Federalist 12: The Union Will Increase Commerce and Therefore Taxes

THE FORMATION OF THE UNITED STATES will increase the commercial prosperity of the States and revenues to their governments. The prosperity of commerce is the most useful and productive source of national wealth.  The introduction and circulation of precious metals – those darling objects of human avarice and enterprise – invigorate the channels of industry. The assiduous merchant, the laborious husbandman, the active mechanic, and the industrious manufacturer – all orders of individuals – look forward with eager expectation to this pleasing reward of their toils. 

Experience demonstrates the interest of agriculture and commerce are intimately blended and interwoven. Where commerce has flourished, land has risen in value. And how could it have happened otherwise? Commerce procures a freer vent for the products of the earth, and incites the cultivation of land, which is the most powerful instrument in increasing the quantity of money in a state.  The value of land, in turn, is augmented by labor and industry. It is astonishing that so simple a truth should ever have had an adversary.  It is but one example of how a spirit of ill-informed jealousy – or one of too great abstraction and refinement – can lead humans astray from the plainest truths of reason and conviction.

The ability of a country to pay taxes must in great degree be proportioned to the quantity of money in circulation, and to the celerity with which it circulates.  Since commerce contributes to both these objects, it necessarily renders the payment of taxes easier, to the benefit of the public treasury.  

Wealth without Commerce Reduces Tax Revenue

The hereditary dominions of the emperor of Germany consist of a fertile, cultivated, and populous territory, largely situated in mild climates, and with some of best gold and silver mines in Europe.  And yet revenues are slender due to a lack of commerce, resulting in borrowing from foreigners to preserve his essential interests, and an inability to sustain a long or continued war upon the strength of his own resources.

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Experience demonstrates the interest of agriculture and commerce are intimately blended and interwoven. Where commerce has flourished, land has risen in value. And how could it have happened otherwise? Commerce procures a freer vent for the products of the earth, and incites the cultivation of land, which is the most powerful instrument in increasing the quantity of money in a state.

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From experience we have discovered it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed; and the treasuries of the States have remained empty. Even in Britain, direct taxation is far exceeded by revenue of the indirect kind, such as imposts and excises, particularly duties on imported articles. 

In America, revenue must depend chiefly on import duties. Other excise taxes – which are imposed on a step in the production, manufacture, sale or distribution of goods – must be confined within a narrow compass in most parts of the country, since the genius of the People will ill brook the inquisitive and peremptory spirit of excise laws.  Impositions on houses and lands will yield but scanty supplies from the reluctant pockets of farmers. Personal property is too precarious and invisible a fund to be laid hold of in any other way than by the imperceptible agency of taxes on consumption.

A general union, being conducive to the interests of commerce, would tend to the extension of revenue drawn from that source, and contribute to rendering regulations for the collection of the duties more simple and efficacious. In making the same rate of duties more productive, governments would have the power to increase the rate without prejudice to trade.

In the absence of a union of States, a conspiracy of circumstances – the number of our rivers and bays, the facility of communication in every direction, the affinity of language and manners, and the familiar habits of intercourse – would render an illicit trade between the States a matter of little difficulty, and would insure frequent evasions of the commercial regulations of each other. To mitigate such trade, separate States or confederacies would forced to lower their duties. The temper of our governments would not likely countenance the rigorous precautions by which European nations guard the avenues of land and water into their respective countries, and which, even there, are found insufficient obstacles to the adventurous stratagems of avarice.

Wisely Guarding Our Coastlines Is Our Best Defense against Smugglers

In France, there is an army of patrols constantly employed to secure their fiscal regulations against the inroads of the dealers in contraband trade. Without a union, the States would be placed in a situation resembling that of France with respect to her neighbors, and armed patrols would necessarily arise.  The arbitrary and vexatious powers of such patrols would be intolerable in a free country.

With a union, we would have but to guard our coastlines, principally the Atlantic coast, which touches only one side of the union.  Foreign vessels would rarely choose to hazard transferring valuable cargoes prior to entering port.  They would dread the dangers of the coast and of detection upon entry.  A few armed vessels – judiciously stationed at the entrances of our ports – might at a small expense be made useful sentinels of the laws. Since a Federal government would have the same interest to prevent violations everywhere, uniform application of its measures in each State would render them effectual. 

By preserving the United States, we also preserve the advantage of geographical separation natural has accorded us. The United States lies at a great distance from Europe, and a considerable distance from all other areas with which we might have extensive foreign trade. It would be impractical to smuggle goods from these areas in a few hours or a single night, as happens between the coasts of France and Britain. This is a prodigious security against a direct contraband with foreign countries.  Without a union, a circuitous contraband to one State through the medium of another would be both easy and safe. The difference between a direct importation from abroad, and an indirect importation in small parcels through the channel of a neighboring State – according to time and opportunity, with the additional facilities of inland communication – must be palpable to everyone of discernment.

Duties on Imports Are a Sound Basis for Federal Revenue and Ought Not Be Neglected

A single Federal government would be able to extend the duties on imports, at much less expense, than would be practicable by separate States or partial confederacies. Hitherto these State duties have not exceeded three percent on average.  In France they average fifteen per cent, and in Britain twenty percent.  Thus, the United States reasonably could triple existing import duties of the several States.  The Federal regulation of a single article – ardent spirits – would furnish a considerable revenue.  Four million gallons are imported annually.  A duty of a shilling per gallon would produce revenue of two hundred thousand pounds. Liquor would well bear this duty, and if the duty diminishes consumption, the effect would be equally favorable to the agriculture, economy, morals, and health of society.  There is nothing so much a subject of national extravagance as these spirits.

What will be the consequences of not availing ourselves of these sources of revenue? A nation cannot long exist without revenue. Destitute of this essential support, it must resign its independence and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. 

Taxes on Commerce Must Be the Principal Source of Federal Revenue

In the United States, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land. Excise taxes are too little in unison with the feelings of the People to admit of great use. Indeed, in the States where almost the sole employment is agriculture, the objects proper for excise are insufficiently numerous to permit very ample collections in that way.  Personal property, due to the difficulty in tracing it, cannot be subjected to large contributions, except by indirect taxes on consumption. In populous cities, perhaps, personal property taxes may more easily be collected – to the oppression of individuals – but beyond these circles, it will largely escape the eye and hand of the tax gatherer.  

This leaves the possessors of land as the principal source of revenue for the public treasury. Without having other sources of revenue available to maintain the government, we shall not even have the consolation of a full treasury to atone for the oppression of that valuable class of the citizens employed in cultivation of the soil.  Public and private distress will keep pace with each other in gloomy concert; and unite in deploring the infatuation of those counsels which led to disunion.  Taxation is discussed in greater detail in Federalist 30 through Federalist 36.  

Hamiltonoriginal Federalist 12