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CHAPTER I

DIRECT VS. INDIRECT TAXATION

Tariff Acts of 1789-Alexander Hamilton, Secretary of the Treasury, Advocates Protection in His "Report on Manufactures'-Internal Duties Are Laid on Spirits-Debate in the House on the Excise: in Favor, James Madison [Va.], Samuel Livermore [N. H.], Theodore Sedgwick [Mass.], William B. Giles [Va.]; Opposed, James Jackson [Ga.], Jonathan Parker [Va.], John Steele [N. C.], William L. Smith [S. C.]— Revenue Act of 1794-Debate in the House on Direct vs. Indirect Taxation: in Favor of Direct Taxation, John Smilie [Pa.], Mr. Madison, William Findley [Pa.], Samuel Smith [Md.], John Nicholas [Va.]; in Favor of Indirect Taxation, Uriah Tracy [Ct.], Mr. Sedgwick, Fisher Ames [Mass.], William L. Smith [S. C.]-Debate on the Land Tax: in Favor, Thomas Scott [Pa.], Mr. Sedgwick; Opposed, William Lyman [Mass.], Samuel Dexter [Mass.]; It Is Negatived.

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EFORE the Confederation the tariff had never been a leading American issue. But during the period in which this plan of union was in operation it was the tariff question, together with that of internal revenue, as we have seen in Vol. I, which brought to light the underlying weakness of the existing system of government, and subsequently led to the adoption of the Constitution.

The first tariff act was passed on July 4, 1789. By this act Congress laid specific duties on many articles, and ad valorem duties, varying from 72 to 15 per cent., on others. There was also a large free list, for the act was only a slight beginning of the protective system. The preamble to this act declared:

It is necessary for the support of the Government, for the discharge of the debts of the United States, and the encouragement and protection of manufacturers that duties be laid.

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On July 20, to provide additional revenue, an act laying a tonnage duty was passed. This act discriminated in favor of American shipping, higher duties being imposed on foreign than on American bottoms. This system of protection was defended and explained by the Secretary of the Treasury, Alexander Hamilton, in his "Report on Manufactures" (1791), in which he gave the arguments for protection which have been used and elaborated by various writers since his time.

In 1790, the customs receipts having proved inadequate for the purposes of the tariff acts, Hamilton outlined a system of internal revenue. Though this plan was not adopted until four years later, an act was passed in 1791 by which alcoholic beverages were subjected to a moderate tax. This act was extremely unpopular, and in 1794 caused an uprising in western Pennsylvania known as the "Whisky Insurrection."

In the debate on this measure in the House of Representatives the leading speakers in favor of excise were James Madison [Va.], Samuel Livermore [N. H.], Theodore Sedgwick [Mass.], and William B. Giles [Va.], while among the most important of those opposed to this system of taxation were James Jackson [Ga.], Jonathan Parker [Va.], John Steele [N. C.], and William L. Smith [S. C.].

DUTIES ON SPIRITS

HOUSE OF REPRESENTATIVES, JANUARY 5-25, 1791

MR. JACKSON said this mode of taxation was odious, unequal, unpopular, and oppressive, more particularly in the Southern States; in which he observed its unequal operation would be most sensibly felt, as the citizens of those States have no alternative to adopt by which they can diminish the weight of the tax-no breweries or orchards to furnish a substitute for spirituous liquors; hence they become a necessary article. He contended that they were not only necessary, but salutary in the Southern regions.

Mr. Jackson then gave a short sketch of the history of excises in England. He said they always had been considered by the people of that country as an odious tax from the time

of Oliver Cromwell to the present day; even Blackstone, a high prerogative lawyer, has reprobated them. He said he hoped this country would take warning by the experience of the people of Great Britain, and not sacrifice their liberties by wantonly contracting debts which would render it necessary to burden the people by such taxes as would swallow up their privileges. We are, said he, too much in the habit of imitating that country, and I plainly perceive that the time will come when a shirt shall not be washed without an excise.

MR. PARKER touched on the mode of collecting the tax. It will, he said, convulse the Government; it will let loose a swarm of harpies, who, under the denomination of revenue officers, will range through the country, prying into every man's house and affairs, and like a Macedonian phalanx bear down all before them.

MR. MADISON felt the force of the objections which had been urged against the bill. He was in general principled against excises, but, of all excises, that on ardent spirits he considered the least exceptionable. The question now to be determined, he conceived, was this: is an addition to the present amount of the revenue necessary? It had appeared that an addition is necessary; for his own part, he should prefer direct taxation to any excises whatever, but he conceived this would be contrary to the sentiments of the majority of the people of the United States, and he was fully convinced that it was contrary to the opinion of a great majority of the House.

MR. JACKSON doubted not other resources of revenue might be explored which would be more palatable; he instanced a tax on salaries, pensions, and lawyers, and in these particulars he wished that the example of Great Britain might be followed.

He then dilated on the practice of smuggling, which he contended would be promoted by this bill; also the difficulties and opposition which were justly to be expected, by which the dignity of the Government would be insulted. Can this Government, said he, protect its officers from the resentment of any one State in the Union? He reprobated the idea of placing the Government in such a situation.

MR. STEELE said such was the present state of the public mind in various parts of the Union that he should dread taking any measures which might serve to increase the fermentation which the people were in. An excise he considered of this nature; it would in its operation produce the worst consequences. A more exceptionable mode of taxation, he conceived, could not be devised. A direct or poll tax, he supposed, would

not be so odious; and though, for his own part, he should prefer an excise to either of the former taxes, yet such was the aversion of the people to it that he should prefer almost any other alternative. He thought other objects might be found from which the necessary revenue could be raised. He instanced duties on inland navigation, law proceedings, legal conveyances, etc.

He then adverted to the operation of an excise, especially in the State of North Carolina, and said that the consumption of ardent spirits in that State was so great that the duty would amount perhaps to ten times as much as in the State of Connecticut. On the whole, he hoped, if the section is not struck out, that the excise will be reduced.

MR. LIVERMORE was in favor of the bill. He considered it an equal and just mode of taxation, and as such one that would be agreeable to the people; they would consider it as drinking down the national debt. He then obviated the objections to the bill, which, he conceived, arose principally from the word excise. He thought the term very improperly applied on the present occasion, for the duty cannot be said to be an excise. He then gave a description of what had been considered in times past as an excise, which, to be sure, is a very unequal tax, inasmuch as it fell on the poor only, who were obliged to purchase in small quantities, while the rich, by storing their cellars, escaped the duty. But this bill provides that the duty shall fall equally on the rich and poor. It is to be paid, or secured, by the importer of foreign spirits, and on the still-head on domestic spirits. This will equalize the burthen, and leave no room for complaint. He then adverted to direct taxation, and, by a variety of particulars, showed that it was utterly impossible to lay a direct tax that would not prove unjust, unequal, and grievously oppressive.

MR. SEDGWICK was unhappy to hear that discontents prevailed in any part of the United States. He could assure gentlemen that he did not contemplate the execution of the laws by military force. In framing the present bill, great attention had been paid to prevent its being attended with those qualities which, in other countries, rendered taxation by excise justly obnoxious to popular resentment. He believed that of all the subjects of revenue which were within the power of Congress, none was so proper as the duty on ardent spirits, contemplated by the bill. The several species of taxation may be divided into the four following: by impost; a tax on internal negotiations; direct taxes; and that now under consideration, excise.

The impost duties had been extended as far as was, in the opinion of any gentleman, dictated by sound policy. The tax on internal negotiations, which could not be carried on to any considerable extent without the intervention of stamps, was subject to the objection brought against the present bill, and that in a degree incomparably beyond it, of being opposed by public opinion. Direct taxes are still more objectionable on that account, at least in every part of the country to which his knowledge extended. They are of all taxes the most unequal, and in this country would be found the most oppressive. They are unequal, because, with whatever exactness they may be apportioned upon capital or income, the only two principles on which an apportionment can be made, they may, and will, be very unequal as to the burden imposed; because a man's ability to pay taxes is not in proportion either to his capital, his property, or his income, but to that part of his income which is over and above his necessary expenses, according to the usual manner of living for persons of his degree in the community. They will be oppressive in this country, because in many of the States the plentiful circulation of money, and the facility of obtaining it, does not extend to the interior parts, nor could it be obtained by many of our citizens without a great sacrifice of property. It may be added that, from the extent of our settlements compared with the number of our citizens, the expense of collection would be immense.

In regard to excises, Mr. Sedgwick said that in all insensible modes of taxation it should be observed that a much greater sum would be obtained from an individual than by any mode of direct imposition; this, without entering into a discussion of the reasons upon which it is founded, is demonstrated by fact. He instanced the porters of London, from whom, in the single article of beer, were drawn ten times as much as could be procured by the most rigorous mode of direct taxation. With regard to the proposed duties, though the well-meant consideration of morality which had been urged by some gentlemen weighed but little with him, because he doubted whether it was well founded, yet, if the consumption, which at present amounts to an enormous quantity, should be lessened, he did not believe that it would be attended with any sensible inconvenience.

MR. SMITH said the present bill was not so exceptionable on account of its violating private property as the collection law.

He instanced, in a particular clause of that law, the power of entering houses by warrant from a justice of the peace

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