the british tax america -- 8/21/23

Today's selection -- from Liberty is Sweet by Woody Holton. After a highly expensive war to defend its colonial possessions from the French, the British government succumbed to pressure from wealthy British landowners to reduce their taxes to pre-war levels. That reduction necessitated taxing the colonials, which started a chain reaction leading to American independence:

“The landowners who had the exclusive right to vote in parliamentary elections were furious at their MPs for continuing to tax real estate income at the elevated wartime level of four shillings in the pound or 20 percent. During a January 26, 1767, debate in the House of Commons, George Grenville pointed out that every shilling of the land tax brought in about £500,000 a year: slightly more than the cost of the ten thousand redcoats stationed in America. If the government pared back its colonial expenses, especially by abandoning some of the costliest posts deep in Indian country, and if it forced the colonists to pay the soldiers who remained, as Grenville had originally proposed, it could knock the real estate tax back down to its prewar level of 15 percent.

“The administration's response to Grenville's provocation came from Charles Townshend, the chancellor of the exchequer, and it was a shocker: the Grafton ministry was already planning to charge the Americans for their defense. A month later, on February 27, opposition MPs leaned heavily upon Townshend's announcement in persuading their colleagues to defy the wishes of the ministry and vote, 206 to 188, to slash the real estate tax. No British administration had suffered a fiscal defeat like that in twenty-five years. It was the sort of thing that usually brought a ministry down. 

Portrait of George Grenville by William Hoare, 1764

“But Townshend's hint about future American revenue was only one reason the MPs had cut the land tax, for they had also discovered another pot of gold on the opposite side of the globe. A decade earlier, even as Britain and its American colonists suffered some of their worst defeats of the Seven Years' War, the British East India Company won a stunning victory in Bengal, an Indian province larger and more populous than France. At the Battle of Plassey on June 23, 1757, Robert Clive and the firm's private soldiers defeated the nawab (ruler) of Bengal, Siraj ud-Daulah, the man behind the much mythologized Black Hole of Calcutta. Then in 1764, Company troops also crushed Siraj ud-Daulah's successor, leading India's Mughal emperor to give the EIC the diwani--the sole right to collect taxes--for Bengal and two neighboring provinces. The company soon doubled its new subjects' real estate taxes and estimated that the diwani would bring in £2 million per year, whereupon its stock price doubled. But the British government, which had contributed £4.5 million to the East India Company's military operations, demanded a share of the plunder. The firm indignantly replied that it already supplied about a third of Britain's customs revenue, but when Members of Parliament started talking about capping stockholders' annual dividends at 10 percent, EIC officials agreed to sit down with the chancellor of the exchequer to negotiate an additional subsidy.

“Townshend, who had invested heavily in the East India Company, in part with funds embezzled from the Pay Office, hinted at a sweetheart deal, and the firm's stock, initially offered at £100 per share, soared to £278. But then he sold his EIC shares at a £7,000 profit and began negotiating more aggressively. In the end the Company agreed to hand the government £400,000 a year.

“Even after securing this windfall, Townshend decided to proceed with his earlier plan to tax merchandise arriving in American ports. During the campaign against the Stamp Act, most colonists had also objected to the previous year's American Duties (Sugar) Act. A few, however, had cast themselves as moderates by only objecting to internal taxes like stamp duties. In testimony before the House of Commons and an essay appearing in the London Chronicle early in April 1767, just as the chancellor of the exchequer completed his proposals, Benjamin Franklin practically begged Parliament to tax America's trade. Like most MPs, Townshend believed Parliament had just as much right to tax colonists internally as externally. But ‘since the Americans were pleased to make that distinction’ he was ‘willing to indulge them.’”



Woody Holton


Liberty is Sweet


Simon & Schuster


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