Taxation in Colonial America

Published by EH.NET (August 2008)

Alvin Rabushka, Taxation in Colonial America. Princeton, NJ: Princeton University Press, 2008. xx + 946 pp. $60 (hardcover), ISBN: 978-0-691-13345-4.

Reviewed for EH.NET by Roger Hewett, Department of Economics, Drake University.

After years of relative neglect, early American public finance is attracting increased attention in the new millennium ? from the reappraisal of Alexander Hamilton?s dominating influence on late eighteenth century American taxation [1] to renewed interest in the Beard Hypothesis [2] and a revisionist account of slavery?s impact on American taxation [3]. Alvin Rabushka?s volume on colonial taxation marks a significant addition to an already expanding literature on the history of American public economics. Running to nearly a thousand pages, this massive compendium of colonial American tax data draws together disparate primary and secondary sources in an impressive feat of scholarship. It provides an encyclopedic account of taxation in all thirteen colonies from the onset of European colonization to the American Revolution.

The book?s organization is considerate to the majority of readers who will probably use the volume for reference rather than reading it cover to cover. It is divided chronologically into six parts, each beginning with an overview of British and colonial constitutional circumstances. The tax chapters are separated into regional sections: the New England colonies of Massachusetts, Connecticut, Rhode Island and New Hampshire; the ?middle? colonies of New York, Pennsylvania, New Jersey and Delaware and the ?plantation? colonies of Virginia, Maryland, the Carolinas and Georgia. The tax chapters feature a section on monetary matters before proceeding to a detailed accounting of the full array of taxes, rates and revenues. Though repetitious and often tedious in its cataloguing of taxes with minimal, compartmentalized commentary, this approach is understandable in an encyclopedic reference work.

Tax history may seem a topic with limited appeal beyond specialist researchers. However, as Joseph Schumpeter recognized nearly a century ago: ?The spirit of a people, its cultural level, its social structure, the deeds its policy may prepare ? all this and more is written in its fiscal history. … The public finances are one of the best starting points for an investigation of society? [4]. For Rabuska, colonial tax history provides the occasion for understanding colonial constitutions, British and American politics and the history of money. Digressions are also offered on land tenure, weights and measures, even the transition from the Julian to the Gregorian calendar. Notably, although taxation is also a good starting point for investigating expenditures, colonial spending is not dealt with in detail.

Even without detailing the expenditures it is clear that war and taxes were closely related in colonial America. Tax burdens rose and the nature of taxation changed during times of war. Where excises and other indirect taxes often met the expenses of civil administration in peacetime, direct taxation of income and property became more prevalent in wartime. The greater the conflict the greater the impact: taxes increased during the conflicts around the turn of the eighteenth century but later rose even higher as a result of the French and Indian War (1754-1763), sowing the seeds of the American Revolution.

The colonies varied widely in their methods of taxation. New England developed the most sophisticated colonial tax system, relying upon a combination of poll, property and faculty (income) taxes. New York depended upon several indirect taxes while tobacco taxation funded the plantation economies of Virginia and Maryland. British subsidies limited the need for taxation in Georgia, the charity colony for debtors.

Regardless of variations in tax methods and wartime tax levels, colonial tax burdens were typically a very small fraction of what English taxpayers endured. The early tax incentives given to bolster colonial growth conditioned Americans to expect low levels of taxation. The burden of empire rested lightly on Americans. Parliament?s efforts to increase colonial contributions were fiercely resisted. Though taxes were raised during the French and Indian War, British grants buffered Americans from the costly war to ensure colonial support.

When not pressed by Britain, as in the peaceful period of ?salutary neglect? from 1714 to 1739, Americans managed to drive tax burdens to negligible levels by issuing paper money to meet their needs. Government loan offices proliferated during the era, granting mortgages to landowners. Interest on the loans became a major source of colonial revenue while the loans became bills of credit which circulated as money. The colonies also issued other bills backed by pledges of future taxation. The quantity of bills in circulation, denominated in the currency of each colony, affected the values of colonial currencies both relative to one another and relative to British sterling. The monetization of a wide range of commodities, most significantly tobacco in Maryland and Virginia, provided another layer of accounting complexity.

With the Currency Act of 1751, Parliament asserted its authority over colonial monetary power. Focused on New England, the greatest source of monetary instability, the Act reined in the emission of bills, restoring the value of colonial currencies relative to sterling. The tax increases required to redeem outstanding bills were diminished by Parliament?s war reimbursement grants later in the decade.

By this time the constitutional balance of power between the Crown and Parliament had shifted decisively in favor of Parliament. Over the course of the colonial period a declining medieval monarchy ceded its authority to the Parliament of a modern state. In the wake of the expensive Seven Years? War (a global conflict, of which the French and Indian War was only a part), Parliament turned to the feudal legacy underpinning colonial contributions to the British state. The institution of voluntary requisitions, the historical basis for colonial support of the Seven Years? War, was regarded as unsatisfactory. The Sugar Act of 1764, the Sugar Act of 1765, the Townshend Acts of 1767 and the Tea Act of 1773 reflected Parliament?s confidence in its supreme constitutional power. That the prosperous American colonies should be able to avoid their share of the empire?s costs undermined the supremacy of Parliament over colonial legislatures. Parliament?s supremacy would be eliminated by the Revolution, but the constitutional conflict continued after the war. United States Congressional supremacy would be established by the Constitution in 1788.

America?s antipathy toward taxation is never convincingly explained in Rabushka?s tax history. That Americans were conditioned by low taxes during early settlement years to expect low taxes indefinitely is not persuasive. Perhaps the explanation lies in a more complete fiscal history, specifying in greater detail the correspondence between expenditures and the taxes supporting them. Also, Rabushka establishes a boundary between taxation and other fees levied by governments and churches. Taxes are involuntary payments for public goods and services. The other charges are either voluntary or fees for private goods. Establishing this boundary implies an understanding of public expenditures as well as an interpretation of ?involuntary? in tax systems where noncompliance was widespread. Wherever the boundary lay it was probably also in flux over the course of the colonial era as feudal obligations, such as quitrents, gave way to state taxation. While this study provides a heroic compilation of colonial taxes, it only begins to investigate the nature of colonial public economics.

Notes:

1. In 2004, the New York Historical Society featured an exhibition on ?Alexander Hamilton: The Man Who Made Modern America.? The same year a lengthy new biography by popular author Ron Chernow, Alexander Hamilton (New York: Penguin) was also published.

2. Robert McGuire, To Form a More Perfect Union: A New Economic Interpretation of the United States Constitution, Oxford: Oxford University Press, 2003.

3. Robin Einhorn, American Taxation, American Slavery, Chicago: University of Chicago Press, 2006.

4. Joseph Schumpeter, ?The Crisis of the Tax State? (1918), in Joseph Schumpeter, The Economics and Sociology of Capitalism (edited and introduction by R. Swedberg), Princeton: Princeton University Press, 1991, p. 101.

Roger Hewett teaches at Drake University. He has authored articles on public economics, economic history, the history of economics and economic education. Roger.Hewett@Drake.edu.