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A. Introduction The process by which Congress writes revenue laws has been shaped by many factors. Some are recent, like the Budget Act and the resulting reconciliation process. Others lie deep in the past. This article describes the beginning of the process, from 1780- 1789, when revenue and the process by which Congress tried to raise it were central issues. Many of the major elements of the tax legislation process emerged then. During the revolution, the new government incurred huge debts. To pay them, Congress considered many forms of revenue, eventually approving a nationwide tariff. The Articles of Confederation, however, required that the tariff be ratified unanimously by the 13 states. When that did not occur, the tariff failed, the debt compounded, and the nation's financial condition deteriorated. The Constitutional Convention was called in large part to give Congress the clear power to raise revenue. The framers quickly agreed to do so. But, even then, the process by which Congress would raise revenue was extremely controversial. The origination clause -- providing that revenue measures must originate in the House -- became linked to the central debate over representation. It was debated extensively, voted on five separate times, and modified repeatedly before final adoption.
After the Constitution was ratified, the new Congress turned immediately to revenue; the long, difficult debate about the first revenue law covered several issues that remain pertinent, including early forms of "horizontal equity," revenue estimates, regressivity, and special exemptions. By describing these early developments, I hope in some small way to improve our understanding of how Congress writes revenue laws, and help distinquish between those inherent (or at least long-standing) features of the difficult process of raising revenue democratically, and those that are transient and more susceptible to change. B. The Confederation 1. The Need for Revenue. The Revolutionary War generated expenses far exceeding anything in America's colonial experience. But the Continental Congress, having just revolted against Britain for "imposing taxes on us, without our consent,"/1/ was reluctant to impose taxes of its own. Congress turned, instead, to other means. American emissaries criss-crossed Europe, soliciting loans in France, Spain, Holland, and elsewhere. But the new nation had little credit and it was unable to finance the war through borrowing alone; a domestic revenue source was necessary. Congress tried to provide this source by printing money. In 1775, Congress authorized an issue of new currency; by 1780, it had authorized a total of 11 issues, with a face value of $241 million./2/ Each new issue, however, generated inflation. In 1778, the currency was trading (in specie) for one-fifth its stated value; by 1779, it was trading for one-thirtieth./3/ Inflation reached the point where General George Washington wrote to the President of the Congress, John Jay, that "a wagon load of money will scarcely purchase a wagon load of provision."/4/ Fearful of issuing more new currency, Congress next turned to the states, asking first that they provide the Continental Army with supplies and, later, that they pay the troops./5/ Eventually, invoking the Articles of Confederation provision that all expenses "shall be defrayed out of a common Treasury, which shall be supplied by the several Colonies," Congress asked the states to collect taxes and remit them to Congress. Under the Articles, however, compliance was strictly voluntary, and the states, burdened by war expenses and debts of their own, remitted very little./6/
By late 1780, America's fiscal situation was deteriorating. The unpaid army was restless; public confidence was shaken; foreign creditors were wary. The new government was overextended. 2. The Proposed Tariff. As the fiscal situation deteriorated, the nationalists, led by Alexander Hamilton and James Madison, pressed for greater federal powers, especially over economic policy. Congress had been considering various revenue measures for several years. In 1781, the Committee of Estimates and of Ways and Means recommended legislation requesting each state to impose a duty of two and one-half percent on all imports and exports./7/ The full Congress modified the Committee's recommendation by imposing the tariff directly (rather than requesting the states to impose it), imposing it on imports only, and increasing the rate to five percent. On February 3, 1781, Congress passed the tariff bill, and sent it to the states for approval./8/ Congress also sought to improve fiscal operations by establishing a Finance Department and appointing Robert Morris, a well-regarded Philadelphia financier and ardent nationalist, as Superintendent of Finance. Morris was given wide-ranging authority over economic matters. Upon taking office, he reorganized the nation's finances and established a national commercial bank. He also proposed a sweeping solution to the fiscal problem: the national government would assume all state debts and would, at the same time, establish a national revenue system./9/ To start, Morris proposed quick ratification of the tariff bill. "He . . . who opposes the grant of such revenue," Morris wrote, "labors to continue the war, and, of consequence to shed more blood, to produce more devastation, and to extend and prolong the miseries of mankind."/10/ To intensify the pressure on the states, he essentially stopped paying not only creditors but also the army./11/ The tariff, however, would raise no more than $1 million a year -- barely enough to pay interest on the nation's foreign debt./12/ So Morris intended to follow-up with national taxes on polls, property, and various commodities./13/ There was, however, a problem with the tariff. The Articles of Confederation provided that Congress could raise revenue only by requisition to the states; each state would then decide, for itself, how to raise the requisitioned amount. The proposed tariff bill exceeded the scope of this provision; it was, therefore, considered to be an amendment to the Articles of Confederation, requiring ratification by all 13 states./14/ During the remainder of 1781 and early 1782, 12 of the 13 states did ratify the tariff. Rhode Island was the exception. Congressman David Howell, a leader of the anti- nationalists, organized the opposition there. The tariff, he argued, would discriminate against trade- dependent Rhode Island. What's more, its adoption would encourage further national revenue measures, there by fixing "the Yoke of Tyranny" upon the states. Howell's persuasion succeeded, and the Rhode Island legislature rejected the tariff, unanimously passing a resolution declaring that a permanent tariff would make members of Congress "independent of their constituents" and therefore be "repugnant to the liberty of the United States."/15/
Congress dispatched a team of commissioners to try to reverse Rhode Island's decision. En route, they learned that Virginia had rescinded its earlier ratification. Knowing that unanimous ratification now was impossible, the commissioners returned to Philadelphia. The revenue package was dead, the fiscal crisis unabated. Congressman James Madison predicted darkly that the following months would determine whether the Revolution would result in "prosperity and tranquility, or confusion and disunion . . . . The seeds of the latter are so thickly sown that nothing but the most enlightened and liberal policy will be able to stifle them."/16/ 3. Military Unrest. By early 1783 the war was winding down. The British Army had largely been defeated. Treaty negotiations were underway in Paris, and victory was in sight. But many Continental Army soldiers, still unpaid after years of service, had lost their patience. There was talk of mutiny. While the army was encamped at Newburgh, New York, three officers travelled to Philadelphia to present Congress a petition. "We have," it said, "borne all that men can bear -- our property is expended -- our private resources are at an end, and our friends are wearied out and disgusted with our incessant applications." They asked "that a supply of money may be forwarded to the army as soon as possible," and warned that the "uneasiness of the soldiers, for want of pay, is great and dangerous; any further experiments on their patience may have fatal effects."/17/ After the three officers presented Congress their petition, Morris, Hamilton, and others met with them to plot further steps, including possible military action./18/ On March 15, back in camp, the leaders called a mass meeting of disgruntled officers. General Washington, until now silent about the matter, intervened. Before the mass meeting occurred, he called the officers together himself and addressed them. As his address unfolded, it became clear that Washington opposed armed action against Congress. But the angry officers were unmoved. Washington then unfolded a piece of paper and tried to read it, but was unable. He reached into his pocket for a pair of spectacles, which he never before had worn in front of the troops. "Gentlemen" he said, "you will permit me to put on my spectacles, for I have not only grown gray but almost blind in the service of my country." With that, many of the men wept./19/ Washington's eloquence and sincerity had quelled the immediate threat. He also agreed to renew his request that Congress pay the officers. He soon did so, expressing confidence that "a country rescued by their arms from impending ruin will never leave unpaid the debt of gratitude."/20/ This time, worried about possible mutiny, Congress complied, passing legislation granting each officer severance pay equal to five years' salary, payable in federal securities (enlisted men had previously been promised lifetime pensions at half-pay)./21/ 4. The Second Proposed Revenue Package. As the conspiracy was unfolding, the nationalists in Congress were busy reviving their revenue proposals. On February 12, Congress adopted a resolution reaffirming that "permanent and adequate funds on taxes or duties, which shall operate generally and on the whole in just proportion throughout the United States, are indispensably necessary towards doing complete justice to the public creditors, for restoring public credit, and for providing for the future exigencies of the war."/22/ The members then began debating various ways of achieving this goal. But they had little success. The general support for a national revenue system evaporated when the debate turned to specifics. New Englanders insisted that any land tax apply at a uniform per-acre rate (land values were high in New England); Southerners insisted that it be levied ad valorem. Maryland's constitution prohibited a poll tax. Excise taxes were considered difficult to administer. And states without western land holdings opposed virtually any tax, insisting that necessary revenue be raised by selling western lands./23/ A frustrated Madison wrote that "[t]he generality of members are convinced of the necessity of a continental revenue," but that the "extent of the plan . . . compared with the prepossessions of their constituents produces despondence and timidity."/24/ After several different taxes had been rejected, Madison proposed a compromise, combining a tariff similar to the one proposed in 1781 with requisitions to the states (which the states would be free to meet by using whatever revenue methods they wished)./25/ On February 21, Congress appointed an ad hoc committee of Madison, Hamilton, Thomas Fitzsimons of Pennsylvania, John Rutledge of Virginia, and Nathanial Gorham of Massachusetts to refine Madison's proposal./26/ On March 6, the committee reported back to the full Congress, recommending a package containing both the tariff and the requisition./27/ An extensive debate ensued, with portions of the proposal being recommitted to the committee and several amendments adopted./28/
On April 18th, the proposal was finally approved. It contained two main elements. The first was a tariff, applied to most imports at a rate of five percent ad valorem, with higher tariffs on liquor, wine, tea, salt, pepper, sugar, coffee, molasses, and cocoa; Madison estimated that this tariff would raise $915,946 its first year of operation (observing, however, that "[a]ccuracy . . . on so complex and fluctuating a subject, is not to be expected"). The second element was a requisition requiring each state to provide "substantial and effectual revenues of such nature as they may judge most convenient, for supplying their respective proportions of one million five hundred thousand dollars annually . . . . " These new revenue provisions were to be limited and temporary. Congress was permitted to raise only revenue necessary for the "discharge of the interest or principal of the debts contracted on the faith the United States, for supporting the war." Moreover, both the tariff and the requisition expired after 25 years./29/ Congress sent the proposed revenue package to the states, accompanied by a letter, drafted by Madison, urging ratification./30/ However, unanimous ratification again was required -- this time explicitly, in the legislation itself. Rhode Island remained obdurate (both Rhode Island Congressmen had voted against the revenue package), and several other states had grown skeptical. Before long, the ratification process bogged down./31/ 5. Economic Chaos. April 11, 1783 brought news that the Treaty of Paris, formally ending the war, had been signed. Some troops remained angry. At one point, a large group surrounded the Pennsylvania State House while Congress was meeting there, forcing Congress to adjourn and reconvene in Princeton, New Jersey. But the army soon disbanded, with each soldier receiving securities representing Congress' promise to provide him either severance pay or a pension. Although peace eliminated the pressure for an immediate infusion of revenue, the new nation's fiscal problems persisted. The federal government owed a total of $42 million to various foreign governments, domestic financiers, Continental Army veterans, and wartime suppliers; interest payments alone were $2.4 million a year (all in 1783 dollars)./32/ The economy was in shambles. Currency speculation was rampant, with brokers buying up the outstanding domestic securities for a fraction of their face value and then pressuring Congress to redeem them. Many states were issuing their own currency, to both finance their debts and to appease private debtors seeking relief through depreciated currency values. Inflation rose dramatically, and bitter struggles erupted between debtors and creditors. In addition, commerce had been disrupted. The states had lost their access to British markets, including the West Indies. Exports declined. British merchants began dumping manufactured goods in the U.S. market, jeopardizing American manufacturers. The national government, unable to secure ratification of the tariff bill, was powerless./33/ States responded with tariffs of their own. But, as Madison later wrote, these tariffs "not only proved abortive, but engendered rival, conflicting, and angry regulations . . . . [as] the States having ports for foreign commerce, taxed and irritated the adjoining States . . . . "/34/ In 1784, Congress approved an amendment to the Articles of Confederation giving Congress exclusive authority to regulate trade, but once again the states failed to ratify the amendment./35/
There were other problems. Britain refused to remove its troops from the Northwest. Spain threatened to apply a stranglehold to commerce along the Mississippi. The new government was unable to cope with these threats or respond to attacks by Indians in the west and pirates on the high seas. The British government informed Ambassador John Adams that it henceforth would deal with the 13 states individually./36/ As the problems compounded, the Confederation seemed impotent. It was, Hamilton later wrote, a time of "national humiliation."/37/ A frustrated Robert Morris finally resigned as Superintendent of the Treasury; Hamilton and Madison left Congress. Meanwhile, nationalist sentiment grew, as increasing numbers of commercial, financial, and political leaders concluded that the only solution was the establishment of a new, stronger, national government. 6. The Annapolis Convention. A boundary dispute began the process of establishing that new government. In March, 1785, representatives of Maryland and Virginia met at Mount Vernon to clarify jurisdiction over Chesapeake Bay. They produced an agreement that not only did that, but also also recommended broad commercial coordination, including uniform tariffs, between their states./38/ When the recommendations came before the Virginia legislature, Madison seized the opportunity, persuading his colleagues not only to ratify the recommendations, but also to call for a convention of states to consider "such commercial regulations [as] may be necessary to their common interest and their permanent harmony."/39/ The convention occurred in Annapolis in September, 1786, and was attended by delegates from New York (including Hamilton), New Jersey, Pennsylvania, and Virginia (including Madison). After a brief debate, the delegates approved a resolution that cited "important defects in the system of federal government" and urged Congress to summon a further convention, "to meet at Philadelphia on the second Monday in May next, to take into consideration the situation of the United States, [and] to devise such further provisions as shall appear to them necessary to render the constitution of the federal government adequate to the exigencies of the union."/40/
Although there was some reluctance to take such a dramatic step, Congress eventually acquiesced. On February 21, 1787, it adopted a resolution calling for a convention of states, in Philadelphia, "for the sole and express purpose of revising the Articles of Confederation."/41/ C. The Constitutional Convention 1. The Debate Begins. In early May 1787, the convention delegates began arriving in Philadelphia. On May 25, a quorum was present and the convention began. The first few days were spent organizing. On May 29, Edmund Randolph of Virginia addressed the convention. He outlined the defects of the Confederation, including the nation's inability to attain "many advantages . . . such as a productive impost."/42/ Randolph then presented what became known as the Virginia Plan. Drafted largely by James Madison to embody the objectives of the nationalists, it called for the establishment of a strong national government, including a bicameral legislature with not only the powers possessed by the Confederation Congress, but also the power "to legislate in all cases to which the separate States are incompetent, or in which the harmony of the United States may be interrupted by the exercise of individual legislation."/43/ The next day, the delegates endorsed the general framework of the Virginia plan by adopting a resolution providing that the existing confederation of sovereign states was inadequate and, therefore, "that a national government ought to be established consisting of a supreme Legislature, Executive, and Judiciary."/44/ Then they began debating the details, working through the Virginia Plan resolution-by-resolution. As they did so, the delegates generally agreed that the legislature should have the unequivocal power to raise revenue, without the need for state ratification. Indeed, when the Committee on Detail enumerated specific legislative powers, the power "to lay and collect taxes, duties, imposts and excises" was the first listed, and was adopted without significant objection./45/
But the delegates disagreed sharply about the procedure by which Congress should consider such revenue legislation. As proposed by Randolph, the Virginia Plan provided that each branch of the bicameral legislature "ought to possess the right of originating acts."/46/ As the debate progressed, however, some delegates argued that the lower house should possess primary authority over all "money bills." Their model was the British constitution, which provided that such bills must originate in the House of Commons and could not be substantively amended by the House of Lords. Blackstone's Commentaries, which had been published a decade before and was widely read by the delegates, explained that "so unreasonably jealous are the Commons of this valuable privilege, that . . . they will not suffer the other house to exert any power but that of rejecting; they will not permit the least alteration or amendment to be made by the lords . . . . "/47/ Several state constitutions contained similar provisions./48/ On June 13th, Elbridge Gerry of Massachusetts moved to modify the Virginia Plan "to restrain the Senatorial branch from originating money bills." The House, he argued, would be more directly representative of the people, "and it was a maxim, that the people ought to hold the purse-strings." Several delegates disagreed. Pierce Butler of South Carolina complained that "[w]e were always following the British Constitution, when the reason for it did not apply." Madison argued that the members of the Senate "would be generally a more capable set of men, [and] it would be wrong to disable them" from considering any issue, especially "that which was most important." Charles Pinckney of South Carolina noted that a similar provision of the South Carolina constitution "has been a source of pernicious disputes between the two branches" and was commonly evaded. The Gerry amendment was then put to a vote and defeated, with three states for and seven against./49/ 2. Deadlock and Compromise. Despite this initial defeat, the arguments of Gerry and others would soon have an impact, as the question of originating revenue legislation became linked to the debate about legislative representation -- the convention's central debate. Strong nationalists, mindful of the Confederation Congress' repeated inability to overcome the objections of one or a few states, sought to replace the Confederation system of equal state representation with proportional representation based on population. Others, including both the "anti-federalists" fearing an excessive concentration of national power and the representatives of small states, sought to maintain equal state representation. The dispute had come to a head on June 11th. Winding up their initial debate about the details of the Virginia Plan, the delegates voted for proportional representation in not only the House but also the Senate./50/ Delegates from small states became alarmed. On June 15th, they responded by presenting an alternative, the New Jersey Plan, which, among other things, would maintain a unicameral legislature in which states were represented equally./51/ The plan was rejected, by a vote of seven to three,/52/ but that did not put the question of representation to rest. Over the next few weeks, delegates from small states continued to object, with some threatening to withdraw from the convention. Various alternative systems of representation were suggested and rejected. Tempers rose, and at this point Benjamin Franklin suggested that the delegates begin each morning's session with a prayer./53/ On July 2, a proposal to modify the Virginia Plan to retain a bicameral legislature but represent states equally in the Senate failed by a tie vote of five to five./54/ To break the deadlock, Charles Pinckney of South Carolina suggested that a special committee be established to recommend a compromise, and the delegates agreed./55/ Three days later, on July 5th, the special committee recommended the "Great Compromise." Two paragraphs long, the compromise amended the Virginia Plan to satisfy the main demand of the small states: representation would be proportional in the House but equal in the Senate. To mollify the large states, the compromise further provided that "all bills for raising or appropriating money . . . shall originate in the first branch of the Legislature, and shall not be altered or amended by the second branch[.]"/56/ After submitting the compromise, Gerry noted that "those opposed to the equality of votes have only assented conditionally," and would withdraw their support if any element of the compromise were significantly modified./57/ As the delegates began considering the compromise, the provision requiring that revenue legislation originate in the first branch immediately ignited a debate. Although he was a nationalist and represented a large state, Madison objected. This provision, he argued, was essentially meaningless, because it could easily be circumvented and would be "a source of frequent and obstinate altercations." Several delegates agreed with Madison, arguing in addition that it was unwise to restrict the Senate's legislative role./58/
George Mason, a member of the special committee that had recommended the Great Compromise, responded. "The consideration which weighed with the Committee," he said, "was, that the first branch would be the immediate representatives of the people; the second branch would not. Should the latter have the power of giving away the people's money, they might soon forget the source from whence they received it. We might soon have an aristocracy."/59/ After several other delegates had joined Madison in questioning the need for the provision, Benjamin Franklin joined Mason in supporting it. It was, he said, "a maxim, that those who feel, can best judge." This end, he said, would "be best attained, if money affairs were to be confined to the immediate representatives of the people."/60/ Shortly thereafter, the provision was approved by a vote of five to three, with three states divided./61/ On July 16th, the overall compromise was adopted./62/ The delegates then resumed debate about the remainder of the Virginia Plan, focusing on the powers of the legislature and on the structure of the executive and judicial branches. On July 26th, those debates having concluded, the delegates completed their review of the Virginia Plan and refered the revised plan to a Committee on Detail for refinement./63/ When the Committee reported back on August 6th, its draft provided, like the Great Compromise, that " [a]ll bills for raising or appropriating money . . . shall originate in the House of Representatives, and shall not be altered or amended by the Senate."/64/ But the debate over originating revenue legislation was far from over. Two days later, as the Committee's report was being debated, Charles Pinckney proposed deleting the origination clause "as giving no peculiar advantage to the House of Representatives, and as clogging the Government. If the Senate may be trusted with the many great powers proposed, it surely may be trusted with that of originating money bills."/65/ After a brief debate, the Pinckney proposal was adopted by a vote of seven to four./66/ Thus, as far as originating revenue bills was concerned, the delegates had now reverted to the original version of the Virginia Plan, under which the Senate could both originate and amend revenue legislation. 3. The Randolph Amendment. But now Edmund Randolph objected. When the delegates reconvened the next day, August 9th, Randolph expressed his dissatisfaction with the decision to delete the origination clause, "as endangering the success of the plan, and extremely objectionable in itself." He moved for reconsideration of the decision./67/ When the reconsideration debate began on August 11th, Randolph explained the change in his own position. It was Randolph who had proposed the original version of the Virginia Plan, which would have permitted the Senate to originate revenue measures. At that earlier point, he now explained, no restriction was necessary, because it was possible that the composition of the Senate, like that of the House, would be based on proportional representation. The Great Compromise had changed that. Now, Randolph argued, "since an equality had been fixed in [the Senate], the large States would require this compensation at least." Indeed, he insisted that the inclusion of a provision preventing the Senate from originating or amending revenue measures had been "the condition by which alone the compromise had entitled [the small states] to an equality in the Senate." He also argued that the provision would reduce public concern about the Senate's evolving into an aristocracy. Finally, he proposed modifying the Committee of Detail's version of the origination clause to eliminate ambiguitiesmaking clear that it applied only to bills "for the purpose of revenue" (and not to bills that raised revenue incidentally to other purposes) and permitting the Senate to amend such bills so long as the amendment did not "increase or diminish the sum."/68/ Although Charles Pinckney objected that reconsideration was "a mere waste of time," Randolph's motion was agreed to, and reconsideration was scheduled for the next day./69/ The next day's session began with a debate about citizenship requirements. After settling that, the delegates began, once again, to debate the origination clause. Randolph proposed his substitute, which would provide that:
All bills for raising money for the purpose of revenue, or for appropriating the same, shall originate in the House of Representatives; and shall not be so altered or amended by the Senate as to increase or diminish the sum to be raised, or change the mode of raising, or the objects of its appropriation./70/
George Mason spoke in favor of Randolph's amendment. He explained how it would improve the Committee on Detail's version, by exempting bills that had an incidental effect on revenue and permitting the Senate to delete House bill provisions that were wholly unrelated to revenue (thereby responding to the criticism that the House would use the origination clause to engage in "the practice of tacking foreign matter to money bills" that the Senate then could not amend). Then he repeated the standard arguments for the clause, emphasizing the parallels between the British House of Commons and the new U.S. House of Representatives. James Wilson of Pennsylvania rebutted this point, citing a precedent of his own to show how the House of Commons had abused its revenue originating authority. Elbridge Gerry and Gouverneur Morris of Pennsylvania spoke briefly in favor./71/ Madison next took the floor to continue his consistent opposition to the origination clause as unnecessary and unworkable. He began by dissecting Randolph's modifications. Although designed to clarify ambiguous elements in the original version, Madison argued, the modifications created new ambiguities. How, for example, "could it be determined which was the primary or predominant" purpose of a provision, or "whether it was necessary that revenue should be the sole object, in exclusion even of other incidental effects?" Moreover, he argued, "[t]he words amend or alter form an equal source of doubt and altercation. . . . The Senate may actually couch extraneous matter under that name." Madison also denied that the origination clause was an essential element of the Great Compromise: a majority of the larger states that had initially opposed equal state representation in the Senate, and for whose benefit the origination clause purportedly had been added, had subsequently voted against it. In light of this, Madison asked, "[w]hat obligation, then, can the small States be under to concur, against their judgments, in reinstating the section?"/72/ John Dickenson of Pennsylvania then spoke in support of Randolph's amendment. Arguing that "[e]xperience must be our guide," he pointed out that eight of the state constitutions contained clauses granting the lower house the exclusive right to originate money bills (but noted that most permitted the other house to amend those bills, and urged that the Senate be given such power)./73/ After several delegates responded by describing difficulties that state origination clauses had created, the delegates voted. Both the Randolph amendment and the underlying origination clause were defeated./74/ Once again, the delegates had rejected the origination clause.
4. The Final Agreement. They then resumed their review of the Committee on Detail's report. But the origination clause debate lingered on. A few days later, on August 15th, Caleb Strong of Massachusetts offered a new version designed to achieve a compromise:
Each House shall possess the right of originating all bills, except bills for raising money for the purposes of revenue, or for appropriating the same, and for fixing the salaries the officers of the Government, which shall originate in the House of Representatives; but the Senate may propose or concur with amendments as in other cases./75/
Several proponents of the origination clause spoke briefly in favor of the Strong amendment. Hugh Williamson of North Carolina, for example, said that, despite arguments that the Senate should be strengthened, "many would not strengthen the Senate, if not restricted in the case of money-bills." Therefore, he moved that consideration of the Strong amendment be postponed "till the powers of the Senate should be gone over."/76/ The delegates agreed./77/ Over the next few weeks, the delegates continued to debate the relative powers of the House and Senate. A committee eventually was established to recommend a resolution of various unresolved issues, including the origination clause. On September 5th, this committee recommended a modified version of the Strong amendment. Like the Strong amendment itself, the committee version provided that revenue bills must originate in the House but could be amended in the Senate. It deleted, however, any reference to the purpose for which revenue was being raised. Moreover, it applied only to revenue bills, not to appropriations or salary bills. The committee's clause simply provided that "[a]ll bills for raising revenue shall originate in the House of Representatives, and shall be subject to alterations and amendments by the Senate."/78/
On September 8th, the delegates finally agreed to provisions giving the Senate the exclusive powers to ratify treaties and try impeached officials. Immediately thereafter, they took up the origination clause recommended by the committee. The language regarding Senate amendments was modified to conform to that of the Massachusetts Constitution, providing that "the Senate may propose or concur with amendments, as in other bills." As modified, the recommended origination clause was adopted, apparently without further debate./79/ On September 11th, the Committee on Style reported a final draft of the Constitution, with the origination clause intact as the second clause of article 1, section 7 (the first clause was deleted later)./80/ On September 17th, after several days of debate about remaining details, the Constitution was approved, signed, and submitted to the states. Final ratification occurred in mid-1788, and the first Congress was scheduled to convene on March 4, 1789./81/ D. The First Federal Revenue Law 1. The House Debate Begins. On March 4, eight senators and 13 congressmen assembled in the refurbished chambers of the old New York City Hall. Since a quorum was not present in either body, the members adjourned to await the others' arrival./82/ On April 1, with 30 members having created a quorum, the House convened. Several days were devoted to procedural matters. Then came the revenue bill. On April 8, James Madison, once again a congressman from Virginia, addressed the House. He went right to the point. Congress, he said, must "remedy the evil" of "the deficiency in our Treasury." He argued that "[a] national revenue must be obtained," but not in a way "oppressive to our constituents." He then proposed that the House adopt legislation, virtually identical to the unimplemented Confederation tariff, imposing a five-percent tariff on all imports, with higher rates on 13 selected items. The full House, sitting as a Committee of the Whole, then began debating Madison's proposal./83/ The first few days' debate focused on the objectives of the new revenue system. Congressman John Laurence of New York supported Madison's proposal, arguing that "the more simple a plan of revenue is, the easier it becomes understood and executed."/84/ Madison elaborated. A single, uniform tariff, he insisted, had two advantages. First, it could be imposed quickly, which was important because "the prospect of our harvest from the Spring importations is daily vanishing." Second, it was consistent with the principles of free trade ("commercial shackles," he said, "are generally unjust, oppressive, and impolitic")./85/
Other congressmen, especially those from the mid- atlantic states with nascent manufacturing industries, took a very different approach. They sought a system of protective tariffs on selected products. In this vein, Congressman Thomas Fitzsimons of Pennsylvania (who had helped Madison design the second confederation revenue package in 1783) proposed specific tariffs on over 50 additional items -- "some calculated to encourage the productions of our country . . . others tending to operate as sumptuary restrictions upon articles which are often termed those of luxury."/86/ Eventually, Madison (perhaps having counted votes) acknowledged that there might be sound reasons for imposing higher tariffs on some additional products. He proposed that the House tentatively add Fitzsimons' list to his own original list and begin debating the various items (there were no objections to the underlying five- percent tariff). This procedural framework was adopted and, in the words of the House Journal, "the Committee rose and reported progress, and the House adjourned."/87/ Upon reconvening April 11, the House was greeted with the first recorded example of lobbying. Congressman William Smith of Maryland presented a petition, signed by 726 "tradesmen, merchants and others, of the town of Baltimore," listing a series of manufactured items produced in Baltimore and asking that protective tariffs be imposed on competing imports./88/ The petition was received without public comment. Soon thereafter, the members began considering the Madison/Fitzsimons list of products on which specific tariffs were proposed. 2. Rum, Revenue, and Regressivity. The first product considered was rum. Congressman Roger Sherman of Connecticut proposed a 15-cent- per-gallon tariff./89/ There were objections to the tariff level. Congressman William Smith of South Carolina suggested that a lower tariff would generate even more revenue/90/, and Congressman Laurence of New York expanded on the idea. A high tariff, he said, would either prevent consumption or encourage such rampant smuggling that "all of the impost collected would go to defray the expense of getting it into the treasury."/91/ Madison apparently was worried. "If we give way on this article," he wrote in a letter to Thomas Jefferson, "we are to do so upon all others."/92/ But the House stood firm, adopting the 15-cent tariff on rum, along with a 12-cent tariff on all other imported spirits./93/ The next product considered was molasses. Madison claimed that, given the tariff on rum, a tariff on molasses was necessary to prevent a windfall to merchants who distilled imported molasses into rum./94/ This ignited heated opposition, primarily from congressmen from the Northeast (where most of the domestic distilleries were located). They emphasized what would today be called the "regressive" impact of the tariff. Congressman Laurence explained that in some places "this article is used as a necessary among the poorer classes of citizens; consequently, if you tax it high, you unequally burden that part of the community who are least able to bear it."/95/ Others agreed. Madison proposed reducing the molasses tariff from eight to seven cents, but his proposal was rejected and a tariff of six cents adopted./96/ The House then briefly considered a proposed tariff on Madiera wine. The leader of the protectionists, Congressman Fitzsimons, now turned the regressivity argument to his advantage. Noting the previous concerns about the disproportionate impact that the molasses tariff might have on the poor, he expressed confidence that the House "will be inclined to raise a great part of [the bill's overall revenue] from the consumption of those who are best able to pay, among whom we may with great propriety reckon the consumers of Madeira wine."/97/ After a brief debate, the tariff was adopted, but only narrowly -- by a vote of 21-19./98/
The House spent the next few days debating, and generally adopting, tariffs on various items: beer, porter, sugar, coffee, steel (after lowering the tariff in response to concerns about its impact on the price of agricultural equipment), nails, cordage and hemp (after Madison, to the dismay of some, insisted that proportionate tariffs be imposed on both items to prevent a windfall for domestic manufacturers who made cordage from imported hamp), and several other products./99/ The debates occasionally became heated, as when Congressman Fitzsimons complained, about South Carolina Congressman Thomas Tucker, that "every article imported to the state that gentleman represents, from which revenue is proposed to be raised, he moves to have struck out."/100/ On April 16, the House considered the proposed tariff on salt. Some argued that this tariff would discriminate against people in remote areas who transported salt across great distances. Others worried that a tariff on an item in such general use would generate popular unrest and, as one congressman warned, "go nigh to shipwreck the government."/101/ But the main objection, as with the molasses tariff, was the potentially disproportionate impact on the poor. As Congressman Tucker put it, "[t]he true principle of taxation is, that every man contribute to the public burdens in proportion to the value of his property. But a poor man consumes as much salt as a rich man."/102/ Congressman Laurence responded, in favor of the salt tariff, that "taxes, to be just, should affect all, and equally affect them, and not be left to fall partially upon a few."/103/ Madison then tried to put the regressivity argument in perspective. The focus, he said, must not be on a single provision, but on the new revenue system as a whole. Previously adopted tariffs would have a disproportionate effect on the wealthy; therefore, "by adding this article, we shall rather equalize the disproportion than increase it."/104/ After further debate, the salt tariff was adopted./105/ 3. Special Rules. Then came what may have been the first congressional "logrolling." Congressman Charles Carroll of Maryland, heretofore silent, proposed a tariff on window and other glass, because "[a] manufacture of this article was begun in Maryland, and attended with considerable success; if the Legislature were to grant a small encouragement, it would be permanently established."/106/ After what the reporter of debate described as a "desultory conversation . . . respecting the propriety of receiving the motion at this time," the tariff was approved./107/ Congressman George Clymer of Pennsylvania immediately proposed tariffs on paper, walking sticks, hats, iron, and various other products; Congressman Benjamin Goodhue of Massachusetts proposed a tariff on anchors; Congressman Roger Sherman of Connecticut proposed deleting tariffs on various fruits and nuts; and Congressman Fisher Ames of Massachusetts proposed a tariff on wool cards. Without debate, each proposal was adopted./108/ The House then turned to several issues with significant foreign policy implications. To encourage the China trade, it reduced the tariff on tea imported from China rather than Europe./109/ It adopted a drawback system for rebating tariffs on goods subsequently exported./110/ And then it considered a proposal to establish preferential tonnage tax rates for vessels owned by American allies (i.e., France as opposed to Great Britain). This debate occupied the House, with occasional interruptions, until May 7th, when the House established a tonnage tax of less than 10 cents/ton on U.S. vessels, 30 cents/ton on allies' vessels, and 50 cents/ton on other vessels./111/ Some of the more controversial tariffs (rum, molasses, salt) were then reconsidered and generally affirmed./112/ A proposed tariff on imported slaves was withdrawn after a brief but fierce debate./113/ A provision was adopted reducing the otherwise applicable tariff by 10 percent for goods imported on a U.S. vessel./114/ Finally, Madison offered an amendment making the new system temporary rather than permanent. Congressman Laurence objected and demanded a rollcall vote -- the first time that this had been done (previous votes were either by voice or by division which indicated the number of congressman for and against the proposition, but not their identities). Some members apparently were annoyed by Laurence's demand. Congressman Alexander White of Virginia, for example, protested that the rollcall vote was designed to "show that one part of the House had mistaken the interest of their country, and ought to be held up to posterity . . . or that there is a part of this House who think themselves more wise and patriotic than the majority." In any event, Madison's amendment was adopted by a rollcall vote of 41- 8. Shortly thereafter, on May 16th, the House approved the bill by voice vote./115/
4. The Senate Debate. The Senate began debating the bill on May 25th. As in the House, the bill was not referred to a committee but taken up directly on the floor by the full chamber. The Senate's sessions, unlike the House's, were closed, so no formal record of the debate exists. However, Senator William MacLay of Pennsylvania kept a detailed journal during this period, which vividly describes parts of the debate. MacLay reports that the Senate began by revising the style of the enactment clause, then debated several tariff rates and the preference for allies' vessels. "All ran smooth now," MacLay wrote, "till we came to [m]olasses."/116/ As in the House, strong opposition arose to the molasses tariff. The debate generated a procedural controversy when the presiding officer, Vice President Adams, permitted consideration of an amendment to lower the tariff a day after a similar amendment had been rejected. According to MacLay, "it was plain that this matter had been agreed on between the President and the New England [m]en and in all probabililty they have got some [p]eople who voted for four [cents] yesterday to promise to [v]ote for less today . . . . I must declare this the most uncandid proceeding I have seen in the Senate."/117/ In any event, the Senate progressed through the familiar list of items: molasses, rum, Madeira wine, sugar, cordage and hemp, the preference for allies' vessels. The debate occasionally became heated. Senator Lee, MacLay wrote, "labored with [s]pite and acrimony, charging that the Pennsylvania Senators would have 'three [m]illions of [p]eople . . . taxed to support half a [d]ozen [p]eople in Phila[delphia].'"/118/ And shortly after Senator Pierce Butler of South Carolina arrived, MacLay wrote that "Butler flamed away, and threatened a dissolution of the Union with regard to his State, as sure as God was in the firmament. He scattered his remarks over the [w]hole impost bill, calling it partial, oppressive, etc. and sorely calculated to oppress S. Carolina and yet over and anon declaring how clear of local [v]iews . . . and dispassionate he was."/119/ After twelve days' debate, on June 11th, the Senate agreed to the House bill with 33 amendments, most reducing tariff rates./120/ In Madison's opinion, the most significant reduced the tariffs on rum and molasses and deleted the preference for allies' vessels./121/ 5. Conference. The Senate sent the amended bill back to the House, but the House refused to concur with the Senate amendments. The Senate responded by informing the House that it would hold fast and not recede from its amendments. On June 23rd, the House debated how to respond to the Senate's message; the members agreed to the Senate's revision of the enacting clause and three unspecified Senate amendments; then, after debate, they rejected, by a 27-25 vote, the Senate's amendment deleting the preference for allies' vessels./122/ At that point, the House called for a conference, appointing Congressmen Madison, Fitzsimons, and Boudinot as conferees./123/ The Senate agreed to the conference and appointed Senators Robert Morris of Pennsylvania (former Superintendent of the Treasury), Oliver Ellsworth of Connecticut, and Richard Henry Lee of Virginia./124/ The conferees quickly agreed on the substance of the bill, adopting the basic House approach but deleting the preference for allies' vessels and reducing the tariffs on rum, beer, and coal. There was, however, some confusion about the procedure for submitting the conference report -- the first produced by this new, bicameral legislature -- back to the two chambers. As MacLay describes it, when the Senate began debating the final agreement, "the Bills were not in the Senate . . . . Mr. Morris said if the [b]ills had been fairly in his possession, he would have brought them back to the Senate. [H]e actually went to try to get them from the [m]anagers on the part of the House of Representatives. There seemed to be a Jealousy between the two Houses, [over] who should act first . . . . "/125/ Eventually, this dispute was resolved by obviating the need for a conference report, with the House incorporating the agreed-upon Senate amendments into a new version of the bill, which passed the House on June 27th and the Senate on June 29th./126/
6. Enactment. President Washington signed the bill into law on July 4th, 1789, making it the second federal law enacted under the Constitution (the first established the oaths of office for federal officials). The law was four pages long. Reflecting the basic compromise between Madison and Fitzsimons, it had two express purposes: one was "the support of government [and the] discharge of the debts of the United States," the other "the encouragement and protection of manufactures." To accomplish these purposes, the law established specific tariffs on 63 products and a flat five-percent tariff on all other products, except a few that were completely exempt. The new tariffs generally became effective on August 1, 1789. But there was one special effective date -- what we might today call a "transition rule" -- making the new tariffs on hemp and cotton effective December 1, 1790./127/ A day after the bill was finally approved by Congress, Madison wrote to Thomas Jefferson. "The federal business has proceeded with a mortifying tardiness," he wrote, "chargeable in part on the incorrect draughts of Committees, and the prolixity of discussion incident to a public body, every member of which almost takes a positive agency, but principally resulting from the novelty and complexity of the subjects of [l]egislation." He was, however, optimistic that the process would improve. "Our successors will have an easier task," he predicted, as, "by degrees the way will become smooth[,] short and certain."/128/
* Michael W. Evans is Legislative Director (and former Tax Counsel) for Sen. Max Baucus, (D-MT.) He also has chaired several Federal Bar Association conferences on the tax legislative process (see "The Condition of the Tax Legislative Process," 39 Tax Notes 1581 (1988)).
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FOOTNOTES
/1/ The Declaration of Independence para. 15 (U.S. 1776). /2/ W. Anderson, The Price of Liberty 3-6 (1983). /3/ E. Ferguson, The Power of the Purse 32 (1961). /4/ 14 Writings of George Washington, 435, 437(I. Fitzpatrick ed. 1936). /5/ U.S. Articles of Confederation, Art. 11. /6/ See E. Ferguson, supra note 3, at 33-35.
/7/ 18 Journals of the Continental Congress 1033 [hereinafter cited as Journals]. /8/ 19 Id., at 112. /9/ See E. Ferguson, supra note 3, at 117-124 (Morris' initial activities in general), 136-38 (Bank of North America), 146 (revenue system). /10/ 5 Revolutionary Diplomatic Correspondence of the United States 85 (Wharton ed. 1889). /11/ See R. Morris, The Forging of the Union 41 (1987). /12/ E. Ferguson, supra note 3, at 146.
/13/ See 22 Journals, supra note 7, at 429-45 (reprinting Morris letter outlining his tax plans). /14/ The Articles provided that "all charges of war and all other expences [sic] . . . shall be defrayed out of a common treasury, which shall be supplied by the several states," but that the taxes themselves "shall be laid and levied by the authority and direction of the legislatures of the several states." Art. 8. Under the Articles, some decisions could be made by a majority of states, Art. 9, par. 6; some required approval by nine states, id.; amendments to the Articles, however, required not only congressional approval but ratification by every state, Art. 13. Because the tariff overrode the requisition system explicitly established in the Articles, it was generally considered to be an amendment, requiring unanimous approval. /15/ See E. Ferguson, supra note 3, at 152-53. /16/ 6 Papers of James Madison 285, 286 (W. Hutchinson and W. Rachal ed. 1969)[hereinafter cited as Madison Papers]. /17/ 24 Journals, supra note 7, at 291-93. /18/ See R. Morris, Witnesses at the Creation 128-31 (1985).
/19/ J. Flexner, Washington, the Indispensible Man 175-78 (1984). /20/ 24 Journals, supra note 7, at 300, 305. /21/ Id., at 206-10. /22/ Id., at 126-27. /23/ 6 Madison Papers, supra note 16, at 193, 285; see also E. Ferguson, supra note 3, at 164-166. /24/ 6 Madison Papers, supra note 16, at 193 (emphasis in original).
/25/ See J. Rakove, The Beginnings of National Politics 321 (1979). /26/ 24 Journals, supra note 7, at 144. /27/ Id., at 170-74. /28/ See, e.g., id., at 181 (recommittal), 214 (amendments). /29/ Id., at 256-60. Madison's revenue estimate was made in a letter he drafted, which Congress submitted to the states, encouraging state ratification. Id. at 277. /30/ Id., at 277-83.
/31/ See J. Rakove, supra note 25, at 337-38. /32/ See 24 Journals, supra note 7, at 277 (Madison's letter to the states). /33/ See E. Ferguson, supra note 3, at 220-86 (speculation, inflation, creditor-debtor conflict); R. Morris, supra note 11, at 132-48 (trade problems). /34/ J. Madison, Journal of the Federal Convention 46-47 (1970 ed.)(1st ed. 1840)(introduction, explaining the defects of the Confederation)[hereinafter cited as Madison's Notes]. /35/ 25 Journals, supra note 7, at 317-22. /36/ See C. Bowen, Miracle at Philadelphia 26 (6th printing) (describing the exchange between Adams and the British); R. Morris, supra note 11, at 194-219 (describing foreign relations problems generally).
/37/ The Federalist No. 15 5 (A. Hamilton). /38/ See Madison's Notes, supra note 34, at 36-7 (introduction describing the events leading up to the Constitutional Convention). /39/ Id. at 35-36. /40/ Proceedings of the Commissioners to Remedy Defects of the Federal Government, reprinted in 1 Debates on the Adoption of the Federal Constitution 115 (J. Elliot ed. 1888). /41/ 32 Journals, supra note 7, at 73-74. /42/ Madison's Notes, supra note 34, at 69.
/43/ 1 Debates on the Adoption of the Federal Constitution 144 (J. Elliot ed. 1888)[hereinafter cited as Elliot's Debates]. /44/ Id. at 151. /45/ Id. at 226. /46/ Id. at 144. /47/ 1 W. Blackstone, Commentaries 170. /48/ See Madison's Notes, supra note 34, at 517-18 (remarks of John Dickenson, noting that eight state constitutions contained provisions permitting only the lower house to originate revenue measures).
/49/ Madison's Notes, supra note 34, at 158-59. /50/ Elliot's Debates, supra note 43, at 168. /51/Id. at 175. /52/ Id. at 180. /53/ Madison's Notes, supra note 34, at 260. /54/ Elliot's Debates, supra note 43, at 193. /55/ Madison's Notes, supra note 34, at 284-9.
/56/ Elliot's Debates, supra note 43, at 194. /57/ Madison's Notes, supra note 34, at 291. /58/ Id. at 291-92 (Madison), 293 (Butler), 303 (G. Morris), 303-04 (Wilson), 304 (Williamson). /59/ Id. at 304. /60/ Id. at 306. /61/ Elliot's Debates, supra note 43, at 196.
/62/ Id. at 206. /63/ Id. at 221. /64/ Id. at 224. /65/ Madison's Notes, supra note 34, at 480. /66/ Elliot's Debates, supra note 43, at 234. /67/ Madison's Notes, supra note 34, at 482.
/68/ Id. at 505-06. /69/ Id. at 506. /70/ Elliot's Debates, supra note 43, at 241. /71/ Madison's Notes, supra note 34, at 512-13 (Mason), 513-14 (Wilson), 514-15 (Gerry & Morris). /72/ Id., at 515-17.
/73/ Id. at 517-18. /74/ Elliot's Debates, supra note 43, at 241. /75/ Id. at 243. /76/ Madison's Notes, supra note 34, at 531-32. /77/ Elliot's Debates, supra note 43, at 241. /78/ Id. at 285.
/79/ Id. at 294-95; See Madison's Notes, supra note 34, at 689- 90. /80/ Elliot's Debates, supra note 43, at 298, 300. /81/ During the ratification debate, James Madison explained the importance of the origination clause, noting that it gave the House a "power over the purse, [which] may in fact be regarded as the most compleat and effectual weapon with which any constitution can arm the immediate representatives of the people." The Federalist No. 58 5 (J. Madison). A leading opponent of ratification, Luther Martin, also discussed the origination clause. It would, he wrote, be a "future source of dispute and controversy between the two branches, [over] what are, or are not revenue bills, and the more so, as they are not defined in the constitution . . . . " Moreover, the House might interpret the clause broadly, because "every regulation of commerce; every law relative to excises, stamps, the post-office, the imposing of taxes, and their collection, the creation of courts and offices; in fine, every law for the union, if enforced by any pecuniary sanctions, as they would tend to bring money into the continental treasury, might and no doubt would be considered a revenue act . . . . " In that case, he argued, the Senate "will be rendered almost useless as a part of the legislature." Martin, The Genuine Information, reprinted in Origins of the House of Representatives, A Documentary History 57, 58 (Ragsdale ed. 1990). /82/ See Christman, The First Federal Congress 1789-1791 104- 10 (1989). /83/ 1 Annals of Cong. 102-03 (T. Lloyd ed. 1789). /84/ Id. at 105.
/85/ Id. at 111, 112. /86/ Id. at 106. /87/ Id. at 116. /88/ Id. at 115. /89/ Id. at 121. /90/ Id.
/91/ Id. at 128. /92/ 12 Madison Papers, supra note 16, at 146. /93/ 1 Annals of Cong., supra note 83, at 128. /94/ Id. at 128-29. /95/ Id. at 139. /96/ Id. at 138.
/97/ Id. at 139. /98/ Id. at 141. /99/ Id. at 144-58. /100/ Id. at 146. /101/ Id. at 159. /102/ Id.
/103/ Id. at 162. /104/ Id. at 163. /105/ Id. at 167. /106/ Id. at 167. /107/ Id. /108/ Id. at 167-68.
/109/ Id. at 170. /110/ Id. at 176. /111/ Id. at 290. /112/ Id. at 291-333. /113/ Id. at 336-42. /114/ Id. at 343.
/115/ Id. at 168 (Madison), 356 (Laurence), 357 (White), 365-66 (votes). /116/ The Diary of William MacLay and Other Notes on Senate Debates 54-55 (K. Bowling and H. Veit ed. 1988)[hereinafter cited as MacLay Diary]. /117/ Id. at 55. /118/ Id. at 58. /119/ Id. at 73. /120/ 1 Senate Journal 32-34.
/121/ 12 Madison Papers, supra note 16, at 185. /122/ 1 Annals of Cong., supra note 83, at 585-91. /123/ Id. at 591. /124/ 1 Senate Journal 36, 37. /125/ MacLay Diary, supra note 116, at 90. /126/ 1 Annals of Cong., supra note 83, at 608 (House); 1 Senate Journal 37 (Senate).
/127/ 1 Stat. 24 (1789). /128/ 12 Madison Papers, supra note 16, at 267, 268.
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