deducible from such experience may be briefly summarized as follows:
Whenever a government imposes a tax on any product of industry so high as to sufficiently indemnify and reward an illicit or illegal production of the same, then such product will be illicitly or illegally manufactured; and when that point is reached, the losses and penalties consequent upon detection and conviction—no matter how great may be the one or how severe the other—will be counted in by the offenders as a part of the necessary expenses of their business; and the business, if forcibly suppressed in one locality, will inevitably be renewed and continued in some other. It is therefore a matter of the first importance for every government, in framing laws for the assessment and collection of taxes, to endeavor to determine, not only for fiscal but also for moral purposes, when the maximum revenue point in the case of each tax is reached, and to recognize that in going beyond that point the government "overreaches" or cheats itself.
Increase the duties (taxes) on imports beyond a certain point, and smuggling springs up as by magic, and the most cruel and unusual punishments utterly fail to prevent it. American ingenuity was never more fertile or manifested in a more remarkable manner than in the evasion during the years 1864-'68 of a tax, approximating fifteen hundred per centum, imposed by the Federal Government on the manufacture and sale of distilled spirits, resulting in a complete failure on the part of the Government, with almost unlimited military resources at command, to enforce the law, and a final abandonment and repeal of the tax. The comparatively recent tax imposed by the United States on oleomargarine, with a view of destroying its manufacture and preventing its use as an article of food, has been so far ineffectual that its production and consumption have been greater than they were before the law authorizing the tax was enacted.
More than a century ago Adam Smith pointed out that such taxes "tempt persons to violate the laws of their country, who are frequently incapable of violating those of natural justice, and who would have been in every respect excellent citizens had not those laws made that a crime which Nature never meant to be so."
Some other fallacies concerning the sphere and influence of
- Out of a consumption of at least fifty million proof gallons of distilled spirits of domestic production in the United States during the fiscal year 1867-'68, the Federal Government collected a tax upon less than seven million gallons, the sale of the difference at the current market rates of the year, less the average cost of production, returning to the credit of corruption a sum approximating sixty million dollars.