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The legislative, executive, and judicial appropriation bill for the fiscal year 1877, approved August 15, 1876, abolished the office of supervisor, which had been created by the act of July 20, 1868. It also reduced the number of collection districts, and abolished gauging at wholesale liquor dealers' establishments. Since then, wholesale liquor dealers have gauged and stamped their own packages.
The act of March 3, 1877, provided special bonded warehouses for the deposit of grape brandy. The privilege of depositing apple and peach brandy in special bonded warehouses was not granted until the act of October 18, 1888.
The joint resolution of March 28, 1878, extended the bonded period on distilled spirits, including grape brandy, from one year to three years.
The act of March 1, 1879, made many important amendments to the internal revenue laws, and reduced the tax on tobacco from twenty-four cents to sixteen cents per pound.
The act of May 20, 1880, is popularly known as the Carlisle Bill, because it was framed by the Hon. John G. Carlisle of Kentucky, then chairman of the Committee of Ways and Means, afterwards Speaker of the House of Representatives, and Secretary of the Treasury in the Cabinet of President Cleveland. Its chief feature was an allowance for leakage of spirits while in warehouse graduated according to the length of deposit,a just provision which had been heretofore denied to the distiller. It also abolished, except in case of export stamps, the tax of ten cents for each stamp heretofore imposed on other than tax-paid stamps, such as distillery and special bonded warehouse, rectifiers', and wholesale liquor dealers' stamps.
The next important act was that of March 3, 1883, which repealed the tax on capital and deposits of banks, the stamp tax on bank checks, matches, cosmetics, perfumery, medicinal preparations, and playing-cards. It reduced the special tax on dealers, manufacturers, and peddlers of tobacco, snuff, and cigars, and also reduced the tax on tobacco to eight cents per pound.
The act imposing a tax on oleomargarine was passed August 4, 1886. It levied a tax of two cents per pound
on the domestic article, and under this law the production has steadily increased from 34,000,000 pounds in 1888 to 67,000,000 in 1893, or just about doubling itself in five years. The hope of the dairy interest that this tax would stifle and extinguish the manufacture of imitation butter has not been realized.
No act of much moment affecting the internal revenue was passed after this until we come to the act of October 1, 1890, known as the McKinley Bill. This made many and radical changes in the law. First it repealed all the special taxes on dealers, peddlers, and manufacturers of tobacco, snuff, and cigars, including leaf tobacco, and reduced the tax on tobacco to six cents per pound. It changed the beginning of the special tax year from May 1 to July 1. It allowed wine-makers to use grape brandy produced in their own distilleries, or withdrawn from special bonded warehouses, in the fortification of wine free of tax. It also imposed a tax of $10.00 a pound on domestic smoking opium, which so far has been fruitful of fraud and but little else. The McKinley Bill further imposed upon the internal revenue office the duty of licensing manufacturers of domestic sugar, overseeing the production thereof, and disbursing the bounty. The commissioner protested to Congress against this duty being devolved upon the internal revenue office, as it related in no way to the duties with which that bureau was ordinarily charged, that of collecting the internal revenues, and recommended that the law be amended so that the bounty might be ascertained and paid by the Secretary of Agriculture. Congress, however, paid no heed to the suggestion, and the ascertainment and the payment of the bounty was made by the internal revenue office in a very satisfactory manner until its repeal. The fact that the internal revenue service through its officers canvasses every county in the United States and Territories was probably the reason why Congress imposed the supervision of the sugar bounty upon it; and this was also the reason why the same office was intrusted with the registration of Chinese laborers under the Geary act. Customs officers are mostly located in the large cities and
exterior ports; otherwise, no doubt, these duties would have been devolved upon the customs service.
Finally my review of the internal revenue legislation brings me to the act of August 23, 1894, known as the Wilson Bill. This act has many notable features bearing on the internal revenue system. First and foremost it reimposes the income tax which had ceased to exist in 1871. It also reimposes the tax on playing-cards. It extends the bonded period of distilled spirits to eight years, and provides a system of general bonded warehouses for the deposit of spirits removed from distillery warehouses. It also provides for the rebate of the tax on alcohol used in the arts, or in any medicinal or other like compound (sec. 61), under such regulations as the Secretary of the Treasury may prescribe. It is evident that the Secretary hopes that this provision of law may be repealed, as he has as yet made no regulations on the subject, and secms indisposed to make any. It must be admitted that this provision, if enforced, might open the door to extensive frauds, particularly in reference to medicinal compounds. On the other hand, it would be a great boon to many manufactures, and might enable us to have again, for domestic illuminating purposes, camphene or burning fluid, which was in general use before the war, and found to be a clean and odorless substitute for oil.
The following are the aggregate receipts from all sources of internal revenue by fiscal years from 1863 to 1894:
Making the enormous sum of four thousand five hundred sixty-three million dollars, in round numbers, obtained from the internal taxes in thirty-two years; and, of this vast total, spirits, tobacco in its various forms, and beer contributed three thousand and twenty-two millions, or two thirds of the whole amount, the respective proportions being, — spirits, $1,649,000,000; tobacco, $931,000,000; and beer, $442,000,000.
The State of New York has been the largest contributor to this total, her entire contribution being $741,000,000, with Illinois a close second, her contribution being $686,000,000. It is to be observed, however, that for twenty years, or since the taxes on incomes and manufactures were repealed, the receipts from Illinois have been far in excess of New York or of any other State. Owing to her distilleries located at Peoria and Pekin, in the great corn belt, and owned and operated by the Distilling and Cattle Feeding Company, which produces much the larger part of the alcohol and neutral spirits distilled in the United States, the receipts from Illinois have been over $30,000,000 annually since 1888, and in 1891 reached an aggregate of $38,000,000. Kentucky, owing to her great whiskey and tobacco interests, is now the second revenue-producing State, her receipts reaching nearly $27,000,000 in 1893, and in 1894 over $24,000,000; while New York contributed $19,696,000 in 1893, and $18,922,000 in 1894.
The greatest aggregate receipts for any one year were in 1866, before any of the war taxes had been repealed, reaching the grand total of $310,000,000. At the beginning, the receipts from the internal revenue for ten months of the fiscal year 1863 were only $41,000,000, but rose to $117,000,000 in 1864, and in 1865 reached to $210,000,000. They have never since, notwithstanding many reductions in the number of articles taxed and the rates of taxation, gone below $100,000,000 per annum, and the average for the whole period has been about $142,500,000 per year.
The tax on distilled spirits was the earliest excise tax to be levied by the government, and will undoubtedly be the last to be relinquished. Altogether this source of revenue has yielded since 1863 $1,644,000,000.00. From 1863 to 1868 the tax was very imperfectly collected, and the gradual increase of tax from twenty cents to $2.00 a gallon only aggravated the frauds which in 1866, 1867, 1868 reached a point never equaled in this country for audaciousness. The corruption was frightful and universal, and permeated the whole service. In those districts where spirits were largely produced, the internal revenue officers, as a rule, were in the pay of the distillers. No honest distiller could remain in the business and compete with his dishonest fellows. The method of collection afforded the greatest opportunities for fraud. An inspector, usually in the pay of the distiller, and whose lawful fees were to be paid by him in any event, pretended to inspect the spirits, and mark with his stencil plate upon the cask or package containing such spirits the quantity and proof of the contents of such cask or package, with the date of the inspection and the name of the inspector. It was then the duty of the inspector to report the spirits to the assessor for assessment. The result was, that not one gallon in ten was reported to the assessor, or, if reported, it was never assessed. The distillers had as many inspectors' stencil plates as they wanted and freely used them. When the tax was $2.00 a proof gallon, high wines, the lowest grade of distilled spirits, were quoted on the market at Chicago and other places at $1.25 per proof gallon, and even less. So gross, open, and palpable were the frauds that, on the receipt of shipments of spirits from the interior producing districts at the seaboard cities, they were as a rule, notwithstanding the casks bore the required inspection marks, seized by the collectors as prima facie illicit; and in many if not most cases, it is shameful to relate, they were, after "negotiations," released by the seizing officers to the liquor dealers for a bribe proportioned to the magnitude of the seizure.