Research Update: Income Tax

I've been spending my evenings slogging through Hansard, specifically for 1909-1910, researching the debates surrounding the introduction of progressive income tax. No major news to report, but there are three interesting bits to report.

• Deductions for Employing Servants It appears that military officers and other individuals were allowed to deduct the wages of their servants from their income. Its interesting because a lot of these young officers are the sort of people that would make just enough money to be taxed. It's also interesting because Hayek says that progressive income tax makes employing servants much more costly. Hayek uses an example like this. Suppose I am a writer. Writing articles, I can make $10 an hour. To free up an hour of my time, I decide to call in a maid for an hour of work a day. She charges $5 an hour. Without taxation, it makes perfect sense to hire a maid. But suppose I am taxed at 50% of income and my maid at 0%. It no longer makes much sense to employ her. I am actually working on another article that examines he impact of taxes on the decline of household servants.
• Direct Taxation as an Emergency Measure Earlier in British history, income tax as a wartime measure. It was introduced to fight the Napoleonic Wars. After that emergency was met, the tax was repealed. A few decades afterwards, it was reintroduced under Peel. Looking at the government speeches, they expect the opposition to object to increased rates on grounds of national security. The idea is simple. In peacetime direct taxes must be kept at a minimum to allow economic expansion, creating a reserve of wealth that can be tapped by higher tax rates during wartime. It is an interesting argument. Indeed, during much of American and British history, tax rates are increased to meet war spending. During the First World War, however, the Germans didn't increase tax rates dramatically. Instead they increased borrowing and resorted to printing money to pay off their subsequent obligations. They suffered dreadfully as a result.
• Super Tax Unopposed In the Commons, people simply aren't objecting to the top rate. I still have 120 pages of result to go through, and I haven't even started in on the debate in the Lords, where the resistance was strongest. It's very interesting. The difference in rates is so minor that people in the Commons simply seem to take it in stride.