Charles Franklin Dunbar.

Economic essays online

. (page 12 of 40)
Online LibraryCharles Franklin DunbarEconomic essays → online text (page 12 of 40)
Font size
QR-code for this ebook

after Turgot's death. See Ilildeburn, " Issues of the Press in Pennsylvania."



source for the meaning which they both attached to the phrase
introduced by Morris.

It is to be observed, also, that there were some well-known
precedents for levying by apportionment such taxes as those which
Morris and Wilson probably had in mind. The French taille reellCy
a tax on the income of real property, was laid by apportioning a
fixed sum among the provinces and requiring from each its quota,
as has been the practice in levying its substitute, the impot fonder,
ever since 1790. The capitation was also levied in France, before
the Revolution, in the same manner. The English land tax, estab-
lished under William III., had for ninety years presented an ex-
ample of apportionment among counties and other subdivisions,
leaving the rate for each locality to be settled at the point neces-
sary to give the due quota. Other contemporary examples could
easily be cited ; but these are enough for the present purpose,
being necessarily familiar in this country in 1787, and likely to
have a strong influence.^

The meaning of the phrase " direct taxation," as to which Rufus
King vainly sought for light, was judicially considered in the well-
known Carriage Tax case, Hylton v. United States, in 1796. The
case had been heard in the circuit court by Wilson, who was then
one of the associate justices of the Supreme Court; and, when his
judgment in the lower court was affirmed by the full bench, he
contented himself with a bare statement of assent, so that we lose
what would have been the most interesting and perhaps the most
important opinion of all. The judgment of the court, declaring
that a tax upon carriages is not a direct tax within the meaning of
the Constitution, was supported by considerations which showed
a strong disposition to limit the definition of direct taxes so as
to include only capitation and land taxes. Mr. Justice Paterson,
indeed, suggested personal property by general valuation as a
possible additional subject of direct taxation, the practicability of
apportionment having already been accepted as a test of the proper
meaning of the term ; but he thought the question difficult, and

^ For the taille and capitation, see Pizard, "La France en 17S9," p. 257 ; De Parieu,
"Traite de I'lmpot," i. 224, 153. The act of 1763, apportioning the English land tax, is
given in full in Ruffhead's " Statutes at Large," ix. 78. The text of the acts of William
in. is found in the Rolls edition of the statutes. See also Dowell, " History of Taxation
and Taxes in England," iii. 94-97.


added that he never entertained a doubt that the principal — he
would not say the only — objects contemplated by the framers of
the Constitution were a capitation tax and a tax on land. Wolcott
in his report upon "Direct Taxes," in December,^ 179^, took no
notice of the decision by the Supreme Court a few months before,
but, fci reasons of expediency, concluded that the objects of direct
taxation should be limited to lands, houses, and slaves ; and they
accordingly were thus limited by Congress in the acts of 1798,
under which the first direct tax was levied. When the question
came before the Supreme Court again in the case of Veazie Bank
v. Fenno^ Chief Justice Chase referred, with some doubt, to Pater-
son's suggestion as to a tax on personal property by general valua-
tion, but remarked that, in the practical construction of the Consti-
tution by Congress, direct taxes had been limited to land and
capitation taxes, and that this construction was entitled to great
consideration in the absence of anything adverse to it in the dis-
cussions of the federal convention or of the state conventions
which ratified the Constitution. Finally, when the whole subject
was reviewed in the case of Springer v . United States^ Mr. Justice
Swayne, giving the opinion of the court, declared it to be their
conclusion " that direct taxes, within the meaning of the Constitu-
tion, are only capitation taxes, as expressed in that instrument, and
taxes on real estate." The judicial interpretation of the phrase,
" direct taxes," is well settled therefore,^ and in close accordance
with the usage found in the writings of the French economists of
the last century.

The acts of 1798^ established the general plan on which all
succeeding direct taxes have been levied. These acts apportioned
the total sum of two millions of dollars among the states, divided
them all into convenient divisions, placed every division under a
commissioner, and provided the requisite array of principal and

1 "State Papers on Finance," i. 414. ^ 8 Wallace, 533.

' 102 United States, 586. This was a case arising under the act of 1864 laying an
income tax, the plaintiff in error maintaining that this, as a direct tax, should have been
apportioned among the states, under the provisions of the Constitution.

* The unexpected extension of the meaning of " direct taxes " by the Supreme Court
in the "income tax" decisions of 1895 '^ touched upon, p. 133, below.

* The act of July 9, 1798, I "Statutes at Large," p. 580, provided for valuation of
taxable objects ; and that of July 14, ibid., p. 597, provided for the apportionment and


assistant assessors, collectors, supervisors, and inspectors. The
quota of every state was to be assessed upon houses, lands, dwell-
ing-houses, and slaves. Houses were to be assessed according to a
classified valuation at rates fixed for the whole Union, and slaves
were to be assessed fifty cents per head, if between twelve and
fifty years of age ; and so much of the quota of any state as was
not covered by the levy upon houses and slaves was to be assessed
upon lands and improvements at such rates as might be required
to make up the deficiency.^ The tax was to be a lien upon the
real estate and slaves of the person assessed for two years from
the date when it became payable, and collection could be enforced
by distraint and sale of personal effects. Wolcott had suggested,
but had also disapproved, a plan for fixing a time at which a state
might pay its quota into the Treasury and for prescribing collec-
tion by the authority of the United States " in cases of delin-
quency." 2 But no trace of any such plan is to be found in the
acts of 1798. Beyond the bare apportionment the states are not
recognized except as mere geographical divisions. The acts pro-
vide solely for levy by the federal government upon its citizens,
the individual taxpayer is the only party responsible, and no
authority stands or can interpose between him and his government.
The framers of the direct tax acts of 1813^ followed in general
the lines laid down in 1798. Comparison of the acts will show
revision and rearrangement, and perhaps simplification of the sys-
tem, but no serious change of theory. The tax of three millions is
apportioned to the counties in every state, and it is provided that
the state legislature may by act vary the county quotas, provided
such alterations are duly certified to the Secretary of the Treasury ;

^ This residual assessment upon lands closely resembles the method adopted in as-
sessing the group of taxes of which the English land tax is the survival. See 10 William
III., c. 9 (Rolls ed.); and Act of 1763, 4 George III., c. 2, §§ 3, 4 (Ruff head).

2 This plan, he says, " partakes of the system of requisitions upon the states, which
utterly failed under the late confederation, and to remedy which was one great object
of establishing the present government." " State Papers on Finance," i. 436.

^ The act of July 22, 181 3, 3 " Statutes at Large," p. 22, provides for the assessment
and collection, and that of August 2, ibid., p. 53, for the apportionment. Gallatin sailed
for Europe in May, 181 3, but it seems probable that the direct tax bills of that year were
among the bills spoken of in his letter of June 10, 1812, as already prepared in answer
to a request from the Committee of Ways and Means. " State Papers on Finance," ii.
614. It is interesting to observe that, in January, 1812, Gallatin appears to have lost his
hold on the strict definition of direct taxes under the Constitution. Ibid., p. 525.


but the levy according to such alterations is made by virtue of the
act of Congress, and not under the act of the state legislature.^
The tax is to be levied on the value of lands, houses, and slaves,
" at the rate each of them is worth in money," abandoning the
peculiar method of a residual assessment upon land, adopted in
1798 ; and the provisions as to enforcement by lien and distress
remain as before. In short, the theory of the acts of 18 13 con-
tinues to be that of a levy by the general government upon the
individual citizen, in no way different in principle from any case of
national internal taxation. With a wise regard to convenience,
however, the apportioning act provided that any state " may pay
its quota into the Treasury of the United States," and thus secure
a deduction of fifteen per cent, by paying before February 10, 1814,
or of ten per cent, by paying before May i ; " and no further pro-
ceedings shall thereafter be had under this act in such state."
The option thus allowed to the states did not, however, change the
character of the tax as a tax upon individuals, or make it a tax upon
states. Seven states assumed the payment of their quotas ; ^ but
the other eleven, in which the collection by federal officers was
made as originally provided, were not for that reason in any sense
delinquent as states, nor did they thereby fail in any obligation to
be found in the acts of Congress or elsewhere.

The act of 18 15, which provided for an annual tax of six mill-
ions of dollars, is to a considerable extent a literal transcript from
the two acts of 1813, with such amendments in detail as experience
or the proposed permanency of the tax required, but with no
change in theory or in general procedure. And no change was
made by the act of 1816,^ which simply repealed the provision for
an annual tax, and laid instead a tax of three millions for the
current year. In 181 5, and also in 18 16, four states assumed
the payment of their quotas ; and the collection was made by
the United States in the other fourteen.

When the levy of direct taxation by apportionment was resorted
to for the fifth time, in 1861, Congress found most of the work of

^ § 6 of the act of August 2, 1813, 3 "Statutes at Large," p. 71. For the painful
effort of the Committee of Ways and Means to arrive at a county apportionment, see
their report, " State Papers on Finance," ii. 628.

- " State Papers on Finance," ii. 860.

* The act of January 9, 1815, 3 "Statutes at Large," p. 164; the act of March 5,
1816, ibid., p. 255.


legislation done for it in advance. The first revenue measure of
the war provided for an annual direct tax of twenty millions,^ to be
laid on the value of lands with their improvements and dwelling-
houses, "at the rate each of them is worth in money." In its
general scheme and in its details, the act of 1861 was a revised
transcript of the acts of 1813 and 1815. The theory enunciated
in Hylton v. United States was unfamihar to many members ; and
the Committee of Ways and Means had to labor in debate with
representatives who wished to include personal estate, or incomes,
among the objects of taxation. The Committee itself at first
treated slaves as taxable property, as was done in the earlier acts.
In its careful provision for dealing directly with the individual
citizen of the United States and for enforcing a direct lien upon
his property, the law of 1861 follows the earlier legislation, section
by section. It makes the same provision for an assumption of
quotas by the respective states at their pleasure, providing that
any state may give notice of its intention " to assume and pay, or
to assess, collect, and pay," the direct tax, and upon payment be
entitled to a deduction of fifteen per cent in lieu of the costs of
assessment and collection. The date for giving this notice was the
second Tuesday of February, 1862, and the expectation that the
states would use this option was so strong that the act postponed
the appointment of assessors and collectors until that day. But
the greater completeness of the optional arrangement does not
appear to import any change in the real bearing of the act as lay-
ing a tax upon individual citizens.

The recommendation of this tax to the attention of Congress
by Secretary Chase, in his report of July 4, 1861, did not imply
any strong reliance upon it. Mr. Chase advised the raising of
" twenty millions, for the current year at least, by direct taxes or
from internal duties or excises, or from both." It is probable
that both the Secretary in giving this advice and Congress in im-
proving upon it were influenced by the fact that the earlier legis-
lation on direct taxation could be made available quickly ,2 and

^ The act of August 5, 1861, 12 "Statutes at Large," p. 294.

2 The Chairman of the Committee of Ways and Means, Mr. Thaddeus Stevens, felt
no mortification when Mr. Roscoe Conkling stigmatized the bill as "undigested." "It
may be so, for it was a direct copy of one drawn by a man who was less wise than our
critics are now. It was drawn by Albert Gallatin ; and this undigested, ill-considered
bill is an exact copy of his." Cong. Globe, 1861, p. 307. Mr. Collamer, of Vermont,

102 • ESSAYS

that time was needed for the study of any broader system of in-
ternal taxes. The direct tax had, in fact, far less to recommend
it in 1 86 1 than at the beginning of the century. The inequality
of apportionment according to population, serious enough at first,
had been increased by the concentration of wealth in the commer-
cial and manufacturing states. Only the smallness of the sum to
be raised made a special assessment upon one species of property
tolerable, in a country where personal property had multiplied so
greatly. And, finally, the slowness of the method, amply shown
by four trials, unfitted it for an occasion when promptness of supply
was of the last consequence. But all of the action at the special
session of 1861 was essentially provisional, and both for the Secre-
tary and for Congress it was a welcome reflection that twelve or
fifteen millions could be added to the regular revenue by a tried
expedient and by forms already settled.

The organization of the internal revenue system in 1862 ap-
peared to the Senate a fit occasion for repealing the direct tax, but
not so to the House. In the committee of conference on the
internal revenue bill, the House members insisted that the repeal
would release real estate from its due share of burdens, and would
leave the whole weight of taxation to be borne by commerce and
manufactures ; and the difference between the representatives of
the two Houses was so great that the bill was nearly shipwrecked
in conference.^ But the House receded in substance, and the
Senate in form; and thus the act of July i, 1862, provided (in
§ 1 19) that the direct tax act of 1861 should be held to authorize the
levy and collection of only one year's tax, and that no other should
be levied under the said act until April i, 1865. This suspension
of levies under the system was made final by the great internal
revenue act of June 30, 1864, which (in § 173) provided that no
further direct tax should be assessed until Congress should " enact
another law requiring such assessment or collection to be made."
By this action, proposed by the Senate and accepted without demur
by the House, proceedings under the direct tax of 1861 were
finally limited to the levy and collection of a tax for that year only.

remarked in the Senate that " the bill is essentially the same, in all its essential features,
with the bill by which a direct tax has been laid four times in this government." Ibid.,
p. 398.

^ See Mr. Stevens's statements to the House, June 23, Globe., 2890, 2891.


The results of the levy for 1861 can be considered more con-
veniently if we separate the loyal states and territories from those
in insurrection. Of the former, all except Delaware and Colorado
territory assumed the payment of their quotas. The act of 1861,
following the precedents of 18 13 and 181 5, allowed any state or
territory, upon giving due notice, to assume or assess " in its own
way or manner " its quota, with a deduction of fifteen per cent, if
payment should be made to the Treasury before July i, 1862, or
of ten per cent, if made before October i, with the provision that
such quotas might be satisfied by the release of liquidated and
determined claims of equal amount due to any state or territory
by the United States. The settlement of the quotas by this pro-
cess of offset, at a time when every loyal state had its account
against the general government for military services, equipments,
or advances of some sort, and the slow passage of such accounts
through the forms of the Treasury, no doubt makes the collection
from the direct tax, as given in the published tables, appear much
slower than it was in point of fact.^ Still, it can probably be said
with truth that the government received nothing from the direct
tax during the war which it would not have received otherwise.
The loyal states which paid their quotas in services and equipments
would have raised as many men and have equipped them as
promptly if the direct tax had never been laid. Their quotas
ultimately gave the government some facility for the adjustment
of their accounts, but the military aid on which the quotas
were virtually expended was not called out by taxation. In
Delaware and Colorado the tax was collected, after some delay,
by the internal revenue officers of the United States ; and, except
some trifling amounts from the territories, the accounts of all the
other loyal states and territories for the direct tax were cleared.
The amount assessed upon all the states and territories, except
the eleven states in insurrection and the territory of Utah, was
^15,027,534. Deducting the allowances made to states which

^ The annual Finance Report states the receipts from direct taxes down to 1870 as
follows : —

1862 ...... ;?i,795,332 1867 ^^4,200,234

1863 1,485,104 1868 1,788,146

1864 475,649 1869 765,686

1865 1,200,573 1870 229,103

1866 1,974.754



advanced their quotas, the amount collected from the loyal states
and territories appears to have been $12,937,805.^

There remain the eleven states which were in insurrection when
the tax was laid, and the territory of Utah. More than one of the
speakers in Congress urged as a recommendation of an apportioned
tax that the amount allotted to any state in arms against the
government could stand over for ultimate collection, and that com-
munities which refused to contribute to the revenue in any other
form might thus be made to yield finally a share of direct taxation.
The act of 1861 accordingly provided (§ 52) that, if the execution
of the law should be prevented in any state by rebellion, it should
be the duty of the President, " so soon as the authority of the
United States therein is reestablished, to collect the sums due
from the persons residing or holding property or stocks therein,"
with interest for delay. Detailed provision was made and special
machinery was established for the same purpose in 1862 by the act
of June 7, "for the collection of direct taxes in insurrectionary
districts within the United States and for other purposes." This
act made full provision for the levy of the tax in case of partial
occupation of the territory of any state by the forces of the
United States. It authorized the levy upon lands in insurrection-
ary states according to the last state valuation, and charged every
parcel accordingly with its proportion of the quota of the state,
and with a penalty of fifty per cent in addition, the tax and
penalty becoming a lien upon the lands in all states or parts of
states declared by the President, by due proclamation, to be in
insurrection. 2 A board of three tax commissioners was to be
appointed for every insurrectionary state, to enter upon their
duties whenever the commanding general entering any such state
" shall have established the military authority of the United States
throughout any parish or district or county of the same." Sixty
days were allowed for payment by the owner of any parcel of land
after the amount of tax due upon it should have been fixed ; and

^ This is the statement for February 18, 1888, given in Cong. Doc, 1887-1888,
House Reports, No. 552, p. 44, deducting $8409 overpaid by Wisconsin. It is to be
observed that the figures given cannot be reconciled with precision, the methods of ac-
counting in the Treasury having been inconsistent ; eg. ibid., pp. 9, 15.

2 The proclamation of July i, 1862, declared in insurrection the eleven states, with
the exception of thirty-nine counties of Virginia, comprised in the inchoate State of
West Virjiinia.


thereupon all lands upon which the tax was unpaid became for-
feited, and the commissioners were required to advertise them for
sale to the highest bidder and to strike them off to the United
States, unless some person should bid as much as the tax, penalty,
costs, and interest for delay of payment. Provision was made for
the redemption of property thus sold, if the owner or any person
in interest should appear within sixty days and make payment,
taking an oath to support the Constitution of the United States.
Redemption within one year was allowed to any owner who should
be unable to make payment by reason of the insurrection, and
should have taken no part therein after the passage of the collec-
tion act ; and two years for redemption were allowed to absentees,
aliens, or persons under legal disability.

Under the act of June 7, 1862, commissioners from time to
time made assessments for the direct tax in about one-half of the
counties in the eleven states, and made collections in all those
states except Alabama.^ Assessments were enforced by sales of
lands for taxes in districts occupied by the federal forces until the
order of the Secretary of the Treasury, on May 17, 1865, sus-
pending all such proceedings. The sales were necessarily within
narrow areas,^ and the amount received from the sale of valuable
properties under such circumstances was trifling.^ After the sus-
pension of sales, the collection still went on, but under great
difficulties, caused by the unsettled and impoverished condition of
the South. Moderate as were the sums called for, the distress of
Southern taxpayers made a profound impression. The Joint
Committee on Reconstruction, which reported the fourteenth
amendment of the Constitution, recommended a measure whereby
any Southern state, upon ratifying the amendment, should be
empowered to assume the payment of such part of the direct tax

1 "Report of the Commissioner of Internal Revenue" for 1S83, in Finance Report,
p. 165.

2 The sales in Virginia were in the counties of Alexandria, Accomack, and North-
ampton, — that is, near Washington and on the Eastern Shore ; in South Carolina, they
were confined to the parishes of St. Helena and St. Luke, in the Sea Islands ; in Florida,
to St. Augustine and Fernandina ; in Tennessee, to Memphis ; and in Arkansas, to
Little Rock.

^ For an account of the property sold in Virginia, Florida, Arkansas, and Tennessee,
with the valuation of each parcel, the tax due thereon, proceeds of sale, and other par-
ticulars, see the letter from the acting Secretary of the Treasury, February 26, 1883, in
Senate Exec. Doc, No. 85, of 1S82-1883.


assessed upon its citizens as should still remain unpaid, with per-
mission for postponing the payment in that case for ten years.^
The House, on the 9th of July, 1866, on motion of Mr. Boutwell,
who remarked that " the operation of collecting what remains
uncollected of the direct tax in the rebel states operates more
harshly upon our friends than upon our enemies," inserted a
section in a tariff bill of that session suspending that operation
until January i, 1868. The tariff bill did not reach final action ;
but the Senate, on the 24th of July, inserted the same provision at
the end of a bill to protect the revenue and in this form it became
a law.2 The Southern states, it was explained in the Senate, were
proposing to assume their respective quotas, with some indulgence

Online LibraryCharles Franklin DunbarEconomic essays → online text (page 12 of 40)