Taxes, Tea And Why We Celebrate American Independence Day On July 4
July 06, 2023
Understanding American history is important for investors, savers, and retirees. In fact, I think that most Financial Planners should be encouraged to study history. Why? Because history teaches us why, and how something happens. That can easily be carried over to financial planning. American history is important to me... because I live in America. My father was not born here, but he sure instilled in my brothers and me a sense of appreciation for this country. Learning history is important:
History helps teach us to understand the principles that underlie the American economic system. Our economy is built on the idea of free markets, liberty, and property. These principles have shaped the American economic system and have helped to make it one of the most successful in the world. Investors who understand these principles are better equipped to make informed investment decisions.
History helps remind us of the values America was founded on. I understand that our country has not always treated everyone with equal freedom, but we all have the opportunity to advance through our innovation and grit. Investors who are aware of this can invest with these values in mind.
History helps us appreciate the risks and opportunities that come with investing in the United States.The United States is a large and complex economy, and there are a variety of risks and opportunities that investors face when investing here. Investors who understand the history and founding of America are better equipped to assess these risks and opportunities.
In addition to the above, there are some specific historical events that investors should be aware of, such as the Great Depression and the dot-com bubble. These events can provide valuable insights into the cyclical nature of the markets and the importance of diversification.
Ultimately, understanding history and appreciating the founding of America can help investors make better investment decisions. By understanding the principles that underlie the American economic system, identifying investment opportunities that are aligned with American values, and appreciating the risks and opportunities that come with investing in the United States, investors can increase their chances of success.
Written by: Kelly Phillips Erb, Forbes Staff
Image by: Bright burning sparklers against American flag. Getty
July 4, 2023
My son came downstairs this morning to wish me very happy on George Washington's birthday. He knows, of course, that's not today— Washington was born on February 22, and we celebrate on the third Monday of February—but the joke was still funny. Many people don't know why we celebrate on July 4, only that it has something to do with our break from Great Britain. Officially a federal holiday, July 4, 1776, marks the day that the Continental Congress formally adopted the Declaration of Independence.
Declaration of Independence
The Declaration of Independence is exactly what it sounds like—an announcement that the United States of America was declaring independence from King George III and Great Britain. There are six copies still in existence, including the original rough draft with edits—you can see it up close in the Jefferson Papers at the National Library of Congress.
Interestingly, while Thomas Jefferson referred to the "thirteen united States of America" in the Declaration, the words "United Colonies" had generally been used as a descriptor before that time, including by Congress when it appointed Washington as Commander in Chief in June 1775.
The printing of the declaration came more than a year (442 days) after shots were first fired at Lexington, Massachusetts in 1775, considered the beginning of the American Revolutionary War. And the Declaration of Independencedid notmark the end of the Revolutionary War. It was quite the opposite—it signaled that the United States no longer wished to accept British rule.
The British had ruled the colonies since the early 17th century when the Virginia Company became the Virginia Colony in 1624, the first of the original thirteen British colonies. The United States wasn't the only part of the world—or even the only part of the Americas—subject to British colonization. The British had also exerted control over parts of Canada, the Caribbean, and South America.
But ruling the world gets expensive. Guarding colonies and occasionally invading new lands takes money. And not everyone agrees as to who owns which lands, so fighting occasionally breaks out. That's precisely what happened in the mid-18th century when Great Britain was battling several countries, primarily France, in the Seven Years' War. When the war ended in 1763, Great Britain could declare a win against France. Still, the years of fighting had come at a significant cost, as the British government was nearly bankrupt.
King George III needed to raise revenue and quickly. What better way than a series of taxes and tariffs? And who better to tax than subjects who were far enough away, like the American colonists, to stifle the complaining? There was just one problem with this plan: The King underestimated exactly how loudly the colonists would react.
The first significant post-war tax imposed on the colonists was the Stamp Act of 1765. Stamps, as they apply to taxes, don't have anything to do with postage. Rather, stamps are an official confirmation of compliance with a certain rule or requirement. In this case, materials printed and used in the colonies, like magazines and newspapers, were required to be produced on stamped paper and embossed with a revenue stamp, showing that tax had been paid. Colonists, of course, didn't like the tax, and many refused to pay. Some tax collectors even quit their jobs rather than collect. As a result, the Stamp Act was repealed the following year.
It wasn't a good look for Britain—the colonists had asserted their authority and won. In response, Parliament immediately passed the Declaratory Act stating that it had the right to pass laws in the colonies "in all cases whatsoever."
Shortly afterward, there were additional attempts to raise revenue in the colonies through a series of acts called the Townshend Acts of 1767. The Townshend Acts were a little bit different than the Stamp Act since they were indirect taxes on imports. Since the colonists didn't directly bear the costs, King George III assumed they would be less offensive to the colonists. He was wrong.
The colonists weren't happy—a tax was a tax. They were spurred on by Philadelphia lawyer John Dickinson, who wrote a series of essays called " Letters from a Farmer in Pennsylvania ," arguing against taxation without representation. In the letters, he asked, "[W]hat signifies the repeal of the Stamp Act, if these colonies are to lose their other privileges, by not tamely surrendering that of taxation?" He later questioned whether the British had the right to impose any tax to raise revenue without consulting with the colonists, writing, "I answer, with a total denial of the power of parliament to lay upon these colonies any "tax" whatever."
The Townshend Acts were partially repealed in 1770. The partially repealed bit is important. In 1773, Parliament passed the Tea Act. It was the last straw for many colonists, even though it wasn't a new tax—it kept the tax on imported tea that wasn't repealed under the Townshend Act. But it did something more: it gave the East India Tea Company a trade advantage, cutting out the ability of the colonists to do business on their terms. Tax or not, the colonists viewed the Tea Act as another way they were being controlled.
The colonists figured that the best way to stand up to the Tea Act was to turn away ships carrying tea headed for the colonies. The colonists were able to do so in Philadelphia and New York but not in Boston. The Governor of Massachusetts wouldn't allow the ships to be turned back, and the colonists would not let the ships unload in the harbor. It was a stand-off. To end it, colonists snuck onto the ships and dumped out the tea—the event that you and I call the Boston Tea Party.
The Boston Tea Party did not immediately lead to the Declaration of Independence or the Revolutionary War, even though we like to link them as though they happened in quick succession. The Tea Party occurred on December 16, 1773, long before the shots at Lexington and the Declaration of Independence. What the Boston Tea Party did do quickly, however, was annoy Parliament. In response, the British attempted to punish the Americans through a series of laws called the Coercive Acts. Under the Coercive Acts, among other things, Boston Harbor was closed to merchant shipping, town meetings were banned, and the British commander of North American forces was appointed the governor of Massachusetts.
The colonists had enough. They convened the First Continental Congress in Philadelphia on September 5, 1774, to consider their next steps. Resistance against the British increased, leading to those first shots in Massachusetts triggering the Revolutionary War.
Drafting Of The Declaration
The Second Continental Congress convened in Philadelphia two years later. On July 2, 1776, the Second Continental Congress voted to separate from Great Britain. Two days later, on July 4, 12 of the 13 colonies formally adopted the Declaration of Independence—the one holdout, New York, approved it on July 9.
On July 19, the document got a new title, "the unanimous declaration of the thirteen united states of America," and a new look after being "engrossed" on parchment. It was intended to be signed by every member of Congress, but a few opted out , including Dickinson, who hoped the colonies could reconcile with Britain.
The Declaration of Independence was drafted as a letter to the King. The most extensive section of the Declaration—after the lines we memorized in elementary school—is a list of grievances. Of course, taxes were included, notably "...[f]or imposing Taxes on us without our Consent."
The word "Consent" was important. Under the British Constitution, British subjects could not be taxed without the consent of their representatives in Parliament. The colonies didn't elect representatives to Parliament, but they were being taxed. The colonists considered the constant imposition of taxes without a vote unconstitutional, just as Dickinson had written years earlier. It was famously "taxation without representation."
Initially, the British response was to chide the "misguided Americans" and "their extravagant and inadmissable Claim of Independency." But the declaration was more than just a document—it had set the United States down the road to independence.
In 1783, with the signing of the Treaty of Paris , the United States formally became an independent nation. But the date that we most associate with our independence is when those in the Continental Congress were brave enough to officially declare it to the world—July 4, 1776.