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to be given by Congress in the way of credit ; and it was deemed
unwise to distress individuals by the regular process of collection,
when the whole matter could be arranged on easier terms. At the
next session, by the act of March 26, 1867, the Secretary of the
Treasury was authorized to discontinue the employment of officers
for the collection of direct taxes in the insurrectionary states, and
to turn over the business to the local officers of internal revenue.
A joint resolution of July 23, 1868, continued the suspension of
proceedings until January i, 1869; but when that day came, no
further measures were taken by Congress or by the Executive, and
thus the further collection of the tax was practically abandoned.
Attention to the subject was asked for by the Commissioner of Inter-
nal Revenue in i868,'^ but the subject had clearly become too much
embarrassed to be inviting. It is clear, however, that down to this
time the government, in collecting the tax, had dealt with the
individual taxpayer precisely as in all other cases of taxation.
The privilege of assumption, allowed to the states by the original
act, not having been used, had expired by its own terms ; and, as
no renewal of the offer was made by the United States, the direct
tax continued to be an obligation resting upon the individual when
assessed, secured perhaps by a lien upon his land, but binding upon
no other person or body of persons whatever.

It was, perhaps, owing to the expectation of an arrangement

1 See House Reports, 1 865-1866, No. 30, p. v.

"^ See Cong. Globe for 1865- 1866, 3692, 4068. The provision is § 14 of the act of
July 28, 1866.

' See Finance Report for 1868, p. 482.


for the assumption of unpaid quotas by the Southern states that
the First Comptroller of the Treasury, in a statement of accounts
between the general government and the several insurrectionary
States on May 20, 1868, charged them with their respective quotas
as if some legal liability therefor rested upon them. This view of
the case, although not uniformly followed by subsequent comp-
trollers/ appears for many years to have fixed the construction of
the law for the accounting officers in the Treasury.^ The states
being charged each with its unpaid balance of direct tax, moneys
becoming due to them from the general government upon other
accounts, as from the sale of public lands in which they were
interested jointly with the government, were not paid over, but
were credited to them by way of offset. The extreme point in this
official confusion was reached when, in 1883, the First Comp-
troller decided that the sum of ^35,555, appropriated by act of
Congress to refund to the state of Georgia money expended by
her for the common defence in 1777, should be paid to the Treas-
urer of the United States, " to the credit of the state of Georgia
on account of direct taxes charged against the state." ^ As far as
a government can be said to remember or forget, the government
of the United States must be said at this juncture to have forgotten
what it meant by the direct tax of 1861. The true meaning of the
tax was settled, however, by the highest authority, and the whole
subject placed in its true light, when the Supreme Court of the
United States, in the case of the United States v. Louisiana, at the
October term, 1887,* decided that the direct tax law in 1861 did not
create any liability on the part of a state to pay the tax, and that
the apportionment merely designated the amount to be levied upon
the property of individuals in the several states without any liabil-

1 See the important adverse decision by A. G. Porter, First Comptroller, giving the
legislation from 1798 and much documentary matter. Senate Exec. Doc, 1879, No. 24.

2 See House Exec. Doc, 1885-18S6, No. 15S, p. 15.

"It must be acknowledged that this construction of the law appears not to conform
to the intention of the acts upon this subject ; but the decision fixing it aj a state debt
has such force in the Treasury Department as to preclude any other view of the direct
tax than that of a debt due by the state. ... If the state owes the debt, the land-
owner does not owe it." Ibid., p. 17.

3 4 "Decisions of the First Comptroller," House Miscell. Doc, 1883-1884, No. 56,

P- 354-

* 123 United States, 37. The opinion of the court was given by Field, J., no one



ity attaching to the state in its political and corporate character.
This decision finally leaves the unpaid quotas of the direct tax in
precisely the same position as any other tax assessed upon indi-
viduals, which the United States government has been unable, or
has neglected, to collect in full. It is difficult, for example, to
distinguish it in any essential particular from the case of unpaid
income taxes laid during the war and collected by severe process
throughout the loyal states, but neither then nor at any other
time collected in the insurrectionary states.

This decision plainly makes it necessary, in determining the
amount still unpaid on the quotas of the Southern states, to dis-
regard all the accounts with tax commissioners and with states,
and to set down simply the amount of taxes reported as uncollected.
These are the amounts due from individuals ; and, as no individual
owes any more than the due assessment upon his property, by
reason of any other person's default, so no individual owes any
less than that assessment, because of money stopped on its way to
the state Treasury, or otherwise coming to the United States from
any of his fellow-citizens. The amounts reported as remaining
uncollected,^ in the eleven insurrectionary states and in Utah, are
given in the following table : —








N. Carolina,



Arkansas .



S. Carolina,



Florida . .






Georgia . .



Texas, .



Louisiana .



Virginia, .



Mississippi .



Utah, . .



$4,972,485 $2,731,418

The process of collection in the insurrectionary states during
the war by assessment and sale of property in limited districts,
under the act of June 7, 1862, caused great hardship to dispos-

^ These sums are taken from the accounts stated by a commission, appointed by
Secretary Manning in 1885, to investigate and adjust all the direct tax accounts. House
Exec. Doc, 1S85-1886, No. 158. See particularly pp. 24-31 and 7-12. The sums found
by this commission to be still due differ from the amounts stated by Secretary Folger in
1884 and from the statement made by the Commissioner of Internal Revenue in 1885,
and the Secretary and the Commissioner also differed from each other. Ibid., pp. 14, 15,
The report of the commission appears to have been adopted in the Register's office. See
House Reports, 1887-18S8, No. 552, p. 41.


sessed owners ; but this was buried and lost sight of in the vast
destruction of property and the widespread ruin which marked
the track of contending armies. In South Carolina, especially,
this process led to complications which must be noticed briefly as
an important element in the general confusion caused by the tax.
The act of 1862, as has been said, authorized the tax commission-
ers, where property was sold in the insurrectionary districts for
the tax, to strike it off for the United States, if no other bidder
offered more than the tax and penalty with interest. Under an
act of February 6, 1863, the commissioners were authorized to
bid on behalf of the United States as high as two-thirds of the
assessed value of the property. Lands struck off to the United
States the commissioners were empowered to lease until the
reestablishment of civil government, or, under the direction of
the President, to sell in limited parcels to loyal citizens or to
persons who had served in the army or navy, only one-fourth of
the purchase money being required in cash from army or navy
purchasers ; and the proceeds of leases and sales were to be paid
into the Treasury of the United States, one-half thereof to be paid
over ultimately to the reestablished state governments for specified

The special application of these provisions to the case of South
Carolina was affected by the peculiar circumstances under which
the forces of the United States held the abandoned Sea Islands
with their valuable cotton lands, and by the great numbers of
colored people collected there. The lands sold for taxes were there
held and managed from the first with necessary reference to the
employment and well-being of the black population. To this end,
instructions were issued by President Lincoln, September 16, 1863,
which, besides regulating the sale of land to persons of the army
and navy, required certain plantations to be sold in five-acre lots,
set apart others to be leased and the rents to be used for school
purposes, and a further large number to be divided into twenty-
acre lots, to be sold *' to the heads of families of the African
race." ^ Under these arrangements, some lands, bought in at the
tax sales for the United States, remained for several years in the
possession of the government ; others were resold at a large

^ These instructions, with a variety of other documents, are annexed to the report
•of A. G. Porter, First Comptroller, in Senate Exec. Doc. of 1879, No. 24, p. 223.


advance; others still, having been sold and partly paid for,
reverted to the government, and were resold or remained in its
possession. The transactions became involved, litigation sprung
up, and it became plainly impossible for the government to man-
age its complicated interests in the Sea Islands with advantage.
Congress, therefore, by a general act, dated June 8, 1872, with
judicious liberality provided that any lands owned or held by the
United States, under the collection act of June 7, 1862, and the
subsequent proceedings, and not used for pubhc purposes, might
be redeemed by the original parties in interest or their representa-
tives at any time within two years, upon payment of the tax and
costs, with interest at the rate of ten per cent, saving the rights
of all persons who might in the meantime have made valuable
improvements. Lands not redeemed at the end of the two years
were to be sold by public auction, but by subsequent acts the
period for redemption was extended to February, 1877. The
school farms spoken of above were not covered by this act, but
were similarly provided for by the act of March 3, 1887, which
closed a troublesome and exceptional piece of administration.

The result of these operations is that, the quota of South Caro-
lina being $363,571, of which $14 1,1 74 remains unpaid, theTreasury
of the United States appears to have received in cash $468,864,
besides sums amounting to $134,592 paid to the Freedmen's
Bureau and otherwise disbursed on various accounts, of which a
part should no doubt be added to the sums accumulated in the
Treasury as the result of the tax sales. That the former owners
of the lands have no claim to this fund as against the govern-
ment goes almost without saying. At the same time, it is clear
that, whatever else the government may do as to the direct
tax, this is not money to be retained by a great and generous

It has been seen that the decision of the Supreme Court in the
Louisiana case finally brought the direct tax of 1861 back to its
proper position as a tax laid by the United States upon its individual
citizens and imperfectly collected by reason of the Civil War. The
default in its collection being a default of less than one-seventh of
the total amount called for, it is probable that this tax has been
more completely collected than most of those laid during the war.

^ See the remarks of Mr. Sherman, p. 1 14, below, note.


For example, it has probably been collected more thoroughly than
the income tax, the foundation of which was laid by the same act
which estabhshed the direct tax ; and it is not hkely that anything
but an overflowing treasury would have enabled Congress to see
in the one case more than in the other an occasion for remedial
legislation. Under any other conditions it is likely that the un-
collected ;^2, 730,000 of direct tax would by common consent have
been treated as an insignificant detail in a great mass of incurable
irregularities left behind by four years of civil war. The question
as to the possibility and expediency of clearing up this special
case of fiscal confusion having been raised, however, it must be
admitted that the solution of it is not simple, and that the division
of opinion created is not unnatural.

Three modes of dealing with the subject have been suggested.
First is that proposed by the Commissioner of Internal Revenue
in 1883,^ "that measures be taken, as soon as possible, to collect
the balance of the tax," on the ground that " exacting a direct tax
from one landowner and permitting the tax upon the land adjoin-
ing to remain unpaid is not equitable." The reason is undeniable ;
but, after all, could equity be secured now by resuming the col-
lection of a tax, all proceedings under which have been suspended
for twenty years .'' The condition of landed property has altered,
in one place for the better and in another for the worse, through-
out the states concerned ; the rights in such property have
changed hands, and all the relations once existing between the
individual members of any body of taxpayers and forming the
basis cf possible equity in 1861 have vanished. A large part of
the individuals themselves have disappeared. To levy upon the
lands on which the tax is unpaid would be, in a great proportion
of cases, to collect a tax from subsequent purchasers under a claim
which they were justified in believing that the government had
abandoned long ago. It has been declared with great positive-
ness that the government has lost its hold upon the land, but this
point need not be considered. If the government still retains the
right of assessment on the lands of delinquents, the exercise of
that right upon the lands as now owned and used would be
universally recognized as too difficult and too certainly unjust, as
between members of the same community, to be an admissible

1 Finance Report, 1883, P- ^^T-


expedient. The cure of the difficulty by the first method appears,
then, to be out of the question.

The second mode of dealing with the case, the opposite of that
just considered, is to return such taxes as have been paid under
the legislation of 1861, and to remit all that are unpaid. In other
words, equity being unattainable by completing the levy, secure it
by undoing what has been done. It is not within the proposed
scope of this paper to discuss the constitutional question as to the
right of Congress to lay taxes, let us say in 1890, in order to re-
fund taxes which were properly levied and collected according to
law in 1 862- 1 866. We are here concerned solely with the proposi-
tion to remedy the inequality resulting from the failure to collect
from all of the taxpayers in 1862 and the years following. Un-
deniably, if there were no question except one of bookkeeping
between the states of the Union, as the Treasury has sometimes
seemed to suppose, the process of crediting every state with an
amount equal to its quota would finally close the accounts and
produce equality in that sense. But the only question really open,
under the circumstances, is that of producing equality among the
taxpayers ; and this object it appears to be impossible to secure
by any process of refunding. If, of two men, one paid his tax
twenty-five years ago and the other has never paid it, it is im-
possible to restore equality by simply returning to the former that
which has been detained from him for a quarter of a century.
And if a third, when assessed, suffered the collection of the tax
by a forced sale of his land for a fraction of its value, he is not
placed on the same footing with either of the others, by returning
to him or his heirs the amount of the tax or even the proceeds of
the tax sale. In short, when the tax-collector has done a part of
his work by compulsory process and time has elapsed, an equitable
adjustment between individuals becomes impossible. Refunding
the tax may satisfy the mere formal accountant, but it does not
undo the past or its consequences ; and, so far as the object sought
is the equalizing of burdens, such a measure is nearly nugatory.

It is, at any rate, so nearly nugatory that there may be a grave
question whether, in the attempt to cure one set of inequalities by
a distribution of money, a greater set does not spring out of the
process of raising the money. It was contended in debate in
Congress that the taxes collected in 1890, after the growth of the


states has changed their relative places in population and wealth,
would not rest upon them in the proportion in which the contribu-
tions of 1 862-1866 must be returned. Kansas, it was said by one
gentleman, will pay toward the refunding operation not less than
$340,000, but will receive less than 1^72,000; New Hampshire,
it was said in the Senate, will receive but $185,000, and will con-
tribute at least $300,000. The incidence of our taxation is too
uncertain to make these calculations important ; and, in most
cases of expenditure for pubhc objects, such considerations as to
the exact balance of benefits and burdens are properly disregarded.
But the present is a case in which the attempt to restore such a
balance with respect to a particular transaction is the main propo-
sition ; and it therefore becomes not only justifiable, but necessary,
to inquire whether the proposed equality would be real or only
apparent. The answer to this question is found in the census
tables, where the redistribution of taxpaying power in the last
quarter of a century is too manifest to require recital.

The third method of dealing with the subject would be, if we can
neither complete the collection nor return the tax without produc-
ing fresh mischief, to leave the matter where it is. No doubt
this course, as well as the others, is open to objection. It is a
peculiarity of the case that the United States can neither act nor
refrain from acting in it without running counter to some instinct
of justice. But there would be less disturbance of existing inter-
ests, and time would heal all difficulties more quickly, it is probable,
if it were frankly recognized that, in such matters, the errors or
misfortunes of the past are finally beyond all remedy. The funds
which have been collected from the proceeds of lands leased or
resold, or from the surplus of tax sales, might be returned to the
parties representing the original ownership, and the account of
the direct tax could then be wound up, as that of the other taxes
of the war has been, without further inquiry as to the degree in
which different bodies of citizens contributed to them.

It is the second of these methods, however, which has secured
the approval of Congress. The bill which was passed last winter,
vetoed by the President and passed over the veto by the Senate
in the closing hours of the session, was the fruit of an agitation
which has been in progress in different forms for ten years, and
has developed a strong appetite among the state governments for



the refunding of their quotas. The bill required the Secretary of
the Treasury to credit every state and territory and the District
of Columbia with a sum equal to all collections made from it or
its citizens, by set-off or otherwise, and to remit all sums remain-
ing unpaid ; and appropriated the money necessary to pay all sums
thus becoming due from the Treasury ; it being provided, how-
ever, that sums which have been collected in any state from citi-
zens, directly or by sale of property, should be held in trust by
the state government for the benefit of the persons from whom
collection was made, or their representatives. It was also pro-
vided that the owners of lands sold in the parishes of Saint
Helena and Saint Luke's in South Carolina should be paid the
value of their lands, — to the owners of lots in the town of Beau-
fort one-half of the value assessed by the direct tax commissioners,
to the owners of cultivated lands five dollars per acre, and to the
owners of other lands one dollar per acre, with the proper excep-
tions as to lands heretofore redeemed. The purchase money
received on account of uncompleted sales to persons in the army
and navy was to be returned to the persons paying it. For all
these purposes $500,000 was to be appropriated, including in this
sum moneys in the Treasury derived in any way from the en-
forcement of the tax.i And, finally, moneys received from the
sale of lands bid in for the United States at tax sales in any
state, in excess of the taxes assessed, were to be paid to the own-
ers of the land bid in and resold, or to their representatives.

This bill was not reached by the House of Representatives
after the veto, and therefore failed to become a law. There can
be little doubt that it will be passed by the present Congress.^ It
is sufficiently clear from its terms that the combination of local
interests in its support is powerful, and it has every political

^ As passed by the House, the bill proposed to pay the dispossessed owners accord-
ing to the valuation of i860, and appropriated $850,000 for the purpose. The rate and
amount were cut down in conference to meet the views of the Senate. On the adop-
tion of the report of the conference committee, Mr. Sherman made this explanation :
" Upon the first sale for direct taxes, the land was bid in, I think, at some $ 13,000, which
we credited to the state of South Carolina ; and it was subsequently resold by the
United States for ^455,000. So, after all, the money we are to pay back to the owners
of this land in South Carolina is only about the sum that we received on the resale of the
land." Con^. Record, 1888- 1 889, p. 2139.

2 [This expectation was exactly realized by the act of March 2, 1891. — Editor's


chance in its favor. The passage of the measure, whenever it
comes, will close a singular chapter in the history of taxation, —
a chapter the repetition of which, we may be sure, our people will
not be easily tempted to risk hereafter. The direct tax provided
for by the Constitution has at last been effectually discredited as
a source of revenue, and it has also been too prolific of misconcep-
tion and confusion to have any interest henceforth as a practical
measure of finance.


By the tariff act of 1894 the United States government, for the
second time in its existence, undertakes the levy of an income tax.
The future student of our history will probably have a moment
of mental embarrassment when he finds the provision for laying
this novel burden upon the taxpayer in " an act to reduce taxation,
to furnish revenue for the government, and for other purposes."
His difficulty in comprehending the real significance of the measure
will not be lessened when he attempts to trace the legislative his-
tory of the act. He will not find the explanation in any exigency
of the Treasury, where the first-fruits of the tax cannot be received
before July, 1895. He will not find it in the avowed policy or the
unavowed political needs of either of the great parties, both of
which found themselves deeply divided by the proposition for the
tax. He will be Hkely to ascribe the easy acquiescence of a con-
siderable section on each side in Congress to the presence of an
ill-defined notion that the people are about to demand some drastic
action for depleting the well-to-do classes, and to the habitual dread
with which most politicians for a time listen to the demands of
any new political movement, like that of the Populists. At any
rate, it will be clear that the considerations which weighed with
Congress in taking this important step were not fiscal, and that
the provisions of the new act were not studied and perfected by
its framers from this point of view. The very fact that the limit
of exemption is set so high as $4000 will be a standing demon-
stration that the measure was shaped to meet some supposed social

Online LibraryCharles Franklin DunbarEconomic essays → online text (page 13 of 40)