Why the Feds Have Taxing Authority
We’re into another election cycle, and taxes will be a topic of political ads, soundbites, statements, and votes by legislators and by citizens who put the legislators in place. The issue of taxes has been a political issue since colonial times.
Taxes were one of the reasons our Founding Fathers went to war with the British. It was not so much that they were opposed to them, but more about having a say in what was taxed and how much it was taxed.
On day one of independence, which is actually May 12th, 1784 – yes, the treaty was signed on September 3rd, 1783, but the day it became effective is May 12th, the Continental Congress had several problems. One was that the U.S. was deeply in debt to France, Spain, the Netherlands, and many of our own citizens. All of whom wanted to be repaid.
Benjamin Franklin had managed to get the French to agree to a five-year moratorium before the first payment was due. The date the clock began ticking was May 12th, 1784. The loans from Spain and the Netherlands had similar clauses, but the citizens who loaned money to pay for the war wanted to be repaid and repaid now or within the terms of the agreements signed by Robert Morris and Hyam Solomon.
Even though the citizens who loaned money were pressuring their representatives for their money plus interest, the Continental Congress was powerless to respond. Its document of authority – the Articles of Confederation – did not give it power to raise taxes.
Article VIII states – All charges of war, and all other expenses that shall be incurred for the common defense or general welfare, and allowed by the united states in Congress assembled, shall be defrayed out of a common treasury, which shall be supplied by the several states, in proportion to the value of all land within each state, granted to or surveyed for any Person, as such land and the buildings and improvements thereon shall be estimated, according to such mode as the United States, in Congress assembled, shall, from time to time, direct and appoint. The taxes for paying that proportion shall be laid and levied by the authority and direction of the legislatures of the several states within the time agreed upon by the United States in Congress assembled.
Note that the last sentence states that the taxes for paying for the common defense are to be levied by the individual states.
Later in the document, the writers of the Articles of Confederation created a huge problem when they agreed upon Article XII. All bills of credit emitted, monies borrowed, and debts contracted by or under the authority of Congress, before the assembling of the United States, in pursuance of the present confederation, shall be deemed and considered as a charge against the United States, for payment and satisfaction whereof the said United States and the public faith are hereby solemnly pledged.
Article VIII gives the Confederation Congress the power to run up bills in order to pay for the areas of government under its authority. Article XII gives the responsibility for paying the debts to the Confederation Congress for the expenses created under Article VIII.
However, to get the cash to pay the debts, Article VIII is explicit in that the Continental Congress must go to each of the states and ASK the legislature to appropriate the state’s share. This form of checks and balances turned out to be unworkable because few of the states provided the money asked for by the Continental Congress during the American Revolution.
Which brings us back to the date of May 12th, 1784, plus five years, i.e., May 12th, 1789. Our Founding Fathers knew something had to be done. The Constitutional Convention began in May 1787 and ended in September 1787.
The new Constitution solves both the problem of the citizens having a say in what taxes are imposed and who can levy taxes in Article I – Legislative, Section 8, Clause – 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;
New Hampshire ratified the Constitution on June 21st, 1788, 11 months before the first payment to France, and others were due. Now, our Founding Fathers had to create a government to actually implement the new Constitution.
Image is the Seal of the U.S. Treasury designed by Francis Hopkinson and used from 1789 to 1968.