Several weeks ago I had an exchange with Prof. Clyde N. Wilson of the University of South Carolina, about a quote he cited regarding President Lincoln and the Civil War. In the process, I found he has been editing the papers of U.S. Senator John C. Calhoun, one of the most esteemed legislators of the 19th century. As these things happen, a distant relative of Calhoun's who connected me with supply-side economics sent me a Calhoun quote from his 1842 speech on the tariff act. It was so intriguing that I found a used copy of Volume XVI of the Calhoun papers via Amazon.com in order to read the entire speech, in which Calhoun carefully distinguishes between a "revenue tariff" and a "protective tariff." Wow!! I could not believe my eyes, as Calhoun perfectly describes the essence of the Laffer Curve, which is the law of diminishing returns as it applies to tax policy. And Calhoun does it better than any current member of the U.S. Congress in either political party!! If President Bush had Calhoun at his recent economic conclave in Waco, he would have made a lot more progress in figuring out how to adjust tax and tariffs to meet the needs of the U.S. economy today. If Calhoun were here to look over the federal tax code, he would be horrified.
In his "Speech Before the Passage of the Tariff Bill... In the Senate, August 5, 1842," this is the relevant excerpt on pp. 354-358. Emphasis is added in the section in bold type.
Yes, Senators, we are told by the chairman of the Finance Committee [George Evans], and others who advocate it, that this bill is intended for revenue, and that of 1828 was for protection; and it is on that assumption they attempt to discriminate between the two, and hope to reconcile the people to this measure. It is, indeed, true that the bill of 1828 was for protection. The treasury was then well replenished, and not an additional dollar was needed to meet the demands of the Government; and, what made it worse, the public debt was then reduced to a small amount; and what remained was in a regular and rapid course of reduction, which would, in a few years, entirely extinguish the whole, when more than half of the revenue would have become surplus. It was under these circumstances that the bill of 1828, which so greatly increased the duties, was introduced, and became a law-an act of legislative folly and wickedness almost without example. Well has the community paid the penalty. Yes, much which it now suffers, and has suffered, and must suffer, are but its bitter fruits. It was that which so enormously increased the surplus revenue after the extinguishment of the debt in 1832; and it was that surplus which mainly led to the vast expansion of the currency that followed, and from which have succeeded so many disasters. It was that which wrecked the currency, overthrew the almost entire machinery of commerce, precipitated hundreds of thousands from affluence to want, and which has done so much to taint private and public morals.
But is this a revenue bill? I deny it. We have, indeed, the word of the chairman for it. He tells us it is necessary to meet the expenditures of the Government; of which, however, he gave us but little proof, except his word. But I must inform him that he must go a step further before he can satisfy me. He must not only show that it is necessary to meet the expenditures of the Government, but, also, that those expenditures themselves are necessary. He must show that retrenchment and economy have done their full work; that all useless expenditures have been lopped off; that exact economy has been enforced in every branch, both in the collection and disbursement of the revenue; and, above all, that none of the resources of the Government have been thrown away or surrendered. Has he done all that? Or has he showed that it has been even attempted? -that either he or his party have made any systematic or serious effort to redeem the pledge, so often and solemnly given before the election, that the expenditures should be greatly reduced below what they then were, and be brought down to seventeen, sixteen, and even as low as thirteen millions of dollars annually? Has not their course been directly the reverse, since they came into power? Have they not surrendered one of the two great sources of revenue-the public lands; raised the expenditure from twenty-one or two millions, to twenty-seven annually; and increased the public debt from five and a half to more than twenty millions? And has not all this been done, under circumstances well calculated to excite suspicion that the real design was to create a necessity for duties, with the express view of affording protection to manufactures? Have they not, indeed, told us, again and again, through their great head and organ, that the two great and indispensable measures to relieve the country from existing embarrassments were a protective tariff, and a national bank? and is it, then, uncharitable to assert that the expenditures, so far from being necessary to the just and economical wants of the Government, have been raised to what they are, with the design of passing this bill in the only way [it] could be passed-under the guise of revenue?
But, if it were admitted that the amount it proposes to raise is necessary to meet the expenditures of the Government, and that the expenditures themselves were necessary, the chairman must still go one step further, to make good his assertion [t]hat this is a bill for revenue, and not for protection. He must show that the duties it proposes are laid on revenue, and not on protective principles.
No two things, Senators, are more different than duties for revenue and protection. They are as opposite as light and darkness. The one is friendly, and the other hostile, to the importation of the article on which they may be imposed. Revenue seeks not to exclude or diminish the amount imported; on the contrary, if that should be the result, it neither designed nor desired it. While it takes, it patronizes; and patronizes, that it may take more. It is the reverse, in every respect, with protection. It seeks, directly, exclusion or diminution. It is the desired result; and, if it fails in that, it fails in its object. But, although so hostile in character, they are intimately blended in practice. Every duty imposed on an article manufactured in the country, if it be not raised to the point of prohibition, will give some revenue; and every one laid for revenue, be it ever so low, must afford some protection, as it is called. But, notwithstanding they are so blended in practice, plain and intelligible rules may be laid down, by which the one may be so distinguished from the other, as never to be confounded. To make a duty a revenue, and not a protective duty, it is indispensable, in the first place, that it should be necessary to meet the expenditures of the Government; and, in the next, that the expenditures themselves should be necessary for the support of the Government, without the deficit being caused intentionally, to raise the duty, either by a surrender of other sources of revenue, or by neglect or waste. In neither case, as has been stated, would the duty be for revenue. It must, in addition, never be so high as to prohibit the importation of the article: that would be utterly incompatible with the object of revenue. But there are other less obvious, though not less important rules, by which they may be discriminated with equal certainty.
On all articles on which duties can be imposed, there is a point in the rate of duties which may be called the maximum point of revenue-that is, a point at which the greatest amount of revenue would be raised. If it be elevated above that, the importation of the article would fall off more rapidly than the duty would be raised; and, if depressed below it, the reverse effect would follow: that is, the duty would decrease more rapidly than the importation would increase. If the duty be raised above that point, it is manifest that all the intermediate space between the maximum point and that to which it may be raised, would be purely protective, and not at all for revenue. Another rule remains to be laid down, drawn from the facts just stated, still more important than the preceding, as far as the point under consideration is involved. It results from the facts stated, that any given amount of duty, other than the maximum, may be collected on any article, by two distinct rates of duty-the one above the maximum point, and the other below it. The lower is the revenue rate, and the higher the protective; and all the intermediate is purely protective, whatever it be called, and involves, to that extent, the principle of prohibition, as perfectly as if raised so high as to exclude importation totally. It follows, that all duties not laid strictly for revenue, are purely protective, whether called incidental or not; and hence the distinction taken by the Senator from Arkansas immediately on my left ( Mr. [Ambrose H.] Sevier, ) between incidental and accidental protection, is not less true and philosophical than striking. The latter is the only protection compatible with the principles on which duties for revenue are laid.
This bill, regarded as a revenue bill, cannot stand the test of any one of these rules. That it cannot as to the two first, has already been shown. That some of the duties amount to prohibition, has been admitted by the chairman. To those he admits, a long list of others might be added. I have in my drawer an enumeration of many of them, furnished by an intelligent and experienced merchant; but I will not occupy the time of the Senate by reading the catalogue. That a large portion of the duties on the protected articles exceed the maximum point of revenue, will not be denied; and that there are few or none imposed on protected articles, on which an equal revenue might not be raised at a lower rate of duty, will be admitted. As, then, every feature of this bill is stamped with protection, it is as much a bill for protection as that of 1828. Wherein, then, does it differ? In this: that went openly, boldly, and manfully for protection; and this assumes the guise of revenue. That carried the drawn dagger in its hand; and this conceals it in its bosom. That imposed the burden of protection-a burden admitted to be unjust, unequal, and oppressive, but it was the only burden; but this superadds the weight of its false guise-a heavy debt, extravagant expenditures, the loss of public lands, and the prostration of public credit, with the intent of concealing its purpose. And this, too, may be added to the other objections, which makes it worse than its predecessor in abomination.