Donald Trump recently mused about replacing federal income taxes with high tariffs on imports, including a potential 10 percent across-the-board tariff and 60 percent or higher tariffs on Chinese goods. Economists were quick to highlight the severe economic consequences of such a move. Among them: job losses, increased inflation, larger federal deficits, and a potential recession. Trump, however, insists that tariffs are paid by foreigners.

But with Independence Day almost here, it’s timely to note that the American colonists knew there was no such thing as a free lunch, especially regarding taxes. Take the Stamp Act of 1765. It was a direct tax imposed by the British Parliament that required many printed materials in the colonies—legal documents, newspapers, magazines, and even playing cards—to carry a special stamp or seal, which had to be purchased. Revenue from the levy was intended to help pay for British troops stationed in North America.

The colonists hated, hated, hated the Stamp Act. As historian Gordon S. Wood writes in The American Revolution: A History, The tax was imposed without colonial consent, it came during an economic depression, and Parliament passed it despite colonial petitions against it. 

Wood: 

The crisis over the Stamp Act aroused and unified Americans as no previous political event ever had. It stimulated bold political and constitutional writings throughout the colonies, deepened the colonists’ political consciousness and participation, and produced new forms of organized popular resistance.

Colonial resistance forced the British to repeal the Stamp Act in 1766. But their revenue needs remained, which led to this too-clever-by-half plan: replace the direct Stamp Act with indirect, external customs duties. In other words, tariffs. The Townshend Acts of 1767 imposed these indirect taxes on imports to the American colonies, including glass, paint, lead, paper, and tea. 

The colonists weren’t fooled. They knew these tariffs were another attempt by Parliament to raise revenue without their consent and exert control over the colonies. They knew who paid these duties.

Again, Wood:

After the Stamp Act crisis, American sensitivities to all forms of English taxation were thoroughly aroused. With the passage of the Townshend duties, the earlier pattern of resistance reappeared and expanded. Pamphleteers and newspaper writers again leaped to the defense of American liberties. The wealthy, cultivated Philadelphia lawyer John Dickinson, in his Letters from a Farmer in Pennsylvania (1767–68), the most popular pamphlet of the 1760s, rejected all parliamentary taxation. According to Dickinson, Parliament had no right to impose either “internal” or “external” taxes levied for the sole purpose of raising revenue.

The Founding Fathers weren’t tricked by the British switcheroo. The Townshend duties were an important step toward the Boston Tea Party. Of course, the (democratically elected) US federal government has the right to raise revenue through taxes. It also has the right to impose tariffs. (Indeed, tariffs were a primary source of federal revenue for much of American history.) And when it does impose import tariffs, importers pay the tax directly to the government. But that economic burden can be shared. Foreign sellers might lower their prices to absorb some costs, or importers might raise prices to pass costs onto consumers. Again, no such thing as a free lunch when America embraces protectionism.

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