INTERNAL REVENUE SYSTEM. The revenue derived by the United States Government from taxation other than that of imports is com monly destg,nated as internal revenue. In its widest sense the term includes the direct taxes levied in accordance with the constitutional rule of apportionment according to population, in t798, during the War of 1812. and in 1861. But as the constitutional rule noted differentiates such direct taxes widely from all other forms of in ternal taxation, we may properly exclude them front the discussion of the internal revenue.
Internal taxation did nut acquire a permanent place in our fiscal system until 1802. though the nation had, in 1794. BOO. and 1813-17. gained some experience in this form of taxation. This earlier experience was not without value to the financiers of the Civil War, and may be briefly examined here.
Soon after the inception of the national govern ment, the revenues proved to be inadequate. The fiscal policy of Hamilton had not sought to evade the responsibilities which the creation of a na tional government imposed, and the burden of State debts created in the common struggle for independence was assumed by the nation. The debt charges assumed in this manner were con siderable, and the customs revenues insufficient to discharge them. As early as llarch. 1790. the Secretary of the Treasury proposed that excise taxes lie laid upon snuff and tobacco, carriages, sales at auction, stamps, and on wines and dis tilled spirits. Alcoholic beverages were subjected to a moderate tax by an act of 'March 3. 1791. Liquors produced from foreign materials were taxed at rates ranging from 11 to 30 cents a gallon, and those produced from domestic mate rials at rates ranging front 9 to 25 cents. The act was very unpopular, and gave rise to much opposition, which interfered greatly with its operation, increasing the costs of collection and diminishing the returns. Nowhere was this op position stronger than in western Pennsylva nia, where, in 1794, a display of military force was necessary to put down the uprising known as the Whisky Insurrection (q.v.). Despite the falling off in receipts, due to this opposi tion. the revenues could not be dispensed with, and further taxation became imperative. In June. 1794. carriages, sales at auction, snuff, sugar, and tobacco were made taxable, and licenses were required for the sale of wines and liquors. Taxes on legal instruments were im posed in 1797. These measures were enacted in the face of vigorous opposition. As to the car
riage tax in particular, the constitutional objec tion was raised that it was a direct tax and not levied in the manner prescribed, and when this failed to impress Congress. the matter was car ried to the courts. The Supreme Court of the United States, in Hylton rs. the United States, upheld the act, and in effect declared that land and capitation taxes were the only direct taxes in the constitutional sense. The opposition to this form of taxation was due to the fear that thereby the Federal Government would gain increased power. and we may well surmise that Hamilton's advocacy of these measures was in part influenced by the desire to assert as soon as possible all the power which he believed to reside ccnstitutionally in the Federal Government.
With the rise of the Democratic Party to power in 1801 all forms of internal taxation were aban doned. Party principles were opposed to them, and the treasury did not need them. Revenues flout en-toms amply supplied all needs and t lilted a considerable. reduction in the public \\ ken the \Var of I512 broke out there was at first no thought that any additional re‘enucs would be needed for current expenses, and it was Lt liev•d that the costs of the tear could be met by loans. Both piddle revenue and public credit impaired by such a pu,lrgu. In 1$13 it liecaniv neeessary 1.1 seek new sources of reVenll•, by of •1 and August 1$13, these t.ixes which had proved most advantageous before the opening of t he cent ury Were ruillipOsed. Duties on carriages, on sugar relined in the t nited States, livens.. taxes on the Ilistillers of spirituons liquors, and on retailers of nines and spirits. ‘‘ith stamp duties on legal instrument., etc., and taxes upon sales ilt. auction, l'elppeared. Thcse taxes were. hoover, desiguated as tempo rary. and the pledge Was made that they S11011111 be repealed Within :I year from the close of hos tilities. .\ s it took some time to create the nmehinery for the collection of these taxes, the actual return- Were sloW in in. Before any appreciable reveinte bad been derived from this Sollece ($1.4;62,9$1 being volleeted in 151-I r: les Increased in 1)eeember, 1st and new taxes were imposed in • !unary, 1$15. They embraced pig-iron. iron castings, and rolled iron, nails. candles, paper, leather, playing-cards, vellum. hats. umbrellas. saddles, bridles, boots, shoes. beer, ale. tobacco, cigars, and snuff.