upon his books, herein provided to be made, showing the amount of spirit-
uous liquor distilled and sold, or removed for consumption or sale, or of beer,
lager beer, ale, porter, or other fermented liquor made and sold, or removed
for consumption or sale, during the preceding month, respectively ; the truth
and correctness of which abstract shall be verified by the oath of the party so
furnishing the same. And the said assessor or assistant assessor shall have
the right to examine the books of such person for the purpose of ascertaining
the correctness of such abstract. And for any neglect to furnish such
abstract when requested, or refusal to furnish an examination of the books
as aforesaid, the person so neglecting shall forfeit the sum of five hundred
dollars.
A few days after the approval of tliis law (July 1st, 1862),
the import duty on brandy was increased by twenty-five cents
per gallon, and on all other spirits, fifty cents per gallon. The
duties on malt liquors were raised from fifteen to twenty cents
per gallon, when imported in casks, and from twenty-five to
thirty cents, when imported in bottles. By the act of March
CHAPTER X. 221
3, 1863, tlie internal tax on fermented liquors was temporarily
reduced to sixty cents per barrel, that is to say, the tax was to
be at this rate from the date of the passage of that act to April
1, 1864, after which date the original tax of $1.00 per barrel
was to be revived. At this rate — it may be stated right here
— the tax upon malt liquors remains to this day.
No change in the rate of the internal tax on distilled spirits
was made until the year 1864, when two acts were passed,*
one rapidly following the other, successively increasing the
excise dut^^ to 60 cents, $1.50 and $2. The latter was to
take effect on the 1st of February, 1865, but this provision
was subsequently so amended as to make the rate take effect
a month earlier. It is worthy of note that after the date men-
tioned a discrimination in the rate of tax was made in favor
of brandy distilled from grapes, which shortly afterwards was
extended so as to include spirits distilled from apples and
peaches.
Every proposition to increase the tax on spirits brought
out repetitions of Sherman's assertion, that the laws would
inevitably be made the basis of dangerous speculation, unless
a tax be imposed upon stock on hand. Experience had even
then furnished ample proof of the truth of this statement, and
everything seemed to combine, to impress upon the minds of
members of Congress the necessity of profiting by the lessons
which this experience offered. If the effect of the various
laws, beginning with that of July 1st, 1862, be examined — a
task rendered very easy by the help of the masterly re-
ports of the Special Revenue Commission, of which D. A.
Wells was chairman — it will be found that Sherman's predic-
tion was more than verified. In the fiscal year 1862-63, under
the tax of twenty cents, imposed July 1st, 1862, the revenues
accruing from this source amounted to but $3,229,900. Hence^
May 7tli and June SOtli, 18G4.
222 LIQUOK LAWS OF THE UIOTED STATES.
the quantity of spirits on which taxes were paid during that
time did not come up to one-fifth of the quantity returned by the
census of 1860. Did so low a tax have the effect of restricting
consumption to so great an extent ? Surely not. The consump-
tion was undoubtedly diminished, as is shown by the official
reports of the revenue commission, but not to an extent at
all approaching the ratio above indicated. The fact is, produc-
tion had ceased to that extent, for the simple reason, foretold
by Sherman, that long before the passage of the law — its
enactment being then an almost absolute certainty — the dis-
tillers produced" spirits so largely in excess of immediate de-
mand, that during the time in question there was no need of
a larger production than the one stated above. The tables of
internal revenue receipts, reproduced in another part of this
book, demonstrate very plainly the sudden fluctuations in the
manufacture of this article, which cannot be explained other-
wise than Sherman had done in the second session of the
thirty-seventh Congress.
Anyone acquainted with the progress of the war, and the
condition of the Treasury, must have foreseen, at the beginning
of the fiscal year 1863-64, that an increase of taxes would
have to be effected ; as subsequent disclosures showed, dis-
tillers had as good an opportunity of knowing what Congress
would do in the matter, as any other class of manufacturers,
and they did not fail to improve their opportunities.
As soon as the first increase in the rate of tax had become
what might be called a moral certainty, distillation was re-
sumed with so much energy, that before the new law,
imposing a tax of sixty cents, went into operation, no less than
56,863,59.5 gallons of spirits were manufactured on which the
old tax of twent}'^ cents was paid. Under this and the new
tax — which latter, as has been shown, was more than trebled
within five months — the aggregate quantities of spirits returned
by the revenue officials amounted to 85,295,393 gallons. This
CHAPTER X. 22S
effect of the instability of the rate of tax could have been
averted from the beginning, if the law-makers had acted on
Sherman's suggestion, but it seems that even then the influence
of what is popularly called the third House had more weight
than prudential considerations. The Special Revenue Com-
mission, appointed in 1865, made this statement in reference to
the operation of the law : *
' ' The immediate effect of the enactment of the first three and successive
rates of duty 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
whiskey and high wines 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 the distillers and speculators rather than for the Treasury and the
Government."
This was not, however, the worst feature of the law, for the
Treasury at least obtained revenue at the lower rate of tax on
which this sort of speculation was based. The worst feature by
far was the facility offered for an entire evasion of all taxes.
From the report already cited it appears, that the matter of
inspecting distilleries and spirits was frequently left entirely
to the " workmen or partners in the distilleries inspected."
The testimony of George Parnell, United States revenue
agent, was very pointed in this respect. He made the
statement, that distillers manufactured and fraudulentlv sold,
without the slightest pretense of concealment, spirits, in quan-
tities ranging from 20,000 to 80,000 gallons, without suspicion
on the part of the local officers, that the business was not con-
ducted in all respects legally and honestly. In answer to the
question whether, then, these frauds were due to the neglect
on the part of the Government officials, he literally stated :
" There never has been any oflScer appointed under the revenue act,
whose special duty it was to look after distilleries. The inspectors are paid
* House Ex. Doc. No. 60, Ist Session, 39th Congress, p. 19.
224 LIQUOR LAWS OF THE UNITED STATES.
in the shape of fees, by the distillers. The fees are generally very small.
In most cases all the inspectors ever thought of doing was, to go and inspect the
iiquors when the distillers sent for them."
From a mass of evidence, which would form a small
volume, the conclusion is inevitable that the law, as it then
stood, would not have enabled the Government to prevent
fraud, even if the conduct of the war had not detracted
attention from the details of this subject. It must not be sup-
posed that frauds upon the Government were committed by
distillers only ; the disposition to evade the tax extended to all
trades. It is to be regretted that the example of the U. S.
Brewers' Association, which was organized for the purpose of
protecting both the interests of its members and those of the
Government, found few, if any, imitators.
The appointment of the special revenue commission — under
authority of an act of Congress, approved March 3rd, 1865 —
and the subsequent creation of the office of Special Com-
missioner of the revenue, in 1866, signalized the beginning of
those attempts at a thorough revenue reform, which in later
years brought about the annihilation of a combination of
speculators, commonly known under the name of " whiskey
ring," and placed the Government in a position to prevent
and detect revenue frauds. A general outline of the modifica-
tions of the law, deemed necessary in order to make taxes on
spirits and fermented liquors more easily collectable and to
prevent frauds — is found in the following extract from the
report of the Special Revenue Commission of January,
1866:*
" Distilled spirits. — Of the various sources of revenue in-
cluded under the internal revenue, that of distilled spirits ranks
first in importance. The amount of revenue derived from this
* House Ex. Doc. No. 34, 1st Session, 39th Congress.
CHAPTER X. 225
source for the several fiscal years during which the internal
revenue law has been in operation, is as follows:
1863 $3,229,990.79
1864 \ 28,431,797.83
1865 15,995,701.66
During the fiscal year 1863 the tax was uniformly twenty
cents per gallon. For the fiscal year 1864 the tax was twenty
cents until March 7th, after which it was sixty cents. From
July 1st, 1864, until January 1st, 1865, it was $1.50 per gal-
lon, and afterwards $2. Of the receipts from excise on distilled
spirits in the year 1865, $3,862,753, or nearly one-fourth of
the whole amount, was from spirits previously bonded, and
paying the former rates of twenty and sixty cents per gallon.
The average taxable production of distilled spirits per year,
from September 1st, 1862, to June 30th, 1865, as returned to
the department, was 40.537,371 gallons.
The amount of distilled spirits produced in the country
during the year 1860 was in excess of ninety millions of gal-
lons. The amount at present required to meet the consumption
of the country, under the influence of the high rate of taxation
imposed upon this article, is estimated by the commission as
from forty-two to forty-five millions of gallons ; and with the
continuance of the present rate of excise they have no reason
to believe that this amount will, for some years to come, be
either largely increased or diminished.
Of the amount at present required to supply the consump-
tion of the country, the commission estimate that probably
about 39,000,000 gallons are required for drinking purposes,
leaving from 3,000,000 to 6,000,000 gallons for industrial
uses. This estimate does not include the amount of spirits
exported, from which by reason of the drawback, no revenue
pccrues. The largest amount ever exported in any one year
has not, according to the ofiicial returns, exceeded 3,000,000
gallons. In regard to the rate of tax to be imposed upon
spirituous or distilled liquors, the commission are of the opinion
that the present rate of two dollars per gallon is in excess of
the proper revemie standard, and that a reduction will be for
the interests botli of the revenue and the country. They accord-
ingly recommend that the rate of tax on distilled spirits be
226 LIQtrOK LAWS OF THE UNITED STATES.
reduced to one dollar per gallon. {The Commissioner after-
wards proposed a tax of 50 cents per gallon. With this rate of
duty, and with the consumption for industrial purposes (esti-
naated at not less than 10,000,000 gaWons) which must follow,
the commission are of the opinion that, making all allowances,
an average annual revenue of at least forty millions of dollars,
from this source may be collected.
But whatever may be the rate of tax agreed upon for the
future, it is clearly evident that a far more stringent and effect-
ive law than that which now exists is needed, if any fair pro-
portion of the amonnt which the Government has a right to
expect from this source is to be collected, and protection at the
same time extended to the honest distiller as against the
competition of his illicit competitor.
The commission, therefore, present, in connection with
their special report upon this subject, a draught of a new law,,
which they believe will be effectual for the prevention of fraud
and the securing of the revenue. This bill, which is neces-
sarily arbitrary and restrictive, does not, in some of its essential
features, meet the approval of a portion of the distilling
interest of the country, and their opposition to it may be fairly
expected.
The commission have, however, given a great amount of
time to the investigation of this subject, and have availed
themselves of the judgment of the most experienced revenue
officials, distillers and dealers, from various sections of the
country; and have also sought to acquaint themselves most
thoroughly with the manner in Avhich this subject is treated
for revenue in the various States of Europe.
The securing of a large revenue from distilled spirits in the
United States is absolutely necessary to insure the sucsessf ul
carrying out of any plan for simplifying the internal revenue
system, and relieving the general industry of the country from
a burden of taxation which must inevitably result in disaster.
No industrial interest in the country can better sustain the
burden of taxation than distilled spirits. The precedents of
all other countries are uniformly in favor of taxing spirits to
the maximum consistent with revenue ; and while any relaxa-
tion of the law, on the other hand, does not benefit the con-
sumer its strinijent enforcement with a regulation of the
CHAPTER X. 227
business will not diminish the amount which appetite or
industrial necessity demands for consumption. If it be urged
that the bill as reported by the commission is too restrictive
and arbitrary in its character, destructive of small private in-
terests; and as imposiniy large additional restrictions and ex-
penses upon all engaged in the business, it may be replied
that the amount of good which must inevitably accrue to the
whole country by the course recommended — if the same will
insure an enforcement of the law and the collection of the
revenue — is sufficient to justify a disregard of the interests
of a comparatively small number of individuals. The com-
mission, therefore, express the hope that Congress will not
too readily listen to the appeals of those who are more
anxious to subserve their own interests than the interests of
the country.
Fermented liquors. — The next source of revenue to which
the commission ask attention is that derivable from fermented
liquors, which, like distilled spirits, are capable of sustaining,
without injury to the country, a heavy taxation. From this
source the following revenues have accrued for the fiscal years
1863, 1S64 and 1865;
1863 $1,558,083.41
1864 2,223,710.73
1865 3,657,181.06
From September 1862, to March 3, 1863, the tax was one
dollar per barrel — of not more than thirty-one gallons ; from
that date to April 1, 1864, sixty cents ; and since that time,
one dollar. The number of barrels upon which the tax was
received, as nearly as can be ascertained, was 1,765,827 in 1863 ;
3,459,119 in 1864; and 3,657,181 in 1865.
By the census of 1860 the number of breweries then exist-
ing in the United States was returned at 1,269, affording a
product of nearly four million barrels (3,812,346.) The com-
mission, after a careful review of this branch of industry, and
personal consultation with nearly every leading brewer of
both ale and lager beer in the United States, are of the opinion
that the number of barrels of beer produced and consumed in
the country during the fiscal year 1865 was nearly or quite
6,000,000, and that the annual increase of product at the pres-
228 LIQUOR LAWS OF THE UNITED STATES.
ent time is about ten per cent, per annum, mainly of lager
beer. If this opinion be correct, it is apparent that the
Government received for the above year but little more than
sixty per cent, of its just dues from this source.
Upon the announcement of the ajypointment of this com-
mission in the spring of 1865^ the National Brewer i Asso-
ciation appointed a committee of three of their onost prominent
memhers, to visit Europe, and examine^ carefully and in de-
tail, the results of the working of the systems of taxation in
regard to ferm^ented liquors adopted in those countries of
Europe, where the demand for such liquors is more general
and extensive than in the United States. The report of that
committee,'^ comprising a great amount of information touch-
ing this industry, now so rapidly developing itself in the
United States^ has, hy vote of the Brewer^ Association, been
placed in the hands of the com.mission, and is now at the dis-
posal of Congress for publication if they deetn it expedient.
The commission believe that its p>ublication v^ould be of great
benefit to the breioing interest of the country, and, indirectly,
to the revenue ', and they therefm^e recommend it.
As the present rate of tax imposed upon fermented liquors,
viz : one dollar per barrel of thirty-one gallons, is in excess of
the rate imposed by any of the States of Europe (Austria ex-
cepted) ; and as the present rate, moreover, in the opinion of
the commission, after full consideration, is believed to be fully
up to the revenue standard ; and as such is all but unanimously
acquiesced in by the brewing interest of the country, they
would, therefore, recommend that the existing rate be neither
increased nor diminished.
The determination of the proper mode of collecting the tax
on fermented liquors, and preventing the large amount of
fraud which has heretofore, undoul)tedly, been committed in
regard to the same, has been to the commission a subject of no
little difficulty. By reference to their Special Report, (No 6.)
it will be seen that a tax on malt in this country is not prac-
ticable; neither is the plan, also investigated by the commis-
sion, of ganging and assessing the liquors, either in the
"coppers" during the process of maimfacture. or subsequently,
* See Proceedings 5th U. S. Brewers' Convention ; pp. 10-48.
CHAPTER X. 229
while in the fermenting vats. Abandoning both of these
methods, therefore, they have, with the full concurrence and
assistance of the leading brewers of the country, devised a plan
for collecting the tax by means of a stamp, printed on insoluble
parchment paper, to be affixed to each barrel sold and removed
from the place of its manufacture, with a requirement that
the same be cancelled by the retailer or consumer
Specimens of the stamps assigned for this purpose have
been prepared for submission to Congress, while the full de-
tails of the plan are given in the special report referred to.
With the adoption of this system, and the retention of the
present rate of excise, the commission estimate that the
Government may rely upon an immediate annual revenue,
from fermented liquors, of at least five millions of dollars."
Not until the year 1868 — when, under the tax of two dollars
per gallon, the revenue from distilled spirits had decreased to a
figure indicating either an almost entire suspension of distilla-
tion or an unprecedented degree of fraudulent transactions — was
the law enacted ^ which Special Commissioner D. A. Wells
liad proposed. The system of collection, supervision and con-
trol then introduced, and subsequently perfected in many
particulars, is practically the same wiiich is in operation at
this day. It is the method which makes the internal duty
payable by means of stamps to be affixed to the packages con-
taining the spirits or fermented liquors, and which surrounds
the manufacture and sale of these articles with an effective,
though by no means oppressive, guard against infractions of
the law. The duty, now reduced from two dollars to fifty
■cents per gallon, was thought to be low enough to do away
with the temptation to defraud the Government and to afford
the greatest possible guarantee of an easy collection of the
whole, or nearly the whole amount of taxes due to the Treasury.
This rate was, however, again changed a number of times (as
will be seen from the tables reproduced in the next chapter),
Act of July 20, 1868.
230 LIQUOR LAWS OF THE UNITED STATES.
but, in tlie main, not in such a manner as permanently tO'
defeat the objects of the law.
It was not so far, and is not now, deemed essential to enter
into the details of the system of drawbacks, of the regulations
relating to hydrometers and bonded ware-houses, although in
regard to the latter a great deal might be said concerning
practices on the part of distillers, which show little regard
for the interests of the Government.
No attempt will be made either to review the many laws
on the subject, passed since 1868, or to narrate the history of
the fraudulent schemes — yet fresh in the memory of the
reader — which were disclosed and punished, and whose re -
currence was effectually guarded against under General Grant's
second Administration. For present purposes it is sufficient
to know the exact policy of the Government, or rather the
spirit of the laws and general results ; and as to the latter point
it must be clear to everybody that, in determining the legiti-
mate effects of internal taxes upon the manufacture and con-
sumption of fermented liquors and distilled spirits, we must
pass over the period of questionable speculations, of frauds and
fluctuations, and take into consideration only the period during
which the revenue laws were generally obeyed. This period
embraces at least eleven years, from 1874 to the present day.
CHAPTER XL
EPITOME OF THE POLICY OF THE GOVERNMENT AND THE SPIRIT OF
THE LAWS SINCE 1860. PREJUDICE AGAINST EXCISES COM-
PLETELY WIPED OUT, 80 FAR AS INTOXICANTS ARE CONCERNED.
WILLINGNESS OF DISTILLERS AND BREWERS TO BE TAXED. —
FAITHFUL ADHERENCE TO THE POLICY OF FAVORING MALT
LIQUORS FOR MORAL REASONS. UNIVERSAL DESIRE, FROM
THE BEGINNING OF OUR GOVERNMENT TO PRESENT DA.Y, TO
SUBSTITUTE MALT LIQUORS FOR ARDENT SPIRITS. HAMILTON'S
AIMS REALIZED. THE OPERATION OF THE REVENUE LAWS
DURING THE FIRST TEN YEARS OF THEIR EXISTENCE. EFFECT
OF SPECULATION AND FRAUDS. — MODIFICATIONS OF LAWS
WITH A VIEW TO PREVENTION OF BOTH. — BRIEF REVIEW OF
EXTERNAL TAXATION ON INTOXICANTS SINCE 1860. RESULTS
OF INTERNAL TAXATION SINCE 1874. MARVELOUS GROWTH
OF BREWING INDUSTRY, CONSUMPTION OF ARDENT SPIRITS
DECREASED BY OVER FIFTY PER CENT ; THE OBJECTS OP
THE TEMPERANCE MOVEMENT REALIZED. THE PEOPLE OF THE
UNITED STATES AMONG THE FIRST OF TEMPERATE NATIONS ;
THEIR PRESENT POLICY ADOPTED BY EUROPEAN GOVERN-
MENTS, AND SUSTAINED BY SCIENTIFIC INVESTIGATIONS.
WHAT IS NEEDED TO PERPETUATE AND MULTIPLY THE FRUITS
OF WISE LAWS. REVENUE TABLES.
The policy of the Government in regard to the internal
taxing of ardent liquors is to-day precisely what it was when
the Revenue Commission formulated it in these words : '' In
respect to distilled spirits, the commission, taking as their
guide the history of past congressional legislation, and what
seems to be the general public sentiment of the country,
assume in the outset, that it is to be the future policy of the
Government to impose upon these articles the maximum tax
which they can bear, without too largely encouraging attempts
at evasion of payment by the smuggler, the illicit distiller,
and the retailer." This was the policy of the Government
232 LIQUOR LAWS OF THE UNITED STATES.
when the entire system of internal taxation, as created bj the^
law of July 1, 1862, was necessarily resjarded as simply a war
measure ; it remained the policy when, after the re-establish-
ment of peace, the gradual reduction and final abolishment ot
all other internal taxes — those upon tobacco excepted — was
initiated ; and it is the policy to-day when the system embraces
but one other article besides ardent and fermented liquors.
In determining the maximum tax, conformably to the sense
of the foregoing quotation, that is to say, in endeavoring to
fix the highest collectable excise on spirits, Congress erred re-
peatedly, and, considering the imperfections of human nature,
it will surely not be regarded as a matter of surprise that