THE INCOME TAX. The first income tax law ever passed by Congress was contained in section 49 of the act of August 5, 1861, but this part of that act was never put in force. July 1, 1862, the first income law was passed under which collections were made. Under this act, tax was three per cent on incomes over six hundred dollars and not over ten thousand dollars; over ten thousand dollars, five per cent. By the act of June 30, 1864, the tax was made five per cent. on the excess over $600, and not exceeding $5,000; 7 per cent on the excess over $5,000 and not exceeding $10,000; 10 per cent on the excess over $10,000. But the act of March 3, 1865, amended the act of June 30, 1864, before it became collectible, and made the tax on incomes over six hundred dollars and not over five thousand, five per cent; over five thousand dollars, ten per cent on excess above five thousand dollars. Under the act of March 2, 1867, incomes over one thousand dollars were taxed five per cent; and by the act of July 14, 1870, all incomes over two thousand dollars were taxed two and a half per cent. These series of income tax levies expired December 31, 1871; and there was no further income tax levied until the act of August 28, 1894, levied a tax of two per cent on the income above $4,000 for the years from 1894 to 1899, both inclusive. In addition to the above, however, there was a joint resolution passed by Congress July 4, 1864, imposing a special income duty for the year ending December 31 next preceding October 1, 1864, at the rate of five per cent on all incomes exceeding $600, and no deduction was allowed for dividends and interest received which had already paid tax. The extraordinary expenses of the war, which had then reached about $3,000,000 a day, made this double taxation necessary. The amount collected on income during the fiscal years 1863 to 1873 was as follows: After 1873 the collections were scattering, but the aggregate amount collected from the income tax was $346,967,338.12. Objections are made to the income tax on the ground of its unconstitutionality and its injustice. The Supreme Court of the United States, in a unanimous and carefully considered opinion delivered by Mr. Justice Swain in the case of Springer v. The United States, 12 Otto, 586, has affirmed the constitutionality of this tax. The court decided that it was not a direct tax, but an excise tax. Congress has authority to lay and collect excises; the only restriction upon its power in this regard is that they shall be uniform throughout the United States. I do not consider it probable that the Supreme Court will reverse its decision, although only two members of the court are now the same as when the opinion was delivered, namely, Justices Field and Harlan. In regard to the injustice or inexpediency of this tax, these topics are not considered proper subjects for discussion in a work like the present. DISCOVERY OF FRAUDS AND EVASIONS. The discovery of frauds and evasions of the internal revenue law now chiefly devolves upon the revenue agents and their assistants. Nearly all the more important violations of law are now discovered and reported by them. Since the repeal of the moiety system, the local officers, while in most cases perfectly honest and upright, and discharging the routine duties of their offices with fidelity, are not disposed to go out of their way to ferret out frauds among their neighbors and friends in communities where they expect to live and die. It is an open question whether the enactment of a judicious moiety law might not stimulate the zeal of local officers to the advantage of the revenue. The number of revenue agents is small, being only twenty, but they have usually been a very efficient force of picked men, and on many occasions have rendered the government signal services. This was especially to be noted in the case of the St. Louis whiskey frauds, where, while some were faithless, others were so zealous, faithful, and efficient as to enable the government to break up and utterly destroy that formidable conspiracy, and to bring most of the conspirators to trial and punishment. The revenue agents are the eyes and ears of the commissioner, and report to him personally the condition of the service in all parts of the country, and through them he is enabled to know how the local officers in every district are performing their duties. The agents in charge of divisions are frequently transferred, so that local ties may not interfere with their efficiency; and a portion of the force is kept as a flying corps, always traveling, either examining collectors, offices, or ready to proceed to any part of the United States at a moment's notice to investigate frauds on the revenue, or the misconduct of local officers. What may be done by this force in increasing the revenues is shown by the following example. The editor of this volume, then a revenue agent, was in April, 1881, ordered by Commissioner Raum to proceed from Boston to Chicago to investigate a fraud which had been discovered on the part of a Chicago bank in returning the amount of its deposits for taxation. This case having been disposed of by the bank paying a large sum in compromise of its liabilities, I was ordered to make a general examination of the returns made by the banks and bankers in Chicago of capital and deposits for taxation. This occupied about six weeks. The results of this examination were so fruitful to the revenue that in July, 1881, after my return to Washington, General Raum ordered me to Wall Street, New York, to make a similar examination of the banks and bankers at the financial centre of the country, and six of the best accountants in the revenue agents' force were ordered to report to me there for duty under my direction. This investigation continued several months. Other agents were sent to Boston and Philadelphia, and I subsequently made alone an examination of the banks in St. Louis and San Francisco. The results of all these examinations are shown in the commissioner's annual reports, as follows: The receipts from the tax on bank capital and deposits rose from $3,757,912.00 during the fiscal year 1881 to $5,249,172.00 during the fiscal year 1882,- an increase of about a million and a half of dollars in one year, the most of which increase was wholly due to the examinations referred to. In the fiscal year 1883 the tax was repealed, and the collections were made for only six months of that fiscal year, but amounted to as much for the half year as for the whole fiscal year 1881. The thorough collection of this tax undoubtedly secured its repeal. It is but just to say, on behalf of the banks, that but few of their returns were intentionally fraudulent. In most of the cases the insufficient returns were the result of an imperfect knowledge of the law and regulations, and the perfunctory manner in which the local officers performed their duties. As an expression of appreciation for my services in this and other cases, Commissioner Raum wrote me the following letter: TREASURY DEPARTMENT, OFFICE OF INTERNAL REVENUE, C. W. ELDRIDGE, Esq., Internal Revenue Agent, Boston, Sir,In reply to your letter of the 15th instant, you are informed that an assessment of $186,422.11 was made yesterday against the . . . .. Trust Company of . . . for additional tax on deposits. They propose to make payment thereof by depositing the amount with the United States Assistant Treasurer, New York. The recovery of this large amount of tax due the government, and which has so long escaped the notice of the local officers, is due to your sagacious vigilance, and I take great pleasure in acknowledging the marked ability and zeal with which you have conducted the investigation, not alone of this case, but of numerous other cases, resulting in securing to the United States large sums of money from banks, railroads, and other corporations. Respectfully, GREEN B. RAUM, Commissioner. OFFICERS EMPLOYED IN THE INTERNAL REVENUE SERVICE. During the fiscal year ended June 30, 1893, the official force of the Internal Revenue was composed as follows: Porters, messengers, and janitors (salaries from $100 to $600). 30 Gaugers (maximum pay $5.00 per day when employed)....... 518 578 Revenue agents (maximum pay $7.00 per day when employed and $3.00 for subsistence)... Storekeepers and Gaugers (maximum pay $4.00 per day when employed) 1,190 Distillery surveyors . 6 20 Officers, clerks, etc., employed in Washington 211 Total number.. 3,764 The total cost of collecting the internal revenue during the fiscal year ended June 30, 1864, was $3,975,904, or 2.70 per cent. of the collections. The percentage of cost of collections has not varied one quarter of one per cent during the last four years; and it is certainly, considering the wide extent of territory over which these collections extend, a remarkable showing of economy in the administration of the law. CONCLUSION. With the demands of our pension lists requiring over one hundred million dollars a year, and a reduced revenue from customs, it is tolerably certain that our internal revenue system will be continued far into the twentieth century by the stern requirements of our governmental expenses. There is a large element of our population which will not see with equanimity the tax removed from whiskey, beer, and tobacco, and imposed on sugar, tea, and coffee, or other necessaries of life; and it is very possible that the internal revenue taxation may |