On ratification of the modern constitution in 1789, the founding fathers gazed out at what they had wrought. What they saw, was debt.
The Continental government had been unable to levy taxes under the Articles of Confederation, the only major income source being foreign import duties. The government had borrowed money to meet expenses during this period, accumulating $54 million in debt. The states themselves another $25 million.
Compounding the problem was the matter of runaway inflation, which had plagued the Articles of Confederation period. The colonies had printed paper currency to pay debts, as did the national government. Silver coinage remained stable due to the inherent value of the metal itself, but there was nothing behind this paper money. At one point, you could buy a single sheep for $2 “hard currency”, or $150 in paper “Continental Dollars”. To this day, you might hear the expression “worthless as a continental”.
The first Secretary of the Treasury, Alexander Hamilton, reported in his Report on Public Credit, urging Congress to consolidate state and national debt into a single debt to be funded by the federal government. Hamilton felt that existing duties were as high as they could be without depressing imports, so he recommended the first excise tax on a domestically manufactured product – whiskey. The more meddlesome of Hamilton’s contemporaries were enthusiastically in favor of a “sin tax”, just as they are today. The “Whiskey Act” became law on March 3, 1791.
The whiskey tax was immediately unpopular, particularly in the west where it was, for all intents and purposes, an income tax. At a flat rate of 7¢ per gallon, the tax weighed more heavily on the western frontiers, where whiskey was sold for 50¢ a gallon. About half what it sold for in the more established regions of the east.
Furthermore, coinage wasn’t easy to come by on the frontiers. In many areas the medium for exchange was whiskey itself. The stuff was popular, it’s value was relatively stable, and it was easier to transport than the grain from which it was distilled.
Folks on the western fringes of the new nation already felt the federal government was doing too little to secure them against the predation of Indians. This whiskey tax was the final straw.
Petitions were signed against the new law and there were hearings, none of which settled the matter satisfactorily. Events reached a boiling point in May 1794, when federal district attorney William Rawle issued subpoenas for more than 60 Western Pennsylvania distillers who had not paid their excise tax. All 60 were expected to appear in excise court in Philadelphia, an expensive, disruptive trip that these poor farmers were loathe to undertake.
The war of words became a shooting war as US Marshal David Lenox was delivering these writs in Allegheny County, south of Pittsburgh, on July 15.
More shooting incidents occurred in the days that followed. Objections to the whiskey tax gave way to a long list of economic grievances, as over 7,000 gathered in Braddock’s Field on August 1. They talked of secession and carried their own flag, each of its six stripes representing one of 6 Pennsylvania or eastern Ohio counties.
At last they marched on Pittsburg, burning the barns of Major Abraham Kirkpatrick, who had previously led soldiers against them.
A federalized militia force of 12,950 was raised to put down what President Washington saw as armed insurrection, marching on Western Pennsylvania in October 1794. It was a larger force than General Washington normally had under his command during the late Revolution.
Washington himself rode out to check on the progress of his army, the first and only time in history that a sitting American President led an army in the field.
The whiskey rebellion collapsed in the face of what was then an overwhelming army, with 10 of their leaders brought to Philadelphia to stand trial. Two were sentenced to hang for their role in the rebellion, but President Washington pardoned them both. The whiskey rebellion was over.
All internal taxes were repealed in 1800, when President Thomas Jefferson returned US fiscal policy to a reliance on trade tariffs. With the Napoleonic wars ongoing in Europe, business was good. National debt was reduced from $83 million to $43 million, despite $11 million spent on the Louisiana Purchase.
President Andrew Jackson paid off the national debt in its entirety, in 1835. The first and only President in United States history, ever to do so. Since that time, the Federal government has saddled the American taxpayer with approximately $301 million in additional debt. Per day.