Internal And External Taxation

Internal taxation: taxes used by local state governments. These include direct taxes on property, income, locally produced goods or sometimes even just simply a tax placed on each registered voter.

External taxation: taxes used by the national government to regulate commerce; a duty only on imported goods.

Most Americans accepted their local government’s right to impose an internal tax upon them. They also agreed that the national government should be able to tax imported goods to regulate commerce. The issue became whether a national authority should have the right to impose taxes on its citizens for the sole purpose of raising revenue without the taxpayers’ direct consents.

The requisition system had failed to deliver the necessary funds to the national government to cover the nation’s expenses in times of war or peace. Hamilton concluded that in order for a national government to continue its existence, it cannot rely on others to collect its revenue.

Hamilton reminded the American populous that ultimate sovereignty and the power to govern rested entirely upon the consent of the people. And since the people are more closely connected to their local governments than to their national government, it would be "far more easy for the State governments to encroach upon the national authorities than for national authorities to encroach upon the State authorities.” He assured them that national taxation powers would not usurp or supersede the authority of any of the states.1

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