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CHAPTER VIII

INTERNAL REVENUE

Thaddeus Stevens (Pa.] in 1862 Introduces in the House a Bill to Provido

Internal Revenue-Debate: in Favor, Justin 8. Morrill (Vt.), Mr. Stevens; Opposed, George H. Pendleton (0.)-Debate in the Senate: in Favor, James F. Simmons (R. I.); Opposed, James A. McDougall (Cal.]-Bill Is Passed by Congress and Approved by the PresidentIn 1882 William D. Kelley (Pa.] Introduces in the House a Bill to Reduce the Internal Revenue-Debate: in Favor, Alexander H. Stephens (Ga.), George M. Robeson (N. J.); Opposed, Philip B. Thompson (Ky.), Roger Q. Mills (Tex.]-Bill Is Passed in the Following Session, and Approved by President Arthur.

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N March 3, 1862, Thaddeus Stevens [Pa.], of the

Committee of Ways and Means, introduced in the

House a bill to provide internal revenue. In its final form this bill established the Bureau of Internal Revenue, under the Treasury Department, with what is essentially the present system for collecting excise from manufacturers of distilled spirits and malt liquors, and from rectifiers of wine and spirits. In addition, annual licenses ranging from $5 to $100 were required from almost every kind of business or profession, the peddler on foot and the juggler being assessed, as well as the banker, lawyer, and doctor. Manufacturers of every kind of commodity, from pins to railroad iron, were taxed at various rates, specific and ad valorem. All sales at auction, whether of real estate, merchandise, or stocks and bonds, were taxed one-tenth of one per cent. Luxuries, such as private carriages, yachts, billiard tables, and plate, were taxed at ad valorem rates. Live stock slaughtered for sale had to be paid for at so much per head, according to the genus. Railroad, steamboat, and ferry companies were assessed three per cent. upon their gross receipts; holders of railroad bonds had the same percent

age deducted from their dividends, as had also investors in banks, trust companies, savings institutions, and insurance companies. Three per cent. was also deducted from the salaries of those in the employ of the Government. The same rate was assessed upon the gross advertising receipts of publishers. The amount exempted by the preceding income tax bill was lowered from $800 to $600, and the rate was increased from three to five per cent. upon incomes exceeding $10,000 per annum. Stamp duties were laid upon legal papers and business instruments, as well as upon medicines, cosmetics, perfumery, and playing cards. Legacies of over $1,000, except from husband to wife, or wife to husband, were taxed at rates varying with the degree of consanguinity.

INTERNAL REVENUE

HOUSE OF REPRESENTATIVES, MARCH 3-JULY 1, 1862 Justin S. Morrill [Vt.], of the Committee on Ways and Means, supported the bill. After presenting the state of Government finances he said that the bill amply provided for all the great and unusual demands upon the

Treasury.

When one of the European governments offered a reward to any person who should discover a new object of taxation, it was bestowed, I believe, upon the discovery of the stamp tax upon paper. That is not by any means our condition. There is but little more than one source, that of imposts, which we have relied upon to any extent for revenue, and that source has not been pushed to its utmost capacity. Driven, however now, like Milton's Adam, from our untaxed garden, to rely upon the sweat of the brow for support, like Adam, we have all the world before us where to choose.” In doing this we have to be just. It would not do to press any single interest with the entire burden that now weighs down upon the treasury. The weight must be distributed equally—not upon each man an equal amount, but a tax proportionate to his ability to payequally, yet not one that will be in the exact ratio of population, but in a just proportion to the means and facility of pay. ment. What could be easily sustained in one quarter of the country might sink another in hopeless dishonor and repudiation. A heavy duty upon some articles would banish them from use, while upon others it would merely stimulate greater activity and industry to obtain them. A tax dependent upon the habits or vices of men is the most reliable of all taxes, as it takes centuries to change or eradicate one or the other. No matter what obstacles may be placed in the way of the introduction of opium, the Chinese will brave death itself rather than suffer the deprivation of their favorite stimulant. Eng. land taxes spirits enormously, but has her drunkards still. They raise, too, $28,000,000 (or about one dollar for each inhabitant) of revenue from duties on tobacco.

The accustomed objects of State taxation should, in some degree at least, go untouched. The orbit of the United States and the States must be different and not conflicting. Otherwise, we might perplex and jostle, if we did not actually crush, some of the most loyal States of the Union. It has not been possible, so multifarious are the systems of State taxation, and so large our wants, wholly to succeed in carrying out this idea ; but it has been attempted in two modes; the first, by the avoidance of any tax or duty on live stock, and by declining to increase the direct tax on real estate-a very moderate one-levied at the last session of Congress; and the second, by a selection of new objects of taxation, and such others as for many reasons can sustain even the double taxation to which they may be for the time subjected.

Some gentlemen, and even some States, have manifested a solicitude that any taxes incident to the present rebellion should be levied in such a way as to allow the several States to assume, assess, and collect them, or, if not to include the assessment, at least to assume and collect after an assessment by the United States. If this were practicable, it might be very desirable. If State officers could be employed, and the increase of Federal patronage avoided by not creating a new corps of office holders, a great point would be gained. We provide in the present bill that the duties, if not paid at the proper time, shall be hereafter collected in the now rebellious States. Authorize the States to assume and collect, and then suppose South Carolina to set about it. How much revenue so farmed should we be likely to obtain? It would be for the interest of all State officials to collude and pay as little as possible. It is not too much to suppose some would improve the opportunity.

This idea is wholly impracticable as may be seen by anyone who looks at the scope of the bill, with its fingers spread

out in all directions, ready to clutch something to buoy up the sinking credit of a nation which has hitherto generally sheltered its capital and its labor from all tax gatherers, except through the indirect process of the custom house. It is not enough to know that a debtor has means; he must exhibit the will to pay, otherwise there must be some law to coerce the will. In this emergency we cannot afford to return to the pusillanimity of the old Confederation, and request the States to make their contributions, and shiver in the wind if any should fail to do so, or declare war upon them for delinquency. The Government of the United States—the most parental and benign of all earthly governments-in its hour of need has the right to demand whatever may be the measure of its necessities to sustain the public creditour honor and existence as one people.

It is indispensable that the Government shall have within its own control-responsive to it at regular and stated periods the means of meeting all its vast engagements. This can be secured only by its own agents under its own laws. Even where the States are allowed, as they are in the direct tax, fifteen per cent. for assuming and collecting a tax, when all assume it, there is no advantage gained. The effect is to require the tax to be put fifteen per cent. higher than would otherwise be called for; and the general Government can collect the amount at a much less expense.

That the bill is perfect the committee are far from supposing. To us at best it is but an experiment, and the wisdom of Congress, now and hereafter, will judge how much of it should be permanently retained and what part must be dropped out. It is no personal or party measure, but one imperiously demanded-sharp as may be the medicine-for the general welfare.

Seeking to avoid all extremes, the committee have thought best to propose duties upon a large number of objects, rather than confine them to a narrow field, and thereby be forced to make them excessive in amount, and for that reason entirely unreliable. If the rates can be hereafter increased in any instance to the benefit of the revenue, and without inflicting any injury upon any quarter of the country, it will soon be ascertained. Meantime is it not wise to set out on a moderate scale

-one that will neither shock the sense nor the pockets of the people rather than attempt to make any one product the victim from which to torture magnificent bounties?

It is to be expected there will be a diversity of opinion concerning many features of the bill. If it will produce too much or too little revenue, if it includes objects that should be left free, or omits those which should justly be held to contribute, these are legitimate objects of amendment, as much so as matters of form or detail; but an ample and effective bill-being all for which I personally feel the slightest solicitude—is demanded at our hands by all the motives which can move a lover of his country; and if it were possible for this Congress to desert its responsibilities, and adjourn without passing some equivalent measure, it would deserve to be pickled in history as representative imbeciles. Observers living under other forms of government proclaim that our weak point is incapacity for taxation, and our securities, therefore, have no solidity abroad. Representative democracy is now on trial. Let us see to it that the Republic suffers no shame at our hands.

In starting out with a bill like the present, so important to the vitality of the treasury, which is to touch so many and such various interests, the machinery by which it is to be put into operation, with the least friction and at the least expense, becomes a question of some magnitude. We have, therefore, looked to such examples as we found upon our statutes, and have endeavored to arrange a system by which all descriptions of duties could be assessed and collected through the same officers.

For this purpose we propose a commissioner of internal revenue, under the direction of the Secretary of the Treasury, who is to have the general charge and superintendence of all matters in relation to internal revenue.

(Here the speaker described what is essentially the present system [1913] of the Internal Revenue Bureau.)

The duties proposed by the present bill rest heavily on spirits and malt liquors—being about one hundred per cent. on raw whisky, fifty per cent. on rum, and twenty-five per cent. on ale or beer—but far below the point at which even some prominent distillers thought they might be safely carried, and yet largely above the point indicated by the majority of those engaged in the business. Much the largest quantity of spirits produced in this country is from corn, and many persons engaged in the business apprehend that we shall cut them up by the roots with a duty so high as even fifteen cents per gallon, and that great injury will result to farming interests thereby. The committee were satisfied these fears are not well founded.

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