Federalist No. 12
In Federalist No. 12, Hamilton writes on the utility of the union in respect to revenue as a follow up to his piece on the utility of the union in respect to commercial relations and a navy. Given that all organizations require revenue to function, this is an important topic, especially since everyone disdains taxes and wants to know that their tax dollars will not be wasted.
Hamilton is right when he notes that The ability of a country to pay taxes must always be proportioned, in a great degree, to the quantity of money in circulation, and to the celerity with which it circulates. If taxes are too high, it will create too high a burden on the population, but if they are too low, the government may not have enough revenue to effectively function and provide needed services. In addition, commerce, contributing to both these objects, must of necessity render the payment of taxes easier. Taxes are a necessary burden, but paying them shouldn't be burdensome. Too bad we've forgotten this with tax codes so convoluted that five accountants can do the same return and arrive at a different conclusion for the same household!
Hamilton said a great thing when he said that it is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty -- as this is another point that needs to be remembered. The more convoluted the tax code, the more ineffective and inefficient it gets. For example, in Return to Prosperity, Arthur B. Laffer, a noted economist, argues for a flat tax. He notes that if we implemented such a tax across individuals and businesses, not only could we simplify the tax return to a single page, but we could reduce the tax rate to about 13% and collect about the same amount of taxes as we do now! 13%! Given that, in some states, some residents pay over 30% in sate and federal income taxes, many people could see their taxes halved and the government could still collect the additional dollars it needs to operate effectively. If that's not a win-win, I don't know what is!
The primary argument he puts forth as to how a Union would be better, and fairer, than a collection of states with respect to the collection of revenue is the following:
The relative situation of these States; the number of rivers with which they are intersected, and of bays that wash there shores; the facility of communication in every direction; the affinity of language and manners; the familiar habits of intercourse; - all these are circumstances that would conspire to render an illicit trade between them a matter of little difficulty, and would insure frequent evasions of the commercial regulations of each other.
But if, on the contrary, there be but one government pervading all the States, there will be, as to the principal part of our commerce, but ONE SIDE to guard—the ATLANTIC COAST.
In other words, there would be no illicit trade between the states, and the only worries with respect to duty and tax evasion would be in global trade, with respect to goods originating from Europe or India. With only one border to patrol (with the unified navy that would be obtained as per the previous argument for a Union), we would be able to stop the smugglers and impose fair taxes across the board. Because ocean going vessels would have to dread both the dangers of the coast, and of detection, as well after as before their arrival at the places of their final destination if they attempted to unlade prior to entering port, an ordinary degree of vigilance would be competent to the prevention of any material infractions upon the rights of the revenue.
It is therefore evident, that one national government would be able, at much less expense, to extend the duties on imports, beyond comparison, further than would be practicable to the States separately, or to any partial confederacies.