no importations of snuff, except eighteen pounds only, to Ireland, and the importations of manufactured tobacco, in all other shapes, ranged from two hundred and sixty-nine thousand to four hundred and twenty-eight thousand dollars only in value. In France the tobacco trade is a government monopoly; and while our exportations of the commodity in the leaf to that country are only inferior in amount to our exportations to Great Britain and Ireland, it took from us no more than twenty-nine pounds in three years, and the largest amount of manufactured tobacco exported thither in any one year was, in value, but seven thousand three hundred and seventy-one dollars. For many years our exports to France have varied from three-fifths to four-fifths of all the tobacco consumed in that kingdom. In 1862 they amounted to thirty-two millions three hundred and five thousand two hundred and forty pounds. at the average cost of eight cents and three-tenths of a cent per pound; and the net profits to the government, on the manufacture and sale of that product of American soil, was not less than thirteen million seven hundred and twenty-nine thousand five hundred and forty-eight dollars. Those profits have been estimated for several successive years, and been found to vary from four hundred and forty-seven to five hundred and fourteen per cent. on the price paid to the producers. The restrictions and limitations with which this trade is clogged by foreign nations have been long unsatisfactory to our people, and, in the year eighteen hundred and fifty-nine, they became the subject of certain resolutions of Congress, protesting that they were wholly inconsistent with that fair and reciprocal condition of commerce which ought to exist between the United States and those nations; but the protest, so far as I have learned, has been unheeded. Under such cir

cumstances it is well to consider how, in laying our excise duties, we may at once serve the purposes of revenue and protect our own manufactures. There seems to be no good reason why we should furnish the raw product cheaply to foreign nations on such terms as to enable them to tax it for their own benefit and to make it a means of stimulating their domestic industry.

The diminished production, owing to the southern rebellion, was far short last year of what it was in previous years.

In 1860 it was, in round numbers, four hundred and twenty-eight millions of pounds. Last year it was only two hundred and eighty millions of pounds This year, notwithstanding the extensive planting in the northern and middle States, the crop is estimated in the last report of the Agricultural burea at only two hundred and fifty-eight millions; being still one hundred and seventy millions of pounds less than in 1860. While the domestic production is thus diminished, the foreign demand has been constantly increasing, and it will not be likely to be seriously affected by the difference in price which its exportation, subject to our excise on the raw material, will occasion. I therefore beg leave to submit the proposition that tobacco be taxed in the leaf in the hands of the producer, and that no drawback be allowed on its exportation in that shape, so that the cost to the foreign manufacturer may be increased to the extent of our excise. If any drawback is to be allowed, the proper policy of encouraging and sustaining our own manufacturer, against adverse legislation of a foreign government, seems to require that it shall be allowed, if at all, only on the manufactured article. The extent to which the allowance should go is a question of some nicety. The tax on tobacco in the leaf, with all the stems on, might, I think, be fixed with advantage to the revenue, and without injury to the producer, at twenty cents per pound. A light tax, varying from five to ten or twelve cents per pound additional, might be imposed on the manufactured commodity. A drawback on this from ten to fifteen cents would give to the domestic manufacturer all the advantages he would desire in the foreign market, and would, in some measure, countervail the legislation of foreign nations to his prejudice.

The imposition of the tax on tobacco in the leaf is further recommended by

the consideration that, united with proper regulations for inspection, it will tend to defeat the fraudulent practices by which the government is now deprived of much revenue due from this source.

Whether the excise on domestic wines, being luxuries, useless to the consumer, ought to be increased, may be questionable. The cultivation of the grape and the manufacture of wine in this country is still in an infant state, and good policy would seem to require that they be encouraged. Though the experience of Europe has shown that the consumption of spirits is not reduced by high rates of duties, it may be in some respects owing to the fact that cheap wines are not furnished to the consumer. If cheap, mild wine could be made to supersede spirits as the common liquor of the million, the result would be gratifying both in a moral and industrial point of view, and any modification of the excise tending in that direction would be desirable. I apprehend, however, that the tax on spirits must ascend to a much higher figure than has yet been proposed, before any appreciable effect will be produced in determining the choice of liquors on the part of those who habitually drink them, and that at all events, in the present needs of the country for increased revenue, a duty of ten cents per gallon on native wines will not be severely felt or be deemed unreasonable. These changes in the amount of duty to be laid on spirituous, vinous, and malt liquors seem to be suggested by common experience and the policy which obtains in every well poised system of taxation. They belong to a class of luxuries which may be properly denominated hurtful, and, if the consumption should happen to be affected by the weight of the taxes, the result would not be without compensation to the consumer and the country. The duties are now very low, in view of the modes of using the subjects of them. Twenty cents a gallon is but one cent and a quarter a half pinta quantity usually sufficient, I presume, for one day's allowance for a moderate drinker. Three times that tax would not be sensibly felt, in a proportionable increase of price. If it would exert any influence on consumption, it would be in favor of the cheaper liquors, which, for that reason, could then better bear some additional duty.

If in making your estimates of the needs of the government, it should be found that no considerable increase in the amount derived from internal duties is desired, I should think it a question worthy of consideration, whether some increase of tax on all hurtful luxuries, including even tobacco, would not be eligible, so that relief might be afforded to those interests that produce the common necessaries of life. If an increase of the tax on certain products of which the use is purely voluntary, and at the same time at least useless, would be attended by a diminution of tax on such commodities as contribute to the support, comfort, or enjoyment of the community, the propriety of the change would seem to be obvious. But if a large revenue is wanted to aid in sustaining the national credit and supplying means for the large expenditures incident to the war, the reason for the change would become invincible.

In your estimate of last year, derived from information furnished by my predecessor, the amount of internal duties was stated at one hundred and fifty millions of dollars. The laws of excise were afterwards modified and rendered less productive, and the result of their operation has probably not equalled the expectations of Congress. The sum actually received into this office from all sources, between the first day of September, eighteen hundred and sixty-two, and the thirtieth of June last, was thirty-six million five hundred and eightysix thousand three hundred and four dollars and fifty cents; and up to the first day of September of this year the receipts were forty-seven million four hundred and eighty-nine thousand four hundred and seventy-three dollars and three cents. Up to June thirtieth the drawbacks amounted to six hundred and seventysix thousand six hundred and eighty-three dollars and seventy-three cents; and up to September first, five hundred and three thousand and sixty-six dollars and thirty-six cents.

At each of these dates, however, there were considerable sums in the hands

of collectors, and the annual taxes, including those on incomes, had been only partially received. To say with accuracy how much the excise laws have yielded within a given period, is not practicable. Their operation is continuous. The machinery is constantly active. There are hardly ever in the mails less than half a million of dollars, including checks, drafts, and certificates of deposit to the credit of this office, in transitu. We can make an estimate; and I think it may be said with safety that the product of the taxes assessed within the year ending on the first day of September last, will amount to sixty-five millions of dollars. If the law should remain untouched, experience in its administration will enable the officers having charge of the subject to make the yield larger and the expense of collection less; and the increase inthe production of the country, owing to the activity of trade and industry, will operate in the same direction. I attribute to these causes an addition to the internal reve nuc of another year of not less than ten millions of dollars. If we add to this the probable results from the measures suggested in relation to spirituous, vinous and malt liquors, and to tobacco, in case of their immediate adoption, the internal revenue for the year eighteen hundred and sixty-four, reckoned from January to December, both mouths included, will reach the sum of ninety-two millions, without taking into calculation anything likely to come from districts now insurrectionary.

Should such a revenue not be equal to the estimated needs of the treasury, the necessary increase will reasonably be sought in an enlargement of the basis of taxation, or by adding to the duties now drawn from other sources, or by means of both these measures together. In view of the probabilities that a temporary increase of taxes may be demanded by immediate or antic pated exigencies, I will proceed to indicate the subjects which, so far as I am able to judge, will best bear additional burdens. In the performance of this duty I have been solicitous to find those which will yield the largest returns, with the least possible onerousness to the people.

There are beverages other than those already mentioned, which, being innocent, the use of them ought not to be discouraged, but which, nevertheless, may properly be required to contribute to the supplies demanded by the wants of the government. I refer to artificial mineral waters, soda waters, sarsaparilla waters.. and other beverages of like kind usually sold in bottles. I propose a tax on these of two cents per dozen of bottles holding a half pint or less; and when sold in bottles of greater capacity, four cents per dozen for each dozen of bottles holding a pint or less; and when sold in bottles of still greater capacity than a pint, one cent per bottle. When sold in any other way, a duty of five per cent,

ad ralorem would not be immoderate.

There are certain articles which may fairly be denominated luxuries, and which are only within the reach of the opulent or prosperous, that may be made liable to duties not yet imposed without inflicting hardship on any. I allude to those mentioned in section seventy-seventh of the excise law, in schedule A, and I suggest that this schedule might be enlarged, so as to embrace subjects not there enumerated. Gold watches, pianos, guitars, dogs, looking-glasses beyond a certain size, diamonds, emeralds, and other precious stones, kept for ornament or use, may be instanced as falling within the scope of the reasons which called for the creation of this schedule. It is obvious to remark, however, that a tax on such articles is not sustained by the principle of excise which applies legitimately only to profits and products of annual consumption, and not to objects merely of taste or ornament, or to those of use or enjoyment, and that though there may be full ability to pay it, unless it bears a just proportion to the value of the articles on which it is imposed, it is felt to be oppressive, and will be evaded, or the use of the articles themselves abandoned. Though the incidence of taxes on articles of this character is upon a class well able to bear them, it is not to be denied that they are usually but little productive; and so far as the

returns of our assessors go, those imposed by the seventy-seventh section do not constitute an exception to the common experience. The amount they have yet yielded pays but indifferently for the expense of collection, and the result points to the expediency of either repealing the section altogether, or of enlarging the list of effects upon which it is intended to operate.

Among those annual products of the soil which appear to be proper subjects of tax, and which, being needed in large measure by the manufacturing nations of Europe for the support of their industry, may be loaded with heavier duties. without serious detriment to our own countrymen, is cotton. That product is now subjected to a duty of one half of one cent per pound. Quadruple the tax will not, in my opinion, be excessive. So insignificant a sum can be added to the price in the foreign market, without affecting the demand or exciting dangerous competition.

Thread and yarn manufactured and sold, or delivered for being knit or woven into fabrics, may properly be made subject to three per cent. ad valorem, the same as if such thread or yarn were sold in the market.

Boards planed, tongued, and grooved, shingles, bricks, Roman cement, calcined plaster, draining tiles, dressed building stone, printers' ink, maps, charts, periodical publications other than newspapers, and engravers' work, would bear an ad valorem duty.

The tax on auction sales is now very low, and will bear to be increased probably to one-fourth of one per cent.

The tax on slaughtered animals may be advantageously adjusted on a somewhat different scale without becoming onerous, viz: on each head of horned cattle, more than eight weeks old, slaughtered for sale, a tax of thirty cents; and on calves of eight weeks old and less, a tax of five cents per head. On slaughtered swine, exceeding fifty pounds in weight, ten cents per head.

The provisions of the 73d section of the act July 1, 1862, relating to goods made by persons for their own use, was reasonably supposed by my predecessor to be qualified by the clause limiting the amount of the annual product to six hundred dollars; but a number of railroad companies, and other large operators, who manufacture locomotive engines, railroad cars, paper for printing, and many other articles consumed by them in the prosecution of their business, embracing in the aggregate the value of millions, have insisted that the six hundred dollar limitation has application only to manufactures that are sold, not those consumed by the manufacturers themselves; and that construction has been adopted in several litigated cases. Though it may be in accordance with the legal inent of the statute, I cannot believe that it was contemplated by Congress to give to large corporations the privilege of carrying on extensive manufactures of wood, iron, and other materials, without the payment of a duty, because they happen to be such extensive consumers as to make the business of manufacturing for themselves profitable. It is not consistent with the general spirit of the legislation of that honorable body to discriminate in favor of corporate institutions or private firms, wielding enormous capital, to the prejudice of small manufacturers, and to the aggregation, instead of the diffusion, of capital, and the healthy condition of trade produced by active competition. I therefore beg leave to suggest the propriety of so amending the law as to make it answer plainly the original intent. This, I submit, may be done by requiring that all productions or manufactures used or consumed by the producers or manufacturers thereof, being articles of commercial value, and which would be taxable if sold, shall be in like manner taxable when used or consumed.

According to the construction given to the act of July 1, 1862, the manufacturer of clothing and other articles of dress, whether to order as custom work or for sale generally, was liable to a tax of three per cent. ad valorem.

The act of the 3d of March last exempted from duty tailors', milliners', dressmakers', and shoemakers' work, made to order as custom work, to the amount

of one thousand dollars, and for any excess beyond that amount levied a duty of one per cent. on the value. The discrimination introduced by the amendatory act does not appear to me to stand on any just principle. It creates an inequality in the percentage which should be avoided, and operates practically in favor of that description of customers who are best able to pay. The thou sand dollar exemption provides a limit which is not in accordance with the analogies of the law by which an exemption in all other cases of manufacture to the amount of six hundred dollars only is secured. I perceive no satisfactory reason why the tax on all articles made to order beyond the last-mentioned sum in value, and not otherwise provided for, should not be laid at the usual rate of three per cent. ad valorem.

I suggest that the income tax be left untouched, except in a few slight particulars. This tax, though as fair in theory as any that can be laid, has been found by the experience of other countries to be incumbered with practical difficulties in the assessment which have deprived it of all claims to public favor. The people of this country have accepted it with cheerfulness, to meet a temporary exigency, and it has excited no serious complaint in its administration. In order that it might not be felt to be inquisitorial in its character, the instructions issued by this office required that the returns of income shall not be open to the inspection of others than officers of the revenue. Some doubt having been entertained whether a proper construction of the law sustains the instructions, I recommend that the doubt be removed by express enactment. It will, I think, contribute to fairness if the provision allowing a deduction for rent paid for dwelling-houses be stricken from the law, and that owners of such houses, residing in them, be charged with their rental value as income. It seems to me, also, that a change in the rate of taxation of large incomes may be properly made, subjecting incomes over five thousand dollars ($5,000) and less than ten thousand dollars ($10,000) in amount to four per cent. tax, and those over ten thousand dollars ($10,000) and less than twenty thousand dollars ($20,000) to five per cent., and those exceeeding twenty thousand dollars ($20,000) to five and a half or six per cent. The English rate is now over four per cent. in time of peace, and during the Russian war it was upwards of five and eight-tenths per cent. on all incomes over £150. If the English people could tolerate, without murmuring, such a tax to sustain a war of conquest and ambition, American citizens will certainly endure a lighter one for union and freedom.

There is a class of persons subject to the assessment of the income tax who claim exemption on peculiar grounds. I allude to the subjects of foreign governments representing them here as consular agents. Many of these persons are obliged to pay a tax upon the salaries which they receive from the home governments for their official services, and complaint is made, with some reason, that a double tax charged upon the same source is unduly severe. In some countries it appears that American consuls are obliged to pay taxes on their incomes however derived, while in others no such tax is exacted. I submit the consideration whether the same measure of liberal courtesy might not be extended to the subjects of foreign governments serving as consuls in our ports as are extended by those governments to American citizens serving abroad in a consular capacity. We have sufficient information in this office to enable us to make the proper discrimination. The inequality, if any should exist, will be attributed to the proper cause, and those who suffer by it will know where to apply for the remedy.

Among the most satisfactory branches of our excise law must be reckoned that which levies stamp duties on documents and instruments of evidence. This tax is, of all others, the most easily and cheaply collected and most cheerfully borne; and it is believed that, in the future development of our system, it is the one from which most advantage may yet be expected from a gradual and judicious extension. It is not to be questioned that some of the stamp