When I wrote a blog post on the EC's proposed financial transactions tax a month or so ago, I tried to be relatively balanced about it. I may have failed though, as I couldn't hide a certain sense of scepticism - whatever tax you invent, certain people, companies, and especially large companies will manage to get around it.
So the other day when I heard someone talking about how a bunch of historical taxes had been dreamt up, served a purpose, but then been "retired", it reminded me think that tax bases change through time due to adaptations of people's behaviour. Therefore, perhaps taxes administrators can't really continuously target the same tax-base but have to continuously change to keep up.
A few historical tax-base shifters that had (predictably?) interesting behavioural effects from the UK include: hearth/chimney tax (1662-1689), window tax (1697-1851), dice duty (1711–1862), wallpaper tax (1712–1836), brick tax (1784–1850), hat tax (1784-1811), glove tax (1785–94), hair-powder tax (1786–1869) and perfume tax (1786–1800) (thanks Wikipedia, which always tells the truth).
What's interesting is that these were all designed with a view to taxing i) something which was pretty visible; ii) something associated with wealth and which was therefore progressive; and iii) something which would inevitably raise revenues - if nothing changed.
But all of them were also open to declining revenues from changes in behaviour through time. So the chimney tax didn't last long, apparently due to the intrusiveness of the inspections to see how many fire-places people had, while people of course began blocking up chimneys. Over time, the window tax led to people boarding up their windows and living in darkness, leading to health problems (but it nonetheless lasted 150 years!). And apparently wallpaper tax led people to buy plain paper and then stencil on designs. The brick tax led to an increase in size of the standard building brick, while presumably the hat and glove tax led people either to buy less hats and gloves, or to a black market in those goods.
We still tax certain goods through duties and excises, a little like the hat and glove taxes then, but still, the point remains that the tax base on a good deal of items is constantly changing and I wonder how much that is really taken into account in the short-term tax policy design that goes on. Particularly in developing countries where the capacity for tax enforcement is relatively weak.
On another note, at a workshop on taxation I attended last week in Bonn, one study presented was examining the increase in revenue collection performance when autonomous revenue authorities start up - the anecdotal evidence is that there is generally a surge in revenues, followed by a roll-back to more or less previous performance. Could this be because people have adapted to the new enthusiasm of the tax collectors and new systems so spend a little more effort hiding their money? Perhaps we simply have to accept it - people will always wear less hats and board up their windows, so if we want a steady tax revenue base, we need to keep inventing....