Payne Explained Cascading Markups

William Winter Payne was a Congressman from Alabama who had been a cotton planter for seventeen years at the time he gave a 1842 speech objecting the the tariff bill of 1842 that proposed a substantial rise in the tariff rates.

His speech is memorable for his careful explanation of cascading markups of tariff duties. It shows some excellent examples of how the amount of tariff duties becomes multiplied in the chain of commerce.

Notable is his accusation that the new tariff was a "system of robbery and plunder upon the consumer for the benefit of the manufacturer." He explicitly warned of disunion if the tariff were enacted. " Devoted as I am to the perpetuity of this Union," he said, "I would rather see its beautiful proportions broken into disjointed fragments, and risk all the dangers resulting in the establishment of another, than to see a system of taxation so oppressive permanently established."

Here are some excerpts from the speech:

I now, sir, design examining this bill in its practical operation upon the country. I desire the consumer of dutiable goods to see the amount he annually pays to the manufacturer; and, in order to present this subject clearly, I have prepared a set of tables, showing the cost of dutiable goods under the rate of duty imposed by this bill; and also the cost of the same goods to the consumer, exclusive of the duty.

In all of these tables I have estimated the profit at which the importing merchant sells at 20 per cent. upon cost--including the duty as part of cost--and the profit of the retail merchant at 50 per cent. upon cost to him. If the estimate of the profit is too high, or too low, then there will be an error in the tables to the extent of my error in estimating the profits of the importing and retail merchants; but I am persuaded that, if there be an error in my estimates of the profits, it consists in not estimating them high enough, and is, therefore, to the advantage of the advocate of protection. The first article to which I call the attention of the committee is domestic cotton goods, worth 6 cents per square yard; which, under the 20 cent valuation, and the 30 per cent. duty upon that valuation, is taxes 100 per cent., which is a tax to the consumer of 180 per cent. upon the original cost;--that is, every man who consumes cotton goods, the original cost of which , exclusive of duty, is $1, will under the operation of this bill, have to pay $2 80.

To illustrate:

A. Imports goods worth $100.00
Duty to Government at 100 per cent. $100.00
Custom-house cost of said goods $200.00
Profit of importing merchant on said goods,
At 20 per cent. $ 40.00
B. the retail merchant, pays for said goods $240.00
Profit of B, at 50 per cent $120.00
Cost to Consumer $360.00

The following would be the cost of said goods exclusive of duty:

A. imports goods amounting to $100.00
Profits of A, at 20 per cent. 20.00
B, the retail merchant, pays for said goods $120.00
Profit of B, at 50 per cent 60.00
Cost to the consumer of said goods 180.00
Difference of cost in favor of consumer 180.00

Sir, the next article to which I call the attention of this committee, is iron. There are various rates of duty imposed upon the different kinds of iron; but as rolled iron is consumed, or may be substituted for nearly all the purposed of agriculture, I select that quality. It is the cheapest kind of iron; and, for that reason, will be more generally used. The duty upon this kind of iron is 48 per cent., which is a tax upon the consumer of more than 86 per cent., and is exhibited as follows:

A imports iron, amounting to $100.00
Duty paid by A on said iron 48.00
Profit of A upon the above sum, at 20 per cent. $ 29.60
B, the retail merchant, pays for said iron this
Sum $177.60
Profit of B upon the above sum, at 50 per cent. 88.80
Paid by the consumer of the above iron $266.40

The following would be the cost of said iron To the consumer, when no duty or tax is imposed by this Government:

A imports iron, amounting to $100.00
Profits of A, the importing merchant, at 20 per
Cent. 20.00
B, the retail merchant, pays for said iron $120.00
Profit of B, the retail merchant, upon the cost
of the above iron, at 50 per cent. 60.00
Cost to the consumer, exclusive of duty $180.00
Difference in cost to the consumer of $100.00 of
iron, exclusive of duty $86.40

Now, sir, these tables exhibit the fact, that upon coarse cottons the consumer pays a tax of 180 per cent., and upon rolled iron over 86 per cent.; not one farthing of which goes into the treasury, but into the pockets of the manufacturer.

Sir, salt is the next article to which I call the attention of this committee. This article of absolute necessity is consumed alike in the hovel of poverty and the palaces of the great. I find, by reference to Senate Doc. No. 368, 1st session of the 26th Congress, that this subject has been thoroughly examined--not only as it regards the tax imposed the Government, but as to the advantages of a liberal use of this article in the breeding of every species of stock--producing results of the highest moment to the whole country. And sir, I will take occasion to remark, that this report of Mr. Benton contains an immensity of information and evinces that power of analysis and of laborious research which marks the character of every paper emanating from his gigantic intellect. Sir, by that report, I perceive that salt has continued to decline in price through a series of years, exhibited at different internals--commencing in 1822, and ending in 1838. At this period, salt from Norway, Swedish West Indies, Danish West Indies, and the Dutch West Indies, did not cost more then 7 1/2 cents per measured bushel of 84 pounds: and it should be borne in mind that four-fifths of the salt consumed in the United States is brought from those places. The sacks, containing about two and a half or three measured bushels, cost from $2 to $4 per sack; whereas the cost should not exceed 50 cents per sack to the consumer, exclusive of the duty--allowing two hundred per cent. profit to the importer of the salt.

Now, sir, upon this article of necessity, the bill under consideration imposes a duty of 8 cents per weighed bushel of 56 lbs., which is about 125 per cent. duty, and is a tax to the consumer of 225 per cent. as exhibited by the following table:

A imports salt amounting to $100.00
Duty paid to Government 125.00
Custom-house cost of said salt 225.00
Profit of Importer, at 20 per cent 45.00
B, the retail merchant, pays for said salt 270.00
Profit of B, at 50 per cent. 135.00
Cost to the consumer $405.00

Cost of said salt, exclusive of duty:

A imports salt amounting to $100.00
Profits of A, at 20 per cent 20.00
B, the retail merchant, pays for said salt $120.00
Profit of B, at 50 per cent 60.00
Cost to the consumer, exclusive of duty $180,00
Difference of cost to consumer, exclusive of duty--
Less $225.00

Sir, these are enormous burdens to be imposed upon any people, but more especially upon those professing to be free. Why is this most onerous tax imposed? I learn that little or nothing comes into the treasury from this source, nearly the whole sum being exhausted in the execution of your revenue laws, and in drawbacks, bounties, &c.

Sir, there can be but one answer to this interrogatory. It is to keep up a system of robbery and plunder upon the consumer for the benefit of the manufacturer. There are various other items in this bill which marks its true character; and, when carried into practical operation, will greatly oppress the people. Brown sugar, for instance, is another article which is taxed 100 per cent.; whilst finer sugars--such as are consumed by the wealthy--are not taxed one-half so much.

But, sir, it is unnecessary to pursue this branch of the subject any further; the people will investigate the whole question, render their verdict, and pronounce sentence of political death, with deep solemnity, upon that party which is now moving heaven and earth to fasten these burdens upon them.

* * *

I now, sir, proceed to examine that feature of the bill which pretends to be the revenue feature. I shall examine it with a direct reference to the burdens which it imposes upon the consumer: not matter whether he lives North or South, he is the man who pays the tax. My examples will be drawn in part from the South, and in part from the West; not, sir, that its operation upon individuals is severer in either of those sections than it is elsewhere, but because I have data upon which to found my estimates from these sections, and have not from the Eastern or Northern States. I do not wish to present this subject in a sectional point of view. It is, emphatically, so far as individuals are concerned, a question between the consumer and the manufacturer; and thus it should be regarded and argued, from the St Lawrence to the Sabine, and from Lake Huron to the Atlantic. I know, sir, that in a sectional point of view, the burdens of taxation fall with unequal severity: the manufacturers are benefited by the imposition of high duties; but the masses, even in the manufacturing States, are but little benefited, having no direct interest in those establishments; and, like the consumers everywhere else, they pay their proportion of the tax imposed by Government.

This revenue feature, of first section of the bill, lays a duty of 30 per cent. "ad valorem" upon every article not duty free, or taxed by a specific duty.

Now, sir, this is a tax of 54 per cent. to the consumer, as exhibited by the following table:

A imports goods amounting to $100.00
Duty imposed by Government on said goods 30.00
Custom-house cost of said goods 130.00
Profits of A upon custom house cost of said
goods, at 20 per cent. 25.00
Paid by B, the retail merchant, for said goods 156.00
Profit of B upon said goods, at 50 per cent 78.00
Cost to the consumer under a duty of 30 per cent. $234.00

The estimated cost of the same goods to the con- sumer, when no duty was imposed by Government:

A imports goods amounting to $100.00
Profit of A, at 20 per cent. 20.00
B, the retail merchant, pays for said goods 120.00
Profit of B, at 50 per cent. 60.00
Cost to the consumer, exclusive of the duty $180.00
Difference of cost to the consumer, exclusive of duty 54.00

This is a tremendous tax, such as could only be justified by a necessity arising in vindication of national liberty; and should never be settled as the permanent revenue policy of this Government. What! a tax of 54 per cent. upon the whole consumption of the American people necessary to support this Government! Devoted as I am to the perpetuity of this Union, I would rather see its beautiful proportions broken into disjointed fragments, and risk all the dangers resulting in the establishment of another, than to see a system of taxation so oppressive permanently established. Sir, allow me to examine the burdens of this tax upon Alabama. I take her as an example, because I speak by her authority, and I owe to her everything.

I am sensible that, in the estimate I am about to make, I cannot speak with critical accuracy, not having in my possession the data whereon to found my estimates; but there are some leading facts admitted by all, which will enable me to approximate correct conclusions. The exports of Alabama amount to $18,000,000 per annum. Notwithstanding this vast amount of exports, exchange is always against her, and in favor of those countries with which she is in commercial intercourse. Now, as exchange is only required to settle balances between commercial countries, after the exchange of their respective commodities has ended, it is evident that the valance of trade has always been against Alabama; that is, she imports more than she exports. Assuming, however, that she only imports $18,000,000 in dutiable goods, (the precise amount of her exports,) which are consumed by her citizens; and how stands the case? By the table already exhibited, I have shown you that this duty of 30 per cent. imposed by Government upon foreign manufactures, is a tax of 54 per cent. upon the consumer. Now, calculate this 54 per cent. upon consumption, upon the $18,000,000 of imports, and it amounts to $9,720,000. this is the precise amount which will be lost by the people of Alabama, under the financial system of this Government, as proposed by this bill; and the same result exists in every other State of this Union, allowing for the difference in the amount of profit charged by the wholesale and retail merchants, and the amount of dutiable goods consumed.

Sir, to prosecute this inquiry a little further, I propose to show the aggregate result of this tax upon the consumption in the cotton-growing States as a whole. The same difficulties exist in making this estimate, which were noticed by me in regard to Alabama; but the same general and admitted facts exist also, in regard to the whole cotton-growing region, that do in any particular region of it.

Now, the whole amount of cotton exported from the southern States, in a prosperous year, is not less than 2,000,000 of bales, which, at $30 per bale, amounts to $60,000,000; and as exchange is always against the South, and in favor of those places to which she ships her cotton, it is evident that the cotton-growing States import more than they export. But, assuming imports and exports to be equal, and how stands the case? The goods imported into the Southern States amount to $60,000,000 upon which her citizens, who consume these goods, pay a tax of 54 per cent; the aggregate amount of which upon the $60,00,000 of imports reaches the enormous sum of $32,000,000. Sir, was there ever such an oppressive system of taxation submitted by any people professing to be free? No, never.

But we are told that it is to the interest of the South to pay this tax. And why, sir, is it our interest? Gentlemen tell us that the manufacturing establishments cannot exist without it; and that, if they are destroyed, the consumption of the raw material will be greatly diminished, and, thereby, the price reduced. Sir, what is the number of bales of cotton manufactured by those establishments? Only 300,000--which, at $30 per bale, are worth $9,000,000. Now, deduct this $9,000,000 from the $32,400,000 which the South is taxes to support these manufacturing establishments, and it leaves a balance in favor of the South of $23,400,000. Now sir, would it not be better for the South that the 300,000 bales of cotton should never be manufactured, than that we should pay $23,400,000, besides the entire value of the cotton, to have it done? All must admit that her interest would be promoted by it. Away, then with this argument, addressed to our interest. We comprehend it too well to be deceived by you.

Sir, we are told that those manufacturing establishments cannot exist without this tax upon the people. I deny that the south is bound, either in good faith or by honor, to support them; but, admit that we are--and, so far as I am concerned, I would be--willing to give them the entire amount of cotton which they manufacture, for that purpose, provided they would secure to us free trade upon the balance. And I doubt not the whole South would be willing to do the same thing; for we should gain by the operation $23,400,000, as already shown: [a voice: "Agreed--agreed."] I, sir, am not authorized to make the negotiation; and the gentleman from Pennsylvania will pardon me for doubting whether he has authority to negotiate upon the subject. Besides, the South may conclude that she has a different remedy for this disease; and if she should come to such a conclusion, she will apply that remedy, let consequences be what they may.

Sir, the advocates of protection, failing to deceive us in regard to our interest, address arguments to our fears. We are told by them that, in a few years, the East India cotton will exclude American cottons from the English market; and that we had better build up American manufactories, or we shall be compelled to abandon the production of the article altogether.

Sir, I regard this argument as adding insult to injury. You first point out the dangers before us, and then seek by all the means in your power to drive us headlong upon them. Can American cotton be excluded form the English market because of the superior quality of the East India cotton? No, sir, theirs is an inferior, ours a very superior article. Can they peoduce more per acre than we do? No, sir; we beat them in quantity at least 100 per cent. Can they produce cheaper than we can? No, sir, we own our labor, they hire theirs. And, with these advantages--I care not if they get that labor for six cents per day--we can drive them from any market in the world.

Suppose an East India planter working fifty hands, which cost him six cents per head a day; it amounts, per annum, to $10-95. this is something deducted from his profits, which we have not to pay; and the other expenses of his establishment must be fully equal to ours. They cannot be less. Now sir, how stands the case with us? We have a genial climate, and a fertile soil, which produces in great profusion, every necessary for the subsistence of man. By a proper system of economy, we can raise our own wheat, corn, pork, horses, and stock of every kind; we can make our own clothing, including hats, to protect us from blasts of winter or the heat of summer, out of th staple which we raise; we can make our own shoes out of our own leather; and, after doing all this, we have an immensity of surplus labor to be employed in the production of cotton.

Sir, under the system of economy which I have described, what would the American cotton-planter be forced to buy? Nothing but his iron, salt, sugar, and coffee; and all of this could be supplied for less money than the East India cotton-planter pays for his labor, at 5 cents per head a day, leaving to the American planter, as profit, the entire product of his labor. How, then, can American cotton be excluded from the British market? Not by East India cotton--never. Sir, it can be done in but one way, viz: by imposing high duties upon British fabrics. If we exclude her manufactures, she cannot buy our cottons, which must thereby be excluded from her market. The bill under consideration tends to that result; but if you will unfetter the wings of commerce, and allow us to approximate free trade, we fear competition in the production of cotton from no part of the habitable globe. Such are my views upon this subject, founded upon an experience of seventeen years in the cultivation of that article.

Sir, this argument had its origin in the avarice of the manufacturer, and has been endorsed by a corps of editorial traitors in the South, who merit the universal execration of mankind. It is for this reason that I have noticed the argument at this time.

I must again return to the subject of taxation upon the people under this duty of 30 per cent; and, in order to exhibit its effects upon other sections of this Union besides the South, I take Kentucky as an example. A distinguished Representative from that State [Mr. Triplett] has kindly furnished me a table, exhibiting the agricultural products of Kentucky for the year 1841, which is as follows: [Mr. Payne continues with calculations for Kentucky showing a huge cost and the only benefit is protection to her hemp interest]

Sir, what are the benefits resulting to Kentucky, and which are to reimburse her for this enormous loss[$11,133,195.50]? Protection to her hemp interest; that is all, sir. It is charged in the table of agricultural products, already exhibited, at $1,147,510. Now would it not be better that this hemp should go unprotected, than that Kentucky should pay $11,133,195.50 to have it done? That is the question to be settled by Kentucky. What will be her verdict, time will develop; I will not anticipate it. But this is not the only loss to be sustained by Kentucky, if this bill passes into a law; there are others of vast importance, which must result from the loss of a market for much the largest portion of her exports. The cotton-growing States consume the surplus products of Kentucky, whether of grain of live stock; but, under the system of taxation imposed by this bill, those States must produce for themselves those articles which are now received from Kentucky. When they do this, where will Kentucky find a market for those articles? Nowhere, but in the Atlantic cities. If that market fail, they must remain and rot upon their hands, as a disgusting memento of the folly of that policy which "tends to cripple and destroy that people to whom she sells, and to foster and protect those from whom she buys," as was profoundly said by her talented Representative [Mr. Sprigg] upon a recent occasion.

Appendix to the Congressional Globe, 27th Cong. 2d Sess. (July 7, 1842), 621.

Excerpt from Speech of William Winter Payne (1807-1874) Was 17 years a cotton planter at the time of this speech. Gainesville, Alabama, member 27, 28, 29th Congress Returned to Virginia in 1847, became a planter near Warrenton. Chairman of Democratic State convention in Virginia in 1859