Lessons from Tariff History

Last week, President Trump unleashed the biggest tax hike in American history, slapping a series of tariffs on imports from nearly every country in the world. Fans of the new measures say it’s long past time we took steps to combat foreign barriers to US exports. After some temporary pain, they say, we’ll enter a new gilded age of prosperity and even eliminate income taxes entirely. Skeptics say it will be like kneecapping the economy with one of those new “torpedo bats” that baseball players are using to pound out home runs. Only time will tell who’s right – or if the truth is somewhere in the middle..

Trump has floated establishing an “External Revenue Service” for collecting the new levies, which he proposes to make permanent. In the meantime, U.S. Customs and Border Protection is responsible for collecting his new tariffs. The agency employs over 21,000 agents to inspect passengers and cargo at 328 ports of entry. It’s all a far cry from the goons who collected tariffs during the actual Gilded Age – which brings us to this week’s story.

Turn the dial on the Wayback Machine to the 1870s. Tariffs average around 40-50% and make up 20-30% of Uncle Sam’s revenue. New York City is the primary port of entry for imports reaching the country, collecting 75% of the country’s tariff revenue. And the New York Customs House at 55 Wall Street is where all the action goes down.

You would expect the people collecting that much money to be an honorable bunch of highly trained professional agents and administrators. LOL. In fact, it was a corrupt nest of self-serving vipers. (Picture Martin Scorsese’s Gangs of New York going to work at an office every morning, managing paper ledgers instead of pistols.) New York’s senior senator, Republican Roscoe Conkling, controlled the patronage machine that filled those jobs. And the Collector of the Port of New York was the most prized appointment in the country. That’s because he and his senior deputies took a slice of the cargoes seized and fines levied on importers trying to evade the tariff.

Conkling appointed his protégé Chester Alan Arthur to be Collector in 1871. Together, they stuffed the operation with loyalists. Arthur’s stated salary was $6,500 per year. But his actual income topped $50,000, or about $1.4 million in today’s dollars. That was enough to make him the highest-paid employee in the entire government. The Party benefited, too – Arthur’s hacks were required to make regular contributions, called “assessments,” back to the Republican machine.

By that point, reformers were eyeing the spoils system. In 1876, Rutherford Hayes won the White House, pledging reform, then spent two years pushing Arthur out.

Art Arthur went on to become one of those flamboyantly bearded post-Civil War presidents you immediately forget after high school. His nickname, the “Dude president,” reflected his dapper style. Yet, in one of those only-in-America redemptions, he signed the Pendleton Civil Service Reform Act, which scrapped the spoils system that had built his own career in favor of competitive exams for hiring civil servants. Even Mark Twain, who loved skewering politicians, praised him: “I am but one in 55,000,000; still, in the opinion of this one-fifty-five millionth of the country’s population, it would be hard to better President Arthur’s Administration.”

There’s nothing we can do to help you avoid tariffs. But we can help with some of the spillover effects. If you’ve got stocks in taxable accounts, now might be the time to harvest some losses. If you’ve got assets in qualified accounts, now might be a good time for a Roth conversion. Call us before you panic so we can help you save!