Principles of Political Economy

by Arthur Latham Perry

13. What is to be said about the diffusion of Taxes? David A. Wells, an admirable and indefatigable authority on all practical questions in Economics, though perhaps less skilled in scientific classification and generalizations, several years ago made somewhat prominent in public discussion the tendency of Taxes to diffuse themselves. Much more has been written about this than is actually known about it. By Diffusion is meant that it does not make so much difference upon what or upon whom a tax is originally levied, because the tendency of things is to diffuse it, that is, to compel others to assist in paying the tax. The result of much personal reading and reflection on this point is the conclusion that taxes do not "diffuse themselves" nearly so much as has been sometimes supposed; and that, at any rate, it is a good deal better to take the taxes from those who ought to pay them, than to lay them at random, and then to trust some unknown forces to make them afterwards just. It is certain that some unjust taxes cannot be diffused; for example, the protective tariff-taxes paid by the farmers upon articles of necessary consumption. These taxes have no tendency to raise the price of the farmers' produce, for that is determined by the foreign market, to which large parts of the produce are exported. For such taxes the farmers cannot reimburse themselves. Taxes that affect no prices are the best of all; taxes that affect prices the least are the next best; and taxes that are designed to affect prices are the very worst.

14. What are the bearings of the United States Constitution on the whole matter of Taxation in this country? We have now seen pretty fully, what the science of Economics has to say about the sources and modes and results of tax-laying: but we are bound to tell also, what the kindred but much less developed science of Politics, and particularly what the Constitution of the Fathers, has to say upon the same vitally important topics.

(1) The first power granted by the People to Congress, which is simply their agent, in that Instrument from which each of the three great Departments of Government derives all its authority, is in these words, exactly copied from the original and official parchment in every particular: "The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States." This grant of power, which stands first in order, is followed by seventeen other express powers granted to Congress in the same eighth Section of the first Article.

There never has been any difference of opinion, and there cannot be under such completely explicit language as this, among competent Statesmen and Commentators, as to the exact meaning of this clause, namely, Congress is given power to lay taxes in order to get money, with which to pay the debts and provide for the common defence and general welfare of the United States. That was the opinion and purpose of every member of the Federal Convention, that framed the Constitution in the summer of 1787; of Alexander Hamilton, who was first called on as Secretary of the Treasury officially to interpret it; of Daniel Webster, often called the "great expounder" of the Constitution; of John Marshall, the great Chief Justice of the Supreme Court; of Judge Story, the first copious and most distinguished commentator upon the Text; of George Bancroft and George T. Curtis, the learned and elaborate historians of the Text; and in short, of everybody else, who has earned any right in any way to have an opinion on any such matter of political interpretation.

Why, then, has there been from the first until now, a feeble flutter of butterfly wings around the clause, as if, somehow or other, it gave Congress by hook or by crook some power or other to do something else than to lay taxes in order to get money for the maintenance of the national Government? As if there lay concealed in the language somewhere a power to lay taxes for a purpose precisely opposite to that expressed in the text, namely, nominal taxes designed to prohibit any money being gotten under them? And why did Hamilton himself, whose wings were those of an eagle, sweep low and hover uncertainly about these words, and so give color to the political historians of our time to say: "Once more laying hold of the "general welfare" clause of the Constitution, Hamilton here argued, under color of giving bounties to manufactures, as though Congress might take under its own management every thing which that body should pronounce to be for the general welfare, provided only it was susceptible of the application of money. Though he limited this central discretion to the application of money, and stated some restrictions rather vaguely, the insidious tenor of his report was to show that the Federal power of raising money was plenary and indefinitely great."

The true answer to these questions is a point of Grammar. The simple English infinitive, unlike the simple infinitive of any other language with which the writer is acquainted, often expresses purpose, as well as the action of the verb without limitation of person or number; so that, it is perfectly good English to say, "To lay taxes to pay," when the only possible sense of it is, "To lay taxes in order to pay." Greek, Latin, and German would use here with the infinitive the particle expressing the purpose: the English language does not. It is not true to say, that ambiguity enters this clause, through the common and elegant use of the simple infinitive in English to express the purpose; but it is true to say, that superficial confusion has entered here, and a mess of bad logic. What makes it absolutely certain, beyond the possibility of a controversy, that Congress can levy taxes only in order to get money by means of them, is, (a) that is the only English of the clause; (b) the "debts" of the United States can only be paid in money; and (c) if this be not the meaning of the clause, its meaning must then be plenary, and there would be no need or place for the remaining seventeen powers, "and all other powers vested by this Constitution in the Government of the United States or in any Department or Officer thereof"; in other words, any other interpretation of the taxing clause than the plain one would destroy the Constitution root and branch; for, if Congress have the general power "to pay the debts and provide for the common defence and general welfare of the United States," all other possible powers are included in this, and President and Court disappear, and all other clauses of the Text are a nullity.

If the above course of reasoning be sound, and he would be a bold logician who should openly dispute it, then taxes laid for any other end than revenue are clearly unconstitutional. The Supreme Court has never passed upon this bald point, for it has never been mooted in this form; but one would think, there can be little doubt how the judges would decide in any "case" directly involving the constitutional power of Congress to levy prohibitory tariff-taxes, whose avowed or clearly inferrible design it is, not to get money with which to pay the debts and so on, but to cut off the possibility of getting any money thereby. The general trend of the decisions of the Supreme Court has wisely been, to leave in their interpretations of the Text the widest margin of discretion to the Legislative branch as to the best means of raising revenue; but when it comes to face the question of allowing as constitutional the best means of preventing revenue,—well, may we be there to see and hear!

(2) There are prohibitions on Congress in the Constitution, as well as powers conferred, and among these this: "No tax or duty shall be laid on Articles exported from any State." This is a part of the third great Compromise of the Constitution, and was a concession to the southern and planting States to make more palatable to them the power "to regulate commerce," that was expected to be used (and was used) in behalf of the northern and navigating States. But the concession was more nominal than real, as the southerners found out in time to their vexation. To prohibit taxes on exports, and to leave in full vigor the power to tax imports, though consonant with the then prevailing delusion of Mercantilism, is no boon to commerce in general; because, any restriction on buying products is equally and instantly a restriction on selling products. Exemption from taxes on exports is a good thing in itself, but the only reason for selling exports is to take in profitable pay the imports naturally offered against them; and if these be restricted or prohibited, the restriction or prohibition applies instantaneously and inevitably to the would-be exports. A reasonable liberty of exporting is nothing, unless accompanied by a reasonable liberty of importing, because the imports pay for the exports and the exports buy the imports.

The southern States rejoiced for a time in this exemption-clause of the Constitution, for their rice and cotton and indigo found no obstacles in going out; but the only motive in sending them out was to buy something with them to bring back; and after the snare of Protectionism entangled the People in 1816, 1824, and specially in 1828, when the "Tariff of Abominations" was passed, the southern people saw only too distinctly, that taxes on imports which they wished to bring in were the same in effect as taxes on their own exports would have been. Mr. Calhoun and the others were effectually undeceived by the customary on-goings of commerce; and as the northern statesmen unwisely and unpatriotically determined to crowd this iron home in 1828, the party of the other part developed under great provocation the doctrines of Nullification and Secession, which have since caused a plenty of tears and bloodshed. One wrong ever begets other wrongs. The wretched Greed of one section of the country was own father to the wrongful Secession of the other section.

The Farmers of this country have often been congratulated on their privilege under the constitution of exporting their agricultural products without a tax. The congratulation is hollow. Of what use is it to go out free and come back manacled? The ultimate is always the return-service. The farmers are cheated. Their agricultural exports are falling off year by year solely in consequence of outrageous tariff-taxes on imports. In 1881, farmers' produce was exported to the amount of $730,394,943, and that was not one-half what it would have been under a simple and adequate Tariff for Revenues; but in 1889, these exports only reached $532,141,490, a falling off of nearly $200,000,000. This decline was chiefly in meats and breadstuffs. No wonder the farmers have been complaining of terribly hard times of late years: no wonder they are organizing "Alliances" and other machinery for reaching a remedy: they must see clearly first where the disease lies: the truth is, they are tariff-taxed to death: their foes are they of their own household: Vermont, a purely agricultural State, is the only one in the Union, that has actually retrograded in property and population in the last census-decade: those excellent people have hugged the Tariff-delusion to their ruin; their senior Senator, whose name is unpleasantly connected with the national tax-laws of a generation, has never yet in the course of a long and reputable life gained a glimmer of the commercial truth,—if men will not buy they can not sell.