Federal Taxation of Lotteries

IN the State of Louisiana, the question whether a lottery company which for many years has been in existence, and has paid for its franchise certain sums of money, insignificant when compared with the evils it has inflicted or with the taxes it should have paid, shall now receive an extension of its corporate life on the condition of paying an annual bonus some thirty times as great, constitutes at the present time the chief subject of political interest in a very exciting canvass. Nor is the interest limited within state bounds: other States are in some respects even more deeply concerned, for they will share in the evils following a recharter, while not partaking in the bonus. To those who are to vote upon the question the bonus is expected to prove irresistible.

Lotteries are older than civilization, and the time has long gone by for any attempt to defend them on grounds of morality or public policy. In ancient times they were set up by despots, both as a means of revenue and to furnish their people with an exciting subject of thought, and thus draw attention away from despotic conduct on the part of public functionaries. Nearly all modern European governments have made use of them at times, but the attendant evils have been so serious that the protest against them has of late years been too strong and too general to be resisted. Lotteries prove most attractive to the poor and the ignorant, who consequently suffer most from their operations ; and as the certainty of profit requires that they be organized upon the principle of paying out to those who make investments in them a less sum in the aggregate than is taken in for the chances sold, the greater current of money is constantly flowing in the direction of the management. The prizes in the Louisiana lottery are but little more than one half what the tickets, if all sold, will bring in ; and if any are not sold, they share with the others in the chances. Nevertheless, there is always the possibility of considerable prizes being received in return for small payments, and every purchaser of a ticket makes his investment in the hope that he may be one of the persons to receive the principal prizes. The general result necessarily is, even when the management is strictly according to the scheme as it is placed before the people, and is conducted without chicanery or fraud, that the class who become habitually the purchasers of tickets must constantly grow poorer in consequence. But the evils are not limited to the fact that more is paid in than is returned to those who have paid it. It is demonstrated by long experience in every country that has tolerated lotteries that their operations are in many ways demoralizing; that the practice of investing in them leads to neglect of business and to general shiftlessness on the part of investors, and therefore tends to impoverish the whole community through diminishing the ordinary gains from labor. It may very safely be asserted that thousands of people are every year reduced to poverty through an uncontrollable habit of indulging in the purchase of lottery ventures ; that families are brought to want; and that murders, robberies, and suicides result to a number that, in the aggregate, is appalling. This has come so universally to be accepted as a truth, and the proofs are so overwhelming, that in nearly all enlightened countries lotteries are now forbidden by law. The moral sense of the world would be shocked if any leading European government should at the present time establish a lottery for the purposes of public revenue, as was not uncommon only a century ago. When the first French republic was set up, lotteries were looked upon by the leading republicans as devices of despotic invention, and a law of 1793 to abolish the lottery of France contained a stinging arraignment of those who established them. But republican virtue did not prove a complete security against their evils. The financial needs of the republic were soon to some extent being supplied by means of a state lottery, and the wheel of fortune rivaled the guillotine as a popular attraction, though greatly exceeding it in the number of victims. But lottery schemes were long ago forbidden there as well as in England. They were made use of in the American colonies and in the early days of our republic, but their evils were so obvious, and they were so lacking in redeeming features, that a majority of the States have, by their constitutions, in direct and most sweeping terms, prohibited them altogether. As matter of general law, it is believed that, within the United States, even where the sale of lottery tickets is not made a criminal offense, it is at least an act not sanctioned ; and lottery managers could not support against each other an action for an accounting in respect to their demoralizing gains any more than could thimble-riggers or associated prostitutes. But so long as a single State permits the setting up of a public lottery it is to little effect that lotteries are prohibited in other States, since the tickets issued in one will be sold in all, notwithstanding any diligence that the public authorities may employ for the purpose of prevention. As lotteries are essentially gambling, and the men who are their managers will necessarily be wanting in the moral sense, or at least in any proper regard for the well-being of their fellows, from whose misery and despair they profit, their operations are always, and very justly, open to suspicion ; and the Louisiana lottery has done what it could to guard against loss of profits from this fact by securing as persons to manage its public drawings the services of two noted Confederate generals, whose war record we are to accept as guarantee of their vigilance and integrity, when hired with princely salaries to keep those who pay them from going, in their plunderings, beyond what is nominated in the bond. The example of the company is commended to the bandits who hold up trains on the Western prairies, and who might, perhaps, make the operation less disagreeable to the traveling public if they should give out a solemn promise that, in the case of every raid, they would take the life of no person whose money they appropriated, and that they would have always with them two warriors of renown, who would be paid liberally to see that the promise was honorably kept. But the managers must be greedy beyond all ordinary criminals if they resort to fraud when, under their licensed schemes, millions may be drawn monthly, and with the protection of law, as clear profits from the classes plundered. It would be discreditable to the country if the proposition to grant the extension of chartered life had failed to excite intense indignation everywhere, especially as the company’s millions in profits are for the most part drawn from the pockets of those whose earnings are not above the needs of comfortable living for themselves and their families, and who, when the passion for this species of gambling has once seized upon them, have commonly given themselves over to poverty and ruin.

Lotteries, if they exist at all in this country, must do so under state laws. The legislation to make them illegal should also come from the States, for Congress, by the federal Constitution, has, in terms, been given no jurisdiction to act upon the subject. But Congress gives and limits the postal facilities at pleasure, and it has recently set the seal of its condemnation upon lotteries by declaring it a criminal act to make use of the privileges afforded by the postoffice department for the purposes of their operations. This, it was hoped, would at least limit their profits within very narrow bounds, but the result has not answered expectation. Official vigilance cannot be carried far enough to be efficient without resort to the opening of mails, and this must lead to mistakes and abuses which the public would not be likely to endure without such protest as must in time be heeded. It would seem, therefore, that if the federal power is to be exercised to much avail against this iniquity, it must be by the employment of some more effective measure.

Why should not Congress, under the power to tax, devise this more effective measure ? The power is given by the Constitution in ample terms, and what the tax should be, or what should be selected as the subjects whereby to measure the burden, would, as in other cases, rest in discretion. It might be laid upon the institution itself, upon its corporate offices, upon its agencies, upon the tickets sold, — in short, upon all the means by which the business is carried on ; and it might make such exactions from the management as would at least be equal to any profits that could possibly be expected to follow from the conduct of the business. Such taxation would of course contemplate no revenue to the government. It would be imposed for the express purpose of destroying altogether the institutions which, by any unfriendly action of Congress, taken with the express intent of destruction and shaped professedly to that end, it would be powerless to reach. It would, in other words, be making practical application by the federal government of the legal aphorism that “ a power to tax is a power to destroy.”

It is here that the chief question of contention will arise. Lotteries could not be directly reached by the general government by such hostile measures as might be employed by the State under whose authority they had been set up, with a purpose of rendering their operations illegal. Congress, for example, could not take from a lottery company the charter which a state legislature had granted ; it could not make the issue of its tickets illegal; it could not punish as a crime the action of its officers by which its ordinary business is carried on. Federal power, if exercised against it, must be altogether indirect, and the act by which the injury is inflicted upon it will seem to profess one thing while intending another. It will not be denied that, under a constitutional government, there are serious objections to the powers conferred upon it being exercised in an indirect way, which keeps the actual purpose out of view. What it has been empowered to do should be done directly; and what it has not been empowered to do, or what it cannot do directly, it ought not, in general, to do at all. That which is plainly within the jurisdiction of a member of the federal Union ought not to be drawn into the jurisdiction of the Union itself by any indirect means. The indirect method, though employed in such a manner as to be, when considered by itself, a benefit to the people, will constitute a precedent which may possibly be troublesome hereafter; and any citizen, though not disposed to be overstrict in the construction of sovereign grants, may well be excused if he finds it difficult to give ready assent to an indirect measure which may appear to him to embody within itself the possibilities of unknown future mischief.

But the persons whose pecuniary interests will be affected unfavorably by the measure must be expected to make objections that will go both to the principle of such a law and to its constitutional validity. The power to tax, they will very stoutly contend, is one which has been conferred upon the general government for the sole purpose of supplying it with the necessary revenue for the conduct of its affairs ; to enable it to defend itself as against the assaults of others, and to give to the people of the States constituting its members the benefits of organized civil society. It is of the nature of taxation that the levies made upon the people shall be apportioned on some principle of equality, so that all shall share the burdens of government upon some equitable plan ; and when this is not done, the demands of government, although they may be called a tax, will be nothing less than arbitrary exactions. The only solid basis for levying a tax is to be found in the need for the moneys it is expected to produce; and as between the subjects of taxation, the justification for each particular demand must be looked for in the apportionment that attests its justice. If property is otherwise taken by the government, whatever be the excuse, pecuniary return must be made for it by value. This is a principle as old at least as constitutional government, and is so important that it is incorporated in the fundamental law of every State in the Union. Nor is this all the objection that, on constitutional grounds, may be made to such a law. Taxation implies that the government imposing it is to give protection for that in respect to which the burden is imposed; wherefore, when a levy is made for the purpose of destruction, it is subject to the double objection that it is not a demand of the government made for revenue, so that the proper underlying principle of taxation is absolutely wanting; and that it does not contemplate protection to the subject taxed, so that the reciprocity which is implied in taxation, and which must support the demand the government makes, is also altogether wanting. Such an act is indeed falsely named, since, while it is called a tax law, it does not contemplate the results which a tax law must necessarily have in view in its enactment, and which, under any government, and especially one which embodies in distinct, and formal terms the principles of constitutional liberty, must constitute the sole excuse and furnish the sole authority for enacting it. Such may be the objections of the lottery managers.

Some persons who recognize the evils of lotteries, and would gladly see them brought to an end by the direct application of governmental power, are not unlikely, also, to be heard making opposition to legislation of this nature. Admitting, as they very likely may, the principle of consideration which the lottery managers will insist upon, — the principle that taxation implies an obligation to protect the thing taxed, — they may object that the taxation of an immoral business will in some sense, at least, appear to give it countenance ; and in the demand from it of moneys that will come from its profits, the transaction will assume the form of a participation by the government in the immorality. How else can it be, we shall be asked, when the levy made by the government will be one that must be paid, if paid at all, from the proceeds of injurious and demoralizing gains drawn from the victims of an immoral business ? That the government does not propose to perform the correlative duty to protect which is implied in taxing can scarcely make its act the less immoral.

It must in fairness be admitted that these objections have a degree of plausibility ; as well those made by the parties concerned as those raised by parties who object to any seeming toleration by the government of a business so detestable in its nature and so injurious in its consequences. It is but just that the objections be fairly met. Apparently, the two classes of persons occupying such different standpoints agree in regarding revenue as the sole motive in legitimate taxation ; so that if the object in view is something ulterior, or there is even a secondary consideration which it is probable had influence in securing its passage, the law, though called a tax law, must be indefensible and inoperative. Is this a correct view ? Is it one that finds countenance in the practice of our government, or indeed in that of any other ? If the practice of governments is to be the guide, it will require but slight consideration of revenue laws to make it evident that, so far from the objection being supported thereby, the contrary view is plainly deducible. No law for the collection of revenue looks to expected revenue exclusively. The law-maker enacting it must at least look far enough beyond the general purpose to satisfy himself how any proposed levy is likely to affect the general good : he must not aim to make his law as productive as possible, but rather to make the demand upon the people as little burdensome as may be, and at the same time, as far as possible, incidentally beneficial. He must at the very outset select the subjects for taxation, for to tax everything is so entirely impracticable that the attempt would be useless ; and even to the extent he does tax, he is not, as to the several subjects, limited to the same methods, or even to the same principle. The burden is not, as to everything placed upon the tax roll, made proportionate, unless the legislator decides that it is proper and just that it should be. Property is therefore taxed without taxing anything else ; or property is taxed and business taxed, also, as business; or persons are taxed as such, while other subjects of taxation are omitted ; or property, business, and persons are sometimes all taxed together, and each upon different principles. Rules of apportionment and equality must, indeed, be recognized, but what these shall be must, within reasonable limits, be determined by legislation; and, when prescribed, they can scarcely go beyond making provision for the tax being properly apportioned according to the general rules which the legislature has laid down, and among the subjects upon which the burden is to fall. Even when property is taxed, exemptions are made from the general classes designated ; and if persons are taxed, whole classes may be exempted, either because of inability to pay, or because their occupations are of such a nature and so concern the public that it may be proper to exempt them, and sometimes for still other reasons looking to the general good. The indirect benefits which it is hoped will result from taxation are taken into account in both national and state legislation ; and it is not uncommon that in the law itself and the circumstances of its passage we can plainly see that these benefits are considered more important than the revenue which the government expects to realize. In many of the laws whereby impost and excise duties are laid by the general government this fact is made very prominent. The several levies are not intended to secure the greatest possible revenue by the equal apportionment of taxation among the objects which might properly be, or which are, in fact, made to bear the burden, but the duties laid are designedly made protective and specially beneficial to some classes of property and to some kinds of business, and this in different degrees, while only burdensome to others ; so that while one article of merchandise will, perhaps, be altogether exempted from duty, another will pay a duty merely nominal, and still another may be taxed to its full value, if it should be thought that the general good of the country will best be promoted by dealing thus diversely with different subjects. Precisely the same difference, determined on precisely the same reasons, will be found in the case of excise duties. One business will be charged a light tax, because benefits are expected to result directly from it; and another will be charged a heavy tax, because, though tolerated, the business is expected to be to some extent, at least, injurious, or, if not injurious, to be peculiarly burdensome to the government in the matter of regulation and protection. Indeed, in some cases where impost duties are laid, revenue is no part whatever of the motive for imposing a particular duty, but it is made so high that it is expected to preclude all importation, and therefore produce no revenue. A person objecting to the duty may complain that it violates the true principles of government, but he would hardly venture to attack it as being so distinctly beyond the constitutional power of Congress that in the courts it might be assailed as wanting in legal validity. He may question its policy, but he cannot well question its constitutionality. The duty imposed assumes the form of a tax, and the motives which lie behind it rest in the breasts of those who enacted the law. The motives of those who make our laws, if the laws themselves appear upon their face to be within the constitutional power of the law-making body, are not to be inquired into by dissatisfied parties in the courts, but must conclusively be presumed to have been constitutional and to have had regard to the general good of the people.

If we look into the matter of consideration for the payment of taxes as something involved in the question of constitutional validity, we shall discover, whether we look to the practice of constitutional governments or to the principles upon which that practice has been established, that, whatever may be said to be the consideration as between the State and its people as an organized society, there is not, and in the nature of things cannot be, an implied promise on the part of the State that, in return for any particular tax, any article of property or any business which has been made the subject of the taxation shall receive the protection of the State; or, on the other hand, that the protection the State shall in any case assume to give shall rest upon the fact that a tax is levied upon such article of property or business, or upon persons concerned. If there were any such necessary reciprocity, there would be much property and business, and also many persons, entitled to claim no protection whatever. But nobody questions that the church building upon which no tax is levied is just as much to be protected as is the structure which is used for a dwelling or for a store ; and the tramps who have nothing to pay may claim the protection of the State as much as those who are taxed upon their millions. So also the business that is not taxed at all can no more be plundered with impunity than that which is taxed the heaviest. On the part of the State, the implied promise goes no further in any case than to give to the people the benefits of protection under general laws ; but what the general laws shall be, what shall be protected and how far that protection shall extend, must be determined by the proper legislative power, and will not at all depend upon what taxes shall be paid, unless by the law itself payment of the tax is made the consideration for such protection as is to be given.

But the question of consideration, if accepted as an element in taxation, has a side to it altogether distinct from any assurance of protection whatever. In the determination what taxes shall be laid, and what shall be the apportionment as between the subjects of taxation when business is taxed, the question of the mischiefs likely to be a consequence of the business, the cost to the State for its regulation, for the redress of evils and the punishment of crimes which may naturally be expected to result, are as properly to be considered as is any promise of protection which the State may be supposed directly or by implication to give. The analogy of the law of contracts may here be adduced: contracts must have a consideration, but an evil suffered or feared may be as sufficient in the law as the receipt of money or property. But indeed no such analogy need be cited, for the justice of making taxes bear some proportion to the attention that the business taxed may demand from the government is obvious on the mere statement.

Notice is here invited to a couple of cases which may be of interest in connection with this point. The State of Michigan, in its constitution adopted in 1850, prohibited the legislature, in the most express and positive terms, from granting any license for the sale of intoxicating liquors. The provision was inserted in the constitution from a sense of the great mischiefs to the people of the State that were constantly springing from this business, and it was expected that a positive declaration of the will of the people which went so far as to take from the legislature the power to pass any law that should, in the customary way, recognize its lawful existence would bring it absolutely to an end. They therefore undertook to make sure that even should a majority at any time be so far emboldened by an apparent change of popular feeling as to be willing to give permission, under any conceivable circumstances or restraints, for the setting up of the business, either generally or in any particular locality, the power for doing so should be wanting. The experiment of prohibition in this form did not, however, meet the expectations of its authors. Many places were in a little while opened for the sale of liquors, and it was found that, especially in the larger towns of the State, the public authorities, either for the want of will or for the want of the necessary popular support, failed altogether to suppress them. The prohibition, instead of putting an end to the business, seemed rather to increase it. There were, perhaps, more places open for the sale of the mischievous drinks than would have existed under a license law. The business, indeed, appeared to be a privileged one, since those who carried it on required no permission from the public authorities, were subject to no supervision in respect to character, and paid no taxes upon it as a distinct business, whether other kinds of business were or were not taxed. Persons disposed to deal in intoxicating drinks seemed, therefore, to be invited to come from other States into Michigan for the purpose, instead of being driven from it, as it was expected they would be by the prohibition. What should be done, under the circumstances, to check the resulting evils was a question that the people and the legislature found to be of the most serious nature. The final outcome of their deliberations was that, despairing of otherwise putting an end to the prohibited business or of checking effectively the resulting evils, the legislature summoned to its aid the taxing power, and laid upon the traffic which flourished in spite of the constitution a burdensome tax. The law, upon its face, was purely one for revenue, and the purpose was, undoubtedly, to a certain extent, the collection of revenue, because it was expected that many persons would pay the tax ; but in part, also, the purpose was destruction, for it was hoped and believed that numbers would be unable to pay and still continue a prosperous traffic, and therefore would abandon the business altogether. The tax was made as heavy as it was thought public opinion would sustain the officers in enforcing, and doubtless would have been made heavier still if the total destruction of the business could have been accomplished by that means ; but partial destruction was believed to be better than to leave the business as it then was, — a business above the law, and which those engaged in it were carrying on in spite of the State, while at the same time bearing no portion of the burdens of the State which before the prohibition it had been customary to impose.

The payment of this tax was resisted ; the parties taxed insisting that the State had no power to levy a burden in this form upon that which it did not propose to protect; that the consideration for taxation was necessarily absent in such a case ; and that, if destruction was the object, the law was only the more plainly unwarranted, since taxation is for the purposes of revenue, and the business, so far as it was destroyed, would of course pay no revenue to the State under the law. There was an entire want, therefore, of the reciprocity upon which taxation is supposed to rest. The arguments were plausible, but, though they might seem in theory unanswerable, were not held to be well grounded in legal principles. Protection of the subject taxed, it was decided, was not a necessary consideration for imposing the taxation. Revenue was called for that regular government might be maintained, and the people receive the benefits of organized society. But the State must select, by the judgment of its law-makers, the subjects in respect to which those who were to receive these benefits should be taxed. It did not by any means follow that the State must give protection to all such subjects. The general benefits to society at large and to individual citizens might be greater in the aggregate if as to some of them it should refuse the protection altogether. A business which was condemned by the State because it was found to be productive of many and very serious evils to society, and from which the good of society required the State for that reason to withhold all protection, was just as much a subject of taxation as any other. Indeed, if persons persisted in carrying on the business in defiance of the positive prohibition, then, instead of their being entitled to be placed, in the matter of taxation, on the footing of privilege with hospitals and other institutions of charity, and given exemption, it would be much more reasonable and more in consonance with the true principles of government and the general purposes of the law, which must have in view at all times the general good, to tax the business according to its demerits, making the burden upon it higher than was imposed upon other kinds of business, because, from its demoralizing nature, and the hostile attitude it assumed towards the law and the State, it necessarily added more largely to the burdens of government, and demanded more constantly the attention of all branches of the public authority. This, though not in words, was in substance the answer of the court of final resort to the demand made by those engaged in the mischievous traffic that their business should be exempted from taxation ; and it fully met the claim that the consideration for taxation has relation exclusively to protection to be given, or that there is implied in the levy any protection whatever to the object upon which the tax is imposed, or by which the burden the citizen must pay in taxes is to be measured. The legislature had been given the general power to tax ; it had exercised the power upon subjects within its jurisdiction, and the courts could listen to no discussion of legislative motives unless constitutional limitations appeared to have been disregarded, which was not the case here.

The objection that the State, in passing a law to tax an immorality, becomes a participant in it must be one of ethics rather than of law. It must rest, it would seem, either upon the ground that the taxation, of itself, is an encouragement to those who are responsible for the immorality, and in some way assists them in carrying it on or strengthens them in it, or else that the money which is taken from the participators has been polluted by their touch, so that it should be spurned rather than accepted from them. The first ground has certainly no plausibility. None of us feel, when the tax gatherer comes, that to be taxed is a favor, or that, as to the money exacted, we as individuals are the better off for its having been taken from us. We know the tax is a burden ; as such it was recognized by every person upon whom, in this case, it was imposed, whether he paid it and continued the business, or, being unable to pay it, went out of the business.

The other ground, namely, that the money becomes polluted by the business in which it has been employed, seems to require slight notice. It has the same plausibility, and no more, that a claim would have that money in the form of a fine should not be taken from a convicted offender, because it is probably a part of his gains from the plunder of the public, or from something else which, being obnoxious to good morals, has on that ground been prohibited by law. The government does well and favors good morals when, in dealing with evils it cannot otherwise prevent, it takes from those who are responsible for them, by way of punishment, their consequent gains, and applies them, as it is presumed to do in all cases, to beneficial purposes. That the government becomes a partner in the immorality, in such cases, is not the view that would be taken of its course by the parties compelled to pay ; they would be much more likely to regard as their friends those who would be diligent in discovering scruples to be interposed for the protection and continuance of their monstrous iniquities than those who would employ legal machinery to the utmost extent that should be found possible to make them pay what, on every ground of equity, can be shown to be no more than their just share of the expense of government.

But another instance in which legislation in the form of taxation was adopted, in the hope, and indeed in the expectation, that it would prove too heavy to be borne, is still more striking and noticeable. This is the case of the taxation of the currency of state banks by the federal government at the beginning of the civil war, for the avowed purpose of making the further issue or circulation of that currency practically impossible. It will be borne in mind that, previous to the great civil war, the currency of the country had been, for the most part, supplied by banks which the several States had authorized for that purpose ; but they had supplied it in such a manner that the resulting evils which had been brought not merely upon the people of the States in which any particular banks were located, but upon the people of the whole country, had been innumerable, and it may almost be said immeasurable. The foundation upon which these banks had severally been established, however good it may have seemed in theory to those who had authorized them, had proved in almost every case altogether unsafe and inadequate, and in some cases the banking systems of the States were found to have no solid foundation whatever. This was true in the case of some States who supposed, when their banks were chartered, that they had made their bills so absolutely secure by the fund which had been provided for the purpose that it was practically impossible loss should occur to bill-holders. Especially was this true in some cases where the requirement had been of real-estate security. Mere description cannot make people who have come upon the stage of action too late to have been sharers in the consequent losses fully appreciate and understand them : they were met at every turn, and made their presence felt in all business transactions that rose above simple barter. When the civil war began, the government was for a time compelled to make use of a currency the very best of which was at some discount in parts of the country distant from the place of issue, and some of which, though the people at places of issue were compelled to a greater or less extent to make use of it, was with difficulty used at all in other sections, even though a large discount was submitted to, when it was offered in circulation. The real value of all this currency was uncertain, and the nominal value depended upon the fluctuating confidence which the people might have in it, and which might be greatly different one day from what it was the very next. When war operations were begun, which must necessarily assume enormous proportions, a sound and stable currency was an absolute necessity. Unless the rebellion was to succeed, means must be provided for making payments in every section in a currency that would be equally good in every other section. The Confederacy was in some particulars in a better position than the constitutional government: it was a belligerent on the defensive, whose operations would be likely not to cover so extensive a field ; and, moreover, it would be assisted by the leeling among its people that a revolutionary currency must necessarily for a time exist, to which final success would give the proper value.

Mr. Chase, the Secretary of the Treasury, in his first annual report, called attention to the fact that the existing currency was supplied by the States. He expressed a doubt whether it had been within the competency of the States to authorize the issue of the bank-bills which flooded the country ; whether, as we understand him, the power to coin money and determine the value thereof did not confer upon the federal government the authority over the whole subject of supplying the people with that which was to answer the purposes of money, both when it was money in fact, and when it was something else which was to be received in the general business of the country in place of money as a common substitute. Not, however, stopping to ask Congress to accept this as a true rule of constitutional law, and to endeavor to enforce it as such, — which might require a process not easily to be worked out even in theory, — but fully impressed that the financial needs of the country, in the struggle that was begun, could not be adequately supplied by the state banks nor otherwise without first getting rid of their issues, he boldly ventured the proposal that they should be taxed by the federal government to an extent that in a little time would render the circulation of the bills of those banks altogether impossible. In other words, he proposed to have them taxed for the express purpose of destruction. Congress, under the pressure of the great public need of the hour, and perhaps fully accepting the views of the secretary, but in any event disposed to defer to his judgment as the officer who must be responsible for supplying financial recourses, proceeded to impose the tax. This was not done without proper regard to the interests of those who were concerned in the banks, and who, it might be assumed, had invested in them in good faith and in the expectation of supplying a reliable currency ; for provision was made under which, when they were taxed out of existence, they might, so far as they were sound and trustworthy and were possessed of the proper capital, reorganize as national banks under legislation which was carefully framed for the purpose, and which was designed to give the public such complete security that the issues of currency that might take place under it would not merely be good where issued, but in every other part of the country as well. The result we all know. The rebellion, which, without this or some similar legislation, would not unlikely have been successful, and which, even after the country had been made secure in respect to its financial needs, had sufficient power to tax the energies of the people far beyond what was at first anticipated, at length was effectually put down. Not only was this the case, but a sound and stable currency was supplied, which there seems no occasion to doubt will continue sound and stable so long as it remains in existence. But it is obvious that in thus providing for a safe and sound national currency by first taxing beyond endurance an existing currency which did not answer the needs of the government, and was a constant source of loss to the people, the consideration of special protection to those who were taxed as a return for the payment demanded from them was in the contemplation neither of the secretary nor of Congress. If the thought of consideration was in mind at all, it must have been the evils which state currency brought upon the people of the country, and the still greater evils with which the nation was then threatened by allowing its continuance, that were recognized as the basis of the taxation provided for, and because of which taxation was purposely made so burdensome that it was believed it could not be borne with profit, and therefore would not be borne at all. No thought of protection attended the demand for the tax as made upon the institutions which issued the currency; and to any extent that the government looked beyond them to the persons who might be interested in the issue, it considered them only as it did all others under the jurisdiction of the federal authority, as persons bound to respond not merely with their property, but even with their lives, should it be necessary, in order to preserve the country by which they were protected from being rent asunder as a consequence of the existing war, and to keep alive and effective the constitution of freedom under which that country was governed, and which had been the source to its people of innumerable benefits.

What shall be said to the contention that all this proves very clearly that what was done in this case with such good results, and for the purpose of accomplishing ends that were in the highest degree beneficial and useful, may be done in the very next case with mischievous purpose, and in order to strike out of existence something over which the federal government has no legitimate authority, and which is as valuable as state currency was mischievous ; in short, that nothing is safe if the issues of state banks, with the aid of which the States attempted to supply their people with a safe currency, can be thus, by indirection and without the consent of the States, destroyed ?

There are, without doubt, we may reply, some clear and very positive limitations to the use of the federal taxing power by laws which assume to be taxing laws, but which do not contemplate the actual collection of any revenue. It is not proposed to attempt an enumeration of these limitations in this place, but a few may be mentioned in order that it may be seen that they stand supported by sound reason, and that the line of separation between them and the cases in which this power has hitherto been applied is very clear and distinct, — so clear and distinct that the courts would not hesitate to enforce it. Congress, for example, could not employ the “ power to tax ” as a “ power to destroy ” a state office, or any lawful agency which the State has created as a part of its own constitutional system, from a belief on the part of its law-makers that it is necessary or useful, or may be so, in the performance of state functions. When a private corporation is created, and is to exercise its functions within the jurisdiction of the United States, it is to be regarded merely as an artificial person, having as such no greater rights or immunities than would be possessed by the parties who compose it, if the sovereign authority which could create the corporation had seen fit to empower the individuals to exercise the same functions without being incorporated. It is therefore subject to taxation, irrespective of the authority from which its corporate life has been derived. But municipal corporations are created as a convenient means for the exercise locally of some of the sovereign power of the State ; they are a part of the state government, and they can no more be annihilated by federal taxation than can the State itself be gotten rid of in that mode so as to constitute the central government, at the will of those who exercise it, a despotism. With the exception of cases resting on like or kindred reasons to those suggested, the protection as against the abuse of the federal power to tax must be looked for in the good sense of the representatives of the people, and in keeping alive the feeling that for all improper legislation they may be held to strict accountability by their constituents. If they employ the taxing power to accomplish by indirection some other object than that of supplying the government with revenue, the remedy for the abuse is precisely the same as when taxes are levied for expenditure in unwise or extravagant appropriations, or for the purposes of unnecessary wars, or to purchase foreign territory we do not want, or to kill some branch of foreign trade; or when, in levying taxes, unjust discrimination is made as between the objects upon which the burden is laid ; or when objects are taxed which sound policy would require should be excused from the burden altogether: and judging from the history of the past, we are justified in saying that the danger of abuse in the first case is very slight indeed, while in the others it is constantly imminent, and indeed continually occurring. We may also add that the rarity of any abuse is likely to attract special attention to it when it occurs, and thereby make correction more probable. If it shall be said that the impossibility of the business which is taxed making payment thereof from any income likely to be realized must of itself prove that the tax is not legitimate, it may well be replied that no business can of right claim the privilege to be a public burden; and if it shall be plain that the evils which must result from it to the people, and the expenses imposed upon the governments, national, state, and municipal, for purposes of regulation, and in the redress of grievances and the punishment of crimes traceable to its operations, will plainly exceed any imaginable benefits that can accrue to the public therefrom, then any taxation imposed upon it cannot possibly be excessive, or violate any established principle in government. It may be added that the taxation, if it is to be imposed, cannot be laid too soon ; it need not await the recharter of the Louisiana leviathan, or the expiration of the charter it now has. Nobody will be wronged, and many may be saved, by quick action, and the time to tax is NOW.

Since the above was written, the Federal Supreme Court has declared the Anti-Lottery Postal Law valid, and Mr. John A. Morris, who is understood to be the principal owner of the Louisiana lottery, has given public notice that he shall respect the law and take no more charters. He may keep his word, — some other men do that who also keep whatever else they can lay hands on; but as he might be tempted to do as the managers have done hitherto, — resort to devices and the use of the names of others to circumvent the law, — it will be very well to fortify any present lawabiding determination on the part of the managers by a law they cannot evade. Then they can pension the military chieftains who have so long been in their pay to guard them against being tempted into the low tricks and cheats of common gamblers and confidence operators, and retire upon their millions. A law that effectually takes their business by the throat they will bow to with great respect ; neither promises nor the “ honor ” of gamblers will restrain them from breaking or evading any other, when they believe money may be made thereby. The seared conscience is not troubled with scruples about law-breaking.

Thomas McIntyre Cooley.