‘Rebellion, Rascals and Revenue’ Review: The Taxman Cometh, Again

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.)

4 thoughts on “‘Rebellion, Rascals and Revenue’ Review: The Taxman Cometh, Again”

  1. Thank you for posting about this PG. I’d be very tempted to buy this book were the Kindle price not way over the top.

    My sympathy to everyone in the USA who has just filled in their income tax returns; I gather that this can be a somewhat fraught experience. I might do my and my wife’s UK returns later today (for the tax year that ended yesterday) but the deadline is not until 31 January 2022, though the sooner I do the return the sooner I get my expected refund.

    I’ve always thought that the law of unintended consequences can be blamed for the popularity or Regency Romances. The Duty on Hair Powder Act 1795 help wipe out the wearing of wigs and you really can’t have Regency heroes or heroines in a bewigged state. I think Mrs PG should be grateful.

    And yes, income tax. A temporary expedient introduced into the UK to fund the Napoleonic wars. Repealed in 1816 (a rare case of politicians keeping their promises) but reintroduced in 1842 – to fund a large government deficit, so nothing new there – and with us ever since, though in theory still temporary: if only someone could for once forget to pass the annual finance bill so income tax collection would end on 5 August.

    Observant visitors to London and other British cities will still see bricked up windows in old buildings (presumably belonging to cautious souls who think that it only being 170 years since the windows tax was repealed is not long enough to trust the government not to reintroduce it). The “tax incidence” for the windows tax is interesting as Adam Smith believed that its effect was to lower rents, so it hit the building’s owner rather than the tenant.

    Reply
    • Sorry about the Kindle price for the book mentioned in the OP, Mike.

      The Princeton University Press, like all university presses in the United States, will only release a book that makes money by accident. The cover design alone is enough to make this book extremely edgy for a university press. If they charged a reasonable price as well, that would definitely be a step too far. Deans would take notice, but nobody would reward a profit.

      A great many non-profit organizations, including a lot of universities and colleges, pay lots of people higher salaries than they would be able to earn outside of the comforting arms of the alma mater of so many who paid so much to attend for a few years. The passengers change, but the crew sails on and on.

      Reply
  2. No need to apologise for the Kindle price, it’s not your fault after all, and if you start apologising in such cases we’ll begin to wonder if you are Canadian.

    As for “non-profits”, I think we need some new terminology, as many of them seem to make a great deal of profit, they just don’t distribute it to shareholders or the like. Mind you. when you look at the way management remuneration has risen over the last half century in for-profit companies, it seems as if they are trying to converge with the non-profits.

    Reply
    • It used to be that an executive at a for-profit company could live like a king on an expense account, which was tax-deductible for the company but not taxable income for the executive. It’s no coincidence that executive pay began to skyrocket after that loophole was closed. If you can’t deduct the cost of junkets in Tahiti for your CEO, it becomes cheaper to give him a wodge of cash and let him pay his own way.

      Of course, there’s also the ‘golden parachute’, where an unintentional non-profit shells out big bucks to get rid of the boob at the top so it can get back to being a for-profit again. In such cases I sympathize with the shareholders, who neither hired the boob nor had any choice about paying him to go away.

      Reply

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