Before There Were Income Taxes

Drinking glass with McKinley's image and the motto "Protection and Plenty" (courtesy Cornell University Library via Flickr Commons)

Do you ever get the sense that there are forbidden topics in American politics?  If there are, I think one is the tariff and the costs of “free trade.”  (Another is the price of food, but I’m not going to write about that today.  Nor am I going to write about the relation between rising domestic gas prices and the export of our own oil and gas, which has recently reached an alltime high.)

No, my only topic today will be the tariff, not because it’s timely or explosive or even the slightest bit sexy, but because it’s been tugging at the edges of my attention lately.  And I’m going to indulge myself by writing about the tariff nostalgically, in my capacity as a citizen and an historian, not as a trade expert or an economist—because of course I’m neither of those things.  (If you’re fuzzy on what a tariff is, you may wish to read this.)

Recalling the tariff is important, because it was once a central element of US fiscal and trade policy.  Thinking about this now-forgotten source of federal revenue may free us to grapple with the budget woes confronting us more creatively.  But first, let me back up and locate my nostalgia in a specific situation—several situations, really, existing concurrently.

1. The Tax Man Cometh

Last month, the nice man who does our income taxes paid us a visit.  We had a nice lunch, then Bob and I handed off all the forms and papers he needed to take away.  It was a nice modern ritual.  It couldn’t have happened in the 19th century (except for a brief period in the 1860s—and there were no professional accountants then—), because the federal income tax was established permanently only in 1913.  Ever wonder how the federal government was funded before then?  By 1913, the US was 124 years old.

Tariffs are a big part of the answer.  From the nation’s founding until 1913, tariffs on goods imported into the US typically accounted for the bulk  (sometimes more than 90 percent) of the government’s revenue stream.  The remainder of its needs were met through excise taxes on goods such as whiskey.

2. Red-Ink Ricochet and the Mood of 2011

We live in a time of red ink, a condition that’s occasioned conflict and a fit of soul-searching.  The mood of 2011 was angry and irritated.  Occupy Wall Street, the strident clamor of the Tea Party, protracted and still unresolved quarrels in Congress over tax cuts and the debt ceiling: these events showed a nation under strain and increasingly divided along party and class lines.  At the heart of the buzz is a widespread conviction: we cannot continue on the same path we’ve been treading.  Our current fiscal policies cannot be sustained, we cannot continue along with more of the same.  As the federal deficit has spiraled, balancing the budget has come to seem an impossibility, the how of it becoming a vexatious topic to a population afflicted with high long-term unemployment and rising income inequality.

Given that the government lacks the will to cut spending, how do we come up with more black ink?  The red stuff is as pesky as the pink snow in The Cat in the Hat story.  We may shift our tax burdens around endlessly, but we’re not due for relief, at least not as long as internal taxation constitutes the US government’s principal revenue stream.

The tariff is germane to these meditations, because the mechanism of the tariff was used in the past to address a constellation of problems similar to those we confront today.

When the country was first founded, it occupied an inferior and economically vulnerable position.  The government was saddled with enormous debts accrued from fighting the Revolution.  Our fledgling economy, based primarily on agriculture and trade, was heavily dependent on more mature economies who actually made things.  Globally, industrial manufacturing was in its infancy, but a technology gap and America’s relative labor scarcity hampered our efforts to compete with Europe’s more rapidly industrializing powers, notably England.  Finally, to say that our population was averse to internal taxation was putting it mildly.  For all these reasons, the tariff became the backbone of government financing, a development that also created conditions under which a diversified economy could grow.

The government’s needs then were far more modest.  Yet, throughout the nineteenth century, protective tariffs were more than a great source of federal revenue.  They protected domestic manufacturing, fueling the development of a broad industrial base and abundant labor opportunities.  Indirectly, the tariff promoted conditions in which American laborers could mobilize politically and successfully push for fair wages and other labor standards that gradually improved their quality of life.

Which is not to say the tariff was without political controversy.  For every statesman like Henry Clay, who tirelessly championed tariffs and “home industry,” there was another like John Calhoun, who, when confronted with the Tariff of 1828 (the so-called “Tariff of Abominations“), argued that his state would be justified in striving to nullify and defy the federal law.  Tariffs benefited the more mercantile and industrial parts of the country, while imposing negative effects on those engaged in agriculture.  Each new tariff measure spurred hot debate; countless hours were spent arguing over tariff rates and the specific goods on which tariffs would be imposed.  Yet, despite these drawbacks, tariffs served the national interests of the United States admirably.  Above all, the tariff proved popular politically.

3: Handkerchiefs Spoke To Me

Evidence for this last point came to hand recently, in the form of political handkerchiefs made in the late nineteenth and early twentieth centuries.  That’s right: political handkerchiefs.  They spoke to me.  And they might speak to you, too.

Textile touting the presidential candidacy of Benjamin Harrison (Courtesy Cornell University via Flickr Commons)

While trolling the internet for images to illustrate this post on party platforms, I stumbled on a trove of old political handkerchiefs preserved at Cornell University Library.  Dating mainly from the 1880s through the 1910s, these textiles bespeak the wild popularity of tariffs and “home industry.”

Political handkerchief from the 1888 Republican presidential campaign

Adorned with patriotic symbols and images of prosperity, woven on homespun in American mills, the artifacts suggest a dovetailing of political and economic interests that we think of as inevitably antagonistic.  Indeed, the protective tariff was a powerful political bond mitigating the conflicting interests of American labor and the captains of industry.

1888 Political handkerchief with flags and the words "Protection--Home Industries"

Interestingly, the Republican party was the champion of protectionism in those days.  The question for Republicans in the late 1800s was not whether there should be a tariff, but how high it should be.  In the election of 1888, the budgetary surplus resulting from tariff revenues had grown to be so large that it was something of an embarrassment for the party.  A theme of the election was whether to lower the tariff so that the government would not end up with funds it didn’t need.

Political textile with the slogan "True Blue Republican--Protection--Home Industries"

Despite some modification, the tariff remained a popular element of Republican ideology for at least two more decades.  Industrialists, workers, and politicians shared an interest in maintaining the tariff system, which imposed tax burdens on “the other guy”: those who wanted access to our markets, manufacturers and purveyors of goods from overseas.

Pro-protection handkerchief from Theodore Roosevelt's 1904 campaign (Courtesy Cornell University Library via Flickr Commons)

4. The limits of nostalgia

Back to the present: we live in an era of free trade.  By 1900, our economy had become vastly more productive.  We needed larger markets for the goods we made, the natural resources we harvested, and the crops we grew.  Gaining access to foreign markets has been America’s goal for a century, one integral to the global dominance that we’ve enjoyed.  Achieving this has entailed opening our own market to foreign goods and nearly eliminating the tariff protections American industry once knew.  The US is now party to many reciprocal and multilateral trade agreements, and our capacity to change the terms under which we trade is modulated by our participation in the World Trade Organization (WTO).  The tariff is a mere relic of the nineteenth century, and to write about it is to go against the grain of what we’ve become.

Yet, in the current climate of economic and political unease, Americans are re-examining the role of government and how its fiscal policies can be made a more perfect mirror of the people’s needs.  At such a moment, it may be fruitful to ponder the constructive role of the tariff and all that this alternative system of taxation enabled us to become.

All images in this post are courtesy of the
Susan H. Douglas Collection of Political Americana
at Cornell University Library.
You can visit its photostream here.

Susan Barsy, Bring Back The Platform!, Our Polity.
Ron Grossman, “Globalism and Its Discontents,” Chicago Tribune.
“The Rise of the Income Tax,” a succinct time-line by TurboTax, on view here.

4 responses

  1. I had never even heard of political handkerchiefs before and have to admit that I am absolutely enamored with them. Thank you for the education!

    • Shelly,
      Thank you for reading! Wish I knew more about these textiles. Were they used as bandanas, or perhaps to wave in parades, or to dry dishes with (or blow noses in), or all of the above? Who knows? Maybe to wipe away tears after a political defeat. . . . There are remnants of cloth dating back to at least the 1840s with images of presidential candidates woven or stamped on them. . . I appreciate your comment. SB

  2. I really like the analogy of the tariff fight from 1828 to today’s budget/taxation arguments (it reinforces your blog’s theme of “Don’t let anyone tell you it’s never been worse”).

    I think we should remember this fight, though, as more than “politically controversial,” as it nearly sparked a secession from Calhoun’s South Carolina, only to be put down by the political brilliance of Andrew Jackson. Your conclusion that the tariff remained politically popular has merit, but I think you might find objection to it from people who remember these politicians as the victors of the Civil War (protectors of manufacturing) as manufacturing or economic prosperity outside of agriculture in the South saw little growth until after the Great Depression.

    Great insight, though.

    • Eric,
      Thanks for your comment. I guess the comparison with the conflict over the 1828 “Tariff of Abominations” drives home the point that with every system of taxation there are winners and losers, and that the nation goes through periods when the differences between the two camps are more and less obvious/embittering. As is true of the present day tax code, the tariff schedule was constantly being toyed with and adjusted, and not every year was like 1828–it took years of concerted effort in the late 1800s before the Democrats succeeded in again making the tariff a major partisan issue, and years more before their anti-tariff stance prevailed.

      It’s interesting that Obama actually mentioned protection (though not tariffs) in his State of the Union address, and that tariffs are beginning to feature in the solar panel controversy with China. I could imagine tariffs (or some close substitute thereof) again featuring in public discourse as competition over commodities intensifies globally. . .
      Thanks again for your comment!