The budget for 1812 left a deficiency to be provided for of $1,200,000. This was a small matter. The revenue Mr. Gallatin proposed to increase, on the plan before recommended, by additions of fifty per cent, to the imposts on foreign commerce. This he preferred to any internal tax.
At the close of the year the country, chafed beyond endurance by the indignities put upon it and the sufferings it encountered without compensation to its pride, was eager for war. Congress was no way loath to try the dangerous path out of its labyrinth of blunders. The near contingency imposed the necessity of an immediate examination of the sources of revenue. In January, 1812, Mr. Gallatin was requested by the chairman of the Committee of Ways and Means to give his opinion as to the probable amount of receipts from duties on tonnage and merchandise in the event of war. This, in view of the vigorous restrictions laid by France under her continental system of exclusion, Mr. Gallatin estimated under existing rules as not to exceed $2,500,000. He then stated, without hesitation, that it was practicable and advisable to double the rate of duties, and to renew the old duty on salt. The sum acquired, with this addition, he anticipated, would amount to $5,400,000.
On the basis of annual loans of ten millions of dollars during the continuance of the war (the sum assumed by the committee), the deficiency for 1814 would amount, by Mr. Gallatin's estimate, to $4,200,000. To produce a net revenue equal to this deficiency he stated that the gross sum of taxes to be laid must be five millions of dollars. He then reverted to his report of December 10, 1808, in which he had stated that "no internal taxes, either direct or indirect, were contemplated, even in the case of hostilities carried on against the two great belligerent powers." The balance in the Treasury was then nearly fourteen millions of dollars, but in view of the daily decrease of the revenue he had recommended "that all the existing duties be doubled on importations subsequent to the first day of January, 1809." As the revenues of 1809, 1810, and 1811 had yielded $26,000,000, the sum on hand, with the increase thus recommended, would have reached $20,000,000, a sum greater than the net amount of the proposed internal taxes in four years.