These are strange days, when we are told both that tax incentives can
transform technologies yet higher taxes will not drag down the economy.
So which is it? Do taxes change behavior or not? Of course they do, but
often in ways that policy hands never anticipate, let alone intend.
Consider, for example, how federal taxes hobbled Swing music and gave
birth to bebop.
With millions of young men coming home
from World War II—eager to trade their combat boots for dancing
shoes—the postwar years should have been a boom time for the big bands
that had been so wildly popular since the 1930s. Yet by 1946 many of the
top orchestras—including those of Benny Goodman, Harry James and Tommy
Dorsey—had disbanded. Some big names found ways to get going again, but
the journeyman bands weren't so lucky. By 1949, the hotel
dine-and-dance-room trade was a third of what it had been three years
earlier. The Swing Era was over.
Dramatic shifts in popular culture are
usually assumed to result from naturally occurring forces such as
changing tastes (did people get sick of hearing "In the Mood"?) or
demographics (were all those new parents of the postwar baby boom at
home with junior instead of out on a dance floor?). But the big bands
didn't just stumble and fall behind the times. They were pushed.
In 1944, a
new wartime cabaret tax went into effect, imposing a ruinous 30%
(later merely a destructive 20%) excise on all receipts at any venue
that served food or drink and allowed dancing. ... [I]n the next few years,
struggling nightclub owners were trying every which way to avoid having
to foist the tax on customers.
The tax-law regulation's ... exception had the biggest impact. Clubs that provided strictly
instrumental music to which no one danced were exempt from the cabaret
tax. It is no coincidence that in the back half of the 1940s a new and
undanceable jazz performed primarily by small instrumental
groups—bebop—emerged as the music of the moment.
"The spotlight was on instrumentalists because of the prohibitive
entertainment taxes," the great bebop drummer Max Roach was quoted in
jazz trumpeter Dizzy Gillespie's memoirs, "To Be or Not to Bop." "You
couldn't have a big band because the big band played for dancing."
The federal excise tax inadvertently spurred the bebop revolution:
"If somebody got up to dance, there would be 20% more tax on the dollar.
If someone got up there and sang a song, it would be 20% more," Roach
said. "It was a wonderful period for the development of the
The cabaret tax dropped to 10% in 1960 and was finally eliminated in
1965. By then, the Swing Era ballrooms and other "terperies" were long
gone, and public dancing was done in front of stages where young men
wielded electric guitars.
Thanks to a 'cabaret tax,' millions of Americans said goodbye to Swing Music. A lot fewer said hello to bebop.