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Category Archives: Federal finances

THIS is how Uncle Sam should spend your taxes. Part 3

these contributions enable us to support the current expences of the government, to fulfill contracts with foreign nations, to extinguish the native right of soil within our limits, to extend those limits, & to apply such a surplus to our public debts, as places at a short day their final redemption. and, that redemption once effected, the revenue thereby liberated may, by a just repartition of it among the states, & a corresponding amendment of the constitution, be applied, in time of peace, to rivers, canals, roads, arts, manufactures, education, & other great objects within each state.
Thomas Jefferson’s Second Inaugural Address, March 4, 1805

Patrick Lee’s Explanation
Effective leaders limit and prioritize spending.
First, Thomas Jefferson limited current federal spending to five areas:
1. Domestic commitments authorized by Congress
2. Contractual agreements with other nations
3. Purchasing tribal lands from the Indians
4. Expansion of the United States geographically
5. Paying down federal debt until it was gone

Second, when the federal debt had been paid, the Constitution amended to allow for it, and the nation was at peace, further surpluses were to be shared with the states for infrastructure and to promote commerce, education, culture and the like.

“The great length that Patrick Lee went to ensure that Mr. Jefferson’s remarks
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Tax man? WHAT tax man? Part 2

The remaining revenue, on the consumption of foreign articles, is paid chiefly by those who can afford to add foreign luxuries to domestic comforts. being collected on our sea-board and frontiers only, & incorporated with the transactions of our mercantile citizens, it may be the pleasure and the pride of an American to ask What farmer, what mechanic, what labourer ever sees a tax-gatherer of the US.?
Thomas Jefferson’s Second Inaugural Address, March 4, 1805

Patrick Lee’s Explanation
Successful leaders should brag (a little).
This paragraph continues the theme of the previous post, the President’s elimination of unnecessary government offices, officers and the taxes to support them. Where, then, did government get the funds for necessary functions? From taxes (customs duties) imposed on imported goods.

Most customs were paid by the more affluent, those who could afford imported “foreign luxuries.” The cost of necessary services were funded for everyone by the few who could really afford it. That left the  vast majority of ordinary citizens … farmers, mechanics, laborers … free from the grasp of the tax man.

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What do we owe, & where does the money go?

… [Should we present to] Congress at some time of every session a Calendar of 1. the interest of the public debt paid in each year. 2. the principal paid, or added. 3. the principal remaining due at the end of each year …  also …  a similar calendar of the expenditures 1. for the civil, 2. the military, 3. the naval departments, in a single sum each? the greatest security against the introduction of corrupt practices & principles into our government, which can be relied on in practice, is to make the continuance of an administration depend on their keeping the public expences down at their minimum. the people at large are not judges of theoretic principles, but they can judge on comparative statements of the expence of different epochs.
To Albert Gallatin, February 11, 1804

Patrick Lee’s Explanation
Honest leaders help their constituents hold them accountable.
The President decried the undecipherable mess of government finance created by the first Treasury Secretary, Alexander Hamilton. He wanted Gallatin, his Secretary, to make sense of it, not just for Congress but for the common man. Thus, he asked Gallatin about the wisdom of an annual report to Congress related to national debt and annual expenditures:
Debt –
1. How much interest was paid on the debt?
2. How much the debt was reduced or increased?
3. Was is the total debt at the end of the year?
Annual expenditures, a single total for each –
1. Civil government (all non-military expenditures)
2. Military (land-based forces and defenses)
3. The navy

Jefferson also asked if these numbers could be established annually from the nation’s founding. A protection against corruption was an on-going effort to keep government spending at a minimum. The public would be well able to judge of their government by comparing these totals year by year.

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Let us throw 1/4 of the rascals out!

the principle of rotation established by the legislature in the body of Directors in the principal bank [Bank of the United States], it follows that the extension of that principle [to subordinate banks] … was wise & proper … it breaks in upon the esprit de corps so apt to prevail in permanent bodies, it gives a chance for the public eye penetrating into the sanctuary of those proceedings & practices which the avarice of the directors may introduce for their personal emolument … and it gives an opportunity at the end of a year, or at other periods, of correcting a choice which on trial proves to have been unfortunate …
To Albert Gallatin, December 13, 1803

Patrick Lee’s Explanation
Realistic leaders do not trust permanent office-holders.
Congress provided in 1791 that no more than 3/4 of the 25 directors of the national bank could be re-elected for a second year. The President applauded the extension of that principle to its regional branches, for three reasons:
1. It broke up the good-old-boy network arising among those who can hold office forever.
2. It allowed the public to examine their practices, especially those designed to enrich themselves.
3. It provided the opportunity to correct an appointment that had “been unfortunate.”

As a general rule, Jefferson opposed all offices and appointments that were permanent and thus shielded from public accountability. He thought Supreme Court justices should be subject to periodic review. The same principle should apply to national bank directors.

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THIS is how we shrink the size of government.

I return you the letter of mr Miller notifying the resignation of the Supervisor of Maryland, & I approve your proposition of suppressing [eliminating] the office, annexing it’s duties to that of Surveyor of the district of Baltimore with the salary of 250. D. a year & a reasonable allowance for Clerk hire.
I return you also your proposed report on the suppression [elimination] of the Commissionrs. of loans, with an entire approbation [approval] of it.
To Albert Gallatin, December 1, 1803

Patrick Lee’s Explanation
Principled leaders keep their word.
Jefferson claimed the Washington and Adams administrations, with the help of Alexander Hamilton, had greatly expanded the reach and expense of the national government by multiplying the number of offices and officers under its control. The resulting patronage worked to their advantage since they appointed only political supporters to those jobs.

The President vowed to reverse this trend in his first inaugural address. One of his priorities would be “economy in the public expense, that labor [taxpapers] may be lightly burthened.”

Firing Federalist office-holders would create a firestorm of political protest. To avoid offending his opponents unnecessarily, Jefferson would often simply eliminate an office when it became vacant. In this letter, he approved two recommendations of his Secretary of the Treasury to do just that.

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It is not necessary to lay blame when a mistake is made.

It appears that on the 31st. Mar. 1800. a paiment of cents & half cents was made into the treasury, which raised the whole amount paid in to more than 50,000. D. and that the Treasurer ought then forthwith to have announced it in the gazettes. consequently it ought, now that the omission is first percieved, to be forthwith announced … to avoid the appearance of blaming our predecessors within whose time the omission happened, I would not specify the date when the sum of 50,000. D. had been paid in …
To Albert Gallatin, April 10, 1803

Patrick Lee’s Explanation
Smart leaders quietly correct another’s error and move on.
A 1792 law provided for an announcement in the newspapers whenever the U.S. Mint had transferred more than $50,000 in pennies and half pennies to the Treasury Department. That threshold was reached eight years later, in President Adams’ administration, but the public notification was not made. Albert Gallatin, Jefferson’s Treasury Secretary, discovered the omission and asked his boss how he wanted to handle it.

Jefferson said the error should be corrected, but he didn’t want to lay any blame on Mr. Adams or his staff. Thus, he directed his Secretary to announce the threshold had been reached but make no mention of when it happened.

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My friend, I am so sorry I had to fire your brother.

the act of duty which removed your brother from office, was one of the most painful and unwilling which I have had to perform. very soon after our administration was formed, the situation of his accounts … the failure to render accounts periodically, the disagreement among those he did render, gave reason to believe he was imprudently indulging himself in the use of the public money. what were the circumstances which led him to this, was not an enquiry permitted to us.
To Elbridge Gerry, August 28, 1802

Patrick Lee’s Explanation
Effective leading sometimes requires personally painful decisions.
Gerry (1744-1814) was a well-regarded Massachusetts politician, friend and ally of Jefferson. His brother, Samuel, had been appointed years before by President Washington to be a customs (tax) collector in Massachusetts. Samuel mismanaged the office and had not remitted all the taxes due of him. He’d been given opportunity to account for his affairs and pay what was owed and had not done so.

Elbridge Gerry wrote an incredibly long and impassioned letter to Jefferson on behalf of his brother. (3,500 words! By contrast, the Declaration of Independence is just over 1,300 words.) Nonetheless, Jefferson, who hated confrontation, removed Samuel Elbridge from his position. He responded to his friend’s plea, explaining how painful it was to fire his brother. Samuel could have made the situation right and did not. There was no alternative.

Elbridge Gerry was Governor of Massachusetts in 1812 when he reluctantly approved a new redistricting plan for the state legislature. Some new districts had very unusual shapes, created to favor republicans. One senatorial district was so convoluted as to resemble a salamander in shape. Combining the governor’s name with that amphibian gave rise to the term gerrymander, still used today to describe ill-shaped legislative districts created to benefit one party over another.

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We said we would do it, and we kept our word!

the session of the first congress, convened since republicanism has recovered it’s ascendancy [in the election of 1800], is now drawing to a close. they will pretty compleatly fulfil all the desires of the people … the people are nearly all united, their quondam [former, i.e. Federalist] leaders infuriated with the sense of their impotence … and all is now tranquil, firm and well as it should be. I add no signature because unnecessary for you.
To Tadeusz Kosciuszko, April 2, 1802

Patrick Lee’s Explanation
A measure of true leadership is accomplishing what you said you would do.
With the republicans (small r) in control of the Congress and Presidency, they worked together to accomplish the goals Jefferson had laid before the people. Deleted from this excerpt, but available in full at the link above, those successes were:
1. Reduced the army and navy to only what was necessary for defense
2. Curtailed the President’s patronage powers and cut Executive Branch offices in half.
3. Suppressed taxes on ordinary citizens
4. Economized in a way that would still honor payments on the national debt and eliminate that debt in 18 years
5. Reduced the size of the judicial branch, enlarged pre-1801 to increase Federalist power
6. Welcomed refugees from other countries
7. Eliminated all public governmental ceremonies patterned after England’s

Jefferson claimed near unity of the citizenry, to the fury of their former leaders.

He didn’t sign this letter, saying Kosciuszko would know who wrote it. There was another reason. Political opponents regularly pilfered the mails. Since Jefferson apparently could not send this letter by private courier, his preferred method, he would omit his name so his straightforward assertions could not be used against him.

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Everyone should have a clue! Especially YOU. Part 2 of 2

we might hope to see the finances of the Union as clear and intelligible as a merchant’s books, so that every member of Congress, and every man of any mind in the Union should be able to comprehend them, to investigate abuses, and consequently to controul them. our predecessors have endeavored by intricacies of system, and shuffling the investigator over from one officer to another, to cover every thing from detection. I hope we shall go in the contrary direction and that by your honest and judicious reformations we may be able, within the limits of our time to bring things back to that simple & intelligible system on which they should have been organised at first.—
To Albert Gallatin, April 1, 1802

Patrick Lee’s Explanation
Honest leaders encourage transparency and want citizen oversight.
In the first post from this letter, Jefferson complained that former Treasury Secretary Hamilton had so complicated federal financing that Congress and the President had no idea what was happening. That labyrinth grew to where Hamilton himself could figure it out.

In that post, Jefferson wanted his Treasury Secretary to simplify the nation’s books so every member of Congress could understand them. In this post, going even further, he wanted a system so clean and transparent that any thinking person could understand them. Where previous administrations wanted to conceal and confuse, he wanted citizens empowered to investigate and control abuses.

Jefferson proposed what should have been created a dozen years before at the nation’s founding, a “simple & intelligible system” for the government’s receipts and disbursements.

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No one has a clue, not even the author! Part 1 of 2

I think it an object of great importance, to be kept in view, and to be undertaken at a fit season, to simplify our system of finance, and bring it within the comprehension of every member of Congress. Hamilton set out on a different plan. in order that he might have the entire government of his machine, he determined so to complicate it as that neither the President or Congress should be able to understand it, or to controul him. he succeeded in doing this, not only beyond their reach, but so that he at length could not unravel it himself.
To Albert Gallatin, April 1, 1802

Patrick Lee’s Explanation
Great leaders SIMPLIFY.
A year into his Presidency, he hoped to up-end the incomprehensible financing system created by a previous Treasury Secretary, Alexander Hamilton. He wanted Gallatin, now in that role, to simplify that system to the point where every member of Congress could understand it.

There was no love lost between Jefferson and Hamilton. The new President thought the former Secretary wanted to control the entire government. To do that, Hamilton had deliberately created a system so obtuse “that neither the President or Congress should be able to understand it.”

It followed that no one would be able to control the one person, Hamilton, who understood the whole process. Eventually it backfired, Jefferson claimed, becoming so convoluted that Hamilton “could not unravel it himself.”

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I would like to express my deepest gratitude for your inspirational presentation …”
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