Federalist 30

Summary

Federalist 30 addresses the national government’s need to tax its citizens. Under the Articles of Confederation, the state governments, and not Congress, had the power to tax their citizens. While the national Congress was able to draft a budget, it was the responsibility of the states to collect all revenues that funded both the state and national governments. The unpredictability of the national government’s revenue - not knowing how much or when the states were going to pay their required portions of taxes - made establishing a budget nearly impossible. The only way for the national government to obtain money was to ask the states, to borrow from foreign parties, or to sell western land. Alexander Hamilton argues in Federalist 30 that taxes are needed not only to pay for the absolute necessities of daily governmental operations but also to make America a good creditor. Strengthening America by giving a united, national authority the power to tax all of its citizens makes lenders confident that America will have the ability to repay all of its loans. Hamilton argues that it is critical that the government be able to take out loans in times of emergencies, otherwise monies apportioned to other essential sectors will have to be withheld and reapportioned to defense. In the unpredictable world, war is bound to break out. When it does, allowing the national government to tax its citizens will make other nations trust the United States, and therefore they will lend it money.1


Original Text

Translation

Concerning the General Power of Taxation

New York Packet
Friday, December 28, 1787
Alexander Hamilton

To the People of the State of New York:

IT HAS been already observed that the federal government ought to possess the power of providing for the support of the national forces; in which proposition was intended to be included the expense of raising troops, of building and equipping fleets, and all other expenses in any wise connected with military arrangements and operations. But these are not the only objects to which the jurisdiction of the Union, in respect to revenue, must necessarily be empowered to extend. It must embrace a provision for the support of the national civil listnational civil list: noun a person who works for the government; a bureaucrat.; for the payment of the national debts contracted, or that may be contracted; and, in general, for all those matters which will call for disbursements out of the national treasury. The conclusion is, that there must be interwoven, in the frame of the government, a general power of taxation, in one shape or another. The federal government should be able to tax in order to “provid[e] for the support of the national forces.” Taxes will fund all armed services and defensive activities. But the government should also tax in order to fund other government functions and to pay government employees. The government should also have the power to tax in order to pay off any “national debts contracted, or that may be contracted” and to pay for anything else that costs money.
Money is, with propriety, considered as the vital principle of the body politicbody politic: noun a single group that is comprised of all the people that live in a particular country governed under the same authority.; as that which sustains its life and motion, and enables it to perform its most essential functions. A complete power, therefore, to procure a regular and adequate supply of it, as far as the resources of the community will permit, may be regarded as an indispensable ingredient in every constitution. From a deficiency in this particular, one of two evils must ensue; either the people must be subjected to continual plunder, as a substitute for a more eligible mode of supplying the public wants, or the government must sink into a fatal atrophyatrophy: verb to gradually decline in effectiveness or vigor., and, in a short course of time, perish. Money is to government; it is “the vital principle of the body politics” because anything the government wants to do for its citizens costs money. Therefore, the power for the American government to tax its citizens is absolutely necessary, just as it has been imperative in every other successful nation. If the government cannot gain access to money on a regular basis, the government will either implement very heavy taxes, or it will cease to exist.
In the Ottoman or Turkish empire, the sovereign, though in other respects absolute master of the lives and fortunes of his subjects, has no right to impose a new tax. The consequence is that he permits the bashaws or governors of provinces to pillage the people without mercy; and, in turn, squeezes out of them the sums of which he stands in need, to satisfy his own exigenciesexigency: noun an urgent need or demand. and those of the state. In America, from a like cause, the government of the Union has gradually dwindled into a state of decay, approaching nearly to annihilation. Who can doubt, that the happiness of the people in both countries would be promoted by competent authorities in the proper hands, to provide the revenues which the necessities of the public might require? The Ottoman and Turkish Empire is an example of a government where the central authority did not have the power to tax. The result was that local authorities imposed heavy taxes in order to fund the central government. America has followed a similar path to that of the Turks because it too is “approaching nearly to annihilation,” an unfortunate result of tax collection not vested “in the proper hands.” The nations are similar because the wrong entity is in charge of collecting taxes. The solution to the problem and to ensure “the happiness of the people” is an easy one: the national government must be allowed to tax the people.
The present Confederation, feeble as it is intended to repose in the United States, an unlimited power of providing for the pecuniarypecuniary: adjective of, relating to, or consisting of money. wants of the Union. But proceeding upon an erroneous principle, it has been done in such a manner as entirely to have frustrated the intention. Congress, by the articles which compose that compact (as has already been stated), are authorized to ascertain and call for any sums of money necessary, in their judgment, to the service of the United States; and their requisitions, if conformable to the rule of apportionment, are in every constitutional sense obligatory upon the States. These have no right to question the propriety of the demand; no discretion beyond that of devising the ways and means of furnishing the sums demanded. But though this be strictly and truly the case; though the assumption of such a right would be an infringement of the articles of Union; though it may seldom or never have been avowedly claimed, yet in practice it has been constantly exercised, and would continue to be so, as long as the revenues of the Confederacy should remain dependent on the intermediate agency of its membersintermediate agency of its members: the states.. What the consequences of this system have been, is within the knowledge of every man the least conversant in our public affairs, and has been amply unfolded in different parts of these inquiries. It is this which has chiefly contributed to reduce us to a situation, which affords ample cause both of mortification to ourselves, and of triumph to our enemies. Under the Articles of Confederation, Congress and the national government draft their own budget for the nation, yet it is the responsibility of the states to collect taxes from the citizens. Congress and the national government “are authorized to ascertain and call for any sums of money necessary, in their judgement,” yet the gathering of these funds is in the hands of the states. While not supplying the national government with the proper amount funds is a clear breach of the Articles, no one has publicly asserted this sentiment. However, this type of tax collection system that relies on the states to fund the national government is contributing to the end of America.
What remedy can there be for this situation, but in a change of the system which has produced it in a change of the fallacious and delusive system of quotas and requisitions? What substitute can there be imagined for this ignis fatuusignis fatuus: noun something that misleads or deludes. in finance, but that of permitting the national government to raise its own revenues by the ordinary methods of taxation authorized in every well-ordered constitution of civil government? Ingenious men may declaim with plausibility on any subject; but no human ingenuity can point out any other expedient to rescue us from the inconveniences and embarrassments naturally resulting from defective supplies of the public treasury. The only solution to fix this broken status quo is to allow a change in the system and “permit … the national government to raise its own revenues” by taxing the people directly. This is the only way to save the government from the failure and embarrassment of going bankrupt and entering a state of poverty.
The more intelligent adversaries of the new ConstitutionAnti-Federalists: those who opposed the ratification of the new Constitution that proposed for America to have a national government. admit the force of this reasoning; but they qualify their admission by a distinction between what they call internal and external taxation. The former they would reserve to the State governments; the latter, which they explain into commercial imposts, or rather duties on imported articles, they declare themselves willing to concede to the federal head. This distinction, however, would violate the maxim of good sense and sound policy, which dictates that every POWER ought to be in proportion to its OBJECT; and would still leave the general government in a kind of tutelage to the State governments, inconsistent with every idea of vigor or efficiency. Who can pretend that commercial imposts are, or would be, alone equal to the present and future exigencies of the Union? Taking into the account the existing debt, foreign and domestic, upon any plan of extinguishment which a man moderately impressed with the importance of public justice and public credit could approve, in addition to the establishments which all parties will acknowledge to be necessary, we could not reasonably flatter ourselves, that this resource alone, upon the most improved scale, would even suffice for its present necessities. Its future necessities admit not of calculation or limitation; and upon the principle, more than once adverted to, the power of making provision for them as they arise ought to be equally unconfined. I believe it may be regarded as a position warranted by the history of mankind, that, in the usual progress of things, the necessities of a nation, in every stage of its existence, will be found at least equal to its resources. Even opponents of the new Constitution admit that the federal government must be able to tax. They proposed the idea of having internal and external taxation. Internal taxation would be the responsibility of the state governments. External taxation would fund the national government and would be a tax on all imported goods. However, there is an extensive problem with this proposal that goes against common sense and respectable policy making - the proportion of taxes collected from imported goods would be nowhere near sufficient to fund the national government. Furthermore, it “would still leave the general government in a kind of tutelage to the State governments,” producing an ineffective government. Taxes on imports would not be able to fund the entire national government, even at its current limited scope, let alone in the future once it starts growing and assuming more responsibilities.
To say that deficiencesdeficiences: noun the monetary difference between the money allocated for spending and the money raised from taxes. may be provided for by requisitions upon the States, is on the one hand to acknowledge that this system cannot be depended upon, and on the other hand to depend upon it for every thing beyond a certain limit. Those who have carefully attended to its vices and deformities as they have been exhibited by experience or delineated in the course of these papers, must feel invincible repugnancy to trusting the national interests in any degree to its operation. Its inevitable tendency, whenever it is brought into activity, must be to enfeebleenfeeble: verb to make weak or feeble. the Union, and sow the seeds of discord and contention between the federal head and its members, and between the members themselves. Can it be expected that the deficiencies would be better supplied in this mode than the total wants of the Union have heretofore been supplied in the same mode? It ought to be recollected that if less will be required from the States, they will have proportionably less means to answer the demand. If the opinions of those who contend for the distinction which has been mentioned were to be received as evidence of truth, one would be led to conclude that there was some known point in the economy of national affairs at which it would be safe to stop and to say: Thus far the ends of public happiness will be promoted by supplying the wants of government, and all beyond this is unworthy of our care or anxiety. How is it possible that a government half supplied and always necessitous, can fulfill the purposes of its institution, can provide for the security, advance the prosperity, or support the reputation of the commonwealth? How can it ever possess either energy or stability, dignity or credit, confidence at home or respectability abroad? How can its administration be any thing else than a succession of expedients temporizing, impotent, disgraceful? How will it be able to avoid a frequent sacrifice of its engagements to immediate necessity? How can it undertake or execute any liberal or enlarged plans of public good? Those in favor of allowing the states to continue collecting taxes to fund the government fail to acknowledge the problems in their political beliefs. Making the states responsible for giving the federal government money simply does not work. The “system cannot be depended upon” in any respect because it is the responsibilities of the states to fund the national government yet it is the opposition’s plan to continue to have the states be the source of revenue for the national government, despite the fact that the national government routinely runs a deficit in their budget due to a lack of funding from the states. The national interests of America cannot be left to the states because the states only care about their own citizens’ interests, not the collective country’s. Giving national interests to the states causes “discord and contention … between the [states] themselves,” who are all vying for different concerns and principles. Americans will only be happy if the government is able to fulfill its role and supply for their wants and needs. But the government will not be able to do that if it does not have a revenue and cannot tax its citizens. Without sufficient funds, the government will be forced to sacrifice its liberal plans and endeavors to pay for present needs and services.
Let us attend to what would be the effects of this situation in the very first war in which we should happen to be engaged. We will presume, for argument's sake, that the revenue arising from the impost duties answers the purposes of a provision for the public debt and of a peace establishment for the Union. Thus circumstanced, a war breaks out. What would be the probable conduct of the government in such an emergency? Taught by experience that proper dependence could not be placed on the success of requisitions, unable by its own authority to lay hold of fresh resources, and urged by considerations of national danger, would it not be driven to the expedient of diverting the funds already appropriated from their proper objects to the defense of the State? It is not easy to see how a step of this kind could be avoided; and if it should be taken, it is evident that it would prove the destruction of public credit at the very moment that it was becoming essential to the public safety. To imagine that at such a crisis credit might be dispensed with, would be the extreme of infatuation. In the modern system of war, nations the most wealthy are obliged to have recourse to large loans. A country so little opulent as ours must feel this necessity in a much stronger degree. But who would lend to a government that prefaced its overtures for borrowing by an act which demonstrated that no reliance could be placed on the steadiness of its measures for paying? The loans it might be able to procure would be as limited in their extent as burdensome in their conditions. They would be made upon the same principles that usurers commonly lend to bankrupt and fraudulent debtors, with a sparing hand and at enormous premiums. AIf we leave the national government dependent on the states, America would be in serious trouble were another war to break out. Assuming that the revenue received from imported goods pays for all the services that the public requires during peacetime, there would be no money left to allocate towards national danger. In such a situation, it would be necessary for the government to divert “the funds already appropriated from their proper objects to defense of the State” because as the past has shown, the national government cannot rely on the state governments for any additional money, even in the event of an emergency. The result “would prove [to be] the destruction of public credit at the very moment that it was becoming essential.” The inability of America to ever procure a responsible loan again would begin when it would be most essential to have good credit. In modern warfare, the larger country with the ability to take on more debt and procure more loans will be able to out-finance and win any war against its smaller adversary, a fear that should be present in Americans’ minds. No sane person would ever lend to America because of their lack of confidence that their loan would be paid back in full, or at all. The only type of loan that America would receive would have so many burdensome conditions, typical of the types of loans made to “bankrupt and fraudulent debtors.”
It may perhaps be imagined that, from the scantiness of the resources of the country, the necessity of diverting the established funds in the case supposed would exist, though the national government should possess an unrestrained power of taxation. But two considerations will serve to quiet all apprehension on this head: one is, that we are sure the resources of the community, in their full extent, will be brought into activity for the benefit of the Union; the other is, that whatever deficiences there may be, can without difficulty be supplied by loans. There still may be times, such as when the country is at war and has few available resources, where even though the national government has the power to tax its citizens, it will still be necessary to divert funds away from their apportioned intentions. During these times, all resources will be used for the benefit of the entire community. And since America will be a credible borrower, it will be able to “without difficulty be supplied by loans.”
The power of creating new funds upon new objects of taxation, by its own authority, would enable the national government to borrow as far as its necessities might require. Foreigners, as well as the citizens of America, could then reasonably repose confidence in its engagements; but to depend upon a government that must itself depend upon thirteen other governments for the means of fulfilling its contracts, when once its situation is clearly understood, would require a degree of credulitycredulity: noun naiveté; a tendency to be too ready to believe that something is real or true. not often to be met with in the pecuniarypecuniary: adjective of, relating to, or consisting of money. transactions of mankind, and little reconcilable with the usual sharp-sightedness of avariceavarice: noun extreme greed for wealth or material gain.. Giving one body, the national government, the power to tax all of its citizens “enable[s it] to borrow as far as its necessities might require.” This is because it generates much more confidence in the government’s ability to pay back the bonds and loans of those who invested in the country’s future. But a national government that relies on thirteen other independent governments to collect its revenue makes the government incredibly weak since the level of naiveté and ignorance needed to secure a loan in that situation are not ever found in business deals, particularly those that involve money.
Reflections of this kind may have trifling weight with men who hope to see realized in America the halcyonhalcyon: adjective a period of time in the past that was happy and peaceful. scenes of the poetic or fabulous age; but to those who believe we are likely to experience a common portion of the vicissitudesvicissitudes: noun a change of circumstances or fortune, typically one that is unwelcome or unpleasant. and calamities which have fallen to the lot of other nations, they must appear entitled to serious attention. Such men must behold the actual situation of their country with painful solicitudesolicitude: noun care or concern for someone or something., and deprecate the evils which ambition or revenge might, with too much facility, inflict upon it. The issues discussed in this Federalist Paper are only relevant to those who realize that the future of America will not be perfect, but rather is going to be filled with difficult times and obstacles just like the history’s of every other country. It is this type of man who looks out for what is best for the country and will protect it from the very present evils out there in the world that wish for America’s destruction.
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