INTERNAL REVENUE SYSTEM. The system of taxation in the United States, which goes by this name, was the outgrowth of neces sity and of the administrative genius of Alex ander Hamilton. The law of 2 Sept. 1789, creating the Treasury Department, had been drawn by him, and with such precision and comprehensiveness that but few changes have since been made in its substance or language. The young Secretary considered it to be the duty of the new national government to assume the obligations incurrei by the States in the prose cution of the War of Independence. Notwith standing the void in the Federal Treasury and the straitened finances of the country at large, he had prevailed on Congress, after a bitter struggle, to become res..nsible for the pay ment of about $24,500,111 of debt, which the States were unable to meet and had practically repudiated. The new government itself was little better off. The revenues from customs were inadequate; the nation was poor and im parts Were small. Hamilton's suggestion was to place an excise on domestic distilled spirits. Though there was as yet no formal differen tiation of political parties, the antagonism be tween the broad and strict constructionists of the Constitution was already manifesting it self. The design of the Secretary to exercise, within the States, as well as at ports of entry, the taxing powers which he believed to reside in the Federal government, met with strong re sistence dr= the Anti-Federalists, who regarded the project as unwarrantably intrusive into the domestic affairs of the States. Moreover, the opposition obtained the support of powerful business interests and of a considerable body of public opinion. There were about 100 dis tilleries in Massachusetts alone, most of them in Boston, where West Indian molasses (ex changed by Yankee traders for their exports of fish and lumber) was converted into New England rum. In the West and South whisky was made from grain at hundreds of stills in commercial quantities. Rum and whisky were articles of general consumption. The first bill, introduced in Congress in 1790, was defeated; but before the end of the session, by the act of 3 March 1791, Hamilton had secured a meas ure imposing a tax on distilled spirits, gradu ated from 11 to 30 cents per gallon, according to alcoholic content and the origin of the raw material, domestic or foreign. Although the impost weighed more heavily on rum, made from imported molasses, than on whisky made from home-grown corn, the demonstrations against it became particularly violent in the Alleghany and Cumberland mountain regions. In September 1791 a revenue officer was tarred and feathered in western Pennsylvania, as a defiance of the government. The incipiency, progress and suppression of the Whisky Re bellion (q.v.) it is not proposed here to dis cuss. Suffice it to say that, when it collapsed
in September 1794, it left the right of the Fed eral government to levy excise on domestic products and within the States firmly estab lished. The right to tax whisky was never thereafter questioned, except by the ((moon shiners* of the Appalachian highlands, whose conflict with the a revenuers') has continued to this day.
Having obtained recognition for the prim. ciple, Secretary Hamilton proceeded to give it wider application. An excise laid in 1794 on carriages used for pleasure or ostentation was assailed as unconstitutional; but the Supreme Court (Hylton v. U. S., 3 Dallas, 171) sus tained the act. The objection that the tax, being direct, should have been apportioned among the States according to population, evoked from the court the remark, that the only taxes it could conceive to be direct were head taxes and land taxes. In 1794 also laws were passed imposing excise taxes for selling at retail foreign wines and liquors; an excise of 8 cents a pound was laid on snuff; an internal revenue duty of 2 cents a pound was laid on sugar refined in this country, also a tax on sales by auction. By the law of 6 July 1797, vellum, parchment or paper" was re quired to be used for a great variety of legal documents and negotiable instruments. In these several laws the internal revenue system, as it ultimately took form, was broadly outlined. All of these enactments were repealed, however, on 6 April 1802, little more than a month after the inauguration of Jefferson as President and the ouster of the Federalists. The revenue derived from internal taxes in the few years they were actually collected amounted to $6,325, 000, besides which about $700,000. though as sessed remained unpaid at the time of the repeal. The financial necessities of the govern ment, occasioned by the War of 1812, com pelled recourse once more to forms of taxa tion other than customs dues. Nearly all the excises of Hamilton's internal revenue system were reimposed in 1813 and, for the first time, home industries other than the distilleries and snuff factories were taxed. There was a new tax on carriages, now including the harness; on boots and leather, beer, candles, caps and hats, parasols and umbrellas, paper, playing cards and saddles and bridles; also on watches, jewelry, gold, silver and plated ware. Stamped paper was required for bonds, bills, notes and other commercial instruments. Here are all the incidences of taxation, which have become characteristic of the internal revenue system; but its mainstays, then as later, were the whisky and tobacco taxes. After the war they were all repealed and, thenceforward, until 1861, the ordinary revenues of the Federal government were derived exclusively from the customs.