In this episode of Tax Notes Talk, Joel Slemrod and Michael Keen, authors of Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages, share interesting tax facts and lessons learned from history.
The post has been edited for length and clarity.
David Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: more tax facts. We’re taking a break from our more serious topics to explore the fun side of tax, some of the more unusual stories from history, and perhaps some lessons that can be learned from them.
To help me out, I’m joined by Tax Notes chief correspondent Stephanie Johnston. Stephanie, welcome back.
Stephanie Soong Johnston: Thanks so much. Good to be here. Let’s rock and roll.
David Stewart: And we’ve got two guests to join in on the fun: University of Michigan economics professor Joel Slemrod and Michael Keen, deputy director of the Fiscal Affairs Department at the IMF. They’re the authors of the upcoming book Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages. Joel, Mick, welcome to the podcast.
Joel Slemrod: Thanks for having us.
Michael Keen: Good to be here. Thanks.
David Stewart: Let’s start by going around and talking about some of the more interesting tax issues that we’ve come across in our research. Mick, why don’t you start us off?
Michael Keen: I have one from Argentina around 1900, which still makes me giggle childishly. Around then, Argentina had a tax on bachelors, which wasn’t uncommon at the time. But there was some lovable romantic worried about what to do about men who make proposals but are turned down.
Well, clearly what we need to do is give them a tax exemption. They should be able to, if their marriage offer is refused, get the rejected woman to sign a tax exemption certificate for them. We have pictures of men all around Argentina saying, “Well, if you won’t marry me, at least will you give me a tax break?”
And of course, as all of us would expect, one of the consequences was there emerged a small professional class of women who, for a small sum of money, would in fact guarantee to reject your offer of marriage. There’s even a novel about this. That’s a kind of a timeless classic for me.
David Stewart: I can just imagine if this was in existence today, there’d probably be some app where you could match up the people that will reject you with the bachelors looking for the exemption.
Stephanie Soong Johnston: That’s like a reality TV show right there.
Joel Slemrod: They were called professional lady rejectors.
David Stewart: I do appreciate a formalized name for something like this. Joel, what do you have for us?
Joel Slemrod: Mine is not technically about a tax. It’s about a fee. The story is also late 19th century in Curaçao. They built a bridge to connect the two parts of the city, and they were going to charge a toll or a fee to cross the bridge. But they decided to make the fee structure progressive as we understand it today. It should be higher for rich people than for poor people.
How did they do this in 1888? Well, the scheme was that people who were wearing shoes, presumably better-off people, had to pay the fee, but people who cross barefoot were exempt from the fee. Of course sometimes the best-laid plans can backfire.
What happened was that often poor people were so proud they didn’t want to be identified as poor. They would don or borrow shoes to cross the bridge, but have to pay the fee. Of course a lot of the rich people figured out that they would just take off their shoes and save the money. The lesson there is sometimes designs intended to introduce progressivity into the fee structure can backfire.
David Stewart: Stephanie?
Stephanie Soong Johnston: It was so hard to choose because there are so many fun ones out there and a lot of them you covered in your book. I didn’t want to duplicate efforts, but there was one random tax fact that I came across during my reporting. In 2014 ABBA admitted that they had dressed so crazily as a band in the 1970s because under Swedish tax law at the time they could deduct the costs of their costumes as long as they were outrageous enough that they couldn’t be possibly worn out in public.
Related to that, in December of 2020 there was a New York Times interview with Paul McCartney. In it he was talking about this famous photo where he and John Lennon are talking about something during an album cover shoot for Abbey Road. It turns out they were talking about how John Lennon wasn’t filing his tax returns. Paul McCartney was trying to convince him that he must do this otherwise he’ll get busted.
Joel Slemrod: We knew about the first one. I think we had to cut that because our first draft apparently was too long. We had to cut 30 percent of really great stories. I’d never heard about the second one.
David Stewart: I’ll go with my fact. It combines two of my interests: tax and whiskey. Irish whiskey tastes fundamentally different from Scottish whiskey in large part because of a tax. This goes way back.
It’s 1785. The Irish are actually the first recorded whiskey makers in the world and the Scots followed shortly thereafter. At the time they were basically using malted barley. It’s the same fundamental ingredient as beer, but the tax man was looking for his cut of this industry. They’d already taxed the output and the stills, so all that was left was to tax the inputs. And so they instituted the malt tax.
In response to that Irish distillers switched to a different spirit style where they use both malted and unmalted barley in the mash. Over time, this became the style that was preferred. It’s called single pot still. Even after the malt tax disappeared, they continued producing this single pot still whiskey. It is the fundamental flavor note that we think of when we think of Irish whiskey today.
However, the tax man was not done yet with changing Irish whiskey. There’s a tax-adjacent fact in here as well. All of the alcohol industry was changed by an Irish tax authority. For this we look to a gentleman by the name of Aeneas Coffey. From 1800 to about 1824, he actually was chasing these illicit distillers around Ireland trying to collect taxes. In Ireland the equivalent of U.S. moonshine is poitín, so he was chasing these people around in 1810. He actually got stabbed twice as he was attempting to collect revenue from them.
But then 1824 rolls around. He’s risen through the ranks of the tax authority. He’s actually updated excise taxation in Ireland and he retires to go off and basically join them — not to be an illicit distiller, but he decided to become an inventor and distiller.
What he invented was a modern version of the still. It’s a variation on the column still that was being developed at the time. He developed one that was so much better than what already existed to the point where today we still call it either alternatively the column still or the coffee still. It was adopted largely by Scotland very quickly and eventually the Irish picked it up.
Now if you go to your local store or your local bar and you look for a middle-shelf Irish whiskey, what you’re going to find is it’s a single pot still whiskey that’s been blended with whiskey that was made from a coffee still. We have taxes to thank for this lovely beverage that comes to us from Ireland.
Stephanie Soong Johnston: It strikes me how much alcohol and tax really go hand in hand. In your book, you mention the Whiskey Rebellion. I’m based in Pennsylvania right now, so it’s very interesting.
David Stewart: All right, well let’s turn to your book now: Rebellion, Rascals, and Revenue: Tax Follies and Wisdom Through the Ages. First, can you tell us a bit about your book and how you came to write it?
Joel Slemrod: Let me start with the second question of how we came to write it. Mick and I have known each other for decades, and we learned over that time that we both had a fascination with obscure tax facts and fascinating tax events of the past.
In my office at work I have hundreds of books. Whenever I came upon an interesting tax fact, I would put a sticky note on it. At some point it might’ve been Mick’s partner Géraldine who suggested, “You guys both love this. Why don’t you write a book together?” We looked at each other, smiled, and we said, “That’s not a bad idea.”
That was six or seven years ago. Once we agreed, I just went down my bookshelves, pulled out every book that had a sticky note, and I made a note of why I had done that, what was interesting about it, and added them all in a file. The next step was trying to organize them. Now six years later here we are. We have a book.
Michael Keen: That’s right. Without yellow stickies this would never have happened.
As Joel says we picked up a bunch of stories. I think we also saw that actually there’s a whole series of lessons in these stories. We thought one way we can make things more accessible and more interesting to people is to use some of these examples to teach some of the basic principles of taxation.
We’re both economists. Our profession hasn’t done a terrific job in explaining some basic ideas about taxation and how to think about taxation. We wanted to try and make taxation interesting and accessible and try and convey some of these basic ideas.
We don’t try to push any of our own particular pet tax schemes. That’s not what we’re trying to do. But we’re trying to tell some of these stories, some of them a little bit more involved than some of the ones we’ve told, that illustrate some basic things we think people should have in their minds when they read stuff about tax in the newspapers and so on.
That’s why we try and weave these stories together to make tax interesting and entertaining, but also to kind of teach people to think a bit more carefully about tax than maybe we often do, which I think is our profession’s fault.
Joel Slemrod: I know everybody on this podcast doesn’t think this way, but apparently some people think tax is dry. One of the objectives of our book is to make it interesting and fascinating. As people are fascinated, they can learn some lessons about what separates tax wisdom from tax folly.
Stephanie Soong Johnston: What I liked about the book is that you kind of organize it by theme rather than timeline. It’s kind of like this rollicking adventure through time. You’re taking certain stories and using them to illustrate, “This is how governments make people pay taxes. This is how people avoid those taxes. And this is how policy is made.”
Can you talk more about how you came to organize the book using these themes? How did you decide which facts to put in and how to fact check that? Because it’s a hard thing to fact check.
Michael Keen: I’m glad you noticed the structure because it was actually quite hard making it work that way. I think what makes it work is . . . that the rather basic themes of taxation really haven’t changed that much over the millennia.
Governments are still trying to kind of extract revenue, but without destroying the tax base. They’re still trying to think, “Well, how can I make this tax at least seem fair enough that I’m not going to have a revolt or rebellion on my hands? What is the kind of collateral damage I might cause? How can I use technology to observe and to verify various things?”
I think that’s why we decided and why we hope it works to structure by themes because we can bring out these continuous threads of tax history. If you look underneath the book it has the structure of really a public finance course. It follows much of the same order. That’s the skeleton in a way. It hangs together with these kind of timeless themes. But Joel may disagree.
Joel Slemrod: I totally agree. I really hope that people who have to teach taxation or get to teach taxation will use our book as a supplement to a textbook because we’ve got 70 images that try to bring taxation to life. We’ve got some pretty amazing stories. I think it will keep students’ attention. At the end of the day, they will have learned the lessons that a textbook tries to convey in a much more accessible and fun way.
Stephanie Soong Johnston: Did you also intend it to be targeted at a broader audience?
Joel Slemrod: Absolutely. Our goal is that tax nerds will certainly want to have it. People who teach taxation should get it. It will help make their classes more fun. But we really hope that it reaches a broader audience. It’s people who should care about tax and people who don’t otherwise, but really should.
Tax is starting to creep back into the front pages every day. It’s an important issue and the key issues are not always easy to digest. We think and hope that people who are interested in public policy will come to the book and both laugh and learn.
Stephanie Soong Johnston: What surprised both of you most about your research?
Joel Slemrod: You asked a few minutes ago how did we fact check it? I’ll say with a lot of work because neither Mick nor I are historians. We talk about scores, maybe hundreds, of episodes from tax history. It was a hard job to make sure we got everything right.
Let me say that in a couple of cases after our research we were pretty convinced that the story wasn’t true, but it was so great that we put it in the book anyway. We then told the reader, “OK. This is such a great story, but we now think it’s probably not true.”
David Stewart: That’s The Man Who Shot Liberty Valance. Are people familiar with this movie?
Joel Slemrod: No. I don’t know that one.
David Stewart: The movie ends with the line, “When the legend becomes fact, print the legend.”
Joel Slemrod: My favorite example of this is the dog without a tail, which we have a picture of. The story is that a tax law in England, a tax on dogs, had an exemption for dogs without tails. Dogs without tails were thought not to be useful for hunting, which was the reason for the tax to keep the peasants’ dogs from interfering with the royals’ hunting.
What happened is that some peasants had their dogs’ tails cut off in order to save the tax liability. That became the style until this day. Some dogs are known for being curtailed, to have no tails.
You can read this story on the internet. Just Google it. But we’re now pretty sure that it isn’t true.
Michael Keen: It’s a great question. What surprised me? I think the story that I was most pleasantly surprised by was we discovered this kind of version of blockchain in about 300 BC China. We saw this in the Beijing tax museum, two beautiful pieces of metal beautifully inlaid with bronze and silver, and beautiful characters, and so on. These were to implement a tax exemption.
When the boat was going down the river and checked in customs, these two pieces of beautiful materials had to fit together. What’s interesting is that these very much look like bamboo stalks and it’s clear this was an older habit that they used to use basically break some bamboo. The only way you could get through customs was if you had the matching bit of bamboo. That was 2,000 years ago. I thought that was pretty good.
David Stewart: Would you say in your research you’ve found that there are any areas where tax administrations are forgetting the lessons of history and repeating the same mistakes?
Joel Slemrod: That is a great question. In fact, I think there are good examples of how modern proposals are going to have to learn the lessons of history. Let me talk about the wealth tax because it’s in the news now. It’s been proposed for the U.S., and in the book we talk about earlier episodes of how rich people try to avoid taxes.
My favorite example was these two British brothers, Edmund and William Vestey, who in the early 20th century had a global business of meat production and distribution. They wanted to minimize their taxes, so the brothers moved a lot of their business to Argentina. One of them actually became an Argentine citizen.
They were so successful at minimizing their taxes when in 1993 the law changed so the queen was subject to tax, one of the descendants of the original brothers said, “Well, that makes me the last one.” Meaning, “Now I’m the only one who doesn’t have to pay tax.”
What does this have to do with the wealth tax? It means that when you try to tax high-income people, there will be among the high-income people efforts to avoid the tax and evade the tax. In designing a tax like this, you have to pay very close attention to the enforcement. Don’t just put in the tax and then a couple of years later say, “Maybe we should have these rules to minimize the avoidance and the evasion.” Think about that right from the beginning.
Now I think the proponents of the wealth tax in the U.S. have learned that lesson because in their proposal they think a lot about the enforcement measures needed for a wealth tax to work.
Michael Keen: One issue we talk about in the book is this whole issue of intrusiveness and privacy. When you look at the history of taxes, the fears of intrusiveness have been a constant.
I think a nice example of that is the window tax. In the United Kingdom and elsewhere we had a tax on windows. Now people think, “Well, that’s very quaint and slightly silly.” But it was actually replacing a tax on fireplaces, both being indicators of well-being. But the key difference was to count someone’s fireplaces you have to go into their house. You can stand outside to count their windows. That was a major development.
Joel Slemrod: The window tax is a fascinating episode. It illustrates vividly and visually how taxes can affect behavior in a way that can be costly to an economy. For a while there was no tax due on houses with nine or less windows. But once you had 10 windows there started to be a non-trivial tax due.
People have gone back into the records of the window tax from centuries ago and discovered that there were a heck of a lot more houses with nine windows compared to 10 windows. Why? Well everybody learned soon enough if you had nine, you owed nothing. If you had 10, you did owe something substantial.
You can still see in England today stately houses where it was clear there used to be another window or two, and they were bricked up and they stayed bricked up. That couldn’t have been a huge cost to the English economy, but it represents what we tax economists call excess burden.
In addition to the tax due, there were these changes in behavior that wouldn’t have happened if it weren’t for the tax. In the book we have pictures of houses where there clearly used to be windows that were bricked up, which just couldn’t have been the optimal design of a house if it weren’t for the tax.
Stephanie Soong Johnston: The window tax is a pretty interesting one. I would never have thought about the privacy issues related to enforcement of the fireplace tax. That’s really interesting.
Michael Keen: I think it makes the point that our ancestors were intrinsically just as smart as we are designing taxes and avoiding them. They may not be weird to us now. I’m sure many of our taxes will look weird to people in 50 years. They’ll think, “Why on earth did they do that?”
Stephanie Soong Johnston: Not to get morbid or anything, but you all mentioned some gruesome tax facts that you included in the book. Given the fact that death and taxes kind of go hand in hand, could you maybe elaborate on some of these questionable tax facts that you were on the fence about?
Joel Slemrod: The gruesome stories are often about tax enforcement. When governments or rulers were not happy about tax evasion they could overplay their hand a little bit.
In Transylvania one of the rulers became known as Vlad the Impaler. There was a town which wasn’t paying what he thought they should be paying. He went in and killed a lot of the noncompliers and impaled them, hence the name. So yes, there are gruesome stories about gruesome tax enforcement.
Michael Keen: The violence is sometimes on the tax collectors themselves as well. There are some stories of excise officers dealing with smuggling in 18th century Britain who really would’ve been happy to be punched out. Let’s put it that way.
I think we partly do that more seriously in tribute to tax officials around the world today who are doing really tough jobs. In many countries they are risking physical violence, and they’re doing it often for not much money. In our quiet way we also want to pay a bit of tribute to the people who are doing a pretty thankless job, but one that is important for all of us.
Joel Slemrod: There was even a statue raised for a tax administrator, Robert Hart, who worked in the tax administration in China. In honor of his contributions to the Chinese civil service, a statue of him was erected in Shanghai. It’s not there anymore. It’s the only statue of a tax collector we’re aware of.
Michael Keen: It’s well deserved. He even has novels written about him as well. He had an interesting non-tax-related life as well. He is quite a character.
Stephanie Soong Johnston: You were talking about the perils of tax collection. Can you tell me more about the punishment in Mughal India, involving cats?
Michael Keen: We don’t have any great detail. We were just struck by a description in one of William Dalrymple’s books where it just says the punishment was that you had to wear leather trousers and they would put cats down the trousers. The rest is left to our imagination.
Joel Slemrod: I was surprised by how many stories about dogs and cats made it into the book. Quite a few. There’s even a story about lice where under the Inca administration, I think it was for districts that had no explicit liability, just to get them used to the idea of paying tribute to the ruler, they had to remit live lice to the ruler.
Stephanie Soong Johnston: That is really, really gross.
Michael Keen: On a happier note, another thing that recurs a lot in the book is heads. Hats, wigs, and heads are all over the place. I guess again because of this thing that they’re easily observed. Right? Like hat taxes and wig taxes in Europe, particularly England. You could tell if someone was wearing a hat so that was a good thing to tax. Beards as well.
Stephanie Soong Johnston: What do you hope that people take away from the book? I know you sort of touched on this earlier, but what are some lessons that you hope that readers will take away from this?
Joel Slemrod: We do our best at the end of the book in the last chapter to try to summarize the lessons going forward. We have 11 lessons in the last chapter. Some of them are going to be obvious to people who are in the business.
For example, tax sovereignty is a thing of the past. The idea that a country can formulate its tax policy without thinking about what tax systems other countries have and the incentives to move investment abroad or move yourself abroad because of the tax system can’t be ignored.
The idea that tax enforcement comes down to is making people aware that if they don’t pay what they owe there will be penalties. I think that’s an important lesson. Some social scientists say that people comply with their tax liability because of a sense of honor and duty. No doubt there are people who do that.
I think the evidence is clear that what really matters is that if your fear that if you don’t comply you’ll be punished. You won’t be impaled — not anymore. But you might be punished.
Michael Keen: I guess one theme we haven’t talked much about is the irrelevance of what a tax is called. The politicians and others like to give the names to taxes that kind of imply who’s really going to wind up paying these taxes. Of course in practice it’s often far from clear who’s really going to be ending up bearing the real economic burden of the tax.
Again this goes back a millennia. We talk about George in England. There was a tax on female maidservants. The thought was that this is going to be borne by the rich employers of female maidservants. Of course a lot of anecdotal evidence was that it wasn’t. Wages of female maidservants went down.
It’s this recurring theme that we really have to think through and not just judge a tax by its name, but try and think through who is really going to be bearing the burden of this tax. And we may not always know the answer, like the corporate income tax. We can still disagree what the answer is, but I think one of the things that’s important that we’d like to accomplish with the book is to get people into the habit of really at least arguing, to try to think through who is really going to bear this tax.
What are you assuming about who’s going to bear this tax? You can call a tax a Robin Hood tax. That sounds great. But let’s think about what that really means. I think that’s probably one of the areas where I think we could all do a better job explaining to people.
Just because the tax is called . . . a tax on luxury items doesn’t necessarily mean it’s going to be the rich people buy those luxury items and bear the burden. That’s just one of the other lessons I think.
David Stewart: Here in Washington we’re currently talking about raising revenue to pay for infrastructure. Are there any interesting ideas of tax that you’ve come across that you’d either want to see or just would kind of want to see how it worked out if we were to try from history?
Joel Slemrod: One of the success stories of the last 50 years — I should say the success story of the last 50 years — is the value-added tax. We’re basically the last country of the world that’s not adopted it. I think about a third of all the revenue raised all over the world is now from the VAT.
It’s an example of the success of tax wisdom. It’s not a perfect 10, but it’s one that has a lot of interesting and successful features. If the U.S. were to embark on raising revenue in a serious way I think that should be part of the story.
David Stewart: Any bad ideas from history that you’d be curious to see them try out again?
Michael Keen: I’m always interested in the taxation of ships and shipping, which continues to be an issue around the world. The worst I think was probably when the British decided to tax ships on the basis of how long and how wide they were, which sounds fine. But the consequence is that you then get very deep ships because you pay less tax.
That was a bad tax because — I don’t know anything about boating or anything — apparently that makes ships very unseaworthy. The great irony for me at least was when the British were ruling the world in the 19th century with our Navy, we were the laughingstock of the world apparently in terms of the quality of our merchant shipping. I guess that’s not going to come back.
Joel Slemrod: When you asked that question I think not so much about bad taxes, but taxes that were enacted for bad reasons. My two that I point to are both U.S. taxes.
The first is soon after margarine was invented, which was the late 19th century, margarine started to come be used in the U.S. and the dairy industry was not excited about this. First they got state legislatures to enact regulations. For example, margarine had to be pink rather than yellow. It didn’t take long for them to enact taxes on margarine. That’s an example of a tax motivated by the interests of a particular industry as opposed to motivated by what’s good tax policy.
Another example is in the 1930s in the U.S., when chain stores started to become big, the mom-and-pop businesses could see this was a threat. Soon enough there were regulations, and soon after that there were taxes on chain stores. A story which resonates today where there is certainly political pressure to reign in Amazon and Walmart in part because of the political power of small business.
David Stewart: All right. Joel, Mick, thank you for being here. This has been great.
Joel Slemrod: Thanks for having us. It’s been a lot of fun.
Michael Keen: Yeah. Thanks both of you. Thanks a lot.
David Stewart: And thank you as well, Stephanie.
Stephanie Soong Johnston: My pleasure.