By Jim Whitt Contributing Editor
The first 100 days of our newly elected president were fast paced and not without controversy. No, I’m not talking about Donald Trump, I’m referring to the first 100 days of the first president of the United States. On July 4, day 68 of his presidency, George Washington signed the Tariff Act of 1789. The law placed a 5 percent tax on all imports. Keep in mind that tariffs were in fact a tax that served as the primary source of revenue for the U.S. federal government.
Tariffs have been used to balance trade and protect domestic production since George Washington signed that first tariff bill. They have been cussed and discussed continuously ever since but never so much as when Donald Trump started using them as tools to balance trade and influence nations to curb illegal immigration and end the crime that comes with it.
In 1976, the year of our nation’s bicentennial, the U.S. International Trade Commission published a report entitled “Two Centuries of Tariffs.” This agency was originally created as the U.S. Tariff Commission in 1916. According to the report, “The annual Federal income from all sources did not reach $10 million until 1800, and it did not exceed $20 million until 1816. Thus, during the first years of the nation’s independent existence, its operating expenses remained quite low. Consequently, its tax and tariff collections also remained quite modest, amounting to only a dollar or two for every man, woman and child in the country.”
Through the years, several tariff acts have been passed to balance revenue and trade with other nations. There was no need for a Department of Government Efficiency for the first 125 years of our nation’s existence because it relied mainly on tariffs and sales taxes for revenue. That’s what enabled our government to be so efficient in its formative years. There was no federal income tax. Congress just couldn’t continually raise taxes on its citizens’ income to fund the nonsense that it engages in today.
The nonsense all started in 1894 when Congress passed a 2 percent tax on incomes more than $4,000. But the Supreme Court ruled that directly taxing Americans’ income was unconstitutional. Let that soak in for a minute – a federal income tax was illegal. In 1909 liberals proposed a constitutional amendment to establish a permanent individual income tax. Conservatives didn’t even bother opposing it, believing it would never be ratified by three-fourths of the states to become law. It proved to be one of the worst political calculations in history that has led to a bloated and unrestrained bureaucracy that has saddled us with a $37 trillion national debt that grows exponentially by the hour.
The income tax was sold on the promise that it would soak the rich and spare the poor. Every tax and tax increase since has been sold with the same false promise. When the 16th Amendment became law in 1913 only 2 percent of U.S. households paid federal income tax. The income tax made tariffs increasingly irrelevant as the government’s revenue generator. As government spending shot through the roof to fund the military in World War I so did income tax rates with the top bracket exploding to 63 percent. The income tax genie was now out of the bottle. It granted the wishes of politicians while sticking taxpayers with the bill.
Taxes in any form are systems of reward and punishment. Income taxes are used to manipulate voters’ behavior. Tariffs are used to manipulate nations’ behavior.
In a perfect world there would be no tariffs. Zero tariffs would allow the marketplace to dictate the flow and price of goods and services. That would be the best outcome when the dust settles on the current trade and tariff battles.
Of course, in a perfect world there would be no income tax either. When the founding fathers were debating tariffs and taxes in 1789, Benjamin Franklin famously observed, “Nothing is certain except death and taxes.”
Many years later, after the income tax became law, Will Rogers added this codicil to Franklin’s famous quote, “The only difference between death and taxes is that death doesn’t get worse every time Congress meets.”
Unfortunately, we don’t live in a perfect world.
There was no need for a Department of Government Efficiency for the first 125 years of our nation’s existence because it relied mainly on tariffs and sales taxes for revenue.
