit of two dollars for every gallon of alcohol that can evade taxation. The annual loss of revenue consequent upon the proposed exemption of alcohol will not be less than $10,000,000 and probably more, all of which, under present revenue necessities, will have to be made good by an equivalent increase of taxation on other commodities.

The circumstance that some of the countries of Europe, especially Great Britain, allow alcohol mixed exclusively with naphtha (methyl), and in very large stipulated quantities, to be exempt from taxation, but the use of which, from the nauseous smell and taste thereby imparted, is exceedingly limited, has no bearing on the situation in the United States. In Europe the process of methylation is conducted under the close supervision of revenue officials, as it must be in the United States. In the former countries the number of grain distilleries, with bonded warehouses attached, where the process must be mainly conducted, is comparatively small. In the United States it is comparatively large; the number operated in the single State of North Carolina in 1895 being largely in excess of the number in the whole of Great Britain. If, in addition to the number of inspectors and gaugers required at the distilleries for an honest administration of the exemption, the number of druggists who use alcohol in medicinal preparations (which has been officially estimated as at least 32,000) and manufacturers of patent medicines are taken into account, the problem confronting the administration of the Internal Revenue Department of the Government might be well characterized as "appalling." In short, if the exact truth in respect to this proposed modification of the taxes on distilled spirits were known, it would probably appear that the people most interested in securing this exemption are the patent-medicine manufacturers, who see a great extension of their business in manufacturing cheap intoxicants without the compulsory use of methyl, under the name of medicinal preparations, and selling them by the bottle from the apothecary's shelf, rather than from the bars of hotels and restaurants. And this assumption finds much of confirmation in the circumstance that in respect to the applications filed in the Treasury for rebates, or damages for the non- execution of the exemption law, which are very considerable, estimated at from $10,000,000 to $19,000,000, the Internal Revenue reports that a large proportion of the claimants are manufacturers of patent medicines, and also to some extent the manufacturers of "mince pies" and candy. Recent investigations instituted and reported by the Massachusetts State Board of Health also show that many of the most noted patent medicines, especially the so-called "blood purifiers," "nerve tonics," and other remedies of like character, contain very large percentages of alcohol by volume — not infrequently from seventeen to twenty-six per cent — which probably accounts in a high degree for their great popularity, and for the wonderful curative results contingent on their use. Country druggists also report a special demand and consumption of these medicinal preparations in towns that have voted " no license," and in which a sentiment in favor of total abstinence predominates.[3]

Again, if the legislative department of the state decides that it would be expedient to establish or stimulate the manufacture of certain commodities, no one under a free Government would venture openly to justify such action, except on the ground that public welfare would be thereby promoted. Suppose, with this purpose in view, it is decided to stimulate the manufacturers of a comparatively few articles by exempting them from certain forms of taxation, would it not be expedient, and the part of a wise fiscal policy, that the state, by proper rules and investigation, should ascertain the rightful amount that would accrue to each claimant from such exemption, and then raise the money to pay it in the same manner as it raises money to defray its other expenses, and not allow private interests to exercise the great sovereign power of taxation by practically determining what the state shall levy and what the people in general shall pay?

Fermented Liquors. — The internal revenue tax on fermented liquors (beer) has been practically uniform since its first authorization in 1863, nominally one dollar per barrel of thirty-one gallons. As, however, a deduction of seven and a half per cent is allowed to brewers on the purchase of stamps, which is assumed to represent the difference between the theoretical barrel unit of thirty-one gallons and the quantity contained in the commercial or trade supply barrel, which, owing to redriving of hoops and repitching, averages from twenty-eight to twenty-eight and a half gallons, the net tax is, accordingly, ninety- two and a half cents, which is made payable in stamps, one of which, "denoting the amount of the tax, shall be affixed upon the spigot hole or tap (of which there shall be but one) in such a way that the stamp shall be destroyed upon the withdrawal of the liquor from the barrel or other receptacle." There is also a special tax, in the nature of a license on brewers, which yielded the Government — in 1896, $163,779 — relatively a small matter. A tax of one dollar per thirty-one gallons is equivalent to 3·225 cents per gallon. On a basis of $5.25 per barrel, the price at which beer of good quality could recently be bought in quantity, or at wholesale, in the city of New York or vicinity, the present tax is about twenty per cent ad valorem. One barrel of thirty-one gallons equals 248 pints or 496 half pints. The present tax on this basis is, therefore, one fifth of a cent per half pint, or per glass as usually sold in saloons for five cents; or two fifths of a cent per pint.

In recent years some of the large industrial establishments of the country have made a practice of furnishing their employees with beer of a good quality at a price but little in excess of the cost of production. In such cases the beer is sold by weight, a pint being regarded as equal to a pound, and a pound as equal to two glasses such as are usually sold in the saloons. From twenty-six to thirty tickets, each representing one pound of beer,are usually sold for one dollar, which makes the average cost to the local consumers of from one and two thirds to one and three fourths cents for a full glass or half pound of beer, and which charge is represented by those competent to express an opinion as sufficient to cover the wholesale price and entire cost of distribution — labor, ice, rent, and light — and leave a fair profit.

The points of interest worthy of special attention in connection with this subject are as follows:

1. The regular and great increase in the quantity of fermented liquors annually made subject to internal revenue taxation — i. e., from 62,205,375 gallons in 1863 to 1,110,609,000 in 1896; an increase in popular consumption very far in excess of the rate of increase in the population of the country — i. e., from 1·86 gallon per head in 1863 to about sixteen gallons in 1896, the latter representing an average consumption of about 100,000 barrels daily.

2. The concurrent regular increase in revenue from this source has been from $1,558,000 in 1863 to $33,784,255 in 1896.

3. As large and costly plants are essential for the manufacture of fermented liquors on a large scale and at the lowest cost, illicit production is thereby rendered difficult, if not impossible; and whatever of fraud upon the revenue exists in this business is undoubtedly due to the non-use or non-cancellation of the stamps which represent prepayment as a condition of sale and consumption.

4. The variations in the product of fermented liquors which the Government has been able to annually subject to taxation since 1863 have been inconsiderable and in remarkable contrast to those occurring in the case of distilled spirits. The average increase in the receipts of internal revenue from this source for the ten years from 1883 to 1892 was about $1,617,000 per annum; the per capita consumption during the same period increasing from 10·25 gallons to 15·05 gallons. Comparing 1894 with 1893, there was a remarkable decrease in revenue in the former year of $1,134,195. Comparing 1895 with 1894, there was a recuperation in receipts to the extent of $225,829; which augmentation in 1896 —  a year of continued great depression in the industry of the country — rose to the large figure of $2,143,617. That this latter ratio of annual increase under the present rate of tax is likely to indefinitely continue is almost demonstrated by the fact that the popularity of fermented or "malt" liquors as beverages among the American people is unquestionably increasing; and also that large, seemingly, as is their present average per capita consumption namely, sixteen gallons the present per capita consumption of the people of several other nationalities is much greater that of the United Kingdom being estimated at thirty gallons; of England and Wales, thirty-six; of Belgium, thirty-two; of the whole of the German Empire, thirty-three; of Bavaria, sixty- two.

An important fact pertinent to the prospective consumption of beer and its permanent value as a source of national revenue is, that the cost of the materials used in its manufacture has decreased in comparatively recent years, in the United States, Great Britain, and probably in other countries characterized by its large consumption, to the extent of at least forty per cent;[4] and the advantage from this change which has accrued to British brewers was stated by the British Chancellor of the Exchequer, in May, 1895, to have been upward of ₤2,000,000 ($10,000,000) per annum.

From this decline in prices, and consequent reduction in the cost of production, the consumer has not been permitted to gain any advantage, the retail price of beer remaining substantially what it was.

All the resulting gains have been intercepted by those connected with the trade, and how well they have fared, some statistics recently given by the British Chancellor of the Exchequer, and which are probably equally applicable to the United States, sufficiently show. "In 1884-’85," he said, "the number of assessments to income tax from brewers was 2,446, and the whole of their profits assessed amounted to ₤6,316,000. Ten years later the number of brewers assessed for income tax was 2,274 —  showing that the smaller brewers were being more and more absorbed by the great concerns — while the amount of assessed profits was ₤10,177,000, showing an increase of sixty per cent in the profits of the brewing trade during those ten years."

If it is desirable at the present time for the Federal Government to increase its annual revenue by additional taxation, it is certain that such a result can not be attained more certainly and with so little of expense, effort, or industrial friction, as by a moderate increase of the tax on fermented liquors. The existing tax (twenty per cent ad valorem) is lower than upon almost any other industrial product entering largely into domestic consumption — spirits paying, for example, eight hundred and forty per cent; tobacco, one hundred and nine; wool, manufactured, fifty-six; iron and steel, forty-eight; breadstuffs, twenty-five; glass, fifty-two, and the like. The business of brewing malt liquors is acknowledged to be one of the most successful of domestic industries, and financial participation in it has in recent years been so attractive to foreign capitalists that it is generally believed that the ownership of a large proportion of the brewing business in the United States has passed into their hands. It is also reasonably certain that in the distribution of industrial products for consumption there is no branch of business that returns a larger profit on the labor and capital employed than the retailing of malt liquors; a small retail store often supporting a large family, besides paying high Federal and State licenses. The data already submitted, which are believed to be reliable, show that beer can be retailed at a profit for one and three quarter cents per glass of a half pint, on which the present tax is one fifth of a cent, yielding a present revenue of about $34,000,000 ($33,784,000) per annum. An increase of the present rate of tax — i. e., from one dollar to two dollars per barrel of thirty-one gallons, or from one fifth to two fifths of a cent to a half-pint glass — might be reasonably expected to at once yield at least $30,000,000 additional per annum, bringing up the present annual revenue from this source to $64,000,000, with a prospective annual increase of $3,000,000; and this without increasing the cost of his beer to the individual consumer or materially diminishing the profits of the brewer or the wholesale or retail dealer.

It remains to briefly notice the reasons that have been popularly urged against any increase in the taxation of fermented liquors. It is said that the brewers already pay a fair share of the expenses of the Government, and "to make them pay more looks like a discrimination against a particular industry." But as the case now stands, the discrimination in respect to taxation is not adverse to the brewing interest but greatly in its favor; and the proposed increase in rate would impose a smaller burden, as has been above shown, than is borne by many other domestic industrial products. Again, it is said that "beer is the poor man's bread,"' and therefore it ought not to be taxed. But if beer is exempted from making a fair contribution to the revenue necessities of the state, the deficiency will be made good by increased taxes on other commodities of general popular consumption, the ultimate incidence of which, if indirect, as they are likely to be, will fall heaviest on the consumer who, by reason of his poverty, is forced to buy in small quantities. The most potent source of opposition, however, to an increased tax on beer is undoubtedly to be found in the popular assumption that "no political party will commit itself to an additional tax of a dollar a barrel on beer, because it is feared that it would involve the loss of too many votes. It somehow happens that beer has a great many friends, and, whether correctly or not, it is apprehended that doubling the tax on it would be resented by a large number of voters." And if partisan politics is to become the essential feature of the revenue system of every popular form of government, as the experience of the United States and of France seems to indicate it will be, nothing further need be said on this subject.

Tobacco. — The present consumption of tobacco in all its forms by the people of the United States will probably average about four pounds per head per annum. The aggregate quantity which the Internal Revenue took cognizance of for taxation in 1896 was 266,215,736 pounds, a gain of 18,136,846 pounds over the aggregate for 1894. The number of cigars and cheroots subjected to taxation preliminary to consumption in 1896, was over four billions (4,237,755,943), an increase over the number assessed in the preceding fiscal year of 73,983,503. As a basis for estimating the revenue prospectively available from this source, the comparative per capita consumption of tobacco in other countries is especially worthy of attention in this connection. For the United Kingdom the amount for 1891, officially reported, was 1·61 pound; France (estimated), 1 45 pound; for the population of the city of Paris, 312 pounds Germany, 412 pounds; Belgium and Holland, 312 pounds. The annual consumption of tobacco in the United States is therefore certainly much greater than in most other countries, and is equaled in not more than one or two. This result may be referred to several agencies: to the greater cheapness of the taxed commodity; to greater ability on the part of the masses to consume it, and to a larger use of tobacco for chewing,[5] the quantity manufactured for this purpose in 1895 being returned at 181,494,000 pounds, as compared with 83,346,000 manufactured for smoking.

From 1863 (when the tax was first imposed on this commodity) to 1869 the variations in the annual internal revenue receipts from tobacco (always in the way of increase) were very great and, as it were, spasmodic, and were due mainly to frequent changes in the rate of tax on the different forms of tobacco. During this same period occurred one of the most remarkable illustrations to be found in fiscal history of the influence of a tax reduction in increasing the consumption of a comparatively cheap commodity in general use. Thus, in 1866, with a uniform tax of ten dollars per thousand on cigars, only 347,443,894 were returned by manufacturers for taxation, while in 1869, under a uniform tax of five dollars per thousand, 991,335,934 were returned, or nearly three times the quantity.

From 1870 to 1882 the ratio of annual increase in the taxed product of domestic tobacco was greater on the average than the corresponding ratio of increase in the population of the country; and in the latter year the annual internal revenue collected from this source attained the large and unprecedented aggregate of $47,391,989.

In 1883 the rates of tax on all forms of domestic tobacco and the special taxes on dealers and manufacturers of the same were reduced fully fifty per cent. This reduction of tax caused an immediate reduction of revenue, comparing the receipts of 1883 with those of 1884, the first full year of reduced rates, to the extent of $21,329,589. In 1886 the tax on cigars was further reduced fifty per cent, and in 1890 the taxes on snuff, chewing and smoking tobacco, twenty-five per cent. At this latter date all special taxes relating to tobacco — i. e., licenses to manufacturers, dealers, etc. — were also entirely repealed. The annual reduction in revenue in consequence of these last abatements, comparing the receipts for 1890 with those for 1892, was near $3,000,000, notwithstanding an increase in population during the same period of 2,897,750. The internal revenue from tobacco for the fiscal year 1896 was $30,711,629, an increase of $1,006,721 over the receipts for 1895, and a decrease of $3,277,372 as compared with the receipts of 1890. Had the taxes on tobacco existing in 1882 been allowed to remain unchanged, the annual revenue from this source (the increase of population being taken into account) for the fiscal year 1897 would probably have approximated $70,000,000.

The United States internal revenue taxes on tobacco are smaller than those imposed by any other country that seeks to make this commodity a leading source of revenue. In the year 1895 they amounted to about forty cents per capita. The duties collected on imports of tobacco for 1895 were $14,916,000, and the total customs and internal revenue yielded by tobacco during the fiscal year 1895 was about $44,000,000, or sixty-eight cents per capita.

In the United Kingdom the taxes on tobacco, mainly on imports and through the customs, are about $1.30 per capita, and yield an annual revenue of about $50,000,000.

In France the taxes on tobacco are reported at $1.71 per capita, yielding an annual revenue of about $65,000,000. In other European countries the per capita taxes on tobacco are reported as follows: Austria, $1.31; Germany, $1.30; Italy, 94 cents; Hungary, 79 cents.

Were the same ratio of taxation on tobacco as exists to-day in the United Kingdom established in the United States, the annual revenue accruing to the Federal Treasury at the present time would be in excess of $90,000,000. If the rates existing in France were adopted, the annual revenue from this source would be $126,000,000.

Whatever may have been the considerations that prompted in recent years the abatement of this important source of national revenue in the United States, it is certain that they were not based on any sound financial policy, or on any lesson of past experience in respect to the best methods of raising revenue. Taxes on tobacco are taxes on a typical luxury. Their payment is not obligatory, as are the taxes on the essentials of living, on any citizen, but are in the nature of a voluntary assessment on the part of the consumer, on whom the entire burden of the tax ultimately rests, and which payments may be properly regarded as representing his surplus income. They are not obstructive to the development of any other industrial product, and there is no evidence that the highest rate ever assessed under the internal revenue has ever been productive of general discontent on the part of the masses of the American people.

The popular argument that a low rate of tax should be imposed on tobacco, because the burden of it falls mainly and disproportionately upon the poorer classes, has no foundation in fact. If the exact facts could be known, it would probably be found that by far the greater portion of the tax is paid by the well-to-do part of the community, who consume the high grades of tobacco. Again, the revenues of the Federal Government are almost exclusively derived from taxes on commodities which are paid by their consumers; and when any deficiency of needed revenue is occasioned by the reduction or entire abatement of the taxes on any one commodity or class of commodities, the deficiency must be made good by new or increased taxes on other commodities, the consumption of which is often more essential to the poorer classes than the article exempted. Thus, for example, the consumer of any class can better afford to pay taxes on his tobacco — in the form of chewing, snuff, smoking, cigars, and cheroots — than he can on foods, fabrics, and the raw materials of his industry. Another point generally overlooked in this discussion, is that when a tax which is direct, as is the tax on tobacco and spirits, is shifted to a supplementary tax which is indirect, the consumer may feel certain that his burden of tax will be augmented very considerably, often to the extent of twenty-five and even fifty per cent, by payment of profits to merchants and other middle men.

Stamps as Sources of Revenue. — The instrumentality of stamps as a means of obtaining revenue, although attended with less friction and expense than almost any other methods, and which was advantageously incorporated in the war system of taxation, can hardly be said to have had a place in recent years in the internal revenue system of the Federal Government; the stamps used in connection with the taxation of distilled spirits, fermented liquors, and tobacco — which are peculiar to the United States and not in use for like purposes in any other country — being rather in the nature of nstrumentalities for facilitating the collection of taxes than independent sources of revenue. In fact, the only strictly revenue-producing stamp tax now existing is the tax of two cents per pack on playing-cards, the receipts from which declined from $382,403 in 1895 (the first year of its imposition) to 259,853 in 1896 — a result that certainly warrants the modified application of an old proverb that, "under a free government, the rulers may propose taxes, but the people will dispose of them."

Under the fiscal system of the British Government (United Kingdom) the revenue which accrued in 1893-’94: from stamps was £12,799,000 ($62,244,000). The sources from which this aggregate of stamp revenue was obtained are numerous and of a character that are not in the main applicable to the fiscal system and Government of the United States, and for the most part are classified as follows : Probate duties; legacy duties; duties on estates, real and personal; succession duties; capital duties on companies; receipts; records; patent medicines; marine insurances, etc.[6] In fact, it is said that you can do nothing of any consequence in Great Britain without a stamp of some kind.

A system of taxation through the instrumentality of stamps can, however, be devised and made a permanent feature of the internal revenue of the United States, which, in respect to facility, economy of administration,[7] and productiveness of revenues, ought to have much to commend itself. A system formulated by discarding, if thought expedient, all stamp taxes on drafts, checks, promissory notes, receipts, releases, matches, etc., as vexatious rather than valuable, and making their fixation and cancellation obligatory on every deed, mortgage, or certificate of stock at the time of their transfer of ownership, by sale or otherwise, at the rate of fifty cents per every thousand dollars of their face value, and every fractional part thereof, would be highly productive of revenue and have much otherwise to recommend it. A man that sells or transfers a farm or mortgage, or a certificate of stock, for $10,000, would not think a stamp of five dollars very burdensome. In its applicability to the purchase and sale of real estate it would have the characteristics of a land tax, the incidence of which, although always and necessarily equitable, proportionate, and free from anything like discrimination, would be the lightest on lands uncultivated or devoted to agriculture, and heaviest on lands at the great centers of population and trade, for the purchase of which its surface must be, as it were, always covered with gold.[8] It probably would not be agreeable to speculators in stocks, to the creators of fictitious "trusts," or to the directors of swindling railroad, mine, and other like organizations, who, if not benefited in respect of their profits, might be to some extent as to their morals. Such a tax, moreover, would be as readily and economically collected as that of the postage stamp, and, like the latter, would have to be paid for before using. How much revenue would annually accrue to the national Treasury from such a system of taxation through stamps is not easy to estimate, but undoubtedly it would be very considerable. In the way of information helping to form an opinion on this subject the listing of stocks and bonds on the New York Stock Exchange during the year 1896, exclusively to replace old securities, is reported as amounting to nearly $1,175,000,000. During the recent years of business depression an average yearly sale of 56,000,000 shares of stock in New York city is reported; but during what are regarded as prosperous times the yearly aggregate of sales not infrequently exceeds 100,000,000 shares.

Petroleum and its Derivatives. — Another source of revenue readily and largely available to the Federal Government, which since 1868 has almost entirely escaped attention, is petroleum and its derivatives. The present annual production of these commodities is probably about 54,000,000 barrels, and of this product the present annual domestic consumption is estimated at 28,000,000 barrels of forty-two gallons each, or 1,176,000,000 gallons. Of the balance of product, in either a crude or refined state, 931,785,000 gallons were exported in 1896, and therefore exempt from taxation. A tax of two cents per gallon, or eighty-four cents per barrel, on domestic consumption, which could be as readily collected through the agency of stamps as the taxes on distilled spirits, fermented liquors, and tobacco, might yield an approximate annual revenue of $24,000,000. An interesting circumstance in this connection, and one strikingly illustrative of the remarkable change in the industrial and fiscal relations of this product in the last thirty years, is to be found in the fact that when refined petroleum was previously taxed by the Government the rate was fifteen cents per gallon in 1866 and ten cents in 1867; the amount brought to charge during the latter year being 24,999,000 gallons, as compared with over 1,000,000,000 gallons accessible at the present time.

Inasmuch as the Federal revenue, customs and internal, is derived on principle almost entirely from the taxation of commodities of common and popular consumption, especially from distilled spirits, fermented liquors, tobacco, and sugar, there is no good reason why, if a present additional and prospective increase of revenue is needed, a commodity properly belonging to the natural resources of the country, and which has proved a source of immense wealth to those concerned in its distribution, should not also contribute to the expenses of its Government, more especially when fully one half of the domestic product, by reason of its being exported, would not be subject to any form of taxation. That a tax of two cents per gallon would probably be entirely transferred by an additional price to the consumer is almost certain; and yet that there would be no necessity for such action would seem to be proved by the circumstance, that in recent years the market price of refined petroleum for considerable periods has varied more than the proposed rate of tax without any recognized restriction of supply on the part of the trust that controls its product.

Tea and Coffee as Sources of National Revenues. —  The policy of making the consumption of tea and coffee sources of national revenue through customs taxation on the imports of these commodities has much to recommend it. The present annual consumption of tea in the United States is about 94,000,000 pounds, and of coffee about 600,000,000 pounds; the importation of these two commodities in 1895 having been, however, considerably greater — namely, of tea, 97,168,866 pounds, and of coffee, 655,564,000 pounds. A levy of three cents a pound on tea and three cents a pound on coffee would yield a present annual revenue in excess of $20,000,000, and represent an ad-valorem rate of about twenty per cent on both commodities — rates that would probably not interfere with their popular consumption in the least degree. If sugar, a commodity of more indispensible popular use, is regarded as not overburdened by a tax of forty per cent ad valorem, tea and coffee could easily stand a like duty. This would make the tax on each article six cents a pound, with an accruing revenue at the present rate of consumption of more than $40,000,000 per annum. Under the revenue system existing in 1870, coffee was taxed five cents a pound and tea twenty five cents, and the aggregate revenue from both commodities was $22,881,000. The arguments in opposition to imposing a duty on imports of tea and coffee are, mainly, two : First, that it is inexpedient to antagonize a free breakfast table; second, that customs taxes ought not to be imposed on the imports of comrnodities not produced in the United States.

Now the popular phrase "a free breakfast table" is a mere sentimental expression, and in relation to fiscal matters an absurdity, even if its authorship be attributed to as high authority as Mr. Gladstone. A free breakfast table, in the sense of the complete exemption of all its constituents from taxation, is utterly impossible in a civilized country where taxation is essential to the support of a government; and the only place where an approximate result could be attained would be some tropical isle where a native obtains his breakfast by pulling a banana from a tree, extracting a yam from the ground, or catching something which the sea supplies gratuitously. Think of the nature of a statute which, in order to meet the requirements of a free breakfast table in the United States, would exempt from taxation everything generally used in connection therewith — china, crockery, earthenware, glass, hardware, fish, flesh, cereals, fruits, and vegetables — and make the same subject to taxation to meet the requirements for revenue when otherwise utilized. The second antagonizing argument is equally unwarranted and absurd. Customs taxes on the importation of articles not produced in this country are the only taxes on imports in respect to which the people can have an assurance that, apart from the small cost of assessing and collecting, the Government will certainly receive all that they pay; and any man who argues to the contrary does not know what he is talking about, or has the idea that taxes on imports should be levied, not merely for revenue and tHe support of the state, but also in furtherance of some individual interests.

Sugar. — Next in importance to the domestic consumption of distilled spirits as an easily available source of national revenue is the consumption of imported sugars. In the twenty-four years from 1867 to 1890, when imported sugars paid duties, the lowest sum received in any one year was $31,000,000 (in 1872), and the highest $58,000,000 (in 1887). After 1885 to 1890 inclusive at least $50,000,000 annually could be counted upon from this one item of imports, and the duty, estimated on an ad-valorem basis, varied from sixty-two to seventy-eight per cent, according to the fluctuations in the price of sugar. Such a long average degree of taxation made but little change in the consumption of the country, distributed itself very evenly over the whole population, and averaged less than seventy cents per capita of a population ranging from fifty to sixty millions. After April, 1891, duties on sugars were abolished, except half a cent a pound on sugar above No. 16 (continued with a view of protecting the refining interests of the United States), on confectionery, and small discriminating duties on sugars coming from countries which are believed to pay a bounty on exported sugars. The results of this extraordinary policy, which has been not inaptly characterized as one of the most disgraceful pieces of fiscal legislation ever perpetrated in a free country, was that the duty on imported sugars, which amounted to over $50,000,000 in 1891, ran down to $176,795 in 1892, and $163,956 in 1894. The Government, moreover, with a practical repeal of all duties on raw sugars, began the disbursement of money for bounties on domestic sugar, which amounted in round numbers since 1892 to about $35,000,000. Increased importations brought up the revenue from sugar to $15,599,342 in 1895, and $29,897,000 in 1896, the latter representing an import of 3,666,842,395 pounds, which, if subjected to a duty of one cent per pound, would have yielded a revenue of $36,666,000.

With the absolute necessity for increased revenue to meet increased expenditures, there is no good reason why the duties on the import of sugars should not be so adjusted as to insure a permanent annual revenue of at least $50,000,000, which amount, with a consuming population smaller by at least ten millions, was exceeded in 1885. During the month of January, 1897, the import price of sugar was two cents per pound for cane and one and nine tenths for beet. If on this basis of import prices the average rate of duty under the present tariff — namely, forty per cent — were levied, only four fifths of a cent a pound duty would be collected.

A question of importance which next presents itself, and about which there is a great difference of opinion, is, the form in which the duty on the imports of sugar shall be assessed — specific or ad valorem? To help to the formation of a correct opinion on this subject, attention is asked to the following exhibit of the nature and practical workings of these two forms of taxation. The ad valorem system, proportions duties to the worth of the goods at the place of shipment at so much per cent of their market value. Its chief merit is its justice and equity. It adjusts itself automatically to differences of valuation or of commercial qualities, so that the tax collected from the consumer varies in proportion to his ability to pay — at least so far as this may be determined by his ability to buy goods of greater or less cost.

The chief demerit commonly ascribed to it is the temptation which it is said to offer to fraudulent undervaluation. Since the duty to be paid depends upon the foreign value, if this can be made to appear less than it really is, some part of the tax is evaded, and the cost of the goods to the importer diminished. The difficulty of evading a customs revenue under a good and intelligent administration through undervaluation is illustrated by the circumstance that, in order to secure a saving of as much as six per cent on the landed cost of goods, the dishonest importer in the case of a forty-per-cent duty would have to swear an undervaluation of more than twenty per cent. On the other hand, the great advantage of a simple specific duty is the care and certainty with which it may be applied. If, for instance, the duty upon a class of textile fabrics should be fixed at forty cents a pound, including all accessories involved in packing, the weight of the contents of a case would show, by simple multiplication, the exact amount of duty to be paid. No expensive process of examination need be entered upon. Disputes can hardly arise, and false swearing is out of the question. Such duties have been found most useful when imposed upon simple articles not produced in widely varying grades of greatly differing commercial values.

The injustice and inexpediency of specific duties are, that they bear so much less heavily upon the high-priced than upon the low-priced qualities of goods, that the poorer classes of the community are taxed at a much higher rate than the richer. Neither do they adjust themselves to ups and downs of market values; and a rate of duty reasonable enough when enacted is often transformed by a fall of price into an onerous and prohibitory tax restricting imports and diminishing revenue. It is not, therefore, surprising that the attempt had been made to unite, if possible, the certainty and inevitableness of the specific system with the justice and equity of the ad-valorem principle. Two methods of combination of specific and ad-valorem rates have therefore heretofore been adopted.

Viewed from the standpoint of equity and expediency, the proposition to assess all the varieties of imported sugars at one and the same rate of duty is something extraordinary. The United States, for the attainment of its fullest material development as a nation, must have foreign commerce. It desires to attract all nations to its markets ; and, except when it is itself made the subject of discrimination, it must, for the attainment of this end, admit to equal privileges the people of all nations desiring commercial intercourse. Were the proposition soberly made to discriminate specially and by name, in our commercial laws, against any one, two, or more unoffending nations, the proponent would be speedily hooted into silence. But the proposition to assess raw sugars at one rate embodies this very thing. Thus, to illustrate, the sugars produced in countries of low civilization, like Brazil, Central America, the East Indies, and the like, constitute the hulk of the sugar product of the world, and are low in grade and price, and necessarily so because these countries lack intelligence and capital. Such sugars are, however, capable of purification without difficulty, and afford the largest basis in so doing for the profitable employment of domestic labor and capital. The producers, furthermore, must sell them in our markets if they in return are to buy any of the products of our skill and machinery, for they have little or nothing else to buy with. Such raw sugars naturally command the lowest prices in the world's markets. On the other hand, the raw sugars produced in Cuba and Demerara are much further advanced in manufacture, and are largely known as "centrifugals," from having been subjected to a purely mechanical (rotary) process of refining. Such raw sugars command the highest prices, and are worth on the average at least fifty per cent more than the sugar products of countries of a low civilization. A uniform duty on all raw sugars of one cent per pound would, therefore, be equivalent to an ad-valorem tax, or tax on market value, of about fifty per cent on the cheaper grades, and about twenty-five per cent on the highest grades; or, in other words, if the Government, under a uniform rate of one cent, were to collect its (customs) taxes in kind on sugar, it would take one half the importations of low-grade sugars, while only one fourth of the importation of high grades would be taken for the same purpose. All the machinery of the Government is now adapted to the ad valorem system of taxing sugars, and in the opinion of the Treasury officials it can be and is honestly administered.

It is difficult to see why, with an impending deficiency of national revenue, sugar grown in the Hawaiian Islands, and the \importation of which into the United States in 1895 exceeded 280,000,000 pounds, should be admitted free of duty. Is it not clear that such an exemption constitutes another and indirect form of taxation incumbent on the American people?

What the National Revenue was in 1896, and what might be anticipated in the immediate future from certain modifications of the existing tax system. — The revenues of the Government from all sources — exclusive of the postal service, in which the receipts and expenditures closely balance — for the fiscal year 1896 were $326,976,200, of which $146,762,864 accrued from internal-revenue taxes, and $160,021,751 from customs.

Contingent on the modifications of the internal- revenue system above proposed, the annual receipts from this department, considered in reference to the special sources pertaining to it, would, without much doubt, be approximately as follows:

From distilled spirits, provided there is no exemption of any part of its product from taxation for any purpose, $100,000,000: a result more likely to be attained if the present ratio of tax, $1.10 per proof gallon, be reduced to its former rate of ninety cents.

From fermented liquors, with an increased tax to the extent of $1 per barrel, $60,000,000.

From tobacco, on the assumption that political and popular sentiment will not permit any increase of rates, $35,000,000; although, if a fiscal policy in furtherance of the best interests of the Government were alone considered, the annual accruing revenue from this source would be at least double.

From petroleum and its derivatives, $24,000,000.

From stamps, $30,000,000, which can be readily increased to $50,000,000.

From tea and coffee, under a twenty-per-cent duty, $20,000,000; under a duty of forty per cent, $40,000,000.

From sugar, such a rate of duty on its import as will insure an annual revenue of at least $50,000,000.

Total, $319,000,000, leaving a deficit, on an estimated annual expenditure of $500,000,000, of $189,000,000. To meet this requirement, the entire revenue from customs, other than from the imports of sugar (already considered), and incidental revenues to the extent of $15,000,000, are available.

Doubtless, to many the proposal to increase the existing number of special sources of national revenue, with modifications of existing rates, will seem inexpedient and unnecessary; but, with a constant tendency to increase national expenditures, it is only a question of time when such changes will have to be made; and the future record of the new administration and the new Congress, for good or for ill, will be largely determined by the manner they answer this question: Shall money be saved by new economies or provided by new and increased taxes? And if the latter policy is favored, its advocates will do well to remember, that any taxes that tend to obstruct the export of the surplus products of the country will not long be tolerated.[9]

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  1. "Mr. Lawrence, of Ohio, who for years has been most earnest in advocating prohibitory duties on wool, when, recently confronted with the fact that his policy would lead to the loss of revenue, said: 'Why should you want any?' When the laugh that followed had subsided, he explained that he meant why should we want any revenue from wool, adding that there were many other commodities from which revenue could be derived. He did not stop tp consider that the producers of those other articles wanted duties that would shut out foreign competition as badly as he desired it in his own interest. Moreover, his was a particularly flagrant cast, as he represented a commodity of which the country produces only about half as much as we consume."
  2. "Taxation means work, of the head, or of the hand, of the machine, or all combined. And the method of taxation is only a method of distributing the products of work. It is measured, when in the process of distribution, in terms of money, but the money itself stands for work, or is derived from work." — The Industrial Progress of the Nation, Edward Atkinson; G.P. Putnam & Sons, New York, 1890.
  3. For more specific information on this subject, reference is made to an official bulletin of the State Board of Health of Massachusetts for March 14, 1896.
  4. In the United States the decrease in his branch of prices has been much greater, as shown by the following table of comparative prices in 1877 and 1897:
    1877. 1897. Decrease,
    per cent.
    Cents. Cents.
    Sugar (brown)        lb.  9·5 2·81 70·4
    Rice, Carolina        lb.  6·5 4·0 38·5
    Hops (import price)        lb.  51·5 22·0 57·2
    Barley (import price)        bush.  76·2 37·8 50·4
    Oats        bush.  44·0 21·0 52·2
    Maize        bush.  60·0 28·5 52·5
    Molasses (prime)        gal.  54·0 24·0 55·5
  5. In France the sales of Tobacco in 1885 were returned at 700,000 kilogrammes for "chewing" and at 15,400,000 for smoking.
  6. Under the British system foreign bond, whether issued by a state, a municipal body, a corporation, or a company, are changeable with stamp duty if made or issued in the United Kingdom; or if offered for subscription and given or delivered to a subscriber in the United Kingdom, though originally issue abroad; or if assigned, transferred, or in any manner negotiated in the United Kingdom, provided the interest is payable in that country.
  7. The cost to the Government in 1868 of revenue stamps for checks, drafts, receipts, and other like instruments, was twelve and a half cents per thousand. The cost of collecting the entire receipts of the internal revenue in 1894 was 2 ·70 per cent.
  8. "A million dollars and half a million more were recently paid for five lots on Broadway, New York, opposite Bowling Green. This was the value of the land alone, as the old buildings it bore were at once to be torn down. A year or two ago the corner of Liberty Street and Nassau, measuring seventy-nine feet along the one and one hundred and twelve along the other, and about one hundred feet in depth, brought $1, 250,000, and this, again, for the sake of the land alone." — Places in New York, Mrs. Van Rensselaer, Century Magazine.
  9. Touching the question of national revenue and its present yearly deficiency, the following opinion, expressed by the late Secretary of the Treasury, in his annual report on the finances of the country for 1896, has an important bearing on this problem, and ought not to fail of popular consideration: "Hereafter," he says, "it will not be possible to sacrifice revenue to protection without seriously embarrassing the fiscal affairs of the Government by depriving it of an income sufficient to defray its necessary expenditures. If the usual proportion of this income is hereafter to be derived from taxes on imported goods, the protective theory must be abandoned as the basis of our legislation upon the subject, and a well-considered and consistent revenue system must be substituted in its place; and, in my opinion, this can be done without material injury to any trade or industry now existing in this country,"