Injuries unforeseen by the Government and unintended may in some cases have been inflicted on the subjects or citizens of foreign countries, both at sea and on land, by persons in the service of the United States.  As this Government expects redress from other powers when similar injuries are inflicted by persons in their service upon citizens of the United States, we must be prepared to do justice to foreigners.  If the existing judicial tribunals are inadequate to this purpose, a special court may be authorized, with power to hear and decide such claims of the character referred to as may have arisen under treaties and the public law.  Conventions for adjusting the claims by joint commission have been proposed to some governments, but no definitive answer to the proposition has yet been received from any.

In the course of the session I shall probably have occasion to request you to provide indemnification to claimants where decrees of restitution have been rendered and damages awarded by admiralty courts, and in other cases where this Government may be acknowledged to be liable in principle and where the amount of that liability has been ascertained by an informal arbitration.

The proper officers of the Treasury have deemed themselves required by the law of the United States upon the subject to demand a tax upon the incomes of foreign consuls in this country.  While such a demand may not in strictness be in derogation of public law, or perhaps of any existing treaty between the United States and a foreign country, the expediency of so far modifying the act as to exempt from tax the income of such consuls as are not citizens of the United States, derived from the emoluments of their office or from property not situated in the United States, is submitted to your serious consideration.  I make this suggestion upon the ground that a comity which ought to be reciprocated exempts our consuls in all other countries from taxation to the extent thus indicated.  The United States, I think, ought not to be exceptionally illiberal to international trade and commerce.

The operations of the Treasury during the last year have been successfully conducted.  The enactment by Congress of a national banking law has proved a valuable support of the public credit and the general legislation in relation to loans has fully answered the expectations of its favorers.  Some amendments may be required to perfect existing laws, but no change in their principles or general scope is believed to be needed.

Since these measures have been in operation all demands on the Treasury, including the pay of the Army and Navy, have been promptly met and fully satisfied.  No considerable body of troops, it is believed, were ever more amply provided and more liberally and punctually paid, and it may be added that by no people were the burdens incident to a great war ever more cheerfully borne.