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Tax Facts Throughout History

Posted on May 26, 2020

Tax Notes colleagues David D. Stewart and Stephanie Soong Johnston discuss how tax has influenced snacks, beards, and even legends.

The interview 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: tax trivia. It's about time we took a break from serious topics and took stock of some of the weirder things that we've learned from working in tax.

To help me out, I'm joined by Tax Notes Chief Correspondent Stephanie Johnston from her home in Pittsburgh. Stephanie, welcome back to the podcast.

Stephanie Johnston: Good to be here again.

David Stewart: We reached out to the tax community on Twitter to get some of their favorite facts, but I'll kick things off with the thing I mentioned to get that thread going. My fact is that Donald Duck once appeared in a propaganda video urging people to pay taxes.

Now this comes from a 1943 cartoon called "The Spirit of 43," and it was at a time when Americans were paying significantly more in taxes because of the war effort. They were also expected to pay taxes quarterly, so unlike today when taxes are withheld, you had to have the money ready on these specific quarterly dates.

This cartoon has Donald Duck getting his cash, and then he gets these two visitors. It's an angel-demon type of dynamic. The angel is a Scotsman who's urging him to be frugal and save his money. The demon is a zoot suiter urging him to go and spend his money on frivolous things.

The cartoon is actually really interesting to watch because there's a lot of discussion about how you're paying a lot more in taxes, but then saying what the money is paying for. It spends a long time talking about guns and it uses the phrase, "taxes to destroy the Axis."

It's really fascinating and kind of interesting as a cultural artifact, because one year after it was released, withholding came in so people didn't actually have to save their money to pay taxes anymore.

Stephanie Johnston: Who would have thought? Donald Duck and taxes.

My favorite tax fact is something that you'll actually love as a dog owner. The Doberman Pinscher breed was actually bred by a tax collector. Around 1890 there was a guy named Karl Friedrich Louis Dobermann, who was a local tax collector in the town of Apolda in Germany. He also happened to run the town's pound.

He really wanted a dog to protect him while he was going on his tax collection trips, because he usually had to go to some shady areas of town. He decided to breed a bunch of dogs together and eventually came up with a Dobermann, and that's why it's called Dobermann, because he needed protection.

David Stewart: That seems to make some sense.

Stephanie Johnston: Beats carrying a gun around.

David Stewart: Let's go to some of the things that we got from Twitter. I'll start off with one of my favorite things that I learned from the tax community: We can understand Egyptian hieroglyphics in part due to a tax break.

Now this relates to the Rosetta Stone. As we usually learned in school, the reason that we can understand hieroglyphics is because the Rosetta Stone was written in three languages — basically two versions of Egyptian and Greek. We might have learned also about how it wound up in the British Museum and how it was used to study, but nobody really talks about what it says.

We got a tweet from David Sites (@DavidSites_Tax) who said the Rosetta Stone is the result of tax policy changes. That sent me down looking at what it actually says. Apparently, it is a decree from a group of priests commemorating the anniversary of Ptolemy V's coronation. It mentions all the good things that he did, including giving tax breaks to priests.

Apparently, this document says there'll be basically returning the favor by promoting the cult of Ptolemy, building statues, and such. But there you have it. If it weren't for tax breaks for special interest groups, we might not know how to read hieroglyphics.

Stephanie Johnston: I did not know that. I learned something new today.

Speaking of legends and hieroglyphics, Heather Self of Blick Rothenberg (@hselftax) reminded us that Star Wars is actually a tax story. If you go back to the opening crawl of Star Wars Episode I: The Phantom Menace, it reads,

If it weren't for a tax dispute, Episode I would have never happened, and we could have avoided Jar Jar Binks.

David Stewart: Listening to that as a description of the beginning of the movie, it sounds like it could have been a better movie if they just spent more time developing that story line. I think I would have enjoyed it more.

Stephanie Johnston: Right? I think I would have too.

Speaking of controversial historical figures, let's talk about Henry VIII. Everyone knows him as the guy who had bunch of wives. Under his rule, he introduced a beard tax, which varied based on the beard bearer's social standing. Beards, therefore, were pretty cool.

If you paid the tax, you were, like, cool. That was a weird tax fact I got from Santhie Goundar, one of our U.K. Correspondents. You can find her on Twitter at @santhiegoundar.

David Stewart: I guess a beard tax could work today. It would make a lot of money while everyone's in social distancing.

Stephanie Johnston: Right? I personally am a fan of the beard.

Peter the Great, however, was not a fan of the beard. He ruled in Russia in the late 1700s, and he imposed a beard tax because he didn't want his subjects to have beards. He thought that beards were outdated and he wanted the clean shaven look to be a thing because he thought of it as more modern.

Men could dodge the tax by simply shaving, but the men who wanted to keep their beards had to pay the tax. In exchange for their payment, they got a beard kopek as a proof of payment.

Apparently the kopek said, "The beard is a useless burden," and it had a big beard on it. If a man was found without a token and a beard, then he was forcibly shaven.

And now that we're on the subject of hair, let's talk about Lady Godiva. Here's a fact from Deepak Joshi (@ideepakjoshi), who came to us on Twitter with this fact that Lady Godiva's story is actually a tax story.

She was an 11th century Anglo-Saxon noblewoman who was married to a guy named Leofric, the earl of Mercia. Legend has it that Lady Godiva was concerned about the tax burden that Leofric was imposing on his subjects. He scoffed at her and said, "Well, I'll lower their taxes if you ride through the town naked."

Well, she did. She got on her horse. She was totally naked except for her hair, which was super long, and rode through the town. And he held up his end of the bargain and cut taxes for everybody.

Lady Godiva's legend is still alive to this day, but we associate her name more with fine Belgian chocolates than we do with taxation, which brings us to our next category of tax facts: food.

David Stewart: Speaking of foods that aren't particularly good for you, one of my favorite tax facts is the long litigation over the definition of Pringles. What is a Pringle? This is important in the U.K. because food gets a zero rate for VAT purposes, while potato crisps, as an American would call potato chips, are subject to full VAT. In the lower courts, the court sided with Proctor & Gamble saying Pringles are not potato crisps.

This was appealed by HM Revenue & Customs and it ended up in the Court of Appeal, where there was a long discussion about the nature of what a Pringle is. It turns out, reading through this description, that they're only 42 percent potato. They are made from a dough that starts out with potato flour, but it's then cut into shaves and fried. But at the Court of Appeal, they decided that 42 percent was enough to declare them made from potato, therefore they're crisps.

Interestingly enough, while they are considered not to be potato crisps for the U.K. market, I have a can of them here and for the U.S. market, and they are marketed as potato crisps.

Stephanie Johnston: Once you pop you can't stop, I guess.

These cases involving classifications of food are an issue I think most countries and even our states grapple with on almost a daily basis. When I first started this job, I learned about the Jaffa Cakes case.

I finally actually got to taste them when we went to London last year for the Internatioanl Fiscal Association Congress, and I have to say they were rather interesting. I could see why it was a debate whether the Jaffa Cake was a biscuit or cake.

For people who don't know what Jaffa Cakes are, they are these round spongy treats with a layer of chocolate around it, and some orange jelly in the middle. It is kind of weird. I personally like them.

Jaffa Cakes are popular in the U.K. They're made by McVitie's, which is a brand owned by United Biscuits. And for a long time, the company classified them as cakes. That's sort of important because in the U.K., biscuits and cakes are zero rated for VAT purposes. But if a biscuit is covered in chocolate, then it's considered confectionary and is therefore subject to the standard rate of 20 percent VAT.

For a long time, United Biscuits said, "This is a cake, therefore zero rated for VAT purposes."

In 1991, Jaffa Cakes became the subject of a pretty famous case. The U.K. tax authority took a second look at the classification of Jaffa Cakes and said, "Well, that's not cake. It's actually a biscuit covered in chocolate, so therefore should be subject to the higher standard rate of VAT."

A VAT tribunal considered whether Jaffa Cakes are, in fact, cakes or biscuits. They considered many factors like texture, size, packaging, and marketing. The tribunal was even served a giant Jaffa Cake for research purposes.

The judges ultimately decided they do have biscuit properties, but ultimately they're more cake-y in nature. Some of the reasons they cited was when a Jaffa Cake goes stale, it turns hard rather than soft like a biscuit. And the sponge base makes up a significant part of the Jaffa Cake.

They decided ultimately that they are cakes, and they kept classification. And that's why they are zero rated in the U.K. 

David Stewart: Staying in the U.K. for the next fact, we have mine, which is that the U.K. tax year starts on April 6 because their tax system is older than the calendar. Now this comes via @PJChapman74, who tweeted at us, "From 1155 until 1752, new year in England was on March 25th."

Now the New Year and the tax year used to be the same: March 25. But that was back when England was on the Julian calendar.

Pope Gregory had come up with a new calendaring system that fixed the problem of the dates shifting around. Eventually England adopted the Gregorian calendar, which meant that they were 11 days off.

Rather than give up 11 days worth of tax for the year, they just shifted the tax date to April 5th.

Under the Julian calendar, you do a leap year every four years without skipping any. But under the Gregorian calendar, in order to fix that weird shifting problem that they have, the Gregorian calendar takes away a leap year every 100 years, unless it's a year also divisible by 400. It's a little too complicated.

Apparently in 1800, even though the calendar said, "This is not a leap year because it's a year divisible by 100," under the Gregorian system, they decided to actually add a leap year in for tax purposes. The tax year ended up shifting to April 6 instead of April 5, and has been on April 6 ever since.

They apparently decided not to do the same thing in 1900 when there was also not a leap year. There's a lot of moving parts in that one, I admit.

Stephanie Johnston: I would not have guessed that. Thank you for that fact.

I'm just going to take us across the pond back to the United States. You know the phrase, "death and taxes." Who do you think of when you hear it?

David Stewart: That's Ben Franklin, right?

Stephanie Johnston: Yes, but did you know that he was not the first one to say it?

In a letter dated November 1789 to a French physicist, he wrote, "Our new constitution is now established, and it has an appearance that promises permanency, but in this world, nothing can be said to be certain except death and taxes."

But according to an investigator, the phrase "death and taxes" came way before Franklin's letter.

It was traced back to play called "The Cobbler of Preston." This was a farce in 1716 written by Christopher Bullock. One of the characters in this farce said, "You lye, you are not sure; for I say, woman, 'tis impossible to be sure of anything but death and taxes." 

Therefore, 1716 was the first known instance of the phrase "death and taxes".

David Stewart: I guess we were misattributing quotes long before the internet came around.

Stephanie Johnston: Exactly. Talking about death and taxes, literally, I did not know this, but up until February 2011, tax fraud was punishable by death in China. 

David Stewart: That seems pretty recent.

Stephanie Johnston: According to Amnesty International, China had added tax fraud to its list of capital offenses in 1995. And in 2011 they decided to remove it, along with 12 other economic crimes from the list. It was sort of a hall of victory for Amnesty International because it was a very seldomly used punishment.

David Stewart: Sticking to the bright subject of death, are you familiar with the Day of the Dead Parade in Mexico City?

Stephanie Johnston: I have seen pictures, but I have not attended.

David Stewart: Alright. Are you aware that it exists because of taxes?

Stephanie Johnston: No. I didn't know that.

David Stewart: There's a fact that is actually widely spread around the internet — not because it's wrong, it's true — that the day of the dead parade is actually a relatively recent addition to the celebration.

The Day of the Dead is a holiday that's been around for a very long time, but the parade itself is actually a creation of the James Bond movie "Spectre."

The story goes that this James Bond movie comes out and there's this really cool parade scene. Apparently the only reason that scene is there is because of tax breaks that were given to movies that would highlight Mexico City. Now we know that this was part of the process of deciding to put this scene in the movie because if you remember a few years back there was a hack of Sony's emails.

In those emails, there are a bunch of concerns that this movie is going way over budget. They start talking about ways that they can redo the opening, which is supposed to take place in Mexico, but it's supposed to be in kind of a nondescript location. So, they add in this parade scene.

If you remember toward the end of that scene, after there's a whole lot of fighting, they go to a helicopter and they start flying around in a helicopter. The reasoning behind that was that they needed to get shots of the modern skyline in order to get more tax breaks.

From all of this, we learn that had it not been for these tax breaks, that parade scene might not have been shot, and that people wouldn't have seen how cool that Day of the Dead Parade could look, and they wouldn't have actually decided to adopt that as their own celebration for the Day of the Dead.

Stephanie Johnston: That's so crazy. I love that.

David Stewart: It is. I really like how it sort of encapsulates how taxes can just change the reality around you.

Stephanie Johnston: Indeed. That's the fact.

David Stewart: Well, Steph, it's been great having you and being able to talk about weird and interesting tax facts. Where can people find you online if they want to tweet more interesting facts at you?

Stephanie Johnston: You can tweet at me at @SoongJohnston. Feel free to ping me at any time.

David Stewart: Alright. Well, thank you for being here.

Stephanie Johnston: Thanks for having me again.

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