The low-tax beginnings of American prosperity
It is said that taxes are the price we pay for a civilized society. In modern times, this has meant more and higher taxes, rarely fewer and lower taxes. The tax bite in the United States is one-third of the gross domestic product (gdp). In the Western European democracies, the tax take reaches up to 50 percent.
It was not always so. At the turn of the twentieth century, the tax bite in the United States was a low 10 percent of gdp. And even that level was high by the standards of the American colonies. The first few generations of immigrants who settled the American colonies paid only those taxes that were necessary to provide security against internal and external enemies, a system of courts and justice, prisons, roads, schools, public buildings, poor relief, and churches in some colonies. This consumed no more than a few percentage points of their income. Moreover, the early settlers sought to minimize, avoid, and evade those modest taxes to the maximum possible extent. Only in wartime were they amenable to higher taxes, after which taxes were rolled back to the previous low level. The early colonists did not flee Europe to pay high taxes in the New World.
Prelude to the American colonies
Beginning in the fifteenth century, dreams of gold, silver, spices, and other trading opportunities motivated European adventurers to explore and claim tracts of land in Africa, Asia, and the Americas for their sovereigns and hefty rewards for themselves. The Portuguese, Spanish, French, Dutch, Swedes, Danes, and English engaged in a great land rush. The Portuguese and Spanish divided up most of Latin America. The French seized portions of Canada and several Caribbean islands. The Swedes and Danes briefly occupied parts of Delaware and several Caribbean islands. Dutchmen briefly ruled New York and settled two groups of Caribbean islands. The English (British after union with Scotland in 1707) established colonies along the Atlantic Coast stretching from Newfoundland to South Carolina (founding Georgia in the eighteenth century) along with Bermuda and numerous Caribbean islands.
Most Americans know the story of the first colonial settlement in Jamestown, Virginia, in 1607, and that of the Mayflower Compact and the New Plymouth settlement in 1620. Apart from stories of personalities, religious disputes, immigration from Europe, and the beginnings of slavery, the public is less conversant with the subsequent development of the American colonies from the founding of Jamestown and New Plymouth until the opening salvo of the French and Indian Wars in 1754.
Although numerous economic accounts have been written about the early colonies, few are explicitly concerned with taxation. Most books and articles deal with daily economic life. Taxation became a central theme only from the end of the French and Indian Wars up to the Declaration of Independence. To this day, there is no single comprehensive volume on taxation during the colonial period. To understand “no taxation without representation” and Americans’ skepticism of taxes requires a more comprehensive review of colonial taxation than the Stamp Acts and the Boston Tea Party.
This article is the first in a series examining the colonial roots of American taxation. This essay reviews the first century of colonial taxation in America. Others will survey 1700 through the French and Indian Wars and the years leading up to the Declaration of Independence, the Articles of Confederation, and, finally, the Constitution of the United States. Taken together, these essays will show the limited scope and low rates of taxation, the response of the colonists to taxation, and the purposes on which public funds were spent between 1607 and 1783, a period encompassing 176 years.
Founding and growth of the
The founding and growth of the original American colonies were a slow process.1 It took from 1607 to 1630 to reach a combined estimated population of 4,646 in six colonies: Maine, New Hampshire, Plymouth, Massachusetts, New York, and Virginia. By 1640, new settlements had been placed or developed in Rhode Island, Connecticut, and Maryland, bringing the colonial population to 26,634. It nearly doubled to 50,358 by mid-century, with one new colony established in Delaware.
During the next three decades, the colonies of Carolina, New Jersey, and Pennsylvania were established. Maine joined with Massachusetts. Total estimated population of the colonies reached 151,507 in 1680. Of these, Negroes numbered 6,971, of which some 3,000 were in Virginia.2 In the last two decades of the century, no new colonies were established. Plymouth merged with Massachusetts in 1691. The population of the colonies grew to 250,888 in 1700, of which Negroes numbered 16,729 (11.2 percent), as slavery provided labor for tobacco and other plantations.
The first American century consisted of coastal, sparsely populated settlements. For purposes of comparison with the mother country, the population of England in 1607 has been estimated at 4,303,043, rising modestly to 5,026,877 in 1700. During the 1600s, England encouraged migration to the colonies to help ward off French ambitions in the new world.
After an initial period of high mortality, the colonists soon acclimated to their new circumstances. Better economic conditions and the absence of wars and violent religious disputes attracted thousands of European migrants, freemen and indentured servants alike. The colonists enjoyed greater abundance and variety in their diets. Low densities and dispersed settlements minimized the spread of communicable diseases and epidemics. Abundant forests provided heating fuel. Infant mortality rates quickly fell below those in Europe. A typical colonial family had eight children, double that of England and Europe. By 1700, colonial women routinely lived into their sixties despite risks of death in childbirth.
By the mid-1600s, the colonies were fast becoming lands of opportunity.3 About three-quarters of the colonists were farmers. A typical farm often exceeded 100 acres. Farmers produced surpluses of grain that rivaled the output of tobacco. A colonial adult farmer consumed 150-200 pounds of meat a year; most corn was fed to livestock. Farm families supplemented agricultural work with handicraft production.
Most farmers owned their land. To encourage immigration, colonists often received free or almost free land. Land was readily available at low prices, and new land was accessible on the frontier. Many tenants acquired their own land after a short period of tenancy, a change in status that was virtually impossible in Europe. Most immigrants and native-born colonists enjoyed ample opportunity to acquire property. Upon completing terms of indenture, on average four years in duration, servants often received plots of land on which to begin their lives as freemen. Many became successful farmers and acquired servants of their own. It has been estimated that from half to two-thirds of all migrants to the colonies came as indentured servants, though servants rarely exceeded a tenth of the colonial population at any one time.
Grants of land were frequently used as a means of payment to ministers and other officials, which helped to keep taxes low. In his Wealth of Nations, Adam Smith cited plenty of good land and liberty as the two great causes of colonial prosperity.
The remaining colonists were skilled or unskilled artisans, day laborers, and seamen who congregated in villages, towns, and port cities. A few became merchants or large planters. Colonial workers earned 2-3 shillings a day, double to triple the wages of their English counterparts. Colonial seamen also fared better. Desertion from English crews to work on colonial ships was widespread.
Money in the colonies
A few words on the means of payment are required to understand the difficulties of collecting taxes. Public accounts were kept in English sterling, in pounds (£), shillings (s.), and pence (d.).4 However, few sterling coins circulated in the colonies. The colonies lacked an indigenous supply of gold or silver from which to mint coins. They acquired coins largely through trading with Spanish and French colonies in the Americas. A variety of foreign coins — of which the Spanish piece of eight, which came to be called the dollar and later the basic unit of the U.S. monetary system, was the most widespread — served as a medium of payment. Colonists were remarkably adept at dealing with numerous coins of different values and weights. About half the coins were Spanish (mostly minted in Mexico) silver dollars. For 400 years, the standard Mexican dollar contained a specific amount of silver. From 1601 to 1816, a troy ounce of silver was worth 5s. 2d. at the official English rate, making a standard Spanish dollar worth 4s. 6d.
Throughout the seventeenth century, the American colonies depended on imports for a wide range of consumer goods. The cost of imports invariably exceeded the value of colonial exports. As a result, much of the specie that found its way into the colonies was shipped to England and other European countries to settle the colonists’ bills.
Colonial legislatures did their best to retain specie, which was deemed important to facilitate commerce. They enacted legislation that overvalued the Spanish dollar at 5s., 6s., and even more in some instances. However, these measures failed to stem the export of coin to England and Europe. The chronic shortage of specie required the colonists to improvise alternative means of payment. They resorted to barter, payment in commodities, and such paper instruments as private promissory notes and bills of exchange drawn on London merchants.
Fees, taxes, and personal debts could be settled in any form of lawful money. Colonial legislatures gave locally produced crops (cereals, corn, tobacco, rice) official value for payment of taxes. Other lawful commodities included beaver skins, cattle, and wampum (black shells were valued at double the rate of white). Milk pails were accepted as tax payments in the town of Hingham. Commodities were a clumsy, inefficient form of payment. They had to be valued for tax purposes, delivered to the government, stored, preserved, and then distributed as payment.
To minimize taxes, colonists shipped their worst products to colonial treasurers. In Virginia, quitrents were paid in tobacco. In the 1680s, the auditor-general reported that “the quantity of unmerchantable leaf passed upon collectors was so large that the revenue from this source had dwindled almost to nothing.”5 In 1686, in response, the king of England repealed the statute that had given legal validity to quitrent payments in tobacco (though it was restored in 1688). Rhode Island officials complained of having a hard struggle to keep out “lean” cattle as payment in taxes. Among themselves, however, the colonists discounted the official value of commodities (the discounted price became known as “country pay”) to compensate for costs of storage, shipping, and losses due to deterioration. Commodities exchanged in private transactions were of higher quality and lower prices than those remitted to colonial governments in taxes.
Also noteworthy is that the American colonists have the distinction of issuing the first paper money of any government in the Western world. Official paper money was first issued by the Massachusetts Bay Colony in 1690. (Seven more colonies followed by 1712.) A military expedition led by its governor, Sir William Phipps, set out in the fall of 1690 to conquer Quebec. It failed. The colonial government expected the soldiers to be paid from seizing the enemy’s treasury. Upon their return, the surviving soldiers demanded immediate pay from the government. The colonial treasury was empty, as revenues were collected only to meet anticipated annual expenditures. The solution was to issue bills in the form of “certificates of indebtedness” to the possessor on the part of the legislature. Bills would be receivable by the colonial treasury in payment of taxes. The law provided that a portion of the notes would be called in and retired (destroyed) each year as revenues materialized.
The bills issued in 1690 were called Colony or Old Charter bills. They became known as “bills of public credit,” or “bills of credit” for short, and were printed in denominations of 5s., 10s.. 20s., and £5. Their issue was justified on the basis of borrowing for a specific public expenditure. The bills were not called money since none of the colonies had received the right to coin money. Bills of credit were inscribed as legal tender and valid payments for all obligations, including taxes and bills of exchange. The original issue in the amount of £7,000 was raised to £40,000 a year later.
Bills of credit were initially met with distrust. Soldiers who received the first bills were able to exchange them for no more than 12-14 shillings to the pound in other forms of money. To establish public confidence in them, by an act in 1692 the General Court of the colony, its governing body, attached a 5 percent premium in their use to pay taxes (which remained in place until 1720). This measure made bills of credit more valuable than other lawful money. By early 1693, most of the bills had been redeemed. Popular demand for bills of credit to facilitate commerce and payment of taxes led to their regular reissue. Bills of credit remained at par with specie for about 20 years.
The early chartered colonies
The settlers who migrated to and/or resettled in the colonies of Plymouth, Massachusetts, Maine, New Hampshire, Rhode Island, and Connecticut paid little to nothing in taxes during the first few decades of their establishment. The English government imposed almost no taxes. For example, the charter for the Massachusetts Bay Colony granted an exemption from all royal taxes, subsidies, and customs for seven years and from all taxes for 21 years, except a 5 percent duty on imports into England. The chartered companies that established the colonies initially collected only quitrents, a land tax originally paid by freemen to the Crown or to the company that held a charter from the Crown. The quitrent, an annual payment of a fixed rate of several shillings for each hundred acres of land, secured a freeman’s title to his land; it was paid in lieu of the services traditionally required by feudal custom.
The early colonies were sparsely settled and even more sparsely administered. The few officials who served did not receive official salaries until sometime in the 1640s. Their compensation came from fees for services rendered. These included issuing court papers, keeping records, arresting and punishing criminals, and issuing licenses. In the early years, voluntary contributions supported spending on civic activities and church ministers. Too many free riders induced leaders to make contributions compulsory. Taxpayers were recognized for their contributions; in Dedham, for example, the largest taxpayers received the best seats in church.6 The small sums collected by colonial governments were spent largely on roads, churches, and schools.
Reflecting the values of the day, a prominent nineteenth-century historian, Richard T. Ely, wrote that “one of the things against which our forefathers in England and in the American colonies contended was not against oppressive taxation, but against the payment of any taxes at all” (emphasis added).7 Those who braved the hardship of travel across the Atlantic and who tamed a wilderness on their own did not relish paying taxes to any government.
But taxes were not long in coming. Growing populations in the colonies necessitated defensive measures against Indians and other European intruders, along with the need to build and maintain roads, schools, prisons, public buildings, and ports and to support poor relief. A variety of direct and indirect taxes was gradually imposed on the colonists. The corporate colonies in New England enjoyed the legal right to levy direct taxes on their residents, which stemmed from the right of trading corporations to levy assessments on their stockholders.
In 1638, the General Court in Massachusetts required all freemen and non-freemen to support both the commonwealth and the church. Direct taxes took two forms: (1) a wealth tax and (2) a poll, or head tax, which in some instances evolved into or included an income tax.8
The wealth tax was based on what was known as the country “rate,” which amounted to a property tax. Government officers carried out assessments, or sometimes the process involved self-assessment subject to audit, on the value of raw and improved lands (meadow, plowed, and hoed land), goods, stock used in trading, boats and other vessels, mills, and other visible assets. Each year, the three units of colonial government — the province, the county, and the town or village — drew up a list of proposed expenditures. To support these governments, a rate of tax was applied to the assessments to generate the requisite funds, resulting in a colony rate, a county rate, and a town or village rate.
While the methods of assessment and the rates of tax varied among the New England colonies, the evidence suggests that effective tax rates on land and other real assets were below 1 percent. Government expenditures were low, which minimized the need to impose high rates. In addition, the colonists evaded, avoided, and resisted even these low rates by trying to conceal assets and have land classified as least developed.
The country rate was initially levied as a lump sum in the form of quotas among towns, which assessed and collected taxes to meet their quotas. Massachusetts switched to direct taxation of individuals several years later. Magistrates and clergymen were generally exempt from payment of rates. In Rhode Island, the rate ranged between a farthing (a quarter of a penny) and a penny in the pound, which amounted to a tax rate ranging from 0.1 percent to 0.4 percent of assessed farmland and goods. In Massachusetts, the tax was a penny in the pound, a rate of 0.4 percent.
A second direct tax was the poll, or head, tax. The Massachusetts law of 1646 served as a model for the New England colonies. Every male 16 years and older, the year of registration for potential military service, was required to pay an annual tax of 1s. For administrative simplicity, the tax was often combined with the country rate.
Although the modern income tax dates from the adoption of the Sixteenth Amendment in 1913, an income-like tax, known as a “faculty” tax, appeared very early in the New England colonies. A Massachusetts Bay law of 1634 provided for the assessment of every man’s assets and the product of his abilities. In 1643, assessors were appointed to rate inhabitants on their estates and their faculties, which included personal abilities. Further definition three years later specified the taxation of “laborers, artificers, and handicraftsmen” on their “returns and gains.”
It is possible to estimate roughly the effective rates of the poll and faculty taxes. The text of the Massachusetts law stipulates that artificers who were paid 18d. per day in the summer should pay 3s. 4d. a year in faculty tax in addition to their poll tax (day laborers, engaged in sporadic work, were exempt). Assuming 78 days of work (13 six-day weeks during the summer season), an artificer would earn £5 17s. during the summer. If he earned at least that much in other work during the rest of the year, which was not subject to additional income tax, his annual income would be in the neighborhood of £12. A tax of 4s. 4d. (poll tax plus faculty tax) on an annual income of £12 amounts to an effective total tax rate of 1.8 percent on labor income. Higher annual earnings imply a lower tax rate. If total annual earnings reached £20, his total tax rate would be 1.1 percent. At that time, public officials received annual stipends ranging from £20 to £50. On an annual income of £12, by itself the one shilling poll tax rate represents a rate of 0.4 percent. The Connecticut, New Haven, and Rhode Island colonies incorporated the faculty tax into their codes.
Two rules governed colonial budgeting: (1) limited expenditure and (2) fiscal balance. The level of country rate and poll tax was set to meet annual requirements, and no more, which rarely required more than a penny in the pound on property and the basic poll tax. During Indian conflicts, a multiple of the rates and poll tax might be applied (during King William’s War late in the last quarter of the century, the tax in Massachusetts reached 16 rates); at other times, perhaps only a fraction of the rate might be authorized.
From the very beginning, assessments and levying of taxes were democratic. Inhabitants of colonial towns chose a freeman from among themselves to serve as commissioner. It was his responsibility to identify all eligible males and estimate the value of their assets. Lists were sent to the colonial treasurer, who issued warrants to town constables to collect specified sums. Merchants were assessed on the basis of the value of their cargoes (lest they leave town between the times of assessment and collection). Despite low rates, full payment of taxes was rarely secured.
Direct taxes were supplemented by several import and export duties in the New England colonies (save in Rhode Island). For several brief periods, Massachusetts imposed a “tonnage duty” of 1s. per ton on vessels trading, but not owned, in the colony, which was earmarked to maintain fortifications. In 1636, Massachusetts launched the system of customs revenue in New England when it imposed import duties of one-sixth ad valorem on fruits, spices, sugar, wines, liquors, and tobacco. A low 2 percent ad valorem duty was subsequently levied on silver plate, bullion, and merchandise in general. Plymouth placed export duties on such products as boards, barrel staves, tar, oysters, and iron. Salt was exempted from most duties as it was an important ingredient in the preservation of codfish, an important export. Indirect taxes were modest and focused largely on the “sins” of drinking and smoking.
The New England colonies resorted to tax exemptions on numerous occasions to encourage the development of specific industries. In 1645, Massachusetts gave land, a ten-year tax exemption, and a monopoly to a company engaged in iron making; by 1648, it was producing a ton of iron a day.9 In 1665, Connecticut granted a seven-year tax exemption to anyone setting up a forge. (Although these early companies failed, by the time of the Revolution, the colonists produced annually about 30,000 tons of wrought and cast iron, one-seventh of world output. The number of forges and furnaces in the colonies probably exceeded the number in England and Wales combined.)
Fisheries were deemed especially important. Massachusetts exempted vessels and equipment from all country rates for seven years, and ship carpenters, millers, and fishermen were excused from military training. Codfish and shipping became engines of growth in New England.
The later proprietary colonies
Proprietary colonies differed from chartered colonies in that the public revenue of the colony belonged to the private proprietor rather than to the common shareholders of the chartered corporation and the freemen who subsequently became residents. The proprietary colonies included New York (New Netherlands under Dutch rule), Maryland, New Jersey, Pennsylvania, and Carolina (which formally separated into North and South Carolina in 1712).
Royal grants to proprietors represented title to real property that could be divided, sold, mortgaged, leased, conveyed in trust, and divided among heirs. Although the proprietor was the landlord of his estate, he was not a feudal lord. He could govern and tax only with the consent of his tenants. Since empty land generated no income, he advertised for settlers on attractive terms.
Incentives took two forms. The most common was grants of land. Lord Baltimore offered a contract to each free married man who paid £20 for his transportation to Maryland that provided 100 acres of land, with extra allotments for his wife, adult indentured servants (hereafter servants), and children. Any individual who brought five more persons to Maryland received an additional 1,000-2,000 acres. The proprietors of Pennsylvania, New Jersey, and Carolina offered similar terms. William Penn offered 200 acres to any settler able to pay an immediate quitrent, with 50 additional acres for every servant he brought over, but the recipient was required to improve his land within three years or have it recovered by the proprietor. Undeveloped land generates no income.
This policy worked well for Lord Baltimore. By the end of the seventeenth century, his subjects numbered 30,000. The plantations along the lower Potomac and Chesapeake Bay were producing 50 thousand hogsheads of tobacco a year (a hogshead is 63 imperial gallons), worth some £100,000 at then market prices. The proprietor collected £12,000 from his tax on tobacco, port fees, quitrents of 2 shillings per hundred acres of land, and fees for preparation of legal documents. After paying his officials and other expenses, he netted £5,000, a huge sum for that time.
Tax exemptions were also used to attract settlers. In New Netherlands, free settlers were exempt from taxes and customs for 10 years. In Carolina, the proprietors encouraged their settlers to produce wines, silks, olives, and other semitropical products, which were given an exemption from customs duties in England for a period of seven years.
To profit from the development of his colony, collect quitrents and fines, and recover land from settlers without heirs or who failed to meet the terms of their contracts, each proprietor required a system of territorial administration.
Proprietary colonies had to ensure law and order, provide for their own defense, and build and maintain roads, prisons, public buildings, and fortifications. Proprietors were authorized to impose levies on their subjects. Direct taxes, authorized by statutes enacted in colonial legislatures, included general property tax, typically combined with the poll tax, and a direct land tax in some instances. The poll tax was set at an age consonant with military service, 16 in some colonies and 14 in others. Indirect taxes included tonnage duties, import and export duties, and excises.
In New Netherlands, the chief direct tax was the tithe, a tax on land amounting to one-tenth of the annual harvest following an initial 10-year exemption. As settlements were few and far between, little revenue was collected. The city of New Amsterdam established a fire patrol in 1657 financed by a tax on chimneys, an early example of an earmarked tax. When the Duke of York took control of New York from the Dutch, a small minority of colonists was subject to property tax. As late as 1676 in New York City, only 302 persons out of 2,200 residents were listed for taxation. A relatively small minority bore the burden of the rate, a penny in the pound (0.4 percent) on real estate and personal assets.
Tax rates varied with wealth. At the close of the seventeenth century, residents of Pennsylvania with real estate and personal assets worth less than £30 were exempt. Adult males worth less than £72 paid a reduced poll tax of 6 shillings. Even these low rates were vigorously resisted as farmers consistently undervalued their property and overvalued their produce, the means of payment. The colonial governor of New York warned the English Crown in 1688 that attempts to strengthen tax enforcement or impose new taxes would result in the departure of his subjects to other colonies.
Early New Yorkers were also subject to import duties and excises. The English takeover of New York in 1664 imposed English rates. Liquors were taxed at 10 percent. All other merchandise imports gradually became subject to ad valorem duties, with preferential rates given to imports from England. Non-English goods were taxed at 8 percent, while English goods paid 5 percent. Export duties of 10.5 percent were charged on peltries and 2d. per pound of tobacco, to be paid in beaver and wampum. In 1674, the duty on English merchandise was reduced to 2 percent.
New York taxpayers were not amused. Customs rates were imposed on a three-year basis. When the customs law of 1677 was not renewed in 1680, several colonists seized the collector of customs as he tried to enforce the expired law. They tried him in local courts, convicted him, and returned him to England as a prisoner (where he was subsequently exonerated). The Duke of York, to whom the English king had given New York in 1664, thereafter paid greater heed to the complaints of his subjects. Colonial governments in Maryland and South Carolina imposed few import or export duties, and there is no record of customs duties in New Jersey before 1702.
Proprietary colonies relied heavily on fees to support the activities of public officials, which were regulated by colonial legislatures. Almost from the beginning, in all the proprietary colonies except New York, proprietors and their executive officials were dependent on annual appropriations of their legislatures, which set specific rates of duties and direct taxes. The power of colonial legislatures to appropriate taxes reflected English precedent, which established Parliamentary supremacy over appropriations. Freemen taxpayers of the colonies exercised considerable influence over the ambitions and activities of proprietors and their executive officials by withholding funds.
Virginia, the first royal American colony
Virginia is a special case in the seventeenth century as an early example of a royal colony. On April 10, 1606, King James i chartered two Virginia companies, granting them all the land between 34 and 45 degrees north, extending inland 100 miles. The charters provided for local councils with jurisdiction over each colony, subject to a central governing board in England. The charter specified that colonists were to enjoy the liberties, privileges, and immunities of native-born Englishmen.
An expedition from one of the two companies left London on December 20, 1606, and settled on the Jamestown peninsula on May 13, 1607. A sealed box was opened, which identified the names of the councilors who were to administer the colony. The names are a Who’s Who of early American history. The early years were filled with tribulation. As late as 1616, the colony numbered only 351 persons, not much to show for a decade of effort and expenditure.
The arrival of a new governor in 1619 heralded a change in the administration of the Virginia colony. His instructions called for the establishment of a general assembly consisting of executive councilors chosen by himself and a House of Burgesses elected by all male colonists. He appointed 6 councilors, and 22 Burgesses were elected.
Luck continued to evade the colony. Hitherto peaceful Indians massacred 350 colonists on March 22, 1622. An outbreak of malaria and diseases that afflicted newly arriving colonists also forestalled rapid population growth. As if this were not bad enough, the Virginia Company verged on bankruptcy. Stockholders, who had never received any dividends, quarreled among themselves. In July 1623, the Privy Council in England assumed temporary jurisdiction over the colony. It recommended abolishing the original charter and transferring the colony to the king’s jurisdiction. In May 1624, England’s high court vacated the charter, dissolved the company, and established England’s first royal colony in America. Virginia began its royal existence with fewer than 1,500 inhabitants. A recurring problem was how to finance the cost of royal colonial government, which pitted the Crown and its governors against the taxpaying colonists.
Prior to 1625, every planter or adventurer who came at his own expense and remained for three years received 100 acres of land exempt from quitrents. Those who arrived later were subject to quitrents of 2 shillings per hundred acres. A landowner’s failure to pay for several years entitled the Crown to reclaim his land. Initially, quitrents were to be paid in specie, but a shortage of coin prompted the Virginia Assembly in 1645 to authorize payment in tobacco at 3 pence per pound. The rate was reduced to 2 pence a pound in 1661, reflecting a lower market price for tobacco. In 1686, the Crown intervened directly, requiring payment of quitrent in coin after it was reported that most of the tobacco that had been received in payment was unmarketable. After the Glorious Revolution of 1688, payment of quitrent was reinstated in tobacco at the rate of one penny per pound. Throughout the century, quitrent payments were routinely evaded, becoming for all practical purposes a voluntary payment by landowners.
The colony’s government required revenue of its own to carry out minimal public functions. Accordingly, the Virginia legislature authorized a poll tax on caucasian males 16 and older. The head of household and owner of slaves also paid poll tax on slaves and native American servants of both sexes 16 years and older. Deemed to fall disproportionately on the poorer elements of the community, the poll tax was temporarily abolished in 1645. It was replaced with a tax on livestock — 32 pounds of tobacco for every horse, mare, or gelding, 4 pounds for every breeding sheep, 2 pounds for every breeding goat, and 4 pounds for every cow over three years of age. However, the tax on livestock was short-lived. It was repealed in 1648 as the legislature discovered that it discouraged the development of animal husbandry.
From time to time, tax incentives were used to encourage diversification from heavy reliance on tobacco. To encourage the production of hemp, pitch, and tar, in 1664 the English government exempted these commodities from English import duties for a period of five years.
To encourage the development of locally owned shipping, in 1660 the Virginia Assembly imposed a tax of 10 shillings per hogshead of tobacco exported in ships not required to deliver their cargo to English dominions in Europe. Virginia-owned vessels were declared exempt in order to induce shipowners and mariners to take up residence in Virginia. Most shipping remained in the hands of New Englanders.
Import duties were imposed on such items as slaves, servants, wine, gunpowder, and shot, and an export tax of 2 shillings was levied per hogshead of tobacco. An export tax on furs financed the maintenance of William and Mary College. The expenses of most colonial officials were paid from fees rather than official salaries.
Tobacco duties were routinely evaded. Shipowners often arranged for tobacco to be smuggled on board. Others arranged to ship tobacco in bulk rather than in hogsheads. Bulk packaging reduced the number of ships required to transport tobacco by one-sixth, thus depriving the colony of port duties and lost business. A law passed in 1696, reflecting the political power of the planters, increased the size of a hogshead by one-fifth, which further diminished the revenue from export of hogsheads.
During most of the seventeenth century, the governor’s salary and expenses depended on annual votes of the Virginia legislature. Seeking a source of revenue independent of the legislature, in 1680 the governor threatened to increase quitrents and enforce their collection. In exchange for withdrawing his threat, the legislature granted him a permanent export duty of 2 shillings per hogshead of tobacco in place of the previous annual appropriations. While substantially evaded, it provided enough revenue for his annual salary and executive expenses. Other colonial legislatures, such as Massachusetts and New York, never accorded their governors permanent sources of revenue, giving their taxpayers greater control over their executives. Virginia became a model of independent executive finance that royal colonies would seek to emulate in the eighteenth century.
Delaware is of interest in that it went through Swedish and Dutch rule before England’s takeover in 1664. A Swedish limited liability company established the first permanent European settlement in what is now Delaware in March 1638. King Gustavus Adolphus granted William Usselinx, promoter of the New Sweden Company, a charter with a life of 12 years. The company received a monopoly of trade between Sweden and the New World. The charter provided for a tax of 4 percent on imports and exports, with the Swedish government to receive a fifth of all ores and a tenth of all agricultural output. Settlers were to receive a 10-year tax exemption, after which they would pay 5 percent duty on imports and exports to be used for local government.
The company supplied three civilians and 32 soldiers to administer and guard the colony. The initial costs were financed by an excise tax on tobacco imported into Sweden from Holland (not from the colony). Most of the settlers grew tobacco, which was exempt from taxes. Annual government expenses in the last year of Swedish rule amounted to 4,404 rixdalers, which was financed solely by import duties on liquor and other merchandise and an export tax on furs.
The Dutch West India Company took over the colony in 1655. Its vice director imposed duties on imported liquor, beer, and wine and a small rate of 12 stivers (about 25 current U.S. cents) on each morgen (2 acres) of land. The colony was a losing business proposition.10 The company lost money and became indebted to the City of Amsterdam, to which it ceded half the colony in 1656 and the rest in 1663. Settlers were promised 10 years of exemption from direct taxes and thereafter were to pay taxes no higher than the lowest in New Netherlands. They were also granted freedom from tithes for 20 years.
On behalf of the English Crown, the Duke of York governed Delaware from 1664 to 1682. Its first English administrator continued the existing system of taxation and added a 10 percent general tariff on imports and exports. The governor of New York also became governor of the Delaware colony in 1673. His attempt to levy a penny in the pound on estates proved hard to enforce due to distance and undervaluation of estates. His effort to collect poll taxes also proved difficult. Fines were imposed on those who failed to make required labor contributions, but these were rarely collected.
From 1682 to the end of the century, Delaware was joined in legislative union with Pennsylvania under the proprietorship of William Penn. Under his charter, Penn was permitted to tax only with the advice and consent of the freemen in the colony.
Penn sold land at the incredibly low price of 10 pence per acre down payment with a quitrent of one-fourth penny per acre. The three lower colonies of Delaware that became part of Penn’s original grant from Charles ii attracted Europeans who wished to escape religious wars. The Assembly and Executive Council of Pennsylvania-Delaware financed public services with fines, a tax of a penny per ton on all vessels over 12 tons, and duties of 2 pence per gallon on strong liquor and 1 percent ad valorem on all other goods. Counties were permitted to levy direct property and poll taxes to underwrite roads, bridges, and ferries. Few schools were supported from public funds (yet colonists were subject to fines if children could not read and write by the age of 12).
On several occasions, the queen demanded that Pennsylvania-Delaware residents contribute men and money to military efforts against Indians in New York. Several taxes were authorized, including a penny in the pound levy on all property, real and personal; those with net estates less than £30 were exempt. Freeman rated under £100 paid a poll tax of 6 shillings. Pennsylvania-Delaware taxpayers never fully met the queen’s requests. A request to provide £350 for the erection of a fort above Albany was refused outright in 1701.
English imperial control
The english government imposed implicit and explicit taxes over its American colonies. Implicit taxes took the form of the Navigation Acts, which sought to regulate shipping between the colonies and its trading partners. Explicit taxes consisted of customs duties imposed on goods exported from the colonies to England and other destinations, and customs duties paid on imports arriving in England. Although these taxes remained modest throughout the seventeenth century, the duties on exports were routinely evaded.11
As early as October 1621, Crown officials issued an order that required American colonial planters to ship all their products to England. This order was designed to ensure payment of customs to the Crown, an important source of royal revenue that did not require parliamentary approval. Similar instructions were issued to royal governors of Virginia in 1627, 1631, 1633, and 1639, and also to Lord Baltimore in Maryland in 1642. Paragraph 30 of the instructions issued in 1642 to Virginia governor Sir William Berkeley required that every ship loaded with tobacco or other commodities must post bond to guarantee that the products would be transported to English destinations and that each captain must have a bill of lading on which customs and other duties could be levied upon arrival in England. Paragraph 31 further instructed him to limit trade to English-owned ships. If some exigency required recourse to a foreign ship, bond must first be taken from both its master and owner to insure it would proceed to England and pay duties. Follow the money.
These royal instructions were precursors of the Navigation Acts. Parliament passed the first Navigation Act in 1651. It stipulated that the produce of the American colonies (and goods from Africa and Asia) could be transported to England, Ireland, or any English possession only in English-owned ships, manned primarily by English sailors. For purposes of the act, American colonists were regarded as English. Foreign ships could only carry goods originating in that same foreign country into English territories. The act reflected the economic doctrine of mercantilism, a theory based on a national policy of ensuring a favorable balance of trade, accumulating bullion, establishing colonies and a merchant marine to supply the mother country with vital raw materials and other goods, and developing industry in the mother country. The act was also intended to weaken Dutch shipping, one of England’s main rivals.
Following the Stuart Restoration in May 1660, the 1651 act was reenacted and extended. It excluded all foreign ships from English colonial trade. All vessels involved in trade between England and its overseas territories had to be English owned and manned by an English master, with three-fourths of its crew English (or colonists). Extensions to the act specified that certain colonial, or enumerated, products, including sugar, tobacco, cotton-wool, indigoes, ginger, and certain dying woods, could be shipped only to England. The Navigation Acts were intended to prevent the colonies from developing their own industries, which might compete with those in England, and selling their products to England’s rivals, especially the French and Spanish.
Next to follow, the Staple Act of 1663 permitted nonenumerated goods to be transported in English ships from the colonies to foreign ports. However, foreign produce taken on board destined for the colonies first had to be shipped to England. There the goods had to be unloaded, duties paid, and only then the cargo reloaded for shipment.
The Navigation Acts were enacted to regulate trade between England’s overseas territories and the mother country. However, they failed to take into account the growth of commerce between the colonies, which was duty free. Colonists could buy merchandise from each other cheaper than residents in England, who paid customs duties on imports. Many New England shippers ostensibly picked up tobacco in Virginia for delivery to other sister colonies. However, New England vessels routinely sold tobacco in New Amsterdam. Reshipment to Holland was estimated to deprive the Crown’s treasury annually of £10,000. One report in 1666, likely exaggerated, claimed that £100,000 in revenue was lost in the improper sale of Virginia tobacco. Under the pretense of shipping goods from one colony to another, colonial shippers routinely evaded the Navigation Acts. It was not possible for the Royal Navy to track hundreds of colonial ships plying the coastal and oceanic waters. The English government grew increasingly alarmed at these evasive measures and loss of revenue. In 1672, a duty of one penny a pound was imposed on all tobacco shipped from colony to colony. If subsequently shipped to another English colony, a second penny duty was paid. In 1673, Parliament enacted legislation requiring that duties be paid before enumerated products could be loaded in the colonies unless bond was posted to guarantee that the goods were destined for England.
The Act of 1673 extended the English customs service to the colonies. The first official customs agent was sent to Virginia to ensure that tobacco was shipped only to England and that royal duties were fully paid. His incentive was payment as a percentage of collected receipts, and he could request the Royal Navy’s help to enforce the act.
The colonists were no more eager to pay taxes to English customs officers than they were to their own colonial governments. During the first few decades following the 1673 act, the colonists killed three customs officers, imprisoned two others, tried one for treason, and persuaded one to join them.
How were they able to flout England? Implementation of the Navigation Acts was entrusted to colonial governors and their officials. In most cases, colonial governors had more in common with their subjects and their growing prosperity than with a distant English government. Colonial governors were not willing to surrender authority to “foreign agents.” Many seventeenth century colonial governors were already more American than English.
The hand of English regulation was lightened after William of Orange landed in England in 1688. His kingdom was embroiled in war with France during 19 of the next 25 years, and England needed the support of its American colonies in this conflict. The king and Parliament thus accorded colonial governments a high degree of autonomy.
At the close of the seventeenth century, the Navigation Acts were honored more in the breach than in the observance. Taxes collected for the Royal Treasury were modest. Things would change markedly after the French and Indian Wars, but this is the subject for a later essay.
When the dust settled on the seventeenth century, 250,000 colonists had secured for themselves the power to tax and spend that was largely free from governors and their officials sent from England, appointed by the proprietors, or selected from among themselves in the charter colonies. Even when rates, poll taxes, duties, and other levies were authorized by elected representatives to colonial legislatures, taxpayers sought to minimize their taxes in every imaginable way, from hiding real assets to undervaluing farmland to making payment in sub-standard commodities to outright refusal to pay. The first century of the American colonies set a firm low-tax foundation that underpinned the economic freedom of generations of Americans to come.
1 Population figures are found in U.S. Bureau of the Census, Historical Statistics of the United States: Colonial Times to 1957 (U.S. Government Printing Office, 1960), Series z1-19, “Estimated Population of American Colonies: 1610-1780,” 756.
2 The word “Negro” is used in the Census Bureau’s statistical tables.
3 An excellent treatment of the colonial economies is found in Edwin J. Perkins, The Economy of Colonial America, Second Edition (Columbia University Press, 1988).
4 One pound equals 20 shillings; one shilling equals 12 pence; so one pound equals 240 pence.
5 Philip Alexander Bruce, Economic History of Virginia in the Seventeenth Century, Vol. I (Macmillan and Co., 1896), 562.
6 This story and other interesting anecdotes about taxation are scattered throughout William B. Weeden, Economic and Social History of New England, 1620-1789, Vol. I (Houghton, Mifflin and Company, 1894).
7 Richard T. Ely, Taxation in American States and Cities (Thomas Y. Crowell & Company, 1888), 108.
8 A discussion of specific taxes is found in Herbert L. Osgood, The American Colonies in the Seventeenth Century, Vols. I and II, The Chartered Colonies, Beginning of Self Government (Peter Smith, 1957). Originally published in 1904 by Columbia University Press. See Chapter XII in Volume I, 468-95, and Chapter XIV in Volume II, 347-74.
9 Bernard Bailyn, The New England Merchants in the Seventeenth Century (Harper & Row, 1964), 62-71.
10 In general, all the American colonies failed as commercial ventures. Investors seeking private gain inadvertently laid much of the foundation of America.
11 An excellent source is Thomas C. Barrow, Trade and Empire: The British Customs Service in Colonial America, 1660-1775 (Harvard University Press, 1967).