Message to the House of Representatives Returning Without Approval an Act Reducing the Duties on Cotton Manufactures, Chemicals, Oils, Paints and Metals

To the House of Representatives:

I return, without my approval, H.R. 12812, entitled "An act to reduce the duties on manufactures of cotton."

Though its title mentions only manufactures of cotton, the bill in fact changes also all the duties imposed under Schedule A of the Payne Act upon chemicals, oils, and paints, and under Schedule C upon metals and manufactures of metals.

My objection to the cotton schedule is that it was adopted without any investigation or information of a satisfactory character as to the effect which it will have upon an industry of this country in which the capital invested amounted in 1909 to $821,000,000; the value of the product to $629,000,000; the number of wage earners to 379,000, making, with dependents, a total of at least 1,200,000 persons affected; and the wages paid annually amounted to $146,000,000. The bill would not go into effect by its terms until January 1 next, and before that time a full report to be submitted to Congress by the Tariff Board, based upon the most thorough investigation, will show the comparative cost of all the elements of production in the manufacture of cotton in this and other countries. The investigation by the Committee on Ways and Means of the House did not cover the facts showing this comparative cost, for the reason that the committee was preparing a bill on a tariff for revenue basis and their view of a proper tariff was avowedly at variance with the theory of protection. Pledged to support a policy of moderate protection, I can not approve a measure which violates its principle.

Coming now to the amendments to Schedules A and C, I have examined the records of Congress for the purpose of informing myself as to the facts and arguments which in the opinion of Congress make these changes in the law expedient. I find that there was practically no consideration of either schedule by any committee of either House. There was no report of any committee explaining or stating the basis of the proposed amendments. There were no facts presented to either House in which I can find material upon which to form any judgment as to the effect of the amendments either upon American industries or upon the revenues of the Government. The revisions of Schedules A and C were contained in amendments offered upon the floor of the Senate, were never referred to any committee, and were disposed of without any attempt to adjust the details or to furnish the basis of fact for adjusting the details of the different paragraphs to the great number or variety of industries to be affected, with a view to any degree of protection whatever, however moderate. I can not make myself a party to dealing with the industries of the country in this way.

The industries covered by metals and the manufacture of metals are the largest in the country, and it would seem not only wise but absolutely essential to acquire accurate information as to the effect of changes which may vitally affect these industries before enacting them into law.

The haste in the preparation of the bill is apparent in many of its pages. Section 3 of the bill reads as follows:

SEC. 3. That on and after the day when this act shall go into effect all goods, wares, and merchandise previously imported and hereinbefore enumerated, described, and provided for, for which no entry has been made, and all such goods, wares, and merchandise previously entered without payment of duty and under bond for warehousing, transportation, or any other purpose, for which no permit of delivery to the importer or his agent has been issued, shall be subjected to no other duty upon the entry or withdrawal thereof than the duty which would be imposed if such goods, wares, or merchandise were imported on or after that date: Provided, however, That if the duties above provided to be collected and paid shall, as to any article or articles, be greater than that provided to be paid by the present existing law, less thirty per centum, then in every such case the duty or duties which are hereby levied and which shall .be collected and paid on said article or articles shall be a sum equal to the duties provided to be levied, collected, and paid by the present existing law less thirty per centum and not greater.

The first part of section 3, without the proviso, was original section 2 of the bill when it affected only the cotton schedule. It is now placed in the bill after the amendments to the chemical schedule. The proviso was added in the Senate. The proviso was doubtless intended to make certain that the duties in the preceding cotton and chemical schedules were all to be 30 per cent less than the rates fixed in the present law. But this can not be. The proviso is so placed in section 3 that it has no operation except upon the rates to be charged on articles described in the first half of section 3—that is, on the goods already entered or in bond or transportation and which have not paid duty. This would give, over all chemicals now in bond not taken out before the law goes into effect, the benefit of a greater reduction by 5 per cent than would be afforded to chemicals imported after the passage of the act. The result is an inevitable construction and in its manifest error is not out of keeping with some of the other features of the bill to which I am now about to refer.

Even if the proviso effects the purpose evidently intended by the authors of limiting the rates of the whole cotton and chemical schedules, it is legislation of the crudest character, for two reasons: It imposes on customs officers in every entry under those schedules the burden of transmuting the specific rates of the Payne Act to ad valorem rates under the proposed bill, a process which is most difficult and liable to error; secondly, it imposes a duty of 5 per cent less than the duty intended in the whole of the preceding chemical schedule, and furnishes a unique instance in tariff legislation of imposing two different rates of duties on the same articles in succeeding paragraphs of the same bill.

The empirical and haphazard character of this bill is shown more clearly perhaps in the amendment to Schedule A than in any other. The only explanation of it was made when introduced as an amendment. It was then said to be a horizontal reduction of the existing chemical schedule by one-fourth or 25 per cent of the present duties. It was said that the specific duties in the existing law had been transmuted into their equivalent ad valorem and that the result had been reduced by 25 per cent. The method used in reaching this equivalent was quite inaccurate, as is shown by actual inquiry as to the real market price of each article. An examination made by an expert chemist of the Tariff Board into certain paragraphs of the schedule and verified by customs experts of the Treasury Department shows discrepancies in the alleged 25 per cent reduction of rates and gives ground for believing that if time permitted, a close and careful analysis of all the paragraphs would show many others. Instead of a horizontal reduction of 25 per cent this examination shows that the reductions made by the amendment in some paragraphs are much greater than 25 per cent and that in others the change is a substantial increase instead of a reduction of the present duties.

Thus boracic acid is dutiable under the present law at 3 cents per pound. The amendment imposes a duty of 60 per cent ad valorem. At the foreign price of 6 to 6 1/2 cents per pound the amended rate would be from 3.6 to 3.9 cents per pound, or an actual increase in the duty under the present law of from 20 to 30 per cent. Tartaric acid under the amendment has a duty of 4 per cent higher than that of existing law. Alum under the amendment has a rate of 10 per cent higher than existing law. Bleaching powder has a rate under the amendment that is 30 per cent higher than the existing rate. Zinc oxide has an increase of rate in the amendment of 95 per cent over that of existing law. On the other hand, we find in other cases a greater reduction than the proposed 25 per cent. Thus borax is given a rate in the amendment which is a reduction of 80 per cent below the existing rate, while commercial chloroform in the amendment has a reduction of 90 per cent from the present rate. Hydrate, or caustic soda, is given a rate in the amendment which is a 50 per cent reduction from the present rate. A curious result appears in the rate fixed for alumina hydrate containing less than 64 per cent of alumina, and the same containing more of alumina. The latter is a finished product as compared with the former, but the latter in the amendment is given a duty of only 5 per cent, while the raw and unfinished product has a rate of 15 per cent ad valorem.

These are some of the typical inconsistencies and instances of haste in preparation and of the error of calculation in the proposed sweeping horizontal reduction of a most important schedule in the tariff. The 85 paragraphs of Schedule A do not refer to the various manufactured forms of one or more materials. Each paragraph relates to a different subject, the duty on which, both with reference to its revenue-producing capacity and with reference to its protecting effect upon an industry of this country, ought to be determined by separate examination, and the taking of careful evidence of experts, because the subject is peculiarly one for experts. The figures I have given show that the method pursued in making what was thought to be a reduction of 25 per cent would, if it became the law, produce the greatest confusion in respect to the whole chemical schedule.

But the most remarkable feature of this amendment to the chemical schedule remains to be stated. The internal revenues of this country to the extent of $160,000,000 are dependent on the imposition of a tax of $1.20 a gallon on distilled spirits at 100 degrees proof, which is a liquid consisting of 50 per cent absolute alcohol and 50 per cent water. The intrinsic cost of spirits of this proof varies from 10 to 20 cents a gallon, so that the enormous tax as compared with the intrinsic value of the article furnishes a motive for fraud and evasion of the laws stronger than in the case of any commodity within the range of Federal taxation. It has therefore been necessary in all customs legislation to protect the internal-revenue system against the introduction from foreign countries of alcohol in any form and in association with any other article except upon the payment of such a customs duty as shall make it unprofitable to import the alcohol into this country to be used in competition with alcohol or distilled spirits of domestic manufacture. The customs duty on a proof gallon of alcohol is $2.25. The care and anxious concern with which Congress has heretofore guarded against the introduction of alcohol in any form without the payment of sufficient duty to prevent its interfering with our domestic production and the payment of the internal tax may be seen in at least ten paragraphs of the chemical schedule of the Payne law and previous enactments:

Thus, in paragraph 2 of the existing law it is provided that vegetable, animal, or mineral objects, immersed or placed in or saturated with alcohol shall have a duty of 60 cents per pound and 25 per centum ad valorem, and the same duty is imposed in that paragraph on alcoholic compounds not specially provided for. Sixty cents a pound is equivalent to 60 cents a pint of the alcohol or distilled spirits used at proof, and this is equivalent to $4.80 a gallon for alcohol, which of course prevents its importation for any purpose other than as specified in the paragraph.

Again, in paragraph 3, chemical compounds containing alcohol and chemical mixtures containing alcohol have a duty of 55 cents per pound, which would protect the domestic alcohol by a duty of $4.40 a gallon.

The same thing is true in paragraph 65, covering medicinal preparations containing alcohol, or any preparations in which alcohol is used. These have a duty of 55 cents per pound, which would impose a duty on the alcohol used of at least $4.40 a gallon.

Again, on perfumes, including cologne and other toilet waters containing alcohol or in the preparation of which alcohol is used, there is a duty of 60 cents per pound and 50 per cent ad valorem, by which the domestic alcohol used in American-made perfumes is protected by a tax of $4.80.

Under the present bill, all these precautions against the undue introduction of foreign alcohol in articles and compounds included in the chemical schedule are in fact abolished by striking out the specific duties per pound. Thus in paragraph 2, the specific duty per pound is stricken out and the whole rate is fixed at 50 per cent ad valorem. In paragraph 3, there is a similar change; in paragraph 65, the change is to 45 per cent ad valorem; and in paragraph 69, to 60 and 50 per cent ad valorem. With alcohol at a foreign cost of 20 cents a gallon, this would make the tax, so far as the alcohol is concerned in paragraph 2, 10 cents a gallon; in paragraph 3, 8 cents a gallon; in paragraph 65, 9 cents a gallon; and in paragraph 69, from 10 to 12 cents a gallon. That is, the alcohol thus introduced would pay under this chemical schedule from 8 to 12 cents a gallon duty instead of $1.20 a gallon as imposed by our internal-revenue system, or $2.25 a gallon as imposed by our customs laws upon the introduction of proof alcohol, or the higher rates as fixed in the existing chemical schedule. Alcohol is also used in the manufacture of collodion and fruit ethers, and under the existing law the invasion of our internal-revenue system is here also prevented by the imposition of high rates per pound as the equivalent of the internal-revenue tax. By this amendment the compensatory duties for the high domestic tax on alcohol in collodion and ether is abolished and if the bill passed, the domestic manufacturer would pay $1.40 a gallon for his alcohol while his importing competitor would pay but 30 cents.

I need hardly dwell on the disastrous effect such an amendment in reference to alcoholic compounds would have upon the internal-revenue system of taxing distilled spirits nor need I point out the opportunities of evasion and fraud thus presented. Of course the change was not intended, but if this bill became law, it would be made.

This bill thus illustrates and enforces the views which I have already expressed in vetoing the wool bill and the so-called free-list bill, as to the paramount importance of securing, through the investigation and reports of the Tariff Board, a definite and certain basis of ascertained fact for the consideration of tariff laws. When the reports of the Tariff Board upon these schedules are received, the duties which should be imposed can be determined upon justly, and with intelligent appreciation of the effect that they will have both upon industry and upon revenue. Very likely some of the changes in this bill will prove to be desirable and some to be undesirable. So far as they turn out to be just and reasonable I shall be glad to approve them, but at present the proposed legislation appears to be all a matter of guesswork. The important thing is to get our tariff legislation out of the slough of guesswork and logrolling and ex parte statements of interested persons, and to establish that legislation on the basis of tested and determined facts, to which shall be applied, fairly and openly, whatever tariff principle the people of the country choose to adopt.

WILLIAM H. TAFT.

The White House, August 22, 1911.