Do Wizards Pay Taxes?
Back in March, MuggleCast posed an interesting question on Twitter: “Do wizards pay taxes?” Though not many folks know this at first glance, I am a tax accountant in my Muggle life, so I find this topic fascinating. Let’s dive in.
@JK_Rowling help us out for our discussion on today’s episode: Do wizards pay taxes? pic.twitter.com/Cy1IbRFEPM
— MuggleCast (@MuggleCast) March 28, 2020
First, just a bit of tax basics. These are the most commonly seen forms of tax in the world:
- Income tax – A percent of your income from all sources (for most people, primarily wages)
- Payroll tax – A percent of your wages
- Sales tax – A percent of every transaction (often known as VAT)
- Property tax – A percent of the value of your real estate property (known as council tax in the United Kingdom)
There are also things like estate/inheritance taxes (on the wealth of someone who dies) and gift taxes (on really large gifts), but generally speaking, they’re not broad enough to be a reliable source of revenue. The wizarding government is probably funded by some combination of the top four types of taxes – otherwise, there’d be no way to fund things like St. Mungo’s, Hogwarts, the Hogwarts Express and platform nine and three-quarters, and the Ministry of Magic.
Note: I’ll be discussing the British Ministry of Magic in this piece since that’s the one we know about.
When most of us think of taxes, we think of income taxes – that’s what causes us so many headaches each year (and keeps me employed, thanks very much). We may also think of payroll taxes – in the United States, that’s social security and medicare taxes; in the United Kingdom, it’s the national insurance contributions. But for several reasons, I don’t think these make sense for the wizarding world.
It would appear that by far the largest employer in wizarding Britain is the Ministry of Magic. Now, it’s true that governments are often one of the largest employers in a country, but they are usually dwarfed by the combination of everyone else. For instance, according to Wikipedia, the public sector accounts for about one in six jobs in the UK and one in seven jobs in the US. In the wizarding world, that doesn’t seem to be the case: The Ministry of Magic seems to be the employer of at least half the workers in the wizarding world.
If that’s the case, it’s remarkably inefficient for the Ministry to be funded with income taxes or payroll taxes because that’s essentially just cycling money in and out of the Ministry. If half the people filing taxes in wizarding Britain are Ministry employees, then it seems a huge and needless headache to pay them 1,000 Galleons and then have them return 200 Galleons every year when you could just pay them 800 Galleons and be done with it.
Payroll taxes, in particular, seem to be useless in the wizarding world. The wizards who aren’t Ministry employees are usually in retail – in Diagon Alley or Hogsmeade – but don’t seem to keep a large staff. And that’s to say nothing of the aristocracy (like the Malfoys) who don’t work at all, so payroll taxes would not even capture their wealth. Income taxes would be slightly better since they would capture things like merchants’ sales and aristocrats’ interest income, but they still seem incredibly inefficient.
To access the wealth of all the merchants, a sales tax or VAT is ideal. American readers might be confused because nowhere in the books is sales tax mentioned as part of a price, but in the UK, the VAT is included in the price listed to make the transaction quicker and easier. So it could well be that Ollivander, Fortescue, and Madam Malkin all pay VAT on their sales, and that’s where the Ministry gets a lot of their funding from.
But in order for the Ministry to get accumulated wealth like the Malfoys’, the best way is through property taxes. One can’t quite get to their vaults of gold because it’s amazing how difficult it can be to find and properly value all of a rich person’s assets. But old pure-blood families, like the Malfoys, will own large and valuable properties, like Malfoy Manor, and the Ministry of Magic is undoubtedly imposing a hefty property tax on such properties to fund itself.
Property taxes are usually imposed on the value of property somewhere between 1% and 3% (both for the US and for the UK’s council tax). It’s a reliable source of money for the government, easy to keep track of and calculate.
Of course, one wonders if these wizard-owned properties pay the Muggle council tax too. It’s fairly obvious they won’t pay Muggle income taxes since there are no Muggle records of wizards’ jobs, but even wizard lands are a part of the Muggle lands that (in theory) would be subject to the council tax. I’m guessing that the wizards don’t, in fact, pay the council tax – the Ministry probably has people who magically fudge the Muggles’ records so no awkward questions arise. I can’t see folks like the Blacks being too chuffed with paying Muggle taxes otherwise, especially on top of their wizarding taxes.
The Historical Perspective
All the analysis thus far has been about how a wizarding society would set up a tax system to make one work. But things like tax systems are also largely steeped in tradition, which is why (in the US, at least) there’s a huge hubbub whenever someone tries to substantially change it, usually every 30 years or so.
One of my favorite presenters at Harry Potter conventions is David Martin, who often gives an incredible lecture titled “Why So Old-Fashioned? A Note on J.K. Rowling’s World Building.” With meticulous examples culled from the books, he shows us how wizarding society is frozen in 1692, which is when it cleaved itself away from Muggle society through the International Statute of Secrecy. Everything from the fashion choices to the uniqueness of magical artifacts is explained by this date, and I’d urge you to attend this panel if you ever see it in your convention program.
Of course, this divide is not absolute. Some things were too alluring to not be adopted by wizards post-1692: The Hogwarts Express, cameras, and indoor plumbing were all deemed worthy of integrating into wizarding life. As I discussed in “Redrawing the Map of Wizarding Europe,” the wizards also (kind of, sort of) kept up with Muggle geopolitics right up until 1914. But given that wizarding society is more or less stuck in 1692, what does that mean for the tax situation?
Back in 1692, the only tax in effect in the countries of the future UK was, in fact, a property tax. In Scotland, a land tax was imposed from 1667 onward, whereas in England and Wales, a land tax was imposed in 1692 – the very year of the Statute of Secrecy. (It must have been quite a busy year for the governments.)
While we can’t know which came first, the implementation of the Statute of Secrecy or the land tax, I think we can assume that the Ministry of Magic saw the Muggles’ shiny source of revenue and decided to go with it either way.
For reference, an income tax was not introduced in the UK until the 19th century, and VAT and national insurance contributions did not enter the picture until the 20th century. So this is one of the things where I think we have our answer: From a historical perspective, from a logistical perspective, and consistent with the information we have in the books, wizarding society is primarily funded by property taxes on wealthy landowners.
The Societal Implications
There’s one more fact to consider in order to get a complete picture: St. Mungo’s is funded largely by charitable donations, it would seem. There is the Fountain of Magical Brethren, and there’s the fact that Lucius Malfoy makes “very generous contribution[s]” to St. Mungo’s to curry favor with Fudge (GoF 101). We should not underestimate this as a significant source of revenue for St. Mungo’s and possibly other institutions like Hogwarts, especially given how many pure-blood families really like to curry favor politically by throwing their wealth around.
But if wizarding society is primarily funded through property taxes, this could add another dimension to the prejudices of pure-blood supremacy. In the real world, cultural prejudices often claim to be rooted in financial issues: “We don’t like this ethnic group for coming and taking our jobs/mooching off the government.” While this is obviously nonsense and a way to justify bigotry, it would not surprise me if anti-Muggle-born sentiment took on a similar tinge.
If wizarding society is primarily funded through property taxes, those taxes would be mainly paid by wealthy landowners (i.e., old pure-blood families). From their perspectives, Muggle-borns are entering the wizarding world and reaping all the benefits of wizarding society (education from Hogwarts, health care from St. Mungo’s) without paying into the system. So in addition to the “they don’t know our culture” nonsense against Muggle-borns, pure-bloods may also resent what they see as subsidizing Muggle-borns.
It appears that such a sentiment is too gauche to express in public since we never hear it in the books. But I think much of that might be due to the messenger. The flag-bearer for anti-Muggle-born prejudice is Lord Voldemort, who actually benefited from the system (there’s a fund to help him buy schoolbooks) without putting much into it (he doesn’t own property, preferring to crash with the Malfoys or in the Riddle House). The Gaunts had squandered all their wealth and were probably not paying vast sums to the Ministry of Magic for their shack. So Voldemort and the Death Eaters would not be in a position to bash Muggle-borns for being freeloaders on wizarding society when Voldemort himself is one. (And there’s no partial credit here like Voldemort gets for being descended from Slytherin despite having a Muggle father.)
But for the pure-blood families, like the Blacks, who thought Voldemort had the right idea, the financial aspect of it all may well have been a factor in their bigotry.
While I believe I have found an answer to the question of wizarding taxation that fits well with what we have, there is also another option that could work, which I think bears mentioning. On Episode 293 of Alohomora!, we discussed whether the Ministry of Magic is technically part of the British government or is a wholly independent government. The same could be asked of their taxation system.
If this is the case, then wizards would, in fact, pay their Muggle taxes. It’s doubtful they pay income taxes (“occupation: Auror”) or VAT (“20% of revenues on the sale of wands”), but they can at least pay their council tax as the Muggles do. Her Majesty’s government would then appropriate funds in their annual budget to the Ministry of Magic, which would then disburse them as it sees fit.
Anyone who would care to confirm this theory, please peruse the 125-page budget the UK publishes and try to find where the Ministry of Magic’s funds are buried. We may finally be able to understand all the odd “other” and “miscellaneous” accounts.
Imagine the negotiations that would take place between the Minister of Magic and the prime minister under this scenario. The Minister of Magic (or a proxy) would constantly be going to the prime minister to negotiate for a larger sum in the budget. “We need a 10% increase in our funds, a Dark Lord just decimated our society.” It doesn’t seem like a fair negotiation when one side can do magic, but it is fun to imagine.
Or to avoid awkward conversations, maybe the Muggle government doesn’t even know where it’s appropriating those funds. There are just some shell government departments under a “Misc. and Sundry” heading that funnels the funds to the Ministry of Magic with no one being the wiser.
Precisely because of the logistical nightmare that an integrated government budget presents, I lean toward the theory that the Ministry of Magic sustains itself by collecting its own taxes, but I also didn’t want to dismiss this possibility either. I look forward to reading your comments on which you deem more likely and hope this foray into taxation policy was more interesting than it sounded.