I'm not exactly sure where to put this question... I am trying to figure out the difference between "direct" and "indirect" taxes in the context of some historical taxes I'm learning about in an American Politics class, which my book claims part of the cause of the American Revolutionary War. There seem to be several different definitions of these phrases scattered about on the Internet. Can somebody help clarify the meanings of these phrases?
The direct/indirect distinction is minorly anachronistic. As Bernard Bailyn discusses at length, the colonists denounced the Stamp Act (1765) as an internal tax, claiming that Parliament only had the right to levy external taxes. External taxes affected international trade, whereas internal taxes affected colonial affairs—and because the colonists had no representatives in Parliament, Parliament had no right to levy internal taxes.
As colonists developed their arguments for the illegitimacy of external taxes, their reasoning had less to do with trade per se than with the distinction between unavoidable (direct) and avoidable (indirect) taxes. Here’s Ben Franklin, being examined by Parliament in 1766:
Q. You say the colonies have always submitted to external taxes, and object to the right of parliament only in laying internal taxes; now can you show that there is any kind of difference between the two taxes to the colony on which they may be laid?
Franklin: I think the difference is very great. An external tax is a duty laid on commodities imported; that duty is added to the first cost, and other charges on the commodity, and when it is offered to sale, makes a part of the price. If the people do not like it at that price, they refuse it; they are not obliged to pay it. But an internal tax is forced from the people without their consent, if not laid by their own representatives. The Stamp Act says, we shall have no commerce, make no exchange of property with each other, neither purchase nor grant, nor recover debts; we shall neither marry nor make our wills, unless we pay such sums, and thus it is intended to extort our money from us, or ruin us by the consequences of refusing to pay for it.
Q. But supposing the [external] tax or duty to be laid on the necessities of life imported into your colony, will not that be the same thing in its effects as an internal tax?
Franklin: I do not know a single article imported into the northern colonies, but what they can either do without or make themselves.
Franklin’s argument can be summed as: Any American can avoid external taxes on imported goods by foregoing consumption or turning to household production, so such taxes are legitimate. An internal tax placed on official documents or other necessities is a mandatory and unavoidable tax, thus it is illegitimate.
Thus Franklin’s reasoning about internal taxes really has more to do with how avoidable the tax is. Accordingly, secondary sources will sometimes annotate colonists' language to explain that when they say "internal tax" they actually mean "direct tax." However, the language of “direct tax” wasn’t current until a few years later (see Google Ngram below).
And anyway, it wasn't ultimately the “direct” or “internal” aspect of the Stamp Act that angered the colonists. They objected to taxation without representation. This became clear when Charles Townshend took the colonists at their word and drafted a series of acts that would raise money by levying "external" duties on glass, lead, paper, paint, and tea, believing that the colonists objected merely to internal taxes. This belief was false, as we all know how the colonists responded to that famous tea tax.
Google Ngrams aren't perfect for this era, but I think this is informative. "Internal" is more common than "direct" until the end of the Revolutionary War: