Reminiscences of Sixty Years in Public Affairs/Chapter 27

by George Sewall Boutwell

 

XXVII

ORGANIZATION OF THE INTERNAL REVENUE SYSTEM IN THE UNITED STATES

BEFORE the work at Cairo was finished I received a message from Mr. Chase, Secretary of the Treasury, asking me to come to Washington and take charge of the Internal Revenue Office, or rather, to organize it under a statute then recently passed, but which I had not seen. After a conversation with Mr. Dana, who advised me to accept the place, I returned to Washington, where I arrived July 16, 1862. After an interview with Mr. Chase I took the oath of office before Mr. Justice Wayne of the Supreme Court. He was then aged and that fact may have deterred him from following the example of his younger associate, Justice Campbell, who resigned his office, and joined in the work of secession. Judge Wayne was disposed to conversation, but he made no allusion to the war and the issues involved.

I was assigned to a small room on the first floor of the Treasury building, on the right of the lower door fronting on Pennsylvania Avenue. First, I read the statute and formed for myself an idea of the process by which the machine was to be set in motion. The statute was a remarkable exhibition of legislative wisdom under the circumstances, but it was incomplete in parts rather than imperfect in plan. In the course of two or three days Mr. Chase assigned to me three clerks from other offices in the Treasury, and all of them very competent assistants—Mr. Estes, Mr. George Parnell, and Mr. A. B. Johnson. The order of assignment I do not recall. Mr. Estes went to New York in a few months, where he engaged in business. Mr. Parnell remained in the department many years and until his death. Mr. Johnson was subsequently transferred to the Lighthouse Board, of which he is the chief clerk.

We first considered what blanks would be needed to enable assessors and collectors to perform their duties and make proper records and returns. Then we devised the books for the local offices, and for the offices in Washington. There was but one error as tested by experience in the preparation of the blanks and books, and the forms were followed in the department, except so far as changes in the law required alteration. Thus far there has never been a fraud or defalcation that was attributable to inadequate checks in the system. While I was at the head of the office, Mr. Chase never required me to retain a clerk who was incompetent or untrustworthy. There were times, however, when he looked to appointments with reference to Presidential preferences, and he always considered himself in the line of succession.

Mr. Chase’s mental processes were slow, but time being given, he had the capacity to form sound opinions. Not infrequently, when I called at his office for conference, he would say: “My mind is preoccupied—you must either decide for yourself, or call again.” As a result, he never gave an opinion or tendered any advice in relation to the business of the Internal Revenue Office while I was at the head of it. Mr. Chase had only a limited knowledge of the business of the department. Indeed, only a very extraordinary man could have administered the business of the department systematically, with a daily or frequent knowledge of the doings of the many heads of bureaus and divisions, and at the same time have matured and put into operation, the financial measures which were required by the exigencies of the war.

Mr. Chase’s three great measures were the Abolition of State Banks and the substitution of the National Banking System, the issue of the United States legal tender notes, and the issue of the Five-Twenty Bonds. In combination, as a financial system, they enabled the country to carry a debt of three thousand million dollars, and it is probable that a debt of six thousand million would not have paralyzed the public credit. It is an instance of the frailty of human nature, when men are in the presence of great temptations, that when he became Chief Justice of the United States, he announced the opinion that the issue of United States legal tender notes was unconstitutional. That measure was the key to his financial system, and a measure indispensable to the prosecution of the war. It was a forced loan, but in an exigency a government has as good a right to force capital into the public service as to force men. If in 1862 Mr. Chase had acted upon the doctrine set forth in his judicial opinion in the Hepburn and Griswold case, the probability is that the government of Mr. Lincoln would have been reduced financially to an equality with the government of the Confederate States. The ultimate reversal of that opinion is the most important act of the Supreme Court. It gives to the political department of the Government, the power to convert all the resources of the country into the means of defence in time of war, foreign or domestic.

While I held the office of commissioner of internal revenue, I had occasion to consult Mr. Bates, then Attorney-General. He was a kind hearted gentleman, but lacking in vigor and official independence.

There was no provision in the statute for a cashier. The law contemplated that the money would be paid to the commissioner. As it was impossible for me to perform that duty personally, I asked Mr. Chase for authority to appoint Mr. Marshall Conant, who had been and perhaps then was principal of the Normal School, at Bridgewater, Mass., a clerk in the office, and assign him to duty as cashier. He was appointed to a twelve hundred dollar clerkship, from which he was advanced to fourteen and then to sixteen hundred dollars. From September 1, 1862, to March 3, 1863, he collected and accounted for about thirty-seven million dollars, without any other security than his own good name, and all for a compensation of about eight hundred dollars. I urged Congress to make some adequate compensation, but the request was neglected. When I was in the Senate, I renewed the effort in behalf of his widow, but the attempt was a failure.

The organization of the office was effected by systematic processes. From manufacturers, from assessors and collectors, and from other interested parties numerous inquiries came to the office. The letters containing these inquiries were thrown into a basket, and reserved for the evening sessions, at which the heads of divisions—as divisions were created—were required to attend. These letters were read at the conferences, and when a conclusion was reached, the letter containing the inquiry was put aside for answer. The other letters were held for further consideration. All unanswered letters were read and considered every evening. Letters often remained unanswered for days, and perhaps for weeks, but at length the answer would be reached. By this process the decisions were rendered harmonious. I had the aid of two short-hand writers, and between 8:30 and 10 A. M., I was able usually to dictate the answers and in sufficient quantity to occupy the short-hand writers till 3 o’clock P. M., when the answers were submitted to me. These I read, corrected and signed. They were then referred to the respective divisions for future guidance. Thereafter all inquiries which had been so answered, were treated as routine business, and the letters in reply were signed without inquiry by clerks or by myself. Thus it happened that we were not often compelled to reverse our rulings, and generally they were sustained by the courts.

Mr. S. M. Clark, then superintendent of the Bureau of Printing, was greatly disappointed when I decided to reject all his designs for stamps, and required him to introduce the likeness of Washington after Stuart into each stamp. As far as I know, the internal revenue stamps were never approved nor condemned by the critics nor by the public. After advertisement a contract was made with Messrs. Butler and Carpenter, of Philadelphia, to furnish the stamps of all sizes, and to meet the expense of the engraving, at the rate of thirteen cents per thousand. In the year 1873 I received from Mr. Carpenter an album which contained proof specimens of every internal revenue adhesive stamp, public and private, engraved and printed, previous to March, 1873. This volume may contain the only complete collection of stamps issued from the Internal Revenue Office previous to that year.

When we were about to make appointments of assessors, and of collectors of internal revenue, Mr. Thurlow Weed called at the office, and said that if I would allow him to see the New York papers he would give me his opinion of the qualifications of the candidates, and any facts within his knowledge. This he did, and with entire fairness, as I now believe. He distinguished between the Seward men and the opponents of Seward, treating their merits and weaknesses without prejudice or feeling. Again, when the collectors’ bonds had been filed, he examined them, and under his advice, the principals, in several cases, were required to add to the strength of the security. Mr. Chase took no part in the appointment of collectors and assessors, beyond the designation of two collectors, one in Ohio, and one in Massachusetts, with whom he was acquainted. Mr. Lincoln also designated two, one in Illinois and one in California, and for the same reason. Of these, three proved unworthy. They may have assumed upon the way of their appointment, as security against discipline or removal. The rest were appointed upon written recommendations, and for the most part the duties were well performed to the end of their terms, and some of them held their places for more than twenty years. The appointments were made in August and September when visits to Washington were not agreeable. In a number of recommendations for a candidate, if he is not entirely worthy, some of the letters of commendation will indicate weakness. The whole ground will not be covered, or there will be qualifications. A candidate so weakened should always be passed by. Letters are the safest basis of action in appointments to office. Personal appeals are made most usually by interested parties.

At the time of the disasters to Pope and McClellan, Mr. Chase was demoralized completely. He said to me:

“We have only to wait for the end.”

He took me to the President, and said that he could take no part in the appointments. In that period Mr. Chase was very bitter in his criticisms of the President. He thought him slow in regard to emancipation. Of this opinion there was a formidable knot around Washington, Mr. Chase and Mr. Sumner being at the head. Indeed, their opinion in that particular was shared by many, myself among them, but I never lost confidence in the purposes of Mr. Lincoln, and I well knew that the way of safety was to maintain the closest relations with him. No one who knew him had any ground to doubt his good intentions. The truth was, that Mr. Chase was a candidate for the Presidency whenever he had the courage to believe in the preservation of the Government.

From July to the end of December, 1862, I went to the office before breakfast, then during the day, and then again in the evening. My only exercise was a ride on horseback after office hours and before dinner. When Pope’s army was driven within the entrenchments of Washington, General Banks was made military commander of the district. I was then living in a house at the corner of G and Twenty-first Streets, which my friend Mr. Hooper tendered me during the recess of Congress upon the condition that I would retain, pay and maintain his servants. Among them was his cook, Monaky, who had been cook for Mr. Webster. When Fletcher Webster was killed, she was in great grief. I invited General Banks to make his quarters with me, and I had thus some means of knowing the condition of affairs in the army and around the district.

While he was with me, we called upon General Hooker at the asylum, the Insane Hospital, on the east side of the east branch of the Potomac River, to which place he had been sent to be treated for a wound in his leg, which he had received at the Battle of Antietam. He was violent in his denunciation of McClellan for not using his entire force, and for not following the enemy—claiming that the whole body might have been destroyed. Barring his violence of language, and the impropriety of criticising his commander, there can be no doubt of the justice of what he said. McClellan had retained upon the left bank of the Antietam, a body of men whose participation in the battle at the opportune moment would have changed a qualified victory into a rout of the enemy. Lee was saved at Antietam and at Gettysburg by the incompetency of McClellan and Meade.

The movements by Lee in crossing the Potomac in 1862 and again in 1863 were most unfortunate for the Confederacy, and with Grant, or Sherman, or Sheridan, or Logan in command of our forces, must have resulted disastrously. It was the necessity of the situation that we were compelled to go to Lee, wherever he might choose to place himself. When he assumed the offensive, and abandoned his base, he exchanged positions, and greatly to his disadvantage. That he escaped destruction was due to his good fortune and to our incompetency and not to his own merit as commander.

The Sunday morning after Pope’s defeat, David Dudley Field called at my office at the Treasury, and after some conversation upon the condition of affairs, he said he wished to see the President. I aided him in securing an interview. What was the object of this interview with the President I cannot say, but his conversation led my mind to the conclusion that he thought himself qualified for the command of the army.

The events of that day made a lasting impression upon my mind. The city was filled with troops, the hospitals, churches and other buildings were crowded with the wounded; the streets were stuffed with ambulances, baggage wagons, artillery, and material of war. The hills were dotted with tents, and the officers and men were discontented and almost in a state of mutiny. The demand for the restoration of McClellan was almost universal. There can be no doubt that he was then adored by the troops. In six months that feeling had given place to a feeling of indifference or positive distrust as to his capacity or integrity of purpose.

During the preceding week, I had made many attempts to secure an interview with the President in regard to the appointment of collectors and assessors, as they were to commence their duties under the law September 1. Finally he gave me Sunday at 11 o’clock. He canvassed the papers and considered the merits of the candidates with as much coolness and care apparently, as he would have exhibited in a condition of profound peace. When the business was ended, he asked me what I thought about the command of the army. I said unhesitatingly that the restoration of McClellan seemed the only safe policy. I had seen and heard so much, that I was apprehensive of serious trouble in the army if he should again be superseded. I then said that emancipation seemed the only way out of our troubles. He said in reply:

“Must we not wait for something that looks like a victory? Would not a proclamation now appear as brutum fulmen?”—the only Latin I ever heard from the President.

In Gorham’s Life of Stanton, it appears that the Cabinet advised against the restoration of McClellan, and that a vigorous protest was signed by three members, which, however, was not presented.

During the autumn and winter of 1862-3, I was in the habit of calling at the War Office for news, when I left the Treasury—usually between nine and eleven o’clock. Not infrequently I met Mr. Lincoln on the way or at the department. When the weather was cold he wore a gray shawl, muffled closely around his neck and shoulders. There was great anxiety for General Grant in 1863, when he was engaged in the movement across the Mississippi. At that time I went to the War Office daily. One evening I met the President in front of the Executive Mansion, on his way back from the War Department. I said:

“Any news, Mr. President?”

“Come in and I will tell you!”

I knew from the tones of his voice that he had good news. He read the dispatch, and then by the maps he followed the course that Grant had taken. The news he had received was from Grant himself. From the 4th of March, 1861, I had not seen Mr. Lincoln as cheerful as he was when he read the dispatch, and traced the campaign on the map. He felt, evidently, that the end was approaching—although it was nearly two years away.

As I had been elected to the House of Representatives in November, 1862, I resigned my office of commissioner of internal revenue March 3, 1863. Mr. Chase was very unwilling to have me leave, and he endeavored to satisfy me that there was neither illegality nor impropriety in my continuing until the meeting of Congress. I did not agree to his view of the law, and moreover, Congress had so changed the law that the commissioner was required to give bonds. In presence of that requirement I should have left the place. By the same act a cashier was authorized, and thus it happened that when the commissioner was actually in receipt of the moneys the Government had no security and yet security was required when he was deprived of the power to touch one cent of the receipts. I remained at Washington from March 3 to August, engaged in the preparation of a work upon the Revenue System. This volume contains the rulings and decisions by me most of which have been sustained by the courts or justified by experience.^[1]

My successor was Joseph J. Lewis, a country lawyer from Pennsylvania. He had written a biography of Mr. Lincoln, and he had been the President’s choice at the outset. When I resigned, the President had his way. Whether Mr. Chase presented any other person I cannot say. Mr. Lewis had no idea of the work of administration. When questions were submitted to the office, he proceeded to prepare an answer which he wrote with a quill pen with his own hand. At the beginning he sent off his answers without the knowledge of the chiefs of division, and in some instances a newspaper report was the first information that the subordinates obtained that a decision had been made. In some instances he passed upon old questions, without any inquiry or examination, until it was discovered that the head of a division was ruling one way and Mr. Lewis was ruling another way at the same time.

When I left the office in March, 1863, Mr. Chase said to me that it exceeded in magnitude the entire Treasury Department, March 1861. It was in fact the largest Government department ever organized in historical times, and it was organized without a precedent. By its machinery, it became finally so vast, that three hundred and fifty million dollars were assessed and collected in a single year. In the thirty-eight years of its existence, the gross collections have amounted to $5,524,363,255.89. It has existed eight and thirty years with no other changes than such as have been required by the change of laws. The frame work, including the system of bookkeeping with its checks and tests, remains.

When I entered upon the work in July, I examined the records of the Excise Bureau established during the War of 1812, but they furnished no aid whatever in the execution of the work that was before me. I had neither time nor opportunity to study the excise system of Great Britain; and hence the organization of the system of the United States was based upon, and grew out of, the requirements of the law. I do not deem this a misfortune. The public anxiety in regard to the construction of the law induced a large amount of correspondence with persons in various parts of the country, and in the month of October the letters sent numbered occasionally eight hundred per day. Many of these letters were formal, and others were repetitions of those previously given; but each day compelled attention to a large number of new questions.

The practice of the office in the construction of the law was controlled by a few leading principles.

First: to levy a tax in those cases only which were clearly provided for by the statute and, consequently, whenever a reasonable doubt existed, the decision was against the Government and in favor of the contestant.

Second: In deciding whether an article was or was not a manufacture, it was the practice to ascertain how it was regarded by business men at the time the excise law was passed; in all cases abstaining from inquiry as to the mode of preparation, or the nature or extent of the change produced. If the article in question was regarded by the makers and by business men as an article of commerce, and it was produced by hand or machinery, it was the practice to treat it as a manufacture under the law, unless specially exempt.

Third: Upon articles manufactured and removed for consumption by the manufacturer, the tax was assessed precisely as it would have been assessed if the articles had been removed for sale.

Fourth: In considering the law relating to the use of stamps, it was the rule of the office to give that signification to the names used in the statute descriptive of various instruments subject to stamp tax, which was ordinarily given to such descriptive terms by business and professional men. In the year 1901 it may be assumed that the Internal Revenue Office will exist while the Government shall exist, although it came into being as a war measure and as a temporary policy.

END OF VOL. I.

1. In the early sixties I was associated in the profession with a man eight years my junior, John Quincy Adams Griffin. He was a man of infinite jest, but lacking in fancy. His letters and other writings would make a volume of no mean quality. His death came too early for an extended and lasting reputation. In his sallies he did not spare his friends, and he wounded his opponents. On one occasion as we were upon the street I was induced to buy a paper by a boy’s cry “Great battle!” When I opened the paper the sheet was blank. I said:

   “What do you suppose will become of that wretch?”

   Alluding to the fact that I was about forty years of age when I was admitted to the bar, Griffin said:

   “I think he will study law and enter the profession rather late in life.”

   His last letter to me was as solemn as death itself, but he could not omit an instance of his habit:

   “The doctors tell me that I have water around my heart, but I know it isn’t so, for I have drank nothing but beer for six months.”

   This paragraph was commenced for the purpose of citing another instance of his quality. In our office was a volume of my treatise on the Excise and Internal Revenue Laws of the United States. Many years after Griffin’s death I found this entry on the fly-leaf of the volume:

   “DEDICATION.

   To the memory of Cæsar Augustus in whose reign there went forth the decree that all the world should be taxed, this book is respectfully dedicated by theAUTHOR.”