Everybody hates taxes, right? Well, at least everybody hates paying taxes. Today, on Historical Spotlight, we will look at a time in history, shortly following the creation of America's Constitutional Republic, when Americans became really angry at being taxed. Today, we will look at the Whiskey Rebellion. the american war for independence had taken a severe toll on the new nation from the opening shots at lexington and concord through the grueling winter at valley forge and ending with the triumphant victory at yorktown americans paid for the war in blood seven years after the war americans were still paying with their treasure Following the ratification of the new constitution, the United States federal government found itself burdened with an excessive amount of debt.
Years of fighting a war with England had caused the United States to owe bondholders and others approximately $54 million. This would be comparable to a U.S. national debt of $4.1 trillion in 2009 by relative share of GDP. The states themselves had amassed a debt of approximately $25 million. In order to manage this debt and make the country fiscally stable, the first Secretary of the Treasury, Alexander Hamilton, in his first report on public credit, proposed a solution.
First, in order to make the federal government appear credit-worthy, the existing debt would have to be paid. He urged Congress to consolidate all existing federal and state debt into a single debt that would be funded by the federal government. Revenue to satisfy this debt would be raised by issuing bonds.
No surprise there. Governments seemed to be content with creating more debt to pay existing debt. The interest on the new debt would be paid by tariffs and an excise tax. Congress approved Hamilton's proposal in June and July 1790. The initial reaction to this measure caused a massive speculation in previously issued war bonds.
Speculators with inside knowledge of the plan, knowing that the government would pay full face value of the bonds, combed the states looking for unsuspecting bondholders to sell their bonds for pennies on the dollar. Economist Thomas DiLorenzo writes, Everywhere, men with capital were feverishly pushing their advantage by preying on the ignorance of the poor. New York newspapers speculated that Robert Moore stood to make $18 million, more than $300 million in today's dollars, while Governor George Clinton of New York would pocket $5 million. Hamilton himself purchased some of the old bonds through buying agents in Philadelphia and New York, but insisted that they were for his brother-in-law.
The key to Hamilton's proposal was the excise tax. Hamilton knew that current revenues from tariffs were insufficient to pay the interest on the new debt. The plan needed additional revenue to work.
Hence, an excise tax, a tax on goods produced within the country, would solve this problem. At Hamilton's urging, Congress passed the Whiskey Act in March 1791. This act taxed the production of distilled spirits. It became the first tax levied on a domestic product by the federal government. The new tax was not well received, especially in parts of western Pennsylvania. Many refused to pay the tax.
Protests and demonstrations ensued. Some tax collectors were reportedly tarred and feathered. Some statesmen, such as Secretary of State Edmund Randolph, and the first Attorney General of the United States, urged negotiations between the federal government and the Pennsylvanians. However, when local courts refused to convict tax delinquents, Alexander Hamilton urged George Washington to quell the protest. Subsequently, a 13,000-man army containing many conscripts was created and led by Washington for the purpose.
This army was larger than most armies fielded by Washington during the entire Revolutionary War, and it would be the first and only time a sitting American president led an army against his own people. The rebellion was eventually put down in October of 1794. However, only 12 men were arrested, with two men being convicted of treason. Washington eventually pardoned both men. The Whiskey Act was later repealed after Thomas Jefferson came to office in 1800. What was the Whiskey Rebellion all about?
Why did the rebels refuse to pay what Hamilton saw as a luxury tax? Why did the federal government call out an army of 13,000 men to arrest 12 individuals? From the tax protesters'side, the whiskey tax was more than a luxury tax.
Many farmers, not only in western Pennsylvania, but also in Kentucky, Maryland, and other backwoods Appalachian areas, found it difficult to transport their grains to market. To avoid this, they converted their crop into whiskey. The whiskey was then used as a type of currency to purchase other goods.
Thus the distilling of whiskey was quite widespread, and the revenues generated from it were integral to the lifeblood of the farmer's economy. Why should our crops be taxed and our economies threatened when farmers in other parts of the country are not taxed on crops such as cotton or tobacco? After all, shouldn't taxes be equally apportioned?
The national government has given us two methods of paying the whiskey excise. We can pay a flat charge or pay by the gallon. This tax effectively favors the large distillers, most of which are based in the east.
They produce whiskey in volume and can't afford the flat fee. We Western farmers own small stills produced as a home business or for ourselves. The large producers end up paying a tax of six cents per gallon, while we small producers are taxed at nine cents per gallon.
This tax gives them an advantage over us. That doesn't seem fair. Murray Rothbard points out, that there might have been a deeper resentment to the whiskey tax as an excise tax.
Since the British imposition of the stamp tax in 1765, Americans had developed a hatred of the excise tax. Rothbard states, To the average American, the federal government's assumption of the power to impose excise taxes did not look very different from the levies of the British crown. Why then did Hamilton urge Washington to send such an overwhelming force to crush a nonviolent rebellion?
First, it should be pointed out that it was not only Pennsylvania farmers who did not pay the tax. The tax was not paid in other backcountry areas either. Why did the federal government invade Pennsylvania and not other states? Historian Claude Bowers wrote in Jefferson and Hamilton, These officers were eager to enforce collection of the whiskey tax so that the value of their government bond holdings could be enhanced and secured.
It was probably easier to muster a conscripted army commanded by officers who had a vested interest in seeing their bonds paid by the tax revenue, to venture into Pennsylvania than the geographically difficult areas of Kentucky and Appalachia. Also, since Kentucky was recently made a state, the possibility of secession was not something Washington wanted to risk. But we still have not answered the question of why did Hamilton suggest such an overwhelming force? This is what Madison said of Hamilton's handling of the affair.
Hamilton's extreme excitement over this whole affair exposed his not-so-hidden agenda of the glories of the United States woven together by a system of tax collectors. Hamilton was making a point. The federal government had passed a tax.
This tax was integral to his vision of government. Deficit spending was necessary and someone had to pay for it. An army of tax collectors was necessary for receipt of payment.
Who then were the victors? The rebellion was generally considered non-violent. Two men were convicted and pardoned. The tax was generally not collected. The tax was eventually discarded.
Except for the War of 1812, the excise was not used until the Civil War. Murray Rothbard called it a victory for liberty and property rather than for federal taxation. Thank you for watching Historical Spotlight. You can watch more of our historical videos on www.historicalspotlight.com