According to the benefits principle of taxation, the government’s spending on public services ought to be compensated by those benefiting; this is achieved by the contribution of taxes by the civilians (Green, 2018). At Hamilton’s urging, Congress passed the whiskey act in 1791 which taxed the production of distilled spirits (Historical Spotlight, 2012). This was the first domestic product to be taxed by the federal government. The new tax act was not well received in the parts of western Pennsylvania. The excise tax placed on whiskey to pay for the national debt incurred during the U.S. Revolutionary War cannot be justified by the benefits principle. For tax to be following the benefits principle the civilians paying the tax have to be enjoying public services provided by the government; in this case, poor farmers who had converted their grains to whiskey to use the whiskey as currency, were being taxed by the government without benefiting from the government's services.
According to Green (2018), the tax burden relies on demand and supply elasticity. When the supply of a product is more elastic than its demand, buyers bear a larger part of the tax burden. On the other hand, when the demand for a product is more elastic than its supply, produces bear a larger part of the tax burden. In this case, the demand for whiskey was elastic during the late 1700s, and the supply of whiskey produced in the frontier regions of the country was inelastic during this period (Historical Spotlight, 2012). Therefore, the small-scale producers and distributors of alcohol in parts of Pennsylvania bore most of the tax burden; this resulted in the protest over the imposition of the tax on whiskey that targeted to pay for the national debt incurred during the U.S. Revolutionary War.
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References
Green, L. (2018). Fairness in taxation (4th ed.).
Historical Spotlight. (2012). The Whiskey Rebellion . YouTube. Retrieved from https://www.youtube.com/watch?v=hX9gKS7uMZY.
