Friday, March 04, 2011

Tea Party

In Federalist 12, which was a marketing brochure for ratifying the Constitution, Publius (probably Hamilton) takes on the subject of The Utility of the Union In Respect to Revenue.

Although he completely poo-poohs direct taxation* (such as the Income Tax), saying...
It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty. The popular system of administration inherent in the nature of popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experiment for extensive collections, and has at length taught the different legislatures the folly of attempting them.
In so opulent a nation as that of Britain, where direct taxes from superior wealth must be much more tolerable, and, from the vigor of the government, much more practicable, than in America, far the greatest part of the national revenue is derived from taxes of the indirect kind, from imposts, and from excises. Duties on imported articles form a large branch of this latter description.

In America, it is evident that we must a long time depend for the means of revenue chiefly on such duties.

He seems not to be arguing against direct taxation in principle, only in effectiveness. He is saying that you just can't raise enough revenue to make Government work through direct taxation. At the time, "direct tax" had an extremely negative connotation due to the highly effective campaign against the Stamp Act of 1765.

I'm bringing this up because it seems to me that our benevolent overlords have decreed that we be taught that America was founded on the notion that Taxes Are Evil, and it's just not so. The revolt was not against Taxation, but against Taxation Without Representation, because the colonies had no one in Parliament. For this reason, the colonists absolutely rejected Parliament's power to lay taxes, but acceeded to all kinds of taxes within their own systems of self-government.


That direct tax, the Stamp Act, didn't pan out for the Brits, so they decided to back off of that idea and try an Indirect Tax. The Revenue Act of 1767 (the "Townshend Act") imposed tariffs on imports of paper, paint, lead, glass, and tea (basic commodities that were not produced in the New World) to the colonies. They thought that the Sons of Liberty's propaganda campaign against the Stamp Act, which had made "direct tax" a four letter word, inoculated these tariffs against negative advertising. They were wrong.

The real problem was that they were trying to raise enough money so that Britain could afford to pay its Colonial Governors a salary. You see, those guys were appointed and anointed by the Crown, but they were paid by the colonists, from taxes laid by colonial governments. The colonists held, through their elected representatives, the "power of the purse" over their benevolent overlords, and they were right to see the danger in delegating that power to Parliament. The reaction was so bad that in 1770, the tariffs were rescinded on all those commodities except one: tea.

They left that tax on tea in place because it continued to assert their right to tax the colonies. They stated that openly.


Britain got all of its tea through a private corporation, the British East India Corporation. BEIC was granted a monopoly on the tea harvests in India, and the tea business in England, in exchange for a tariff on all the tea the imported to the Isles. The law that granted this monopoly also required that all of their tea had to land in England, and pay the tariff there. After that, they could send some on to the colonies, and pay that tariff too.

This double taxation and shipping cost made BEIC tea pretty expensive over here, and since it had that ugly taxation without representation attached, people wanted to avoid it anyway. A healthy business in smuggled Dutch tea arose, and some of the Founders were raking in good money in that space. Meanwhile, BEIC was behind in its payments to the Crown. Parliament had structured the rules for the BEIC so one-sidedly that the corporation was in trouble, so they decided to pass a law that made things easier on them.

If you ask any random American what the Boston Tea Party of 1773 was about, they'll likely answer "a tax on tea". This would be sort of correct, but the "Tea Act", which caused all the trouble, contained no taxes at all. Instead, it provided that the BEIC could move tea directly from India to the colonies, bypassing the British tariff. There was no change to the tea tariff on the colonies, which had been in place for six years.

This law had the effect of halving the price of tea in the colonies, undercutting the price of smuggled Dutch tea (which was, by the way, an inferior product). It was a strong arm play to push the "taxation without representation" of the Townshend tariff through "market" processes, and the money was going to strip the colonists' financial leverage over their local Governors, to boot.

What got their panties in a wad wasn't any new tax, it was a TAX BREAK for a corporation that was in tight with the Congress Parliament. It was Government acting in the interests of the powerful, to the detriment of most people.

It really pisses me off that we don't teach History in this country.

*Tea Partiers and such may latch onto this to argue against the Income Tax (ED: another day), but you just can't escape the basic fact that Government requires revenue, which must be obtained by taxation. As far as I know, this was not in dispute at the time, certainly not among the Founders. In case there was any doubt, Publius adds...
A nation cannot long exist without revenues. Destitute of this essential support, it must resign its independence, and sink into the degraded condition of a province. This is an extremity to which no government will of choice accede. Revenue, therefore, must be had at all events. In this country, if the principal part be not drawn from commerce, it must fall with oppressive weight upon land.

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