Tariffs, also called imposts, as well as custom duties, are taxes on products being imported from foreign countries.
This was the U.S. government’s main source of income for the nation’s first century and a half.
It is mentioned in the U.S. Constitution, Article I, Section 8, which authorizes the Federal government to collect “duties” and “imposts” to help “pay the debts and provide for the common defense and general welfare of the United States.”
In fact, the second bill signed by President George Washington was the Tariff Act of 1789, which imposed a 5 percent tariff on all imports.
Alexander Hamilton, as the first Secretary of the Treasury, created the Coast Guard to stop merchants from smuggling goods into America without paying tariffs.
The fastest ships of the day were called “cutters,” and since the Coast Guard was helping collect government revenue these vessels were called “Revenue Cutters.”
In the 1700s, the industrial revolution began in Britain. Britain burned coal, but coal mines would fill up with water.
In 1769, James Watt invented a steam pump to remove water from the mines. This quickly was adapted into the steam engine which powered factories.
Soon factories produced textiles very inexpensively.
During the colonial period, Britain discouraged manufacturing in the American colonies to ensure factories in England had a larger market for their products.
After the Revolution, U.S. tariffs made British goods more expensive, allowing the industrial revolution to spread in America.
Jefferson wrote April 6, 1816:
“It may be … the duty of all to submit to this sacrifice ... to pay for a time an impost on the importation of certain articles, in order to encourage their manufacture at home.”
Factories sprang up in America, particularly in the northern states.
Steam engines powered “spinning jennies” made yarn, and enormous looms made textiles such as cotton, wool and shoes.
Factories made items from chemicals to clocks, and manufactured machinery, such as mechanical reapers and farm equipment, which allowed farmers to plant and harvest crops using less manual labor. This resulted in lower food prices. Americans experienced the fastest rise in the standard of living in human history.
Factories, most notably, freed women up from menial tasks, such as spinning thread, weaving cloth, and sewing clothes. Now they could buy bolts of cloth made in factories, or even ready-to-wear clothes. Instead of washing clothes in washtubs and hanging them out to dry on clotheslines, they could own a washing machine and a dryer.
Instead of drawing water from a well and carrying it in buckets, they could have pipes bring water directly into the house. Instead of outhouses there was indoor plumbing.
Tariffs not only brought revenue into the Federal government the many factories provided jobs for the waves of immigrants.
From 1792 to 1812, tariffs were around 12.5 percent. After the War of 1812, tariffs went to 25 percent. By 1820, tariffs were at 40 percent, and by 1860, at 60 percent.
President Franklin Pierce stated December 5, 1853:
“Happily, I have no occasion to suggest any radical changes in the financial policy of the Government. Ours is almost, if not absolutely, the solitary power of Christendom having a surplus revenue drawn immediately from imposts on commerce.”
In March 1962, Ben B. Seligman wrote for Commentary Magazine, “Tariffs, the Kennedy Administration, and American Politics,” stating:
“In the early years of the Republic, all but about $20,000 of the $4.5 million of Treasury income stemmed from tariff levies. Up to the Civil War, in fact, over 90 per cent of the federal government’s receipts came from tariffs.”
Did you know there was no Federal Income Tax in America prior to the Civil War, when Lincoln enacted an emergency income tax to raise money for the Union, but it was repealed when the war ended.
Tariffs continued to be the main source of income for the U.S. government through the early 1900s, reaching at times as high as 95 percent.
On January 21, 1921, Tuskegee scientist Dr. George Washington Carver, at the request of the United Peanut Growers Association, addressed the U.S. House Ways and Means Committee to ask for a tariff on peanuts imported from China. This would help the farmers in America’s Southern States.
Carver’s report helped convince Congress to pass the Fordney-McCumber Tariff Bill in 1922, followed by the Smoot-Hawley Tariff Bill in 1930.
The move away from relying on tariff revenue started with Democrat President Woodrow Wilson, who enacted the first peace-time income tax, which was tacked onto the 1913 Tariff Act.
Income tax was initially a one percent tax on the top one percent richest people.
During World War Two, Democrat President Franklin D. Roosevelt expanded the Federal Income Tax to tax majority of the population. He also enacted paycheck withholding.
The unexpected fallout of FDR raising taxes was “outsourcing.”
To avoid FDR’s taxes, many business owners moved their factories overseas where there was lower taxes, cheaper labor, less government regulation, and fewer lawsuits.
Loss of American factories meant a loss of American jobs, causing unemployment to rise.
As overseas factories became more profitable, they used their profits to lobby American politicians to vote for even lower tariffs so they could bring their foreign made goods back into the U.S. cheaper.
This policy was called “free trade.” But was it fair trade?
As it turned out, foreign governments often gave financial subsidies to their businesses so they could produce goods at a lower cost.
Then they would import these goods into America and sell them at a lower price, undercutting American factories and forcing many out of business.
Once foreign nations had a monopoly, they would raise prices or pressure U.S. foreign policy by threatening to withhold products.
Fast forward to the present, President Trump’s reducing of the income tax and replacing it with tariffs is essentially a return to the policies that existed in America for its first century and a half, during which time the U.S. grew to have the strongest economy on earth with the highest standard of living for its citizens.
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