State Taxation(USA)

In the persian empire of old the satraps as they were known were appointed governors who ruled over the various "provinces" of the empire. In exchange for this power and autonomy they were expected in exchange to provide loyalty unto the king of kings but also to provide occasional tribute in the form of men and coin to the empire's coffers.

So the question is as such: could such an indirect form of taxation, alongside say tariffs and tolls on national infrastructure, be used in lieu of direct taxation(income tax, corporate tax) of the people by the central government?

In the United States of America the people of this nation must endure what is referred to as double taxation. They are taxed by the central but also local governments in various ways. Though yes this can be mitigated with deferments, tax credits, and yada yada this comes at the cost of increasing the ever complex and byzantine tax code of these United States.

So a possible solution. Rather than taxing the people why not tax the states themselves and leave it up to them to determine how to pay the bill? This arguably would reduce federal paperwork by requiring the people themselves to only have to pay a single set of taxes(to the local government), reduces the massive amount of federal bureaucracy needed to tax +300 million people, and it may appeal to states rights advocates tired of so much federal meddling. Theoretically that is.

Originally, under the articles, in the United States the federal government was not only barred from levying direct taxes but also in general levying taxes of any sort requiring it to have to in effect beg for funds from the states. This idea could theoretically be a logical fix to that issue without dropping into the murky waters of heavy federal involvement which may placate fears plus it would have provided the federal government a steady source of funding and maybe manpower if that was placed unto the requirements. Unlike persia in exchange for this "tribute" which I will refer to as State Rent from now on they receive representation, free trade, and the protection of the union.

One thing to keep in account is how the value of state rent would be assessed. The arguably most reliable way may be in the manner of a property tax sorta. The property value of all public(state owned) and private land would be assessed and the state rent would say be a tenth of that. So if the property values within a state is about $100 million the state in question would have a rent of $10 million. Later on we could value it on maybe the GDP of the state in question. Complicated but it could be figured out.

So what do you guys think about the idea of State rents, states paying taxes rather than the citizens themselves. This was admittedly in part inspired by another thread which postulated the idea of "representation without taxation" where the citizens of america would be represented but not taxed due to income from abroad.
 

Skallagrim

Banned
This is pretty much how the European Union is financed: every member state donates a certain fraction of its GDP.

Of course, in the case of the EU, this system has also become rather byzantine, with lots of special exemptions for various nations, and a system of money redistribution that results in several states being 'net contributors' and others being 'net recipients'. All in all, I don't think this kind of system will automatically reduce complexity. It also won't stop compaining: even though the EU member states essentially pay but a fraction, they pretty much all feel they're paing too much. (Especially the ones who are actually net recipients, according to several polls, which is a funny parallel with the USA -- where the states wherein the people generally feel that the federal government is too big are also often the states that receive most federal support...)

But okay, regardless of how it works out, it could be implemented given the right POD, and under the right circumstances, it could also be a method for making things simpler. For that latter bit to work, you'd need to define the whole system in pretty strict terms, though. As in: no exceptions, every state pays the same % (of its total property valued, assessed in all states by one universal federal standard, and later of its GDP, again assessed in all states by one universal federal standard). Ideally, the whole formula would have to be explicitly enshrined in the constitution.

A thing you're going to run into, though, is that this system will be very transparent on the 'contribution' side: its very clear how much every state pays, and this 'collective tax' is essentially at a flat rate. A state that's ten times richer than its neighbouring state pays ten times more. That is not the problem in itself, of course. In fact, I personally think that's awesome and elegant. But here's the problem: the federal government will presumably still be funding things all over the place. And the way the federal government spends its funds will benefit certain states more than others. For instance: building a powerful navy - and presumably, many naval facilities - will generally benefit coastal states more than inland states. (To some extent, that's migitated: naval personnel can be recruited from all states, the raw materials for shipbuilding etc. can come from inland states... but the fact remains that most jobs will be near the oceanfront, and the ships will be built... well, not in Utah, that's for sure!)

So what we'll see is interest groups trying to influence policy and spending decisions in favour of their own state(s). Coastal states will want new naval docks. Inland states will want the money spent some other way. Agrarian states will want a generally agrarian policy, and relatively ubanised states will favour a policy in line with big city interests. All this is true for OTL, of course, but this exact system ensures that the states pay the entire budget, we see exactly which state pays how much... and which state then receives what. So the USA will be divided into net contributor states and net recipient states. That, too, is the case in OTL... but in this ATL, it will be much clearer and undeniable which is which.

That will probably lead to conflicts, over time. At the risk of bringing current politics into it: whatever your thoughts on the EU are, it is undeniable that the division into contributor states and recipient states has been harming the ideal of European unity. One country has left the EU now, and I personally think it won't ultimately be the last. Roughly put (and yes, this is a generalisation): many in north(wester)n Europe see south(east)ern Europe as corrupt, messy, and generally a bunch of defaulting debtors, while many in south(east)ern Europe view those in north(wester)n Europe as domineering, stingy, overregulating bullies. The link to the USA's internal division between North vs. South (and/or urbane coastal metropoleis vs. rural inland heartland) is not entirely far-fetched, I'd say. So a USA that uses a system like the EU might ultimately see division over the same kind of issues. Moreso than in OTL.

There is only one way I can see to solve/prevent this particular problem from the outset, and that is to limit the tasks of the federal government, namely to the kind of tasks that pretty much apply to all states equally. The kind of things that specifically suit the needs of a particular (type of) state would have to be within the domain of the states themselves. (For instance, various states have more infrastructural needs than others, so infrastructure would probably by definition become a task of the states exclusively, wherein the federal government is not allowed to meddle. There would also be no possibility for something like agricultural subsidies.)

This would still demand a whole lot of deal-making. For instance, I mentioned the navy. You can't get around that! Maybe you could end up with a policy where army and navy have equal budgets, and army facilities are generally required to be located in inland states, to compensate for the fact that naval facilities are almost exclusively in coastal states? Like I said: deal-making. Probably with a really stupid and bureaucratic outcome. ;)

Mind you, i'm not saying this idea can't work. I actually rather like it (at least in a hypothetical way). But I don't expect it to result in a less complicated system.
 
This idea could theoretically be a logical fix to that issue without dropping into the murky waters of heavy federal involvement which may placate fears plus it would have provided the federal government a steady source of funding and maybe manpower if that was placed unto the requirements. Unlike persia in exchange for this "tribute" which I will refer to as State Rent from now on they receive representation, free trade, and the protection of the union.

One thing to keep in account is how the value of state rent would be assessed. The arguably most reliable way may be in the manner of a property tax sorta. The property value of all public(state owned) and private land would be assessed and the state rent would say be a tenth of that. So if the property values within a state is about $100 million the state in question would have a rent of $10 million. Later on we could value it on maybe the GDP of the state in question. Complicated but it could be figured out.

So what do you guys think about the idea of State rents, states paying taxes rather than the citizens themselves.

There IS a scheme to assess the value of state financial contributions.
Number of all free people, plus 3/5 of the number of all other people, excepting Indians not taxed.

How much of the federal budget of USA was and is paid directly by States under the scheme of free population plus 3/5 of slaves, and how much was and is raised from other sources like tariffs or excises not directly apportioned by population?
 
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Given that states are even more likely to build their budgets on the basis of screwing the poor than the Feds are this seems like a bad idea.
 
This statement is based on what evidence?

State governments rely on things like sales taxes for significant parts of their revenue. In the case of some states, such as Texas, forgoing income taxes completely. Sales tax is regressive, meaning the less you make the higher proportion of your money is spent on it. If one person makes 10,000 a year and spends it all (all non-discretionary), paying a 1% sales tax then they have paid $100 (or 1%) of their income. A person making 50,000 and buying say 25,000 (10,000 nondiscretionary, 15,000 discretionary) with of things has paid 0.5% of their income in taxes.

What's more, because of the nature of needs the poor will ALWAYS be forced to spend a larger percentage of their money on necessities these taxes inherently will always hit them harder than it will hit the wealthy (who can afford higher taxes since more of their income is discretionary.)

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.
 
Up until the Civil War the US Federal govt in entirety could pretty much be funded with just the revenue from the tariffs collected just in the harbor of NY. There'd be little reason until then for an income tax, or to tax the states. The other reason we won't see it is that up through Jackson's presidency you'd have people still alive who would remember that the Articles of Confederation had the state contribute, but no enforcement. There has always been a fear that if states were asked to do something for the Federal govt they could always say no, whether it's contributing money or providing police powers to protect Congress. Which is why the Fed govt is located not in any one state, but in a territory Congress alone controls. Until the Civil War you would see states constantly refusing or under paying as the economic and political winds blow (a governor of the opposite political party of the President or Congressional majority refusing in order to shore up his base for his next election); states could be withholding funds during a time of war because they don't agree with it (New England during 1812). This idea has so many pitfalls.

And for the record it isnt double taxation. And if you work at a business in the City of New York you pay city income tax as well, that is not triple taxation. And it is levied on you whether you live in the city or not, even if you live in New Jersey, Pennsylvania, or Connecticut. Double taxation by definition refers to the same income taxed by separate national govts, it doesn't include by different levels in the same nation.
 

Skallagrim

Banned
State governments rely on things like sales taxes for significant parts of their revenue. In the case of some states, such as Texas, forgoing income taxes completely. Sales tax is regressive, meaning the less you make the higher proportion of your money is spent on it. If one person makes 10,000 a year and spends it all (all non-discretionary), paying a 1% sales tax then they have paid $100 (or 1%) of their income. A person making 50,000 and buying say 25,000 (10,000 nondiscretionary, 15,000 discretionary) with of things has paid 0.5% of their income in taxes.

What's more, because of the nature of needs the poor will ALWAYS be forced to spend a larger percentage of their money on necessities these taxes inherently will always hit them harder than it will hit the wealthy (who can afford higher taxes since more of their income is discretionary.)

We are discussing a POD that occurs before 1900. Given the nature of the topic, very likely a POD that occurs before 1789 (different constitution with this system replaces the Articles of Confederation from the outset). So... the nature of state taxation and state fiscal and economic policies in general might be wildly different from OTL. I point again to Europe, where it depends very much on the country what the tax system is like. It's not like the USA in OTL, where the very existence of the federal income tax is the factor that motivates certain states to not have one of their own. An alt-USA what has no direct federal taxation will most likely see more direct taxation on the state level, probably in the form of income and capital taxes.

Incidentally, the fact that @CalicoHero suggests using property value as the initial basis for 'state contributions' to the federal government makes it a logical step for states to implement a property tax as the main basis for their revenue. After all... that's the thing they're getting 'billed for' by the federal government, right? So that lands you a system where the rich land-owners (historically the richest class) foot a considerable part of the bill. (And when the basis for contribution switches to % of state GDP, there's likely to be a general wealth tax, applied to land values, savings, interest over investments etc. -- all that is, again, pretty much universal in Europe. Far more so than in the USA of OTL.)


It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

This is neither here nor there for the purposes of the discussion. I agree that regressive taxes are not a good idea, but I think I've demonstrated that regressive taxation on a state level is much less likely in this ATL scenario than in OTL. Whether one feels that taxation needs to be progressive, rather than flat, is simply a matter of personal preference. Under this system, the state contributions would be flat by design, but I suspect state taxation would generally be more progressive than in OTL's USA. (Though it would obviously vary from state to state, as it does among EU member states in OTL.)


(In the interest of full disclosure, though not directly related to the discussion: I personnally support flat taxation of all incomes. No other regressive taxes, just one single rate for every person, and no exceptions for anyone. Earn ten times more, pay ten times more: everyone gets treated equally. But again, that is personal preference, and unrelated to what this ATL would result in.)
 
I agree that regressive taxes are not a good idea,

I personnally support flat taxation of all incomes.

These two statesmen to are mutually exclusive. Flat taxes are regressive.

We are discussing a POD that occurs before 1900. Given the nature of the topic, very likely a POD that occurs before 1789 (different constitution with this system replaces the Articles of Confederation from the outset). So... the nature of state taxation and state fiscal and economic policies in general might be wildly different from OTL. I point again to Europe, where it depends very much on the country what the tax system is like. It's not like the USA in OTL, where the very existence of the federal income tax is the factor that motivates certain states to not have one of their own. An alt-USA what has no direct federal taxation will most likely see more direct taxation on the state level, probably in the form of income and capital taxes.

Doubtful. The states have always been dominated by wealthy interests, to a greater extent than even the Federal government, which at the very least tends to have opposing interest among the wealthy, such as industrialists vs planters. Beyond that though, a central problem is... what if a state doesn't pay? What happens? The states won't agree to let the Federal government actually ENFORCE penalties, since that would mean giving up more authority for no benefit.
 

Skallagrim

Banned
These two statesmen to are mutually exclusive. Flat taxes are regressive.

Eh... no. That's just not correct.

--Progressive taxation is when the percentage you pay increases when the taxed sum goes up. (For instance: if you make 1000 dollars you pay 100 dollars; if you make 10.000 dollars you pay 2000 dollars.)

--Regressive taxation is when the percentage you pay decreases when the taxed sum goes up. (For instance: if you make 1000 dollars you pay 100 dollars; if you make 10.000 dollars you pay 500 dollars.)

--Flat taxation is when the percentage you pay always stays the same, regardless of how big the taxed sum is. (For instance: if you make 1000 dollars you pay 100 dollars; if you make 10.000 dollars you pay 1000 dollars.)

In any case, this is not relevant to the discussion at all.


Doubtful. The states have always been dominated by wealthy interests, to a greater extent than even the Federal government, which at the very least tends to have opposing interest among the wealthy, such as industrialists vs planters.

So have all Western countries. Somehow, the vast majority did manage to become countries where progressive taxation is pretty much the norm. But noticably, in most countries, local taxes tend to be more regressive (or less progressive, at least). I think that's because most typically progressive taxes tend to be levied at the national level, leaving states/regions/provinces/districts to muck about with what often amounts to some form of extra sales tax or something like that -- which is often more regressive by nature. (In the Netherlands, for instance, where I live, national taxation is highly progressive, whereas most provincial and municipal taxes are far more regressive.)

If there is no higher-up government implementing those progressive taxes (like most income taxes), and states simply finance that higher-up government via contributions, states will simply levy those progressive taxes instead. This is all very logical.


Beyond that though, a central problem is... what if a state doesn't pay? What happens? The states won't agree to let the Federal government actually ENFORCE penalties, since that would mean giving up more authority for no benefit.

Well, the Articles of Confederation explicitly made the states' contributions voluntary. Making them explicitly mandatory would pretty much solve it. If some state stops paying, that state pretty much commits treason and essentially risks getting kicked out. Which is an outcome that several states back in the day might prefer to actually giving the federal government the power of taxation. Which is why they might push for such a system in the first place.

No-one said that it's ideal, by the way. The question here is whether it might have been adopted, and what the effects of that would have been. Not whether adopting it would have been a smart idea in the long run; systems that later prove to have less pleasant consequences get implemented all the time. The question is whether there might hypothetically, in the early USA, have been any motivation to adopt this system instead of the OTL one. I think there was such motivation, and that if anyone had thought to bring up this system as a serious proposal, it would at the very least have received serious consideration (namely from all the states that valued their own sovereignty). You might well get to the point where the leading figures representing certain states like the idea so much that is has to be adopted, or else too many states will withhold ratification.

All in all, you probably get a somewhat weaker federal government that can't easily undergo its OTL evolution whereby it adopts more and more tasks. Instead, you get stronger states, which would again - in the long term - make the comparison with the EU very apt: things like tax codes, social security, pension schemes etc. would all eventually end up being set up by the individual states. Funnily enough, this alt-USA could end up being more like Europe in many regards. Among other things, there might well be more institutional diversity from state to state (some have relatively high taxes, some have low taxes, some use progressive taxes, others less so. Some have universal healthcare, others don't. Some have a collective pension scheme, others use a more market-based approach. etc. etc.)

What one thinks of such a scenario matters little; the fact remains that it could well be a realistic outcome of this alternative system of financing the federal government.
 
Up until the Civil War the US Federal govt in entirety could pretty much be funded with just the revenue from the tariffs collected just in the harbor of NY. There'd be little reason until then for an income tax, or to tax the states.
There was an obvious reason for it.
Tariffs were apt to be discriminatory between States.
USA was, in 1860, brought down by a Tariff that aimed to tax imported goods (imported by South) for the benefit of domestic manufacturers (in North).
There had been previous quarrels between States on that very issue, like Abomination Tariff.
Direct taxes apportioned between States according to population do systematically discriminate against poorer States. Depending on whether 3/5 of the productivity of a free person is a fair assessment of the economic productivity of a slave, they may also systematically discriminate in favour of slaveowners, or against them (which was it?).

But that´s systematic, predictable discrimination, and directly tied to representation - the States with majority in Representatives have to pay majority of the direct taxes they are voting. They cannot screw a minority of States by imposing on them tariffs they themselves will not need to pay, as is the case with tariffs.

How was the actual source of federal funding decided in 1790s - the distribution of (nondiscriminatory) direct state contribution vs. (arbitrary, potentially discriminatory) tariffs and excises?
 
There was an obvious reason for it.
Tariffs were apt to be discriminatory between States.
USA was, in 1860, brought down by a Tariff that aimed to tax imported goods (imported by South) for the benefit of domestic manufacturers (in North).
There had been previous quarrels between States on that very issue, like Abomination Tariff.
Direct taxes apportioned between States according to population do systematically discriminate against poorer States. Depending on whether 3/5 of the productivity of a free person is a fair assessment of the economic productivity of a slave, they may also systematically discriminate in favour of slaveowners, or against them (which was it?).

But that´s systematic, predictable discrimination, and directly tied to representation - the States with majority in Representatives have to pay majority of the direct taxes they are voting. They cannot screw a minority of States by imposing on them tariffs they themselves will not need to pay, as is the case with tariffs.

How was the actual source of federal funding decided in 1790s - the distribution of (nondiscriminatory) direct state contribution vs. (arbitrary, potentially discriminatory) tariffs and excises?
After the Constitution comes into effect there are no direct state contributions. Prior to the Constitution there are no federal tariffs. Each state took care of tariff policy, in fact Rhode Island had a tariff on Massachusetts which was one of two main immediate causes for the Constitutional Convention the other being the Maryland Virginia dispute of their western border, navigation rights in the Potomac, and whether Virginia could close the Chesapeake Bay as retribution if it didn't get its way.
 
The point is that this is just not workable prior to the Civil War. The Federal govt isn't going to give up to the states the decision of how much money the Fed gets. States won't give what they are supposed to and the Fed doesn't have the power to make a state do it. We have a real world equivalent- UN dues. The exact same situation of UN dues will play out in the USA prior to the Civil War. As I pointed out it isnt double taxation and this is an exercise in finding a "solution" to no problem. The US politicians would have NEVER come up with this idea because there was no reason for it, no problem was ever seen, and there were actual historical instance in which the US had a system like you described and it failed, creating the current Constitution. Therefore no one would ever want to "fix" what wasn't broken and go back to a system which was in fact proven to be broken.

I can't help but think this OP is based on some kind of current political motive and belief in 2016... if so, need to understand that they wouldn't have the thinking or foresight to expect 2016 problems. If you want to eliminate income tax on more than one level (and again this is not Double Taxation!) Then much more realistic to eliminate it at the state level. But your motive seems to be to eliminate the sales tax... ok, then you have to raise property taxes. Taxes a part of life. Infrastructure, safety, protection, all takes money. And no one source can pay for it all in a politically expedient way. Any elimination of one form causes the remaining forms to skyrocket. Ok, eliminate national income tax and replace with national sales tax ( I realize you'd be opposed to that) and your sales tax HAS to be five, six, or even 8 times what it is today and nobody is going to support a 50% sales tax; the reason fiscal conservatives want a national sales tax to replace income tax is they know the public will only accept a certain ceiling, and it will force the Fed govt to cut programs and spending because there will be such a shortfall. Shifting tax burdens is never about raising money "fairly" it is always about politics.
 
State governments rely on things like sales taxes for significant parts of their revenue. In the case of some states, such as Texas, forgoing income taxes completely. Sales tax is regressive, meaning the less you make the higher proportion of your money is spent on it. If one person makes 10,000 a year and spends it all (all non-discretionary), paying a 1% sales tax then they have paid $100 (or 1%) of their income. A person making 50,000 and buying say 25,000 (10,000 nondiscretionary, 15,000 discretionary) with of things has paid 0.5% of their income in taxes.

What's more, because of the nature of needs the poor will ALWAYS be forced to spend a larger percentage of their money on necessities these taxes inherently will always hit them harder than it will hit the wealthy (who can afford higher taxes since more of their income is discretionary.)

It is not very unreasonable that the rich should contribute to the public expense, not only in proportion to their revenue, but something more than in that proportion.

Despite the fact that you're turning this into a political conversation, I will point out that the state fiscal decisions are made with the awareness of what the Feds are doing. If any of that changes, then everything changes.
 
The point is that this is just not workable prior to the Civil War. The Federal govt isn't going to give up to the states the decision of how much money the Fed gets. States won't give what they are supposed to and the Fed doesn't have the power to make a state do it.

"Federal govt" did not have all that much established power to force States in 1790s. A tariff or excise was potentially discriminatory to some States. Which meant that the States who felt discriminated by some tariffs could vote against passing the tariff bill either in Representatives or in Senate. And the result of Representatives and Senate failing to agree exactly what to tax would be no tax, right?
How did US States manage to compromise to fund Federal budget in 1790?
 
Well, the Articles of Confederation explicitly made the states' contributions voluntary. Making them explicitly mandatory would pretty much solve it. If some state stops paying, that state pretty much commits treason and essentially risks getting kicked out. Which is an outcome that several states back in the day might prefer to actually giving the federal government the power of taxation. Which is why they might push for such a system in the first place.

Even at the time though the idea of voluntary contributions had already been discredited. The states simply did not contribute. But it was also clear the federal government DID need money, meaning anything less than mandatory can't happen. And no state will willingly mandate paying taxes to the federal government. If the states simply decided to leave instead (as implied by your suggestion of states willingly being expelled) then there would just be no Constitution. The Articles would simply fail and not be replaced.
 

Skallagrim

Banned
Even at the time though the idea of voluntary contributions had already been discredited. The states simply did not contribute. But it was also clear the federal government DID need money, meaning anything less than mandatory can't happen. And no state will willingly mandate paying taxes to the federal government. If the states simply decided to leave instead (as implied by your suggestion of states willingly being expelled) then there would just be no Constitution. The Articles would simply fail and not be replaced.

What I am implying is not that states would just leave - or want to leave - on a whim, but that considering the attitudes prevailing in several states at the time, they might like a system that essentially allows them to... exploit the possibility. Let's remember that the federal budget was tiny at the time. States would only have to pay a fraction of a fraction of their actual revenue. If the value of land is the basis on which the contribution is determined, we're probably talking about 0,1% or something like that. It's going to be negligable.

What this system would do, basically, is allow the states to keep it negligable. Payment is going to be mandatory, and considering that every state essentially agreed that the Articles were not working out, I expect that the states will pay up. It costs them little, and the upside for states is that there are no federal tariffs, so the whole high tariffs vs. low tariffs debate never even happens. Instead, we get a national debate about low state contributions to the federal government vs. (proposed) higher contributions. And here, the states will have an advantage that they did not have in OTL: the federal government has no source of revenue besides the existing contributions. If it comes to a direct confrontation, the states favouring low contributions can simply refuse to pay more, essentially get kicked out, and go their own way. With that possibility constantly looming, the federal government is pretty much going to be always beholden to the states-- and going to stay small.

Obviously, this has major drawbacks. I imagine @Napoleonrules shudders at the very thought, and while more enthousiastic about the idea of a decentralised federation... I, too, admit that this particular system would cause a major shitstorm somewhere down the lane. But that's not the point. In 1789, even though many had agreed that voluntary contributions were not working, this alternative might still appeal to certain (not insubstantial) elements in American politics. Basically, everyone who got big on "states' rights" later on, and gifted with a little foresight, would see possibilities in this idea. It is not, as @Napoleonrules claims, entirely a "solution for a problem that doesn't exist". In OTL, the idea wasn't brought up, and the idea of having the federal government levying tarriffs (but no direct taxes within the USA!) was considered acceptable by all. If this alternative were to be proposed, however, a lot of powerful people would probably like this a whole lot better than tariffs... Not everyone was a Federalist in 1789. Those who had been in the camp of the anti-federalists, many of whom would later become the Democratic-Republicans, might well support this alternative. And if the states sympathetic to this cause got to like the idea, they basically had the power to force the issue. Ratification wasn't that easy in OTL. All you need is a contingent of states putting their foot down, and they can threaten the whole thing.

I sure foresee a lot of problems, but I can also simply see why certain people in 1789 might back a proposal like this. And, well... despite the messiness of a more locally-organised union, with far more institutional diversity... it could end up just fine. Depending on how American (political) culture evolves over time, the result of this alt-USA with its powerful state governments and tiny federal government could go in any direction. Maybe you'd end up with an alt-USA where the federal government is tiny, but most states are social democracies that more closely resemble Sweden than any OTL state of the US. (States' righters' wank-fest turned into states' righters' nighmare, basically. The irony of the idea appeals to me.)
 
"Federal govt" did not have all that much established power to force States in 1790s. A tariff or excise was potentially discriminatory to some States. Which meant that the States who felt discriminated by some tariffs could vote against passing the tariff bill either in Representatives or in Senate. And the result of Representatives and Senate failing to agree exactly what to tax would be no tax, right?
How did US States manage to compromise to fund Federal budget in 1790?
The individual states don't make that decision! It is representatives (because all "money bills" must originate in the House) and they are directly elected by the people and are not given orders by their state legislatures. Even senators don't listen to state legislatures even when they were appointed, since they had 6 years and knew one vote wouldn't be suicide (usually).
 
How was the actual source of federal funding decided in 1790s - the distribution of (nondiscriminatory) direct state contribution vs. (arbitrary, potentially discriminatory) tariffs and excises?

Look up Hamilton's financial policy.

Excise Taxes and Tariffs were the source. No direct contributions from the states. No income taxes. And of course, loans. Which, thanks to Hamilton's Financial plan, made interest US Bonds very cheap for the Federal Government.

In fact, until 1913, tariffs were the main source of US Revenue. The US Market was one of the mos protected in the world. And it resulted in budget surpluses on most peaceful years.
 
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