After the thirteen colonies had formed "a more perfect union" the question of revenue caused a heated discussion. Of the many ways through which a sure revenue might flow into the treasury none seemed as desirable as an impost. Of molasses, two millions of gallons came into the country each year. A few hundreds of thousands of these were consumed as food. The remainder were hurried to the Massachusetts distilleries and there made into the far-famed New England rum, which by the fishermen at the Grand Banks was thought much finer than the best that came from Jamaica. All other goods brought into any port in the country were to be taxed at five per cent of their value.
A long list of articles was given on which special duties were to be paid. At the head of the list stood Jamaica rum, which on motion was changed to distilled spirits of Jamaica proof. Two duties were suggested, one of fifteen cents on the gallon, which speedily divided the committee. Some thought such rates too high. Some declared they were much too low. And before the discussion had gone far it turned into a debate on the good and ill effects of high duties and low duties. One low tariff member remarked that the first thing to be considered in laying a tax was the likelihood of gathering it, and that as taxes increased this likelihood decreased. "I trust," said he, "it does not need illustration to convince every member of the committee that a high duty is a very strong temptation to smuggling. Just in the proportion which a tax bears to the value of an article is the risk men will run in their attempts to bring in that article in an illegal way. This impairs the revenue, and in time so much comes in through the hands of smugglers that no revenue is yielded at all." Boudinot said "he for one would be glad to see Jamaica rum doing just that very thing." There were three good results that would come of a high rum tariff: The treasury wanted money, and surely there was no article on the lists of taxable goods so likely to furnish a revenue as rum; the importation would be discouraged, and that was beneficial to the morals of the people; the West Indian distilleries would have no inducement to turn their molasses into rum, and as they had no markets for molasses save those of the United States, the home stills would be set actively to work.
These remarks on the moral effects of the tax were violently attacked by two members from the eastward. Fisher Ames quite forgot himself, and reminded the committee, with great vehemence of gesture and speech, that they were not in church or at school, to sit listening to harangues of speculative piety. We are, exclaimed he, to talk of the political interests committed to our care. When we take up the subject of morality then let our system look toward morality, and not confound itself with revenue and the protection of manufactures. If any man supposes that a mere law can turn the taste of a people from ardent spirits to malt liquors, he has a most romantic notion of legislative power. Lawrence, one of the members from New York, took up the attack. He was for low tariff. "If," said he, "the committee is to reason and act as moralists, the arguments of the member from New Jersey are sound. For it must be the wish of every man of sense to discourage the use of articles so ruinous to health and morals as rum. But we are to act as politicians, not as moralists. Rum, not morality, is to be taxed. Money, not sobriety, is the object of the tax."
The justness of this reasoning was lost on the committee, and spirits of Jamaica proof were taxed at fifteen cents a gallon. The duty finally levied on all distilled spirits was due to the influence of Hamilton, whose first tariff bill also imposed a duty on glass, "with the significant reservation," as Blaine states, "in deference to popular habits that black quart bottles should be admitted free."
Internal Revenue Tax
The system of internal taxation by the federal government began on that memorable day in 1791 when Washington signed the bill laying a duty on domestic distilled spirits; a tax which, proving more harsh in its operations than was expected, was amended in 1792, and after being denounced by legislatures and by mass meetings as oppressive, unequal, and unjust, was openly resisted by the people of western Pennsylvania, who rose in armed rebellion in 1794. In that same year taxes were laid on licenses for retailing wine and liquor, and on the manufacture of snuff, tobacco, and refined sugar, on carriages, and on sales at auction.
In 1801 the taxes on carriages, on licenses for retailing liquor, on snuff and refined sugar, on sales at auction, when about to expire, were continued without a time limit; but the next year the republicans were in control, and every kind of internal tax was abolished with exultation.
With this record behind them the two parties met in the extra session of the thirteenth congress and changed places. The federalists became the enemies of taxation; the republicans became its advocates, and before the session ended taxed pleasure carriages, sales at auction, sugar refineries, salt, licenses to sell liquor at retail; laid a stamp tax on all kinds of legal documents, taxed whiskey stills, imposed a direct tax of three million dollars and brought back all the machinery of assessment and collection, and again turned loose in the land the tax gatherer and what they had once called his minions. As some months must necessarily pass before any money could be raised from these sources, another loan of seven million and a half was authorized. From this time until the present liquor has been constantly taxed both by state and nation, and has been relied on to furnish a large part of the public revenue.