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rate was raised from fifty to seventy cents in 1872,* at which figure it remained for three years when it was again advanced to ninety cents per gallon, † where it has remained unchanged ever since.

Rates upon tobacco on the other hand have been successively lowered in conformity with the demand for "free tobacco, the poor man's luxury," and at the pressure of those interests hostile to any reduction of the tariff. In 1883 the rates upon all forms of domestic tobacco as well as special license taxes were reduced fifty per cent, or to three dollars per 1,000 upon cigars and to eight cents a pound upon manufactured tobacco, while in 1890 all the special license taxes for the sale of tobacco were abolished and the rate upon manufactured tobacco still further reduced to six cents a pound.§

Just what effect has followed this reduction of the tax upon the price of tobacco and whisky it is difficult to determine with any degree of accuracy. There is reason to believe, however, that it has been but slight, if any. The price of drinks sold over the bar has remained the same whether the duty was two dollars or fifty cents per gallon, although the quality of the article sold may have improved. In the case of cigars and tobacco the same is true, although many contend that even this advantage has been lost to the public and accrues to the manufacturer through the formation of the tobacco trust.

The tax upon malt liquors has remained practically unchanged from the first imposition of the tax by the act of July 1, 1862. By this measure the duty was placed at one dollar per barrel of thirty-one gallons, which is equivalent to an ad valorem tax of twenty per cent, or approximately onefifth of a cent per glass. Inasmuch as the article can be produced at an average cost of from one and two-thirds to

* Act of June 6, 1872.

† Act of March 3, 1875. Act of March 3, 1883. Act of October 1, 1890.

one and three-quarter cents per glass, and sells at retail for five cents, this is manifestly an insufficient rate as measured by what other commodities entering largely into consumption are taxed.

From these combined sources, whisky, tobacco and malt liquors, it is believed that revenues almost unlimited may be obtained. Of well-nigh universal consumption, as these articles are, socially harmful in their effects and unnecessary to the comfort and well being of the nation, the payment of the taxes may be viewed as wholly voluntary, as a sum abstracted from the surplus fund of individual income.

The objection is not infrequently brought against these taxes that, although theoretically duties upon luxuries, they are in reality burdens imposed upon the laboring classes, inasmuch as they form the largest body of consumers of liquors and tobacco, and it is this class whom it should be the first aim of the government to protect. By continued use they have become a necessity to the majority of the people, and the want is of such an "intense" order that it is often satisfied, even if to the exclusion of those more essential to comfort.

The force of this objection rests largely upon the theory that all taxes upon commodities are eventually shifted to the consumer; that any addition to the cost of production in the form of a tax is forthwith added to price, and is thus diffused throughout the community. In substance this argument is as follows: The manufacturer who pays the tax in the first instance, will not deduct the same from his profits, for in a system of free competition profits are already at a minimum. He therefore views it as one of the essential increments to cost of production, and forthwith adds it to price, with a further profit added thereto for the advancement of his capital. Otherwise he would cease producing. He cannot recoup himself from labor nor from the farmer who produces the raw product. In a like manner the same process goes on in the retail transaction, until the enhanced cost is

eventually taken from the final payor who consumes the finished product.

But this theory is only true under conditions of perfect competition, conditions which, unfortunately, do not exist in the manufacture and sale of the articles under consideration, for the production and sale of whiskey, malt liquors and tobacco, is in a measure subject to the laws of monopolistic value. Now manifestly, the principle of diffusion recognized to be true under free competition is inoperative here, inasmuch as free and perfect competition is not to be found. Profits are therefore not regulated by the mean average profits secured in other industries, for monopoly price is always fixed at the point where the largest sales and the largest gross profits will be realized. The substantial truth of this contention is to be seen from an examination of the effect of the changes of rate upon prices, for during the war, when the extraordinary rates obtained, the prices for drinks sold over the bar remained the same, whether the tax was two dollars or fifty cents a gallon. Our recent experience in regard to tobacco further substantiates this theory, for the price of cigars has remained practically the same, whether the rates were six or three dollars per 1,000, while the duty upon chewing or smoking tobacco, which is uniform whatever the retail price of the article, has varied but slightly with the duties at thirty-two, sixteen, or six cents per pound.

A partial shifting of the tax does take place by adulteration and the use of inferior grades of tobacco, but competition is so imperfect that the public has but little security against such practices, even at the present time. Moreover, that unusual profits are to be made from the business of retail liquor or tobacco selling, is seen from the fact that a large family can be supported from the income of a comparatively insignificant establishment, while the recent exhibition of the whisky and brewing trusts indicates that exceptionally large profits are obtainable from these industries.

Within recent years the businesses of distilling, brewing and tobacco manufacture, have been consolidated into comparatively few hands, so that the price as well as the grade of these articles is capable of being fixed arbitrarily and without reference to those elements which are usually determinate factors.

It is such considerations as these, therefore, which lead to the belief that the taxes upon these articles, unlike other commodities of universal consumption, are in part at least extracted from monopolistic profits, and do not greatly, or at least wholly, enter into the price and bear upon the

consumer.

They are, moreover, in no sense obstructive to industrial freedom and there is no evidence that even the highest rate imposed has ever proven productive of any very general discontent. It is such considerations as these that renders these subjects favorite ones for taxation, for it is the practice of nearly every European government to derive from these sources the largest possible income consistent with efficiency of administration and the highest social welfare.

Few will contend that this point has been reached in the United States, certainly not in regard to tobacco and malt liquors. As regards distilled spirits however, Mr. David A. Wells maintains that the rate is as high as that subject will bear and supports this contention by reference to our humiliating experience during the years extending from 1864 to 1868, when the two-dollar rate obtained.* But it must be remembered that the conditions of administration as well as production have changed materially since that time. No longer is the revenue service raw and untrained. Officials have become familiar with the laws, alterations in the rates are made but infrequently and means for the prevention and detection of fraud have greatly improved. Moreover, the organization and successful conduct of the so-called "whisky trust" has placed in the employ of the government a most. * Special letter to Secretary of Treasury, July 8, 1893, p. 13.

effective agency for the prevention of illicit distillation, for it is manifestly to the interest of this combination to prevent rather than encourage the evasion of the tax, while the eventual result of this concentration of the business into a few hands will be to localize production and render the collection of the tax a comparatively easy matter. At the present time the area of illicit distillation is confined within the mountainous districts of the South, where the output is comparatively unimportant and does not enter into the general market.

It is therefore believed that the rate upon distilled spirits could be increased to $1.25 per gallon without material loss in quantity consumed, while the revenues would be increased thereby thirty million dollars. It is even believed that the rate could be still further advanced with advantage to the revenue, but the social effects consequent upon adulteration in the retail trade render such a course of doubtful expediency.

An equal amount could be obtained from an increase in the rate upon malt liquors from $1.00 to $2.00 per barrel. As a popular beverage the consumption of beer is increasing at a phenomenal rate, the quantity taxed per capita nearly doubling during the thirteen years subsequent to 1880.*

Since 1863, when the duty was first imposed, the amount returned for taxation has increased from 62 million gallons to 1071 millions, or an increase in the per capita consumption of from 1.86 gallons to over sixteen gallons. During the same period the revenues have increased at a like rate from $1,558,000 to $32,000,000, or a per capita increase of revenue of from five to forty-eight cents. Moreover, unlike distilled spirits, illicit manufacture is so difficult, owing to the fact that large and expensive plants are essential to production, that an increase in the duty is not likely to lead to a repetition of the same disastrous results that characterized the taxation of distilled spirits. With an increase of the tax to $2.00 per barrel, or forty per cent ad valorem, the consumption

*In 1880 the consumption was 8.25 gallons per capita; in 1893, 16.02.

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