By: Freewavemaker, LLC (Jerry Nix Author)                                                                         Date: 04/02/2025

I am trying to figure out why so many people are against the Trump administration for charging tariffs to other countries who want to do business with us. Especially since those other countries charge us for doing business with us. Don’t people realize that Tariffs is truly a tax on others rights to do business here? And the more we can charge them the less our own income tax can be. Let’s look at a few facts that I’ve found along the way.

When did the income tax in America get started?

The United States first introduced a federal income tax in 1861 under the Revenue Act of 1861, primarily to help fund the Civil War. Yes, this is correct. It seems that even though we were fighting each other a tax was need to carry on the battle. I wonder who the brunt of the income tax supported – the union army or the confederate army? Well, here’s the answer:

The federal income tax introduced under the Revenue Act of 1861 was implemented by the Union government, so the funds were used to support the Union Army during the Civil War. The Confederate government, on the other hand, had its own separate financial systems and revenue measures, including a “War Tax” and issuing bonds. It’s fascinating how both sides had to innovate financially to sustain their war efforts. And here I am scratching my head in amazement and wondering why.

The American Civil War, fought from 1861 to 1865, was primarily caused by deep-seated divisions over slavery, states’ rights, and the balance of power between the federal government and individual states.

• Slavery: The Southern economy relied heavily on enslaved labor for agriculture, particularly cotton production. The Northern states, with industrial economies, had largely abolished slavery and opposed its expansion into new territories.
• States’ Rights: Southern states argued for their right to govern themselves, including maintaining slavery, while the federal government sought to limit its spread.
• Secession: Abraham Lincoln’s election in 1860, with his anti-slavery platform, prompted Southern states to secede from the Union, forming the Confederacy.

The war began when Confederate forces attacked Fort Sumter in South Carolina on April 12, 1861. Over four years, the conflict reshaped the nation, leading to the abolition of slavery and a stronger federal government.

So, this original income tax was short-lived. When the civil war ended some estimates of the dead had the number as high as 850,000 though many peg it between 620,000 and 750,000. According to the 1860 U.S. Census, conducted just before the Civil War, the population of the United States was approximately 31.4 million people. This included about 3.9 million enslaved individuals. So the Civil War, it seems, could have reduced the population by between 1.97% and 2.70% depending on the number we use for the dead.

The modern income tax system as we know it today began with the ratification of the Sixteenth Amendment in 1913, which granted Congress the authority to levy an income tax without apportioning it among the states. This led to the Revenue Act of 1913, which officially reintroduced the federal income tax.

• A 1% tax was applied to incomes above $3,000 for individuals (or $4,000 for married couples).
• Higher income brackets faced additional surtaxes, with the top rate reaching 7% for incomes exceeding $500,000. In today’s terms, $500,000 from 1913 would be equivalent to approximately $16 million when adjusted for inflation.
• At the time, this tax affected only about 3% of the population, as most Americans earned below the taxable threshold.

The highest income tax brackets in U.S. history occurred during World War II. In 1944 and 1945, the top marginal tax rate reached an astonishing 94%. This applied to incomes over $200,000, which would be equivalent to several million dollars today when adjusted for inflation. In 1944-1945, the lowest federal income tax bracket was 23%, which applied to taxable incomes up to $2,000 for single filers.

This high rate was part of the government’s effort to fund the war and manage the economy during a time of significant national mobilization. After the war, the top rates gradually decreased, but they remained above 90% until the early 1960s. So, you think taxes are high now? Believe me they are not near as bad as they once were.

But, if the country needs taxation to exists, how did we make it from 1776 to 1861 (about 85 years) without a tax at all on incomes?

That is a very good question, and while I don’t know for sure, I think the Trump Administration may have the answer.

Before the introduction of the federal income tax in 1913, the U.S. government primarily relied on tariffs, excise taxes, customs duties, and land sales to generate revenue.

• Tariffs: Import taxes were a major source of income, especially in the early years of the nation. The Tariff Act of 1789 was one of the first laws passed to help pay off war debts and protect domestic industries.
• Excise Taxes: These were taxes on specific goods like alcohol, tobacco, and refined sugar. One of the earliest examples was the Whiskey Tax of 1791, which led to the famous Whiskey Rebellion.
• Customs Duties: Taxes on imports and exports provided a steady stream of revenue, sometimes accounting for up to 90% of government income between 1790 and 1820.
• Land Sales: The government sold public lands, particularly in the western territories, to raise funds. The Land Ordinance of 1785 was an early effort to organize and sell land for revenue.

Since the federal government had fewer responsibilities back then—no social programs, welfare, or large-scale infrastructure projects—it didn’t need as much money as it does today.

So, what is the difference between customs duties and tariffs? Great question! While customs duties and tariffs both involve taxes on imported goods, they have some key differences in their application and scope:

• Tariffs: These are taxes imposed on imports (and sometimes exports) by a government to regulate trade, protect domestic industries, or generate revenue. They are usually broad and can be applied to specific categories of goods or entire industries. Tariffs can be protective (to shield local businesses from foreign competition) or revenue-generating (to raise money for the government).
• Customs Duties: These are specific taxes levied on imported or exported goods when they pass through customs. They are part of the broader tariff system but tend to be more focused on individual shipments rather than entire trade policies. Duties are calculated based on value, weight, quantity, or other criteria set by the government.

Think of tariffs as the overarching policy tool used for international trade regulation, while customs duties are the specific charges applied at borders.

Before the Income Tax Act of 1913, tariffs, excise taxes, and customs duties were the primary sources of federal revenue. In fact, tariffs alone accounted for up to 95% of federal revenue during certain periods in the 19th century.

Our Current Trade Deficit with the Rest of the World:

A trade deficit occurs when a country’s imports exceed its exports in terms of value during a specific time period. In other words, the nation is buying more goods and services from other countries than it is selling to them. This results in a negative balance of trade.

For example:

• If the U.S. imports $500 billion worth of goods but exports only $400 billion, it has a trade deficit of $100 billion

Trade deficits can reflect strong consumer demand but may also raise concerns about economic dependence on other nations.

As of the most recent data, the U.S. trade deficit for December 2024 was approximately $98.4 billion. This represents the difference between the value of goods and services the U.S. imported and exported during that month. For the entire year of 2024, the trade deficit increased by 17% compared to 2023.

While it may seem like it to some of you younger readers, America hasn’t always had a trade deficit. In fact, the U.S. ran trade surpluses for much of its early history, particularly during the 19th century. From 1870 to 1970, the U.S. consistently exported more goods than it imported, benefiting from its industrialization and agricultural exports.

The shift to persistent trade deficits began in the 1970s, coinciding with the U.S. becoming more reliant on imported goods and services. This trend has continued to the present day, with the U.S. importing more than it exports.

What the Trump Administration May Be Trying to Do:

We all know that Donald Trump ran on lowering income taxes for the average American taxpayer. However, to do that he is going to have to replace those tax dollars with something else. That has to be Tariffs. If the Trump lowers the income tax and does not get the Tariffs it needs to replace those dollars – then America is just digging a deeper hole to fall into. When we pay a tax to another country for importing their goods and services to us … I’m almost certain they use that money to support their country and the citizens of that country.

President Trump is set to announce a significant round of tariffs today, April 2, which he has dubbed “Liberation Day”. These tariffs are part of his reciprocal trade policy, aiming to match the tariffs imposed by other countries on U.S. goods. The plan includes a 25% tariff on imported cars and auto parts, along with broader measures targeting major trading partners.

The goal is to encourage domestic manufacturing and reduce reliance on foreign goods, but economists warn that these tariffs could lead to higher consumer prices and potential disruptions in global trade. The announcement is scheduled for 4 p.m. EDT in the White House Rose Garden. While I believe it could lead to higher prices, I’m not going so far out on a limb to say that they are going to be outrageously high. Trump is simply trying to get from other countries on our exported goods (what little we have now) the same as they are getting from us on their exported goods to us. If he can accomplish this then the amount of taxes he will save you should offset some, if not all, the additional cost to the increased tariffs that are having to be paid. And, this is only if other countries increase their tariffs on us. If they don’t, then you’re already paying more than the product being imported is worth since that tariff has already been charged.

Many countries, as a matter of fact, will build manufacturing plants over here in America since anything built in America does not have any tariffs – and they will likely keep charging the same amount as they charge for importing it to us. So, if they charge you $50,000 for an imported car, they will likely keep charging the same $50,000 building it here for no tariff costs. But, who knows, due to slimy unions and the cost of labor in our country as compared to others – it would not surprise me if the cost even went up a few thousand dollars to the ultimate consumer.

Did you know the average tariff rate the U.S. imposes on imports is relatively low compared to many other countries. As of recent data, the weighted mean applied tariff rate for all products is approximately 1.47%. This reflects the U.S.’s generally open trade policies, though specific goods may have higher rates depending on trade agreements and economic strategies. While the average tariff rates imposed by other countries on U.S. exports vary widely depending on the country and the type of goods. For example:

• India imposes an average tariff of 17% on U.S. goods.
• China has an average tariff rate of 7.5%.
• European Union countries generally impose tariffs around 5%

And look at our two closest neighbors, Canada and Mexico – what are their tariffs on American Imports?

Canada and Mexico generally impose tariffs on U.S. imports based on the U.S.-Mexico-Canada Agreement (USMCA). Under this agreement, many goods qualify for zero tariffs if they meet specific rules of origin. However, for goods that fall outside the USMCA preferences:

• Canada: Tariffs can range from 0% to 10%, depending on the product category. For example, energy products like potash may face a 10% tariff.
• Mexico: Tariffs are similar, with rates up to 25% for certain goods that do not meet USMCA rules.

These rates reflect the trade policies negotiated under the USMCA, which aims to facilitate trade among the three countries. But that is not the end of the case for tariffs from our neighbors.

• Canada imposes high tariffs on certain agricultural products like eggs, milk, and dairy. These tariffs can exceed 200% or even 300% in some cases, but they only apply when imports exceed specific tariff rate quotas. Below these quotas, U.S. exports often face zero tariffs under agreements like the USMCA
• Mexico also imposes high tariffs on certain agricultural products, though they are generally not as extreme as Canada’s. For example, Mexico has tariffs on items like dairy products, poultry, and grains, which can range from 20% to 75% depending on the product and whether it exceeds specific quota limits.

Quota limits, often referred to as tariff rate quotas (TRQs), are a trade policy tool that sets a specific quantity or limit on imports of certain goods at a lower tariff rate. Once imports exceed this quota, a much higher tariff rate is applied to any additional goods. This system is commonly used to protect domestic industries while allowing for some level of foreign competition.

For example:

• Under Canada’s supply management system, the country allows a certain amount of dairy or eggs to be imported at low or zero tariffs. However, once this quota is surpassed, tariffs can jump to 200%-300% to discourage excessive imports and protect domestic farmers. Do we have any such means to protect our farmers and agricultural businesses? No!

Yes, that’s correct … you are getting more here than is given to you by the Mainstream Media (or the Lame Stream Media) however you wish to look at it.

In Conclusion:

President Donald J. Trump is supposed to be uncovering his plan for Tariffs on the world trading partners this evening at 4:00 Eastern Time. I encourage you to watch it and draw your own conclusions as to whether it is good or bad for America. If you’re like a typical politician or media reporter who cannot see the forest for the trees that get in the way … then you will think it is bad. But, if you can see the big picture, you may understand that long-term it is best for America to stop giving and start taking some back. Prior to 1970 we did not have trade deficits and now we do … and our government (under some old regimes) insist on wasting and spending money we don’t have.

Have a great day and week, month and year!

Jerry Nix | Freewavemaker, LLC

www.freewavemaker.com