King William III of England needed money, so in 1696 he decided to implement a new property tax. To make sure the tax was progressive (i.e., affected the rich more than the poor), the parliament devised a seemingly clever idea: they’d use the number of windows as an index for the value of a house.
The assumption was that larger homes, presumably owned by the wealthy, would have more windows than the houses of the poor. All a tax assessor needed to do to calculate the tax was walk around a building and count the windows. Ingenious, no?
In its initial form, the tax consisted of a flat rate of 2 shillings upon each house and an additional charge of 4 shillings on houses with between 10 and 20 windows, or 8 shillings on houses with more than 20 windows.
You can probably imagine what happened next.
As economist Tim Hartford explains, a “fundamental error is the idea that architecture doesn’t respond to tax incentives.”
When William Pitt tripled the tax in 1797, thousands of windows were bricked or boarded up almost overnight. Later, the president of the society of carpenters in London told Parliament that almost every homeowner on Compton Street had approached him to reduce the number of windows. A new apartment building in Edinburgh was designed with an entire second floor filled with windowless bedrooms.
When [Charles] Dickens complained that the poor were being denied light and air, he wasn’t speaking figuratively. Poor people did not have to pay the tax out of their own pockets but their landlords did, and the poor dwelt in stuffy darkness as a result.
The effect of cutting off the light and air was that the health of the people living in homes with few or no windows deteriorated considerably. As Thomas Guthrie wrote in 1867:
In order to reduce the window tax, every window that even poverty could dispense with was built up, and all sources of ventilation were thus removed. The smell in the house was overpowering and offensive to an unbearable extent. There is no evidence that the fever was imported into this house, but it was propagated from it to other parts of town, and 52 of the inhabitants were killed.
Despite complaints about the tax—Charles Dickens claimed that, “Neither air nor light have been free since the imposition of the window tax.”—it endured for 150 years.
So what can we learn from a tax that was repealed in 1851? The primary lesson is that people respond to incentives—and often in ways we wouldn’t have predicted.
A tax collector in 1700 might have considered it irrational to board up a window to save a few shillings. But that’s exactly what happened—often because the person paying the tax wasn’t always affected by the effect of avoiding it. Many landlords couldn’t simply pass on the tax to their renters; the people were simply too poor. Instead, they found it was cheaper to simply shut up the windows and avoid the tax altogether. The ill effects on the tenants was merely a unintended consequence.
And this leads to the second lesson: When the government increases the economic burden of the wealthy, it almost always affects the poor. We’ve seen this time and time again throughout economic history, from minimum wage laws to “luxury taxes.” Whenever the rich have to pay more they’ll eventually pass along the cost to those who can’t afford it.
The third lesson is the most unfortunate: Governments are loath to repeal bad economic policies even when it’s obvious that it hurts its poorest citizens. Preventing the bad policy before it’s implemented is sometimes the only way to keep it from affecting the poor for generations.
So the next time someone asks why you’re so opposed to increasing the minimum wage or taxes on yachts, tell them “Because of King William’s window tax.”