How Did the New Government Collect Money From the States

The new government was in dire need of funds to operate and pay its debts. Hamilton’s plan, the excise tax, was not popular, so another solution had to be found. The government decided to collect money from the states through a process called “requisitions.” This involved sending a request to each state for a specific amount of money. The states were then expected to raise the funds through their own taxation systems. However, the states often failed to meet their requisitions, leading to a chronic shortage of funds for the national government. This issue persisted throughout the early years of the republic and contributed to the government’s financial instability.

Federal Tariffs and Customs Duties

The newly formed U.S. government implemented a system of tariffs and customs duties to generate revenue. Tariffs are taxes imposed on imported goods, while customs duties are fees charged for the import or export of goods.

Here’s how the government collected money through tariffs and customs duties:

  • Imports: The government levied tariffs on goods imported into the country. This was a significant source of revenue, as the United States was heavily dependent on imported goods at the time.
  • Exports: The government also collected customs duties on goods exported from the United States. These duties were typically lower than tariffs on imports.
  • Administration: The collection of tariffs and customs duties was overseen by the U.S. Customs Service, which was established in 1789.
Tariff and Customs Duty Rates
TariffsCustoms Duties
Average Rates8-12%2-5%
Examples10% on imported textiles2% on exported tobacco

The revenue generated from tariffs and customs duties played a crucial role in funding the operations of the new government, including infrastructure projects, military expenses, and public services.

Direct Taxes

Direct taxes were levied directly on individuals or businesses, and they were calculated based on their income, wealth, or property. The most significant direct tax was the income tax, which was imposed on all individuals with an annual income above a certain threshold. Other direct taxes included property taxes, estate taxes, and gift taxes.

## Excises

Excises were taxes levied on specific goods and services, such as alcohol, tobacco, and gasoline. These taxes were typically collected at the point of sale, and they were often used to discourage the consumption of certain products.

TaxDescriptionTax Base
Income taxTax levied on annual incomeIndividual or business income
Property taxTax levied on real estateValue of property
Estate taxTax levied on the value of a deceased person’s estateValue of estate
Gift taxTax levied on the value of gifts given to othersValue of gifts
Excise tax on alcoholTax levied on the sale of alcoholic beveragesVolume or proof of alcohol sold
Excise tax on tobaccoTax levied on the sale of tobacco productsNumber or weight of tobacco products sold
Excise tax on gasolineTax levied on the sale of gasolineVolume of gasoline sold

Land Sales and Public Auctions

The new government raised revenue from the states through the sale of public lands and the holding of public auctions. The sale of public lands was a major source of income for the federal government in the early years of the republic. The government owned vast tracts of land that had been acquired through treaties with Native American tribes, purchases from foreign governments, and the Louisiana Purchase. These lands were sold to settlers and speculators at public auctions.

The government also raised revenue through the sale of seized property. When the United States went to war with Great Britain in 1812, the government authorized the seizure of enemy property. This property was then sold at public auction.

  • The government raised revenue from the sale of public lands.
  • The government raised revenue from the sale of seized property.
YearAmount Raised

Loans and Debts

The new United States government had a significant need for revenue, and one way it collected money from the states was through loans and debts. The Continental Congress, the governing body of the United States during the Revolutionary War, borrowed large sums of money from foreign countries and individuals to finance the war effort.

  • In 1777, the United States borrowed $2 million from France.
  • In 1778, the United States borrowed $1 million from the Netherlands.
  • In 1782, the United States borrowed $10 million from Spain.

In addition to foreign loans, the United States also borrowed money from individuals within the country. The Continental Congress issued bonds, which were essentially loans that paid interest over time. In 1781, the United States issued $5 million worth of bonds to individuals.

The new government also assumed the debts of the states that had been incurred during the Revolutionary War. In 1790, the United States government assumed $21.5 million in state debts.

French loan$2 million1777
Dutch loan$1 million1778
Spanish loan$10 million1782
Bonds issued to individuals$5 million1781
State debts assumed by the federal government$21.5 million1790