What is Taxation Without Representation?

Robinhood Learn
Democratize finance for all. Our writers’ work has appeared in The Wall Street Journal, Forbes, the Chicago Tribune, Quartz, the San Francisco Chronicle, and more.
Definition:

Taxation without representation refers to the process of imposing a tax on people who don’t have representation in the government.

🤔 Understanding taxation without representation

In 1765, the British Parliament passed the Stamp Act, which required colonists in what would become the United States to pay taxes on printed material. The problem was that the colonists didn’t have the right to elect representatives in Parliament. The colonists began using the phrase “taxation without representation” as an anti-British slogan. They also began protesting the unfair taxation, such as in the Boston Tea Party. Taxation without representation still exists today. Washington D.C. and U.S. territories don’t have elected officials with voting rights representing them in Congress, but they still have to pay federal taxes (though the taxes that apply to those individuals vary depending on where they live). Like the colonists in the 1700s, individuals today who pay taxes without representation have also pushed back against the arrangement.

Example

A modern example of taxation without representation exists in the District of Columbia. When the American founders wrote the Constitution, they decided that the District of Columbia wouldn’t have representatives in Congress as a way to ensure the neutrality of the district. However, Congress still has the power to impose taxes on D.C. residents. The U.S. Supreme Court upheld this right in 1820 in the case Loughborough v. Blake. Citizens of the district have protested taxation, even going so far as to create official license plates with the phrase “Taxation Without Representation” on them.

Takeaway

Taxation without representation is like chipping in on the household bills without being invited to the family meeting…

Let’s say that every month your family gets together for a family meeting to talk about everything important going on and to make decisions about everything from the next family vacation to what color to paint the front door. Even though you chip in on the bills, you aren’t invited to the family meeting. That’s similar to how taxation without representation works, but instead of being left out of the family meeting, those who fall victim to this type of taxation don’t get representatives in Congress.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.
Sign up for Robinhood
Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

Tell me more…

What is taxation without representation?

Taxation without representation refers to a situation in which the government imposes taxes on individuals who don’t have representation within that government. Use of the phrase taxation without representation dates back to the 1760s, when the British Parliament imposed taxes on the American colonists to help decrease its national debt. The British government levied taxes on items such as printed documents, glass, lead, and tea. The colonists fought back, arguing that since they didn’t have representatives in Parliament, the taxes amounted to illegal taxation without representation.

Though most people learn about taxation without representation in the historical context, it’s existence has persisted to the present day. Since the signing of the U.S. Constitution, many people have been denied the right to vote for representation as a result of their race, gender, or criminal background. Additionally, individuals living in certain locations such as the District of Columbia and U.S. territories pay taxes to the federal government without having full representation in Congress.

What is the history of taxation without representation in the United States?

From 1756 to 1763, Great Britain was engaged in the Seven Years War in Europe, and the French and Indian War in the United States (though they were still the colonies at that point). The war efforts caused Britain’s national debt to skyrocket, and the nation needed a way to bring in additional revenue. As a result, Britain started imposing taxes on the colonists for the first time.

One of the taxes Britain imposed on the colonists was the 1765 Stamp Act. This act required that printed documents include an embossed revenue stamp, for which the colonists would have to pay. The colonists immediately spoke out against the tax. The American colonies didn’t have representation in the British Parliament, and the colonists argued that taxation without representation was illegal and equated to tyranny (or oppressive government control).

Later that same year, nine of the British colonies met in New York for what was called the Stamp Act Congress. The Congress approved the Declaration of Rights and Grievances, which summarized the position of the delegates. The Congress also sent petitions to the leaders in Britain. Partially because of the push-back from the colonists, the British Parliament repealed the Stamp Act the following year.

Though Parliament repealed the Stamp Act, other taxes followed in its place. The Declaratory Act that Parliament passed in 1766 stated that Britain had the same authority to tax in America as it did in Europe. The Townshend Acts in 1767 placed taxes on items such as glass, paper, and tea. The colonists continued to push back against this taxation, including through the famous Boston Tea Party in 1773. These protests led to the passage of the Intolerable Acts in 1774, where Britain imposed martial law and other acts of suppression on the colonists.

These taxes and laws were part of a series of events that led to the Continental Congress in 1774, where 12 of the 13 colonies gathered to discuss a boycott of British goods. Tensions continued to rise between Britain and the colonies, which led to the Declaration of Independence on July 4, 1776, and the start of the Revolutionary War.

How is the phrase “taxation without representation” used today?

When most people learn about taxation with representation, they do so in the context of the American colonists that were unfairly taxed by the British Parliament. But for many people taxation without representation is a reality still today.

First, the more than 700,000 people living in the District of Columbia are subject to all the same federal taxes as individuals living in the rest of the nation. The difference is that unlike the 50 states, the District of Columbia doesn’t have true representation in the House of Representatives or the Senate. Instead, D.C. has one delegate in the House of Representatives (though none in the Senate). The delegate isn’t allowed to vote in most cases.

Residents of the District of Columbia have been speaking out against this form of taxation without representation for many years. The District has made multiple efforts to become an official state, which would grant it representation in Congress. The most recent push was in 2019, when the House of Representatives held a hearing on D.C statehood. Opponents of the bill argued that the decision of the founding fathers to place the hub of the federal government outside a state was intentional, and we shouldn’t change that now. The only progress D.C residents have made in this fight is a constitutional amendment in 1961 that gave D.C. three votes in the Electoral College.

It isn’t just those living in the District of Columbia that are subject to taxation without representation in the modern era. Individuals in the U.S. territories may also be subject to federal taxes in some circumstances.

First of all, individuals in the U.S. territories are subject to the Federal Insurance Contributions Act (FICA) tax, which is the payroll tax that funds the Social Security program and Medicare. There are also some excise taxes that those living in the territories must pay. Examples include the Oil Spill Liability Trust Fund tax. Finally, individuals in the U.S. territories have to pay estate taxes, but only when the estate contains tangible property such as real estate in the United States.

Is taxation without representation illegal?

Though taxation without representation was one of the sticking points that led the American colonies to declare and fight for their independence from Great Britain, there aren’t any laws that prohibit the practice today.

Theoretically, individuals living within the 50 states have representation, as each state has representatives in both the House of Representatives and the Senate. But it hasn’t been the case that everyone gets to play a part in choosing those representatives. In the early days after American independence, only property owners were allowed to vote. It wasn’t until the ratification of the 15th Amendment to the U.S. Constitution in 1870 that African American men were given the right to vote. And it would be another 50 years before the 19th Amendment gave women the right to vote. Today, felons in many states aren’t given the right to vote even when they are no longer incarcerated. As a result, these populations were (and are) subject to taxation without representation, as they didn’t have the right to choose representatives.

In addition to those who have been prevented from voting for their representatives throughout the years, there are those living in the District of Columbia and the U.S. territories who have no representation at all in Congress. And, in this case, not only are there no laws preventing taxation without representation, but the Supreme Court has upheld Congress’s right to impose direct taxes on the District of Columbia. The ruling on this issue in the case of Loughborough v. Black in 1820 was unanimous.

It’s not that no one has attempted to prohibit the practice of taxation without representation. Legislation has been introduced to address this form of taxation in the District of Columbia, both by proposing statehood for D.C. — and, in another bill, by proposing that income D.C. residents earn within D.C. be exempt from federal taxes. Those efforts have been unsuccessful.

Ready to start investing?
Sign up for Robinhood and get your first stock on us.Certain limitations apply

The free stock offer is available to new users only, subject to the terms and conditions at rbnhd.co/freestock. Free stock chosen randomly from the program’s inventory. Securities trading is offered through Robinhood Financial LLC.

1235336

Related Articles

What are Taxes?
Updated March 19, 2021

You May Also Like

The 3-minute newsletter with fresh takes on the financial news you need to start your day.
The 3-minute newsletter with fresh takes on the financial news you need to start your day.


© 2021 Robinhood. All rights reserved.

This information is educational, and is not an offer to sell or a solicitation of an offer to buy any security. This information is not a recommendation to buy, hold, or sell an investment or financial product, or take any action. This information is neither individualized nor a research report, and must not serve as the basis for any investment decision. All investments involve risk, including the possible loss of capital. Past performance does not guarantee future results or returns. Before making decisions with legal, tax, or accounting effects, you should consult appropriate professionals. Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy.

Robinhood Financial LLC provides brokerage services. Robinhood Securities, LLC, provides brokerage clearing services. Robinhood Crypto, LLC provides crypto currency trading. Robinhood U.K. Ltd (RHUK) provides brokerage services in the United Kingdom. All are subsidiaries of Robinhood Markets, Inc. ('Robinhood').

1476799