The calculus of friction: Sovereignty, taxation, and the cost of free trade

“ It is apparent that the power, function, or means, however important and vital, are at the mercy of that Government. And it must be always remembered, if the right to impose a tax at all exists on the part of the other Government, 'it is a right which in its nature acknowledges no limits.' And the principle is equally true in respect to every other power or function of a Government subject to the control of another.
In our complex system of government it is oftentimes difficult to fix the true boundary between the two systems, State and Federal. ”

“ But the very terms of this argument admit that the sovereignty of the State in the article of taxation is subordinate to, and may be controlled by, the Constitution of the United States.' Again he says, 'We find then, on just theory, a total failure of the original right to tax the means employed by the government of the Union for the execution of its powers. The right never existed, and the question of its surrender cannot arise.' . . .. 'That the power to tax involves the power to destroy; that the power to destroy may defeat and render useless the power to create ”

“ As at common law, no invasion of "free discretion," that is, liberty to engage in one's own unsold trade, [2] is ever permitted, [3] so under the national law even a sovereign State cannot burden National trade by withholding any part of the discretion of the owner to engage in it, even in exercise of its vital right of taxation; indeed, "if such a tax can be levied at all, its amount will rest in the discretion of the State. It is idle to say that the interests of the State would prevent oppressive taxation. ”

“ But, before we proceed further, let us define what we mean by the term Free Trade as just used. In the abstract, Free Trade may be defined as that state of affairs in which the nations exchange with each other their various products untrammelled by hostile and prohibitory tariffs. ”

“ Because the power to lay duties on imports is, and in its very nature can be, only a means of effecting objects specified by the Constitution; since no free government, and least of all a government of enumerated powers, can of right impose any tax, any more than a penalty, which is not at once justified by public necessity, and clearly within the scope and purview of the social compact ”

“ If the Parliament indeed have a right to impose taxes on the colonies, we are as absolute slaves as any in Asia, and consequently in a state of rebellion. If they have no such right, we are acting the noble and virtuous part which every freeman and community of freemen hath a right, and is in duty bound to act. ”

“ I can see no reason to doubt but that the imposition of taxes, whether on trade, or on land, or houses, or ships, on real or personal, fixed or floating property, in the Colonies, is absolutely irreconcilable with the rights of the colonists, as British subjects, and as men. I say men, for in a state of Nature no man can take my property from me without my consent. If he does, he deprives me of my liberty and makes me a slave.... ”

“ Can any time be more proper to impose some tax upon their trade, than when they are enabled to rival us in their manufactures by the encouragement and protection which we have given them? Can any time be more proper to oblige them to settle handsome incomes on their governors, than when we find them unable to procure a subsistence on any other terms than those of breaking all their instructions, and betraying the rights of their Sovereign? ”

“ The states will never give up all power over trade. An enumeration of particular articles would be difficult, invidious, and improper.
Mr. MADISON. As we ought to be governed by national and permanent views, it is a sufficient argument for giving the power over exports, that a tax, though it may not be expedient at present, may be so hereafter. A proper regulation of exports may, and probably will, be necessary hereafter, and for the same purposes as the regulation of imports, viz., for revenue, domestic manufactures, and procuring equitable regulations from other nations. ”

“ A tax on imports, on the other hand, being a tax on consumption, which is in proportion to the ability of the consumers, whencesoever derived, was free from that inequality.
7. If revenue be the sole object of a legitimate impost, and the encouragement of domestic articles be not within the power of regulating trade, it would follow that no monopolizing or unequal regulations of foreign nations could be counteracted ”

“ The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. Commerce, contributing to both these objects, must of necessity render the payment of taxes easier, and facilitate the requisite supplies to the treasury. ”

“ When you put a tax on your people for engaging in export trade, to that extent you lessen their ability to successfully meet their foreign competitor and reduce the territory in which they can successfully dispose of their surplus products abroad. ”

“ It was shown, however, in our analysis of the effects of international trade, as it had been often shown by former writers, that the importation of foreign commodities, in the common course of traffic, never takes place, except when it is, economically speaking, a national good, by causing the same amount of commodities to be obtained at a smaller cost of labour and capital to the country. To prohibit, therefore, this importation, or impose duties which prevent it, is to render the labour and capital of the country less efficient in production than they would otherwise be ”

“ It is evident that, with regard to production, the tax upon the value of land is the best tax that can be imposed. Tax manufactures, and the effect is to check manufacturing; tax improvement, and the effect is to lessen improvement; tax commerce - and the effect is to prevent exchange; tax capital, and the effect is to drive it away. But the whole value of land may be taken in taxation, and the effect will be to stimulate industry, to open new opportunities to capital, and to increase the production of wealth. ”

“ Every tax on a commodity tends to raise its price, and consequently to lessen the demand for it in the market in which it is sold. All taxes on international trade tend, therefore, to produce a disturbance and a readjustment of what we have termed the Equation of International Demand. ”

“ But the imposition of a tax on a commodity almost always diminishes the demand more or less; and it can never, or scarcely ever, increase the demand. It may, therefore, be laid down as a principle, that a tax on imported commodities, when it really operates as a tax, and not as a prohibition either total or partial, almost always falls in part upon the foreigners who consume our goods ”

“ A similar result is found whether we take ten, or twenty, or any series of years during the Free Trade epoch. I have before me the figures for the last twenty-seven years, that is, going back to 1854, and from them I find that in those twenty-seven years, our excess of commodities imported was 1,742 millions, our excess of bullion imported was 131 millions, and our excess of securities imported was 600 millions, making a grand total of 2,473 millions as profit on our last twenty-seven years' foreign trade.
There can be no question, therefore, that as a nation we have become richer and richer. ”

“ Don’t you see that if we transferred a small portion of the tax on tea, sugar, coffee, &c., giving a preference to our dependencies in the case of wheat, we should not only encourage our home, but also our colonial, industries, which are trembling in the balance between existence and nonexistence for want of some slight fostering care.
You are like Nero fiddling while Rome was burning. You are fiddling with your Free Trade, whilst England is going to ruin.
How can it be otherwise? Unlimited foreign competition must necessarily end in disaster. ”

“ The government’s role is to create a favorable environment that will provide the inducements necessary, in terms of suitable policies and measures needed, to foster economic growth and stability. It must be in a position to devise new and effective methods, democratic in character and spirit, to induce the private sector—properly called the dynamic sector—to risk idle capital for development purposes.
The exchange rate adjustment and the stabilization pro­gram are expected of themselves to create a fundamental climate favorable to investments in the required lines of activity. ”

“ The State encourages, supports and guides the development of the non-public sectors of the economy and, in accordance with law, exercises supervision and control over the non-public sectors of the economy. ”

“ We do not intend even remotely to nationalize our economy or to make an exchange control policy. We only want the economy of families, especially those with lower incomes, to be more stable and prosperous; that large companies do not defraud the treasury through tax evasion or avoidance, that the State fulfill its supervisory and defense role for the environment, the consumer and society. ”

“ I cannot but observe here that if the Parliament have an equitable right to tax our trade, 'tis indisputable that they have as good an one to tax the lands and everything else. The taxing trade furnishes one reason why the other should be taxed, or else the burdens of the province will be unequally borne, upon a supposition that a tax on trade is not a tax on the whole. But take it either way, there is no foundation for the distinction some make in England between an internal and an external tax on the colonies. ”

“ But the nation, when it gave up that power, did not give up the advantage; but supposed, and with reason, that government was overpaid in credit, for what it seemed to lose in authority. In such a case to talk of the rights of sovereignty is quite idle. Other establishments supply other modes of public contribution. Our trading companies, as well as individual importers, are a fit subject of revenue by customs. Some establishments pay us by a monopoly of their consumption and their produce. This, nominally no tax, in reality comprehends all taxes. Such establishments are our colonies. ”