June 8, 2010 – Federalist No. 30 – Concerning the General Power of Taxation, From the New York Packet – Guest Blogger: Attorney Janice R. Brenman

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Tuesday, June 8th, 2010

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.

However, 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.

Ms. Janice R. Brenman is a former prosecutor now in private practice in Los Angeles. She has commented in major legal publications on the subject of legal reform and celebrity influence on the legal system. She has also appeared in medical malpractice, products liability and complex civil litigation, and is well versed in all forms of discovery.  From 1999 to 2000 Ms. Brenman was a City Prosecutor and Community Preservationist. She clerked for the Honorable Rupert J. Groh, Jr., of the United States District Court for the Central District of California. Ms. Brenman also worked researching, writing and editing under a Nobel Prize winning laureate.

22 Responses to “June 8, 2010Federalist No. 30Concerning the General Power of Taxation, From the New York PacketGuest Blogger: Attorney Janice R. Brenman

  1. Dave says:

    “Revenue . . . must be had at all events.”—Hamilton No.12

    “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.”—Hamilton No. 30

    Okay, okay, I get it—the general government needs a dependable and sufficient supply of money. The questions remain: For what purpose and from whom? And most importantly, how is the federal government going to be restrained from taking too much from the citizens?

    According to Hamilton, the proper check on government taxing is the limit of the “resources of the community.” That’s great if you get to spend other people’s money by becoming the first Treasury Secretary under the new Constitution. It’s not so great in the early years of the 21st century given that, in the last 80 years or so, the federal government has increased its share of the GDP by about 25 times.

    I wish I could go back in time and knock some sense into the good Colonel. With the benefit of hindsight and that oracle of wisdom, experience, we all know that the federal government has an insatiable appetite for citizens’ hard-earned dollars—it never has stopped, and it never will stop, at simply taking money for only those necessary, enumerated objects. One need only review a random sampling of the earmarks (bribes) in any recent legislative monstrosity to discover the government will redistribute our money for just about any project here at home or even abroad.

    What’s happening to various countries in the EU should be a cautionary tale for Americans. The problem countries got in their current situation by the same big-government formula our current administration seems to be adopting: Tax and spend, tax and spend, borrow and spend, borrow and spend . . . . The end is not good—worthless dollars in Americans’ pockets and shared misery for all but the various elite groups. And every aspect of the everyday life of Americans (and now with ObamaCare, the manner and time of our deaths also) will be under government control.

    LIMITED GOVERNMENT IS THE ANSWER. “PUBLIC WELFARE,” “SOCIAL JUSTICE,” “ECONOMIC JUSTICE” ARE THE DISTRACTIONS.

    George Will has a good piece on the Limitless Welfare State:

    http://www.jewishworldreview.com/cols/will060310.php3

  2. Susan Craig says:

    Granted that taxes are a necessary evil where it went off the rails is that we allowed the situation where people were able to vote themselves other peoples money.

  3. So much to wrap the brain around!! Again, as I read each paper the clarity of how far this country has moved from the outlining principles over the years is amazing…and I thought most of our politicians were contitutional lawyers/professors! The intended use of taxation has been mutated, leaders manipulate the English language to justify their encroachment into the private sector and individuals.

    BUT…I read ahead Federalist 31 this morning and without spilling the beans, there is a fabulous point made. One that we’ve all heard before and one that is in full action mode across the country!!

  4. Kurt says:

    Dave,

    I think your argument just underscores how we as citizens need to stay involved and monitor our government. When they get out of hand, kick them out of office. I think many of the founding fathers views where predicated on the idea that the citizenry would cherish their freedoms/rights and would jealously protect them. My reading of their writings show quite a distrust of government. We were expected to constantly question and limit what it does, we are the ones to decide the limit of the resources of the community not government. Do you allow the employee to decide his own pay or do you set it?

    I imagine they would be shocked, dumbfounded and maybe even disgusted at the state of the citizenry’s protection of its rights today – just give us some government cheese and we’ll go back to sleep.

  5. W. B. Neate says:

    Ms. Brenman in the first sentence of paragraph #4, “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 …..,” highlights what has been lost in our system of taxation. No longer do “all citizens have a stake.” Not only do nearly 1/2 of our citizens pay no federal income tax, but a large and growing portion of this group are recipients of government/taxpayer subsidies. Most sadly these subsidies, along with much of our government spending, come from borrowed funds. I am fearful that this may become a voting block too large to overcome.

    Our system of taxation has morphed from a means of “balancing benefits and costs of government” to a means of social/economic engineering. In large measure the left uses the system to pander to the masses and the right uses it to curry favor with big business. Regrettably I can’t remember who said it but early in the last century it was said that Democracy will fail when the elected realize they can bribe the electorate with their own money. Well, I think they long ago figured it out.

    Survival of life in America as we have known it requires our returning to our founding roots of truly limited government and a method of taxation less susceptible to misuse. Surely the time has come for a Flat or Fair tax. If only we could elect statesmen, rather than politicians, to step up to the plate, make the tough, unpopular decisions and lead with boldness.

  6. Ron Meier says:

    “How can it undertake or execute any liberal or enlarged plans of public good?” This is the essence of the problem today – a definitional problem. The left argues that the “public good” is far more expansive than the right believes it to be. Until we come to grips with and fully understand just how wide and deep the “public good” should be allowed to be, we will not get off the track we’ve been on since FDR’s time. We are arguing this today, but we have not yet reached the crisis stage. History demonstrates that problems are not really addressed until the crisis bubble is pricked by some outside third party (e.g., China refusing to buy more of our bonds). Our legislators are like real estate bankers who will continue to loan money as long as it’s available long after their rational brain tells them that the ending will be ugly. We now know the ending will be ugly, but it’s business as usual in Washington, DC.

  7. Michael says:

    There is wide space to debate what is important to national security. To the extreme, we’ve seen national interest used to justify globalism, i.e., all nations must be intricately woven economically to prevent wars, save the environment, distribute resources most efficiently, etc. The debate has gradually pushed us to where we now finance the defense of other nations, fund wars to defend/install democratic societies, bailout state governments and private enterprises, and so on. There is now a huge federal bureaucracy engaged in nothing more than enforcing and collecting the federal income tax. As many early Americans feared, the power of taxation has helped to create the monster that now paradoxically dictates how we live and pursue happiness (and if we should live) under the guise of protecting us. The monster is now attacking wealth-makers and producers and will see its money supply drastically diminished as a result. This seems to be purposeful and intended to destroy our great nation.

  8. Carolyn Attaway says:

    The words Hamilton wrote to promote the need for a general power of taxation were meant to reassure the citizens of his time of a responsible government. However, when read today, during a time of high national debt and undisciplined spending, these words tend to leave a sour taste in my mouth.

    Two statements in particular sent an aversion through me as we tackle present day events, and rereading Hamilton’s words, I wonder if the Founders even envisioned such abuse to our tax system.

    Hamilton writes “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?”

    This first statement tends to have been twisted over time to such a degree that today a large number of citizens feel that it is the government’s job to ensure their needs are met and their pursuits are guaranteed. Many people today do not even make the connection between their taxes and what the government can spend. I believe it was a mistake to begin the practice of taking owed taxes out of paychecks. Americans should all have to pay their taxes at the end of the year by writing a check to the government. I think that would be a major wake up call.

    The second statement is “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.”

    Again, I find this logic to have grown out of hand and explode our national debt to a point where recent polls show the same number of citizens that worry about our national debt equals that of those who worry about our national security. Whereas Hamilton was concerned about our national security, and the need to have funds to supply a defense against invasion; today Congress has taxed companies and citizens to such a high degree that is has become a national security problem.

    @ W.B. Neate – It was alarming to read the statistics earlier this year that the number of those receiving government entitlements was larger than those paying taxes. And to top it off, over the past 1 ½ years the number in government jobs grew at a larger pace than private sector jobs.

    There is a great article in the National Review today by Senator DeMint entitled “Constitution of No”. It is a great read! I highly recommend it.

  9. Mary says:

    I understand what Hamilton is saying, and totally agree that the federal government has need of the right for taxation in order to fund the defense and other things that are for “the benefit of the Union.” However, it is everything in that latter category that muddies the waters. “For the benefit of the Union” is totally subjective and takes us into the chaos that we are experiencing now. According to one side, the benefit of the Union is served if the government levies taxes and then spends tax money to feed and house people with low-paying jobs. The other side argues that the good of the Union is served by using that tax money to give credits to companies who can then create jobs for those same people. The elephant in the room is that neither option is the job of the government and has nothing to do with the benefit of the Union as a whole. It only directly benefits certain members of the Union with the hope that it will somehow benefit all. In other words, the tax money is neither needed nor used correctly.

    I had to laugh at Hamilton’s rhetorical question: “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?” Can we say, “CHINA!!?” We have demonstrated all of the above and still the money comes flowing in as we spend, spend, spend.

    Finally, Hamilton states: “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 (addressed above); the other is, that whatever deficiencies there may be, can without difficulty be supplied by loans.” The ease of borrowing ALWAYS gets individuals, corporations and countries in trouble. If borrowing is difficult, spending is kept down. To me, Hamilton’s argument lacks the establishment of any kind of boundaries on either taxation or procurement of loans. If there is no boundary on the latter, then there can be no boundary on the former.

    It is rather ironic that this man, so supportive of a strong federal government that could borrow money whenever deemed necessary, had to resign from his position as Secretary of the Treasury because of financial problems of his own. According to World Book, it is because of his views that totally clashed with those of Jefferson and Madison, that the definition of two separate political parties formed and Hamilton led the Federalist Party that favored big government. He was the original liberal progressive!!

  10. Barb Zakszewski says:

    It is very obvious from this next section of the Federalist, dealing with taxation, how much Hamilton supported a very strong Federal government and how much he distrusts the States. He seems to dismiss the arguments from the “anti-federalists” that the Federal government, with almost unrestrained powers of taxation, could become abusive of its citizens…Fast forward 230 years, huh? Still, I do believe he had the best interests of the country at heart, and could not possibly foresee what would happen today…with the confiscatory nature of taxes both at the Federal, state and local levels. I’m not sure if he just did not want to believe that something like that could happen, of if he was just too naive in this particular matter. There was a post from earlier today where the person asked, how is the Federal government going to be restrained from taking too much from its citizens…I did not see an answer in the Federalist up to this point, and I believe we have already crossed that point, witness the TEA parties of today.

  11. […] of Chancery Standard used in the Papers into modern English.  Click here to access the post Constituting America Bookmark […]

  12. Ray Decker says:

    Until we repeal the 16th and 17th amendments and the Federal Reserve Act (which isn’t Federal and has no reserves) and abolish the Internal Revenue Service we will never get control back from the Federal leviathon. The income tax is what gives the Federal Government its massive power.

  13. It would seem to me personally that the majority of the ordinary citizen is not at all worse off in comparison with the genuine American federal government though the fed government can get to execute by some other laws. The governing administration can potentially manage their debt by publishing moolah and their debt deal techniques are helped by simply the number one military on the planet.

  14. Susan Craig says:

    @Kimi, yes the ordinary citizen will be harmed by the indiscriminate publishing of moolah! This is what the Weimar Republic did to try and manage Germany’s debt from World War I. Part of what brought the National Socialists to power was that ordinary citizens needed a wheelbarrow of ‘published moolah’ to purchase a loaf of bread and milk.

  15. Maggie says:

    Kimi….when money is just indiscriminently published it makes the value of said money (and that already in existence) worthless. Monetary value needs to be based on something tangible…ie…gold. If the government floods the market with “new” currency, the money you already have becomes devalued.

  16. Darren Le Montree says:

    Nice piece. As expressed in the comments above, it seems well accepted that the federal government needs taxes in order to function. The rub lies in the questions of how much and from whom. The extreme liberals want to drove out innovation and turn the taxation system into a social engineering mechanism (basically the fine job done by Europe). Whereas, the conservatives would prefer to have all social programs disbanded, liquidate social security, eliminate medicare and all welfare and just let the poor people either grind away in angst or die. Neither way works which is why we have the modified system that we do—which swings from left and right of center like a pendulum with each election cycle. That being said, the current system is unsustainable fiscally because of internal and external forces—the aging of our population and the “flattening of the world” which means we are no longer a hegemic force able to continually grow our way out of the problem and the promises made decades ago are no longer feasible. In essence, the realities of the current state of affairs mean that we cannot have a “fair” taxation system under either model. When 1% of the people control 90% of the wealth, having the rich only pay what they would define as their “fair share” (flat tax) is folly. While expecting our slower growing economy to afford continually increasing debt or tax burdens to fund the ballooning social program obligations is equally impractical. With the system going broke as it is things can only get worse from the perspective of both the left and the right and will continue to get worse until there is some genuine problem solving versus the spin game that has overwhelmed politics in the modern era.

  17. Doris Jean says:

    Taxing should be extremely limited and should never exceed ten percent. People should get together locally and pay for local parks, schools, police, etc. The politicians pay themselves too much money and their salaries are too high.

  18. Debbie Bridges says:

    @Darren “When 1% of the people control 90% of the wealth, having the rich only pay what they would define as their “fair share” (flat tax) is folly.
    Federalist Paper 20 addresses this issue through what can only be called a Fair Tax in today’s language. “…by authorizing the national government to raise its own revenues in its own way. Imposts, excises, and in general, all duties upon articles of consumption may be compared to a fluid, which will in time find its level with the means of paying them. The amount to be contributed by each citizen will in a degree be at his own option, and can be regulated by an attention to his frugal: and private oppression may always be avoided by a judicious selection of objects proper for such impositions”.
    As to your other assertion; “Whereas, the conservatives would prefer to have all social programs disbanded, liquidate social security, eliminate medicare and all welfare and just let the poor people either grind away in angst or die. ”
    I know of no conservatives who want the poor to “grind away in angst or die”. What I am my fellow conservatives would like is for the poor (and I was formally of their ranks, although I am hardly rich now) to as said by Benjamin Franklin, learn to fish as opposed to being given the fish time and time again. That is the biggest issue we have is that our government has made our citizens dependent on the government through entitlements. If someone is in need of assistance it should come from family, friends, church, and their local community. Government should be the absolute last resort used and only in times of true emergency.

  19. Darren writes: “Whereas, the conservatives would prefer to have all social programs disbanded, liquidate social security, eliminate medicare and all welfare and just let the poor people either grind away in angst or die.”

    This is simply patent nonsense, and it’s a Progressive calumny without foundation. A conservative desire not to create or facilitate a welfare state cannot be seen to imply that conservatives, or Libertarians, want people to die in the streets from starvation and disease.

    What Conservatives and Libertarians alike value is self-reliance and methods of public support of those truly in need that does not debilitate them and keep them in economic slavery, which is what the welfare state does.

    Moreover, I have no objection to requiring people to save for their retirement, but the giant Ponzi scheme of Social Security today, where the current working generation is burdened with supporting all the retirees still living is simple insanity. Conservatives want Social Security REFORM, and my vision of it is to put one’s contribution into a PRIVATE savings account that the federal government has NO ACCESS to, rather than giving it to the government to skim and waste.

    As for “1% controlling 90%” this is also nonsense. It’s what I call the Socialist Zero Sum Fallacy. This fallacy is based on the logical and rational error that Socialists make in assuming that in order for one person to acquire wealth, another person, or persons, must be oppressed and must give up wealth. It’s based on a deliberate misunderstanding of economics holding that there is a fixed supply of “wealth” and pouring it from one bucket into another advantages one person while depriving others.

    But it’s a lie, and a deliberate one at that. It’s all part of the propaganda of Progressivism.

    Any competent economist can tell you that the wealthiest people in the U.S. don’t keep their money under their mattresses, it’s constantly circulating and creating even more wealth for everyone, and for the nation. Wealth generates more wealth in nearly unlimited supply.

    It must also be noted that the wealthiest 1/10 of 1 percent of taxpayers pay more than 40 percent of the government’s income tax revenues, so to say they don’t pay enough is preposterous.

  20. Susan Craig says:

    I’m with Seth on this. If it was an across the board 10% not only would everybody (to quote our President) “have skin in the game” but also the so-called “evil rich” would still be paying a lions share of the revenue to the government. Just for arguments purpose say I earn $100 dollars a week and Darren earns $100,000 a week. I pay $10 and Darren pays $10,000 so the take is $10,010 government we each have a 10% stake in the game but Darren has provided over 99% of the revenue.
    As to the Social Services currently provided by big nanny Fed, one of the biggest complaints is that it is a one-size fits all program. I believe that it is more properly handled at the State and preferably the local level where people are more inclined and conversant to local immediate conditions.

  21. I believe I recall a guest on Beck who was explaining the Laffer Curve, sorry I can’t recall his name, saying that a flat tax of about 14 percent on every transaction would replace all other necessary government revenues. Not positive about this however. Perhaps there’s an economic expert out there who can comment.

    And you are absolutely correct that all social services should be dealt with at the state level, and that there is absolutely no need for the federal government to be involved except in the rare case where a particular state cannot meet it’s social services needs.

    But to have every bit of tax revenue sent to Washington, have 20 percent or more skimmed off the top to do nothing more than pay for federal bureaucrats who turn around and send it BACK to the very states they took it from in the first place is pure economic idiocy.

    It sometimes seems as if no one recognizes the fact that the vast majority of our tax money sent to Washington is not sent there to fund the legitimate functions of the federal government, it’s sent there to fund the political redistribution of that very same wealth back to the states, who have become dependent upon that federal largess to pay for all the unfunded mandates that the federal government imposes upon them using the carrot-and-stick method.

    If the states would simply say “no thanks” to the federal handouts, as Colorado Springs did recently, not only would the federal government lose legitimacy for it’s bureaucratic burdens, but the states would be freed from federal intervention. Much of the interference we suffer under from the Feds is caused by our own state legislatures knuckling under to conditional grants from the Feds. The biggest carrot they have is the federal highway system, which they use to coerce states into, for example, setting DUI standards and mandating seat belts.

    It’s all about politics, of course, because even state politicians have to bring home the federal pork, or so they believe, to get elected. They think (and probably correctly) that if they don’t do what the feds want and take the federal grants (extracted from us in the first place), state voters will be mad because some other state got a grant and they didn’t.

    Which makes it our fault for not ourselves demanding austerity and flight from the federal teat by our state legislatures. Weaning ourselves away from federal largess is the beginning of restoring our liberty from oppressive federal taxation.

  22. Susan Craig says:

    Seth, right again.

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