Redemption songs

In 1798, the British Exchequer, sagging under the weight of war expenditures, was nearly exhausted. William Pitt, searching desperately for income, pushed through Parliament a measure which allowed wealthy landowners to contribute to the national fiscal wellbeing while doing themselves a favor later down the road. Pitt’s government established the land tax redemption— a mechanism whereby a land owner could, for a fixed single-payment sum, exempt themselves from all future payments of the annual land tax.1 A considerable number of landowners did so, and the records of their redemptions are now being used as a potential archival source to better-understand 19th-century land use.

I wonder whether this little-known bit of legislation from a former period of British austerity might not possibly be of some policy interest today. Most economists agree that, during a recessionary period, it is useful for governments to step in with stimulative spending in order to prop up demand. Some have suggested automatic policy mechanisms which kick in when unemployment or other indicators reach a certain level. But given the fact that tax rates also fall during recessions, coupled with a political obsession with deficit-avoidance, such spending can often be a tough proposition. At the same time, we’ve heard a great deal about ‘uncertainty’ as a bugbear for businesses, and seen first-hand the phenomenon of profitable corporations hoarding cash, supposedly as insurance against future tax increases.

So would a policy like the 1798 tax redemption work? It seems to accomplish two goals at once: infusing public coffers with cash at the time they need it the most while giving businesses and the wealthy a mechanism to secure a degree of certainty over their medium-term tax obligations. It is, in a functional sense, little different from public borrowing during a recession. Yet I have never heard it raised as a proposal. If there are intelligent economists or policy wonks out there who have thoughts on the issue, do tell.