The Truth About the 'Tea Party'

Bruce Bartlett Capital Gains and Games April 14, 2010

I hope Tax Notes won't mind too much if I reprint a great piece by tax historian Joseph Thorndike here. Since the original Boston tea party is the subject of so much mythology, which animates many latter day tea partiers to this day, it's important to set the record straight. As Thorndike correctly explains, the Boston tea party was not a revolt against high taxes, but, ironically, a protest against a tax cut.

APRIL 8, 2010

For those who are interested, here is some additional historical input preceding Boston Tea Party.

In the battle of Plassey (1757) near Calcutta, the East India company decisively won against the Bengal Nawab. After this success, East India company assumed right to taxation In Bengal. Excessive taxation in Bengal resulted in a massive famine and consequently reduced revenue to the East India Company. East India company was forced to raised the prices of the Asssam Tea exported to the UK and the US colonies. This is the set of events preceding the Boston Tea Party in the USA.

From the indian history point o view, after few years, East India Company became bankrupt and the british government took over the East India Company and India became a colony.

Government saving a tbtf.....yep, sounds like a protest against a tax cut to me...

Bruce: "The next year Parliament took another run at the colonial purse, imposing the Townshend duties on a variety of goods imported into the colonies, including paper, paint, lead, glass, and tea. Once again the colonists organized boycotts and protests, and once again Britain backed down."

Reply: The British backed down because their Customs officers were corrupt; they seized what they could because Customs was guaranteed one third of the booty (one third to the English treasury & a third to the Governor). It is also true that taxes on British exports was as much a disadvantage to the British as they were to the Colonies prosperity.

To save face, and not appear to back down to the Colonials, the British repealed all the Townsend duties but the duty on tea.

Bruce: "For a while the colonists seemed content to ignore that imperial assertion. But in 1773 Parliament passed the Tea Act, which left the Townshend duty on tea intact, but repealed another tax on tea imported to Great Britain for subsequent reshipment to the colonies. This amounted to a tax cut on colonial tea, promising lower prices for colonial consumers.

Bostonians responded by dumping their cheap imported tea into Boston Harbor."

Reply: Yeah, these ungrateful colonials...The Tea Act of 1773 was an move by the English to re-establish the East India Company back to profitability. The English knew the Colonials loved their tea and turned their attention to the American market. Most of the American tea imported was smuggled through Holland. The Tea Act enabled the East India Company to distribute tea to the retailers. This move in effect cut out the profits made by English and American wholesalers.

Essentially, the East India Company would force out the smugglers, cut out the American merchants and establish the East India Company as the sole provider of tea. In effect East India would have a monopoly on the tea market in America.

Bruce, the colonials saw a monopoly being established; the colonials feared that once East India was established in America they were free to raise their prices. Without competition those prices would be the only prices to pay.

This is why the Boston Tea Party became a reality.

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The Truth About the 'Tea Party'

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