America's foundation rests on an aversion to taxes. This is true, not just in its inception as a nation, but prior to it and throughout its existence. Admittedly, as a nation we have lost sight of this of late. Yet the old pattern still lies just beneath the surface and hopefully is about to reassert itself.
The central role that Americans’ resistance to taxes played in our independence from Britain is well known. However Alvin Rabushka, in his 2008 comprehensive study, Taxation in Colonial America, makes it clear our affinity for low taxes well pre-dates our independence.
Low taxes influenced colonists even before they arrived. As Rabushka notes, they were integral to early colonizing efforts. Only Pennsylvania did not offer multi-year exemptions from their home country's taxes.
Even after initial settling, taxes remained low. The colonies used a variety of means to satisfy their citizens' demand for low taxes. Land banks, bills of credit, and even lotteries, all were used to avoid or mitigate taxes.
When taxes were needed, it was almost always for the colony's defense. Even those, Americans only begrudgingly paid – even to their own colonial government. "That the overwhelming majority of the colonists resented paying even low taxes is evident from reports and laws dealing with noncompliance, arrears, and even the occasional violent rebellion."
Such resentment ensured taxes stayed low. Only during three brief periods in the last century of their history did the colonies endured relatively heavy taxation.
Americans paid little tax, because they had little debt. They had little debt, because they had little government and saw no need for more. Thus while Britain was crushed under mounting debt from European wars – the last of which removed France from North America, and with it the colonies’ greatest security threat – America was virtually debt-free.
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America’s taxes and debt therefore were a fraction of those borne by residents of Britain. Rabushka estimates the colonies' debt as just one two-hundredth of Britain's, and their tax burden just one-tenth Britain's. What debt America did have, it raised taxes to retire. Once retired, taxes dropped – as Americans saw no further need for them.
Britain's mounting debt and tax burden sparked the revolution. Faced with high debts to service and retire, Britain sought to raise revenue from its colonies. The attempt was an abject failure, as many a frustrated colonial government tax collector could have predicted.
Americans would only recognize trade duties as legitimate revenue for Parliament to raise because they applied to external trade transactions. It saw internal taxes – such as the Stamp Act, the Townshend Act, and the Tea Act as illegitimate. Internal taxes were the purview of their colonial assemblies.
While the line between legitimate and illegitimate taxes was clear in colonists’ minds, it should be equally clear that the revolution was not simply over tax legitimacy. Americans did not just hate taxes in theory, but in practice. The empire had many advantages for America, particularly in trade and defense. Still the cost of the accompanying taxes was too much.
Post-independence, America reverted to form. "…Reflecting its colonial antecedents, the scope of the federal government remained small, consuming only 3 percent of the national income as recently as 1929." Revenues were increased in emergency, then reverted to previous levels.
So how did we get from there to here so quickly? "It took the legislative measures enacted during the Great Depression to change the compact between the American people and their government…The colonial roots of American taxation were lost in the transformation that took place in the twentieth century."
Let us pause before resigning ourselves to this pessimistic premise. It is true a fundamental change occurred in America's government as a result of the New Deal. However, it is unclear if that change occurred among the people. Americans still abhor taxes. Those imagining a comparison with higher European rates (hardly a compelling competitive point today) should somehow ameliorate this inherent resistance are wrong. Americans still hate taxes absolutely, not relatively.
Perhaps the post-New Deal period represents just a deviation from the original tax intolerance, not a new pattern. The New Deal and the entitlement programs that followed certainly helped mask their taxation. Entitlement programs funded separately by “contributions” (payroll taxes) mimicked government-run insurance. High worker-to-retiree ratios, insurance trappings, and dedicated payroll taxes all helped hide taxation’s true extent.
On the income side, an increasingly progressive tax system helped shift the revenue burden away from broad-based individual taxes, which had previously prevailed.
Today the decreasing of America’s competitive advantage globally and the dramatic increase in entitlement program costs domestically all threaten to pull America – all of America – toward higher taxes.
At the same time, they beckon America back to its low tax roots as well. We are about to test whether there has been a hiatus in America’s tax position, or an outright abandonment.
The Left, which spends more of its time rewriting history than learning it, may be in for a history primer. There is nothing more elemental to America, or pervasive in its history, than its aversion to taxes. The Left, which has been stunned by the rejection of so much of its agenda recently, has yet to really grasp this tenet of American history. But hopefully it is about to.
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