Taxes

Introduction

According to the Bill of Rights in 1689, taxation without representation was illegal and denied the colonists their rights as Englishmen. Given that the colonists were suspicious of executive power and a strong, central government due to their experiences with Great Britain, it made sense that they chose to limit the power of the national government.

The Problem

The lack of a strong national government and executive power led to severe fiscal problems. Financing the Revolution against Britain was costly, and under the Articles of Confederation the new nation had no power to collect taxes from the states. Thus, they had no power to collect revenue.

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Congress' Lack of Taxing Authority

Article 8 of the Articles of Confederation stated that, “Expenditures by the United States of America will be paid by funds raised by state legislatures, and apportioned to the states based on the real property values of each.”1 Essentially this meant the national government did not have the ability to collect taxes under the Articles of Confederation. Instead the government relied on the states to collect revenue and then send it off to the central government, which would use the revenue to pay off the debt and to pay for other expenses. However, many states did not give their required amount and some did not give any money to Congress. This caused the government to be nearly bankrupt.

The dependence of the national government on the states to pay off the debt caused an economic crisis and created difficulty for much of the population. After the Battle of YorktownBattle of Yorktown: General George Washington's defeat of Lord Cornwallis's British army caused the British to surrender and ended the Revolutionary War., Congress asked for $8 million from the states to pay off the war debt.2 However, Congress was only able collect $420,031 from the states.3 The states not only refused to pay the amount Congress asked for, but also printed money in large amounts to finance their expenses. This caused the value of money to depreciateDepreciate verb
to diminish in value over a period of time
, which caused further economic instability and hardship for much of the population.

Rising Unrest within the States

After the Revolutionary War, the some states, such as Massachusetts, increased taxes so that they could pay off their debts. The burden of the increase in taxation mostly fell on the farmers and the poor. Since many of the farmers were unable to pay their taxes or mortgage, their farms were foreclosed. This caused the farmers to grow angry at the government and several insurrections against the government occurred.

International Problems

The rising debt, due to the lack of revenue, was also an international concern, because if Congress defaulted on the foreign debt the country’s ability to borrow from other countries would diminish.4 George Washington stated that “by denying Congress a share of that wealth we give a vital stab to public credit, and must sink into contempt in the eyes of Europe.”5 Washington worried that if the nation defaulted on the debt, the new nation would not be able to gain the trust and respect of other countries.

The Debate

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Benjamin Franklin, in a letter to Robert Morris written in 1783, said that "the Remissness of our People in Paying Taxes is highly blameable; the Unwillingness to pay them is still more so…Money, justly due from the People, is their Creditors' Money, and no longer the Money of the People, who, if they withold it, should be compell'd to pay by some Law."6 Franklin believed it was of the utmost importance for debtors to pay their due, and was concerned about the lack of taxes being paid and lenders not receiving their money. However, others were not convinced that a change in the Articles of Confederation's policy was needed. Richard Henry Lee wrote to Samuel Adams regarding taxation stating that "My idea is still that of the Confederation, Fix the sum, apportion it & let every State by its own means, and in its own way faithfully & honestly make its payment."7 Thus, while some, like Franklin, were concerned about taxes not being paid and felt their needed to be change, others like Lee, felt it unnecessary to interfere with the taxation arrangement under the Articles of Confederation. See Primary Sources on Taxation for more information.

Consequences

Thus because of local and foreign problems, Congress tried to get an amendment added to the Articles of Confederation which would allow it to levy a national tariffTariff noun
is a tax on imports or exports
to pay off the debt. This amendment would have allowed Congress to levy a 5% duty on imports. However, adding an amendment to the Articles of Confederation required all states to approve of the amendment, and New York refused to do so. In 1786, Congress again reevaluated the "financial constraints in the Articles of Confederation" due to the nation's poor financial situation.8
The report that resulted from this evaluation suggested that seven additional amendments needed to be added to the Articles of Confederation. By now there was growing support to change the Articles of Confederation, but due to the difficulties in amending the Articles it took a new document, the Constitution, to solve the fiscal problems of the new nation.

Conclusion

Americans' mistrust of executive power and a strong national government, though understandable given the nature of their experiences with Britain, caused them to create an ineffectual government. The national government's inability to collect taxes caused economic instability which led to disarray both in the national field, and a growing threat to the new nation's reputation in the global field. These problems caused many who initially supported the Articles of Confederation to change their mind. Alexander Hamilton stated, regarding the Constitution, "that a power to lay and collect taxes must be a power to pass all laws necessary and proper for the execution of that power."9 Hamilton reflected a desire, shared by many, to strengthen the power of the national government, due to the failure of the Articles of Confederation.

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