Q: Can tax policy kill off a popular industry?

A: Yes.

How the Taxman Cleared the Dance Floor in the Wall Street Journal explains a 30% excise tax on any venue that served food and had dancing did in two-thirds of the very popular dance clubs. Passed in 1944, the so-called ‘cabaret tax’ was intended to hit those filthy rich people who dined and danced in fancy places.

Eric Felton explains shortly after the tax was passed, the Bureau of Internal Revenue provided a very broad definition of what places the tax applied. It covered anyplace that served food and dancing with live singing. Those were an extremely popular form of entertainment during and after WWII.

The entire industry of dining and dancing was devastated:

…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.

Check out the end of two-thirds of the industry and the end of a style of music:

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.

Put this in the unintended consequence file.

A federal tax intended to ‘soak the rich’ destroyed an industry that was a very popular form of entertainment.

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