The Myth that Low Taxes and Liberty Go Hand in Hand

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Ms. Einhorn is a professor of history at the University of California, Berkeley, and the author of American Taxation, American Slavery (University of Chicago Press, 2006)

One might think the record of the Bush administration and Republican Congress -- from domestic spying to Terri Schiavo to a long and expensive war -- would explode the idea that the difference between liberals and conservatives has something to do with the power of government to intervene in our lives. Yet the stereotype of strong-government liberals and weak-government conservatives continues to shape American political debate, especially when the subject is taxes. The Republicans who substitute debt for tax revenue may actually be feeding rather than starving "the beast," but the idea that Americans have always distrusted this "beast" allows them to paint antigovernment rhetoric as an apple-pie invocation of the national tradition.

Historians have a role to play in such invocations of "tradition," since it is our job to find out what the "tradition" has actually been. In regard to taxes, however, it seems fair to say we've dropped the ball. How many U.S. historians can even name a tax (other than the tariff) that was levied before 1913? We can all lecture about how the colonists hated the Stamp Act and South Carolina hated the Tariff of Abominations, with nods to the tax problems that provoked Shays's Rebellion and the Whiskey Rebellion, but after that we descend into a silence broken only when the Supreme Court declares the federal income tax unconstitutional in 1895 -- and the West and South (yes, the West and South!) rally behind it to win the Sixteenth Amendment.

But the tax history of early America actually involves much more than the Stamp Act and Nullification Crisis. It involves the taxes Americans levied in their own colonies and states and their own towns and counties. The moment we begin to examine these taxes, a startling pattern emerges. Over the long period of American history from the initial founding of the colonies to the outbreak of the Civil War, taxes were more sophisticated -- and usually higher -- in the North than the South. Along with the well-known geographical distribution of slaveholding, the less well-known organization of the northern and southern governments, particularly in the colonial era, almost turns this into a controlled experiment -- a laboratory test of the relationship between liberty, democracy, and taxation in the American past. People who lived in freer societies (little or no slavery) with more democratic governments (annually elected local officials) were more comfortable with taxation than people who lived in less free societies (lots of slavery) with less democratic governments (appointed local officials). Liberty and democracy actually produced better and higher taxes in early American history!

Northern taxes required more of the taxpayer in terms of intrusive administration. They usually were ad valorem levies based on assessments of the value of various forms of property, from land and buildings to commercial and financial assets. Southern taxes, meanwhile, usually were flat-rate levies based on nothing more complicated than simple reports of numbers of acres and people (slaves in particular). Southern states began to introduce limited assessment regimes during the Revolutionary War, but, as late as 1860, these regimes still did not compare with their northern counterparts in sophistication or coverage.

Why was this? One obvious explanation is that the democratically elected local officials who administered sophisticated tax systems in the North were more competent and trustworthy than the oligarchic appointees who administered primitive tax systems in the South. This was the explanation that Oliver Wolcott, Jr., the nation's second Treasury Secretary, proposed when he surveyed the state tax systems in 1796 and tried to account for their differences.

Yet liberty may have been as important as democracy, as the unusual experience of South Carolina suggests. Unlike Virginia, North Carolina, and Maryland, where the local governments consisted of appointed (really, coopted) county courts and sheriffs, South Carolina -- with hardly any local government at all -- managed to tax the commercial and financial wealth of Charleston throughout its history. But even South Carolina did not value the land or slaves of its plantation economy. No southern colony sent assessors onto plantations to value agricultural land before the Revolution -- and few southern states did it before the 1830s. The fact is that the "masters" of southern plantations refused to tolerate the intrusive procedures of tax assessment. Northern farmers, merchants, and artisans took these procedures in stride, but, of course, few Northerners were "masters" of their domains in anything like the same way.

The irony of this history surfaced in 1777, when the Northerners and Southerners had to figure out how to finance a war together. Article 8 of the Articles of Confederation established a ridiculously unworkable requirement that Congress apportion its taxes to the states according to the value of real estate (land and buildings). The northern delegations to Congress opposed this rule, knowing that a national real estate valuation was impractical, but the southern delegations all endorsed it -- even though they had never so much as seen a real estate valuation before! But the Southerners did not choose real estate because they thought it would work. They chose it because it seemed like the only way to avoid something worse: an apportionment-by-population that would force them to debate with their northern colleagues about slavery -- since they would have to decide how to count slaves when counting the population. When Congress finally held this debate in 1783 (by which time the Confederation was all but bankrupt), they hammered out the infamous fraction that later entered the Constitution as the three-fifths rule for apportioning "representatives and direct taxes."

In a democracy, the people can opt for a high-tax-high-service government or a low-tax-low-service government. Public decision-making of this kind is what democracy is for. Yet our debates about these important matters might make more sense if we could persuade ourselves to actually look at the tax history of early America, and abandon the false histories that invite us to see ourselves as Jeffersonian "masters." The fact is that Americans have often opted for higher taxes and stronger governments -- especially when they had the freedom to choose.


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William J. Stepp - 11/2/2006

James Stirling, who traveled extensively through the U.S., both North and South, and who wrote a fine travel memoir, "Letters from the Slave States," noted the indebtedness of the Southern planters. "Not one in fifteen, I am assured, is free of debt."
He also pointed out that, "Within the last fifteen or twenty years the value of slaves has risen fifty per cent. at least. During the same time the price of bacon has risen 100 to 200 per cent." (pp. 182-83)

In another letter he has a table with the average price of cotton for the ten years ending in 1830, 1840, and 1850, as well as the five years ending in 1855. It fell for thirty years until 1850, then rose but only a small bit from 1850 to 1855. (p. 305)

So while the incomes of the planters with the highest incomes might have been rising, their balanced sheets were highly leveraged and their expenses were increasing faster than their revenues. They were being squeezed financially (which is why there were searching for new and hopefully more productive land to the west).

Their ability to pay taxes was constrained by their net incomes, not their gross incomes. Their net was declining or at least not rising anything like the farm incomes in the North, which grew thanks to superior innovation and higher productivity. Stirling also notes the productivity angle.

He also points out that slavery was on the way to extinction because it was being undermined economically and eventually it would have ceased to be financially viable. Globalization would have sped up this process.

Why does Ms. Einhorn not mention this, instead apparently choosing to place the burden of the fiscal differential on the supposed "libertarian enthusiasms of white southernors"?

William J. Stepp - 11/1/2006

Do you have a citation?
I should have specified median incomes, not "average." The income trends in the 20 years before the Civil War were in favor of the North. (Richard A. Easterlin, "Regional Income Trends, 1840-1950" in Fogel and Engerman, "Reinterpretation of American Economic History")

Even if some planatation owners had high incomes, they also had high expenses. Agriculture of all types is a capital intensive and low margin business under the best of conditions; and plantation owners had to take on lots of debt to finance their operations.
Wormy and precarious are words that describe their economic situation.

Thomas Bockhorn - 11/1/2006

It makes a lot of sense. Since the southern plantation owners not only owned the major industry in the south and controlled the political machine, it makes perfect sense that their taxes will be less.
As for the North, this makes sense as well though I don't buy the idea that the common people advocated more taxes. During the Antebellium period and after people generally did not want an increase in taxes nor an increase in the size of government. Unfortunately for them, capitalism which started to show itself in a more forceful way forced many to realize that government involvement was the only way to solve the problems capitalism was generating. For the sake for keeping society from falling apart, many accepted the idea for increasing taxes for the government to solve some social ills.
Another reason for increases in taxes was funding for war. America's first income tax was started to fund the Northern war against the rebellious Southern states. After the conclusion of those terrible four years, the income tax was cancelled and only during World War II did (if I remember correctly) did income tax was reinstituted.


bill farrell - 11/1/2006

Contrary to Mr. Stepp, the pre-Civil War South had a higher average per capita income than the North. However, due to the slave economy, the South had both far more wealthy people (most of whom were slaveholders)and far more people with low or virtually no incomes (for example, subsidence farming).

William J. Stepp - 10/31/2006

Ms. Einhorn doesn't spell out exactly what she means by small government and big government, and by low taxes and high taxes.
In any event, communist governments are large amd there isn't much liberty in these countries.
Even Democratic countries like France and Sweden have large governments, and, I would argue, not nearly as much liberty as the U.S., especially if you're a 20-year old Muslim trying to get work.

From the essay:

People who lived in freer societies (little or no slavery) with more democratic governments (annually elected local officials) were more comfortable with taxation than people who lived in less free societies (lots of slavery) with less democratic governments (appointed local officials). Liberty and democracy actually produced better and higher taxes in early American history!

Comparing taxes in the North and the South is comparing apples and oranges. The main reason the North had higher taxes is that it had a more prosperous economy with higher per capita incomes and higher property values. Another important reason is that it was a more urban society with a better transportation system, which facilitated the collection of taxes. The North could more easily afford higher taxes than the South. Southern plantation owners were typically up to their necks in debt and ran low (and even negative) cash flow operations.

Researching the Pennsylvania Test Oaths a few years ago, I read the 4-v. Pennsylvania statute books and was amazed at how many small taxes (and regulations) there were in the Quaker state. This was during the Revolution, and I concluded that The Who's line applied--"Meet the new boss, same as the old boss."

It was not quite a libertarian event.

I looked at Ms. Einhorn's homepage and click on the link to her paper, "Slavery and the Politics of Taxation in the Early United States."
In to the Abstract, she refers to
"libertarian enthusiams of white southernors." Aside from the fact that they didn't call each other libertarians (the first use of the term was in 1857 in a letter to Proudhon, according to Wikipedia),
libertarians oppose slavery and the institutions that support it, such as slave patrols. (Saying libertarians are for slavery would be like saying Marxists are for capitalism.)
White southernors were not libertarians by a long shot.

Maybe Ms. Einhorn could be forgiven, however, because Thomas Paine is sometimes called a libertarian, even nowadays, despite the fact that he supported the Test Oaths and his economic ideas were not libertarian.

Jason Blake Keuter - 10/31/2006

First, your political point is obvious: bigger government correlates to greater liberty; smaller government to slavery.

Second, modern anti-taxism is coupled with the accelerated growth of the federal government. The era of stigma free taxation in the north was still an era in which local government reigned supreme. Modern anti-taxism is directed against large, impersonal, distant and often times, destructively self-serving bureaucracies.
Not all anti-taxism is an assertion of libertarian, laissez-faire; much of it is an assertion of local rule. In other words, relieved of tax burdens from distant governments, localities would still tax and spend, but, because they directed the taxing and spending, they would feel they were doing so in service to local needs. Thus, antitaxism is really an expression of an age-old American tradition of local rule - it is local government that is most democratic and most accountable. Should tax dollars not be accompanied by services, then local government is more easy to punish.

Last, your portrait of the "north" is very romantic. I think there was a considerable amount of fleecing going on, as well as a more than considerable amount of patronage. Last, I think the nature of democratic politics in that era would shock the sensibilities of the civic minded contemporary. In other words, you invoke the 19th century to support a tax and spend federal governnment, but you are selecting only a small portion of a political culture that would be rejected out of hand as criminally corrupt according to today's standards.

On the subject of history, I do think taxation is an interesting subject worthy of more study and I plan on picking your book up at my local library, which, by the way, I'm happy to support with someone else's tax dollars.

Stephen Kislock - 10/31/2006

What is a Historicial National Debt, try $8,553,298,5540,448.59 as of October 25, 2006.

Lowering Taxes and having a per citizen share of the National Debt of $28,505.17, what will Historians think of a Congress that permits this Abuse?

And to think they only worked 96 days so far this year, We The People are Very Lucky!