The state monopoly in the manufacture and sale of an article for fiscal purposes holds a place in European countries of high importance, and is met elsewhere under conditions not so favorable to its maintenance. As an example of the latter may be cited the colonial policy of the Dutch in their possessions in the East. After the termination of the trading companies, the Government undertook the entire control of the colonies, and sought to make them a source of revenue. The natives were to be taxed, but, having little of their own to be taxed, and practicing no occupation that could of its own volition become a profitable source of revenue, the state undertook to organize industry, and, by creating an opportunity for employing the labor of the natives, to receive the profits of production for its own uses. The native chiefs were made "masters of industry" and collectors of the revenue; and a certain part of the labor of the natives, one day in every five, was decreed to the state. In order to derive a profit, this labor must be bestowed in cultivating some product as find a market in international trade. Hence arose the importance of the sugar, coffee, tobacco, and spice crops of these Dutch islands, and for many years a handsome profit to the treasury was obtained from the management and sales of product. With the great fall in prices of sugar and coffee throughout the world, and the narrowing of the market for cane sugar, the Government obtained a less income each year, and has found it of advantage to relax the conditions surrounding cultivation, and to throw the management of the plantations more and more into private hands. To such an extent has this transition been effected that the state can no longer be considered as controlling a monopoly in product or sales, and is content with a revenue from other sources, one that does not even cover the expenses incurred in the colonial system. This experiment differs widely from those industries undertaken with the aid or encouragement of the state to be found in India. It was not with a fiscal object that they were established, and not infrequently the state sacrifices revenue by releasing them from tax burdens they would ordinarily endure. As one of the few remaining instances of the direct participation of a state in the production of products intended for foreign markets, yet undertaken and maintained for fiscal reasons, the history of the Dutch colonies in the East is instructive.
In Prussia the working of certain mines is in the hands of the state, and was originally looked upon as an important contribution to the income of the state. As in the Dutch experience, the changes in production throughout the world have greatly reduced the returns and made the income variable; yet there is little disposition to dispose of these possessions. "The danger of mineral supplies being worked in a reckless and extravagant manner without regard to the welfare of future generations, and the dread of combinations by the producers of such commodities as tin, copper, and salt, with the aim of raising prices, have both tended to hinder the alienation of state mines."7
The more common form of state monopoly is that which occupies a middle position, established for reasons of public safety or utility as well as of revenue. The salt monopoly enforced in Prussia was only abolished in 1867, and is still maintained in every canton of Switzerland. The strongest plea in its defense has been the guarantee by the state of the purity of the article sold, and this phase of the question has superseded the revenue aspect. Few articles of prime necessity, like salt, are subject to monopolies imposed by the state, and by a process of elimination it is only articles of luxury or voluntary consumption that are regarded as fit objects of monopoly for the benefit of the state.
A tax imposed upon an article at a certain stage of its production or manufacture may enforce the expediency or necessity of a state monopoly. Where the supervision of the state agents must be so close as to interfere with the conduct of the industry, the state intervenes and itself controls the manufacture and sale. Tobacco has long been subject to this fiscal régime, and, proving so productive of revenue, there is little to be said against a monopoly by the state of its manufacture and sale.
In Italy the tobacco monopoly is conceded to a company, but its return of net revenue to the state is nearly as large as the revenue derived from the taxes on real property (about thirty-eight million dollars a year). Prussia imposes a charge on the home-grown tobacco by a tax on the land devoted to its culture, but the return is very small, and Bismarck wished to introduce a true tobacco monopoly, modeled on that of France. But the conditions were opposed to his scheme, for the use of tobacco is general throughout the empire, and a proposition to increase its price by taxation or modify its free manufacture and distribution excited a widespread opposition. France maintains a full monopoly, and finds it too profitable to be lightly set aside unless some equally profitable source of revenue is discovered to make good the loss its abolition would involve.
While historical support is given to the maintenance of a monopoly as in France, it is not probable that the system will find imitators in other states, however tempting the returns obtained might seem. Great Britain has by her insular position solved the problem in another way. By interdicting the domestic cultivation of tobacco, all that is consumed must be imported, and a customs duty offers a ready instrument for making the plant, in whatever form it enters, contribute its dues to the exchequer. In Russia, as in the United States, where tobacco is a domestic product, the tax is imposed upon its manufacture, and this method requires supervision but no monopoly of the state.
The tobacco régime is defended almost entirely on fiscal grounds, and as a monopoly, an extreme measure, has proved its value as an instrument of taxation. Other reasons, of a moral character, are urged to induce the state to monopolize the manufacture and sale of distilled spirits. Both France and Germany have considered this question, and, in spite of confident predictions of a large profit, have decided not to undertake it. Russia, on the other hand, has taken it up quite as much on social as on revenue grounds, and is gradually securing a monopoly of the trade in spirits. The initial cost of the undertaking is large, and, as the system has not yet been perfected, it is too early to give a judgment on its availability as a financial instrument.
The transit dues, once commonly used by different countries, have been generally abandoned, and in China must they be sought for in their original forms of vexatious and unprofitable force. They arose from a desire to derive some benefit from a commerce permitted grudgingly, and rarely attaining any high results. The same end was sought by duties on exports, much employed when the country was supposed to be drained of its wealth by what was sent out of it. The conditions necessary for a successful duty on exports are not often found, and only in a few countries are they now existent. In Italy, South America, and Asia, exports of certain natural products are taxed, and, as in the case of Brazil, yield a notable revenue. In view of the rapid advancement of production in new countries and of inventions in the old, whereby many natural monopolies have been destroyed and competition made more general, such duties prove to be more obstructive to trade than productive of revenue, and are rapidly being abandoned. In spite of a formal prohibition of export duties in the Constitution of the United States, they are sometimes suggested in all seriousness.
In thus clearing the path of what may be called dead or dying methods of recent tax systems, the advantages enjoyed by the United States in their freedom from such survivals become more evident. The practice of farming taxes never gained a foothold in any part of the country. Lotteries have been occasional, and with two exceptions have been conducted on a limited scale that of Louisiana is well known; an earlier instance is less known. During the Revolution one of the means resorted to by the Continental Congress for income was a lottery, but the attempt proved disastrous to all concerned, and was finally abandoned even more thoroughly than was the continental currency. State monopolies of production and sale of any commodity have never met with favor, and stand condemned in the desire for individual initiative. As sources of revenue, the public lands, state control of the post office, and of such municipal undertakings as the water and, in a very few cases, the gas supply, has been employed, and in place of profit the mere cost of management is sought. More than any country of continental Europe, the United States has depended upon taxes, pure and simple, unsupported or modified by state domains, state mines, state manufactures, or state monopolies. Even Great Britain in her local taxation is bound and hampered by precedent, and pursues a system that is notoriously confused, costly, and vexatious. Long usage and the erection of independent and conflicting authorities on principles other than fiscal have imposed upon the local agents the duty of assessing and collecting county and borough taxes which are as indefensible in theory as they are difficult in practice.
In thus clearing the path of what may be called dead or dying methods of recent tax systems, the advantages enjoyed by the United States in their freedom from such survivals become more evident. The practice of farming taxes never gained a foothold in any part of the country. Lotteries have been occasional, and with two exceptions have been conducted on a limited scale that of Louisiana is well known; an earlier instance is less known. During the Revolution one of the means resorted to by the Continental Congress for income was a lottery, but the attempt proved disastrous to all concerned, and was finally abandoned even more thoroughly than was the continental currency. State monopolies of production and sale of any commodity have never met with favor, and stand condemned in the desire for individual initiative. As sources of revenue, the public lands, state control of the post office, and of such municipal undertakings as the water and, in a very few cases, the gas supply, has been employed, and in place of profit the mere cost of management is sought. More than any country of continental Europe, the United States has depended upon taxes, pure and simple, unsupported or modified by state domains, state mines, state manufactures, or state monopolies. Even Great Britain in her local taxation is bound and hampered by precedent, and pursues a system that is notoriously confused, costly, and vexatious. Long usage and the erection of independent and conflicting authorities on principles other than fiscal have imposed upon the local agents the duty of assessing and collecting county and borough taxes which are as indefensible in theory as they are difficult in practice.
From this weight of tradition and precedent the United States has been almost entirely free, and it was possible to construct out of small beginnings systems of Federal and State taxation at least reasonable and consistent, producing an increasing revenue with the rapid development of wealth and the larger number of taxable objects; and so elastic as to adapt themselves to such changes as are inevitable in any progressive movement of commerce or industry. That no such system has resulted after a century of national life, and an even longer term of local (colonial and State) activities, these papers have tended to show. That the time is at hand when the problem of a thorough reform of both State and Federal taxation must be met, current facts prove beyond any doubt. If I have aided in a proper comprehension of these problems, and, by collecting certain experiences in taxation among other peoples and in different stages of civilization, contributed toward a proper solution, the end of this work will have been attained. It is not possible to introduce a complete change of policy at once; it is not only feasible but necessary to indicate the direction this change should take, and the ends to be secured in making them. And first as to Federal taxation:
In a democracy like that of the United States, the continuance of a mixed system of direct and indirect taxes is a foregone conclusion. Not that there is an absence of change or modification in the details of this double system, or in the application or distribution of a particular impost or duty. To deny such modification is to deny any movement in the body politic, or any progress in the industrial and commercial economy of the people. There is a steady and continuous movement in every direction, and the mere effort to escape taxation results in a new adjustment of related facts. This development has, partly through necessity and partly through a rising consciousness of what a tax implies, been tending from indirect to direct taxes. Ever restive under a rigid supervision by the state of private concerns, there has been a wholesome opposition to inquisitorial taxes. But this opposition has been carried too far, and is due more to the ignorant and at times brutal disregard by the agents selected for enforcing the law than to an appreciation of the injustice of the tax. Whether in customs or excise, the same blunders of management have been committed, and created a spirit in the people that is injurious to their best interests. On the one hand, private enterprises have been unduly favored by the removal of foreign competition, a favor that is now disappearing through the remarkable development of domestic competition. Thus taxes have been extensively used for other purposes than to obtain revenue, and for private ends. On the other hand, there has been created the feeling that taxation is a proper instrument for effecting a more equal distribution of wealth among the people, and readily becomes an instrument of oppression.
The almost absolute dependence of the Federal Government upon the customs duties for revenue through a great part of its existence was a striking fact. The simplicity of collection and the comparatively moderate scale of duties, although considered high at the time of imposition, gave this branch of the possible sources of revenue a magnified importance. The development of the country was slow, and at times greatly hampered by the tariff policy; but until about 1857 no other source of income was needed to meet the expenditures of the Government in a time of peace.
In recent years this has all changed, and not for the better. The immense development in manufactures and financial ability accomplished since 1860 has made a tariff for protection an anachronism. The political features of customs legislation have been pushed so far as almost to overshadow the fiscal qualities. The wave of protectionism that followed the abrogation of the commercial treaties of Europe about 1880 has resulted in tariffs framed with the desire to injure the commerce of other states rather than to meet the needs of a treasury. In the United States this policy has been carried beyond that of Europe, and the tariff now in existence is more protective than any hitherto enforced, short of absolute prohibition of imports.
In more respects than one the tariff law of 1897 was an extreme application of the protective policy. Each year the United States has demonstrated its ability not only to meet the industrial competition of the world on an equal footing, but to engage with it aggressively and with complete success. It is not necessary to give the figures of exports of manufactures to establish this fact; it is now beyond question. To frame a measure of extreme protection was, therefore, to overlook the most striking phase of the industrial situation existing in the United States. With an ability to manufacture cheaply and on a grand scale, and with a capacity to supply the demands of a market larger than any home market, there was no foreign competition to encounter, and the higher rates of duties meant nothing, either for protection or for revenue. In carrying further into action a tariff framed more for protection than for revenue, a twofold error was committed. The provisions were so complicated as to make the application difficult, and in applying these provisions inquisitorial and vexatious regulations were necessary to assure even a reasonable fulfillment of the requirements. In former tariff laws a general description carried a large class of articles, and a uniform duty, usually ad valorem, was collected. But under the demand for a more scientific tariff, these general classes were broken up into a number of enumerated articles, each one carrying a specific or mixed duty, and an omnium or basket clause at the end to catch any article that could not be included in any enumeration. This desire to fix specific rates upon each imported commodity has been applied more generally in the law of 1897 than in any previous tariff act. An examination of the imports of manufactures of textile fibers will illustrate this increase of complexity without any increase of revenue. Indeed, these classifications and rates, being suggested by interested parties, have for their object a reduction of imports, and as a rule a reduction in revenue from them follows.