Tax administration over the millennia

Our recent book, Rebellion Rascals, and Revenue: Tax Follies and Wisdom through the Ages, draws lessons for the present from millennia of tax history. Tax administrators have a starring role.

Tax collection may be the world’s second oldest profession. Those who do the collecting, in any case, have been for millennia cast as the villains—though they are often, in truth, also the unsung heroes—of governments’ efforts to raise revenue. They and their profession are at the heart of tax history, which has been largely shaped by three key elements of tax administration: the administrators themselves; how they are organized; and the technology with which they go about their business.

The human factor

Tax administration is rarely a path to fame (though it has sometimes been a path to fortune). Some who achieved fame for other reasons, however, have spent time as tax administrators.

Miguel de Cervantes, for example, short of money after being ransomed from a spell as an Ottoman slave, took a job collecting unpaid tax debts. Things did not go smoothly, and it may have been while in prison for various irregularities that he conceived the idea of Don Quixote. Sam Adams, radical agitator for American independence, served as a tax collector under the British, and came up £1,463 short. (Whether that was simple embezzlement or revolutionary protest is questionable; in any event, Adams did not fully pay up). After Moby Dick sank without leaving an immediate literary trace, Herman Melville, in contrast, was an impeccably upright clerk of the notoriously corrupt New York Customs House. There, for a time he served under Chester Arthur—later the 21st President of the United States—who also seems to have been notably clean. Geoffrey Chaucer, author of Canterbury Tales, was Controller of Customs in London, where he may have witnessed the bloody endgame of the 1381 Poll Tax revolt. In a happy irony, Adam Smith, the high priest of free trade, ended his days as Controller of Customs in Kirkcaldy, Scotland.

But there is one tax administrator who became famous—even having his own statue—because of their success in that role. This was Robert Hart, a young lad from Northern Ireland who arrived in China in 1854 and rose to become head of the Imperial Chinese Customs Service. Hart not only made this a proudly efficient organization, but became more widely involved in the movement to modernize China—initiating the building, for instance, of a series of lighthouses. Hart repeatedly reminded the largely expat managerial cadre that they worked not for the Imperial powers, but for the Chinese government; and became so highly regarded that when the Dowager Empress Cixi (notionally) retired in 1899 and honored 100 civil servants, “our Hart” was number three. Hart also managed to find time for a lively if somewhat guilt-ridden love life before retiring to England—lively enough to have inspired a novel (another first, as far as we know, for a tax administrator).1

Most tax administrators, however, live quiet lives. At least they do if they are lucky. Throughout history, the job has not been without physical risks. In 88 BCE, the people of Asia Minor rose up and slaughtered all the Roman tax collectors they could find. And the personal dangers continue. Doing their job can make tax administrators very unpopular: three Greek tax officials, to give just one example, were seriously injured in an axe attack 2020.2 The truth is that many tax administrators throughout history, as today, have done their jobs quietly and decently, often in difficult circumstances. If, as Justice Oliver Wendell Holmes said, taxation is the price we pay for civilization, it is to these unsung heroes that we largely owe such civilization as we have.

Tax farming, SARAs and beyond

These days we take it for granted that tax officials are public servants, whose reward comes primarily in the form of a fixed salary. But it was not always so. Through much of history, the collection of major taxes has been organized through ‘tax farming’ arrangements. Under this system, in its simplest form the government effectively sold the right to collect taxes to a private organization, which then kept whatever it managed to collect. Farming had the merit for the government of, in principle, providing some certainty as to its revenue; and the farmers had an incentive to set about their business in as cost-effective a way as possible.

Tax farming reached its apogee in France, before the Revolution of 1789. Farming contracts became extremely sophisticated, including, for example, more complex sharing rules that enabled the farmers to keep more of their receipts the higher those receipts were—a clever way of securing more revenue for the government and strengthening incentives for collection. Farmers also became more than just tax collectors. They became lenders to the government, and took on a range of spending responsibilities (there being little point in taking the risk of shipping cash to the capital only to transport it back again).

The tax farmers of ancien régime France became very rich, but also extremely unpopular. For farming, if unchecked, also creates an incentive to extort: to take, or threaten to take, more revenue than the tax rules themselves allow. This power was only enhanced by the extraordinary complexity of the French tax system of the time, and the draconian punishments available: smuggling salt could lead to the galleys. The farmers became emblematic of all that was seen as inequitable and unjust in the ancien régime. Little surprise then, that in 1794 the tax farmers unwise enough to have remained in France were guillotined. Tax farming lived on in Russia, the Ottoman Empire and other parts of the world, but its days were numbered.

At the level of the individual collector, however, payments related to collection—rationalized by the reward they provide to diligence, and even to some degree honesty—continued much longer. Back in the New York Customs House, for example, Chester Arthur benefited handsomely and perfectly legally from the ‘moiety’ system that awarded him a share in the fines levied. And, in Britain, arrangements that rewarded officers partly in relation to the amount they collected continued until 1872. To some unknown extent, this practice may quietly persist in some parts of the world. The general emphasis now, however, is on providing performance-related pay not tied directly to collection but rather to achieving other more intermediate objectives of tax administrations, such as resolving disputes. The little evidence there is on the impact of such schemes,3 however, does not suggest especially impressive results.

All this leaves still open the question of what role private incentives can and should play in assuring effective tax administration. There are echoes of tax farming, for instance, in the financing of many semi-autonomous revenue agencies partly in relation to the revenue they collect. It is now common for revenue administrations outsource their IT functions, and there have been forays into using private agencies to collect unpaid tax debt. Perhaps there is scope for more movement in such directions. Tax farming, after all, can be seen as simply one of the earliest forms of the now-popular Private Public Partnerships.

Tools of the trade

The basic functions of tax administration—finding taxpayers, counting things, valuing things, ensuring payment—have been essentially unchanged over the millennia. What has changed is the technology available for doing it.

Collecting taxes has led to technological innovation. In Ancient Egypt, elaborate wells were dug whose purpose was to assess the extent of the flooding of the Nile and hence the scale of the taxable crop. Perhaps the most gorgeous of all tools of tax administration was developed in China nearly two thousand years ago: the jie. This came in two parts, each made of bronze and inlaid with gold and silver characters, the trick being that it enabled enforcement of a tax exemption on certain goods travelling by river, one part being carried on the ships, the other retained at customs. Only by fitting the two together could the goods pass tax-free. In providing tamper-proof verification—and the design suggests that simply splitting bamboo trunks had served the same purpose long before—this is not so far from what many now look for in blockchain.

Perhaps surprisingly, the technology of tax administration did not fundamentally change during the Industrial Revolution. He may have traveled by train rather than coach, but the tax official counting windows in the Britain of the mid-nineteenth century was doing much the same job as his predecessor counting them in the 1690s. The big changes have come over the last eighty years or so, and are now proceeding faster than ever.

Transformational change began with the introduction of employer withholding in the U.S. and the U.K. during the Second World War, and has been marked since by the increased use of third-party information made possible by advances in information technology. The movement towards pre-population of tax returns, for example, is changing the very nature of self-assessment.

The pace of changes is now accelerating, and the possibilities of new approaches multiplying. Much of what we do now, or know we will be able to do soon—automatic information exchange across national borders, massive cross-checking of VAT invoices, use of voice recognition in dealing with taxpayer queries—was unthinkable just a few years ago. Looking ahead, tax returns may become a quaint memory, replaced by a continuously updated online account. One can even conceive of policy changes that transform the income tax into one that takes full account of an individual’s circumstances over a period of more than one year (perhaps an entire lifetime) and is fully integrated with the delivery of short-term social benefits. Who knows, it may even become possible to tax corporate profits at the level of the individual shareholder. As we show in Rebellion, Rascals, and Revenue, tax history is marked by as much wisdom as foolishness. And history, for the tax administrator, is speeding up.

1 This is My Splendid Concubine, by Lloyd Lofthouse.

2 See

3 We particularly have in mind the evidence from the field experiment reported in Adnan Q. Khan, Asim I. Khawaja, and Benjamin Olken. 2016. “Tax Farming Redux: Experimental Evidence on Performance Pay for Tax Collectors.” Quarterly Journal of Economics 131 (1): 219-271.

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1 comment

  1. Carlos A Silvani Reply

    Great Mik, brilliant as usual….!

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