Assignment 2
The Whiskey Rebellion in Western Pennsylvania
The basic facts presented in the video point to the historic situation that formed after 1788 when the US owed excessive amount of debt $ 54,000,000. To stabilize the country, in 1790 the excise tax was proposed. If we look at the excise tax placed on whiskey, from the benefit principle, which is defined as a principle used in taxation, based on the benefits received, then the whiskey tax was not fair at all. The reason was that large whiskey producers were supposed to pay the tax with only 6 cents per gallon, whereas home/small producers paid 9 cents per gallon, or both could pay a flat charge as an option. The numbers show that the latter were disadvantageous, because they did not produce whiskey in volume and thus could not afford the charge. Closest to the benefit principle is the ability-to-pay principle when those with more income pay higher taxes. I think that the ability-to-pay principle should have been applied to the whiskey tax to make it fair.
The tax protesters regarded the whiskey tax as more than a luxury tax. The explanation is plain: since farmers in Pennsylvania, Maryland, Kentucky and other neighboring states experienced difficulties transporting and selling their grains to markets, they decided to make whiskey from crops. Eventually, whiskey became extremely valuable and was used as a currency to purchase goods. The revenues from whiskey were central to farmers’ economy in these parts of the country. If we look at tax incidence, assuming that the demand for whiskey was elastic, but the supply of whiskey was inelastic during the late 1700’s, then producers should bear the cost of the tax. Tax incidence states whether the consumers or producers pay the price. The key aspect we learned from the video is that the taxes should be equally apportioned in all states.
Works Cited
Krugman, Paul, and Wells, Robin. Micro Economics. 3rd. ed. 2004. Print.
The Whiskey Rebellion. Historical Spotlight, 2012.Video.
