Tax Subsidies and the Boston Tea Party

January 06, 2006

Conventional wisdom holds that the Boston Tea Party was an angry revolt against high British taxes. But the reality is more complex. A recent essay from Tax Analysts' Joseph Thorndike reminds us that outrage over tax preferences—special tax breaks targeted at businesses—played at least as important a role as anti-tax sentiment:

For many critics of the modern federal state, the tea party demonstrates the inchoate antitax strand of American political culture... But was the original tea party a protest against high taxes?

Not really. In fact, the Boston Tea Party was sparked by a tax cut, not a tax increase.

That colonial exercise in civil disobedience was certainly a protest against oppressive taxation, but it was also a revolt against tax preferences. Specifically, the tea party was sparked by an 18th century version of corporate welfare...

Americans resent arbitrary and capricious taxes, especially when revenue tools are compromised by special interests. Loopholes and tax preferences are a powerful source of antitax activism. (Read the full piece here.)

Lawmakers today increasingly rely on tax preferences to subsidize favored industries at the expense of others. Because these preferences lower tax liabilities for lucky recipients, they're often defended as "tax cuts." 

But what this ignores is that every tax preference to a favored company leaves other taxpayers holding the bag—something that's both economically inefficient and widely perceived as unfair.

Not all tax cuts are created equal. Special tax preferences, even when designed to "create jobs" or achieve political goals, aren't good tax policy. Through hidden inefficiencies they make society poorer, less free, and less fair in the long run. 

So what's the real lesson of the Boston Tea Party? That when the final bill for discriminatory tax preferences arrives, it may be lawmakers who pay the highest price of all.

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