Review Essay: Taxation in Colonial America.
Book Review by: W. Elliot Brownlee
For Citation: Business History Review 83 (Winter 2009): 831-834.
Historians and political economists have made important contributions to our understanding of taxation in colonial America. They have written monographic histories of taxation and public finance in particular colonies. Robert A. Becker devoted a major portion of his Revolution, Reform, and the Politics of American Taxation, 1763–1783 (1980) to colony-level taxation during the period before the Revolution, as did Robin Einhorn in her recent American Taxation, American Slavery (2006). Edwin J. Perkins, in American Public Finance and Financial Services, 1700–1815 (1994), and others have analyzed colonial taxation in the context of particular sectors of the economy. Various historians have discussed colonial taxation in the course of writing broad-scope narratives on the economy or taxation. And, of course, innumerable accounts of the politics leading to the Revolution have taken up the topic of British imperial taxation. However, prior to Alvin Rabushka, no scholar ever offered up a substantial, comprehensive survey of taxation at all levels of government during the colonial era.
Rabushka adopts a chronological scheme of organization that follows conventional imperial benchmarks. After a discussion of the tax privileges bound up in the founding charters of the colonies, he breaks his narrative into five parts: 1607–1688 (Jamestown to the Glorious Revolution); 1688–1714 (the era of the rule of the House of Orange); 1714–1739 (the years of “salutary neglect” under the House of Hanover and Robert Walpole); 1739–1763 (the period from the beginning of the war with Spain to the Treaty of Paris); and 1763–1775. Within each of these chronological parts, he begins with a chapter or two on government, politics, and imperial policy in England or Britain, an occasional chapter on constitutional arrangements in the colonies, and then a chapter on taxation in each of the standard geographic groupings of colonies (New England, Middle, and Southern Plantation). Three of the parts conclude with appendices that take up, often on a comparative basis, the level of tax rates in both the colonies and across the Atlantic.
Throughout the book, Rabushka provides well-designed markers that guide the reader through the forest of institutional detail. The markers point to “recurrent themes” that include, he alerts the reader at the outset of the book, “the enactment of tax incentives to encourage immigration and specific economic activities, avoiding or evading British and locally levied taxes, selecting taxes pertinent to conditions in each colony, inventing systems of public finance to reduce the need for explicit taxes, and the struggle of locally elected representatives to wrest control over taxes and public spending from British governors and royal officials” (p. xviii). Rabushka integrates these themes in a fashion that sustains a coherent story line throughout this massive tome. He argues that throughout the colonial era both colonial and imperial (at least until 1763) governments used low taxes and tax incentives to increase the flow of both labor and capital to the New World, and that low taxes and tax incentives may have stimulated economic expansion, development, and prosperity. At the very least, colonists believed that this was the case, and their resistance to new or increased taxes helped keep their rates low. Tax resistance limited taxation by colonial and even British governments. This resistance included tax evasion and avoidance, induced colonial governments to seek out nontax revenues (most notably, interest on loan-office bills), and pushed British governments to reimburse colonies for wartime expenses and raise taxes in the metropolitan center. By 1763, this process had produced a huge difference in levels of taxation between the British colonies and the British metropolis. This gap, and the need to pay the debts accumulated during the French wars, meant that “the fiscal worlds on opposite sides of the Atlantic had diverged beyond toleration for Britain, which sought an American tax, and the colonists, who feared a British tax” (p. 796). Intransigence on both sides over this issue meant the American Revolution was “a tax revolt, first and foremost” (p. 898).
Rabushka’s most original and impressive contribution is his measurement of tax rates and tax burdens. However, his estimate of comparative trans-Atlantic tax burdens may be a bit of moving target. At one point, he concludes that, in the period from 1764 to 1775, “the nearly two million white colonists in America paid on the order of about 1 percent of the annual taxes levied on the roughly 8.5 million residents of Britain, or one twenty-fifth, in per capita terms, not taking into account the higher average income and consumption in the colonies” (p. 729). Later, he writes that, on the eve of the Revolution, “British tax burdens were ten or more times heavier than those in the colonies” (p. 867). Other scholars may want to refine his estimates, based on other archival sources, different treatment of technical issues such as the adjustment of intercolonial and trans-Atlantic comparisons for exchange rates, or new estimates of comparative income and wealth. Nonetheless, no one is likely to challenge his most important finding: the huge tax gap between the American periphery and the core of the British Empire.
Other elements in Rabushka’s interpretive story may also stimulate new research. He does not provide much evidence, quantitative or qualitative, to support an intriguing and important suggestion: “Perhaps the difference in tax burdens on the western side of the Atlantic was an important factor drawing Old World residents to the New World” (p. 825). It seems unlikely that rigorous econometric exploration of Rabushka’s general equilibrium hypothesis would ever be capable of disentangling the appeal of attractive tax rates from that of the opportunity to own land, but the role of low taxes as economic magnet in migration flows deserve far more attention by historians.
Another stimulating element is Rabushka’s case for the American Revolution as a “tax revolt.” Surprisingly, in his chapters on colonial governance Rabushka makes no mention of the case, made by Bernard Bailyn (beginning with The Ideological Origins of the American Revolution [1967]) and other historians, that the Revolution ought to be understood most fundamentally as a revolution in political ideas concerning the nature of constitutions, rights, sovereignty, representation, and consent. Rabushka implicitly challenges this line of interpretation in an important way because Bailyn tends to deemphasize the role of economic interests in the Revolutionary crisis, although he certainly recognizes how the larger ideological issues emerged from contests over taxation, regulation, and land distribution. It would be interesting to know if an effort to integrate close analysis of the ideological dimensions of the Revolution with careful attention to intercolonial differences in the workings of the tax system would enhance understanding of Revolutionary politics.
A fourth area in which Rabushka’s book suggests opportunities for future research is that of the significance of colonial taxation for the life of the new nation. At the outset of this book, Rabushka announced his intention “to rediscover America’s colonial heritage of taxation and government” (p. xvii). But only in the last paragraph of the book does Rabushka indicate what he thinks about the long-run effects of colonial taxation and the normative lessons that might be derived from it. Here he concludes, “The colonial roots of American taxation were lost in the transformation that took place in the twentieth century,” and he implies that a colonial-born tradition of vigorous hostility to taxation had effectively constrained taxation and government until “the legislative measures enacted during the Great Depression” (p. 869). However, this postcolonial scenario may underestimate the fiscal vigor of state and local governments in the North during the antebellum period. While data problems make generalization unusually risky, it is safe to say that state governments, particularly in the North, significantly increased their financing of internal improvements during the 1820s and 1830s, and that local governments moved into this arena during the 1840s after states defaulted on their bonds. The role of taxation in this finance remains uncertain. Also, the rapid urbanization of the 1840s and 1850s may have been associated with significant expansion and reform of property taxation. A systematic study the role of taxation in the development of state and local government in the nineteenth century might well uncover ways in which the colonial experience limited, or perhaps paved the way for, later tax initiatives and increases in northern states. Rabushka has contributed significantly to that kind of enterprise by documenting the increasing sophistication of the tax system that the colonial governments of the New England and Middle colonies employed in the eighteenth century. This aspect of Rabuska’s research complements the recent scholarship of Robin Einhorn, who points to the significance of slavery in limiting the taxing capacity of both colonial and state governments.
In sum, Rabushka’s work is encyclopedic in scope, thorough and fastidious in its mobilization of both tax-history scholarship and primary sources on colonial finance, and probing in its analysis of budgets and taxes. His mastery and crystal-clear explanations of previously baffling intricacies of colonial taxation means that his book is now the best starting point for anyone interested in the colonial foundations of American taxation.