This transcript has been edited for clarity.

Dave: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: History is taxing.

Here at Tax Notes Talk we are excited to present to you, our loyal listeners, the first episode of History Is Taxing, a new podcast from Tax Notes. In each episode, tax experts Robert Goulder and Joseph Thorndike explore the tax origins of today’s biggest topics, connecting the present to the past. The first episode considers the newly raised question: “could tariffs replace the income tax?” 

If you like what you hear, be sure to subscribe to the History Is Taxing feed, which you'll find linked to in the shownotes. You can also head over to the Tax Notes YouTube channel to watch these episodes.  

For now, let’s hand it over to Bob and Joe. 

Robert Goulder: What does the Constitution say, Article I?

Joseph Thorndike: Constitution says that only Congress has the power to levy tariffs —

Robert Goulder: Not the executive.

Joseph Thorndike: — or any other kind of tax.

Robert Goulder: OK then. You know what my next question is.

Joseph Thorndike: Hold that thought.

Robert Goulder: Hello, and welcome to the podcast. I'm your host, Bob Goulder, contributing editor with Tax Notes. Joining me is Joe Thorndike, the tax history guy over at Tax Notes. Joe runs our tax history project. That's where, among other things, you'll find timelines of major tax events and an impressive catalog of all publicly available presidential tax returns. Can't find that anywhere else.

Now, I've been reading all of your writings. OK.

Joseph Thorndike: That's scary.

Robert Goulder: That's scary. But you're a very impressive author, very accomplished, but sometimes you raise a point that I just don't get intuitively. I see the words, but I don't make the connection. You said that tariffs made the income tax. Today there's a whole lot of people saying they don't like the income tax. Let's give us tariffs. You're saying it's almost like the reverse causation. We have the income tax today because we had high tariffs in yesteryear. You got to work me through this.

Joseph Thorndike: All right. Well, I think the keyword there was "high" in high tariffs. So here's what I would say. People today, including the president of the United States —

Robert Goulder: Foremost among them.

Joseph Thorndike: People who like tariffs say, "Hey, you know what would be great? If we could get tariffs to be big enough, high enough, steep enough, heavy enough that we could actually get rid of this income tax entirely." We can make so much money from tariffs that we wouldn't even need an income tax. We wouldn't need a corporate tax. We wouldn't need an individual tax. We're going to replace it all with tariff rev[enue].

Robert Goulder: Abolish the IRS gets everyone's attention.

Joseph Thorndike: So here's the problem. We used to have exactly that kind of tariff that was providing most of the federal revenue for a long time. So there were other taxes too. But in the late 19th century, if we just dial back a little bit to the time when the income tax is about to be birthed, we have a high tariff. And it's providing roughly 50 percent of federal revenue. The way that they do that is they have very high rates on a whole lot of things that get imported into the country. So lots of tariffs had very high rates, and people hated it. People really hated it because they were regressive.

So tariffs are consumption taxes. They're disproportionately hard to pay for poorer people rather than richer people. So that's a lot of people. So there are a lot of people complaining like, "I hate these tariffs because they're hard for me to pay. I think rich people should be paying more taxes. We need something that'll hit them as hard as this tariff hits me." And they're like, "Let's have an income tax." That's where the income tax comes from. People are so unhappy with the tariff that they create an income tax.

So all I'm saying is this, if what your hope is today that we could have a really high tariff that would mean we didn't have to raise money in any other way, you might find that that just reignites some love for the income tax, as strange as that may seem.

Robert Goulder: So if you dial back the clock, as you say, to the early Republic, how did they raise taxes? You had internal taxes and external taxes. And what were people used to? As a colony, we were paying a lot of tariffs.

Joseph Thorndike: Right. In the very early days of the Republic, right after the country is established by the Constitution and Congress starts to meet for the first time, the second law that Congress ever passes is a tariff law to try to raise some money to pay the bills of this new government. And they impose a bunch of tariffs because these are believed to be tolerable to the public, that Americans understand, "OK, it's normal to tax goods as they're imported into the country.

It's also easy because all we got to do is erect customs houses in these ports of entry. I think there are 39 ports of entry or something like that, which is a limited number of places. So we can hire a bunch of customs officers in those places to do the job. As opposed to other kinds of taxes, like say an excise tax, which might be collected in every one of the states, right? And then you got to have tax collectors out there looking for whatever this tax good is, like say that it's whiskey. Then you'd have to be out there looking for stills in every place that creates whiskey around the country. It's a big —

Robert Goulder: Yeah, that's problematic.

Joseph Thorndike: Right. So tariffs are much easier. They're well understood, they're well tolerated. So they rely heavily on tariffs. And in these early decades, tariffs are providing 90 percent of federal revenue. So they do have other taxes. They have a tax on alcohol. They have taxes on certain kinds of tobacco. Eventually they tax carriages as well and a bunch of other things.

Robert Goulder: Like a horse and buggy carriage?

Joseph Thorndike: Like a horse and buggy, because mostly that's a rich person's tax.

Robert Goulder: Oh, so it's like a luxury tax?

Joseph Thorndike: It is a little bit like a luxury tax. So they have these other taxes. These are internal taxes as opposed to external taxes like a tariff, but they're only raising like 10 percent, those internal taxes. So we rely very heavily on tariffs in the early years. And those excise taxes are unpopular and that whiskey tax in particular prompts a rebellion in Western Pennsylvania among the farmers who are growing the products that are then turned into whiskey.

Robert Goulder: Was George Washington involved in that, by the way?

Joseph Thorndike: George Washington led an army on horseback to western Pennsylvania to suppress the rebellion.

Robert Goulder: A domestic insurrection?

Joseph Thorndike: Yes. Apparently he didn't get very far. Washington was old at this point, but he did, for at least a while, lead the forces into battle. There was no real battle, but —

Robert Goulder: We've never really liked paying taxes as a nation.

Joseph Thorndike: No.

Robert Goulder: Dumping the tea in Boston harbor or we're having whiskey rebellions in Pennsylvania. It's always something.

Joseph Thorndike: I think that there are things that people don't like about taxes, and one of them is when they fear that they are unfairly being picked on.

Robert Goulder: Yeah.

Joseph Thorndike: That's how those excise paying farmers felt in western Pennsylvania.

Robert Goulder: So we get to the 19th century and things have to change, because the federalists, they didn't stay around forever.

Joseph Thorndike: No. Let's also remember that what are tariffs doing in this period? What's their main goal? It's to raise money. That's not necessarily what our main goal is today. It might be, depends on what day you ask President Trump. Sometimes it's about raising money. Sometimes it's about protecting the industries.

Robert Goulder: Yes.

Joseph Thorndike: But let's just first just jump back to a little bit of the history. It's around 1800, right? Mostly tariffs, couple of excises. Thomas Jefferson gets elected president. He hates excise taxes.

Robert Goulder: Hates them.

Joseph Thorndike: He hates these internal taxes. There's also a federal property tax. Nobody likes that.

Robert Goulder: Is that because it's a Southern party?

Joseph Thorndike: Yeah, partly. The Southern parties, because the South is more purely agricultural in this period, and the North is proto-industrial, not really industrial yet, but starting to develop industries and businesses. And as a general rule, agricultural interests don't like tariffs because they export a lot of the crops that they grow. And also they need to import a lot of stuff because they're not making things, really. They don't have an industry there. So they're engaged in a lot of international trade. As a result, they don't love tariffs. They're OK. Tariffs can be used to raise revenue. That's reasonable. Everybody accepts that. But when you start saying, we're going to use it to protect industries, or sometimes agricultural producers, from foreign competition, that gets a little dicey with agricultural interest, especially in the South.

So anyway, Thomas Jefferson comes along. 1800, he gets elected, and by 1802, his party, the Democratic Republicans, have engineered wholesale repeal of all the internal taxes. They get rid of all of them, and they don't like them. And they rely just on tariffs again. And they do that all the way up to the War of 1812. In the War of 1812, they find themselves in need of new money. They need to buy ships and build ships and buy cannons and that sort of thing. And so they create new taxes to do that. These new taxes are old taxes. They're those excises that we got rid of.

Robert Goulder: They come back.

Joseph Thorndike: But they bring the excises back. Again though, tariffs are still the mainstay of federal finance in this period. And that remains true even after the end of the War of 1812.

Robert Goulder: So that's an argument for tariffs. And these are all the points that you've made: they raise money, it's administrable, there's only so many ports you have to control, and people are used to it.

Joseph Thorndike: There's a lot good about tariffs in the 19th century, and they're widely recognized to be doing their job pretty well. The key is, what level should they be at? As long as we're keeping them at moderate levels, using it to raise a modest amount of revenue. Remember, the federal government's small during peacetime in this era. There's no social security administration, right? There's no agriculture department, none of that.

Robert Goulder: Yeah. Small government.

Joseph Thorndike: Pretty small government. You can fund it with very moderate tariffs, and almost everybody's on board for that. The problem starts to develop in the, say, around 1820 when the Whigs, it's a party that many people have forgotten even exists in this country.

Robert Goulder: Completely.

Joseph Thorndike: And the Whigs believe in promoting industry and commerce. One of the things that they think will do that is a protective tariff. They're like, "Let's impose tariffs on imported goods." That'll make it harder to import manufactured, like cloth, say, from Great Britain. It'll make that cloth more expensive. That'll allow U.S. producers to undercut those foreign competitors, and that'll build up our industry.

Robert Goulder: That sounds like Trump.

Joseph Thorndike: Well, it is. That's protection. And that is what Trump believes in, among other things. And the Whigs start to argue for that in the 1820s. The Democrats, who are the heirs of the Jefferson Democratic Republicans, now we're just calling them Democrats by the late 1820s, 1830s, they don't like high tariffs. They don't like protective tariffs. They're just on board with tariffs for revenue only, as is often said at the time, but not for protective tariffs. And that's where the battle lines get drawn. You have the Whigs who are more Northern than Southern, although these parties cross boundaries. And you have Democrats who are more Southern than Northern, but also in both places. And these parties are starting to really divide over this question of how high should tariffs be and what should be their principal goal, revenue or protection? And maybe both. And there's a way to split the difference. But that's a lot of bitter argument.

And by 1830, there's a huge argument over a high tariff that the Whigs managed to get over the line. And this really outrages the South. And a bunch of Southern states say that "We're not going to recognize the legitimacy of this tariff. We're going to declare it null and void." It's called the nullification crisis. They say, "This is not fair. It's unconstitutional." So we as a state say, "We're not going to pay this stuff anymore." There's a big constitutional crisis over this. And it does get resolved within a couple of years by a moderate tariff, which is always the way we're going to resolve these things, where you try to split the difference. But again, the battle lines are there. The South arguing for low tariffs, the North arguing for higher tariffs to protect industry, and that argument continues up through the Civil War, although it doesn't quite reach the heights of the early 1830s again.

Robert Goulder: All right. So that divide you're talking about, it's both sectoralism, as in industry versus agriculture, and sectionalism, as in North versus South?

Joseph Thorndike: Yep. And just some politics. Parties like to have clear positions on things because it helps them to get elected. And again, it's a lot messier than you might think because there are Northern Whigs, there are Southern Whigs, there are Northern Democrats, there are Southern Democrats. So all these things intersect. But in broad terms, it's fair to think of the South as being low tariff and the North as being higher tariff.

Robert Goulder: OK. So I'm trying to put this into context now because it sounds like the tariffs are working. OK. And you're saying tariffs really made the income tax. We get to the Civil War, and then what happens? Because that's when we had the first experience —

Joseph Thorndike: Right, so —

Robert Goulder: — embryonic experience with a tiny little income tax, not the income tax we know today.

Joseph Thorndike: Right.

Robert Goulder: Some primitive version of it.

Joseph Thorndike: So South leaves the Union. And the remaining Northern legislators say, "Well, now we can have a high tariff."

Robert Goulder: Yeah, Southerners aren't in Congress anymore. They can do what they want.

Joseph Thorndike: They start to impose — to raise tariff rates. Tariffs are not going to do all that great a job raising money in these years because tariffs don't raise money very well during a war. The war disrupts trade. As trade falls, tariff revenue falls. So tariffs are not going to be the whole answer to paying for the war if you're in the North. So they create a bunch of other taxes. They revive excise taxes for the first time since the early part of the century.

Robert Goulder: Just tobacco and alcohol?

Joseph Thorndike: No, no. Whole slew of them, hundreds of them on all sorts of consumer goods and intermediate business goods, whole slew of excise taxes, and a federal property tax, which they haven't used since the War of 1812, which is going to fall heavily on farmers and because they have all of their wealth in lands. And they come up with a new income tax, which had never been used in the U.S. before but had been used in Great Britain. And the income tax is designed to put more of the burden on rich people. Because the idea is, again, tariffs are regressive. They are a consumption tax, and they fall more heavily on poor people than rich people. So are many excises, right? Lots of excises are on things that regular people use all the time. And if it's something you don't have an option about buying, the classic example for that is salt, it's a necessity, then that's even worse because people can't just avoid the tax by avoiding the purchase.

So people think that tariffs and excise taxes are regressive. We need some way to balance that out. And the income tax partially is an answer to that question. It's a way to balance out the regressivity of excise taxes and the tariff, also that federal property tax, which irritates the farmers. And they're like, "Well, we can make the farmers feel better if we tax the financiers on Wall Street." And if the finance bros have to pay, the 19th century version of a finance bro needs to pay an income tax, that'll assuage the complaints, the unhappiness of those.

Robert Goulder: Joe, when you say a consumption tax is regressive, you're saying that not just in the context of what was going on then, but it almost sounds like a universal truth.

Joseph Thorndike: It's true now.

Robert Goulder: Even with the European VAT or something like that, consumption taxes or tariffs or retail sales tax.

Joseph Thorndike: Yes. Unless you get it fancy. Or you can try to get fancy and craft these taxes in such a way as to make them less regressive. You can exempt certain things.

Robert Goulder: So it's close to a universal truth that any consumption tax, tariff, excise tax is going to be regressive?

Joseph Thorndike: Yes. And a lot of what lawmakers do is spend a lot of time trying to figure out how to square that circle. Well, we really want a consumption tax.

Robert Goulder: Yeah, it never really works.

Joseph Thorndike: Yeah. But they're like, "This will be great. It'll raise lots of money. It'll be convenient to collect, whatever, but we got to find some way to make it less unfair." And so often what they'll do is they'll exempt, say, food, and that'll make it a little bit more progressive. But that's kind of —

Robert Goulder: Now it's a tax base.

Joseph Thorndike: Yeah. And it's a messy answer.

Robert Goulder: So sticking with the late 19th century, this guy comes along, his name is William McKinley. Trump talks about him a lot, kind of like a sort of hero. Did he really call himself the King of Tariffs or was that the media calling him that?

Joseph Thorndike: I think it might've been a name given to him at the time. But again, we have to go back to the Civil War. So Civil War ends, income tax goes away, almost all the excise taxes go away, just alcohol and tobacco, because nobody really likes the hassle of collecting all that stuff. Federal property tax, they only tried it once and were like, "Oh, no, never again."

Robert Goulder: So they go back to tariffs.

Joseph Thorndike: So they go back to tariffs. They say tariffs are going to be our mainstay.

Robert Goulder: This is a reoccurring theme. Every time peace breaks out, they go back to tariffs. There has to be something to it.

Joseph Thorndike: Because tariffs are well tolerated. They're easy to collect. Again, remember those customs houses, it's like centralized collection. So they do. They return to tariffs. It's not everything. It's like somewhere in the neighborhood of, say, 40 to 60 percent of total revenue is coming from tariffs in the decades after the Civil War. And the rest is being made up with those excise taxes because the alcohol and tobacco taxes, turns out people love alcohol and tobacco and they will keep buying it even if you tax it heavily. As a result, those taxes raise a lot of money, too. So those are the two ways that they fund the government.

All right. Fast-forward, Republicans are in charge, right? Democrats are thrown for a loop by the Civil War. Takes that party a long time to recover. We have a series of Republican presidents, and then in the decades after the Civil War, we rely very heavily on tariffs for revenue. We're also using them for protection. We're doing both. So we have high tariffs. Who's that going to irritate? Who do you think?

Robert Goulder: The South.

Joseph Thorndike: The South. Right. The rejoined South. Also, farmers everywhere, including, say, farmers out in the West. The West turns out to be a place where they don't much like high tariffs. Farmers don't like these high tariffs, and they keep agitating, "Hey, let's bring that income tax back. We kind of like that idea. We could swap it, right? We could get rid of these tariffs or at least some of the tariffs, moderate them, make them more tolerable, and make up the lost revenue with an income tax."

Robert Goulder: Well, that's the opposite of what Trump is saying they should do today.

Joseph Thorndike: Exactly. But that's what they're arguing in the 1880s and the 1890s.

Robert Goulder: So the tariffs are unpopular.

Joseph Thorndike: Tariffs are pretty unpopular but not so unpopular that they don't keep passing new ones. So you asked me about McKinley. He's most famous for being the author of the McKinley Tariff, which was passed in 1890, which raised tariff rates to a very high level. And again, the idea is the Republicans are saying, "We're going to have these high tariffs. They're going to protect American industry." That's great for the guys on Wall Street, sure, because they own these companies, but it's also great for the people who work for these companies. We're going to protect American jobs.

Robert Goulder: Jobs.

Joseph Thorndike: So if you're working in a textile mill, you don't want to lose your job to some guy in Great Britain. You want to actually hold onto that job. So we're going to protect your company from foreign competitors. And so it's not just a rich guy's argument, although the rich guys are very much on board with this for the most part, but it is an argument about fairness. And it's getting fought out in the political realm. And it goes back and forth. It's increasingly going back and forth.

So in 1890 you get this high tariff, but then the Democrats are resurgent. We have Grover Cleveland. He gets elected twice. He's a moderate tariff reformer. He's not exactly a low, low tariff guy. The Democrats are increasingly powerful. And in 1894 they manage to get their income tax, right? They finally get it back. They say, "OK, it's this little tiny income tax, but we're going to use it to replace some of the tariff revenue." That makes a lot of farmers happy. And it is in fact the Populists, which is an agricultural party pretty much, that's pushing for this so hard. They finally get the tax back in 1894. And then the Supreme Court says, "No, no. Not so good. Unconstitutional."

Robert Goulder: Unapportioned direct tax.

Joseph Thorndike: Unapportioned direct tax.

Robert Goulder: Historically, the thing that's significant there is that the political impetus to go after a progressive income tax, that was considered populist.

Joseph Thorndike: Oh, yeah.

Robert Goulder: Today, we have the flip side of that, don't we? Today, the populists are saying, "Let's get rid of the income tax and get tariffs."

Joseph Thorndike: Right. So when you say go after, you mean as in pursue?

Robert Goulder: Yeah. Yeah.

Joseph Thorndike: So yeah, that is the progressive position of the time, which is "Let's scale back these regressive tariffs and replace them with something that's more progressive."

Robert Goulder: The working man wants an income tax, not the tariff.

Joseph Thorndike: Yeah. And again, it's complicated. Those people who are working in protected industries, those people who work at textile mills, they're really happy with a high tariff, for the most part, although it's complicated even for them because they recognize, "Wow, I am paying a lot of money for a lot of stuff too." So all of us, all of us are both consumers and producers.

Robert Goulder: That's what it comes down to.

Joseph Thorndike: Right. So we hate the regressive taxes on consumption because we're all consumers, but we also hate taxes which endanger our jobs because foreign competitors might eat us alive. So it's complicated for those people, but again, we're talking in broad strokes here. Farmers are getting what they want. They're moving away from high tariffs. And labor is increasingly not happy with these high tariffs because it is such a heavy burden on consumption.

So in 1894 they have this little momentary experiment with the income tax, gets found unconstitutional, gets brought back in the early 20th century, and it is again presented as a tax swap. We're going to use the income tax revenue to reduce the tariffs on imported goods. And so that's the way that this is ushered into the law in 1909 with the corporate tax, and then in 1913 with the individual income tax. And it is very much a way of reducing the role of tariffs. Now, what really reduces the role of tariffs is? What do we know what causes problems?

Robert Goulder: Oh, war.

Joseph Thorndike: Wars.

Robert Goulder: Yes.

Joseph Thorndike: So World War I, right? Another big war. Does terrible things for trade. U-boats are sinking American ships. And so tariff revenues fall through the floor. They really need another revenue source. And conveniently, they have this new income tax they just created a couple of years ago. So they scale up the income tax very quickly, also an excess profits tax, which is just another kind of income tax on corporations. And so the tariff never returns to its former glory after that. It's raising like half a federal revenue up until, roughly speaking, World War I, but it never recovers from World War I. After that, the tariff stuff is not really about revenue. We're really talking about tariffs in terms of protection after that.

Robert Goulder: So they fall out of favor.

Joseph Thorndike: They do fall out of favor, although the —

Robert Goulder: They don't go away.

Joseph Thorndike: Republicans are holding the torch for them. The Republican Party continues to favor high tariffs to protect American industry.

Robert Goulder: Even in the 1920s?

Joseph Thorndike: Even into the 1920s. And so there are three Republican presidents in the 1920s, and they are pushing very hard for —

Robert Goulder: If you're keeping score, that's Harding, Coolidge, and Hoover.

Joseph Thorndike: Hoover. And what we end up with at the end of this decade is the Smoot-Hawley Tariff.

Robert Goulder: Infamous.

Joseph Thorndike: The infamous Smoot-Hawley Tariff, which incidentally is the last general tariff law ever passed by Congress. It's still —

Robert Goulder: Still on the books.

Joseph Thorndike: Still on books today. But the Smoot-Hawley Tariff raises tariffs to a really very high level to protect American industry. And then the world plunges into a disastrous depression. The tariffs are not what caused that depression, but they certainly made it worse and made recovery harder. And everyone recognized that the Smoot-Hawley law was, well, flawed. So high-tariff people still liked it, but everyone could recognize that the way that law was made was crazy. So this is the way all tariff laws get made, that people go to Congress, like people who own textile mills — I keep picking on the textile guys — but they go to Congress and they say, "I need something to protect my business from foreign competitors."

Robert Goulder: Now, hold on. You're talking about Congress?

Joseph Thorndike: Yes. Congress is the one who has to impose tariffs back in the day.

Robert Goulder: What does the Constitution say? Now, what does the Constitution say, Article I?

Joseph Thorndike: Constitution says that only Congress has the power to levy tariffs —

Robert Goulder: Not the executive.

Joseph Thorndike: — or any other kind of tax.

Robert Goulder: OK then you know what my next question is.

Joseph Thorndike: Hold that thought. We'll get back to that.

Robert Goulder: All right. Congress has the taxing power.

Joseph Thorndike: Congress has the taxing power. So the textile guy goes and says, "I need a big tariff to protect my business from foreign competitors." And the congressman says, "OK, maybe so. OK. What have you done for me lately? What could you do for me?" Let's say that he goes to his own member of Congress who's, because he's representing the textile guy, he's inclined to listen. That member of Congress goes to his friend and says, "Hey, I need your vote for this. I want to impose a high tariff on textile imports." And that other congressman actually comes from a place where they have lumber industries. And he's like, "Well, OK, I'll give you your high tariff on textiles, but only if you'll give me a high tariff on imported lumber." And they were like, "Oh, that's a cool deal. We'll both do that." Well, now we have two really high tariffs, right?

That's how you end up with Smoot-Hawley, is that all that back-scratching and all that logrolling going on in Congress just ends up raising and raising and raising these things. And it's not done on the basis of like, well, which ones would actually be good? Which industries are worth preserving? Which are not as important to preserve? None of that. It's all the politics. It's very messy. And people recognize that this is dysfunctional. So here's how we're going to get away from Congress and into the White House.

Robert Goulder: How?

Joseph Thorndike: In 1934 there's a new president, Franklin Roosevelt.

Robert Goulder: FDR.

Joseph Thorndike: Roosevelt wants to be able to reduce some of these high tariffs from Smoot-Hawley because he's like, "We need more trade so that we can recover from this depression a little faster." And Congress says, "OK, we're good. Because you know what? Stop us before we tariff again. It was just a disaster."

Robert Goulder: They don't trust themself.

Joseph Thorndike: They don't trust themselves. They recognize that Smoot-Hawley was not —

Robert Goulder: Take the keys. I can't drive.

Joseph Thorndike: So they say, "OK, here's the deal. You can, as president, renegotiate these tariffs. And you can reduce them up to 50 percent in negotiations with other countries." They call that reciprocal tariff negotiation. "And as a result of that, we'll have lower tariffs. Won't ask me in Congress to vote for them because I don't want to remove protection from any of my constituents, whatever. But you as the president will be more dispassionate, more high-minded about it. You'll be able to do a better job."

Robert Goulder: Really?

Joseph Thorndike: So they give power to the president. It's not unfettered. It isn't like do whatever you want. They say it can only be 50 percent and we're going to have to renew this every couple of years because it's not good forever.

Robert Goulder: So they expire?

Joseph Thorndike: And this authority to renegotiate expires, but Congress does renew it over and over again.

Robert Goulder: So the Constitution gives the tariff power to Congress. Congress delegates it with strings attached.

Joseph Thorndike: Some element of it is delegated. Some components of it are delegated. It's not a blanket delegation. It doesn't say like, "Do whatever you want."

Robert Goulder: Do whatever you want. It doesn't say that. Lots of strings attached.

Joseph Thorndike: You can go to a country, you can negotiate a better deal up to 50 percent.

Robert Goulder: So that's 1934. That's 90 years ago.

Joseph Thorndike: And this is a big moment. It's a big handoff. Even though there are strings attached, this is a handoff from the legislative branch to the executive branch. And they say, "You're going to have a lot more control over trade policy going forward." And they've —

Robert Goulder: Unprecedented. For 150 years, they weren't doing it that way.

Joseph Thorndike: And there have been more delegations since then to give the president more authority under certain circumstances to establish tariff rates. And that's part of how we end up where we are today with a president who will announce a whole slew of tariff rates against every country in the world. So that's how we get there. So the fun part of the tariff story really does end in around 1934.

There's a lot of trade policy that happens after that, which is basically about the U.S. favoring lower tariffs, more trade, fewer obstacles to trade on the theory that, "Hey, if there's a fair fight between countries, we can win it. We don't need protective tariffs because our industry is so competitive and so efficient that we can win a fair trade fight anytime." And so the U.S. argues consistently, not purely but mostly consistently, for lower tariffs throughout the rest of the 20th century.

Robert Goulder: So the whole post-World War II period, let's say from the end of World War II up until, I don't know, say, NAFTA.

Joseph Thorndike: Yeah.

Robert Goulder: Joe, that's a period overall of great American prosperity, job growth, profits. You could say free trade had a really good run, not maybe a smooth run. But for decade after decade, the '50s, the '60s, the '70s, things went pretty well. It had a good track record, but it doesn't end well, it seems.

Joseph Thorndike: The causality is a little hard to pin down, right?

Robert Goulder: Yeah.

Joseph Thorndike: Yes. The U.S. has a great run after World War II. It's also true that all of our main competitors are in ruins at that point. It takes Japan a long time to recover. It takes Europe a long time to recover. So the U.S. has a real great head start, so it's easier for us to win a trade fight. But it's true that the American economy is also quite healthy at that point. And so yes, the U.S. is doing very well with these low tariffs in place. But the problem is — so economists will tell you that everybody gains from trade.

Robert Goulder: Yeah. Win-win.

Joseph Thorndike: Yeah, because countries will specialize in the things that they do well and will get cheaper goods and will make a lot of money and it all works out in the end. And that's true, I think, on balance, but it's not true in specific cases.

Robert Goulder: Such as?

Joseph Thorndike: Let's say that we're not able to produce textiles as cheaply as other countries can. Let's just say in making cloth or shoes — I should pick on somebody else. And to making shoes, turns out we can't really make them all that cheaply. So the economists are like, "That's cool. You guys go make Apple computers, and we're going to have someone else make the shoes for us. They'll get cheaper Apple computers. We'll get cheaper shoes. Everybody will win." That's great unless you work at a shoe factory in the U.S. who has all those jobs exported overseas. That's a disaster for people who work in the shoe factory. So on an individual level, individual companies or individual workers, that free trade can be extremely painful and disruptive. It can cost people their livelihoods. And I think that's the problem that free trade runs into.

So while the U.S. is riding high in those decades after World War II, we're not losing too many fair fights, but we start to lose some jobs overseas as the century wears on. And by the 1980s and into the 1990s, there's a lot of complaining going on that other people are taking our jobs. They're worried about Japanese car manufacturers beating out Detroit and that sort of thing. So they're looking for ways to protect the American jobs. Tariffs are resurging, at least politically, if not legally yet. As I said, one of the great crowning achievements of the free trade movement in the U.S. is the NAFTA agreement, the North American Free Trade Agreement, lowers/eliminates tariffs in the free trade zone of the Americas, but that's not great for people whose jobs move to other countries.

Robert Goulder: Well, you call it a crowning achievement, yet some people in the political sphere would say it's toxic. It's gritty work. They don't want to be associated with that .

Joseph Thorndike: It's an achievement for the movement. Whether it's an achievement for the country is up for some debate. And again, we have to take it apart. The country. Well, for what parts of the country? For what cities in the country? And that's the problem with free trade, is that the gains from it are widely shared but the cost can be very concentrated in certain places. And so you start to get a lot of pushback on this free trade argument, this low-tariff argument. And the fight over NAFTA is so bitter that even Bill Clinton as president, even the Democratic leader of the House of Representatives, Dick Gephardt, comes out against NAFTA and lobbies actively against it. So it splits Democrats. This is a problem. And it is a sign of things to come that the free trade agenda, which has been dominant for decades, is not going to be unchallenged anymore. And in both parties, you get real pushback and you get divisions within the parties.

So we got Dick Gephardt and Bill Clinton arguing, but you also have Pat Buchanan and the other Republicans arguing about it too. Pat Buchanan, big fan of raising tariffs. So the country's dividing, the parties are dividing. There's a lot of instability in the political alignments here. And I think that, to just jump forward all the way, that is the story of Donald Trump in 2016. He capitalizes on that brewing discontent, this rising discontent with free trade. And he rides that issue, along with some other issues, into the White House.

Robert Goulder: So Joe, to conclude, you're a historian, and what historians do is they look at the past and they draw inspiration for commenting on the present and looking forward into the future. If it's true that high tariffs of yesteryear made the income tax, what's the message for folks today?

Joseph Thorndike: Be careful what you wish for if you're a tariff fan, is that we do have the highest tariffs that we've seen in decades now.

Robert Goulder: Oh, be careful what you wish for how? If I don't do this, because I'm not in that camp, but if I'm rooting for high tariffs, what is the downside? What is the be careful what you wish for thing that's going to come back?

Joseph Thorndike: Those same people who were mad about tariffs in the 1880s and the 1890s, those workers who didn't like the regressive incidents of tariffs, those people are still around today. Any one of us who's a consumer is already seeing the effect of higher tariffs. If you bought a cup of coffee lately, you know that. Coffee has seen a dramatic run-up in prices. And it's going to be true of many things that we buy in this country, and I think that's just starting to really play out now. You may find that these high tariffs that you like so much prove to be enormously unpopular, like most regressive taxes are unpopular. And so at the end of the day, as I said earlier, it can revive interest in progressive alternatives like an income tax or a wealth tax.

Robert Goulder: Goodness.

Joseph Thorndike: Crazy thought.

Robert Goulder: Crazy thought. OK. So be careful what you wish for.

Joseph Thorndike: Yep.

Robert Goulder: And tariffs have never thoroughly been that popular.

Joseph Thorndike: No.

Robert Goulder: They've been tolerated but not popular.

All right. Joe, thanks much. Thanks for the insights into America's fiscal history.

Thank you for tuning in. And I want to say that this podcast series is produced by Jordan Parrish. It's edited by Chris Trigo and Carolyn Kuimelis. And the executive producer is Paige Jones. Thank you and see you next time.

Tax Analysts Inc. does not provide tax advice or tax preparation services. The information you have seen and heard today represents the views of the presenters, which may not be the same as those of Tax Analysts Inc. It may include information obtained from third parties, and Tax Analysts Inc. makes no warranties or representations of any kind and is not responsible for any inaccuracies. Nothing in the podcast constitutes legal, accounting, or tax advice. The tax laws change frequently, and neither Tax Analysts Inc. nor the presenters can guarantee that any information seen or heard is accurate. Also, due to changing tax laws, any information broadcast or downloaded after its original air date may no longer represent the current views of the presenters. If you have any specific questions about any legal or tax matter, you should always consult with your attorney or tax professional.

All content in this broadcast is protected under U.S. and international laws. Copyright © 2026 Tax Analysts Inc. Unauthorized recording, downloading, copying, retransmitting, or distributing of any part of the podcast is strictly prohibited. All rights reserved.