Friday, February 16, 2007

Funny houses and the taxman.

The world is filled with some odd architecture. Consider two forms of housing found in New Orleans: the Camelback house and the Shotgun house.

The Shotgun house is said to have earned that label because one could fire a shotgun in through the front door and have the pellets exit the house through the back door. It was narrow but long. It was one room wide at most. You would enter into the living room and find a door from that room into the bedroom behind it and there was another door into the kitchen behind it. The rooms would be in a long row with no hallway at all.

Similar was the Camelback house. This was basically a Shotgun house with a second floor but not a second floor as you might expect. At the rear of the house would be stairs going to the second floor. But the second floor never extended to the front of the house. People said this truncated second floor looked like the hump of a camel hence the name.

Both of these oddities are the creation of local government policy.

Some have argued that the Shotgun house exists because land in New Orleans, where they are mostly found, is scarce. But the extended length of these homes would not justify that argument. After all a house that is half as wide but twice as long still covers the same amount of land. Lots could have been wider but less deep and still have used the same amount of land.

The alternative theory, and a popular one, is that the houses were narrowly built because land width was a factor in taxation. The wider the house the more highly taxed it was. It was noted that such narrow houses were frequently built in poor areas. Exactly what we would expect. Taxes drive up the cost of housing the people least likely to afford housing are the poor so they would be most negatively impacted by property taxes.

The Camelback house was routinely taxed as a single-story house because the second floor was only partial. This is why they were designed that way.

This would not be the first time architecture was distorted by taxation.

Amsterdam is famous for it’s very narrow, tall, long buildings with narrow, steep stairways. This was done because property taxes depended on the frontage of the residence.

Anyone who gone up or down those stairs will tell you that it impossible to bring in furniture. So Amsterdam houses were built with hooks at the top of each and windows that were almost as wide as the house. Furniture would be lifted by a hoist to the window and then pulled into the house.

The length or height of the house didn’t matter, only the width so, of course, homes were very narrow. The narrowest in Amsterdam is found at 7 Singel where the the front of the house is barely wider than a front door. The entire frontage is just one meter wide.

In England taxes made housing worse for people for a very long time. Politicians wanted to tax income but they weren’t sure how to do it back in the late 1600s. People felt that government knowledge of one’s income was an intrusive violation of their privacy. So the politicians decided to tax windows instead.

The assumption was that wealthy people had bigger houses with more windows. And since glass at the time was not cheap they also assumed this indicated wealth. This tax was in effect from 1696 until 1851. One result was that even as glass dropped in price English housing often remained dark and dingy and lacked fresh air. In some of the older buildings you can see where windows that once existed were bricked up in order to lower the taxes.

Taxation distorts human action and causes people to act in ways that sometimes are counter productive to everyone.

One lesson of my youth, that I have never forgotten, was the strange December we had in our home one year. My mother was widow, a single-parent who worked full time, and more, to pay the costs of raising four sons.

One December she was home the entire month. It wasn’t a Christmas present of some sort. The progressive income tax system means the more you earn the more you pay. She was told by the hospital, where she worked, that she was on the cusp of a higher tax rate. If she put in any more work she would lose the extra income for that month through increased taxes.

The net result was that she was just as well off by staying home for one month, without working, as she would be by working. Her extra work would have earned no additional income at all and actually have increased her tax obligation. The hospital was short one nurse for December. The income she had hoped to earn would have been taken from her so she didn’t work. That didn’t make it easier to pay our bills.

I remember her trying to explain to me how this tax thing worked. It struck me as bizarre that it penalised a single mother for working. But certainly that year, in our case, it did just that.

Taxes distort. Tax the width of a house and you get narrow houses. Tax windows and you get dark, dank houses.

It’s not that hard to understand. So why don’t politicians get it?

Why do we tax employment? Do politicians really think people would be better off with fewer jobs? We tax investment. Do we actually want to encourage people to squander their income instead of reinvesting it back into the economy?

We tax income from people. We punish them for working. Do we want fewer people making an effort to care for themselves? Apparently we do, not only do we penalise people for being employed we reward them for being unemployed.

It might be amusing to read how taxes have distorted architecture around the world. It might even be entertaining to photograph the Camelback houses or the house as wide as it’s front door in Amsterdam.

But forcing people in England to live in dank, darkness for a century and a half wasn’t so amusing. Neither is the higher unemployment caused when taxes lower the demand for labour.

We have things being produced that people don’t want, or need as urgently, as other things because the things people do need or want are more highly taxed and the unwanted is subsidised. Sometimes in a fit of genius governments do both at the same time -- such as subsidising tobacco growing while taxing cigarettes to discourage smoking. They subsidise rice farms in deserts while penalising people for using too much water!

Politicians cry crocodile tears over “poor people” who “don’t have enough to eat” and they they pass additional sales taxes on food reducing the amount that people can afford to buy. They point to the homeless as a great tragedy and then take people’s homes from them if they can’t afford the high property taxes. They lament the high cost of health care and then tax health care driving up the costs even further. They say we need more physicians but then have such high marginal tax rates for physicians that it isn’t worth working that extra hour a day -- no wonder they play golf.

Most of the negative results of taxation were not anticipated by the authorities who pass the taxes. But they are predictable. It might win votes to tell people you intend to tax the investments of the rich. But those investments create new industries, products and new jobs -- and new jobs help push up wages for everyone.

Each tax is a distortion to the economy and to human action. Sometimes the distortions are small, barely perceptible. And sometimes they are large. But over time they accumulate and grow. And the distortions they produce in the economy become larger and more noticeable. Eventually you end up with rather strange and unproductive things happening as a result. That means people get hurt.

It’s one thing to take a picture of the narrowest house in Amsterdam. But if you want to see how taxes really distort go take a photo of the business that closed down because it could no longer remain profitable. Take a photo of the sick people who can’t fill prescriptions because they are taxed. Take a picture of an old person who can’t afford all the food they need because sales taxes cut into their limited income. Or maybe take a photo of the couple living in their car because they no longer could afford the property taxes on their home. These things aren’t as quant and amusing the odd architecture but they are just as much a result of taxation.