by frand, neglect, or incompetency, must be supplemented by another, wrung from the hard earnings of labor, or the interest of capital.

Spirit meters.-The invention of a meter which, when attached to the tail of the still, shall accurately register, beyond the control of the distiller, both the volume and the strength of the spirits distilled, has long been a desideratum in the revenue systems of Europe, but thus far all devices brought forward for this purpose have uniformly proved failures.

The attention of American inventors during the past year having, however, been directed to this subject, a number of new meters have been brought to the attention of the commissioner; and, at his request, their examination and testing have been referred by the Secretary of the Treasury to a committee of three gentlemen of eminent scientific qualifications, viz., Professor Joseph Henry, of the Smithsonian Institution; Professor J. E. Hilgard, acting Superintendent of the Coast Survey; and Major General Meigs, U. S. A.

Although the examinations of this committee have not yet been concluded, the indications are that a practical and effective meter has at last been invented; and the commissioner recommends that authority be given to the Secretary of the Treasury to require its adoption as an adjunct of every distillery, in case he may deem it expedient. Should the result expected be realized, the system of inspection of distilleries can be greatly simplified, and a large increase of the revenue may be confidently anticipated.

Hydrometers. In the report of the revenue commission, made in February, 1866, attention was called to the fact, that at that time no standard hydrometer had been adopted and prescribed for use under the internal revenue for ascertaining the strength of liquors preparatory to assessing the tax on the same, and that in consequence of this omission a very large annual loss of revenue was inevitable. The matter having thus been brought to the attention of the Secretary of the Treasury, it was referred by him to the scientific committee above named; on whose recommendation a modification of the Tralles hydrometer has been adopted by the department, and prescribed as the standard instrument for the use of all officers of the internal revenue.

These instruments are now in the course of distribution, with a new book of tables, prepared in the office and under the direction of the Superintendent of the Coast Survey. The hydrometer in question is graduated to show true per cent. of proof spirits at a standard temperature according to exact experimental data, and is of a very convenient pattern; while the tables give the true values when the spirit is proved at any other than the standard temperature, and also the allowances necessary to be made for changes in volume.

Tax on raw cotton.-The increase, by Congress at its last session, of the tax on raw cotton from two to three cents per pound, and the further continuance of the tax, has called forth many and strong remonstrances; and has been particularly protested against by the executives of several of the southern States, and also by the New York Chamber of Commerce. In the views presented by these parties the commissioner cannot concur.

In the report upon this question, submitted at the last session of Congress, a tax at the rate of five cents per pound was recommended, but when it became evident that such a tax could not be imposed in season to reach any considerable quantity of the old cotton on hand at the end of the war, and that whatever tax was imposed would apply only to new crops, the imposition of a tax not exceeding three cents was advocated.

At this rate the commissioner believes that the tax may be collected for one or two years, or until the aggregate crop of the world shall yield a surplus of cotton, with less injury to the production of cotton in the United States than the collection of an equal amount of revenue would cause if imposed upon other branches of industry.

That a tax of three cents per pound upon raw cotton, in common with all other

taxes upon the products of ordinary industry, is a burden, is not to be questioned; but it should not fail to be remembered that the tax under consideration is collected in a section of the country from which but a small proportion of revenue can be collected at present in any other manner; and if the tax on cotton be now abated, burdens far more grievous to be borne must still be continued on other industries.

No evidence, moreover, as yet presented, can, in the opinion of the commissioner, substantiate the position that a tax of three cents per pound upon cotton will cause its planting in the United States to be appreciably diminished so long as the aggregate supply of cotton warrants a price of twenty-five cents per pound and upwards for middling cotton.

Whenever the time arrives when the tax on cotton shall evidently become a serious impediment to its production, there can be little doubt that it may be entirely repealed without rendering the imposition of any additional tax necessary in order to provide for the loss of revenue caused thereby; inasmuch as at such time, even if it come so soon as the crop of 1867-'68 shall be ascertained, the increased revenue which will surely follow a better enforcement of the revenue laws will allow the abatement of this, as well as of many other less objection able taxes.

The chief cotton-producing countries, other than the United States, are Egypt, Brazil, and India. The two former produce a variety of long stapled, blackseed cotton, somewhat like our Sea Island variety, and better than our New Orleans or Upland. Within the last three years, machinery has been perfected, both in England and in the United States, for combing these cottons to pre pare them for spinning, instead of the former method of carding them; and by such process a much stronger and more uniform thread has been produced, and their use greatly extended. This of itself will, for some time, give a stimulus to the cultivation of cotton in Egypt and Brazil, entirely independent of any stimulus due to the imposition of a tax on cotton in the United States. In view of these facts, measures have been recently taken by the Commissioner of Agriculture to import a considerable quantity of the seed of Egyptian cotton, in order to see if it will not offer to the American planter a long stapled variety, which can be raised upon the common cotton lands of this country, and, not like our Sea Island variety, be confined to a small section, producing small crops alike to the hand and to the acre.

The only remaining competitor of any moment to the American cotton interest is India; and although many improvements have been made for spinning the poor staple of that country, all experience has proved that the value of American cotton for the manufacturing of all except the coarsest varieties of fabrics is more than three cents per pound above that of East India or Surat cottons. So long, therefore, as the tax in question represents less than the difference of value of these respective cottons, it cannot be claimed that it gives a dangerous stimulus to the product of India, on the one hand, or checks essentially the production of our own country, on the other.

For these reasons, and purely as a temporary revenue measure, while the aggregate product of cotton in the world is in an abnormal condition, and to save the imposition or continuance of more injurious taxes, the commissioner recommends that the tax of three cents per pound on cotton be allowed to stand, looking to the session of Congress to be held in 1867-68 for its abatement or repeal, if circumstances shall then render it necessary.

Taxes on watches, plate, &c.-The taxes which yet continue to be imposed on carriages, watches, and plate, although laid mainly on articles of luxury, are inquisitorial in their character, and are productive of more annoyance to the people, and trouble and expense to the government, than is commensurate with any revenue derivable from them. Their repeal is therefore recommended.

Prosecution of frauds under the revenue.-The commissioner renews the recommendation of the revenue commission for the establishment of some judicial tribunal for the preliminary trial or hearing of cases arising under the revenue laws, other than the existing district or circuit courts of the United States. Before the establishment of the present internal revenue system, these latter courts were crowded with business to such an extent that great delays were often unavoidable; but now the cases arising under the internal revenue laws bid fair to exceed in number those originating from all other sources. If a court of lower grade, under the jurisdiction of commissioners to be appointed by the Supreme Court of the United States, could be established-something analogous to the trial justice courts existing in many of the States-taking cognizance only of violations of the revenue laws, the commissioner is of opinion that not one case in ten would be carried to a higher tribunal; thus obviating great expense and delay in litigation, and rendering the administration of the law more prompt and efficient.

Aggregate and specific receipts of internal revenue.-The aggregate receipts of internal revenue for the several years since the commencement of the system, (1863, 1864, 1865, and 1866;) the amount derived from the principal specific sources; and the percentage ratio of the amount derived from each specific source to the whole, for each of the above named periods, are presented. in a table in the appendix to this report, marked A.

CUSTOMS DEPARTMENT OF THE REVENUE.

In the customs department of the revenue, three important measures of reform were adopted by Congress at its last session, viz: the reorganization of the appraisers' department in the New York custom-house; the establishment of a statistical bureau in connection with the Treasury Department; and the enactment of a law looking to the more effectual prevention of smuggling.

The results which have followed these measures are believed to have already fully vindicated both their wisdom and necessity. Under the first, one of the most important divisions of the customs service, in the leading port of the country, has been entirely reorganized; a supervising appraiser and corps of assistants selected mainly on grounds of fitness and experience; and a system adopted which, while insuring greater efficiency in the transaction of business, will, it is hoped, also check in no small degree the fraudulent practice of undervaluations.

Under the act providing for the establishment of a statistical bureau in the Treasury Department, a much-needed reform has been commenced in another important branch of the public service; and the commissioner confidently expects that the new bureau, under the control of its present director, will, in its results, prove all that has been anticipated.

That the new law for the prevention of smuggling is better calculated than any previous one to subserve the end desired is the general testimony of experienced officials; but, at the same time, the commissioner is obliged to report that the evidence presented to him indicates that smuggling, under the inducements offered by the existing high rates of duty, is largely on the increase; and in the place of being, as heretofore, irregular, is rapidly becoming systematized. In proof of this, it may be stated that offers are now made in Europe and Havana to deliver foreign goods of certain descriptions in New York city, free of duty, for a premium of twenty per cent. on their invoiced value. No dereliction of duty, however, can be charged on the officers of the revenue marine; but, on the contrary, a personal inspection, made since the last session of Congress, of no inconsiderable part of this service, has indicated for it a high degree of efficiency and discipline. But this efficiency is seriously threatened for the future, through the circumstance that the rates of compensation paid to the offi

cers of revenue-cutters is considerably less than that given to corresponding grades in the navy, and less than the usual pay for competent shipmasters, mates, and engineers, in the merchant service. The duties at present required of the revenue officers referred to are often extremely arduous-involving at times much boat work and frequent night exposure; while the necessary expenditures of this peculiar service are undoubtedly greater than those attendant upon lengthened voyages. The commissioner would, therefore, suggest that the rates of compensation in the revenue marine be made equivalent to those of officers of corresponding rank in the navy.

REVISION OF THE TARIFF.

In accordance with instructions received from the Secretary of the Treasury, under date of September 10, 1866, (a copy of which is hereto annexed,)* and in accordance, also, with instructions informally received from the chairman of the Committee of Finance on the part of the Senate, and the chairman of the Committee of Ways and Means on the part of the House of Representatives, the attention of the commissioner, since the close of the last session of Congress, has been chiefly given to a consideration of the revision of the laws imposing duties on the importation of foreign merchandise, and especially of the bill (No. 718) adopted by the House of Representatives at the first session of the Thirty-ninth Congress, but subsequently postponed by the Senate for future action.

Looking at the tariff solely and exclusively from a revenue point of view, few or no reasons can be adduced in support of a demand for any extensive change in its existing rates and provisions; inasmuch as the revenue derived from the tariff, since its revision in 1864, has reached a point much larger than was ever anticipated, and beyond which no material increase can probably be obtained under any other condition save that of a large increase of importations—a condition which is neither desirable nor likely to immediately occur.

In confirmation of this view, the following table, showing the value of importations, and the amount received from imposts on the same, for the several fiscal years from 1859 to 1866, inclusive, is presented:

SIR: In view of the fact that the revision of the tariff is certain to engage the attention of Congress at its next session, I consider it especially desirable that the Treasury Department should be prepared to furnish as much information pertinent to the subject as can be obtained and collected within the limited time available for the necessary investigations. You are, therefore, hereby instructed to give the subject of the revision of the tariff especial attention, and to report a bill, which, if approved by Congress, will be a substitute for all acts imposing customs duties, and which will render the administration of this branch of the revenue system more simple, economical, and effective. In the discharge of this duty, you will consider the necessity of providing for a large, certain, and permanent revenue, keeping in view the fact that the existing tariff has proved most effective in this direction.

You will therefore endeavor, first, to secure for the government a revenue commensurate with its necessities; and, secondly, to propose such modifications of the tariff laws now in force as will better adjust and equalize the duties upon foreign imports with the internal taxes upon home productions. If this last result can be obtained without detriment to the revenue, by reducing taxation upon raw materials and the machinery of home production, rather than by increasing the rates on imports, it would, in my opinion, by decreasing the cost of production, and increasing the purchasing power of wages, greatly promote the interests of the whole country. In the prosecution of this work, you are authorized to call upon any officer of the revenue for such information as you may require and he may be able to furnish. I am, with great respect, very truly yours,

H. MCCULLOCH, Secretary of the Treasury. The United States SPECIAL COMMISSIONER OF REVENUE.

The reasons in favor of any change in the existing tariff rates must, therefore, be sought in the condition and necessities of the various industrial interests of the country; especially those which are brought into competition with similar producing interests of other countries, with which the United States is engaged in trade and commerce. This being admitted, a determination of the exact nature of these conditions and necessities obviously becomes the first point of inquiry. A further reason for a revision of the tariff, but one connected wholly with its administration, and not bearing directly upon the revenue or industry of the country, is to be found in the fact, that the existing schedule of the rates of duty is exceedingly complicated and difficult of comprehension, owing to the numerous amendments and additious to the law that have been made by various acts of Congress. Thus the present rates of duty are assessed and collected under the successive acts of March 2, 1861, August 5, 1861, December 24, 1861, July 14, 1862, March 3, 1863, June 30, 1864, March 3, 1865, March 14, 1866, May 16, 1866, and July 28, 1866. Other acts relative to the collection of duties, reaching as far back as 1797, are also, to a certain extent, yet in force.

For the purpose of presenting a comprehensive view of the tariff law as it now. stands, a digest of all the laws relating to duties on imports enacted since March 2, 1861, is submitted in connection with this report, in Appendix marked B.

In accordance also with a resolution of the Senate, instructing the Secretary of the Treasury "to cause to be prepared a statement showing in tabular form the duties levied on different articles of imported goods under the several tariffs and the tariff act of 1842, and including in such tables the duties proposed by the tariff act now pending in the Senate," a tabular statement has been prepared under the direction of the commissioner, and is herewith submitted in Appendix marked C.

It is obvious, therefore, that a re-enactment of all rates of duty, and of all provisions of law relating to the collection of the same, in one complete and welldigested act, would greatly facilitate the working of the law; render its comprehension on the part of the public far less difficult, and at the same time diminish the incentive and opportunities for fraudulent transactions, which now undoubtedly result in serious losses to the revenue, and in no little detriment to the industry of the country.

It is the opinion of those most conversant with the practical working of our customs revenue laws, that no tariff act of recent years, owing to a lack of harmony or conflicting language with previous enactments, has been fully carried out according to the intent of the Congress which originated and passed it.

INDUSTRIAL CONDITION OF THE COUNTRY.

A somewhat extensive examination and inquiry into the industrial condition of the country authorizes the commissioner to report:

1st. Great activity-industrial or speculative during the past year, in nearly every section of the country, with a consequent extension of business.

The evidence in part of this is to be found in the following results:

A large increase in the amount of coal mined and transported to market, exceeding the production of any former year; a large increase in the production and exportation of crude and refined petroleum, (the quantity shipped from

The increase in the production of anthracite coal to November 1, 1866, over that of the corresponding period of 1865, was 2,836,782 tons.