DISTILLED SPIRITS, considered in reference to Taxation—Experience of the United States. Since the time of Charles II, when taxes were, for the first time in England, imposed on distilled spirits, this article has been regarded by the legislators and fiscal administration of all civilized states as an eminently proper subject for taxation for the purpose of revenue. Great Britain at present (1881) imposes a tax on distilled spirits of 10s. ($2.50) per imperial proof gallon of 227 cubic inches, which is equivalent to 7s.4d.($1.80) on the proof wine gallon of 231 cubic inches, adopted as the American standard; and for the fiscal year 1881 she derived a revenue from this source of £14,393,572 ($71,967,000) on a home consumption of 29,047,303 imperial gallons. For the year 1878 the revenue derived by France from taxes on the production and consumption of all domestic liquors was returned at 81,716,000 francs ($16,345,000); and in Sweden, in 1874, at $3,718,000. In Russia the manufacture and sale of distilled spirits is a strict government monopoly; and of the entire income of the government from ordinary sources, fully one-third is derived from the taxes on domestic liquors. The existing taxes are believed to be equivalent to about one dollar gold per gallon. The taxes on distilled spirits in the other European states vary greatly in amount and as respects the methods of assessment and collection; and the average rate is much less than that established in Great Britain or Russia.
—The experience of the United States in this matter has been most peculiar and instructive, and its record, which it is here proposed to make, constitutes one of the most extraordinary and interesting of chapters in the history of economic science. The first attempt to tax distilled spirits of domestic production in the United States was made in 1791; the annual product at that time, according to the report of the secretary of the treasury, Alexander Hamilton, being about 6,500,000 proof gallons; of which 3,500,000 was estimated as derived from the distillation of foreign materials, mainly molasses and syrups. Although the taxes imposed were comparatively light, (from 9 to 11 cents per proof gallon), and the necessities of the government for revenue most urgent, their imposition provoked great opposition and resistance; and in 1794 the western counties of Pennsylvania rose in open insurrection against the enforcement of the law. And it was not until an army, drawn from the militia of the neighboring states, had marched into the disturbed district and seized the leaders of the insurgents, that the authority of the federal government was re-established. The cost of this insurrection to the government was $1,500,000; while its total expenditures for the same year for all ordinary purposes, were only $4,362,000. Upon the accession of Mr. Jefferson to the presidency in 1800, and upon his recommendation, the whole system of internal taxation by the federal government was repealed; and although temporarily renewed in 1813, in consequence of the war with Great Britain, such taxes practically formed no part of the fiscal system of the government of the United States during the more than half a century that elapsed between 1817 and 1862. During the whole of this period, therefore, the manufacture of distilled spirits in the United States was free from all specific taxation or supervision by the federal government, and also to a great extent by the governments of the several states; and, being produced mainly from Indian corn, the cheapest of all cereals, at places adjacent to the localities where the corn was cultivated, they were sold at a very low price; the average market price in New York for the five years preceding the year 1862 having been 24 cents per proof gallon; with a minimum price during the same time of 14 cents per gallon. Under such circumstances the production and consumption of distilled spirits in the United States previous to the war, for a great variety of purposes, had become enormous; the product for 1860 being returned by the census of that year at 90,412,581 proof gallons, an estimate which subsequent investigations proved was rather under than over the then actual production; while the maximum quantity ever exported in any one year was not in excess of 3,000,000 gallons.
—The peculiarities of manufacture, trade and consumption, growing out of the circumstance that the United States at that time—alone of all civilized countries—enjoyed an almost unlimited supply, at an extraordinarily low price, of an article so essential to many arts, and so extensively desired for personal use, was also very remarkable; and especially interesting, also, from the contrast between the condition of things in Europe, where the price of the same article, by reason of a government fiscal policy universally adopted, was constantly maintained at such an extraordinarily high rate as to restrict its consumption in the arts and for personal uses to the narrowest of limitations. Thus, one of the purposes, unknown in Europe, for which this product of spirits was extensively used in the United States at this time, was for the manufacture of an illuminating agent termed "burning fluid," which was composed of one part of rectified spirits of turpentine, technically termed "camphene," mixed with from four to five parts of alcohol, each gallon of alcohol thus used requiring for its manufacture 1.88 gallons of proof spirits, by which is to be understood a mixture of about 50 per cent. alcohol and 50 per cent. water. Large quantities of burning fluid were also prepared at the south and west by mixing alcohol direct with the crude or commercial spirits of turpentine; and the whole quantity of alcohol used for all such purposes in the United States in 1860, was estimated by the United States revenue commission to have been at least 16,000,000 gallons, requiring over 25,000,000 gallons of proof spirits. Some idea of the extent of the production of this article may be gained from the statement that the manufacture of burning fluid in 1860, in the city of Cincinnati alone, required an amount of alcohol equal to the distillate from 12,000 bushels of corn for every 24 hours. The excessive cheapness of alcohol—its price in the New York market from 1836 to 1862 ranging from 30 to 60 cents per gallon—also led to its extensive use for a multitude of other industrial purposes: such as the manufacture of varnishes, hat-stiffening, furniture polish, perfumery, tinctures, patent medicines, imitation wines, percussion caps, and in dyeing, cleaning, lacquering, bathing, and even as fuel in domestic culinary operations. Many preparations for the hair, which at that time in other countries, as now almost universally, were prepared very largely on a basis of fats and oils, were in the United States then compounded almost wholly on a basis of alcohol; the comparative difference in the price of this article in the United States and Europe giving an entirely different composition to products of large consumption intended to effect a common object. From testimony given before the United States revenue commission in 1865, it was established that the sales of one single rectifying house in the city of New York averaged over 30,000 gallons of alcohol (equivalent to 56,000 gallons of proof spirit) per annum, for the preparation of hair tonics; 81,000 gallons of alcohol to one firm for the manufacture of a popular article of cheap perfumery; 125,000 gallons to another firm for an imitation wine; and 41,000 gallons to a third for a patent "pain-killer." A single firm in western New York, engaged in the manufacture of a horse medicine, reported a consumption for this purpose of over 50,000 gallons of proof spirits per annum; and one distiller in the same section of country reported a regular monthly sale of 8,000 gallons of proof spirits, or 96,000 gallons per annum, for the single purpose of "fortifying" cider intended for export to tropical countries, or for sale in the southern states or California. Instances were also made known of individual hair-dressers in the large cities using 400 gallons of alcohol yearly in their local business; and of others whose consumption of alcohol in the preparation of articles having merely a local sale reached 2,000 gallons per annum.
—The necessities of the federal government for increased revenue, consequent upon the outbreak and continuance of the civil war, early demanded an increase in the amount and sphere of national taxation; and distilled spirits were among the first articles of domestic production and consumption upon which the new taxes were levied. The first tax imposed (act of July 1, 1862,) was 20 cents per gallon. By the act of March 7, 1864, this rate was raised to 60 cents; by the act of July 1, 1864. to $1.50; and Jan. 1, 1865, the rate was further advanced to $2. The first effect to be noticed of the imposition, alteration and rapid increase of these internal taxes upon distilled spirits, is their industrial influence. This amounted, in fact, to an industrial revolution, essentially modifying and even destroying great branches of industry; and yet these effects, in presence of other and greater events, continually and contemporaneously occurring, and which affected the life and destiny of the nation, passed comparatively unnoticed. For example, the manufacture of "burning fluid" entirely ceased; the increase in the price of its principal constituent—alcohol—from an average of 34 cents per gallon in New York in 1861, to $4.25 per gallon in the spring of 1865, having converted it from one of the cheapest to one of the dearest of illuminating agents, and made its general use impracticable. But by one of those happy circumstances which have so often characterized the experience of the United States, the industrial and economic disturbances which might naturally have been expected from this change, were to a great degree speedily neutralized by the almost contemporaneous discovery (1859) in Pennsylvania, of vast supplies of petroleum and the rapid utilization of its distillates for the preparation of a cheaper illuminating material than even burning fluid; so that in a short time the business of collecting, preparing and exporting petroleum became, as it yet is, one of the most important industrial interests of the country. And as a further curious illustration of the changes consequent upon the disuse of burning fluid and the introduction of petroleum products for illumination, it may be stated, that the demand for the new patterns of lamps and their appurtenances, adapted to burn the new material, was alone sufficient to employ the then entire manufacturing capacity of all the glass works in the country for a period equivalent to two years. Druggists and pharmaceutists estimated the reduction in the use of alcohol in their general business, consequent upon its increased cost from taxation, at from one-third to one-half. Manufacturers of patent medicines and cosmetics abandoned their old styles of preparation and adopted new. The manufacturer of horse medicine, before noticed, who used proof spirits at the rate of 50,000 gallons per annum, testified that his business was wholly destroyed. Varnish makers reported a reduction in the use of spirits in their business to the extent of 80 per cent; other and cheaper solvents for the constituent gums, such as wood naphtha, benzine, etc., being substituted. Hatters, who before used large quantities of "stiffening" composed of shellac dissolved in alcohol, in the manufacture of hat bodies, substituted glue in its place, or used cloth in the place of felt. The export of cider, tinctures and cheap perfumery was seriously curtailed; while the increased price of vinegar, before manufactured largely from whisky, so far affected the cost of the manufacture of pickles and white lead as to greatly diminish domestic consumption, and almost entirely prevent exports. No very large sales of distilled spirits for the manufacture of cheap imitation wines were reported after 1864. The curators of some of the leading muscums—anatomical or natural history—of the country, attached to institutions of learning, memorialized congress, that, owing to the high price of alcohol, they were not able to make good the constant waste of this substance (leakage and evaporation) as employed by them for scientific purposes; and that, in consequence thereof, many important collections were becoming rapidly impaired in value, while the progress of scientific discovery and research was greatly impeded. Congress accordingly provided for the supplying of alcohol to such institutions from bonded warehouses, free of tax.
—Concerning the influence of the increase of price on the use of spirits for drinking purposes, there was considerable discrepancy of opinion from those best qualified to judge. Previous to the war raw whisky was retailed in every part of the country at from 7 to 15 cents per quart; and at such rates it was within the ability of every laborer to indulge freely. The weight of testimony taken by the United States revenue commission was to the effect that no marked diminution of the sales of liquors by retailers to the poorer classes of consumers was noticed until the tax was raised above 60 cents per gallon; but that subsequently, when the tax was advanced to $1.50 and $2 per gallon, the reduction of consumption was considerable; and that beer was largely substituted for whisky. On the contrary, with all those classes with whom, by reason of a abundant means, the enhanced price of liquors was a matter of but slight consideration, the consumption of distilled spirits was probably not diminished. The tariff on imported liquors having been at the same time increased in a greater proportion than the tax on domestic spirits, the demand for "foreign" liquors largely fell off: but this loss was fully or more than supplied by an increased sale of American whisky, which, under the popular name of "Bourbon," became nationalized as a beverage to a greater extent than at any former period. As was naturally to be expected, with the large increase in the cost of the original product of spirits, the temptation to adulterate the final product sold by retailers was greatly augmented; and the extent to which adulteration was practiced is shown by the circumstance that, when gin purporting to be of foreign manufacture was selling in New York in 1860 at 65 cents per gallon, the low retailers of that city charged six cents per glass; and that subsequently, when the wholesale price of the same liquor was $3.25 per gallon and upward, the former retail price remained unaltered. It is also to be noted that, from about the time when taxation largely enhanced the price of distilled spirits in the United States, the consumption of certain drugs which can be used as stimulant substitutes for spirits, particularly opium and its derivatives and Indian hemp, began to increase. Thus, in 1860, with a duty of $1 per pound, the importation of opium, crude and prepared for smoking, was 119,525 lbs.; in 1865, with a duty of $2 30 per pound, the importation was 123,470 lbs.; in 1872, with a reduction of duty to $1 per pound, the importation was returned at 205,829 lbs; in 1875, 251,012 lbs.. in 1878, 262,556 lbs.; and in 1880, 320,408 lbs. The importation of morphine and its salts, which was merely nominal in 1864, was returned at 172 ounces in 1865, 687 ounces in 1867, 1,884 ounces in 1869, 3,002 ounces in 1878, and 3,490 ounces in 1880. What proportion of this increase was due to the high prices of alcoholic liquors. and what to the excitements of the war and the speculative periods which succeeded, can not be affirmed; but that all these causes have proved operative, and that the consumption of opium and Indian hemp has progressively increased since 1864-5, in the United States, can not be doubted.
—We come next to consider what to the economist is the most interesting portion of this experience in progressively and inordinately taxing distilled spirits, namely, its fiscal results. The first tax imposed on distilled spirits of domestic production, was, as already stated, 20 cents per proof gallon. This tax, exclusive of the revenue derived from licenses to wholesale and retail liquor dealers, for rectification, etc., yielded for the fiscal year ending June 30, 1863, a revenue of $3,229,911, indicating a production of 16,149,955 proof gallons. As production, in anticipation of the tax, was, however, for some time previous to its imposition, pushed to the utmost extent, the amount received in revenue from distilled spirits for the year 1862-3 (and also for like causes in subsequent years) constitutes no criterion of the actual production and consumption of the country. The tax of 20 cents continued in force until March, 1864, when the rate was advanced to 60 cents per proof gallon. The direct revenue from distilled spirits for the fiscal year ending June 30, 1864, under the two rates as above indicated, was $28,431,000. On July 10, 1864, the tax was further advanced to $1.50 per proof gallon; and on Jan. 1 succeeding, to $2. The revenue derived from this source for the fiscal year ending June 30, 1865, was $16,007,776; and for the succeeding fiscal years, 1866-7, with a continued and uniform tax of $2, was, respectively, $29,482,077 and $29,164,000. With the imposition of the high taxes upon this product, however, the inception and practice of frauds upon the revenue commenced upon a most gigantic scale, and soon became so successful, and so reduced to a system, that in 1868 it seemed as if the whole country and the government itself were becoming corrupted and demoralized. In the outset, while the war and its varying fortunes were engrossing the attention of the government and the people, the efforts made to repress and punish frauds in this department of the revenue were of absolutely no account whatever; and, indeed, it may be alleged with truth, that the whole spirit and working of the statute was in the direction of the encouragement and promotion of fraud; congress, in the first instance, under the influence of speculators. having advanced the rate of taxation on three occasions with ample premonition, and without making the advance applicable to stocks on hand, which had been manufactured specially in anticipation of the legislation in question; and secondly, by so devising the law and providing for its execution as to make the detection and proof of fraud almost impossible. The immediate effect of the enactment of the first three and successive rates of excise, was to cause an almost entire suspension of the business of distilling, which was resumed again with great activity as soon as an advance in the rate of tax in each instance became probable. The stock of whisky and highwines accumulated in the country under this course of procedure was without precedent; and congress, by its refusal to make the advance in taxation, in any instance, retroactive, virtually legislated for the benefit of distillers and speculators, rather than for the treasury and the government. The profits realized by the holders of stocks, thus made in anticipation of the advance in taxation, has probably no parallel in the history of any similar speculation or commercial transactions in this country, and can not be estimated at less than $50,000,000. When the opportunity for the realization of profits from manufacturing in anticipation of the tax ceased by the prospective permanent maintenance of rate, the opportunity offered by the imperfections of the law was in turn eagerly cultivated and improved. Testimony brought to light repeated instances where individual distillers manufactured. conveyed to market, and fraudulently sold spirits in quantities varying from 20,000 to 80,000 gallons and upward, without a suspicion on the part of local officers that the business was not in all respects conducted legally and honestly. It was sworn to before the revenue commission in 1865-6, that the determination of the strength of the distilled spirits preparatory to assessment, was often made by mere physical inspection or taste, and that the use of instruments (for which no uniform standard was provided) was regarded as something wholly unnecessary. It was also not unfrequently the case that barrels were inspected and branded some days in advance of their being filled, and the future regulation—filling and removal—left entirely with the manufacturer. Distillers and their workmen were sometimes constituted inspectors of their own products; and in one instance an assessor was known to have been appointed who did not possess sufficient intelligence to understand and correctly use either a gauging rod or a hydrometer. Thus it was at the commencement of the period of high taxation; but subsequently, and after the close of the war, when the administration of the new revenue laws became more intelligent and vigorous, and some degree of concealment to the projectors of fraud became necessary, the expedients successfully adopted for the evasion of the tax were in the highest degree characteristic of the ingenuity of the people. One of the most fertile of these was made available through a provision of law which allowed spirits to be made and stored in bond, or exported in bond, without prepayment of the taxes. Thus, for example, spirits deposited in bond were, through the connivance and corruption of poorly paid officials, acting as guardians, secretly withdrawn from bond, the barrels filled with water or some cheap compound, and subsequently exported. On receipt of the landing certificate, obtained through a consul of an inferior grade, the bonds given by the manufacturer for the payment of the taxes were canceled, and the profits derived from the sale of the untaxed spirits in the domestic market, at the tax paid rate, were divided among all concerned. Warehouses from which spirits deposited in bond had been fraudulently withdrawn, were also frequently burned, and the bonds canceled on evidence of loss, wholly fraudulent, but so strongly supported by perjury, as to be difficult of dis-proof. Large losses were also sustained by the government by the acceptance, as the basis of large transactions, of bonds which subsequent investigation, contingent on the exposure of more open frauds, showed were purposely made and given by persons of no responsibility, who, in some instances, by pre-arrangement, agreed 'to accept the risk of prosecution and trial, with an almost certainty of non-conviction by a jury, for a stipulated compensation or a share in the anticipated fraudulent profits. In short, the tax of $2 per proof gallon on distilled spirits (amounting to above 1,000 per cent. advance on the average cost of manufacture), and the enormous profits contingent upon the evasion of the law, coupled with the abundant opportunity which the law, through its imperfections and the vast territorial area of the country, offered for evasion, constituted a temptation which it seemed impossible for either manufacturers, dealers or officers to resist; and the longer the tax remained at a high figure, the less became the revenue and the greater the corruption. During the year 1867 the revenue directly collected in the United States from distilled spirits, as already stated, was about $29,000,000, indicating a domestic production of some 14,500,000 gallons. But during the succeeding year, 1868, with no apparent reason for any diminution in the national production and consumption of spirits, and with no increase, but rather a marked diminution in the volume of imports of foreign spirits, the total revenue from the same source was but little in excess of $14,000,000, indicating a production of only 7,000,000 proof gallons; proof spirits at the same time being openly sold in the market, and even quoted in price currents at from 5 to 15 cents less per gallon than the rate of tax and the average cost of manufacture. We have also, in these figures, the materials for approximately estimating the measure and strength of the temptation to evade the law, and the amount of profit that must have accrued in the single year 1868 from the results of such evasion. For as the consumption of distilled spirits for all purposes in the country during that year was probably not less than 60,000,000 gallons, and as out of this the government collected a tax upon only about 7,000,000 gallons, the sale of the difference at the current market rates of the year, less the average cost of production (estimated as high as 30 cents per gallon), must have returned to the credit of corruption, a sum approximating $80,000,000. To this must be added a further unknown but undoubted loss of revenue, growing out of the circumstance, that the influence of successful fraud in the matter of distilled spirits seemed to infect and demoralize almost every other department of the internal revenue.
—But notwithstanding the fact that the current price at which distilled spirits were sold in the markets of the country was everywhere recognized and commented on by the press as less than the amount of the tax, and as allowing nothing whatever for the cost of manufacture, and notwithstanding that the existence and extent of the frauds in the manufacture and sale of spirits was for three years annually reported upon and in detail by the officials of the treasury, it was with great difficulty that congress could be induced to take any action looking to remedies by the enactment of more perfect laws, providing for more efficient administration or for diminishing the temptations to fraud by reducing the tax; and it was not until the revenue from this source bid fair to disappear altogether, and the popular manifestations of discontent became very apparent, that anything really was accomplished; a report from the committee of ways and means of the house of representatives. In favor of a new law and a reduction of the tax, having been actually delayed in 1867 a whole year, by the appeal of a leading member of the committee for postponement of action, on the ground that it would be derogatory to the honor of a great nation to confess, after having triumphed in the most gigantic of civil wars, its inability to control the domestic production and sale of whisky. How expensive this speech and its resulting delay proved to the national treasury is shown by the circumstance, that the receipts from the direct tax on distilled spirits fell off in the fiscal year 1868 to the extent of $14,874,000 as compared with the receipts for the previous fiscal year, 1867, or from $29,164,000 to $14,290,000; while, on the other hand, when by the act of July 20, 1868, the direct tax was reduced to 50 cents per proof gallon, the receipts for the ensuing and incomplete fiscal year increased at once to the extent of nearly $20,000,000, or from $14,290,000 in 1868 to $34,245,000 in 1869, and $39,244,000 in 1870; or, including all taxes on the manufacture and sale of distilled spirits, licenses, etc., the advance was from $18,655,000 in 1868 to $45,071,000 in 1869, and to $55,606,000 in 1870. It is to be here noted, that in framing the law of July 20, 1868, by which the direct tax was reduced from $2 to 50 cents per proof gallon, the intent, which was realized, was to make the total aggregate tax 70 cents per gallon, but to impose only 50 cents as a maximum tax on the spirit as an article of manufacture, and to distribute the balance (20 cents) in the way of licenses, fees, etc., at points intermediate between the manufacture of the spirits and their final sale to consumers, but so remote from and so disconnected with the process of manufacture as to render collusion between producers and distributors, with a view to gain by evading the law, almost wholly impracticable. Another leading object was to fix the direct tax at such an amount as would keep down the temptation to fraud to the greatest possible extent consistent with the procurement of such an amount of revenue as was demanded by the necessities of the government. The sum recommended by the then United States special commissioner of the revenue, and subsequently adopted by congress, was 50 cents per proof gallon; because investigations, carefully conducted, showed that on the average the product of illicit distillation costs, through deficient yields, the necessary bribery of attendants, and the expenses of secret and unusual methods of transportation, from two to three times as much as the product of legitimate or legal distillation. So that, calling the average cost of spirits in the United States 20 cents per gallon, the product of the illicit distiller would cost from 40 to 60 cents, leaving but 10 cents per gallon as the maximum profit to be realized from fraud under the most favorable conditions—an amount not sufficient to offset the possibility of severe penalties of fine, imprisonment and confiscation of property, which were made an essential feature of the new enactment. In the whole history of political economy, finance and jurisprudence, there never was a result that so completely demonstrated the value of careful scientific investigation in connection with legislation in these departments. Illicit distillation practically ceased the very hour the new law and new rule came into operation; and evasions of law were confined to occasional false returns, and a re-use, on a very limited scale, of the stamps with which the tax was for the first time made payable by purchase and cancellation. Industry and the arts experienced a large measure of benefit from the reduction in the cost of spirits; while the government collected during the second year of the continuance of the act three dollars for every one that was obtained during the last year of the continuance of the $2 rate.
—The subsequent history of the experience of the United States in the matter of taxing distilled spirits may be quickly told. In 1869 a new national administration came into power; and during the next two years, frequent removals of revenue officials were made for political purposes. The result showed itself in a decrease of the gross revenue from distilled spirits from $55,606,000, in 1869-70, to $46,281,000, in 1870-71; increasing to $49,475,000 in 1871-2. In June, 1872, congress, on the recommendation mainly of a commissioner of internal revenue (who was selected for the office for reasons other than economic knowledge, or experience in respect to taxation), aided also by a speculative interest, increased the direct tax on spirits from 50 to 70 cents per proof gallon. The result for the first year of the new tax showed an increase in gross revenue of only $2,624,000 as compared with the receipts of the previous year, 1871-2, the last of the 50 cent rate; and a loss of $3,507,000 as compared with the receipts of 1869-70. The next year, 1873-4, the gross receipts were $33,911 less than the receipts of 1871-2. Uninstructed, however, by this experience, congress, in March, 1875, on the recommendation of men who, as subsequent events showed, had no thorough acquaintance with the subject, again advanced the tax from 70 to 90 cents per proof gallon, at which rate it has remained up to the date of the present writing—1881. The result was exactly that which no gift of prophecy was requisite to anticipate or predict. The rate of 70 cents per proof gallon constituted a moderate temptation to fraud. Its increase to 90 cents constituted a temptation altogether too great for human nature as employed in manufacturing and selling whisky, to resist; and fraud and evasion of the law on an extensive scale were soon inaugurated. During the years 1875-6, highwines sold openly in the Chicago and Cincinnati markets at prices less than the average cost of production, plus the government tax. Investigations conducted under the then secretary of the treasury, Hon. B. H. Bristow, showed that the persons mainly concerned in the work of fraud were the government officials rather than the distillers; and that a so-called "whisky ring," organized for the purpose of fraud and having its centre at St. Louis, extended to Washington, and embraced within its sphere of influence and participation, not merely local supervisors, collectors, inspectors and storekeepers of the revenue, but even officers of the internal revenue bureau, and probably, also, persons occupying confidential relations with the executive of the nation. As the result of these investigations, many arrests were made and prosecutions instituted, and a few prominent persons were finally convicted, and punished by fine or imprisonment. But such, nevertheless, was the political influence of the "whisky ring," and such the offense given by the secretary of the treasury by reason of his energetic action and sturdy unwillingness to compromise and cover up fraud, that this gentleman, to the disgrace of the nation, felt compelled to resign, and with draw from his office. The general result of legislation in respect to federal taxation of distilled spirits since the reduction of the tax from $2 to 50 cents per proof gallon, in July, 1868, is shown by the following summary statement: The average quantity of proof gallons which paid a tax, and presumably entered into consumption, during each of the four years of the 50 cent rate, i.e., from July, 1868, to June, 1872, inclusive, was 68,312,780 gallons; the maximum amount in any one of this period of years having been 78,490,196 gallons, during the fiscal year 1869-70. The average quantity of proof gallons which paid tax during the three years of the 70 cent rate. was 63,721,000 gallons. The average quantity which paid a tax during four fiscal years of the 90 cent rate, or from 1876 to 1879 inclusive, was 56,775,000 gallons. For the fiscal year 1880, the last for which complete returns are available at present writing, it was 62,131,000 gallons; or, in other words, with an increase of 80 per cent. in the amount of the tax since 1872, with an increase in population of at least 8,000,000, with no apparent diminution of consumption, and in a year unparalleled in the history of the country for the prosperity of the masses and the activity of manufactures, the annual production of proof spirits in the United States in the year 1880, of which the government was able to take cognizance, and assess for revenue purposes, was upward of 16,000,000 gallons less than were demonstrated to have been produced and consumed in the year 1869-70, or 10 years previously. With larger experience and a purer and better administration, illicit distillation and other evasions of the laws relating to the taxation of distilled spirits have apparently largely diminished in the United States. In the mountainous, sparsely settled districts of the southern states, illicit distillation is systematically carried on, and has thus far resisted all efforts of the civil and even military power of the government to effectually suppress it. Isolated cases of violation of the law are also frequently detected in other sections of the country. But these instances, though extensive as regards number, can do little more than meet a comparatively small demand for local consumption, and probably add nothing of any consequence to the general requirement for distilled spirits of the trade and manufactures of the country. At the same time, it is the opinion of persons engaged in the trade, and who are presumably well qualified to form an opinion, that the present (1881) annual requirement or consumption of distilled spirits in the United States is not less than 80,000,000 proof gallons, exclusive of any requirements for export; and that the demand is in some way regularly supplied. If this supposition be correct, it follows that an annual product of some 18,000,000 gallons at present successfully evades this revenue, involving an annual direct loss to the revenue of at least $16,000,000. But in support of this conclusion there is manifestly no actual proof.
—The economic and moral lesson to be deduced from this curious record of experience, is, that whenever a government imposes a tax on any product of industry sufficiently great to indemnify and reward an illicit and illegal production of the same, then such product will be illicitly and illegally manufactured. When that period is reached, the loss and penalties consequent upon detection and conviction—no matter how great may be the one, or how severe the other—will be counted in by the offenders as a part of the necessary expenses of their business, and the business, if suppressed in one locality, will be invariably renewed and continued in some other. It is the part of a civilized government, therefore, in framing laws for the assessment and collection of taxes, to know when the maximum revenue point in the case of each tax is reached, and to recognize that beyond that point the government "over-reaches itself." In the case of the United States, this view of the matter has evidently not been considered worthy of any consideration, since the repeal of the act of July, 1868, which reduced the rate of taxation on distilled spirits from $2 to 50 cents per proof gallon. Nay more, the most striking lesson of experience in all economic and fiscal history—i.e., the increase in revenue in a single year, in consequence of this reduction, from $14,000,000 to $34,000,000—has been wholly disregarded. On the contrary, as has been aptly and wittily remarked, the government "now holds out the temptation on the one hand, and the writ of seizure on the other, and thus announces its readiness to proceed to business."
—It remains but to answer a question, which will doubtless suggest itself to the reader, namely, how is it that Russia and Great Britain can successfully impose and collect a rate of tax on distilled spirits, which in the United States has proved to be impossible or attended with the greatest difficulties? The solution of this problem is to be found in the fact, that the circumstances in the cases under comparison are altogether different. In Russia the whole business of manufacturing and vending distilled spirits is a government monopoly, maintained through the agency of an extraordinary police and military force, and by a thoroughly despotic form of government. In Great Britain the business of distilling and rectifying spirits is carried on under such stringent conditions of law, and under such a system of official inspection—a system wholly impracticable in a country of large geographical area, sparse population, and with a limited police and auxiliary military force—that only about 300 distilling and rectifying establishments exist in the whole United Kingdom; as compared with 1,193 similar establishments in operation in the United States in 1860, and 702 in 1880. A provision, not recognized in the United States, also exists in Great Britain, whereby spirits required in the arts are allowed to be used free of duty. But notwithstanding this limitation and rigid control of the business. detections for illicit distillation in Great Britain are still numerous, and, during the year 1866, 3,557 were reported. Of these only 41 occurred in England, and only 11 in Scotland; the remainder, 3,505, occurring in Ireland, where sparsely settled districts, and an un employed, poor and non loyal population offer greater advantages and inducements for violations of the law than exist elsewhere in the kingdom.
DAVID A WELLS.