From The Wall Street Journal:
Wherever they stand in their annual tussle with the American income-tax system, vexed readers in what is dolefully called tax season may agree with former Treasury Secretary Paul O’Neill when he declared that “our tax code is an abomination.”
If it’s any consolation, your taxes might have been both abominable and even sillier than they already are. Over the centuries, rulers have imposed levies on beards, livestock flatulence and even urine (valued in ancient Rome for its ammonia). In 1795, Britain imposed an annual tax of one guinea on the right to apply fragrant powders to smelly wigs. Since pigtails were common, those taxpayers became “guinea-pigs.”
Such are the tax-free dividends on offer in “Rebellion, Rascals and Revenue,” an erudite yet good-humored history of taxation with a particular focus on Britain and its tax-allergic offspring, the United States. The authors, economists Michael Keen and Joel Slemrod, demonstrate at surprisingly engaging length that, “when it comes to designing and implementing taxes, our ancestors were addressing fundamentally the same problems that we struggle with today.”
Among those problems are the search for fairness, the appearance of which is necessary for a tax to gain public acceptance; the inevitable metastasizing of a tax code’s complexity; the burden of administration, particularly when the task is intrusive (an English tax on hearths was resented because inspectors had to come into the home and count them); and the iron law of unintended consequences, which haunts public policy generally and taxation in particular. In Britain from 1697 to 1851, a tax on windows—not a bad proxy for affluence in those days—made work for carpenters and masons hired to close them up. The resulting loss of light and air exemplifies the so-called excess burden of taxation beyond the sum of money levied. So does your accountant’s tax-preparation fee.
The problem of “tax incidence”—figuring out who actually pays a tax, regardless of who writes the check—is especially fraught. The Earned Income Tax Credit, for example, is a reverse tax that aims to reduce poverty while encouraging work. But for every dollar that single mothers get from the EITC—at least according to one estimate—employers of low-skill labor capture 73 cents. The EITC, after all, encourages low-skill workers to enter the labor force, increasing the labor supply and presumably driving down workers’ wages.
. . . .
The Rosetta Stone, the authors note, “describes a tax break given to the temple priests of ancient Egypt.” That taxpayers should have some say in taxation was laid out (though not fully settled) in the Magna Carta. Later struggles over this question played a role in the English Civil War, the American War of Independence (remember “taxation without representation?”), and the French Revolution. “It was the ‘long nineteenth century,’ from 1789 to 1914,” the authors report, “that finally saw the emergence in the West of a stable, adequate, and broadly consensual tax structure.”
One of the book’s many insights is that taxes and war have always gone hand in hand, enabling not just each other but the social changes that often follow. “The world wars, and especially the second one,” the authors note, “created both the machinery that made the welfare state possible and the political environment that ensured it would become reality.”
Since many readers have just filed their income taxes, a word on the history of this levy may be in order. Britain’s first genuine income tax was introduced in 1799 to pay for the French and Napoleonic wars. America’s was put in place by the North to pay for the Civil War (the rate hit 10% in 1864). Eliminated in 1872, an income tax was soon back on the political agenda because of discontent with the tariffs and state and local levies that predominated in its absence.
Ultimately a constitutional amendment was required, and in 1913 a federal income tax became law.
Link to the rest at The Wall Street Journal (PG apologizes for the paywall, but hasn’t figured out a way around it.)