#30-31: The Power to Tax

In Federalist #30, Hamilton argues for an unlimited power of taxation for the national government. He didn’t want to tax excessively or spend extravagantly. But he opposed any constitutional limitation for what the national government could to to fund its activities. Hr said government has to remain free to do whatever become necessary in any possible situation.

Critics of the proposed Constitution had suggested that the national government should be content to rely of donation from the states. Others had said the national government should be limited to money from import taxes. Hamilton says no to both:

Those who have carefully attended to its vices and deformities as they have been exhibited by experience or delineated in the course of these papers, must feel invincible repugnancy to trusting the national interests in any degree to [state donations or to import fees only]. Its inevitable tendency, whenever it is brought into activity, must be to enfeeble the Union, and sow the seeds of discord and contention between the federal head and its members, and between the members themselves.

Hamilton insisted on a very reasonable principle, which was that government should have the resources necessary to accomplish its functions. The scope and scale of the government duties could not be forecast, so he insisted that government revenues should not be capped, either.

The critics of unlimited revenue powers may have felt they were being generous when they said, “Let the national government have all the money from imports!” But Hamilton insisted that the only right policy would be one that allows the national government to get as much as it needed, at all times. Neither of the other recommendations achieved that. They were both, in their way, limited. The plan to rely on state donations was especially weak. That policy had failed under the Articles of Confederation.

Hamilton was wise in matters of finance. He would be the nation’s first Secretary of the Treasury under Washington. So he treated the need for ample government funding with great care and attention to detail. Some critics had suggested that if the limited powers of raising revenue was inadequate from time to time, the government could just borrow during emergencies and pay the borrowed amounts back slowly. Hamilton shot that idea down by explaining that investors would refuse to lend any money to a government that was behind in its current expenses and legally prohibited from collecting necessary funds. No, he insisted, only unlimited revenue powers would be adequate for the national need.

Perhaps the most important thing for modern readers to take away from Federalist #30 is that one of the two national political parties has rejected Hamilton’s guiding wisdom. A majority of Republicans in both the House and the Senate have pledged never to support a tax increase of any kind or at any time.

This pledge, urged by Americans for Tax Reform, does not reduce total government spending. It doesn’t not even target and eliminate wasteful government spending. It only ensures that government will not have adequate revenue. The organization has been around since 1985, since when the national government has failed to curb spending and has ballooned the national debt to its current level of $26 trillion.