The use of salt, consequently, as a basis for taxes, has been
generally discarded. The principal bases for the modern
excise tax the world over are liquors and tobacco, and the
motive behind the levy is frequently sumptuary as well
as fiscal.

117. Excise Taxes Will Continue to Form a Part of
Fiscal Systems. The adoption of any new plan for rais-
ing revenue has usually met with numerous objections,



212 OUTLINES OF PUBLIC FINANCE

and the introduction of the excise tax did not escape. Its
introduction in England was severely criticized, while, as
will be later explained, its early use in the United States
met with serious objection. But " an old tax is a good tax "
is now applicable to the excise tax in so far as the people
have become used to it, and the administrative machineiy
has become so perfected as to do away with many of the
earlier objections of inquisitorial processes, fraud, and eva-
sions. The tax has come to represent a sort of silent flow
of revenue to the treasury, with no one feeling any par-
ticular burden, and hence raising no complaints.

The amount of funds which accrues from the excise tax
in the United States, at least, is as large as from any other
source, and because of the efficient administrative ma-
chinery which has been developed, the expense of collect-
ing the returns is comparatively low. With the machinery
in existence, this form of tax can be made to respond
rather quickly and satisfactorily to increased fiscal needs,
either by increasing the duties upon articles already taxed,
or by placing additional commodities upon the taxable
list. This was illustrated by the wide use, not only of
excise taxes, but of the direct consumption taxes during
the Great War.

It may be difficult to square a tax upon the articles of
consumption with the ideals of justice, yet a tax so pro-
ductive as the excise tax finds little difficulty in squaring
itself with fiscal authorities. Its use has been made easier
and more uniform because of the dissemination of large-
scale production throughout the principal nations of the
world, and the increasing uniformity in the demands of
individuals. But even though excise taxes are produc-
tive, inexpensive, and meet with comparatively little ob-
jection three desirable qualities of a revenue system-
yet too much reliance should not be placed upon them or
their legitimate place will be destroyed.

It must always be kept in mind that consumption does
not represent ability. An extensive use of taxes placed



EXCISE, CAPITATION, AND BUSINESS TAXES 213

upon necessities, while it would doubtless be productive
of much revenue, would be so extremely regressive as to
discredit its place in a fiscal program. The future use of
the excise, instead of expanding to all articles of consump-
tion, as was formerly extensively advocated, will likely be
limited to comparatively few goods, and these will be in
the class of semiluxuries and luxuries, rather than in the
class of necessities. The class of commodities chosen,
moreover, will likely consist, to some extent, of those of
which a diminution in use, because of the tax, would not
be considered undesirable. While, under ordinary con-
ditions, no levies will be made upon necessities, yet large
returns will continue to be received from the class of semi-
luxuries whose use is largely a matter of fixed habit.

118. The United States Has Effective Machinery for
Administering Excises. The machinery for handling the
collection of the internal revenue for a country as large as
the United States must necessarily be extensive. Since
the additional duties of assessing and collecting the Federal
income and excess profits taxes has been added to the
duties of the internal revenue department, a partial re-
organization has been found necessary in order to expedite
the large amount of business which it is necessary to
handle.

Central Machinery. The Bureau of Internal Revenue,
which has charge of the collection of the excise taxes, as
well as the income and excess profits taxes, is one of the
divisions of the treasury department, under the direction
of the Commissioner of Internal Revenues. The commis-
sioner is directly responsible to the Secretary of the Treas-
ury. Two advisory boards are provided the legal ad-
visory board, and the excess profits advisory board. The
latter of these boards, as the title indicates, has to do with
the collection of excess profits, while the other, which is
composed of lawyers, must advise on the legal situations
which arise in connection with assessments and collections.

The bureau is composed, at present, of six divisions,



214 OUTLINES OF PUBLIC FINANCE

each of which is placed under a deputy commissioner.
The first three divisions have to do with the regulations
regarding the collection of the taxes, while the fourth has
charge of their actual collection. The fifth division has
charge over the inspection of returns, while the sixth
division is sometimes called the Division of Business Co-
operation. It is the function of this division to obtain
as much cooperation as possible between the business
interests of the country and the government. It has
worked with the boards of trade and chambers of com-
merce in a campaign of education. This division also looks
after the complaints, and invites suggestions for a greater
perfection of the administration of the law.

Local Machinery. The actual collection of the excise
taxes is handled by local internal revenue officers. The
United States is divided into sixty-four collection dis-
tricts, and each is in charge of an internal revenue col-
lector. It is to this officer that the individuals and firms
of the district make returns and pay taxes. Returns are
always examined, and if any serious errors occur may be
sent back to be filled out again. The list of taxes for the
month are calculated and sent to the Commissioner of
Internal Revenue, who in turn charges the local official
with the amount of the tax, and makes him responsible
for its collection. The local collector is expected to detect
fraudulent returns, or to know that a return should have
been filed, but was not, and to take proper steps to make
rectifications. Even after the reports are turned in to the
department, evidences of fraud or mistakes may be found,
in which case an abstract is made and turned over to the
field force of investigators in the proper district. These
investigators are expected to be thorough and to ascertain
the facts.

If taxes have been illegally assessed or collected a claim
may be presented on an authorized form. The entire
burden of proof rests on the claimant, and if his case is
established, reimbursement may be secured through the



EXCISE, CAPITATION, AND BUSINESS TAXES 215

revenue office of the district. The efficient machinery
which has been developed is helping to make the internal
revenue sj^stem, with its multitude of added burdens, a
successful part of the fiscal program of the United States.

119. The United States Did Not Use Excises Exten-
sively Before the Civil War. The constitutional grant to
the Federal government of the power to levy internal
revenue duties was the cause for much objection. All
sorts of evil consequences were pictured, such as the entire
confiscation of property and imprisonment of individuals.
Officials, consequently, were somewhat slow and cautious
in extending the fiscal system to make use of internal
taxes, and when it was attempted much opposition arose,
both within and without Congress.

The failure of the import duties to supply sufficient
funds, led Hamilton, the Secretary of the Treasury, to
recommend the adoption of an excise tax, especially on
whisky. Congress was not anxious to create the new
Federal offices which the tax would make necessary, while
in some par,ts of the country strenuous objection arose to
the use of whisky as the base of the tax. It was consid-
ered so much of a necessity as to make the tax in the
nature of a poll tax, which, therefore, fell with an unequal
burden upon different classes of people. The tax was
adopted, however, and imposed a duty of from eleven to
thirty cents a gallon on spirits manufactured from foreign
materials, and from nine to twenty-five cents a gallon on
spirits from domestic materials. The opposition which
arose, and which culminated in armed resistance in
western Pennsylvania, known as the Whisky Rebellion, is
familiar to students of American history. The unproduc-
tiveness of this tax led to an extension of excise duties
upon carriages, sales of liquor, manufacture of snuff,
sugar, and auction sales.

Early Tax Repealed. This initial employment of the
excise principle as an integral part of the Federal fiscal
system was of short duration. The political party which



21(5 OUTLINES OF PUBLIC FINANCE

came into power at the beginning of the nineteenth cen-
tury believed in simplifying the administrative machinery
to the greatest possible extent, and, furthermore, that the
use of excise taxes violated the principles of democratic
freedom. The chairman of the Committee on Ways and
Means of the House of Representatives, under the new
political regime, hastened to recommend the abolition of
excise taxes on the ground that they increased the number
of officers and placed increased burdens on the people.
He contended, also, that they were obnoxious, vexatious,
and hostile to the genius of a free people, and at the same
time were expensive to collect.

The opposition contended that if reduction of duties
were to be made it should come from the import taxes on
such necessities as tea, sugar, and similar commodities,
rather than from such a luxury as distilled spirits. A
strong argument was further made for the retention of the
fiscal administrative machinery which had been estab-
lished. These considerations were of no avail, however,
and the repeal measure passed in 1802.

Emergency Use of Tax. The burden of the War of 1812
came upon the treasury, the returns from imports fell off,
and no excise taxes were in existence. Much discussion
occurred in Congress over the reestablishment of excises,
but no agreement could be reached. In a special session
in 1813, Congress levied light duties upon liquors, sugar,
carriages, and auctions, as well as some stamp duties.
These proved insufficient, and in 1814 the rates were
raised and the duties extended to a few other commodities.
The administrative machinery was so ineffective, however,
that the returns were slow in coming in many of the
taxes were not collected until years after they were due.
The war was scarcely over when strong agitation arose
for the removal of the burden of the excise taxes. They
continued to be used to some extent until 1817, after
which, except for the payment of some duties which had
previously accrued, they ceased to have any place in the



EXCISE, CAPITATION, AND BUSINESS TAXES 217

revenue systam of the country until war again called them
forth.

120. Some Civil War Excises Have Been Permanently
Retained. No attempt was made to secure any adequate
revenue from taxes during the first months of the Civil
War. It was the policy of the Secretary of the Treasury
to rely principally upon borrowed funds to meet the
emergency needs. In spite of this policy of Secretary
Chase, Congress, in 1862, determined to extend the use
of taxes, and an adoption of a system of internal revenue
duties was a part of the plan. The problem of getting a
workable system was, of course, much more complex than
when excises had previously been used during the War of
1812. The territory as well as the population was greatly
extended, while industry had become greatly diversified
during this lapse of forty-five years.

To inaugurate a successful system of excises under these
conditions, an extensive administrative machinery was
necessary, and this, of course, did not exist. With the hope
that little attempt would be made to evade the tax, it
was decided to place low duties upon a large number of
articles. The list of taxed articles included liquors, to-
bacco, manufactured products, carriages, billiard tables,
slaughtered animals, means of transportation, and various
forms of business organizations. Taxes were also levied
upon incomes and legacies. Besides these a large number
of licenses were imposed.

Tax of 1864. The returns from these levies were disap-
pointing less than one half of the anticipated revenue
4vas realized and Congress attempted to remedy the
situation by new legislation in 1864. In general outlines,
this measure was much the same as the earlier enactment,
the principal difference being a general increase in rates
and an extension to more commodities. So all-inclusive
was the system that it became impossible to tell how many
taxes many commodities were expected to pay. Nearly
every class of raw material bore a tax, as well as the



218 OUTLINES OF PUBLIC FINANCE

finished product, while a tax generally was placed upon
transportation and sale. While the burdens inflicted were
often inequitable, yet from the fiscal standpoint the re-
turns proved satisfactory. That the administrative ma-
chinery had had a chance to be developed since the pas-
sage of the earlier law, will account in part for the more
successful operation of the law of 1864.

Development Since the Civil War. A change can be
noted in the temper of the citizenship following the Civil
War from that which was evidenced after the War of 1812.
Less clamor was raised to have the excise taxes removed.
The old selfishness of the states was beginning to disap-
pear, and they were beginning to view the extension of
Federal activities as a lessening of the burden on the
treasuries of the states. The expenses of the government
continued to be high for a number of years after the close
of the war, and never did go back to the pre-war level. It
needed little argument, then, to show that the excise tax
should remain as a fundamental part of the fiscal system.

Changes were gradually made until the tax applied
principally to tobacco and distilled and malted liquors.
The rates on these have varied somewhat, but usually have
been lower than in most countries. During the Spanish-
American War the excise taxes were greatly extended, and
the existing duties were practically doubled, so that their
receipts formed a considerable portion of the total revenue.
At the end of the war their use was again curtailed to
practically the former basis, where it remained until the
Great War. The extensive use made of these taxes during
and after the Great War is familiar to all. Because of the
large future revenue needs to meet interest and debt
charges, as well as the rapidly multiplying government
activities, and because of the elimination of liquors as a
source of revenue, it is to be expected that the excise tax
will be continued on a very much larger number of com-
modities than during the pre-war period.

121, Excise Ites Have Important Places in Foreign



EXCISE, CAPITATION, AND BUSINESS TAXES 219

Fiscal Systems. It is intended to do no more than simply
indicate some of the uses of excise taxes in countries other
than the United States. As might be expected, because
of their indirect nature they very early held prominent
places in fiscal systems. England resorted to their use as
early as the seventeenth century and gradually extended
the system until it included such articles as salt, glass,
leather, liquors, and many other commodities. Marked
extension was made of these duties to supply war funds,
and after the passing of the emergency they were usually
reduced to something like the former level.

As the country developed and the fiscal machinery
became better organized, the multiplicity of the duties
lost popularity, and from the first quarter to the middle
of the nineteenth century many commodities which had
long been burdened by taxes were relieved. Among these
were glass, brick, tile, leather, and soap. The removal of
many of these duties had a stimulating effect upon indus-
try. The duties, however, have been retained on the
various kinds of alcoholic liquors, the brewing and dis-
tilling of which are kept under close government super-
vision. Licenses are also charged for the sale of these
liquors. The results of an excise on tobacco have been
accomplished through the restriction of its growth in
England, and taxing it through the use of the customs
duty.

Excise Tax in France. The most extensive use of ex-
cise taxes has been found in France. They were developed
here much earlier than in England and have always occu-
pied a place of more or less importance in French fiscal
history. They have been far from satisfactory at times,
and have been often in ill repute among the citizens be-
cause of bad administration and discriminations. Their
importance to the fiscal system has varied at different
times, but because of the nature of the government they
have been used more extensively than in most countries.
This is the situation at present. A larga number of com-
modities are taxed, and various methods are used in mak-
ing the levy. A common method is to levy the tax upon
goods as they pass from one political division to another.
Luxuries and semiluxuries have formed the bases for the
most of the taxes.

Use in Other Countries. Italy has also made extensive
use of excise taxes, but is distinguished from the other
countries in that articles of necessary consumption have
always been made to contribute heavily. Germany, also,
has long used this form of taxes, though its prominence
has not been so marked as in some of the other European
states. Some of the effects have been offset by the use of
bounties, while some articles which were capable of pro-
ducing much revenue, such as beer, have been lightly
taxed. In practically every country the use of this form
of tax occupies a place of some degree of importance. In
nearly every case, moreover, this degree of importance
has been greatly increased since the advent of the Great
War, and it is doubtful whether it will ever recede to its
former level. The articles which are most universally
used as the bases upon which to levy excise taxes are
liquors, tobacco, salt, and sugar.