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Tax Day is upon us, which may mean you’re presently cursing whichever age-old ruler came up with the whole idea that the governed should part with some portion of their hard-earned dough in order to support him (for the common good, of course). But if you love America and democratic forms of government—however strained they might feel right now!—then you should instead be raising a glass in that presumed despot’s honor. Forget what you may have learned about the Enlightenment: Modern Western democracy is nothing more than a byproduct of a series of tax disputes.
While the Greeks and Romans had democratic institutions, most trace the beginnings of modern Western democracy to the 1215 signing of the Magna Carta at Runnymede. King John, the third of England’s Angevin monarchs, claimed lands in France to which the French also laid claim. John attempted to win them back to no avail. Wars are expensive, and John sought to pay for them by taxing England’s nobles, who did not take kindly to his attentions. They revolted and eventually forced him to sign the Magna Carta—which, among other things, required the king to obtain consent before imposing certain taxes. In other words, the nobles extracted a say in government in return for the king’s right to tax them, conditioning that right upon the consent of the governed. Over time the English built upon these agreements, eventually leading to the democratic parliamentary system that exists today.
But what about America? Let’s fast-forward to the mid-18th century, by which time the New World has been discovered and the British had established colonies in North America. But the Spanish and French were also there, not to mention the Native Americans who predated all of them. Tensions eventually led to the French and Indian War (or the Seven Years’ War), during which the British incurred significant costs, among other things, protecting the colonists. Not surprisingly, the British thought it appropriate to recover those costs from the colonists. Thus came the Stamp Act of 1765, the Declaratory Act of 1766 (which gave Parliament the power to legislate for the colonies), and the Townshend Acts, which imposed taxes on glass, lead, oil, paper, and, most famously, tea.
We all recall the Boston Tea Party, cries of “No taxation without representation,” the shot heard round the world, and ultimately the Declaration of Independence, which noted that it was self-evident that governments derive “their just powers from the consent of the governed” and listed among “the causes which impel them to the separation” the fact that the crown was “imposing Taxes on us without our consent.” The British attempt to tax the colonists without obtaining their consent wasn’t the only thing that led to revolution, but it certainly played an important role.
Next came Washington crossing the Delaware (and apparently sleeping in every town up and down the East Coast), colonial victory in 1783, and, of course, debt. Have I mentioned that wars are expensive? As part of the war efforts, the Continental Congress had borrowed heavily from France, Spain, and private Dutch investors. They were in mortal fear that the British would attempt to retake what they had just lost and knew they would have to maintain good credit to have a shot at staying free. Repaying the war debt was of critical importance.
Under the Articles of Confederation that the colonies adopted in 1781, each American state remained sovereign, and all decisions of the confederate government had to be unanimous. This government had no power to tax. Instead it relied on requisitions on the states, which the states were supposed to fulfill based on the proportionate value of the land within their borders.
The government couldn’t force states to contribute funds, however, and had to rely on its powers of persuasion. This was about as effective as you might suspect. The last requisition was made in 1786. The government asked for $3.8 million. It collected $663—a princely sum that fell far short of what was needed to pay off the revolutionary debts. Two efforts had been made—in 1781 and 1783—to give the government the power to tax, but both failed, in large part because of the unanimity requirement.
In 1787, the Congress of the Confederation authorized a meeting to try to fix the Articles of Confederation, but the attendees soon concluded they needed to start from scratch. Thus began efforts to create a new government for the 13 colonies. One of the most controversial issues was whether to give this new government the power to impose and collect taxes of its own. The drafters ultimately included this power in the Constitution and went so far as to allow the government to impose taxes directly on the people within the states, not just on the states.
The founders claimed that the new constitution was based in large part on Roman precedent. No doubt—but we tax historians see things a little differently. The decision to grant the federal government the power to tax helps explain not only on the structure of the proposed government but also how the Constitution was framed and even ratified. Remember the Magna Carta? If a government is to impose taxes on the people, it must obtain their consent. Thus the new government was formed by “we the people,” who ratified it through special state conventions of citizens, as opposed to the states, which had ratified the Articles of Confederation through their legislatures.
Imparting the power to tax, however, is different from imposing specific taxes. How do we get the consent of the governed to do that? The founders’ solution was to create a hybrid government, in which states and the people share power. Unlike the Articles, in which the states alone were represented, the Constitution provided for both a Senate, which represented the states qua states (senators were initially picked by the state governments), and the people’s House, where representatives were elected directly by the people. Such a body would clearly be able to provide the consent necessary to impose specific taxes. This also explains why the Constitution requires that all revenue bills must originate in the House.
Other elements of the Constitutional design can be understood to reflect the concern that taxation be linked to consent. For instance, representatives were allocated among the states based on population, a clear effort to ensure that political power was matched to the people from whom that power flowed. Direct taxes were similarly allocated by population (in Article 1, Section 2). Tying direct taxes to political representation was so important that it was repeated in Article 1, Section 9. This provision ensured that representatives from populous parts of the country could not impose taxes on less populated regions without their consent or, at the very least, without bearing their proportionate share. The Constitution’s uniformity provision, which requires that all duties, imposts, and excises be uniform across the United States, can be viewed in the same light.
The famed jurist Oliver Wendell Holmes Jr. once famously noted that “taxes are the price we pay for civilization.” I think he sold taxes short. Taxes not only are the price of civilization, but they also were fundamental in bringing about the democratic system of government that (for now!) remains a model for the world. Happy filing!