A closer look at the history of a famous tax

Some people like to say Americans have always hated taxes, and they give as proof the night of Dec. 16, 1773, when patriots threw some crates of tea into Boston harbor.

Actually, though, at issue that night was a tax reduction, not a tax increase. Some hooded and shadowy figures rioted across the wharfs because a tax was being lowered, not raised, as we so often think.

At the time, the East India Company was required by law to take their cargos of tea directly to a port in England. After it arrived, and the steep import taxes were paid, it could then be sold to American middlemen who would re-ship it to the Massachusetts colony.

The British import tax and the middleman markup made tea quite expensive over here.

Meanwhile, the Dutch were all too happy to sell smuggled tea directly to the Americans. This contraband and untaxed tea was slightly inferior to the English teas, but it was a lot cheaper.

The British East India Company complained so much that the British finally passed the Tea Act of 1773 which allowed the company to go directly to the American market, thereby bypassing the British taxes and the American merchant middlemen. The crown (wisely) sought to eliminate smuggling by competing with it on price.

The legal importer did, however, still have to pay a (much smaller) import duty on the teas that went directly to New England. It was, in fact, a new tax, but it replaced a much higher one which had been in place for decades.

So good quality English tea now became cheaper than the smuggled Dutch tea, which prima facie seems like a win-win for everybody.

So who rebelled? The American middlemen, of course, and the smugglers. The Tea Act was hurting Big Tea in America.

And who did the new tax law help?

The American people. It made better tea cheaper for everyone who wasn’t involved with the tea business.

But with some savvy marketing, a few American businessmen resorted to what we’d call terrorism today and attacked a rival business, throwing their products into the harbor.

This act of defiance made the British assume control of the (until then) self-governing colony of Massachusetts.

Which started a war: the American War of Independence.

And that brings us to the modern Tea Party. They’re aptly named, it seems, since they also fight for business interests while using liberty as a rallying cry. It’s nice to see we haven’t changed all that much in 250 years.

(Editor’s note: The opinions are the author’s, and do not necessarily reflect the views of ColoradoBiz.)