ular pay of 10 per cent. of the clerks in each bureau might be increased at the beginning of each fiscal year, say, 5 per cent. for marked capacity, fidelity, and zeal in the discharge of duty, this increase to be made upon the certificate of the head of division, the chief clerk, and the head of the bureau. Promotions should be made strictly upon merit, after a suitable examination, and upon the recommendation of the head of the proper bureau. The removals of clerks and employés should be for dishonesty, incapacity, neglect of duty, insubordination, intemperance, immorality, or inability, such disqualifications to be ascertained under suitable regulations prescribed by the head of the proper department. Heads of divisions and persons occupying confidential relations to the heads of departments and bureaus should be subject to change for reasons satisfactory to the head of the department. Persons retiring from the service upon resignation or expiration of term, without fault, should be given an honorable discharge. The removal from the service of persons rendered unfit by the infirmities of years, or from other causes disconnected from misconduct, is at all times an unpleasant duty to perform, especially when such officers or clerks have rendered valuable services through a number of years and from their meager salaries have been unable to lay by a competency for old age. To mitigate the hardship of such cases and to insure a proper recognition of faithful service I would suggest the propriety of providing by law that all subordinate officers, clerks, and employés retired, without fault, by resignation, expiration of term, or inability after a service of four years, shall be entitled to receive one month's pay for each year and pro rata for each fraction of a year of service rendered, such retiring pay to be computed at the rate of pay the person has received from time to time. RECAPITULATION. The adoption of this system would embody the following ideas: 1. The establishment of a term of office of four years for subordinate officers, clerks, and employés. 2. Requiring all applicants for appointment to be well indorsed as to character, and to stand a proper examination as to attainments. 3. A temporary appointment for one year, on trial. 4. If found worthy, the temporary officer or clerk to be appointed for three years, the balance of a regular term of four years. 5. The officer or clerk to be eligible for reappointment. 6. As a stimulus to the exercise of marked capacity, fidelity, and zeal in the service, the pay of 10 per cent. of the clerks of each bureau to be increased 5 per cent. upon proper certificates at the commencement of each fiscal year. 7. Promotions to be upon merit, ascertained by examination and certified to by the head of the bureau. 8. Causes for removal to be dishonesty, incapacity, neglect of duty, insubordination, intemperance, immorality, or inability. 9. Persons retiring, without fault, to receive an honorable discharge. 10. Subordinate officers, clerks, and employés, retired, without fault, after a service of four years, to receive retiring pay, equal to one month's pay for each year and pro rata for each fraction of a year of service. The principles suggested could readily be applied to the entire civil service of the country. In respect to the question of retiring pay, I am satisfied that the great majority of the persons to whom it would apply are solely dependent upon their salaries for the support of themselves and families. Inquiry in the Internal Revenue Office shows the fact that the average number of persons dependent upon the salaries of clerks and employés is as follows: Salaries of $1,800, $1,600, $1,400, $1,200, and $720, the average is four persons to each salary; salaries of $1,000, three persons; salaries of $900, two persons; and salaries of $660, five persons to each salary. It is obvious from this statement that persons drawing salaries of $1,800 and less, will have but little left at the end of the year after supporting their families. It will be readily understood that, with a knowledge of such facts, the head of a bureau will be disposed to hesitate to recommend the discharge of persons who, after serving the government a nuinber of years with fidelity, have become incapacitated for a proper performance of duty by old age. They thus become pensioners on the government and are retained to the injury of the service. The proposed provision for retiring pay, if adopted, would, as before stated, mitigate the hardship of discharging such persons from the service, and would, in my opinion, be a satisfactory solution of a difficult and delicate problem. TERM OF OFFICE OF COLLECTORS. In my annual report for the year ended June 30, 1877, I used the following language on the subject of tenure of office of collectors: I call your attention to the fact that the law creating the office of collector of internal revenue fixes no tenure to the office. In my opinion it is altogether desirable that the term of this office should be fixed at four years. It often occurs that when a collector has served for a longer period than four years, constant efforts are being made for his removal; and many officers, however well they may have discharged their duties, feel, after a four years' service, uncertain as to the length of time they will be retained in office. Where an officer is appointed for a term of four years he has a right to expect that if he performs his duty diligently and faithfully he will not be disturbed until his term expires, and this feeling of security I regard as an important element in maintaining a good public service. From my limited observation in public life, I have come to the conclusion that when it can reasonably be done there should be a fixed tenure of all officers of the government. I have the honor to recommend that a law be passed fixing the tenure of office of all collectors of internal revenue hereafter appointed at a term of four years. I now renew my recommendation in the hope that this subject will receive the early and earnest attention which it demands. It is an anomaly in the creation of important executive offices to omit fixing four years as the official term. By sections 769, 779, 2613, and 3830, United States Revised Statutes, the terin of office of district attorneys, marshals, collectors of customs, naval officers, surveyors, and postmasters is fixed at four years. The original act, from which some of these sections are taken, was approved September 24, 1789, and the rule thus early adopted has, I believe, been maintained by subsequent legislation, with the exception of the act of July 1, 1862, creating the office of collector of internal revenue. ADDITIONAL TAXES DUE FROM BANKS. Last March certain facts came to the knowledge of the collector of internal revenue at Chicago which led him to believe that one of the banks of that city had failed to make full returns of its capital and deposits for taxation. At the collector's request I sent a competent revenue agent to make an examination of the books of the bank, which was done under the supervision of the collector, and it was found that a large amount of taxes was due the government. The books of all the banks in the city of Chicago making returns to this office were also examined, and in most cases it was found that errors had been made in rendering their returns, though in a number of instances the amounts involved were not large. In the case of certain foreign banks doing business in that city, large amounts of taxes were found due on capital brought into the United States and actually employed in the business of banking. The result of the examination in Chicago seemed to make it necessary to scrutinize the returns of the bankers of other cities. I therefore detailed a number of revenue agents to report to the collectors of internal revenue in the cities of Baltimore, Philadelphia, New York, and Boston, and the books of many of the banks were examined. A number of new and interesting questions of law arose upon the application of the statute to the varied and intricate business operations of bankers. It was found that while the returns of some banks had been accurate to the last cent the returns of others had been made with deductions as to both capital and deposits which in the opinion of this office were not admissible under the law. Many bankers have submitted their books for examination without the necessity of invoking legal proceedings, and have shown a willingness that their entire liability for taxation shall be ascertained. Many other bankers have agreed to carefully examine their books and make full statements under the decisions recently rendered by this office of such additional taxes as they may be liable for, such statements to be subject to the verification of officers of internal revenue. Other bankers, questioning the right of internal-revenue officers to examine their books, have refused to either produce them or to answer interrogatories in regard to their liability for additional taxes. There has been already ascertained to be due the sum of $722,705 from seventy banks in the cities of Chicago, New York, Baltimore, Boston, and Philadelphia, a considerable portion of which has been collected and paid into the Treasury. The other collectors have been instructed to examine the banks of their respective districts in regard to their liability for additional taxes. I am satisfied that large additional sums are due the government from this source. Considerable irritation has been felt by many of the bankers in respect to the enforcement of the one hundred per cent. penalty imposed for rendering a "false or fraudulent return," it being contended that the penalty was intended to be enforced only when the return made was wilfully false. A case in which this question was involved was recently tried before the United States circuit court for the southern district of New York, "The German Savings Bank vs. Joseph Archbold, collector," and the court decided that it is not a prerequisite to the addition of the penalty that the return shall be wilfully false, but that if the return is not in fact true the Commissioner is authorized to affix the penalty. The exact language of the statute (R. S., section 3182) is "authorized and required." This case has been appealed to the United States Supreme Court, and at my request the Attorney-General has had it advanced on the docket, and it is set down for argument on the 20th of January next. Pending the decision of the Supreme Court upon this point I have consented in several important cases that the collection of the one hundred per cent. penalty already assessed shall be held in abeyance to await the decision of the court. INDIVIDUAL STAMP FOR CIGARS. The collecting the tax on cigars by placing the stamp on each cigar, instead of on the boxes as now provided by law, would afford the highest proof of the payment of the tax, and would prevent the fraudulent refilling of stamped boxes which is believed to be a great means of loss to the government. Various patented stamps and devices have received the consideration of this office, the use of which at present seemed to be impracticable by reason of the great expense of some, and the difficulty in the preparation and handling of all of them. The frequent consideration of this subject, however, has brought me to the conclusion that the system of stamping each cigar with a stamp prepared for general use, without reference to the number packed in the box, can be introduced at an increase of nearly double the cost for paper and printing. To compensate the cigar manufacturer for the expense of putting the stamp on each cigar, a deduction of 5 per cent. might be made upon the stamps purchased which would cover the cost of applying the stamps to the cigars. The material objection to the adoption of this plan would be the repacking of imported cigars. Such a system would in my opinion materially add to the revenue of the government, and I recommend that the subject receive the careful consideration of Congress. FRAUDS IN THE MANUFACTURE OF VINEGAR. I again recommend the passage of a law either to prohibit the manufacture of vinegar by the alcoholic vaporizing process, provided for in section 5 of the act of March 1, 1879, or requiring the supervision of a storekeeper at each vinegar factory using the vaporizing process, the compensation of such storekeeper to be repaid to the government by the vinegar manufacturer. Experience has shown that the act above referred to opens the door to great frauds, and I am clearly of the opinion that early legislation should be had upon this subject. APPARENT OVERPRODUCTION OF SPIRITS. In my last annual report under this heading I made the following statement: I take the liberty of calling especial attention of distillers and the trade to the fact that on the 1st July, 1879, there were on hand in distillery warehouses 19,212,000 gallons of spirits, which was an increase of about 5,000,000 of gallons over the stock on hand at the same period of the previous year, and that on the 1st day of November, 1880, the amount of spirits on hand was 32,640,000, being an increase of 13,400,000 gallons over the amount on hand on the 1st of July, 1879. The steady increase in the number and capacity of distilleries in operation, suggests the probability of the continued enlargement of the stock on hand. It has occurred to me that this business was on the eve of being overdone, and that in the event of a recurrence of the agitation for a reduction of the tax, the holders of these spirits would be in danger of loss. The amount of distilled spirits in distillery warehouses on the 1st day of November, 1881, was 67,442,186 gallons, an increase of 34,330,150 gallons over last year. On page 98 will be found a table showing the stock on hand by districts. The great bulk of these spirits is held in the State of Kentucky, and they are chiefly what are known as “sour mash" whiskies. The amount in warehouses on July 1, 1881, produced in the year 1879, was 3,138,360 gallons, the tax upon which will fall due during the year 1882. It would seem probable that the high price of grain and this immense stock on hand will cause a reduction in the product during the ensuing year, and the probability of the distillers and owners of this stock having serious trouble in meeting their obligations to the government for the taxes as they fall due, will thereby be greatly diminished. DISTILLERIES OF 100 BUSHELS AND UNDER. Prior to January, 1881, all distilleries of the capacity of sixty bushels a day and under were in charge of but one officer, who performed the Joint duties of storekeeper and gauger, and all distilleries above the capacity of sixty bushels were in charge of storekeepers and gaugers as distinct officers. After consideration, I came to the conclusion that it was desirable, as an economic measure, to raise the rate of capacity of distilleries at which a storekeeper and gauger combined in one officer could be employed from 60 to 100 bushels per day. On my recommendation to the honorable Secretary it was accordingly ordered that in all distilleries of the capacity of 100 bushels per day and under, a combined storekeeper and gauger should be employed. The saving thus effected cannot be exactly computed, but is believed to be in the neighborhood of $22,000 per annum. REDUCTION OF PAY OF STOREKEEPER AND GAUGERS. In April last I directed that the daily compensation of officers holding the combined office of storekeeeper and gauger, and assigned to duty at distilleries having a daily capacity of not exceeding twenty bushels of grain, should be reduced from $4 dollars to $3 dollars per diem. This change seemed to be demanded by reason of the disparity between the amount of labor required of these officers and the pay received. Accordingly notice of the change in rate of pay, to take effect on the first of the month succeeding, was sent out to 634 officers assigned to the same number of distilleries having the daily capacity above stated, and situated in 46 collection districts, resulting in an immediate saving of $634 daily, and a total saving during the remainder of the fiscal year of nearly $26,000. Notwithstanding these measures of economy there was a deficiency in the appropriation for the pay of storekeepers and gaugers and miscel laneous expenses for the last fiscal year, of $65,000. I have the honor to recommend that this sum be appropriated at the earliest day practicable, so that these officers shall receive pay for their services. APPOINTMENTS OF STOREKEEPERS, GAUGERS, &C. On the 16th of July last the system of appointing storekeepers, gaugers and other subordinate officers of the Internal Revenue Service, established by circular of date of June 30, 1880, was changed by the following order: TREASURY DEPARTMENT, OFFICE OF THE SECRETARY, To Collectors of Internal Revenue : Hereafter, in recommending persons for appointment to the office of storekeeper, ganger, storekeeper and gauger, or inspector of tobacco, snuff, and cigars, collectors of internal revenue will require each person recommended to make an application in writing, addressed to the Secretary of the Treasury, stating his age, legal residence, place of nativity, service in the Army or Navy, if any, names of relatives, if any, in the government service, and in what capacity employed; experience in the duties of the office for which he applies; business in which engaged at date of application, and interest which he proposes to retain therein should he be appointed. The application must be accompanied by testimonials as to character for sobriety, industry, and business habits of the applicant, and will be inclosed in a letter addressed by the collector of the district to the Secretary of the Treasury, and forwarded to the Commissioner of Internal Revenue, stating the necessity for the appointment, and his personal knowledge as to the fitness of the applicant for the position. If the appointment will involve the dismissal of any person in the service, that fact should be stated by the collector, as well as the reasons why, in his opinion, the dismissal should be made. Correspondence relative to the removals and resignations of incumbents should be addressed to the Secretary of the Treasury through the Commissioner of Internal Revenue. |