Nowadays, the government has all sorts of ways to generate revenue. When you get your paycheck, part of it goes to the government. When you buy something, there’s almost always a tax on it. Still have a land line at your house? Guess what?…you probably pay a tax to Washington each month. Win the lottery?…you paid taxes. Do you drive? Every gallon of gas is heavily taxed. Taxes when you live, taxes when you die, and taxes for just about everything in between. It’s the American way.
In 1790, the government had about one way to generate revenue, and that was via import tariffs. People tried all sorts of ways to avoid paying them, but the Revenue-Marine, created in August of that year by the Treasury Department, made avoiding the tax man pretty difficult. And that was good for Washington…well, actually it was still Philadelphia (though Washington was the President).
As 1790 came to a close, a couple of things were pretty apparent. First, the revenues coming in were substantial. Treasury Secretary Alexander Hamilton’s goal of reducing the debt and improving America’s credit was being achieved. The economy was growing and the value of government securities had tripled. The United States was operating at a surplus.
Second, it was Great Britain that was paying most of the bills. The old mother country was far and away the biggest importer, which meant she paid most of the tariffs.
Third, at Hamilton’s urging, the federal government had taken on all the leftover war debts of the individual states. This issue had caused the first major disagreement in Congress (and will eventually get some ink time around here), but had been resolved with one of the country’s first compromises. It also left the Treasury Secretary in something of a bind. Import duties were about as high as Hamilton dared raise them and he believed it was necessary to spread the pain around a bit. But direct taxation of the people was fraught with peril, and a land tax (while good for the coffers) would have been universally loathed.
So Hamilton looked at “sin” taxes, particularly whiskey and domestic spirits. It wasn’t a new idea. As Hamilton had taken his post the year before, he had written to his friend James Madison. “May I ask of you friendship to put to paper and send me your thoughts on such objects as may have occurred to you for an addition to our revenue…”. Among Madison’s ideas was a tax on home distilleries, believing that “as direct taxes would be still more generally obnoxious and as imports are already loaded as far as they will bear…”. He also believed that such an excise tax had a social benefit, reducing drunkeness and disease.
On December 13, 1790, Alexander Hamilton presented his plan to Congress. And as expected, howls of protest were heard. Home breweries were a sacred part of local culture, and government intervention of any kind (to say nothing of direct taxation) was badly resented. It was clear that many distillers would only give the government its share at the end of a musket…which is exactly what happened. And we’ll cover that at some point as well.
Recommended Reading: Alexander Hamilton