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Alexander Hamilton is widely known as the first Secretary of the Treasury, and one of the strongest advocates of our Constitution. Born illegitimately in the Caribbean to a Scottish merchant father and a mother of French Huguenot descent, he was already managing the affairs of an accounting office by age 15. After penning an essay in French detailing the devastation from a local hurricane, Hamilton was offered educational opportunities in the new, promising American colonies. He volunteered with a local militia, and became an aide to General Washington during the Revolutionary War. Afterward, Hamilton began an expansive career as a lawyer and political activist. One of his most enduring achievements was authoring many of The Federalist Papers (originally known as, The Federalist), a series of manifestos advocating the ratification of the United States Constitution.
To maintain anonymity, Hamilton, along with co-authors James Madison and John Jay, used the pseudonym “Publius” (after famed Roman Empire consul) to publish articles in three prominent New York newspapers, and later in bound volumes. These articles reflect Hamilton’s enthusiasm for the new American country and his sharp mental abilities. His death, via a duel with political rival Aaron Burr, was the final touch on a life filled with vigorous advocacy in the public policy arena with a special focus on promoting a strong national government for the United States.
Federalist Paper #30, “Concerning the General Power of Taxation.” is perhaps Hamilton at his finest. Hamilton begins by explaining that the National Treasury exists to subsidize a wide range of legitimate pursuits of the federal government. The Articles of Confederation gave Congress responsibility for managing needs of the confederacy, yet did not provide the means to do so.
Herein lies the function of taxation – a system by which all citizens have a stake in balancing benefits and costs afforded by a federal government positioned to furnish a functioning army, paying government employees, repaying current and future national debts, and other appropriate expenses. He posited that a government cannot function absent some taxes, and its power to collect taxes among the populace is necessary. Without taxes, the people would be plundered as a substitute for legitimate taxation, or, the government would eventually perish.
Hamilton delves into what many of his contemporaries saw as a substantive controversy: internal and external taxation by the new federal government. Hamilton explains the difference between an external tax and an internal tax, and then describes how the federal government should be responsible for both. An external tax is a custom duty levied against any item coming into a colony to raise revenue – for example, a piece of machinery made in England. The duty is paid by the shipper and passed on to the consumer, in the form of a higher price for that machinery. An internal tax is unrelated to imports or exports. The Stamp Tax in England set an example – an excise tax imposed on stamped paper for legal documents (including licenses and permits), bills of lading, pamphlets and newspapers. Therefore, the price of a newspaper included the cost of the stamp placed on the paper as the tax.
Critics of the new Constitution charged that internal taxation should be used exclusively by the State governments and external taxation reserved for the federal government. Hamilton noted this ideal to be “romantic poetry” and that external taxes alone, on items such as commercial imports, cannot provide enough revenue for a government as extensive as the one proposed, especially in times of war. Disallowing the federal government from internal taxation violates the maxim of good sense and sound policy he argues. Essentially, critics claim internal taxation should be the sole authority of local government, and trade revenues should go to the federal government. This policy, however, not only subordinates the federal government, but also forces it to rely on states for security and prosperity of the nation as a whole. Eventually, the Union would weaken and create conflict between the federal and state government, and perhaps even between the states themselves.? ?This conflict becomes even more evident during wartime. The United States was in its infancy, thus capital reserves minimal. The federal government could not depend on State requisitions alone – a loan would be needed for even the wealthiest of nations since no government would extend credit to the United States absent a reliable method of debt repayment. Dependence on the states, which might not prove reliable, would force the federal government to seek loans in the private markets essentially subsidizing loan sharks that would charge the new government high interest rates. For any other national emergency, some might fear funds allocated via taxation would be diverted, even if the national government has the unrestrained power of taxation. Two considerations will quiet these fears: (1) during a crisis the full resources of the community will be used for the benefit of the Union; and, (2) deficiencies can be supplied by loans. Thus, Hamilton argues for a federal internal tax as well as an external federal tax.
Special thanks should be given to a myriad of sources (including Mary E. Webster) with regard to translating the complex lexicon of Chancery Standard used in the Papers into modern English. Click here to access the post Constituting America
June 8th, 2010
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