Part 18

The owners of the Banshee made 700 per cent on their investment before the ship was captured on her ninth round trip between Nassau and Charleston.

The blockade runners, British and Confederate, supplied the armies of Gen. Robert E. Lee with desperately needed arms, clothing and food supplies in the early years of the war. For a time the blockade appeared impotent, while Southern privateers harassed the shipping of the North and captured much booty at sea.

While Lee was winning battles on the land, the Confederates could never gain mastery of the sea. The Union blockade could not be broken, and slowly the superior sea forces of the North strangled the commerce of the South, shutting off her armies from vital sources of supplies overseas.

Soon after the war began, it became evident to President Lincoln, to his Cabinet, and to members of Congress that the revenues collected by the Customs Service were not enough to finance the mounting costs of the massive conflict. The loss of tariff revenues in the Southern states, the South’s raids on the shipping of the North, and the breakdown of normal commerce had reduced Treasury receipts drastically. The President was forced to seek new sources of revenue.

In this emergency, the administration turned for the first time to an income tax. Congress passed a law imposing a tax of 3 per cent on incomes between $600 and $10,000, and a tax of 5 per cent on incomes above $10,000. Later, the taxes on those two income brackets were raised to 5 per cent and 10 per cent.

The income tax collected throughout the struggle--and until the law expired in 1872--helped carry the nation through its money crisis. Then the collection of duties by the Customs Service once more became the country’s primary source of revenue.

But during most of the war and for many years afterward, the venerable Customs Service’s cloak of respectability was at best a tattered and stained garment. It had become, particularly in New York City, the symbol of the political spoils system which had been encouraged by that partisan old fighter, Andrew Jackson.

The office of the Collector of Customs at the Port of New York had become a prize second only in political prestige and influence to a Cabinet appointment. The man receiving this office was in a position to dole out lucrative jobs to hundreds of the party faithful, to collect tribute for his party’s campaign chest, and to use his influence in shaping the affairs of his city, county and state. To a lesser degree, the same situation existed across the country.

Under such blatantly political management, it was hardly surprising that the Customs Service in New York should become the target of bitter charges of graft and corruption. The charges became so loud and persistent in 1863 that the administration ordered an investigation into the management of the New York Customs House.

A report from the Treasury’s solicitor said in part: “As to the accessibility of many of those employed in the Customhouse to corrupt influences, the evidence is conclusive and startling.... The statements herewith submitted seem to justify the belief that the entire body of subordinate officers, in and about the Customhouse, in one way or another, are in habitual receipt of emoluments from importers or their agents.... It is shown that a bond clerk, with a salary of $1,000 per annum, enters upon a term of eight years with nothing, and leaves it with a fortune of $30,000....”

Until Congress slammed the door on such practices in a reform move generated in the 1870s, Customs officers were legally permitted to receive half of any fines and forfeitures resulting from the seizure of imports which had been undervalued or underweighed by an importer, even though the methods of determining dutiable value were complicated and subject to dispute.

However, the law encouraged collectors, appraisers and inspectors to seek out discrepancies in values and weights and to give themselves the benefit of any doubt. In one case, the great Phelps, Dodge & Co., metal importers, was charged with an attempt to evade duties by undervaluing a shipment worth $1,750,000.

The company’s attorneys argued in vain that there had been no attempt to defraud the government; that if a mistake had been made it was an honest error, and that even with the benefit of a doubt, the most that the government could fairly claim in unpaid duties was $1,600.

With the entire shipment subject to forfeiture, the company finally agreed to settle for $271,017.23--50 per cent of which was divided among the Customs officers. Records of the time showed that one of the Customs officials who received an award of $56,120 was Chester A. Arthur, who later would become President of the United States.

Arthur was active for years in Republican politics in New York City, working his way up through the ranks until he became a member of the New York State Republican Executive Committee. He was rewarded for his labors in 1871 with an appointment as Collector of Customs in New York City.

Under Arthur, the Customs House became the center of such open and partisan political activity that it eventually led to conflict between Arthur and President Rutherford B. Hayes. Hayes championed a strong civil service with appointment of Federal employees on a basis of merit rather than political allegiance. The President asked Arthur to resign, and when he refused Hayes removed him from office in 1879.

But this Presidential rebuke by no means dimmed Arthur’s political star. Two years after his removal, he was elected Vice President of the United States, running with James A. Garfield. Garfield was fatally wounded by a disgruntled office-seeker, Charles J. Guiteau, only four months after his inauguration. He died on September 19, 1881, and Arthur took the oath as President. Ironically, once he was in the White House, Arthur became a supporter of a stronger civil service.

Reforms came slowly to the Customs Service in the years that followed the Civil War. But they came, spurred by the efforts of Hayes and then of President Grover Cleveland to establish a civil service and to break up a spoils system in which the “rascals” were thrown out of their jobs with every change in administration.

The demands for further Customs Service reforms were particularly loud in the early years of the twentieth century. One of these resulted in the formation in 1909 of the Customs Court of Appeals, to bring uniformity to the legal decisions governing the huge import trade and to speed up the hearing of Customs cases.

From the earliest days of the Republic, disputes over the appraising of imports had been carried to the U.S. Circuit Courts. The result was a continual conflict in judicial opinions which left importers and Customs officers confused. In 1908, the Secretary of the Treasury reported that the law had made “each of at least 120 judges a possible final judge of Customs appeals, a condition which experience has demonstrated will inevitably result in numerous irreconcilable conflicts of authority.”

In addition to the legal conflicts, the U.S. Circuit Courts had become jammed with Customs cases. It was not unusual for importers to have to wait almost five years to get a judicial settlement of their cases. But the creation of the Customs Court of Appeals by the 1909 Tariff Act removed most of the inequities and brought order out of the judicial chaos.

In this period, the reformers also centered their attention on the system which had permitted pork-barrel legislators to have their towns and cities designated as ports of entry with almost total disregard of the need for such services.

At Saco, Maine, the port’s receipts for fiscal 1910 amounted to $15, while expenses totalled $662--a cost of more than $41 to collect $1. At St. Mary’s, Georgia, the cost of collecting $1 in duties was more than $45. At Annapolis, Maryland, the government paid $309 to collect $3.09. And there were dozens of similar examples throughout the country. The major function of many ports of entry, it was evident, was to give jobs to the workers in the political vineyard.

Congressional investigators also found that the system of paying collectors, surveyors and other Customs officials was a fiscal nightmare--in which thirty-five different methods were used for compensating employees. For example, collectors along the Canadian border were permitted to charge ten cents for each entry blank they executed. Some of them were pocketing, legally, as much as $17,000 a year.

In 1912, Congress authorized the President to overhaul the Customs operation. The day before he stepped out of office, President William Howard Taft issued an executive order establishing 49 Customs districts to replace the existing 126 districts and 36 independent ports. Collectors were placed on a salary basis. Many of the political appointees were dropped from the government payroll.

It was during the early years in this century, too, that the Customs Service relinquished to the Internal Revenue Service its role as the prime collector of revenue in the Federal government.

This change was foreshadowed on December 19, 1907, when a tall, gangling Democratic Congressman from Tennessee arose from his seat in the House of Representatives in Washington, D. C., and called for the attention of Speaker Joe Cannon, the thin, wiry political leader who ruled the House with iron-fisted discipline.

“The gentleman from Tennessee is recognized,” the Speaker intoned dryly.