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1 1 (January 10, 2025)

handle is hein.crs/goverzf0001 and id is 1 raw text is: Tariffs and Federal Finances: A Thumbnail History January 10, 2025 Tariffs and other customs charges were the largest source of federal revenues in the 18th and 19th centuries. Tariffs are taxes on imported goods. This Insight offers a brief history of U.S. tariff policy and the interaction between import taxes and public finances. Tariffs historically served three main purposes: (1) they provided revenues to support debt service and government functions without engendering the sometimes fierce opposition to excise taxes; (2) they have been instruments of commercial and industrial policy by raising the cost of imported goods; and (3) at high levels they might provide leverage to persuade other countries to lower trade barriers. In the first decades of the United States, collecting customs duties at a limited number of harbors was simpler than administering an internal revenue system, such as for collecting alcohol taxes. Tariffs, therefore, generated the bulk of federal revenues until the Civil War. Economic downturns and disruptions of international trade, however, made customs a volatile revenue source. Moreover, tariff policy had strong regional effects, with financial centers and manufacturing areas generally favoring higher rates and agricultural areas favoring lower rates. Setting rates was a major political issue for Congress until the mid-1930s. Lowering tariffs and other trade barriers was an integral part of responding to the Great Depression and reconstructing the international financial order in the years following World War II. During the 20th century, tariffs became a minor federal revenue source. Alexander Hamilton and Protecting Duties The first U.S. Treasury Secretary, Alexander Hamilton, in his 1791 Report on Manufactures, advocated for protecting duties and bounties (i.e., government subsidies) to develop local production as well as low tariffs on raw materials. In 1792, his recommendations for tariffs were largely adopted and those for bounties were rejected. Those tariff rates were moderate relative to those imposed in the 19th century. Hamilton, noting the risks of heavy reliance on customs revenues, wrote exorbitant duties on imported articles ... tend to render other classes of the community tributary in an improper degree to the manufacturing classes to whom they give a premature monopoly of the market; they sometimes force industry out of its more natural channels into others in which it flows with less advantage. Congressional Research Service https://crsreports.congress.gov IN12482 CRS INSIGHT Prepared for Members and Committees of Congress

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