EXCISE DUTIES AS A FEDERAL TAX. Thus far our inquiry respecting the source of revenue pertinent to the Federal Government has been under the guidance of the considerations that the dignity of the State demands cer tainty of revenue, and that it is wise for a government to select for the purpose of taxation that branch of industry with which it has administrative dealings. It will be re membered, however, that elasticity as well as certainty is es sential for the revenue system of a sovereign State. A system that rests on commerce cannot easily respond to the fluctuat ing demands of government. A great exigency, as, for example, the advent of a war, is sure to embarrass commerce and curtail income, and any attempt to increase revenue by raising the rate will, under such circumstances, be sure to intensify the embarrassment and decrease the income. In 1812, for example, the rates on imports were doubled, but the revenue did not respond to the call thus made upon it. How, then, it may 'be asked, can an elastic or responsive revenue be established for the Federal Government? This question presents a most important problem.
The solution of this problem, so far as it has been solved, is found in that series of acts by which the Internal Revenue System was established. The necessity of a revenue not de pendent on the exigencies of foreign commerce was made clear by the experience of the treasury during the years 186i and 1862. This is no place to narrate the financial his tory of those years, or to expose the mistaken theory upon which Congress proceeded in formulating a financial policy for the management of the war. The fact is the early at tempts of the treasury to command the wealth of the nation were failures, and it was only in proportion as internal revenue became productive that public finances were brought under control. It may have been this experience which demon strated to Congress the importance of flexible revenue, and which led to the continuance of internal taxes after the oc casion which called them into existence had passed away. But whatever the reason, the machinery of a system of excise duties has been maintained and kept in operation since the close of the war; and the government is, on this account, in a position to carry through a sound fiscal policy in the face of any exigency likely to arise. The theory of war
financiering pertains to that part of the Science of Finance that deals with the use of public credit, but it must be evident at a glance that it is the part of wisdom, when making provision for current revenue, to hold in mind the possible necessity of using the revenue machinery of ordinary times as the basis of exigency financierings. This is the justifica tion, and the only justification, for maintaining internal duties as a source of Federal revenue in time of peace. It is not claimed that the rules by which the system is administered have been formulated in view of the peculiar service which it is the function of that system to render. On the contrary, there is direct evidence in the rates imposed on those pro cesses of manufacture retained for taxation that the fiscal significance of the system is not appreciated. But the only point which it is now necessary to recognise is that a sound reason exists for granting to the Federal Government the exclusive right to appeal to excise duties as a source of revenue.
The propriety of granting the Federal Government ex clusive appeal to excise duties is further supported by a consideration of the confusion that would follow should the States undertake to tax the process of manufacture. Since the development of railway communication there no longer exists a local or restricted market. It requires but a slight difference in price to call goods from one part of the country to another. This being the case, it is essential to the pre servation of a healthful and equitably distributed industry that the conditions of manufacture should be, so far as pos sible, the same in all parts of the country. At least no artificial differences should be established, as would be the case should each State undertake to levy excise duties. The point is that uniformity of excise laws is essential, and the only means of attaining this uniformity under the constitu tional provisions which exist is for the Federal Government to assume exclusive control over their administration.