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1789 - The First Tariff

The pre-Revolutionary experience with taxation without representation, even when that taxation came disguised in the form of tariffs, meant that Americans would be very suspicious of all trucation schemes once they had declared their independence in 1776. Consequently, throughout the Revolutionary War, the Continental Congress was denied the power to levy truces of any sort and forced to depend instead upon voluntary contributions from the States.

This unsatisfactory situation persisted in the postwar Confederation Period as well. The individual States practiced a sort of tariff anarchy, imposing discriminatory and arbitrary duties upon the products of one another and presenting foreign traders with a bewildering array of tariff rates. This unstructured system was understandably unsettling.

By 1789, having explicitly assigned to the Federal Government authority to regulate interstate commerce as well, the new Federal Constitution then prohibited any of the individual States from taxing imports or exports. The central Government assumed all responsibility for setting tariff rates and for presenting a common economic policy to the outside world.

The need for revenue was crucial. James Madison was selected as the Nation's first Speaker of the House, the people's representative body specifically delegated to originate all revenue bills. He immediately introduced a revenue tariff measure designed to raise money to pay Government wages and obligations and to fund the national debt. This initial tariff bill became law on July 4, 1789, and it contained many of the characteristics found in later tariff acts. Most imported goods were subject to a 5-percent-ad-valorem duty.

Subsequent adjustments were in later decades to balance the government's revenue with its quite moderate expenditures. The annual Federal income from all sources did not reach $10 million until 1800, and it did not exceed $20 million until 1816. Thus, during the first years of the Nation's independent existence, its operating expenses remained quite low. Consequently, its tax and tariff collections also remained quite modest, amounting to only a dollar or two for every man, woman, and child in the country.

The 1789 tariff was not strictly a revenue act. Its first section declared that it was "necessary for the support of government, for the discharge of the debts of the United States, and the encouragement and protection of manufactures . . . . " Many of the commodities assigned specific rates had been selected because they were produced within the United States. The specific rates were set somewhat higher than the standard 5 percent ad valorem in order to encourage the people of the United States to buy from domestic producers. As protective measures, these early tariffs proved too low to be effective. Despite Secretary of the Treasury Alexander Hamilton's enthusiastic advocacy of protective tariffs, the Nation as a whole exhibited little interest in using high tariffs to stimulate manufacturing at home.