Question 1
Benefits principle is a theory of taxation that argues that people should pay taxes because they benefit from government expenditure. The philosophy justifies taxes by benefits received by citizens from using good financed by tax. After the Revolution War, America had severe debt, as such, there was a need for financial intervention to regain the country back to its former glory. The government decided to combine state and federal debts into a single debt and employ the use of bonds to pay off the debt.

On the other hand, taxes and tariffs would be used to pay off interest. In 1791 the government introduced the Whiskey Excise Act that taxed the production of distilled liquors (“Whiskey Rebellion”). However, the Whiskey Act provided that smaller distillers paid more than large scale distillers. The tax involved to two options, flat-rate payment for large distillers and payment per gallon for smaller distillers. Amount per gallon was more expensive, as such the poor suffered from this arrangement. The Whiskey Tax led to a massive rebellion among farmers who used whiskey as their economic currency. Benefit principle of tax fairness could not justify the government decision as it provides that people should pay equal taxes. Unfortunately, for Whiskey Excise Tax, the large distiller paid less that smaller distillers. The government should have instead used the ability to pay principle. Large distillers produced more meaning they had a better ability to bear the tax burden than household distillers. Therefore, they ought to pay more taxes as they have a greater capability (McGee, 115). If the government applied this principle, they would be able to collect more tax from the larger distiller rather than placing the massive burden on small scale producers.

Question 2
In economics, tax incidence determines the division of the tax burden between buyers and sellers. It examines the implication of taxes on the supply of economic welfare. When the tax burden falls on a group, it implies that the group shoulders the responsibility of tax payment (Hou, 150). The Excise Tax on Whiskey meant was economic measure by the government to recover funds for settling the national debt incurred in the colonial war. Whiskey played an essential economic role in America, farmers in States like Western Pennsylvania and Maryland depended on their sales of Whiskey to attain the finances need to make other household purchases (“Whiskey Rebellion”). Whiskey consumption was widespread in almost all home in America. Therefore, one can assume that the supply and demand of Whiskey initially at equilibrium stabilizing the economy, households provided the market for the distilled whiskey while the distillers would receive their profits from their supply to the consumers. The Excise Tax on Whiskey resulted in widespread protests, due to economic reasons. The Whiskey Tax meant that small distillers would pay more tax compared to the large scale distillers. Therefore, the small scale farmers and household would have a more substantial tax burden which was very unfair. Distillers argued that the tax was unfair, as other farmers producing high-value crops like tobacco and corn paid no taxes for their farm produce. However assuming the demand for whiskey was elastic than the supply, and supply was inelastic it would mean that the tax burden would fall on the producers. As in the case with the Excise Tax, the tax burden felt on the distillers. However, unfortunately, more tax incidence was on the smaller distillers as they paid more per gallon whereas the large distiller’s paid tax at a flat rate.

Works Cited
“The Whiskey Rebellion.” YouTube, 22 Aug. 2012, www.youtube.com/watch?v=hX9gKS7uMZY.
Hou, Yilin. “Simulation of Tax Incidence and Redistribution Effects of the Tax Proposal.” Development, Governance, and Real Property Tax in China, 2018, pp. 135-191.

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