ingly, on January 10, 1863, Memminger determined to make an effort to induce Congress to take up the matter of taxation more energetically. In his report of that date he discussed the choice to be made between various kinds of taxes, and declared his preference for taxes on property and income. "It seems to me that a tax upon property and income is so much to be preferred to stamp duties, excises, licenses and other like taxes, which call for a machinery vexatious in its character and expensive in its operation, that there will be little hesitation on the part of Congress in its acceptance. The direct tax heretofore levied has set in operation all the machinery necessary to levy another; and an income tax could be collected by the same means. It seems to me that both these forms of tax should be adopted. To lay a sufficient tax upon property alone would require too large an increase in the rate. Such an increase would operate with peculiar hardship upon property producing no income. On the other hand, a tax upon income is so easily evaded, that of itself it would furnish an insecure resource. It is proper, however, that income should be taxed; otherwise the whole profits of speculation and trade, together with those resulting from skill and labor, would escape contribution. I propose, therefore, that a tax be imposed upon property, and upon the gross amount of incomes of every kind, excepting those below some minimum to be adjusted by Congress."1 The secretary estimated the yield of a tax of one per cent on property at about thirty-six millions, and he thereupon proceeded to discuss the probable returns of an income tax. "It may be assumed that the net income of property is measured by the average rate of legal interest of the money which represents its value. If the tax were laid upon net income, and that income were faithfully returned, it could in this way be estimated with some degree of accuracy. But the devices are so many by which a return of net income can be evaded, as to make such returns unreliable. A resort to gross income is, therefore, more expedient. The difference between the Memminger, op. cit., p. 448. 1 two must be at least 25 per cent; but, under existing circumstances, and for the purpose of an estimate, it would be prudent to disregard the difference and assume that the returns of gross income will be about equal to the average rate of legal interest. It is believed that even the proceeds of skill, speculation and labor which may be returned where no capital is involved, will not materially vary the result." Calculating the total income at about 280 millions, he figured that a ten per cent income tax would yield 28 millions.1 Reverting, however, to the idea which underlay the produce loan, he now recommended that the income tax should be payable not only in money, but also in kind. Congress adopted these suggestions with some modifications, and a few months later enacted a comprehensive tax measure.2 The law of 1863 imposed a direct tax of eight per cent on naval stores and agricultural products, as well as a tax of one per cent on securities and capital invested in a business which was not taxed. In the second place the law provided for a series of license taxes on trade, business, and occupation, some of them specific taxes, some calculated according to gross receipts. Then came a series of provisions affecting incomes. A separate section imposed a tax upon "the salaries of all salaried persons serving in any capacity whatever, except upon the salaries of all persons in the military or naval service." The tax was to be at the rate of one per cent on salaries not exceeding $1500 and two per cent above that amount; but recipients of salaries of less than $1000 were exempt. The salaries tax was followed by the so-called income tax proper. It was imposed on "income and profits derived by each person, joint-stock company and corporation, from every occupation, employment or business, and from every investment or labor, 1 Memminger, op. cit., pp. 449, 450. 2 Act of April 24, 1863, c. xxxviii, Public Laws of the Confederate States of America, passed at the Third Session of the First Congress, 1863. Edited by James M. Matthews. Richmond, 1863, pp. 115 et seq. 8 Sec. 7. skill, property or money, and the income and profits derived from any source whatever except salaries." The allowable deductions for expenses, repairs, etc., were carefully elaborated in a series of six provisions. In incomes from real estate, other than houses, a deduction not exceeding ten per cent of the gross rent was permitted for necessary annual repairs; in the case of houses the deduction was limited to five per cent. In incomes from manufacturing and mining business, a deduction from "the gross value of the products of the year" was permitted for rent as well as for cost of labor and of raw materials. In incomes from navigating enterprises, deductions from "gross earnings, including the value of freights on goods shipped by the person running the vessel," were allowed to the extent of "the hire of the boat, if not owned by the person running the same, or if owned by him, a reasonable allowance for the wear and tear of same, not exceeding ten per cent per annum, and also the cost of running the boat or vessel." If the income were derived from boat- or ship-building, deductions might be made "from the gross receipts of the occupation, including the value of the ship when finished," to the extent of the cost of labor and "the prime cost of materials." If the income were derived from the sale of property, there might be deducted from the gross sales "the prime cost of the property sold, including the cost of transportation," as well as the salaries of clerks and the rent of buildings. Deductions similar to the last were allowed for other incomes and in the case of mutual insurance companies a further deduction was permitted for the amount of losses paid during the year. The rate of the tax was progressive, the scale being considerably higher than in the Union. Incomes below $500 were exempt; from $500 to $1500 the rate was 5%; on incomes between $1500 and $3000 5% was levied on the first $1500, and 10% on the remainder; incomes between $3000 and $5000 paid 10%; incomes between $5000 and $10,000 paid 12%; and incomes of $10,000 and over paid In addition to the personal income tax, all joint stock companies and corporations were required to "reserve one-tenth of the annual earnings, set apart for dividends and reserve fund." Where this, however, amounted to more than 10% and less than 20% upon the capital stock paid in, the rate of tax was 121%; and where the profits were more than 20% the rate was 16%. It was provided, however, that the dividends so paid to the stockholder should not be considered a part of his income. Every person was required to make a return of his income, and if the assessor was dissatisfied, he was to select "one disinterested citizen in the vicinage as a referee," the taxpayer to select another, and these two to call in a third. The findings of a majority of these referees were to be conclusive. In addition to the income tax proper, which was payable in cash, the law provided for a tax in kind. This was a tax of ten per cent on all profits made by the purchaser within the Confederate states, or by sale of any flour, corn, bacon, pork, oats, hay, rice, salt, iron, or the manufacture of iron, sugar, molasses (molasses of cane), leather, woollen cloths, shoes, boots, blankets, and cotton cloths. The tax, however, was not to apply to the purchases and sales "made in the due course of the regular retail business." Furthermore, the profits reached by the tax in kind were not to be included in the income subject to the regular income tax. A series of interesting administrative provisions was added. Every farmer and planter, after reserving for his own use fifty bushels of potatoes, one hundred bushels of corn, fifty bushels of wheat, and twenty bushels of peas or beans, was required to deliver to the government for its use one-tenth of all his crops, as soon as the crops were ready for market. In case of disagreement between the taxpayer and the assessor, three referees were to be selected, as in the case of the cash income tax, and these were to estimate "the quantity, the quality, and the value of the produce." The planter was required to deliver the articles so estimated within two months from the time of estimate, at a depot not more than eight miles from the place of production, in default of which he was to suffer a penalty of fifty per cent. The government was to furnish sacks and to allow the cost of barrels.1 Every farmer, planter, and grazier, moreover, was required to exhibit to the assessor, an account of all the hogs he might have slaughtered, and to "deliver an equivalent of one-half of the same in cured bacon, at the rate of sixty pounds of bacon to a hundred weight of pork." In the case of cattle, horses, and mules not used in cultivation, the tax was one per cent upon the value; but if any beeves had been sold, the gross proceeds of such sales "shall be estimated and taxed as income, after deducting therefrom the money actually paid for the purchase of such beeves, if they have been actually purchased, and the value of the corn consumed by them.”2 In May, 1863, Secretary Memminger issued detailed instructions for the collection of the tax. He called particular attention to the fact that if any person should refuse or neg lect to give lists or make returns, the assessor might "enter upon his premises and upon view, or from state tax lists, or any other record or documents, or by any other lawful ways or means, shall make a list" himself, after adding twenty-five per cent. He also directed that if any commission merchant held in store on account of any one else any agricultural products, the former was to pay the tax. The taxes in kind, moreover, were all to be transferred to the duly authorized post quartermaster; that is, they should be subject to the military department. But whenever articles collected by the post quartermaster consisted of cotton, wool, or tobacco, they should be subject to the order of the district collector; that is, to the treasury department.4 Such were the provisions of the income tax law passed by the Confederacy. It soon gave rise to much discontent for the reason that the income tax proper was payable in Confed 8 Instructions for Collectors of Taxes. Treasury Department. Confederate States of America. Richmond, May 15, 1863, p. 7. 4 Op. cit., p. 14. |