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Important Dates In American Tax History Post-1812 Up to The Civil War

We start today’s journey through tax history the year after the war of 1812 with Great Britain. Congress doubled the tariff schedule to fundraise the war.  But it turns out, trading across oceans is very difficult when your navy is just 18-years-old. Comparatively, the British fleet had the power of being the world’s most powerful seafaring nation.

Photo by Dirk Spijkers on Unsplash

Photo by Dirk Spijkers on Unsplash

It was able to effectively strangle commerce on the eastern seaboard, which made up the entirety of young America’s trade paths with other parts of the world.

1813

Due to the conflict and Congress’ need to raise revenue to continue to fund the war, it levied about $3 million in internal taxes on things like refined sugar, distilled spirits, and carriages. These were designed to be repealed after the war was over. To collect this tax, the federal government offered a 15% tax discount for those states that collected the taxes themselves, which caused many states to take advantage of the arrangement.

1816

With the conflict with the British and French behind them, Congress passed the Tariff Act of 1816, which levied 25% duties on items to encourage local manufacturing.

1819

This was the year of the Panic of 1819, which is the crisis sparked by a drop in world agriculture prices. This caused more protectionist policies to be pushed to keep cheap European agricultural interests from flooding the market.

1820

The house pushed a bill that would enact a 5 percent tariff on cotton, wool, clothing, iron, and hemp. The law was never enacted, but it set the stage for similar laws to be passed. The North was split on its opinions of the tariff, but the South was firmly against it. It was losing its voting power in Congress regionally as the population dropped slightly there and rose slightly above the Mason-Dixon line.

1824

Henry Clay served as speaker of the House this year and appointed John Tod, a die-hard protectionist, to head the Committee on Manufactures. He implemented a 35% tariff on imported iron, wool, cotton, and hemp.  This caused American-produced goods to finally be cheaper than the British goods, which in turn stirred up support in states that had been against protectionist measures in the past.

1828

This year, the tariff on imported goods expanded to cover hemp, wool, fur, flax, liquor, and imported textiles. It was also raised to 50% of the value of the goods. This was good for the north and Ohio valley, but bad for the South. They didn’t get the benefits of manufacturing these products in their region. The reduction of cheap British goods isn’t a positive either, as the South relied on the British to buy their cotton in exchange for those cheap goods.  That cotton was often sold back to the states as finished goods, so the tariffs significantly disrupted this system.

1832

In July, Congress reduced tariff rates slightly, but kept the high rates on products like iron and manufactured cloth. South Carolina passed a Nullification Convention, which declared the tariffs unconstitutional and ceased collecting them in the state.

1833

In response, Jackson passed the Compromise Tariff, which reduced tariffs automatically between 1833 and 1842. Simultaneously, he levied the Force Bill, which said that the president could use force and arms to collect tariffs.

1837

By 1837, an extended economic depression had settled in, driven by a financial panic from the reduction of British investment in the states. The depression lasted until 1843. This caused the Whig Party to gain national support for some of its economic development strategies (which included higher tariffs).

1840

In 1840, the Whigs won the presidential seat and implemented revenue tariffs that were to be partially distributed to the states to build roads and canals.

1842

The Compromise Tariff was abandoned due to the states’ need for revenue and many tariffs were returned to their prior rate or slightly lower than the prior rate.

1846

The Walker Tariff was passed, which slashed all duties to the minimum necessary for revenue. In Britain, Parliament repealed the Corn Laws, which levied tariffs on imported bread. Both measures set the stage for freer world trade.

1848

The custom and commerce programs were running so well that the American government was able to pay off the entirety of its debts in the Mexican War before the Civil War even started.

1850

Slavery was becoming a highly political issue and the Northern and Southern states were growing increasingly polarized. The economy was booming but the interests of the Northern and Southern states grew increasingly misaligned.

1857

Tariffs were lowered even further by the Democratic party, which plunged the nation into an economic panic. Government revenues plummeted 30%, which caused Republicans to demand tariffs be increased.

 

Important Dates In Post-Revolution American Tax History

The Revolutionary War was sparked in part by the British imposing taxes on the American colonists without their permission or consent.

Once the colonists had freed themselves from British rule, it was time to establish a government that could pay the debts it had incurred during the conflict.

Photo by Patrick Fore on Unsplash

Photo by Patrick Fore on Unsplash

1777 – Articles of Confederation

This was the first constitution of the newly formed United State. It favored decentralization of power, which means that Congress was not given the power to tax.

1781  – Report on Public Credit

Robert Morris, Superintendent of finance, wanted the federal government to own the debt it incurred then issue interest-bearing debt certificates while imposing tariffs and internal taxes.

His proposal was shut down by numerous states over the next few years.

1787 – Ratification of the Constitution

The ratification of the Constitution shifted the focus of power to the federal government and away from individual states.

This gave the federal legislature the power to impose tariffs and coin money, along with the flexibility to collect excises and levy taxes directly on individual citizens.

1789 – Tariff of 1789

This tax bill included the original 5% duty on imports, as well as a list of special items that would be taxed at specific amounts.

1790 – Report on Public Credit

This new tax plan worked on two basic principles:

  • Redemption – Congress would redeem at face value all the securities issued by the Confederation government. These old notes would be exchanged for new government securities with interest of about 4%. This plan aimed to intertwine the wealthy Americans who had financed the initial government with the new government.

  • Assumption – The national government would take on outstanding war debts of the states. This would concentrate the nation wealth into the hands of the wealthy merchant class so they would be able to invest in the nation’s economy and other critical innovations.

1791 – Whiskey Excise Tax

This was a tax specifically for spirit distillers and imposed a 7 cents to 18 cent per gallon tax. This was not a popular tax, as spirits were often used as a form of currency out west.

1794 – Uprising Quelled

North Carolina and Western Pennsylvania were in a state of civil unrest after being cited by the federal government for dodging taxes.

The federal government forced the states to send militia to occupy these territories and take down any organized resistance.

President Madison appealed to Congress for a Declaration of War against Britain as the tension between the two countries reached a head.

There was a lot of conflict over fundraising for the war, but Congress eventually settled on doubling the tariff schedule.

 

Clinton, Trump Restate Tax Policies In Final Debate

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On October 19th, in their third and final debate before the US election, Republican candidate Donald Trump and Democratic candidate Hillary Clinton restated their widely different tax policies, without providing any new detail.

In reply to a question on tax policy, Clinton plugged her policies to provide the funds to grow the economy and “support middle class families,” by having “the wealthy pay their fair share.” She repeated, however, that she would “not raise taxes on anyone making $250,000 or less [and] not add a penny to the [federal] debt.”

By contrast, she said, Trump’s plan “advocates for the largest tax cuts we’ve ever seen. … His whole plan is to give the biggest tax breaks ever to the wealthy and to corporations, adding $20 trillion to our debt. … It truly will be trickle-down economics on steroids. … We tried that. It has not worked.”

Trump countered that her plan “to raise taxes is a disaster. … We’re going to cut taxes massively. We’ll cut business taxes massively. They’re going to start hiring people. We’re going to bring the $2.5 trillion [in deferred US multinational foreign earnings] that’s offshore back into the country. We’re going to start the [economic growth] engine rolling again.”

He also pointed out that he would re-negotiate the US’s “horrible” existing trade agreements, under which “jobs are being sucked out of our economy.” He called the North American Free Trade Agreement “one of the worst deals ever. …Our jobs have fled to Mexico.” He again accused Clinton (which she strenuously denied) of wanting to sign the Trans-Pacific Partnership trade treaty.

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