Essay On Excise Tax: The Whiskey Rebellion

In 1790, Alexander Hamilton was in the middle of a financial dilemma that would impact the then fragile state of the United States. Then US President George Washington and the newly formed federal government was facing flak from a lot of unhappy settlers in the Newfoundland of America. Alexander Hamilton’s problem was that he was faced with growing national and state debts and his desire was to consolidate and pay-off all these debts at the soonest possible time but the federal government had not money. The US government at that time gained revenues only from import duties so Alexander Hamilton had to find a new revenue source. His solution was a bold new tax on products made in America, and his target was the important and all-consuming whiskey industry. Back then, the average American family drank 6 gallons of whiskey a year. If the tax was levied, they would pay an additional US$1.50 per year or an additional US$ 800,000 for the federal government per year. To whiskey farmers and opposing groups, this excise tax was a death sentence to a way of living. Production of whiskey then was fixed in terms of volume produced creating an inelastic supply of whiskey. Whiskey consumption on the other hand, was price sensitive thereby having a very elastic demand curve. If prices were to be raised, as they would when the tax is levied, less people would buy whiskey which would result in less volume sold. Because of the fixed production, producers would have to fight for the demanded volume ultimately creating a reduction in margins. With this thinking, the threatened groups, particularly the whiskey producers, rebelled against the US government. History tells us that the additional excise tax on whiskey was justifiable because the funds generated resulted in the US having the ability to support its merchant class. This merchant class, through their investments, caused the industrial boom in the US. History tells us that Hamilton was right and the excise tax was the long-term solution for growth and development.