“Taxman” at 50

The Beatles’ hit song Taxman has just turned 50; it was released August 5, 1966 in the U.K. Taxman, written primarily by George Harrison, famously includes the lyrics

“Let me tell you how it will be
There’s one for you, nineteen for me
Cos I’m the taxman, yeah, I’m the taxman

Should five per cent appear too small
Be thankful I don’t take it all . . . .”

Apparently this song was at least partly inspired by the theme for the 1966 TV show, Batman! And, in the early 1980s, Weird Al Yankovic wrote a parody called “Pac-Man,” though it was not released  on any of his albums.

H&R Block used the Taxman song in a 2002 commercial literally showing only tax men: “It took an Act of Congress to pass 441 changes in the tax law. Will it take an act of God to understand them?” (There’s a different, more diverse version here.)

Did the Beatles really pay a 95% tax rate? According to a Bloomberg article, “The top rate for British taxpayers in the mid-1960s reached 83 percent. The wealthiest among them paid a 15 percent super-tax on top of that, pushing taxes as high as 98 percent”–the marginal rate, presumably. Of course, it likely wasn’t imposed on all of the tax base described in the song: “If you drive a car, I’ll tax the street/If you try to sit, I’ll tax your seat/If you get too cold I’ll tax the heat/If you take a walk, I’ll tax your feet”!

The Beatles and their advisors reportedly responded to the high tax rates on labor income by trying to avoid them, such as by turning that income into capital gains. In 1963, music publisher Dick James had suggested to the Beatles’ manager, Brian Epstein, that they form a corporation with John Lennon and Paul McCartney, Northern Songs Ltd.  Lennon and McCartney assigned to Northern Songs copyrights in the songs they published between early 1963 and 1966, a total of 56 songs. Lennon and McCartney also formed Lenmac Enterprises in 1964 to hold the royalties to those songs; they each owned 40% of Lenmac, with Epstein owning the other 20%. Presumably, the idea was to turn earnings on these songs into corporate profits that wouldn’t be taxed to Lennon and McCartney before they sold their shares.

Northern Songs went public in February 1965, apparently to reduce tax liabilities; a capital gains tax was in the wind and was in fact enacted later that year. Lennon and McCartney had owned a minority interest in the company when it was privately held, and the public offering reduced their ownership to 15% each, with George Harrison and Ringo Starr’s interests totaling 1.6%. The Beatles thus did not retain control of their songs. Moreover, in 1966, Lennon and McCartney sold Lenmac to Northern Songs, apparently to realize gains taxed at the 30% capital gains rate. They thereby relinquished substantial future earnings on those songs–the tax tail apparently wagging the dog. Michael Jackson subsequently acquired the song rights. Now Paul McCartney is reportedly trying to reacquire U.S. rights to some of his old songs.

The Beatles also reportedly incorporated Apple Corps on advice of their accountants, to avoid taxes on a large amount of back royalties they received in 1967. The principal idea seems to have been to create business expenses to offset their income. Apple Corps. had “utopian intentions” and initially was extremely badly managed. It has been involved in several legal battles, including trademark disputes with Apple Inc. It was not until 2010 that the Beatles’ catalog was made available on iTunes.

Tax comes up in other ways, as well, in the litigation-laden story of the Beatles, including with respect to an IRS audit of George Harrison’s company, Harrisongs, and a 1979 U.S. federal tax evasion conviction of subsequent Beatles manager Allen Klein. But lawsuits, mismanagement, and poor business decisions, such as signing contracts without reading or understanding them, seem to have had a greater negative impact on the Beatles.

In 2006, Virginia State Senator Ken Cuccinelli reportedly introduced an amendment to a bill, proposing Taxman as the state song, but others apparently mocked him and the amendment failed. After almost two decades without a state song, Virginia now apparently has two. But neither one mentions taxes.