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Letter from the Secretary of the Treasury to the Chairman of the
Committee of Ways and Meant.
SIR, , . Treasury Department, January 10, 1812.

In answer to the first inquiry of the committee of ways and means, relative to the interest arising on the proposed loan of 1,200,000 dollars, necessary to supply the deficiency in the receipts of the year 1812, I beg leave to observe that that item was not included amongst the expenses of that year, because the estimate being made with reference to the expenses alone which had previously been authorized by law, and a considerable proportion of those on account of the public debt falling on the last day of the year, it would not have been necessary in that view of the subject to borrow that sum previous to that day, and the interest would not therefore have become a charge till the year 1813.

With respect to the second inquiry of the committee, it was certainly contemplated, in conformity with the recommendation of the president, whose expressions were adopted in the report, to raise a revenue " sufficient at least to defray the ordinary expenses of government, and to pay the interest on the public debt, including that on new loans which may be authorized." The sum of about nine millions of dollars was assumed as answering that description for the present, and the expression of "fixed revenue" which had been used in reference to existing circumstances, was inadvertently applied to the case of war. It will undoubtedly be proper, as remarked by the committee, to provide annually an additional and gradually increasing revenue sufficient to pay the interest on the loans required in the event of war. If therefore, the loan for the present year will, according to the suggestions of the committee, amount to ten millions of dollars, the receipts into the treasury to be provided for the year 1813, should, on those data, amount to about 9,600,000 dollars.

The committee ask in the next place, the best opinion which I am able to form of the probable amount of receipts from duties on tonnage and merchandise in the event of war.

As that amount will depend on the extent of the commerce between the United States and nations at peace with them, and on the numbers of the captures respectively made by our own privateers and by the enemy, it is a matter of conjecture and not a subject of calculation; for which reason it was stated in the report that that amount could not at present be determined. Considering, the rigorous restrictions laid by France on the commerce of the United States with her own dominions, and other countries under her influence; the dangers to which our commerce with the Baltic and with China will be exposed; the relations of England with Portugal and with Spain; and also that no inconsiderable part of the captures made by our privateers will be sent into foreign ports, a great defalcation in the receipts on duties on imported merchandize must be expected. The amount, under existing laws and circiimstances, has, from correct data, been stated in the annual report at six millions of dollars. It would, in my opinion, be unsafe, in an estimate of ways and means intended to be relied on with certainty, to calculate, in the event of a war, on more than 2,500,000 dollars at the present rate of duties.

To the next inquiry of the committee, respecting the increase of those duties which is thought practicable and advisable, it is answered, without hesitation, that the rate of duties may, in the event of war, be doubled without danger or inconvenience. There will, in such an event, be less danger of smuggling at that rate, than there is now with the existing duties. With that increase the duties will still be much less on an average than those paid on importations in England, France, and most other countries: and they will be collected with more ease to government and less inconvenience to the people, than could be devised to the same amount in any other manner.

A duty on imported salt might now be calculated on at least 3,500,000 bushels; but in time of war cannot be estimated on more than two millions of bushels, producing, at the rate of 20 cents per bushel, $400,000

The duties on tonnage and imported merchandise, including the former duty on salt, and doubling the rate of all the others, would, according to that estimate amount to g5,4O0,0OO

To which adding the proceeds of the sales of public lands estimated, as by annual report, at 600,000

Makes an aggregate of-- 6,000,000

And leaves a deficiency of ----- 3,600,000

In order to complete the net revenue of - - - 9,600,000 wanted for the service of 1813.

On the basis of annual loans of 10,000,000 of dollars during the continuance of the war (which is the sum assumed by the committee, and which, considering the expenses already voted by congress, is not more than will be wanted) and estimating, at the lowest rate, the interest on the loan of 181S, the deficiency for 1814, to be provided for by other resources, will amount to 4,200,000 dollars. The expenses of assessment and collection and incidental losses on the internal taxes, from the proceeds of which this deficiency must be supplied, may be estimated at 15 per cent. In order to produce a net revenue of 4,200,000 dollars, the gross amount of taxes must, therefore, be near five millions of dollars. As the taxes which may be organized during the present session of congress, will not become due till the ensuing year; and as it is sufficiently ascertained from universal experience, that taxes will not produce their full nominal amount the first year they are in operation, it may be relied on, that a gross amount of five millions, intended to produce a net revenue of g4|200,000, will not yield that sum until the year 1814, nor produce in 1813, more than the required su*n of 83,600,000. Five millions of dollars will, therefore, be assumed as the gross amount of taxes (including the expenses of assessment and collection, and the incidental losses) necessary to be raised at this time. That sum is calculated to cover the interest on the loans of ten millions a year, wanted for the service of the years 1812 and 1813; leaving the selection of the additional taxes, which may, thereafter, be necessary to provide for the interest of subsequent loans, to be made according to the experience which will be afforded by those two years.

Before I proceed to answer the inquiry of the committee respecting a selection of the internal taxes now necessary, permit me to observe, that it was stated in the annual report of December 10, 1808, that " no internal taxes, either direct or indirect, were contemplated, even in the case of hostilities carried against the two great belligerent powers." An assertion which renders it necessary to show that the prospects then held out was not deceptive, and why it has not heen realized.

The balance in the treasury amounted at that time to near fourteen millions of dollars. But aware that that surplus would, in a short time, be expended, and having stated that the revenue was daily decreasing, it was in the same report, proposed "that all the existing duties should be doubled on importations subsequent to the first day of January, 1809." As the net revenue accrued from customs during the three years, 1809, 1810, and 1811, has, without any increase of duties, exceeded 826,000,000, it follows that if the measure then submitted had been adopted, we should, after making a large deduction for any supposed diminution of consumption, arising from the proposed increase, have had at this time about twenty millions of dollars on hand, a sum greater than the net amount of the proposed internal taxes for four years.

In proportion as the ability to borrow is diminished, the necessity of resorting to taxation is increased. It is therefore also proper to observe, at that time the subject of the renewal of the charter of the bank of the United States had been referred by the senate to the secretary of the treasury, nor had any symptom appeared from which its absolute dissolution without any substitute could have then been anticipated. The renewal in some shape, and on a more extensive scale, was confidently relied on: and, accordingly, in the report made during the same session to the senate, the propriety of increasing the capital of the bank to 830,000,000 was submitted, with the condition that that institution should, if required, be obliged to lend one half of its capital to the United States. The amount thus loaned might, without any inconvenience, have been increased to twenty millions. And with 820,000,000 in hand, and loans being secured for 20,000,000 more, without any increase of the stock of the public debt at market, internal taxation would have been unnecessary for at least four years of war, nor any other resources been wanted than an additional annual loan of 5 millions: a sum sufficiently moderate to be obtained from individuals, and on favourable terms.

These observations are made only in reference to the finances and resources of the general government. Considerations of a different nature have on both these subjects produced a different result, which makes a resort to internal taxes now necessary, and will render loans more difficult to obtain, and their terms less favourable. But the resources of the country remain the same; and if promptly and earnestly brought into action, will be found amply sufficient to meet the present emergency. With respect to internal taxes, the whole amount to be raised is so moderate, when compared either with the population and wealth of the United States, or wjtli the burthens laid on European nations by their governments, that no doubt exists of the ability or will of the people to pay without any real inconvenience, and with cheerfulness, the proposed war taxes. For it is still hoped, that the ordinary peact revenue of the United States will be sufficient to reimburse, within a reasonable period, the loans obtained during the war, and that neither a perpetual and increasing public debt, nor a permanent system of ever progressing taxation, shall be entailed on-the nation. These evils cannot, however, be otherwise avoided than by the speedy organization of a certain revenue. Delays in that respect, and a reliance on indefinite loans to defray the war expenditure, the ordinary expenses of government, the interest on the loans themselves, would be equally unsafe and ruinous; would in a short time injure public credit, impare the national resources, and ultimately render much heavier and perpetual taxes absolutely necessary.

Of the gross amount of 85,000,000, to be now provided according to the preceding estimates, by internal taxation, it is respectfully proposed, that 3,000,000 should be raised by direct tax, and 2,000,000 by indirect taxes.

The sum of 3,000,000 will not, considering the increase of population, be a much greater direct tax, than that of 2,000,000 voted in the year 1798. To this permit me to add another view of the subject:

The direct taxes laid by the several states, during the last years of the revolutionary war, were generally more heavy than could be paid with convenience. But during the years 1785 to 1789 an annual direct tax of more than 8200,000 [g205,189j was raised in Pennsylvania, which was not oppressive, and was paid with great punctuality. The increase of population of that state, between the years 1787 and 1812, is in the ratio of about 4 to 9. A tax of §450,000 payable in the year 1813 is not higher in proportion to the population alone, and without regard even to the still greater increase of wealth and of circulating medium, than a tax of §200,000 was in the year 1787. But the quota of Pennsylvania, on a tax of 83,000,000, will, counting Orleans a state, hardly exceed $365,000. The proposed tax, will, therefore, so far as relates to Pennsylvania, be near 20 per cent, lighter, in proportion to the respective population, than that paid during the years 1785 to 1789.

The rule of apportionment, prescribed by the constitution, operates with perhaps as much equality as is practicable, in relation to states not materially differing in wealth and situation. It may therefore, be inferred, that a direct tax which is not greater than Pennsylvania can pay with facility, will not press heavily upon any other of the Atlantic states. It is only in reference to the western states, that the constitutional rule of apportionment, according to the respective number of inhabitants in each state, may be supposed to be unequal. Being at a greater distance from a market, and having, on account of the recent date of their settlements, less accumulated capital, it is certainly true, that they cannot, in proportion to their population, pay as much, or with the same facility, as the Atlantic states. Two considerations will, however, much diminish the weight, if they do not altogether obviate that objection.

1. Of the articles actually consumed in the western states, there are two of general consumption, on which duties are laid, or proposed to be laid, and on which, being articles produced in those states, they will pay nothing or less than the Atlantic states. On salt, they will pay nothing, as the whole quantity consumed there is of domestic origin; and this observation affords an argument in favour of the restoration of the duty on that article, since it will tend to equalize the operation of the direct tax. A considerable part of the sugar those states consume, nearly 7,000,000 of pounds, ts also the produce of the maple, and pays no duty. And in time of war, it is probable, that the residue of their consumption will, in a great degree, consist of New Orleans sugar, also duty free.

2. A considerable portion of the direct taxes in those states, is laid on lands owned by persons residing in other states, and will not fall on the inhabitants. It appears by a late official statement, that more than two thirds of the land tax of the state of Ohio, are raised on lands owned by NON-nESinENTs. The portion of the quota of that state, on the United States' direct tax, which will be payable by its inhabitants, will, for that reason alone, be reduced to one third part of the nominal amount of such quota. And although the proportion may not be the same in the other western states, it is well known, that a similar result, though not perhaps to the same extent, wiil take place in all.

From, every view which has been taken of the subject, it satisfactorily appears, that the proposed amount of 3,000,000 is moderate, and cannot be productive of any real inconvenience, provided that the objects on which the tax shall be assessed, be properly selected.

A direct tax may be assessed either on the whole amount of the property or income of the people, or on certain specific objects selected for that purpose. The first mode may, on abstract prmci

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