When Taxes Replaced Tariffs – Historical Note

Kent Forsey, CFP® Tariffs, Taxes

November 2018

As a young country, the first of tariffs enacted to protect American business interests was the Tariff Act of 1789. The act was written to raise funds for the newly established government, reduce debt from the Revolutionary War, and protect U.S. companies from unfair foreign competition. At the time, Congress passed tariff amounts from 5% to as high 50%. For the next 150 years, tariffs generated the vast majority of revenue for the federal government, until Congress ratified the 16th amendment in 1913 allowing the imposition of federal income taxes. Tariffs began to lose their importance thereafter once federal tax revenue began coming in.

Presidents varied on their views regarding tariffs over the decades, yet Abraham Lincoln said in 1847 that “Give us a protective tariff and we will have the greatest nation on earth”. Tariffs eventually paid for some of the costs of the Civil War for the north.

By the end of the second World War, the U.S. economy had become enormous with American companies dominating the international markets. For the next 60 years, U.S. policy sought to reduce trade barriers and tariffs in order to expand and maintain commerce throughout the world.

It is interesting to know that tariffs have been used throughout American history but for quite different reasons.

Kent G. Forsey, CFP®

Sources: Library of Congress; https://archive.org; OneBlueWindow, LLC©