How Taxes Can Distort Everyday Life
A few years ago, jazz musician Eric Felten had a piece in the Wall Street Journal on how taxes killed the era of swing music. In 1944, the federal government created a “cabaret tax” adding a 30% tax to the tab of anyone in an establishment with either dancing or singing. Felten said that it “is no coincidence that in the back half of the 1940s a new and undanceable jazz performed primarily by small instrumental groups — bebop — emerged as the music of the moment.”
He asks: “How differently might the aesthetic impulse behind bebop have been expressed if it had been allowed to develop organically instead of in an atmosphere where dancing was discouraged by the taxman? Jazz might have remained a highly sophisticated popular music instead of becoming an artsy niche.”
Consider how taxes changed architecture and housing — and not for the better. For example, New Orleans has two oddities in the housing market: the camelback house and the shotgun house.
The shotgun house is said to have earned that moniker because one could fire a shotgun through the front door and have the pellets exit the house through the back door. It was narrow but long, one room wide at most. You would enter into the living room and find a door into the bedroom behind it where there was another door into the kitchen behind it. The rooms would be in a long row with no hallway at all.
Similar was the camelback house. This was basically a shotgun house with a second floor but not as you might expect. At the rear of the house would be stairs going to the second floor. But the second floor never extended to the front of the house. This truncated second floor looked like the hump of a camel, hence the name.
Both of these oddities were the creation of local tax policies.
Some argued shotgun houses existed because land in New Orleans, where they are mostly found, is scarce. But the extended length of these homes would not justify that argument. After all, a house that is half as wide but twice as long still covers the same amount of land. Lots could have been wider but less deep and still have used the same amount of land.
The alternative theory, and a popular one, is houses were narrowly built because land width was a factor in taxation. The wider the house the more it was taxed. It was noted that narrow houses were frequently built in poor areas; exactly what we would expect when taxes drive up the cost of housing and the people least likely to afford housing are the poor.
The camelback house was routinely taxed as a single-story house because the second floor was only partial, which is why they were designed that way. This would not be the first-time architecture was distorted by taxation.
Amsterdam is famous for its very narrow, tall, long buildings with narrow, steep stairways. This was done because property taxes depended on the frontage of the residence.
Anyone who has gone up or down those stairs will tell you it’s impossible to bring in furniture. Most older homes in Amsterdam were built with hooks at roof level in the front with windows almost as wide as the building so furniture could be lifted by a hoist to the window and then pulled inside.
The length or height of the house didn’t matter, only the width so, of course, homes were very narrow. The narrowest house in Amsterdam is found at Singel 7 where the front of the house is barely wider than the front door. The entire frontage is just one meter wide.
In England, taxes made housing worse for people for a very long time. Politicians wanted to tax income, but they weren’t sure how to do it back in the late 1600s. People felt government knowledge of one’s income was an intrusive violation of their privacy. So, the politicians decided to tax windows instead.
The assumption was that wealthy people had bigger houses with more windows. Since glass at the time was not cheap, they also assumed windows indicated wealth. This tax was introduced by King William III on New Year’s Eve in 1696 and lasted until 1851. One result was even as glass prices dropped, English homes often remained dark, dinghy, and lacked fresh air. In some of the older buildings, you can see where windows that once existed were bricked up in order to avoid higher taxes.
The phrase “daylight robbery” didn’t originally mean a robbery conducted in the light of day, it meant the robbery of daylight from homes through the window tax. Charles Dickens wrote, “The adage ‘free as air’ has become obsolete by Act of Parliament. Neither air nor light have been free since the imposition of the window tax. We are obliged to pay for what nature lavishly supplies to all, at so much per window per year; and the poor who cannot afford the expense are stinted in two of the most urgent necessities of life.”
One paper by economists, Wallace Oates and Robert Schwab, noted the tax harmed the poor and “led many people to live in very dark houses and in environments that had significant, pernicious effects on their health.”
The repeal of the widow tax in 1851 was largely influenced by the great classical liberals of the day, Richard Cobden and John Bright, the leaders of the Anti-Corn Law League and proponents of free markets. A letter from Cobden to Prime Minister William Gladstone laid out Cobden’s idea for the budget.
Cobden told Gladstone: “There is the window tax, which, although it does not, like the Excise duties, operate as a direct impediment to productive industry, is open to the fearful objection, that it ‘obstructs the light of heaven’; and, in these brief words, we may read its inevitable doom. London, Bath, and other large cities are pressing the abolition of this tax annually upon the House, through Lord Duncan, and you must not think of excluding it from your ‘National Budget.’”
Francis Hirst, in his 1903 book, Free Trade and Other Fundamental Doctrines of the Manchester School, wrote, “Within a little more than a generation the whole of Cobden’s ‘National Budget’ was adopted.”
Taxes distort markets; music and architecture are just two of the lesser-known examples.