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interpreter to Congress and the American people, whom it represents. Teil them how much I appreciate, and with me the whole of Russia, the testimonies of friendship they have given me, and how happy I will be to see the American nation grow in strength and prosperity by the union and constant practice of the civic virtues that distinguish it.

Accept at the same time the assurance of the high consideration with which I am your good friend,

ALEXANDER.

LETTER

FROM

THE SECRETARY OF THE TREASURY,

TRANSMITTING

A report from Hon. David A. Wells, special commissioner of the revenue, and also a bill prepared by him as a substitute for the custom laws now in force.

JANUARY 3, 1867.-Read and referred to the Committee on Finance, ordered to be printed, and that 2,000 additional copies of the report and 500 copies of the bill be printed for the use of the Senate.

TREASURY DEPARTMENT, January 3, 1867.

DEAR SIR: I have the honor to present to you a report from Hon. David A. Wells, appointed special commissioner of the revenue under the sixty-sixth section of the act entitled "An act to reduce internal taxation, and to amend an act entitled 'An act to provide internal revenue to support the government, &c.,'" approved July 13, 1866, and also a tariff bill prepared by him as a substitute for the customs laws now in force.

Whatever differences of sentiment may exist in regard to the opinions and conclusions of the commissiouer, no one can examine carefully his report and bill and fail to perceive that he has performed a very large amount of labor and endeavored faithfully to discharge the duty devolved upon him. It may not be improper for me to remark that his opinions and conclusions, with very slight exceptions, have my hearty approval. I commend the report and bill to the careful consideration of Congress.

I am, very respectfully, your obedient servant,

Hon. L. F. S. FOSTER,

President pro tem. United States Senate.

H. MCCULLOCH, Secretary of the Treasury.

REPORT OF THE SPECIAL COMMISSIONER OF THE REVENUE.

TREASURY DEPARTMENT,

OFFICE OF SPECIAL COMMISSIONER OF THE Revenue,
Washington, December, 1866.

SIR: In accordance with the act of July 13, 1866, creating the office of Special Commissioner of the Revenue, which provides that "the said special commissioner shall, from time to time, report, through the Secretary of the Treasury, to Congress, either in the form of a bill or otherwise, such modifications of the rates of taxation, or of the methods of collecting the revenues, and such other facts pertaining to the trade, industry, commerce, or taxation of the country, as he may find, by actual observation of the operation of the law, to be conducive to the public interest," the undersigned has the honor to submit the following report, and would request that the same, if approved, be submitted to Congress :

INTERNAL REvenue.

The exhaustive report of the Commissioner of Internal Revenue, already presented, obviates the necessity of any extended reference by the special commissioner to the working and details of this department of the national revenue system; but to a few points he would further direct attention.

By the act of July 13, 1866, an abatement or repeal of internal taxation on various articles to the extent of about fifty millions of dollars was provided for, and this legislation, as was anticipated, has not failed to give sensible and timely relief to many branches of domestic industry, more especially as respects crude petroleum, domestic sugars, clothing, boots and shoes, books, cordage, railroad freights, and the manufactures of steel, iron chains, cables, &c.

The commissioner is not, however, able to report any general reduction in the prices of the articles relieved corresponding to the reduction of taxation; but, on the contrary, in some instances, owing probably to the fact that heavy taxation had previously diminished production to a point below the absolutely necessary supply, the prices would seem to have increased concurrently with the abatement of the taxes. Such a result must, however, be but temporary.

Tax on brokers' sales.-One of the most successful modifications effected by the act of July 13, 1866, has been that which substituted in place of a general tax on the sales of stockbrokers of one-twentieth of one per cent., payable monthly, a tax of one one-hundredth of one per cent., payable by means of stamps affixed to the bill or memorandum of each sale; a heavy penalty being provided for the delivery or reception of any bill or memorandum of such sale without the necessary stamps affixed. The law, as it formerly stood, was a source of constant trouble, vexation, and litigation between the government and the brokers, while the tax in itself was so oppressive as to induce a very general evasion of it, and consequent loss to the revenue. The commissioner is now happy to report that the operation of the present law is most satisfactory; that its provisions are all but universally complied with; while the indications are that, although the tax has been reduced from one-twentieth to one one-hundredth of one per cent., the revenue from this source, so far from being diminished, is likely to be considerably increased.

Stamp tax on the sale of fermented liquors.-The report of the revenue commission, submitted February, 1866, established, almost beyond a doubt, the fact that the government was defrauded in the collection of its legitimate revenue from fermented liquors to the extent of about forty per cent., involving an absolute annual loss of about two millions four hundred thousand dollars.

To remedy this the act of July 13 provided that, in addition to an obligation imposed on the brewer to make a monthly return of the products of his manufacture, the tax itself should be paid by the affixing of an adhesive paper stamp to each barrel sold and removed from the place of manufacture, with an additional requirement that the stamp should be cancelled by the retailer or con

sumer.

The adoption of this plan by Congress was recommended by the revenue commission with no little hesitation; for, while the then existing law seemed to be entirely inadequate to protect the government and the honest dealer against fraud, the adoption of the stamp system for the first time ih respect to an article of this character did not appear to be wholly free from difficulties. The commissioner is, however, able to report, that the plan, so far as has yet been tested, is, substantially, a success, and needs only the general adoption, on the part of the brewers, of a proper adhesive material for atfixing the stamps to the barrel, and a selection of inspectors more capable and honest than many now holding office, to make it entirely so.

So far as can be judged from the return of beer stamps, printed and deliv

ered to the department, from August 20 to November 15-viz: 5,193,520 hogshead, barrel, and fractional stamps, of a total value of $1,886,855-the revenue from this source, for the present fiscal year, is likely to be very materially increased.*

Distilled spirits.-A careful revision of the law regulating the manufacture and sale of distilled spirits, and the collection of the tax thereon, was made by Congress at its last session-the system recommended by the revenue commission being substantially adopted.

A leading feature of this system was the placing of each distillery under the surveillance of a government inspector; it being assumed that, as the government has an interest under the piesent tax (two dollars per gallon) of ninety per cent. in the value of all spirits distilled, it would be an object, on its part, to subject the business to the most careful supervision. It was, however, foreseen by the revenue commission that the establishment of some check upon the inspectors themselves would be most expedient, in order to counteract, to a certain extent, the powerful inducements to a dereliction of duty which the dishonest distillers are able to offer; and the form of a supplementary bill was accordingly reported, authorizing the appointment of district officers, to be termed "supervisors of the revenue," whose duty, coupled with that of a general supervision of all revenue officers, was particularly to see that inspectors of distilleries, breweries, and tobacco manufactories, as well as local weighers and gaugers, were transferred or "rotated," from time to time, from one establishment, or one district, to another. The consideration of this bill was very generally protested against by revenue officers-and more especially by those from the southern districts of New York-and no action was taken in reference to it by Congress. The experience of the last four months, in the working of the spirit and tobacco laws, has, however, demonstrated the necessity and importance of the enactment of some such provision as was contained in the bill in question, and the special commissioner unites with the Commissioner of Internal Revenue in earnestly recommending to Congress an early consideration of the subject.

With this omission supplied, the existing law regulating the manufacture and sale of distilled spirits will probably be found as complete in its essential features as it is practicable to make it; but, as matters now stand, neither this nor any other law for the collection of the revenue on spirits can be other than a comparative failure.

In proof of this, the following statements are submitted: The consumption of distilled spirits in the United States was shown by the investigations of the revenue commission, in 1865, to be about forty millions of gallons per annum ; from which, with a tax of two dollars per gallon, there should accrue an annual revenue of eighty millions of dollars. The result, however, of the last fiscal year shows that the entire revenue which the government actually received from this source was less than thirty millions of dollars, ($29,198,578;) or, in other words, for every three gallons that paid the tax, five evaded its payment. As the average ruling price of spirits in the market during the year was, moreover, not much short of the average cost of manufacture, plus the tax, it is also

*The following table shows the denomination of stamps supplied from August 20 to November 15, 1866, and also the quantities in which fermented liquors enter into the market for consumption:

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evident that almost the entire tax imposed by law was paid by the people, although the government failed to receive it.

This circumstance should also be noted, namely, that, notwithstanding the more perfect organization and working of the internal revenue system, the government received, for the fiscal year ending June 30, 1866, with a tax of two dollars per proof gallon on distilled spirits, only $766,780 more than it did for the fiscal year ending June 30, 1864, when the tax was from twenty to sixty cents per gallon-the aggregate for 1866 being $29,198,578, and for 1864, $28,431,798.

The failure, thus demonstrated, is due mainly to two causes: first, the extremely high rate of the tax; and, secondly, to certain radical evils connected with the administration of the law.

In regard to the first cause, the commissioner would call attention to the fact, that, assuming the average cost of the manufacture of proof spirits as twenty cents per gallon, a tax of two dollars per gallon is equivalent to a tax of one thousand per cent. Granting this, it may be assumed as an axiom in the economy of taxation, that whenever a tax equivalent to one hundred per cent. of the average cost of an article is imposed upon it, a limit has been attained where the ordinary provisions of the law are sufficient for its execution. In proportion as this limit is departed from, the enactment of extraordinary laws to secure the tax becomes necessary; until, finally, a point is reached where the inducement to evade or resist the law becomes too powerful to admit of restraint. All experience, therefore, shows that every excessively high tax contains within itself the elements of its own annulment; and the facts that have been cited relative to the tax under consideration afford one of the most striking illustrations on record of the truth of this principle.

The commissioner, therefore, can but re-express the opinion of the late revenue commission, that a speedy reduction by Congress of the tax on distilled spirits, to one dollar per gallon, as a maximum, would result in benefit, not only to the revenue, but also to the morals of the country.

But the evil which militates most seriously against the productiveness of the tax on distilled spirits is that which arises from the adoption, many years since, on the part of the government, of a national policy which makes the appointment and retention of revenue officers dependent upon other circumstances than those of competency and a faithful discharge of duty. So long as this policy prevails-a policy entirely ignored by all the leading states of Europe, especially as to the excise department, and never adopted by any private firm or corporation having a due regard to their own interests-a thoroughly efficient and economical administration of the revenue, coupled with the education of a competent corps of officials, cannot reasonably be expected.

The losses which have accrued and are now accruing to the revenue through the failure to collect the tax on distilled spirits, tobacco, and a few other articles, are of an amount almost to exceed belief-the losses on tobacco alone, in a single section of the country, being reported to the commissioner, by a most competent authority, as in probable excess of twenty thousand dollars daily. That a very large percentage of these losses is due to the incompetency, neglect, or complicity of officials, no one who has had any experience in the supervision of our revenue system can for a moment doubt, and the whole subject of devising remedial measures requires and deserves the immediate and harmonious action of both the legislative and executive departments of the govern

ment.

So long as the nation was likely to be troubled by a surplus rather than by a deficient revenue, instability in the tenure of office was a circumstance of comparatively little moment; but, under the present condition of the national finances, the case is far different; and it ought now to be clearly understood that every dollar of legitimate and necessary revenue diverted from the national treasury,

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