tilled spirits, as already stated, was about twenty-nine millions of dollars, but during the succeeding year, 1868, with no diminution, but rather an increase of the quantity manufactured and consumed, the total revenue from the same source was but little in excess of fourteen millions; proof spirits, at the same time being openly sold in the market, and even quoted in price currents, at from five to fifteen cents less per gallon than the rate of tax and the average cost of manufacture. We have also in these figures the materials for approximately estimating the measure and strength of the temptation to evade the law, and the amount of profit that accrued in a single year from the results of such evasion; for, as the consumption of distilled spirits for all purposes in the country during the year 1868 was probably not less than sixty millions of gallons, and as out of this the government collected a tax upon only about seven millions of gallons, the sale of the difference, at the current market rates, $1.90, less the average cost of production, thirty cents, must have returned to the credit of corruption, a sum approximating eighty millions of dollars.

But notwithstanding the fact that the current price at which distilled spirits were sold in the markets was less than the amount of tax, was everywhere recognized, and commented on by the press; and notwithstanding that the existence and extent of the frauds in the manufacture and sale of the spirits was for three years officially reported upon in detail by officers of the treasury, it was with great difficulty that Congress could be induced to take any action, looking to remedies by the enactment of more perfect laws, providing for more efficient administration of the law, or for diminishing the temptation to fraud by reducing the tax; and it was not until the revenue from this source bade fair to disappear altogether, and the popular manifestation of discontent became very apparent, that anything really was accomplished; a report from the committee of ways and means to the house of representatives in favor of a new law and a reduction of the tax having been actually, delayed a whole year by the appeal of a leading member from the state of New York for postponement, on the ground that it would be derogatory to the honor of a great nation, after having triumphed in the most gigantic of civil wars, to confess, by a reduction of the rates, its

inability to control the production and sale of whiskey. How expensive this speech and its resulting delay proved to the treasury is shown by the circumstance, that when the tax was reduced the next year from $2 to 60 cents per gallon, and the law in other respects modified, so as to prevent transportation in bond — holding every distillery liable to account, according to capacity, for each day's product, and forfeiting real estate as well as personal property connected with the performance of illegal the revenue from all taxes, direct and indirect (licenses, etc.), in the manufacture and sale of domestic spirits, increased the very first year to the extent of $27,000,000; or, from $18,000,000 in 1868 to $45,000,000 in 1869, and $55,000,000 in the succeeding year, 1870.

acts

68. Internal Taxation from 1870 to 1894. - Most of the duties upon commodities were repealed after the war, but a number of internal taxes were retained. The act of July 14, 1870, left in operation the duties upon spirits, fermented liquors, and tobacco; as well as stamp duties and some other taxes. The subsequent history of the internal revenue system is described by Dr. Frederic C. Howe, as follows: 1

Previous to 1860, as we have seen, the excise had been viewed as a sort of fiscal reserve, only to be brought into action in case of urgent necessity; but at the termination of the Civil War, in view of the burden of indebtedness which it had entailed, it became apparent that the earlier resources were no longer adequate to satisfy the larger fiscal needs of the country. The war had, moreover, induced a more generous view of the Constitution, and the conservative hostility which had prevented the utilization of federal powers during the long tenure of the Democratic party no longer existed; while the subsequent inclination of the government to engage in all sorts of expenditure for various internal purposes rendered the utilization of inland sources as a portion of the permanent fiscal service a necessity. The reduction in expenditure between the years 1866 and 1870 rendered it possible

1 Taxation in the United States, 215 et seq. (New York, T. Y. Crowell, 1896.) Reprinted with the consent of the author and publisher.

to dispense with nearly all the extraordinary war taxes, and to concentrate the system upon the broad and elastic basis of consumption. The income tax was retained until 1872, as were the bank taxes, and several unimportant duties on manufactured products. . .

The suitableness of distilled and malt liquors and tobacco for taxation is recognized by nearly every civilized country, and it is the uniform practice of European governments to derive from them the largest possible revenue consistent with efficiency of administration. Of well-nigh universal consumption as they are, socially harmful in their effects, and non-essential to the comfort and well-being of a people, the payment of the taxes upon whiskey, beer, and tobacco may be viewed as a sum abstracted from the surplus fund of individual income. Furthermore, such taxes are but little obstructive of industrial freedom, and there is no evidence that even the highest rate imposed has ever proven productive of any very general discontent. From the mass of the people the cry for free whiskey and free tobacco meets no answering response; and in the past such agitation has been largely of a political character, for the purpose of distracting attention from an increase in the tariff rates, or an attempt to reduce a possible surplus in the treasury.

Since 1868 the history of the taxation of these subjects has been quite uneventful. The reduction of the rate on distilled spirits to 50 cents a gallon was accompanied with results most phenomenal. It is possibly too much to ascribe the subsequent increase in the revenues and improvement in their collection wholly to the reduction of the rates; for changes in the method of administration were also introduced, which greatly simplified collections, and rendered evasion by the ordinary methods wellnigh impossible. Since this time all taxes, specific, ad valorem, and license, have been collected by means of stamps, affixed to the packages containing the commodity or displayed in the place of business. The specific tax of 50 cents on whiskey, with the subsidiary capacity tax, remained in force from July, 1868, to August, 1872, during which period the tax was assessed upon an average production of 67,000,000 gallons, which yielded an average annual revenue of $34,000,000, indicating an average annual per capita consumption of 1.65 gallons.

By the same Act the rates upon manufactured tobacco and cigars were placed as follows:

Alterations were also made in the method of assessment. Instead of the tax being collected after removal from the place of manufacture and sale, the duty from this time on was prepaid by means of soluble stamps,1 placed upon the package at the place of manufacture. Goods were required to be placed in certain forms of packages, which were to indicate the manufacturers' name, place of manufacture, trade-mark, contents, and weight of package, etc. Itemized returns were also required from the producer in regard to his business. Failure to comply with these requirements rendered the producer liable to heavy penalties, as did any attempt to place untaxed goods on the market by a dealer. By the same Act existing taxes on mineral or illuminating oils and refined petroleum were repealed.

The revenues from tobacco immediately responded to the change. In 1868 the receipts were $18,729,000. In 1869 they rose to $23,430,707, a gain of four and three quarter millions. Again, in 1870, they increased to $31,350,707, and in 1871 to $33,578,907. Fraudulent evasion of the tax was greatly diminished. Some little loss did occur through the refilling and re-use of stamped packages, and the improper classifications of manufactured tobacco. It was easily possible for producers to take advantage of the difference of rates on chewing and smoking tobacco to place the former on the market at rates applicable only to the latter; and it was difficult to impute or prove fraud, or to correct the evil, save by a uniform rate, which change was later adopted.

But, despite the gratifying showing of the revenues, agitation was soon renewed for change. The profits previously secured by speculators and producers from legislative changes were too sweet to be willingly relinquished; and Congress was not deaf

1 The stamps were printed in fugitive ink, which disappeared when washed for the purpose of re-use.

to the proposals for an increase of duties, by which gains were legislated into the pockets of speculators by increasing the rate without rendering it applicable to stock in bond. At the same time temperance agitators, who viewed a high rate on whiskey and tobacco as advisable on sumptuary grounds, advocated an increase in the duties, thinking it would serve as a deterrent to their use. In 1872, in response to this pressure, the rate upon whiskey was changed from the mixed one then prevailing, the barrel and capacity tax being repealed, while the specific rate was increased by 20 cents, or to 70 cents per gallon. The change was largely an administrative one, as the several duties then prevailing had aggregated between 65 and 70 cents per gallon. By the same measure all manufactured tobacco, whatever its value or use, was rendered dutiable at a uniform rate, the duty up to 1875 being 20 cents per pound.1 While this was equivalent to a reduction of 6 cents per pound or of 221 per cent on the average rate for the two preceding years, the diminution in receipts from tobacco for the year 1873 was but little over one million dollars, while the increase in tax-paid production was over nineteen and one half million pounds, a result traceable in large part to the fact that unmanufactured tobacco under the new law was taxed at substantially the same rate as the manufactured article, whereas it had formerly been practically exempt.

These changes were uniformly in the line of improvement; for while it is to be acknowledged that there is some injustice. in the taxation of any article like tobacco, whose value varies so widely, at a uniform rate, experience has shown that assessments are likely to be so arbitrary that a specific rate is preferable to an ad valorem one, for the latter offers great opportunities for fraudulent practice, false swearing, and complications in valuation.

Again, in 1875, the rate on spirits was advanced to 90 cents per gallon, where it remained unaltered until 1894. In the taxation of the latter article the experience of these years was marked by phenomena similar to those of the war, although less monstrous, and brought home to officials high in the government service. It is not true, however, as is frequently asserted, 1 When it was again increased to 24 cents per pound.