The Myth that Low Taxes and Liberty Go Hand in Hand

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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