Hamilton’s report to Congress Re: Taxes on Spirits

Alexander Hamilton was a Founding Father, soldier, economist, political philosopher, one of America’s first constitutional lawyers and the first United States Secretary of the Treasury.

Self-Educated American, Liberty Library

Alexander Hamilton: The Works of Alexander Hamilton, Volume 1, 1774

Finance: Spirits, Foreign and Domestic

Communicated to the House of Representatives, March 6, 1792.

Treasury Department, March 5, 1792.

In obedience to the orders of the House of Representatives of the first and second days of November last, the first directing the Secretary of the Treasury to report to the House such information as he may have obtained, respecting any difficulties which may have occurred, in the execution of the act “repealing, after the last day of June next, the duties heretofore laid upon distilled spirits, imported from abroad and laying others in their stead, and, also, upon spirits distilled within the United States, and for appropriating the same,” together with his opinion thereupon; the second directing him to report to the House whether any, and what, alterations in favor of the spirits which shall be distilled from articles of the growth or produce of the United States, or from foreign articles, within the same, can, in his opinion, be made in the act for laying duties upon spirits distilled within the United States, consistently with its main design, and with the maintenance of the public faith; the said Secretary respectfully submits the following report:

From the several petitions and memorials which have been referred to the Secretary, as well as from various representations which have been made to him, it appears that objections have arisen in different quarters against the above-mentioned act, which have, in some instances, embarrassed its execution, and inspired a desire of its being repealed; in others, have induced a wish that alterations may be made in some of its provisions.

These objections have reference to a supposed tendency of the act, first to contravene the principles of liberty; secondly, to injure morals; thirdly, to oppress by heavy and excessive penalties; fourthly, to injure industry, and interfere with the business of distilling.

As to the supposed tendency of the act to contravene the principles of liberty, the discussions of the subject which have had place in and out of the Legislature, supersede the necessity of more than a few brief general observations.

It is presumed that a revision of the point cannot, in this respect, weaken the convictions which originally dictated the law.

There can surely be nothing in the nature of an internal duty on a consumable commodity, more incompatible with liberty, than in that of an external duty on a like commodity. A doctrine which asserts, that all duties of the former kind (usually denominated excises) are inconsistent with the genius of a free government, is too violent, and too little reconcilable with the necessities of society, to be true. It would tend to deprive the Government of what is, in most countries, a principal source of revenue, and by narrowing the distribution of taxes, would serve to oppress particular kinds of industry. It would throw, in the first instance, an undue proportion of the public burthen on the merchant and on the landholder.

This is one of those cases in which names have an improper influence, and in which prepossessions exclude a due attention to facts.

Accordingly, the law under consideration is complained of, though free from the features which have served, in other cases, to render laws on the same subject exceptionable; and, though the differences have been pointed out, they have not only been overlooked, but the very things which have been studiously avoided in the formation of the law, are charged upon it, and, that, too, from quarters where its operation would, from circumstances, have worn the least appearance of them.

It has been, heretofore, noticed that the chief circumstances which, in certain excise laws, have given occasion to the charge of their being unfriendly to liberty, are not to be found in the act which is the subject of the report, viz.: first, a summary and discretionary jurisdiction in the excise officers, contrary to the course of the common law, and in abridgment of the right of trial by jury; and, secondly, a general power, in the same officers, to search and inspect, indiscriminately, all the houses and buildings of the persons engaged in the business to which the tax relates.

As to the first particular, there is nothing in the act even to give color to a charge of the kind against it, and, accordingly, it has not been brought. But, as to the second, a very different power has been mistaken for it, and the act is complained of as conferring that very power of indiscriminate search and inspection.

The fact, nevertheless, is otherwise. An officer, under the act in question, can inspect or search no house or building, or even apartment of any house or building, which had not been previously entered and marked by the possessor as a place used for distilling or keeping spirits.

And even the power so qualified is only applicable to distilleries from foreign materials, and in cities, towns, and villages, from domestic materials; that is, only in cases in which the law contemplates that the business is carried on upon such a scale as effectually to separate the distillery from the dwelling of the distiller. The distilleries scattered over the country, which form much the greatest part of the whole, are in no degree subject to discretionary inspection and search.

The true principle of the objection which may be raised to a general discretionary power of inspection and search, is that the domicile or dwelling of a citizen ought to be free from vexatious inquisition and intrusion.

This principle cannot apply to a case in which it is put in his own power to separate the place of his business from the place of his habitation; and, by designating the former by visible public marks, to avoid all intermeddling with the latter.

A distillery seldom forms a part of the dwelling of its proprietor, and even where it does, it depends on him to direct and limit the power of visiting and search, by marking out the particular apartments which are so employed.

But the requisition upon the distiller to set marks on the building or apartments which he makes use of in his business is one of the topics of complaint against the law. Such marks are represented as a dishonorable badge; and thus a regulation, designed as much to conform with the feelings of the citizen as for the security of revenue, is converted into matter of objection.

It is not easy to conceive what maxim of liberty is violated by requiring persons who carry on particular trades, which are made contributory to the revenue, to designate, by public marks, the places in which they are carried on. There can certainly be nothing more harmless, or less inconvenient, than such a regulation. The thing itself is frequently done by persons of various callings for the information of customers; and why it should become a hardship or grievance, if required for a public purpose, can with difficulty be imagined.

The supposed tendency of the act to injure morals seems to have relation to the oaths, which are, in a variety of cases, required, and which are liable to the objection that they give occasion to perjuries.

The necessity of requiring oaths is, whenever it occurs, matter of regret. It is certainly desirable to avoid them as often and as far as possible; but it is more easy to desire than to find a substitute. The requiring of them is not peculiar to the act in question; they are a common appendage of revenue laws, and are among the usual guards of those laws, as they are of public and private rights in courts of justice. They constantly occur in jury trials, to which the citizens of the United States are so much and so justly attached. The same objection, in different degrees, lies against them in both cases, yet it is not perceivable how they can be dispensed with in either.

It is remarkable that both the kinds of security to the revenue, which are to be found in the act, the oaths of parties and the inspection of officers are objected to. If they are both to be abandoned, it is not easy to imagine what security there can be for any species of revenue, which is to be collected from articles of consumption.

If precautions of this nature are inconsistent with liberty, and immoral, as there are very few indirect taxes which can be collected without them, the consequence must be that the entire or almost entire weight of the public burthens must, in the first instance, fall upon fixed and visible property, houses, and lands—a consequence which would be found, in experiment, productive of great injustice and inequality, and ruinous to agriculture.

It has been suggested by some distillers, that both the topics of complaint which have been mentioned, might be obviated by a fixed rate of duty, adjusted according to a ratio compounded of the capacity of each still, and the number and capacities of the cisterns employed with it; but this, and every similar method, are objected to by other distillers, as tending to great inequality, arising from unequal supplies of the material at different times, and at different places, from the different methods of distillation practised by different distillers, and from the different degrees of activity in the business, which arise from capitals more or less adequate.

The result of an examination of this point appears to be, that every such mode, in cases in which the business is carried on upon an extensive scale, would, necessarily, be attended with considerable inequalities; and, upon the whole, would be less satisfactory than the plan which has been adopted.

It is proved by the fullest information, that, in regard to distillers which are rated in the law, according to the capacity of each still, the alternative of paying according to the quantity actually distilled, is received in many parts of the United States as essential to the equitable operation of the duty. And it is evident, that such an alternative could not be allowed but upon the condition of the party rendering upon oath an account of the quantity of spirits distilled by him, without entirely defeating the duty.

As to the charge, that the penalties of the act are too severe and oppressive, it is made in such general terms, and so absolutely without the specification of a single particular, that it is difficult to imagine where it points.

The Secretary, however, has carefully reviewed the provisions of the act, in this respect, and he is not able to discover any foundation for the charge.

The penalties it inflicts are in their nature the same with those which are common in revenue laws, and, in their degree, comparatively moderate.

Pecuniary fines, from fifty to five hundred dollars, and forfeiture of the article in respect to which there has been a failure to comply with the law, are the severest penalties inflicted upon delinquent parties, except in a very few cases: In two, a forfeiture of the value of the article is added to that of the article itself, and in some others, a forfeiture of the ship or vessel, and of the wagon or other instrument of conveyance, assistant in a breach of law, is likewise involved.

Penalties like these, for wilful and fraudulent breaches of an important law, cannot, truly, be deemed either unusual or excessive. They are less than those which secure the laws of impost, and as moderate as can promise security to any object of revenue which is capable of being evaded.

There appears to be but one provision in the law, which admits of a question whether the penalty prescribed may not partake of severity. It is that which inflicts the pains of perjury on any person who shall be convicted of “wilfully taking a false oath or affirmation in any of the cases in which oaths or affirmations are required by the act.”

Precedents in relation to this particular, vary. In many of them, the penalties are less severe than for perjury, in courts of justice; in others, they are the same. The latter are, generally, of the latest date, and seem to have been the result of experience.

The United States have, in other cases, pursued the same principle as in the law in question. And the practice is certainly founded on strong reasons.

1st. The additional security which it gives to the revenue cannot be doubted. Many who would risk pecuniary forfeitures and penalties would not encounter the more disgraceful punishment annexed to perjury.

2d. There seems to be no solid distinction between one false oath in violation of law and right and another false oath in violation of law and right. A distinction in the punishments of different species of false swearing is calculated to beget false opinions concerning the sanctity of an oath; and by countenancing an impression, that a violation of it is less heinous in the cases in which it is less punished, it tends to impair in the mind that scrupulous veneration for the obligation of an oath which ought always to prevail, and not only to facilitate a breach of it in the cases which the laws have marked with less odium, but to prepare the mind for committing the crime in other cases.

So far is the law under consideration from being chargeable with particular severity, that there are to be found in it marks of more than common attention to prevent its operating severely or oppressively.

The 43d section of the act contains a special provision (and one which, it is believed, is not to be found in any law enacted in this country, prior to the present constitution of the United States), by which forfeitures and penalties incurred, without an intention of fraud or wilful negligence, may be mitigated or remitted.

This mild and equitable provision is an effectual guard against suffering or inconvenience, in consequence of undesigned transgressions of the law.

The 30th section contains a provision in favor of persons, who, though innocent, may accidently suffer by seizures of their property (as in the execution of the revenue laws sometimes unavoidably happens), which is, perhaps, entirely peculiar to the law under consideration. Where there has even been a probable cause of seizure, sufficient to acquit an officer, the jury are to assess whatever damages may have accrued from an injury to the article seized, with an allowance for the detention of it, at the rate of six per centum per annum of the value, which damages are to be paid out of the public treasury.

There are other provisions of the act which mark the scrupulous attention of the Government to protect the parties concerned from inconvenience and injury, and which conspire to vindicate the law from imputations of severity or oppression.

The supposed tendency of the act to injure industry, and to interfere with the business of distilling, is endeavored to be supported by some general and some special reasons, both having relation to the effect of the duty upon the manufacture.

Those of the first kind affirm generally, that duties on home manufactures are impolitic, because they tend to discourage them; that they are particularly so, when they are laid on articles manufactured from the produce of the country, because they have, then, the additional effect of injuring agriculture; that it is the general policy of nations to protect and promote their own manufactures, especially those which are wrought out of domestic materials; that the law in question interferes with this policy.

Observations of this kind admit of an easy answer. Duties on manufactures tend to discourage them, or not, according to the circumstances under which they are laid; and are impolitic, or not, according to the same circumstances. When a manufacture is in its infancy, it is impolitic to tax it, because the tax would be both unproductive, and would add to the difficulties which naturally impede the first attempts to establish a new manufacture, so as to endanger its success.

But when a manufacture (as in the case of distilled spirits in the United States) is arrived at maturity, it is as fit an article of taxation as any other. No good reason can be assigned why the consumer of a domestic commodity should not contribute something to the public revenue, when the consumer of a foreign commodity contributes to it largely. And, as a general rule, it is not to be disputed, that duties on articles of consumption are paid by the consumers.

To the manufacture itself, the duty is no injury, if an equal duty be laid on the rival foreign article. And when a greater duty is laid upon the latter than upon the former, as in the present instance, the difference is a bounty on the domestic article, and operates as an encouragement of the manufacture. The manufacturer can afford to sell his fabric the cheaper, in proportion to that difference, and is so far enabled to undersell and supplant the dealer in the foreign article.

The principle of the objection would tend to confine all taxes to imported articles, and would deprive the Government of resources, which are indispensable to a due provision for the public safety and welfare, contrary to the plain intention of the Constitution, which gives express power to employ those resources when necessary—a power which is found in all governments, and is essential to their efficiency, and even to their existence.

Duties on articles of internal production and manufacture form in every country the principal sources of revenue. Those on imported articles can only be carried to a certain extent, without defeating their object, by operating either as prohibitions, or as bounties upon smuggling. They are, moreover, in some degree temporary; for, as the growth of manufactures diminishes the quantum of duty on imports, the public revenue, ceasing to arise from that source, must be derived from articles which the national industry has substituted for those previously imported. If the Government cannot then resort to internal means for the additional supplies which the exigencies of every nation call for, it will be unable to perform its duty, or, even to preserve its existence. The community must be unprotected, and the social compact be dissolved.

For the same reasons that a duty ought not to be laid on an article manufactured out of the country (which is the point most insisted upon), it ought not to be laid upon the produce itself, nor consequently upon the land, which is the instrument of that produce; because taxes are laid upon land, as the fund out of which the income of the proprietor is drawn; or, in other words, on account of its produce. There ought, therefore, on the principle of the objection, to be neither taxes on land, nor the produce of land, nor on articles manufactured from that produce. And if a nation should be in a condition to supply itself with its own manufactures, there could then be very little or no revenue; of course, there must be a want of the essential means of national justice and national security.

Positions like these, however well meant by those who urge them, refute themselves, because they tend to the dissolution of government by rendering it incapable of providing for the objects for which it is instituted.

However true the allegation, that it is, and ought to be, the prevailing policy of nations to cherish their own manufactures, it is equally true that nations in general lay duties for the purpose of revenue on their own manufactures; and it is obvious, to a demonstration, that it may be done without injury to them. The most successful nations in manufactures have drawn the largest revenues from the most useful of them. It merits particular attention that ardent spirits are an article which has been generally deemed, and made use of, as one of the fittest objects of revenue, and to an extent, in other countries, which bears no comparison with what has been done in the United States.

The special reasons alluded to are of different kinds:

1.It is said that the act in question, by laying a smaller additional duty on foreign spirits than the duty on home-made spirits, has a tendency to discourage the manufacture of the latter.This objection merits consideration, and, as far as it may appear to have foundation, ought to be obviated.The point, however, seems not to have been viewed, in all its respects, in a correct light.Before the present Constitution of the United States began to operate, the regulations of the different States respecting distilled spirits were very dissimilar. In some of them, duties were laid on foreign spirits only; in others, on domestic as well as foreign. The absolute duty, in former instances, and the difference of duty in the latter, was, upon an average, considerably less than the present difference in the duties on foreign and home-made spirits. If to this be added the effect of the uniform operation of the existing duties throughout the United States, it is easy to infer that the situation of our own distilleries is, in the main, much better, as far as they are affected by the laws, than it was previous to the passing of any act of the United States upon the subject. They have, therefore, upon the whole, gained materially under the system which has been pursued by the National Government.The first law of the United States on this head laid a duty of no more than eight cents per gallon on those of Jamaica proof. The second increased the duty on foreign spirits to twelve cents per gallon, of the lowest proof, and by certain gradations, to fifteen cents per gallon, of Jamaica proof. The last act places the duty at twenty cents per gallon, of the lowest proof, and extends it, by the like gradations, to twenty-five cents per gallon, of Jamaica proof; laying also a duty of eleven cents per gallon on homemade spirits, distilled from foreign materials of the lowest proof, with a like gradual extension to fifteen cents per gallon of Jamaica proof; and a duty of nine cents per gallon on home-made spirits, distilled from domestic materials of the lowest proof, with the like gradual extension to thirteen cents per gallon, of Jamaica proof.If the transition had been immediate from the first to the last law, it could not have failed to have been considered as a change in favor of our own distilleries, as far as the rate of duty is concerned. The mean duty on foreign spirits by the first law was nine cents; by the last the mean extra duty on foreign spirits is, in fact, about eleven cents, as it regards spirits distilled from foreign materials, and about thirteen as it regards spirits distilled from domestic materials. In making this computation, it is to be adverted to that the four first degrees of proof mentioned in the law correspond with the different kinds of spirits usually imported, while the generality of those made in the United States are of the lowest class of proof.Spirits from domestic materials derived a double advantage from the last law; that is, from the increased rate of duty on foreign imported spirits, and from a higher rate of duty on home-made spirits of foreign materials.But the intervention of the second law has served to produce in some places a different impression of the business than would have happened without it. By a considerable addition to the duties on foreign spirits, without laying any thing on those of home manufacture, it has served to give to the last law the appearance of taking away a part of the advantages previously secured to the domestic distilleries. It seems to have been overlooked that the second act ought, in reality, to be viewed only as an intermediate step to the arrangement finally contemplated by the Legislature; and that, as part of a system, it has, upon the whole, operated in favor of the national distilleries. The thing to be considered is the substantial existing difference in favor of the home manufacture as the law now stands.The advantage, indeed, to the distillation of spirits from the produce of the country, arising from the difference between the duties on spirits distilled from foreign, and those distilled from domestic materials, is exclusively the work of the last act, and is an advantage which has not been properly appreciated by those distillers of spirits from home produce who have complained of the law as hurtful to their manufacture.Causes entirely foreign to the law itself have also assisted in producing misapprehension. The approximation of the price of home-made spirits to that of foreign spirits, which has of late taken place, and which is attributed to the operation of the act in question, is in a great degree owing to the circumstances which have tended to raise the price of molasses in the West India market, and to an extra importation of foreign spirits prior to the first of July last, to avoid the payment of the additional duty which then took place.It is stated in the petition from Salem that previous to the last act, the price of domestic to foreign spirits was as 1s. 9d. to 3s. 4d. of the money of Massachusetts per gallon, and that since that act it has become as 3s. 3d. to 4s. 2d.It is evident that a rise from 1s. 9d. to 3s. 3d. per gallon, which would be equal to twenty cents, is not to be attributed wholly to a duty of eleven cents. Indeed, if there were a concurrence of no other cause, the inference would be very different from that intended to be drawn from the fact, for it would evince a profit gained to the distiller of more than eighty per cent. on the duty.It is, however, meant to be understood that this approximation of prices occasions a greater importation and consumption of foreign, and a less consumption of domestic, spirits than formerly. How far this may, or may not be the case, the Secretary is not now able to say with precision, but no facts have come under his notice officially which serve to authenticate the suggestion; and it must be considered as possible that representations of this kind are rather the effect of apprehension than of experience. It would even be not unnatural that a considerable enhancement of the prices of the foreign article should have led to a greater consumption of the domestic article, as the cheaper of the two, though dearer itself than formerly.But while there is ground to believe, that the suggestions which have been made on this point are, in many respects, inaccurate and misconceived, there are known circumstances which seem to render advisable some greater difference between the duties on foreign and on home-made spirits. These circumstances have been noticed in the report of the Secretary on the subject of manufactures, and an alteration has been proposed by laying two cents in addition upon imported spirits of the lowest proof, with a proportional increase on the higher proofs, and by deducting one cent from the duty on the lowest proof of home-made spirits, with a proportional diminution in respect to the higher proofs.This alteration would bring the proportion of the duties nearly to the standard which the petitioner, Hendrick Doyer, who appears likely to be well informed on the subject, represents as the proper one to enable the distillation of Geneva to be carried on with the same advantage as before the passing of the act. He observes, that the duty on home-made Geneva being nine cents, the additional duty on foreign ought to have been twelve cents. By the alteration proposed, the proportion will be as ten to eight, which is little different from that of twelve to nine.It is worthy of remark, that the same petitioner states, that, previous to the passing of the act of which he complains, he “could sell his Geneva sixteen and a quarter per cent. under the price of Holland Geneva, but that he cannot do it at present, and in future, lower than fourteen per cent.” If, as he also states, the quality of his Geneva be equal to that of Holland, and, if his meaning be, as it appears to be, that he can now afford to sell his Geneva lower, by fourteen per cent. than the Geneva of Holland, it will follow, that the manufacture of that article is in a very thriving train, even under the present rate of duties. For a difference of fourteen per cent. in the price is capable of giving a decided preference to the sale of the domestic article.
2.It is objected, that the duty, by being laid in the first instance upon the distiller, instead of the consumer, makes a larger capital necessary to carry on the business; and, in this country, where capitals are not large, puts the national distiller under disadvantages.But this inconvenience, as far as it has foundation, in the state of things, is essentially obviated by the credits given. Where the duty is payable upon the quantity distilled, a credit is allowed, which cannot be less than six, and may extend to nine, months. Where the duty is charged on the capacity of the still, it is payable half yearly. Sufficient time is, therefore, allowed, to raise the duty from the sale of the article: which supersedes the necessity of a greater capital. It is well known, that the article is one usually sold for cash, or at short credit. If these observations are not applicable to distilleries in the interior country, the same may be said, in a great degree, of the objection itself. The course of the business, in that quarter, renders a considerable capital less necessary than elsewhere. The produce of the distiller’s own farm, or of the neighboring farms, brought to be distilled upon shares, or compensations in the article itself, constitute the chief business of the distilleries in the remote parts of the country. In the comparatively few instances in which they may be prosecuted as a regular business, upon a large scale, by force of capital, the observations which have been made will substantially apply.The collection of the duty from the distiller, has, on the other hand, several advantages. It contributes to equality, by charging the article in the first stage of its progress, which diffuses the duty among all classes alike. It the better secures the collection of the revenue, by confining the responsibility to a smaller number of persons, and simplifying the process. And it avoids the necessity of so great a number of officers, as would be required in a more diffused system of collection, operating immediately upon purchasers and consumers. Besides, that the latter plan would transfer whatever inconveniences may be incident to the collection from a smaller to a greater number of persons.
3.It is alleged that the inspection of the officers is injurious to the business of distilling, by laying open its secrets or mysteries.Different distillers, there is no doubt, practise, in certain respects, different methods in the course of their business, and have different degrees of skill. But it may well be doubted whether, in a business so old and so much diffused as that of the distillation of spirits, there are at this day secrets of consequence to the possessors. There will, at least, be no hazard in taking it for granted that none such exist in regard to the distillation of rum from molasses or sugar, or of the spirits from grain usually called whiskey, or of brandies from the fruits of this country. The cases in which the allegations are made with most color apply to Geneva, and, perhaps, to certain cordials.It is probable that the course of the business might and would always be such as, in fact, to involve no inconvenience on this score. But, as the contrary is affirmed, and as it is desirable to obviate complaint as far as it can be done consistently with essential principles and objects, it may not be unadvisable to attempt a remedy.It is to be presumed that, if any secrets exist, they relate to a primary process, particularly the mixture of the ingredients; this, it is supposable, cannot take a greater time each day than two hours. If, therefore, the officers of inspection were enjoined to forbear their visits to the part of the distillery commonly made use of for such process, during a space not exceeding two hours in each day, to be notified by the distiller, there is ground to conclude that it would obviate the objection.
4.The regulations for marking of casks and vessels, as well as houses and buildings, also furnish matter of complaint.This complaint, as it regards houses and buildings, has been already attended to. But there is a light in which it is made that has not yet been taken notice of.It is said that the requiring the doors of the apartments, as well as the outer door of each building, to be marked, imposes unnecessary trouble.When it is considered how little trouble or expense attends the execution of this provision, in the first instance, and that the marks once set will endure for a great length of time, the objection to it appears to be without weight.But the provision, as it relates to the apartments of buildings, has for its immediate object the convenience of the distillers themselves. It is calculated to avoid the very evil of an indiscriminate search of their houses and buildings by enabling them to designate the particular apartments which are employed for the purposes of their business, and to secure all others from inspection and visitation.The complaint, as it respects the marking of casks and vessels, has somewhat more foundation. It is represented (and upon careful inquiry appears to be true) that, through long-established prejudice, home-made spirits of equal quality with foreign, if known to be home-made, will not command an equal price. This particularly applies to Geneva.If the want of a distinction between foreign and home-made spirits were an occasion of fraud upon consumers, by imposing a worse for a better commodity, it would be a reason for continuing it; but as far as such a distinction gives operation to a mere prejudice, favorable to a foreign and injurious to a domestic manufacture, it furnishes a reason for abolishing it.Though time might be expected to remove the prejudice, the progress of the domestic manufacture, in the interval, might be materially checked.It appears, therefore, expedient to remove this ground of complaint by authorizing the same marks and certificates both for foreign and for home-made Geneva.Perhaps, indeed, it may not be unadvisable to vest somewhere a discretionary power to regulate the forms of certificates which are to accompany, and the particular marks which are to be set upon casks and vessels containing spirits, generally, as may be found convenient in practice.Another source of objection with regard to the marking of casks is, that there is a general prohibition against defacing or altering the marks, and a penalty upon doing it, which prevents the using of the same casks more than once, and occasions waste, loss, and embarrassment.It is conceived that this prohibition does not extend to the effacing of old marks, and placing of new ones, by the officers of the revenue, or in their presence, and by their authority. But as real inconveniences would attend a contrary construction, and there is some room for question, it appears desirable that all doubt should be removed by an explicit provision to enable the officer to efface old marks and substitute new ones, when casks have been emptied of their former contents and are wanted for new use.
5.The requisition to keep an account from day to day of the quantity of spirits distilled is represented both as a hardship and impossible to be complied with.But the Secretary is unable to perceive that it can justly be viewed either in the one or in the other light. The trouble of setting down, in the evening, the work of the day in a book prepared for and furnished to the party, must be inconsiderable, and the doing of it would even conduce to accuracy in business.The idea of impracticability must have arisen from some misconception. It seems to involve a supposition that something is required different from the truth of the fact. Spirits distilled are usually distinguished into high wines, proof spirits, and low wines. It is certainly possible to express each day the quantity of each kind produced, and, where one kind is converted into another, to explain it by brief notes, showing in proper columns the results in those kinds of spirits which are ultimately prepared for sale.A revision is now making of the forms at first transmitted, and it is not doubted that it will be easy to obviate the objection of impracticability.On full reflection, the Secretary is of opinion that the requisition in this respect is a reasonable one, and that it is of importance to the due collection of the revenue, especially in those cases where, by the alternative allowed in favor of country distilleries, the oath of a party is the only evidence of the quantity produced. It is useful in every such case to give the utmost possible precision to the object which is to be attested.
6.It is alleged as a hardship, that distilleries are held responsible for the duties on spirits which are exported, till certain things, difficult to be performed, are done, in order to entitle the exporter to the drawback. And the Government relies on the bond of the exporter for a fulfillment of the conditions upon which the drawback is allowed.This is a misapprehension. The drawback is at all events to be paid in six months, which is as early as the duty can become payable, and frequently earlier than it does become payable.An explanation to the several collectors of this point, which has taken place since the complaint appeared, will have removed the cause of it.The same explanation will obviate another objection, founded on the supposition that the bond of the distiller and that of the exporter are for a like purpose. The latter is merely to secure the landing of the goods in a foreign country, and will often continue depending after every thing relative to duty and drawback has been liquidated and finished.
7.It is an article of complaint that no drawback is allowed in case of shipwreck, when spirits are sent from one port to another in the United States.There does not occur any objection to a provision for making an allowance of that kind, which would tend to alleviate misfortune and give satisfaction.8.The necessity of twenty-four hours’ notice, in order to the benefit of drawback on the exportation of spirits, and the prohibition to remove them from a distillery after sunset, except in the presence of an officer, are represented as embarrassments to business.The length of notice required appears greater than is necessary. It is not perceived that any inconvenience could arise from reducing the time to six hours.But it is not conceived to be necessary or expedient to make an alteration in the last-mentioned particular. The prohibition is of real consequence to the security of the revenue. The course of business will readily adapt itself to it, and the presence of an officer in extraordinary cases will afford due accommodation.
9.It is stated as a hardship, that there is no allowance for leakage and wastage, in the case of spirits shipped from one State to another.The law for the collection of the duties on imports and tonnage allows two per cent. for leakage, on spirits imported. A similar allowance on home-made spirits at the distillery does not appear less proper.
10.It is mentioned as a grievance, that distillers are required to give bond, with surety, for the amount of the duties, and that the sufficiency of the surety is made to depend on the discretion of the chief officer of inspection.
The requiring of sureties can be no more a hardship on distillers, than on importing merchants, and every other person to whom the public afford a credit. It is a natural consequence of the credit allowed; and a very reasonable condition of the indulgence, which, without this precaution, might be imprudent, and injurious to the United States.

The party has his option to avoid it by prompt payment of the duty, and is even entitled to an abatement, which may be considered as a premium, if he elects to do so.

As to the second point, if sureties are to be given, there must be some person on the part of the Government to judge of their sufficiency, otherwise the thing itself would be nugatory; and the discretion cannot be vested more conveniently for the party, than in the chief officer of inspection for the survey.

A view has now been taken of most, if not of all, the objections of a general nature, which have appeared.

Some few, of a local complexion, remain to be attended to.

The representation signed Edward Cook, chairman, as on behalf of the four most western counties of Pennsylvania, states that the distance of that part of the country from a market for its produce, leads to a necessity of distilling the grain, which is raised, as a principal dependence of its inhabitants; which circumstance, and the scarcity of cash, combine to render the tax in question unequal, oppressive, and particularly distressing to them.

As to the circumstance of equality, it may safely be affirmed to be impracticable to devise a tax which shall operate with exact equality upon every part of the community. Local and other circumstances will inevitably create disparities, more or less great.

Taxes on consumable articles have, upon the whole, better pretensions to equality than any other. If some of them fall more heavily on particular parts of the community, others of them are chiefly borne by other parts. And the result is an equalization of the burthen as far as it is attainable. Of this class of taxes it is not easy to conceive one which can operate with greater equality than a tax on distilled spirits. There appears to be no article, as far as the information of the Secretary goes, which is an object of more equal consumption throughout the United States.

In particular districts, a greater use of cider may occasion a smaller consumption of spirits; but it will not be found, on a close examination, that it makes a material difference. A greater or less use of ardent spirits, as far as it exists, seems to depend more on relative habits of sobriety or intemperance than on any other cause.

As far as habits of less moderation, in the use of distilled spirits, should produce inequality anywhere, it would certainly not be a reason with the Legislature either to repeal or lessen a tax, which, by rendering the article dearer, might tend to restrain too free an indulgence of such habits.

It is certainly not obvious how this tax can operate particularly unequally upon the part of the country in question. As a general rule it is a true one, that duties on articles of consumption fall on the consumers, by being added to the price of the commodity. This is illustrated, in the present instance, by facts. Previous to the law laying a duty on home-made spirits, the price of whiskey was about thirty-eight cents; it is now about fifty-six cents. Other causes may have contributed in some degree to this effect, but it is evidently to be ascribed chiefly to the duty.

Unless, therefore, the inhabitants of the counties which have been mentioned are greater consumers of spirits than those of other parts of the country, they cannot pay a greater proportion of the tax. If they are, it is their interest to become less so. It depends on themselves, by diminishing the consumption, to restore equality.

The argument that they are obliged to convert their grain into spirits, in order to transportation to distant markets, does not prove the point alleged. The duty on all they send to those markets will be paid by the purchasers. They will still pay only upon their own consumption.

As far as an advance is laid upon the duty, or as far as the difference of duty between whiskey and other spirits tends to favor a greater consumption of the latter, they, as greater manufacturers of the article, supposing this fact to be as stated, will be proportionably benefited.

The duty on home-made spirits from domestic materials, if paid by the gallon, is nine cents. From the communications which have been received since the passing of the act, it appears that, paying the rate annexed to the capacity of the still, and using great diligence, the duty may be, in fact, reduced to six cents per gallon. Let the average be taken at seven and a half cents, which is probably higher than is really paid.

Generally speaking, then, for every gallon of whiskey which is consumed, the consumer may be supposed to pay seven and a half cents; but for every gallon of spirits, distilled from foreign materials, the consumer pays at least eleven cents, and for every gallon of foreign spirits, at least twenty cents. The consumer, therefore, of foreign spirits pays nearly three times the duty, and the consumer of home-made spirits, from foreign materials, nearly fifty per cent. more duty, on the same quantity, than the consumer of spirits from domestic materials, exclusive of the greater price, in both cases, which is an additional charge upon each of the two first-mentioned classes of consumers.

When it is considered that 8/21 parts of the whole quantity of spirits consumed in the United States are foreign, and 7/21 are of foreign materials, and that the inhabitants of the Atlantic and midland counties are the principal consumers of these more highly taxed articles, it cannot be inferred that the tax under consideration bears particularly hard on the inhabitants of the Western country.

This may serve as an exemplification of a general proposition, of material consequence, namely, that if the former descriptions of citizens are able, from situation, to obtain more for their produce than the latter, they contribute proportionally more to the revenue. Numerous other examples, in confirmation of this, might be adduced.

As to the circumstance of scarcity of money, as far as it can be supposed to have foundation, it is as much an objection to any other tax as the one in question. The weight of the tax is not certainly such as to involve any peculiar difficulty. It is impossible to conceive that nine cents per gallon on distilled spirits, which is stating it at the highest, can, from the magnitude of the tax, distress any part of the country, which has an ability to pay taxes at all—enjoying, too, the unexampled advantage of a total exemption from taxes on houses, lands, or stock.

The population of the United States being about four millions of persons, and the quantity of spirits annually consumed between ten and eleven millions of gallons, the yearly proportion to each family, if consisting of six persons, which is a full ratio, would be about sixteen gallons, the duty upon which would be less than one dollar and a half. The citizen who is able to maintain a family, and who is the owner or occupier of a farm, cannot feel any inconvenience from so light a contribution; and the industrious poor, whether artisans or laborers, are usually allowed spirits, or an equivalent, in addition to their wages.

The Secretary has no evidence to satisfy his mind that a real scarcity of money will be found, on experiment, a serious impediment to the payment of the tax anywhere. In the quarter where this complaint has particularly prevailed, the expenditures, for the defence of the frontier, would seem alone sufficient to obviate it. To this it is answered that the contractors for the supply of the army operate with goods, and not with money. But this still tends to keep at home whatever money finds its way there. Nor is it a fact, if the information of the Secretary be not materially erroneous, that the purchases of the contractors of flour, meat, etc., are wholly with goods. But, if they were, the Secretary can aver that more money has, in the course of the last year, been sent into the Western country from the treasury, in specie and bank-bills, which answer the same purpose, for the pay of the troops and militia, and for the quartermaster’s supplies, than the whole amount of the tax in the four western counties of Pennsylvania and the district of Kentucky is likely to equal in four or five years. Similar remittances are likely to be made in future.

Hence, the Government itself furnishes, and, in all probability, will continue to furnish, the means of paying its own demands, with a surplus which will sensibly foster the industry of the parties concerned, if they avail themselves of it, under the guidance of a spirit of economy and exertion.

Whether there be no part of the United States in which the objection of want of money may truly exist, in a degree to render the payment of the duty seriously distressing to the inhabitants, the Secretary is not able to pronounce. He can only express his own doubt of the fact, and refer the matter to such information as the members of any district, so situated, may have it in their power to offer to the legislative body.

Should the case appear to exist, it would involve the necessity of a measure, in the abstract, very ineligible, that is, the receipt of the duty in the article itself.

If an alternative of this sort were to be allowed, it would be proper to make it the duty of the party paying to deliver the article at the place in each county where the office of inspection is kept, and to regulate the price according to such a standard as would induce a preference of paying in cash, except from a real impracticability of obtaining it.

In regard to the petition from the district of Kentucky, after what has been said with reference to other applications, it can only be necessary to observe that the exemption which is sought by that petition is rendered impracticable by an express provision of the Constitution, which declares that “all duties, imposts, and excises shall be uniform throughout the United States.”

In the course of the foregoing examination of the objections which have been made to the law, some alterations have been submitted for the purpose of removing a part of them. The Secretary will now proceed to submit such further alterations as appear to him advisable, arising either from the suggestions of the officers of the revenue or from his own reflections.

1.It appears expedient to alter the distinction respecting distilleries from domestic materials in cities, towns, and villages, so as to confine it to one or more stills worked at the same distillery, the capacity or capacities of which together do not fall short of four hundred gallons.The effectual execution of the present provisions respecting distilleries from home materials in cities, towns, and villages would occasion an inconvenient multiplication of officers, and would, in too great a degree, exhaust the product of the duty in the expense of collection. It is also probable that the alteration suggested would also conduce to public satisfaction.
2.The present provisions concerning the entering of stills are found by experience not to be adequate, and, in some instances, not convenient.It appears advisable that there shall be one office of inspection for each county, with authority to the supervisor to establish more than one, if he shall judge it necessary for the accommodation of the inhabitants; and that every distiller, or person having or keeping a still, shall be required to make entry of the same at some office of inspection for the county, within a certain determinate period in each year. It will be proper, also, to enjoin upon every person, who, residing within the county, shall procure a still, or who, removing into a county, shall bring into it a still, within twenty days after such procuring or removal, and before he or she begins to use the still, to make entry at the office of inspection. Every entry, besides describing the still, should specify in whose possession it is, and the purpose for which it is intended, as, whether for sale or for use in distilling; and in the case of a removal of the person from another place into the county, shall specify the place from which the still shall have been brought. A forfeiture of the still ought, in every case in which an entry is required, to attend an omission to enter.This regulation, by simplifying the business of entering stills, would render it easier to comprehend and comply with what is required, would furnish the officers with a better rule for ascertaining delinquencies, and, by avoiding to them a considerable degree of unnecessary trouble, will facilitate the retaining of proper characters in the offices of collectors.
3.It is represented that difficulties have, in some instances, arisen, concerning the persons responsible for the duty. The apparent not being always the real proprietor, an opportunity for collusion is afforded; and without collusion the uncertainty is stated as a source of embarrassment.It also, sometimes, happens that certain itinerant persons, without property, complying with the preliminary requisitions of the law as to entry, etc., erect and work stills for a time, and before a half yearly period of payment arrives, remove and evade the duty.It would tend to remedy these inconveniences if possessors and proprietors of stills were made jointly and severally liable, and if the duty were made a specific lien on the still itself; if, also, the proprietor of the land upon which any still may be worked should be made answerable for the duty, except where it is worked by a lawful and bona-fide tenant of the land of an estate not less than for a term of one year, or unless such proprietor can make it appear that the possessor of the still was, during the whole time, without his privity or connivance, an intruder or trespasser on the land; and if, in the last place, any distiller, about to remove from the division in which he is, should be required, previous to such removal, to pay the tax for the year, deducting any prior payments, or give bond, with approved security, conditioned for the payment of the full sum for which he or she should be legally accountable to the end of the year, to the collector of the division to which the removal shall be, rendering proof thereof, under the hand of the said collector, within six months after the expiration of the year.As well with a view to the forfeiture of the still for non-entry, as to give effect to a specific lien of the duty (if either or both of these provisions should be deemed eligible), it will be necessary to enjoin it upon the officers of the revenue to identify, by proper marks, the several stills which shall have been entered with them.
4.The exemptions granted to stills of the capacity of fifty gallons and under, by the 36th section of the law, appear, from experience, to require revision.Tending to produce inequality, as well as to frustrate the revenue, they have excited complaint. It appears, at least, advisable, that the obligation to enter, as connected with that of paying duty, should extend to stills of all dimensions, and that it should be enforced, in every case, by the same penalty.
5.The 28th section of the act makes provision for the seizure of spirits, unaccompanied with marks and certificates, in the cases in which they are required; but as they are required only in certain cases, and there is no method of distinguishing the spirits, in respect to which they are necessary, from those in respect to which they are not necessary, the provision becomes nugatory, because an attempt to enforce it would be oppressive. Hence, not only a great security for the due execution of the law is lost, but seizures very distressing to unoffending individuals must happen, notwithstanding great precaution to avoid them.It would be, in the opinion of the Secretary, of great importance to provide, that all spirits whatsoever, in casks or vessels of the capacity of twenty gallons and upwards, should be marked and certified, on pain of seizure and forfeiture, making it the duty of the officers to furnish the requisite certificates gratis, to distillers and dealers, in all cases in which the law shall have been complied with.In those cases in which an occasional recurrence to the officers for certificates might be inconvenient, blanks may be furnished, to be accounted for. And it may be left to the parties themselves, in the like cases, to mark their own casks or vessels in some simple manner, to be defined in the law. These cases may be designated generally. They will principally relate to dealers who, in the course of their business, draw off spirits from larger to smaller casks, and to distillers who pay according to the capacities of their stills.As a part of a regulation of this sort it will be necessary to require that within a certain period, sufficiently long to admit of time to know and comply with the provision, entry shall be made by all dealers and distillers of all spirits in their respective possessions, which shall not have been previously marked and certified according to law, in order that they may be marked and certified as old stock.The regulations here proposed, though productive of some trouble and inconvenience in the outset, will be afterwards a security both to individuals and to the revenue.
6.At present spirits may not be imported from abroad in casks of less capacity than fifty gallons. The size of these casks is smaller than is desirable, so far as the security of the revenue is concerned, and there has not occurred any good objection to confining the importation to larger casks,—that is to say, to casks of not less than ninety gallons. Certainly, as far as respects rum from the West Indies, it may be done without inconvenience, being conformable to the general course of business. The result of examination is that the exception as to this particular, in favor of gin, may be abolished. Should any alteration on this subject take place, it ought not to begin to operate till after the expiration of the year.
7.There is ground to suppose that the allowance of drawback, without any limitation as to quantity, has been abused. It is submitted that none be made on any less quantity than one hundred and fifty gallons.
8.There is danger that facility may be given to illicit importations by making use of casks which have been once regularly marked, and the certificates which have been issued with them, to cover other spirits than those originally contained in such casks. Appearances which countenance suspicion on this point have been the subjects of representation from several quarters.The danger may be obviated by prohibiting the importation in such marked casks on pain of forfeiture both of the spirits and of any ship or vessel in which they may be brought. A prohibition of this sort does not appear liable to any good objection.
9.The duty of sixty cents per gallon of the capacity of a still was founded upon a computation that a still of any given dimensions, worked four months in the year, which is the usual period of country distillation, would yield a quantity of spirits, which, at the rate of nine cents per gallon, would correspond with sixty cents per gallon of the capacity of the still. It will deserve consideration whether it will not be expedient to give an option to country distillers, at the annual entry of their stills, to take out a license for any portion of the year which they may respectively think fit, and to pay at the rate of twelve and a half cents per gallon of the capacity, per month, during such period. This to stand in lieu of the alternative of paying by the gallon distilled; it would obviate in this case the necessity of accounting upon oath, and would leave it in the power of each distiller to cover the precise time he meant to work his still with a license, and to pay for that time only. A strict prohibition to distil at any other time than that for which the license was given would be of course necessary to accompany the regulation as far as regarded any such licensed distiller.
The only remaining points which have occurred, as proper to be submitted to the consideration of the Legislature, respect the officers of the revenue.

It is represented that, in some instances, from the ill humor of individuals, the officers have experienced much embarrassment in respect to the filling of stills with water to ascertain their capacity, which, upon examination, is found the most simple and practicable mode. The proprietors have, in some instances, not only refused to aid the officers, but have even put out of their way the means by which the filling might be conveniently accomplished.

It would conduce to the easy execution of the law, and to the very important purpose of retaining and procuring respectable characters as collectors, if the proprietors and possessors of stills were required to aid them in the execution of this part of their duty, or to pay a certain sum as a compensation for the doing of it.

The limits assigned in the law respecting compensations are found in practice essentially inadequate to the object.

This is so far the case that it becomes the duty of the Secretary to state that greater latitude in this particular is indispensable to the effectual execution of the law.

In the most productive divisions the commissions of the collectors afford but a moderate compensation. In the greatest part of them the compensation is glaringly disproportioned to the service; in many of them it falls materially short of the expense of the officer.

It is believed that in no country whatever has the collection of a similar duty been effected within the limit assigned. Applying in the United States to a single article only, and yielding consequently a less total product than where many articles are comprehended, the expense of collection must of necessity be proportionally greater.

It appears to the Secretary that seven and a half per cent. of the total product of the duties on distilled spirits, foreign as well as domestic, and not less, will suffice to defray the compensations to officers and other expenses incidental to the collection of the duty. This is to be understood as supplemental to the present custom-house expenses.

It is unnecessary to urge to the House of Representatives how essential it must be to the execution of the law, in a manner effectual to the purposes of the Government and satisfactory to the community, to secure by competent though moderate rewards the diligent services of respectable and trustworthy characters.

All of which is humbly submitted.

Alexander Hamilton,

Secretary of the Treasury.

[1]This is the famous argument on the policy of internal revenue and the expediency of an excise on spirits, both of which are now established.

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The Works of Alexander Hamilton, ed. Henry Cabot Lodge (Federal Edition) (New York: G.P. Putnam’s Sons, 1904). In 12 vols. The copyright for the original of this document is held in the Public Domain. Font, formatting, spelling modernizations, typo/transcription corrections, and explanatory footnotes for this version of  ”The Works of Alexander Hamilton” Copyright © 2011 Steve Farrell and Self-Educated American.