Jefferson proposed to have Kentucky, and any other state ready to join in, simply “Nullify” any Federal law it disagreed with. Jefferson called it a “rightful remedy.” What about the Constitution’s Supremacy Clause?
This Constitution… shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby, any Thing in the Constitution or Laws of any State to the Contrary notwithstanding.
Not a problem when you apply the concept of “Compact.” Per Jefferson, the Constitution was adopted by the states, each one of which had the ability to judge for itself the Constitutionality of any and all federal actions. As to the Alien and Sedition Acts specifically, Jefferson‘s draft called them “altogether void and of no force.”
This was dynamite. If states had the unrestricted right to pick and choose which Federal laws to obey, then there would be no federal government. Madison, during ratification debates in 1787-88, had consistently made the claim that “We the People” meant exactly what it said. The people, all of them, were making the choice to move to a written Constitution. His insistence seemed almost didactical, but there was sound reasoning for it. He wanted consent of the governed, and the governed were the people, and not the states. Now, to combat the Acts, he was sliding away from that, not as noisily as Jefferson, but sliding nonetheless. Nullification broke the contract that derived from consent.
Madison moved quickly to clean up the mess, first explaining that the Virginia Resolution didn’t exactly call for a Nullification by a state, merely that the state could “interpose” its judgment between the federal government and the people. Later, he would pen a “Report of 1800,” which would be adopted by the Virginia legislature. The Report would bring even more nuance—away from the Compact Theory and raising the bar substantially to justify an “Interposition.” He would not exactly define what an “Interposition” might actually be.
But Jefferson was fired up. He was furious at Adams, deeply disturbed by the text of the Acts, and convinced there was a plot to make Federalist domination of the government permanent. In an August 23, 1799 letter to Madison, he said,
[T]he good sense of the American people and their attachment to those very rights which we are now vindicating will, before it shall be too late, rally with us round the true principles of our federal compact; but determined, were we to be disappointed in this, to sever ourselves from that union we so much value, rather than give up the rights of self government which we have reserved, & in which alone we see liberty, safety & happiness.