TAX NEWS - JUNE 2010

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Whiskey Tax

Copper Kettle is a song composed by Albert Frank Beddoe and made popular by Joan Baez. Pete Seeger's account dates the song to 1946, mentioning its probable folk origin. while in a 1962. The song praises the good aspects of moonshining as told to the listener by a man whose "daddy made whiskey, and granddaddy did too". Moonshine is a common name for illicitly-distilled liquor. The term is commonly believed to derive from early English smugglers (called moonrakers because of a 17th century legend) and Appalachian home distillers who often engaged in illegal distillation and distribution of moonshine whiskey clandestinely (i.e., by the light of the moon). The line "We ain't paid no whiskey tax since 1792" alludes to an unpopular tax imposed in 1791 by the fledgling U.S. Federal Government. The levy provoked the Whiskey Rebellion and generally had a short life, barely lasting until 1803.

The Whiskey Rebellion was a resistance movement in the western frontier of the United States in the 1790s, during the presidency of George Washington. The conflict was rooted in the dissatisfaction in western counties with various policies of the eastern-based national government. The name of the uprising comes from the Whiskey Act of 1791, an excise tax on whiskey that was a central grievance of the westerners. The tax was a part of treasury secretary Alexander Hamilton's program to centralize and fund the national debt.

The federal government, at the behest of the 1st Secretary of the Treasury, Alexander Hamilton, assumed the states' debt from the American Revolutionary War. In 1791 Hamilton convinced Congress to approve the Whiskey Act, which placed an excise tax on alcohol. This was to be the first "internal" tax levied by the national government. Although Hamilton's principal reason for the tax was raising money to service the national debt, he also justified the tax "more as a measure of social discipline than as a source of revenue." Most importantly, however, Hamilton "wanted the tax imposed to advance and secure the power of the new federal government."

There were two methods of paying the whiskey excise: paying a flat charge or paying by the gallon. The tax effectively favored large distillers, most of which were based in the east, who produced whiskey in volume and could afford the flat fee. Western farmers who owned small stills did not usually operate them at full capacity, and so they ended up paying a higher tax per gallon. Large producers ended up paying a tax of 6 cents per gallon, while small producers were taxed at 9 cents per gallon.

But Western settlers were short of cash to begin with and, being far from their markets and lacking good roads, lacked any practical means to get their grain to market other than by fermenting and distilling it into relatively portable distilled spirits. Additionally, whiskey was often used among western farmers as a medium of exchange or as a barter good.

The tax proved to be unpopular among small farmers in the western states, where government officials were prevented through violence and intimidation from collecting the tax. Resistance came to a climax in July 1794, when a U.S. marshal arrived in western Pennsylvania to serve writs to distillers who had not paid the excise. The alarm was raised, and more than 500 armed Pennsylvanians attacked the fortified home of tax inspector General John Neville. The Washington administration responded by sending peace commissioners to western Pennsylvania to negotiate with the rebels, while at the same time raising a force of militia to suppress the violence. The insurrection collapsed before the arrival of the army; about 20 people were arrested, but all were later acquitted or pardoned.

The whiskey excise remained difficult to collect, however. The events contributed to the formation of political parties in the United States, a process already underway. The whiskey tax was repealed after Thomas Jefferson's Democratic-Republican Party, which opposed Hamilton's Federalist Party, came to power in 1800.

The tax on whiskey was bitterly and fiercely opposed on the frontier from the day it was passed. Western farmers considered it to be both unfair and discriminatory, since they had traditionally converted their excess grain into liquor. Since the nature of the tax directly affected those who produced the whiskey but only indirectly affected those who bought it (and much whiskey was not actually sold, but bartered or consumed by its manufacturers), its burden fell directly on many farmers. Many protest meetings were held, and an anti-tax movement arose, reminiscent of the opposition to the Stamp Act of 1765 before the American Revolution..

From Pennsylvania to Georgia, the western counties engaged in a campaign of harassment of the federal tax collectors. "Whiskey Boys" also made violent protests in Maryland, Virginia, and North and South Carolina.

Tax collectors were not the only people targeted in Pennsylvania: those who cooperated with federal tax officials also faced harassment. Anonymous notes and newspaper articles signed by "Tom the Tinker" threatened those who complied with the whiskey tax. Those who failed to heed the warnings might have their barns burned or have their stills destroyed.

By the summer of 1794, tensions reached a fevered pitch all along the western frontier. Finally, the civil protests became an armed rebellion. The first shots were fired at the Oliver Miller Homestead in present day South Park Township, Pennsylvania, about ten miles south of Pittsburgh. As word of the rebellion spread across the frontier, a series of loosely organized resistance measures were taken, including robbing the mail, stopping judicial proceedings, and threatening an assault on Pittsburgh. One group, disguised as women, assaulted a tax collector, cropped his hair, coated him with tar and feathers, and stole his horse.

George Washington and Alexander Hamilton, remembering Shays' Rebellion eight years before, decided to make Pennsylvania a testing ground for federal authority. Washington ordered federal marshals to serve court orders requiring the tax protesters to appear in federal district court. On August 7, 1794, Washington invoked the Militia Law of 1792 to federalize the militias of Pennsylvania, Maryland, Virginia, and New Jersey. The militia force of 12,950 men was a large army by American standards of the time: the army that had been with Washington during the Revolutionary War had often been smaller.

The army marched into western Pennsylvania in October 1794. Some of the most prominent leaders of the insurrection, like David Bradford, fled westward to safety. After an investigation, government officials arrested about twenty people and brought them back to Philadelphia for trial. All but two were eventually released or acquitted. The two men convicted of treason, Philip Vigol (or Wigle) and John Mitchell, were sentenced to death by hanging. Vigol had beaten up a tax collector and burned his house; Mitchell was a simpleton who had been convinced by David Bradford to rob the U.S. mail. Both were pardoned by President Washington.

This marked the first time under the new United States Constitution that the federal government used military force to exert authority over the nation's citizens. The suppression of the Whiskey Rebellion also had the unintended consequences of encouraging small whiskey producers in Kentucky and Tennessee, which remained outside the sphere of federal control for many more years. In these frontier areas, they also found good corn-growing country as well as limestone-filtered water and began making whiskey from corn, which developed into Bourbon. The rebellion and its suppression helped turn people away from the Federalist Party and toward the Democratic-Republican Party. This is shown in the 1794 Philadelphia congressional election, in which upstart Democratic Republican John Swanwick won a stunning victory over incumbent Federalist Thomas Fitzsimons, carrying 7 of 12 districts and 57% of the vote.

The hated whiskey tax was repealed in 1803, having been largely unenforceable outside of Western Pennsylvania, and even there never having been collected with much success.

The Second Bank of the United States thrived from the tax revenue that the federal government regularly deposited. Jackson struck at this vital source of funds in 1833 by instructing his Secretary of the Treasury to deposit federal tax revenues in state banks, soon nicknamed "pet banks" because of their loyalty to Jackson's party.

The Second Bank of the United States soon began to lose money. Nicholas Biddle, desperate to save his bank, called in all of his loans and closed the bank to new loans. This angered many of the bank's clients, causing them to pressure Biddle to re-adopt its previous loan policy..

The Second Bank of the United States was left with little money and, in 1836, its charter expired and it turned into an ordinary bank. Five years later, the former Second Bank of the United States went bankrupt

The Bank War is the name given to the controversy over the Second Bank of the United States and the attempts to destroy it by then-president Andrew Jackson.

The Whiskey Rebellion has long been known to historians, but recent its true nature and importance have been distorted by friend and foe alike.

The Official View of the Whiskey Rebellion is that four counties of western Pennsylvania refused to pay an excise tax on whiskey that had been levied by proposal of the Secretary of Treasury Alexander Hamilton in the Spring of 1791, as part of his excise tax proposal for federal assumption of the public debts of the several states.

Western Pennsylvanians failed to pay the tax, this view says, until protests, demonstrations, and some roughing up of tax collectors in western Pennsylvania caused President Washington to call up a 13,000-man army in the summer and fall of 1794 to suppress the insurrection. A localized but dramatic challenge to federal tax-levying authority had been met and defeated. The forces of federal law and order were safe.

This Official View turns out to be dead wrong. In the first place, we must realize the depth of hatred of Americans for what was called "internal taxation" (in contrast to an "external tax" such as a tariff). Internal taxes meant that the hated tax man would be in your face and on your property, searching, examining your records and your life, and looting and destroying.

The most hated tax imposed by the British had been the Stamp Tax of 1765, on all internal documents and transactions; if the British had kept this detested tax, the American Revolution would have occurred a decade earlier, and enjoyed far greater support than it eventually received.

Americans, furthermore, had inherited hatred of the excise tax from the British opposition; for two centuries, excise taxes in Britain, in particular the hated tax on cider, had provoked riots and demonstrations upholding the slogan, "liberty, property, and no excise!" To the average American, the federal government's assumption of the power to impose excise taxes did not look very different from the levies of the British crown.

The main distortion of the Official View of the Whiskey Rebellion was its alleged confinement to four counties of western Pennsylvania. From recent research, we now know that no one paid the tax on whiskey throughout the American "back-country": that is, the frontier areas of Maryland, Virginia, North and South Carolina, Georgia, and the entire state of Kentucky.

President Washington and Secretary Hamilton chose to make a fuss about Western Pennsylvania precisely because in that region there was a cadre of wealthy officials who were willing to collect taxes. Such a cadre did not even exist in the other areas of the American frontier; there was no fuss or violence against tax collectors in Kentucky and the rest of the back-country because there was no one willing to be a tax collector.

The whiskey tax was particularly hated in the back-country because whisky production and distilling were widespread; whiskey was not only a home product for most farmers, it was often used as a money, as a medium of exchange for transactions. Furthermore, in keeping with Hamilton's program, the tax bore more heavily on the smaller distilleries. As a result, many large distilleries supported the tax as a means of crippling their smaller and more numerous competitors.

Western Pennsylvania, then, was only the tip of the iceberg. The point is that, in all the other back-country areas, the whiskey tax was never paid. Opposition to the federal excise tax program was one of the causes of the emerging Democrat-Republican Party, and of the Jeffersonian "Revolution" of 1800. Indeed, one of the accomplishments of the first Jefferson term as president was to repeal the entire Federalist excise tax program. In Kentucky, whiskey tax delinquents only paid up when it was clear that the tax itself was going to be repealed.

Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.

Why didn't previous historians know about this widespread non-violent rebellion? Because both sides engaged in an "open conspiracy" to cover up the facts. Obviously, the rebels didn't want to call a lot of attention to their being in a state of illegality.

Washington, Hamilton, and the Cabinet covered up the extent of the revolution because they didn't want to advertise the extent of their failure. They knew very well that if they tried to enforce, or send an army into, the rest of the back-country, they would have failed. Kentucky and perhaps the other areas would have seceded from the Union then and there. Both contemporary sides were happy to cover up the truth, and historians fell for the deception.

The Whiskey Rebellion, then, considered properly, was a victory for liberty and property rather than for federal taxation. Perhaps this lesson will inspire a later generation of American taxpayers who are so harried and downtrodden as to make the whiskey or stamp taxes of old seem like Paradise.
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