June 9, 2010 – Federalist No. 31 – The Same Subject Continued: Concerning the General Power of Taxation, From the New York Packet (Hamilton) – Guest Blogger: Horace Cooper, Director of the Center for Law and Regulation at the Institute for Liberty

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Wednesday, June 9th, 2010

Federalist #31 continues on the topic of the taxing power of the new central government.  Contrasting his significant math and science knowledge with his considered skepticism about humankind generally, Hamilton suggests basic maxims ought to apply as a principle for government’s effective operation.  Just as the maxims in geometry, that “the whole is greater than its part; things equal to the same are equal to one another; two straight lines cannot enclose a space; and all right angles are equal to each other, Hamilton asserts that in ethics and politics, that there cannot be an effect without a cause; that the means ought to be proportioned to the end; that every power ought to be commensurate with its object; that there ought to be no limitation of a power destined to effect a purpose which is itself incapable of limitation.  In other words instead of putting the focus on the means of a particular government activity, greater attention should be paid to whether the purpose is a legitimate one or not.

Rather than merely scrutinizing the technique by which the central government carries out it task say, bailing out automobile manufacturers, Hamilton suggests greater consideration be given to whether it is a legitimate function of the federal government to concern itself with the success or failure of car manufacturers.  A government ought to contain in itself every power requisite to the full accomplishment of the objects committed to its care, and to the complete execution of the trusts for which it is responsible, free from every other control but a regard to the public good and to the sense of the people.

Unless one is particularly scrupulous as to what responsibilities are assigned to the federal government, Hamilton’s view of seemingly unlimited powers of the federal government particularly in the area of taxing authority comes across as audacious and perhaps even dangerous.  However, it is clear upon review that the real danger lies in not carefully assigning duties and responsibilities of the central government.

One key charge of the new government was and remains today, national defense.  In the context of taxation, Hamilton asks how national security can really be put in the hands of the central government if it does not have the ability to call upon the resources, as it needs to carry out its duties.  This is no spurious charge.  One serious problem with the Articles of Confederation is that ostensibly the National Congress had responsibility for national defense, in practice it could not pay for or mandate the carrying out of many of its foreign policy priorities.  Over time this reality could prove quite provocative to the enemies of the new country in America.

Hamilton sees that taxing authority is critical to carrying out national security responsibilities.  As revenue is the essential engine by which the means of answering the national exigencies must be procured, the power of procuring that article in its full extent must necessarily be comprehended in that of providing for those exigencies.

In the military context, this argument is perhaps most powerful.  Nevertheless, even outside of that arena one can contemplate areas of responsibility (such as the administration of justice) in which it is necessary to focus on the importance of the objective and therefore loosening the limits on methods.  If the area of responsibility is appropriate, Hamilton argued that the central government needed the taxing authority to carry out the responsibility.

Critics charged that a general taxing authority for the federal government would make it difficult for states to raise the resources they need for their responsibilities, as the taxes of the federal government would tend to crowd out the resources needed by the states.  It is true that excessive taxation would have that effect, but not necessarily taxation generally.  Hamilton recognizes that there will be legitimate responsibilities that government should carryout.  If those are excessively funded or there are duties undertaken greater than the legitimate responsibilities that government should have, the flaw is not with taxing authority but instead with the government’s makeup or its design.  I repeat here what I have observed in substance in another place, that all observations founded upon the danger of usurpation ought to be referred to the composition and structure of the government, not to the nature or extent of its powers.

Powers split among a bicameral legislature along with an executive and judicial branch each with unique and overlapping authorities providing a check and balance against each other resulting in a greater protection of liberty for all the citizens will do more than a limit on the type of taxation policy.

Hamilton closes essay #31 with an observation that reveals a great amount of prescience for such a young man.  He says that the same risks that could lead to a national government over-reaching in its power and authority over the people existed just as well with the state government.  While at the time it was nearly universally assumed that state governments — being close to the people — would never overstep their bounds, it appears today that composition and structure matter just as much as the state level as it does at the local level.  Modern state governments have taken on most if not more of the duties of the central government’s welfare state with far fewer organizational or structural restrictions on doing so than exist at the federal level.  Taking the opposite view of Hamilton, many states have balanced budget requirements but no formal limits on the types of duties that it may assume.  Often as a result the residents in these “ambitious” states are extremely overtaxed.  States like Texas and to a lesser degree Florida have far more limits on the accepted tasks of the state government and their residents are taxed less.  Nevertheless, regardless of one’s concerns about the lack of formal limits on taxation in the constitution, Hamilton concludes it is by far the safest course to lay them altogether aside, and to confine our attention wholly to the nature and extent of the powers as they are delineated in the Constitution. Every thing beyond this must be left to the prudence and firmness of the people; who, as they will hold the scales in their own hands, it is to be hoped, will always take care to preserve the constitutional equilibrium between the general and the State governments.

Horace Cooper is the Director of the Center for Law and Regulation at the Institute for Liberty

 

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