Chapter: Concerning the General Power of Taxation

From the New York Packet. Friday, December 28, 1787.

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 list; 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.

Money is, with propriety, considered as the vital principle of the body
politic; 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 atrophy, and,
in a short course of time, perish.

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 exigencies 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 present Confederation, feeble as it is intended to repose in the
United States, an unlimited power of providing for the pecuniary 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 members. 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.

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 fatuus 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 more intelligent adversaries of the new Constitution 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.

To say that deficiencies 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
enfeeble 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?

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.

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.

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 credulity
not often to be met with in the pecuniary transactions of mankind, and
little reconcilable with the usual sharp-sightedness of avarice.

Reflections of this kind may have trifling weight with men who hope to
see realized in America the halcyon scenes of the poetic or fabulous
age; but to those who believe we are likely to experience a common
portion of the vicissitudes 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
solicitude, and deprecate the evils which ambition or revenge might,
with too much facility, inflict upon it.

PUBLIUS

 In this paper, Hamilton defends the constitution's provisions authorizing the national government to impose taxes on the people directly. Under the Articles of Confederation, Congress could only request funds from the states. Although the states were legally obligated to submit the funds, they often failed to do so, leaving the national government, according to Hamilton, unable to govern effectively. Hamilton argues that the national government must have sufficient resources to govern the country. He further warns that if the national government cannot raise revenue in a reliable fashion, then the national credit will suffer, since lenders will not trust the US government to pay back its loans. Unable to borrow money in times of crisis, especially wartime, the government would be unable to protect the interests of the United States.

