2/03/2016
Taxing Beards and Bachelors, Wigs and Windows
Weird Taxes from the Past and their Lessons for Tax Policy Today
What do the pictures that follow have to do with taxes?
Joel Slemrod, University of Michigan
Wellington
February 24, 2016
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And, of course…
Today’s Talk
• I’ll use historical episodes, from recent to
ancient, to illustrate the basic principles of
taxation.
• Sometimes these principles are hard to see at
work in taxes with which we are very familiar, in
part because we are distracted from the
principles by the political rhetoric that
accompany the taxes.
• I will focus on taxes that may at first seem farfetched or ridiculous; often with some
persistence one can make out some rationale
for these taxes, benign or malevolent.
• On to the episodes!
In the Beginning…
• Very detailed records on clay tablets of taxes
survive today from Sumerian life circa 3000 BC.
• The Rosetta Stone, found by French soldiers
in Egypt in 1799, which helped unlock the
ancient writing system of hieroglyphics, was
about taxes.
• The text concerns returning to the temple
priests tax privileges they had a long time prior.
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Taxing Windows
Clear Tax Avoidance
• In 1696 (until 1851) England levied a tax house
occupants based on the number of windows.
• Why? They had nothing against windows, welllit rooms, or the good hygiene that fresh air
brings.
• They sought a way to tax the value of houses in
an era without Zillow.com or any
other means to easily ascertain the value of a
stately house.
• Question: what’s an easily visible and
countable indicator of house
value? Windows! (They first tried hearths.)
Property Tax and Skinny Houses
A Skinny House in Poland
• 400 years ago Poland and Holland levied a
property tax based on the width of the streetfacing façade (which is easy to measure).
• As a result, many old buildings are narrow but
long. • All over Vietnam houses and shops were
constructed to dodge the taxes that were
calculated on the width of street-facing shop
fronts. They are known as tube, or rocket,
houses.
A Skinny House in Amsterdam
Rocket Houses in Vietnam
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A Tale of Taxation (of Dogs’ Tails)
Funny Dog Comment
• Concerned about poaching of the royal game, the
British Crown levied a tax on dogs.
• Realizing that the peasants could often not survive
without the help of a dog for certain tasks, an
exemption from tax for dogs used for a purpose was
provided.
• Dogs with docked tails were exempt on the grounds
that a dog with a bobbed tail would be so
handicapped in balance and mobility that it could
not be successful in hunting.
• When the tax was repealed in 1795 it was already
tradition. People had gotten used to the look of an
Old English Sheepdog or Doberman Pinscher being
bobtailed.
The Excess Burden of Taxation
• Bricked-up windows, skinny houses, and docked
tails are visually striking examples of an important
concept in taxation known as excess burden.
• This is the economic cost incurred when taxes
cause people and businesses to change their
behavior in response to taxation: by working less,
saving less, investing less, etc.
• Usually it’s tricky to measure, because it requires
knowing what people and businesses would have
done absent taxes—the counterfactual.
• But we have a sense of what houses—and dogs—
should look like, and thus how taxation distorts
them.
Taxing Beards
Discouraging Behavior on Purpose
• Excess burden arises because of unwanted
but unavoidable behavioral responses to
taxation.
• But, in some circumstances the whole point
of taxes is to change behavior, sometimes
with sinister purpose and sometimes with
laudable purpose.
• I’ll start with a somewhat frivolous example,
and then move on to less frivolous ones.
I’ve Paid My Beard Tax
• In 1698, Emperor Peter the Great of Russia,
aiming to westernize Russia and reduce the
power of the hirsute nobility, levied an annual
tax on beards.
• To ensure compliance, and perhaps to
humiliate those who chose not to shave, those
who paid the tax were required to display a
beard token.
• On one side of the token was the phrase “The
beard is a superfluous burden.”
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Taxing Breasts
• In the early 1800s, Indian kings subjugated the
lower castes by imposing heavy taxes.
The Great Nangeli, Tax Protestor
• Women of some low castes owed a tax if they
covered their chests outside of their homes—this
type of modesty was considered a privilege
of upper-caste ladies.
• In 1840, in protest a woman named Nangeli cut
off her breasts and presented them to the tax
collectors in a plantain leaf. She died of blood
loss later that night, upon which her husband
jumped into her pyre and committed suicide.
• The tax was repealed the next day.
Taxing Bachelors
Taxes for Good
• In Ancient Greece and Rome and elsewhere until
the 20th century, there was a tax paid by men who
reached old age without having married.
• Why? Perhaps because they have no family to
support, to offset their failure in the civic duty to
support wives and children, or to support the
institution of marriage.
• In some cases a bachelor could avoid the tax if he
could prove that he had asked a woman to marry
him and been rejected.
• This gave rise to what were called "professional
lady rejecters," women who for a modest sum
agreed to swear to authorities that they had
spurned an offer of marriage.
• A tax levied on a social “bad” can both raise
revenue and enhance economic efficiency by
inducing people and firms to internalize the
externalities their actions generate.
Pet Pollution?
• Livestock “emit” methane gas. A few years back
Denmark proposed a tax on cow flatulence as part
of an environmental policy designed to discourage
methane emissions.
• Cows are one thing, but dogs? Under the existing
dog tax in Germany, the tax liability (is dependent
on where the owner lives and the breed of the dog.
Dogs deemed as “dangerous” – such as Dobermans
and Rottweilers – are taxed at a higher rate,
suggesting that one motivation for the tax is to
reduce a social bad.
• In urban environments, other canine behavior may
negatively affect neighbors—barking, defecation,
etc.
• The tax rate should equal the marginal social
harm (or benefit) caused.
• This argument is used to justify taxes on carbon
fuels and driving on congested roads, as well
as subsidies to R&D and recycling.
Externality or Politics?
1. Margarine (US, 1877 to 1940s)
2. Chain stores (US, in 1920s and 1930s)
3. Newspapers (UK, 1712-1855)
4. Soft drinks (Some US states, Mexico)
5. Fat (Denmark, for a year)
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Tax Evasion
Famous Tax Evaders
• A papyrus from the 7th century BC contains a
deed in which an old man transfers his property
to his sons at a nominal price, with the aim of
avoiding inheritance tax.
• These days, the IRS thinks that about 15% of tax
liability is not remitted.
• The non-compliance rate is only 1% for wages
and salaries, but is 56% for self-employed and
small-business income. Why?
• It’s certainly higher in many other countries, but
maybe lower in New Zealand!
• Sophia Loren (actress)
• Thoreau (author, spent one night in jail)
• Al Capone (mobster: got him to
Alcatraz prison)
• Martha Stewart (designer)
• Lionel Messi (footballer; case still
pending)
• Dolce and Gabbana (designers;
cleared by an Italian court)
Dolce and Gabbana models
Notable Enforcement Initiatives
• In the 15th century, Vlad the Impaler (better
known as Dracula, but not the Dracula)
assaulted a tax-resistant town, setting it on
fire and impaling many of its inhabitants.
• In 1273, the Swiss rebelled against paying
taxes to the Austrian Hapsburgs, including
one William Tell.
• For his punishment, he had to shoot an
apple from his son’s head with a crossbow,
and became famous for his tax evasion. Modern Enforcement Initiatives
Audits and, perhaps, penalties.
Information reports.
Public disclosure of tax returns.
Buenos Aires used drones to identify
some 200 mansions and about 100
swimming pools that hadn't been
declared by their owners.
• The saga of “zappers.“
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Tax Havens
• Several countries (“havens”) facilitate tax
avoidance and evasion of individuals and
corporations.
• The haven population makes up 0.18% of the
world’s population, but 8 percent of the global
financial wealth of households is “held in tax
havens.
• Ugland House in the Cayman Islands is
the registered address for 18,857 entities, e.g.
major investment funds and international joint
ventures.
• It must be enormous, right?
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Ugland House, Caymans Islands
Elvis
• Not just Elvis, but Elvis on a postage stamp
issued by the African country of Burkina Faso.
• Tax havens and Elvis on this stamp are both
examples of the “commercialization of state
sovereignty.”
• Only countries can do certain things—facilitate
money laundering, issue collectible stamps, and
be a tax haven.
• There is much overlap between which countries
are tax havens and which issue “pandering”
stamps featuring Disney characters, Lady
Diana, and…Elvis.
Elvis Lives…
on Burkina Faso Stamps
Revolution and Protest
• Revolution is about power and hence, to
some degree, about taxation.
• A World History of Tax Rebellions (2004) lists
391 separate instances of tax rebellions, and
notes that this is not “at all exhaustive.”
• The American Revolution, the English Civil
War, and the French Revolution all had tax
grievances at their core.
• Most revolutions, revolts, and protests
concern the fairness of taxation, and its use
as a weapon of oppression.
The English Poll Taxes, 1380 and 1989
• The 1380 English poll tax led to a revolt headed
by Wat Tyler, who marched on London
beheading officials and destroying tax records.
• At first the 14-year-old King conceded to the
rebel demands, but the next day Tyler was
killed, with his head ending up on a pike.
• The agreement was canceled, and the revolt
soon withered.
• A poll tax enacted by the Thatcher government
in 1989 led to widespread non-compliance, a
full-blown riot in Trafalgar Square, and the
ouster of Mrs. Thatcher.
Wat Tyler Bites the Dust
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The Iron Lady Bites the Dust Lady Godiva, Tax Protestor
• Godiva pleaded with her husband Leofric, the Lord of
Coventry, to reduce taxes on the people of Coventry.
• Leofric, doubting her commitment, said that he
would do so if Godiva would ride through town
naked.
• Lady G ordered the people to remain indoors with
their windows barred, loosened her long hair to cover
her as a cloak, and rode unseen through the streets.
• One man, called Tom, could not resist the temptation
to peep at Godiva and, according to legend, he
unbarred his window but, before he could satisfy his
gaze, he was struck blind. (“Peeping Tom”)
• Leofric fulfilled his promise to abolish the heavy taxes,
freeing the town from all tolls (except those on
horses!).
Tax Ride
The Prophetic Hone Riiwi Toia
• In the 1890s the Hokianga County Council enacted a
new tax on each dog in the district.
• Many people refused to pay, one of
whom was Hone Riiwi Toia, a prominent tribal and
religious leader.
• This perceived encroachment of British colonial laws
over Māori autonomy instigated an armed protest that
became known as the (bloodless, fortunately) Dog Tax
War. • It was during this episode that Hone Riiwi Toia uttered
one of the most prophetic and ominous statements
in the long history of taxation:
"If dogs are taxed, men will be next.”
Hone Riiwi Toia
Lessons for Today
1. Taxpayers will respond, often creatively.
2. All responses, legal and illegal, cost revenue
and generate excess burden.
3. Except when taxes are used wisely to
address externalities such as pollution.
4. Observability matters, and therefore the
information revolution matters a lot.
5. Tax sovereignty is a thing of the past.
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Thank you!
Watch for the book in 2017.
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