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FIRST.– A reduction of the present general tax of five per cent. on the products and sales of manufacturing industry to three per cent., and a corresponding reduction in specific taxes levied on analogous branches of industry.

The amount of such reduction, as reckoned on the basis of receipts from this source for the last fiscal year, would be about thirty-one million dollars. As, however, a reduction of at least fifty millions of dollars was made, in this department of the revenue, by the amended law of July 13, 1866, which has already been allowed for in the estimates presented, and as, in the opinion of the commissioner, a portion of this tax is already evaded through a feeling, on the part of the manufacturers, that it is excessive, unjust, and that its evasion is justifiable, the falling off from the reduction in question will not, probably result in as large a diminution of the receipts as a superficial examination would appear to indicate; more especially when the stimulus which manufacturing industry is likely to receive from an abatement of the tax is also taken into consideration.

SECONDLY,- An entire removal of all direct internal taxes now levied upon the production of bar, plate, and sheet iron, and of such additional taxes as are yet levied upon the elements of the manufacture of steel.

The amount of such reduction, computed on the basis of receipts from this source for the last fiscal year, would be about one million eight hundred thousand dollars. It seems almost unnecessary to assert, so self-evident is the proposition, that the interest of the country requires that all tools, including in that word all machinery, engines, railroads, and implements of every kind, should be furnished at the lowest possible cost, in order that the largest amount of machinery or implements be applied to increase the value of our products, with the least outlay of capital or earnings. As iron and steel are, moreover, the essential components of nearly every form of machinery and implement, it is for the interest of the whole country that this production should be as free from the burden of taxation as possible. A certain and limited amount of capital or earnings can be invested each year in factories, railroads, machine shops, or machines and implements for the cultivation of the soil ; and it is certainly desirable that this limited amount of capital should give the largest result, either in miles of railroad, number of spindles, or in mowers, reapers, ploughs, or implements in general. The entire removal of the tax, then, from these articles, instead of favoring, as it may at first appear, any special business or section of the country, is really legislation in favor of every producing interest, and of all consumers.

Thirdly.- A reduction of the tax of two and a half per cent. on the gross receipts of sugar refiners to one and a half or one per cent.

Owing more especially to improvements recently introduced into the manufacture of raw sugars, the present tax of two and a half per cent. on the refiners' sales is equivalent to a direct protection to the foreign producer, and threatens to seriously impair, if not destroy, the prosperity of the great industry of refining sugar in the United States. This abatement would amount to about one million two hundred thousand dollars, computed on the basis of the receipts of the last

fiscal year.

Fourthly. An entire removal of the internal revenue duty on sulphuric acid, and on the mining and manufacture of emery.

The reasons which lead to the recommendation in respect to the first article, are, that it is an essential element in the manufacturing of many other articles which are subjected to taxation in their finished condition; and in respect to emery, for the reason that it is now an exception to the legislation adopted in regard to all other crude ores, as well as to encourage the development of an entirely new branch of industry in the country.

Ex. Doc. 2-3

FIFTHLY.— The entire remoral of the internal revenue tax upon the manu. facture of salt.

The amount of revenue obtained from this source for the last fiscal years (1865–66) was four hundred and fifty-six thousand one hundred dollars.

Tlic total amount of reduction of the revenue consequent upon the adoption of the above recommendations, taking the receipts of the last fiscal year as the basis of calculation, may be estimated at about thirty-five million of dollars, leaving a surplus available for other purposes of about twenty million of dollars.

DUTIES ON RAW MATERIALS. In the department of the tariff the commissioner further recommends the distinct recognition and adoption, as the basis of present and future legislation, of the principle of abating the duty on raw materials to the lowest point consistent with the requirements of revenue; and of placing upon the free list such raw materials—the product mainly of tropical countries—as are essential elements in great leading branches of manufacturing industry, and do not come in competition with any domestic products. Of these latter dye woods, crude dye stuffs, India-rubber, gutta-percha, bamboos and ratans, sulphur, sumac, raw silk, and ivory may be cited as illustrations.

This principle, as thus annunciated, and which is almost entirely disregarded under the existing tariff, although of late years engrafted on the commercial policy of almost every other civilized state, has been truly defined as the very * essence of protection," and its adoption is believed to be essential to the prosperity of the manufacturing industry of the United States : Give to the manufacturer his raw material cheap, and you enable him to manufacture cheap and sell cheap; and all experience, and all the laws of political economy, teach that with every reduction in the price of manufactured commodities in ordinary use, consumption and production increase in a far greater ratio.

THE TRUE PROTECTION OF THE AMERICAN AGRICULTURIST. If this principle should seem to militate against the agricultural interest, which, in point of numbers engaged and capital invested, is the great interest of the country, and as such has a right to demand precedence in protective legislation, we reply that our whole national experience proves that there can be no practical protection to the American agriculturist, except what he receives from the existence and extension of American manufactures. Out of the one hundred million pounds of wool now grown annually in the United States, not one single pound, under ordinary circumstances, can be sold at a profit in any foreign market, while the statistics of prices for the thirty years prior to 1862 show, beyond a question, that the periods when the wool-growers of the United States and of France alike received the maximum price for their products, have been coincident with those in which the manufacturers of both countries have been least interfered with in the selection of their raw materials. Flax, in the flax. growing districts of New York, was formerly of slow sale at a low price; when flax manufactories came to be established in these same districts the price, with quick demand, rose nearly one hundred per cent., although the tariff during the same period on imported flax was not materially altered. Again, the grower and crusher of linseed grow and crush their products solely to supply the demands of the American painter, and the manufacturers of oil and enamelled cloths, of enamelled leather, oil silk, printers' ink, and varnish ; and if, by the increase in the prices of these commodities, their consumption is restricted or annihilated, the restriction or annihilation comes home as surely to the grower and crusher as to the manufacturer.

Furthermore, the renewing of high or prohibitory rates of duty on the pork,

beef, lumber, wool, and vegetables of the British provinces, consequent upon the termination of the reciprocity treaty, have injured and not benefited the American agriculturist. Canadian lumber we must have, and bave taken it as before, paying ourselves the duty of twenty per cent., and some percentage additional. The exclusion of Canadian “ combing wools" has rendered unproductive capital and machinery invested in the worsted manufacture to the extent of some eight million of dollars, depriving the American wool-grower, on the one hand, of a market for a certain proportion of his product of "clothing wool” to be mixed with the Canada worsted wools, and the American grain-grower, on the other hand, of a market for the agricultural produce required to feed the operatives of the now idle and silent worsted factories. The oats of Prince Edward's island, which formerly found a market in New England and New York, and were paid for in domestic manufactures produced by operatives who consumed western agricultural produce, are now exported to England, and are paid for in British manufactures, produced by operatives who consume British or continental produce. No less beef and pork are now produced, or will be produced, in the British provinces by reason of their exclusion from American markets, but every barrel thus excluded will tend to supplant an equal quantity of the American product in a foreign market, and at the same time deprive the American shipowner of any profit that may be likely to accrue to him from the possession of the carrying trade. And, finally, if any benefit can be imparted to any agricultural interest by the imposition of a duty of ten cents per bushel on Indian corn, (as provided for in House bill No. 718,) when the United States, in the year 1866, exported to Canada a million and sixty-two thousand bushels, and imported less than four thousand bushels-mainly from western France and the Sandwich Islands* —the commissioner is entirely unable to perceive it.

As a further illustration of the principle which we have laid down, that the true and only protection of the American agriculturist is to be found in the existence and extension of American manufactures, we present the following statements :

The wheat crop of the United States for 1865, according to the estimates of the agricultural bureau, was 148,522,827 bushels, and the corn crop 704,427,853 bushels. Of this quantity there were exported to Great Britain and entered for British consumption 1,183,689 cwt. (2,209,552 bushels), as compared with 19,905,451 cwt. (37,156,842 bushels) imported into Great Britain from all other countries; while of 3,932,788 cwt. of wheat flour imported into Great Britain, only 262,876 cwt. were received from the United States. On the other hand, New England and New York alone, in 1860, required twenty-six millions of bushels of wheat, in addition to their own production, to make up their consumption; while of the value of the whole agricultural products of the country, for the same year, including hay, butter, wine, potatoes, tobacco, hemp and wool, as well as grain, but excluding cotton, rice, and sugar, only two and threefourths per cent. was estimated to have been exported, leaving ninety-scven and one.fourth per cent. for the home market and consumption.

The great want of the western agriculturist is a remunerative and certain

*Statement showing the quantity and value of Indian corn imported into the United States during the fiscal year ending June 30, 1866, and the countries from which imported: France, on the Atlantic..

Bushels, 2,808 Value in gold, $2,559
Sandwich Islands...

573

562 Canada.

111

91 Holland

107

30 Belgium

57

165 British West Indies.

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market for his surplus products; and this want is likely to increase rather than diminish. Experience has shown that this surplus cannot, in its crude condition, find any sufficient outlet in foreign markets. With the exception of Great Britain, nearly all of the states of Europe are now food exporters rather than food importers; and were Great Britain to draw the entire amount necessary to make up her annual food deficit from the United States, the American surplus would, in a few years, be as large as ever. Were, however, the American manufacturer placed in a condition in which he could compete in foreign markets for the sale of even a moderate percentage of his products, the exportation of agricultural produce transmuted from its crude condition by the labor of American operatives would be practically unlimited. The securing of similar results constitutes a leading feature in the commercial policy of most of the European states, and in their annual financial exhibits the extent of exports of manufactured articles is regarded as one of the most unerring indications of current financial prosperity. In the United States, on the contrary, the public in general regard this matter with feelings akin to indifference, while legislation, made most frequently in accordance with the persistent demands of special interests, tends not only to the destruction of the foreign, but also of the home market. Two illustrations on this point are most significant. Ten years ago the American manufacturer supplied, to a considerable extent, fur hats to the Mexican, Cuban, and South American markets; to-day he supplies comparatively none. Why? Because the duty on foreign fur, the raw material of his manufacture, has prevented the American from competing with the foreign producer. Thirty years ago the manufacture of broadcloth constituted from fifty to sixty per cent. of the whole woollen business of the United States ; now, it is not probably in excess of five per cent. Why? Because American legislaion has not permitted the importation of broadcloth wools, and the American agriculturists have produced nothing to take their place, and never will until the successful establishment of the broadcloth industry in the United States has created a constant home demand for “ broadcloth” wools.

The enforcement of the so-called Monroe doctrine is regarded as a cardinal feature of American policy. Is it not time to inquire whether this policy cannot be effectively strengthened by legislation looking to the extension of American trade, as well as by diplomatic negotiation or a menace of force ?

INCREASE OF THE TARIFF CONSIDERED AS A REMEDIAL MEASURE.

Let us now consider how far the proposed increase of the tariff, so very generally demanded and given by the House bill No. 718, will prove effective in relieving the industry and stimulating the development of the country.

The evils which now affect the trade, industry, and commerce of the country, are mainly due, as has already been demonstrated, to an extraordinary and abnormal advance in the price of all labor and commodities as compared with the prices which prevailed in the United States prior to the war, or which now prevail in foreign countries with which the United States maintains commercial intercourse. The evil is a radical one; confined to no one section and to no one interest; the remedy must, therefore, be also radical.

In considering the question of the extent to which an increase of the tariff is likely to prove remedial, this fact in the outset should be clearly borne in mind, viz: that all taxes are in the nature of an assessment upon the annual production of the nation, whether such taxes are levied in the form of a duty upon foreign imports for which domestic products have been exchanged, or in the form of an internal tax upon domestic products in their crude or manufactured forms. Now, an increase of the tariff, or, to express the same thing in more exact language, an increase of taxation on imports, especially an increase as extensive as that given in the House Bill No. 718, is clearly legislation in the

direction of higher prices. If this result does not in general follow, then the end sought for by those who ask for the increase in question will not be attained.

Let us, however, consider the immediate and ultimate effect upon the producer and consumer of such an increase in the case of a leading article especially affected by the tariff.

The agriculturists of certain sections of the country complain that, owing to the high cost of labor and commodities, they are unable, as heretofore, to raise wool at remunerative prices. They accordingly ask for an additional duty of four cents per pound specific and ten per cent. ad ralorem on all importations of unwashed wool; while the manufacturer necessarily follows with a demand for a corresponding increase in the rates of duty upon the importations of all manufactures of wool. Both parties expect to obtain, and doubtless will obtain, an immediate increase of price for their respective commodities corresponding to the increase of duties imposed; which increase of prices, as will be shown hereafter, will tax the domestic consumer, supposing the consumption of wool and woollens in the future to be equivalent to that of the last fiscal year, to the extent of thirty-two millions per annum over and above what he now pays. sum equal to more than one-fourth of the present annual interest on the national debt.

No principle in the economy of taxation is, however, better recognized at the present day, than that a tax, in an essentially free community, upon one of the necessaries of life, is in fact a tax upon all, and, like the pressure applied to the surface of water, distributes itself rapidly and with great uniformity.* It therefore follows, that a tax on the consumer, like that resulting from the increased cost of wool and woollens under consideration, both absolute necessaries, will soon distribute itself throughout the whole community, and will eventually manifest itself and reappear in the shape of an increased price for all other forms of labor and commodities; thus aggravating the very evil which in the outset it was intended to remedy, and necessitating a further increase in the volume of currency in order to facilitate exchanges at a higher level of prices. If now the representatives of the other producing interests come forward and demand, as in equity they certainly have a right to do, that in consideration of the increased cost of their products-arising from the additional taxation of thirty-five millions leveid for the benefit of wool.growers and wool-manufacturers—increased duties be also levied for their benefit, it is evident that a compliance with this demand would leave prices relatively as before, with the exception that they would be brought to a still higher level and be rendered even more unstable and abnormal.

Again, let us, apart from all other considerations, next inquire whether an increase of prices, or, to state the question more fairly, whether“ an opportunity, artificially created, to immediately increase production," will give to the manufacturer the advantage he expects to obtain through an increase of the tariff? We think not, and for the following reasons :

* " The manner in which a tax diffuses itself is thus : to the extent that any individual or class can transfer the onus of a tax to others by including it in the price of his commodities or services, such individual or class invariably does so, but nevertheless each individual or class does so in the face of a constantly decreasing number of those left to sustain the tax. This transfer of liability occurs again and again, till having reached to the farthermost, it finds its way back, like the answering ripples of a pond or the responsive echoes of a valley, to the point whence it starts, but somewhat modified in its intensity, every intermediate individual or class having had to suffer in the increased prices of the products or services of those immediately beyond them, a portion of the liability. These ripples and answering ripples of transferred liability, after repeatedly flowing back and forth into one another, at length come to a comparative state of rest; and thus all members of the community become eventually equally burdened.''

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