Revenue
L’État c’est moi was the autocratic maxim of Louis Quatorze. An adherence to it cost the Bourbons their throne. Burke was more philosophical when he said, “The revenue of the State is the State.” Its imposition, its collection, and its application involve all the principles and all the powers of government, constitutional or extraordinary. It is the sole foundation of public credit, the sole support of the body politic, its life-blood in peace, its nerve in war. The “purse and the sword” are respectively the resource and defense of government and peoples, and they are interdependent powers. With the discovery of the sources of revenue, and the establishment of its currents, Mr. Gallatin, in the first eight years of his administration of the Treasury, had nothing to do. He had only to maintain those systems which Hamilton had devised, and which, wisely adapted to the growth of the country, proved amply adequate to the ordinary expenditures of the government and to the gradual extinguishment of the debt. The entire revenue included three distinct branches: imposts on importations and tonnage, internal revenue, sales of public lands. The duties on imports of foreign merchandise were alone sufficient to meet the current expenses of the various departments of administration on a peace establishment, and, increasing with the growth of the country, would prove ample in future. The gross amount of imports in the four years of Adams’s administration, 1796-1800, was about three hundred and fourteen millions of dollars, and the customs yielded about thirty millions.
Mr. Gallatin’s first annual report, submitted to the House of Representatives in December, 1801, exhibited his financial scheme. He recapitulated the various sources of permanent revenue. They were those of Hamilton’s original tariff.
The revenues for the year ended September 30, 1801, were the basis of the estimates for future years. These were
| Duties on imports and tonnage | $10,126,213.92 |
| Internal revenue | 854,000.00 |
| Land sales | 400,000.00 |
| =========== | |
| $11,380,213.92 |
But the close of the war in Europe sensibly diminished the enormous carrying trade which fell to the United States as neutrals, and, as a consequence, the revenue from that source; large quantities of goods were brought into the United States and reëxported to foreign ports under a system of debenture. The revenue on what Mr. Gallatin calls “this accidental commerce” was $1,200,000. He therefore estimated the permanent revenues at
| Customs duties | $9,500,000 |
| Land sales | 400,000 |
| Postage | 50,000 |
| Internal revenue | 650,000 |
| ========= | |
| $10,600,000 |
Or, without the internal revenue, say ten millions of permanent revenue, as a basis for the permanent expenditures.
To bring the expenditures within this sum, however, a reduction in the army and navy establishments was necessary. This Gallatin soon found to be too radical a measure for success, either in the cabinet or Congress, however well it may have accorded with Jefferson’s utopian views. In the budget of 1802 the internal revenue, $650,000, was, therefore, a necessary item. The expenditures proposed were
| Annual appropriation for interest and principal of debt | $7,100,000 | |
| Civil list | $780,000 | |
| Foreign intercourse | 200,000 | |
| Military and Indian Dept | 1,420,000 | |
| Naval | 1,100,000 | |
| $3,500,000 | 3,500,000 | |
| $10,600,000 | ||
In this budget the estimate for the military establishment was an increase over that of Wolcott for 1801, which was $1,120,000. But the Republicans in the House were not content with this arrangement. The internal revenues were utterly distasteful to them. They had been laid against their protest and collected under military menace. They were of those Federal measures of which they would have none. John Randolph, chairman of the Committee of Ways and Means, reported, March 2, 1802, against the entire system of internal duties, in the old words of the Pennsylvania radicals, as vexatious, oppressive, and peculiarly obnoxious; as of the nature of an excise which is hostile to the genius of a free people, and finally because of their tendency to multiply offices and increase the patronage of the executive. The repeal was imperative upon the Republican party. On April 6, 1802, the act was repealed and the surplus of the budget stripped from it, without Mr. Gallatin’s consent, certainly, but also without protest from him.
The prosperity of the country continued. The impost duties for the fiscal year ending September 30, 1802, rose to $12,280,000, the sales of the public lands to $326,000, and the postage to $50,500, a total of $12,656,500, and left in the Treasury, September 30, 1802, the sum of $4,539,675. This large increase in the Treasury did not in the least change Mr. Gallatin’s general plan, and his budget for 1803 was based on his original scale of a permanent revenue of $10,000,000, to correspond with which the estimates of the preceding year were reduced. The fiscal year closed September 30, 1803, with a balance in the Treasury of $5,860,000. This situation of the finances was fortunate in view of secret negotiations which the President and Congress were initiating for the purchase of Louisiana from France.
The secretaries of war and of the navy had promised to reduce their expenditures to a figure approximate to Mr. Gallatin’s estimates; but the breaking out of hostilities with Tripoli prevented the proposed economy, and Mr. Gallatin was called upon to provide for an increased expenditure with one certain source of revenue definitively closed. He therefore proposed an additional tax of two and one half per cent. on all importations which paid an ad valorem duty. This additional impost, laid by act of March 25, 1804, called the Mediterranean Fund, remained in force long after the war closed and held its place on the books of the Treasury under that name.
The bulk of the cost of Louisiana was met by an issue of bonds; but Mr. Gallatin, true to his principle, applied the moneys in the Treasury as far as they would go. The budget for 1805 was on a different scale. The increase in the debt demanded a proportionate increase in the revenue to meet the additional sum required for interest and gradual annual reimbursement. The Mediterranean Fund was sufficient to meet the increased amounts required for the navy. In this manner he held up the Navy Department to a strict accountability and made it responsible to Congress and not to the cabinet for its administration, and he thus, from his own point of view, relieved the Treasury Department from any responsibility for extraordinary expenditure.
Mr. Gallatin closed his four years of administration with flying colors. The successful management of the finances was an important factor in the election of 1804, which returned Mr. Jefferson to the presidential chair and insured to the country the inestimable advantages of Mr. Gallatin’s practical mind. Order reigned in his department at least, and order subordinate to the strictest requirements of law. In the four years, 1801-1804, Jefferson’s first term, the imports aggregated $337,363,510 and the customs yielded $45,000,000.
The annual report, made December 9, 1805, announced an increasing revenue, amounting in all to thirteen and one half millions of dollars, chiefly from customs. Still Mr. Gallatin made but small addition to his estimates for the coming year. The permanent revenue he raised to twelve and one half millions and increased the appropriation for the payment of the debt and interest to eight millions. Nothing occurred during the next year to check the growth of the country; the revenue continued on a rising scale, and reached close upon fifteen millions of dollars.
So far Mr. Gallatin had met but inconsiderable obstacles in his course, and these he used to his advantage to impress economy upon the Army and Navy Departments, and enforce his principle of minute appropriations for their government. All that he had already accomplished in the establishment of a sound financial system and the support of the credit of the United States was but the basis of a broader structure of national economy. His extensive scheme of internal improvements was hardly matured when the thunder broke in the clear sky.
The acquisition of Louisiana, the large carrying trade which had passed under the American flag, and the rapid prosperity of the financial and industrial condition of the country aroused the jealousy of Great Britain, and determined her to check the further progress of the United States by war, if need be. The capture of the American frigate Chesapeake by the man-of-war Leopard, June 22, 1807, was only the first in a series of outrages which rendered the final collision, though long delayed, inevitable. Mr. Gallatin at once recognized that the Treasury could no longer be conducted on a peace basis. “Money,” he wrote to Joseph H. Nicholson, “we will want to carry on the war; our revenue will be cut up; new and internal taxes will be slow and not sufficiently productive; we must necessarily borrow. This is not pleasing to me, but it must be done.” Congress was called together for October 26, 1807, and on November 5, Mr. Gallatin sent in his annual report. There was still hope that Great Britain would make amends for the outrage, and Congress was certainly peaceably disposed. In the condition of the Treasury there was no reason as yet for recommending extraordinary measures. The revenues for the year passed the sum of seventeen millions; the balance in the Treasury reached eight and one half millions; the surplus on a peace footing was twelve millions. Mr. Gallatin recommended that the duties should be doubled in case war were threatened. He said, “Should the revenue fall below seven millions of dollars, not only the duty on salt and the Mediterranean duties could be immediately revived, but the duties on importation generally be considerably increased, perhaps double, with less inconvenience than would arise from any other mode of taxation.” Experience had proven that this source of revenue is in the United States “the most productive, the easiest to collect, and least burdensome to the great mass of the people.” But still the war-cloud did not break. Mr. Canning contented himself with war in disguise, and by his Order in Council of November 11, 1807, shut the ports of Europe to American trade, and wiped away the advantages of the United States as a neutral power. The United States answered with the act of embargo on December 22, 1807, completing, as far as it was possible for legislation to effect it, the blockade of the Treasury Department as regarded revenues from foreign imports. The immediate effect, however, of these acts in Great Britain and America was an enormous temporary increase of importations in the interim from the time of the passage of the act until the date when it took effect. To aid merchants in this peculiar condition of affairs an act was passed by Congress, on March 10, 1808, extending the terms of credit on revenue bonds.
Mr. Gallatin’s report of December 16, 1808, closed the record of his eight years of management of the Department. In the second term of Jefferson’s administration, 1805-1808, the gross amount of imports had risen to $443,990,000, and the customs collected to nearly $60,000,000. In the entire eight years, 1800-1808, the gross amount of importations was $781,000,000, and the customs yielded $105,000,000. The entire expenses of the government in the same period, including $65,000,000 of debt, had been liquidated from customs alone.
The specie in the Treasury on September 20, 1808, reached nearly $14,000,000. Mr. Jefferson knew of the amount in the Treasury when he wrote his last message, November 8, 1808, and he could not have been ignorant of Mr. Gallatin’s warning of the previous year that a continuance of the embargo restriction would reduce the revenue below the point of annual expenditures and require an additional impost; yet he had the ignorance or the presumption to say in his message, “Shall it (the surplus revenue) lie unproductive in the public vaults? Shall the revenue be reduced? or shall it not rather be appropriated to the improvement of roads, canals, rivers, education, and other great foundations of prosperity and union under the powers which Congress may already possess or such amendments of the Constitution as may be approved by the States? While uncertain of the course of things, the time may be advantageously employed in obtaining the powers necessary for a system of improvement, should it be thought best.” In these words Jefferson surrendered the vital principle of the Republican party. In his satisfaction at the only triumph of his administration, the management of the finances and the purchase of a province without a ripple on the even surface of national finance, he gave up the very basis of the Republican theory, the reduction of the government to its possible minimum, and actually proposed a system of administration coextensive with the national domain, an increase of the functions of government, and consequently of executive power.
The annual report of the Treasury, presented December 16, 1808, showed no diminution of resources. The total receipts for the fiscal year were nearly eighteen millions. The total receipts for—
| Customs reached | $26,126,648 |
| On which debentures were allowed | |
| on exportations | 10,059,457 |
| ========= | |
| Actual receipts from customs | $16,067,191 |
But this source of revenue was now definitively closed by the embargo, while the expenditures of the government were increased. Mr. Gallatin met the situation frankly and notified Congress of the resources of the Treasury.
| Resources For 1809 | ||||
| Cash in Treasury | $13,846,717.52 | |||
| Bank customs, net | 2,154,000.00 | |||
| =========== | ||||
| Total resources | $16,000,717.52 | |||
The receipts from importations and land sales would be offset by deductions for bad debts and extensions of credit to importers. The expenditures were set at $13,000,000, which would leave in the Treasury for extraordinary expenditure $3,000,717. The disbursements had been far beyond the estimates; those for the military and naval establishments reaching together six millions.
It is not to be supposed that Mr. Gallatin saw this depletion of the Treasury, this rapid dissipation of the specie,—always desirable and never more so than in periods of trouble,—without disappointment and regret. His report to Congress was as outspoken politically as it was financially, and from a foreign-born citizen to an American Congress must have carried its sting. “Either America,” he wrote, “must accept the position of commerce allotted to her by the British edicts, and abandon all that is forbidden,—and it is not material whether this is done by legal provisions limiting the commerce of the United States to the permitted places, or by acquiescing in the capture of vessels stepping beyond the prescribed bounds. Or the nation must oppose force to the execution of the orders of England; and this, however done, and by whatever name called, will be war.” He recalled to them his advice of the preceding years in a vein of tempered bitterness: “Had the duties been doubled on January 1, 1808, as was then suggested, in case of war the receipts into the Treasury during that and the ensuing year would have been increased nine or ten millions of dollars.” He then proposed to continue the Mediterranean Fund and to double all existing duties on importations after January 1, 1809. He informed them that no internal taxes, either direct or indirect, were contemplated by him even in the case of hostilities against the two belligerent powers; France having responded to the Orders in Council by Napoleon’s Milan decree, December 17, 1807, which was quite as offensive to the United States as that of Canning. With true statesmanship Mr. Gallatin nerved the country to extraordinary exertion by reminding it that the geographical situation of the United States and their history since the Revolution removed every apprehension of frequent wars.
During the year 1809 the country drifted along apparently without rudder or compass, helmsman or course, and the treasury locker was being rapidly reduced to remainder biscuit. Mr. Madison was inaugurated in March. In his first message, May 23, 1809, he exposed the financial situation with an indecision which was as marked a trait of his character as optimism was of that of Jefferson. In his message of November 29, 1809, he said “the sums which had been previously accumulated in the Treasury, together with the receipts during the year ending on September 30 last, and amounting to more than nine millions of dollars, have enabled us to fulfill all our engagements and defray the current expenses of government without recurring to any loan; but the insecurity of our commerce and the consequent demands of the public revenue will probably produce a deficiency in the receipts of the ensuing year.” Beyond this Madison did not venture; Gallatin was left alone.
The Treasury report of December 8, 1809, announced the beginning of short rations. The expenses of government, exclusively of the payments on account of the principal of the debt, had exceeded the actual receipts into the Treasury by a sum of near $1,300,000. If the military and naval establishments were to be continued at the figures of 1809, when six millions were expended, there would result a deficiency of $3,000,000, and a loan of $4,000,000 would be necessary. Otherwise the Mediterranean Fund would suffice. The cash in the Treasury had fallen from nearly fourteen millions on June 2, 1809, to less than six millions on September 3, following. In this report Gallatin expressed his opinion, that the system of restriction established by the embargo and partly relaxed must be entirely reinstated or wholly abandoned. On May 1, 1810, an act of strict prohibition of importations from Great Britain and her dependencies was passed.
While from the incompetency of the administration the country was fast approaching the real crisis of open war, the Republicans in Congress were deliberately destroying and undermining the basis of national credit, by which alone it could be carried on. In February the United States Bank, by which, and its branches, the customs were collected throughout the country, was destroyed by the refusal of Congress to renew its charter. Mr. Gallatin in his combinations never contemplated such a contingency as the total destruction of the fiscal agency on which the government had relied for twenty years. Unwilling to struggle longer against the mean personalities and factious opposition of his own party in Congress, he tendered his resignation to Mr. Madison. But the Republican party was a party of opposition, not of government. With the exception of Mr. Gallatin, no competent administrative head had as yet appeared. There was no one in the party or out of it to take his place. Mr. Madison knew it. Mr. Gallatin felt it, and remained. Congress met in November. On the 25th Mr. Gallatin sent in his annual report; the receipts reached thirteen and a half million dollars.
The budget for 1812 left a deficiency to be provided for of $1,200,000. This was a small matter. The revenue Mr. Gallatin proposed to increase, on the plan before recommended, by additions of fifty per cent, to the imposts on foreign commerce. This he preferred to any internal tax.
At the close of the year the country, chafed beyond endurance by the indignities put upon it and the sufferings it encountered without compensation to its pride, was eager for war. Congress was no way loath to try the dangerous path out of its labyrinth of blunders. The near contingency imposed the necessity of an immediate examination of the sources of revenue. In January, 1812, Mr. Gallatin was requested by the chairman of the Committee of Ways and Means to give his opinion as to the probable amount of receipts from duties on tonnage and merchandise in the event of war. This, in view of the vigorous restrictions laid by France under her continental system of exclusion, Mr. Gallatin estimated under existing rules as not to exceed $2,500,000. He then stated, without hesitation, that it was practicable and advisable to double the rate of duties, and to renew the old duty on salt. The sum acquired, with this addition, he anticipated, would amount to $5,400,000.
On the basis of annual loans of ten millions of dollars during the continuance of the war (the sum assumed by the committee), the deficiency for 1814 would amount, by Mr. Gallatin’s estimate, to $4,200,000. To produce a net revenue equal to this deficiency he stated that the gross sum of taxes to be laid must be five millions of dollars. He then reverted to his report of December 10, 1808, in which he had stated that “no internal taxes, either direct or indirect, were contemplated, even in the case of hostilities carried on against the two great belligerent powers.” The balance in the Treasury was then nearly fourteen millions of dollars, but in view of the daily decrease of the revenue he had recommended “that all the existing duties be doubled on importations subsequent to the first day of January, 1809.” As the revenues of 1809, 1810, and 1811 had yielded $26,000,000, the sum on hand, with the increase thus recommended, would have reached $20,000,000, a sum greater than the net amount of the proposed internal taxes in four years.
At that time no symptoms had appeared from which the absolute dissolution of the Bank of the United States without any substitute could have been anticipated. If its charters had been renewed, on the conditions suggested by Mr. Gallatin, the necessity for internal taxes would have been avoided. The resources of the country, properly applied, however, were amply sufficient to meet the emergency; but Mr. Gallatin distinctly threw upon Congress, and by implication upon the Republican majority, the responsibility for the state of the Treasury, and the imperative necessity for a form of taxation which it detested as oppressive, and which it was a party shibboleth to declare in and out of season, to be unconstitutional. The choice of the administration was between the Bank which Jefferson detested and Gallatin favored, and the internal tax which Mr. Gallatin considered as the most repulsive in its operation of any form of revenue.
But necessity knows no law, and the prime mover, if not the original author, of the opposition to Hamilton’s system was driven to propose the renewal of the measures, opposition to which had brought the Republican party into power, and had placed himself at the head of the Treasury. He now proposed to raise the five millions deficiency by internal taxation—$3,000,000 by direct tax and $2,000,000 by indirect tax.
Continuing his lucid and remarkable report with careful details of the methods to be adopted, Gallatin closed with an urgent recommendation that the crisis should at once be met by the adoption of efficient measures to provide, with certainty, means commensurate with the expense, and by preserving unimpaired, instead of abusing, that credit on which the public resources eminently depend, to enable the United States to persevere in the contest until an honorable peace should be obtained. Thus he held the bitter cup to the lips of the Republican Congress, which, however, was not yet to drain its full measure. War was declared June 18, 1812. On July 1, 1812, an act was passed imposing an additional duty of one hundred per cent. on all importations, an additional ten per cent. on goods brought in foreign vessels, and also a duty of $1.50 per ton on all foreign vessels. The duty was to remain until the expiration of one year after peace should be made with Great Britain. On December 5, 1812, Mr. Gallatin sent in his last report. The balance in the treasury was $3,947,818. His estimate for the service of the year 1813 was a war budget. Resources, $12,000,000; expenditures, $31,926,000; promising a deficiency of $19,925,000. For this and other contingencies Mr. Gallatin asked for a loan of twenty millions. The authority was granted, but the recommendations of direct and indirect taxes were disregarded. Here Mr. Gallatin’s direct connection with the customs system closed.
The value of foreign importations during Madison’s first term was $275,230,000, and the customs derived from them thirty-eight millions of dollars.
Congress adjourned March 4, 1813, but was called together again in May, when the subject of internal taxes was again forced upon them. The internal revenue was a part of Hamilton’s general scheme. His original bill was passed, and, after numerous amendments suggested by trial, its grievances were tempered and the friction removed. In Adams’s term it yielded nearly three millions of dollars. In Jefferson’s first term, before the rise in customs revenue allowed of its abandonment, Mr. Gallatin drew from this source nearly two millions of dollars, enough to pay the interest and provide for the extinguishment of a six per cent. loan of thirty millions; a war budget in itself. But it had been so entirely set aside that in Jefferson’s second term, 1808-1812, it had fallen to a little over sixty-three thousand; in Madison’s first term, to a little under nineteen thousand dollars. Was it to this Mr. Dallas referred in that passage of his report, made in 1815, on the financial operations of the war, in which he expresses his regret “that there existed no system by which the internal resources of the country could be brought at once into action, when the resources of its external commerce became incompetent to answer the exigencies of the time? The existence of such a system would probably have invigorated the early movements of the war, might have preserved the public credit unimpaired, and would have rendered the pecuniary contributions of the people more equal, as well as more effective.” “It certainly,” to use the words of this Mr. Gallatin’s oldest and best political friend, “furnishes a lesson of practical policy.” Disagreeable as the necessity was, it could not be avoided, and Mr. Gallatin met it manfully. Nay more, he seems to have had a grim satisfaction in proposing the measure to the Congress which had thwarted him in his plans. In accordance with his suggestions, Congress, in the extra session of May, 1813, laid a direct tax of $3,000,000 upon the States, and specific duties upon refined sugar, carriages, licenses to distillers of spirituous liquors, sales at auction, licenses to retailers of wines, and upon notes of banks and bankers. These duties, in the beginning temporary, were calculated to yield $500,000, and with the direct tax to give a sum of $3,500,000. But the increasing expenditures again requiring additional sums of revenue, the duties were made permanent and additional taxes were laid; the entire revenue for 1815 being raised so as to yield $12,400,000. In the second term of Mr. Madison the internal revenue brought in nearly eleven and a half millions. The Federalists, who as a party were opposed to the war, enjoyed the situation; Mr. Gallatin was compelled to impose the internal revenue tax which he detested, and Mr. Dallas was called upon to enforce its application.
A. J. Dallas
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The only remaining source of revenue was the sale of public lands. This also was a part of Hamilton’s original scheme. The public lands of the United States were acquired in three different ways, namely, 1, by cessions from the States of such lands as they claimed, or were entitled to by their original grants or charters from the crown, while colonies; 2, by purchase from Indian tribes; 3, by treaties with foreign nations,—those of 1783 and 1794 with Great Britain, of 1795 with Spain, and of 1803 with France. The need of bringing this vast territory under the control of the government and disposing of it for settlement was early apparent. In July, 1791, Hamilton sent in to the House a report on “A uniform system for the disposition of the lands, the property of the United States.” In March preceding, grants of the United States had confirmed to the actual settlers in the Illinois country the possession of their farms. But what with the Indian wars and the rebellion within the United States, no action was taken by Congress to carry the recommendations of the secretary into effect, until Mr. Gallatin, whose residence on the frontier gave him direct interest in the subject, brought up the matter at the very first session he attended. In 1796 a bill was passed authorizing and regulating the sale of lands northwest of the Ohio and above the mouth of the Kentucky River, and a surveyor-general was appointed with directions to lay out these lands in townships. The sales under Adams’s administrations were trifling, the total amount received from this source before the year 1800 being slightly over one hundred thousand dollars. In May, 1800, sales of the same lands were authorized at public vendue at not less than two dollars per acre; four land offices were established in the territory; surveyors were appointed, and a register of the land office was made a permanent official. In March, 1803, an act was passed to regulate the sale of the United States lands south of the Tennessee River, two land offices were established and public sale provided for at the same price set in the act of 1800. In March, 1804, the Indiana lands lying north of the Ohio and east of the Mississippi were brought within similar regulations, and an act was passed concerning the country acquired under Spanish and British grants. In the same month Louisiana was erected into two territories. The sums received from the sales during the first term of Jefferson’s administration amounted to little more than one million of dollars. In January, 1805, the territory of Indiana was divided into two separate governments; that one which was set off received the name of Michigan, and in 1808, its territory was brought under the regulations of the land office.
The sums received from the sales in the second term of Jefferson’s administration reached nearly two and one half millions of dollars, and in Madison’s first term, nearly three millions of dollars. From first to last Mr. Gallatin never lost sight of the subject, though occasion did not serve for more than organization of the system which, in the four years ending 1836, yielded nearly fifty million dollars, and paid more than one third of the entire expenses of the government. To John W. Eppes18 Mr. Gallatin wrote in the crisis of 1813, “The public lands constitute the only great national resource exclusive of loans and taxes. They have already been mentioned as a fund for the ultimate extinguishment of the public debt.” The land offices were then in full operation.
In 1810 Mr. Gallatin prepared an “Introduction to the collection of laws, treaties, and other documents respecting the public lands,” which was published pursuant to an act of Congress passed in April of that year.