Bearing the Cost of War

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Bearing the Cost of War | Foreign Affairs

Why the U.S. Should Raise Taxes -- Just As it Has in Previous Conflicts

Beginning with the War of 1812 and up through the Vietnam War, Congress levied special taxes to pay for its wars.

Without a central government, the colonists who fought the Revolutionary War had to fund their efforts through debt, which was later assumed by the new government. During the War of 1812, the anti-tax Jeffersonian Democrats insisted they could carry on the conflict without levying any new taxes, but they had to back down from that position as the war’s costs exceeded wartime revenues. The government imposed higher tariffs, a national property tax, and new excise taxes on the sale of certain goods. For the Mexican War of 1846–48, surplus tariff income covered the costs.

During the Civil War, both the Union and the Confederacy had to resort to income taxes. Some Southerners, concerned about a government with such strong confiscatory power, were especially resistant to the Confederate tax, but the necessity of collecting revenue prevailed. In the North, the Revenue Act of 1861 marked the first instance of a federal income tax (of three percent), but the tax affected only a very small high-income group. During the war, that tax was expanded somewhat, and Congress also levied an estate tax. The Spanish-American War of 1898 was financed by, among other things, a renewed estate tax and a telephone tax.

War taxation expanded in the twentieth century as major wars became even more expensive. The bill for World War I totaled some $32 billion. With a “pay as you go” philosophy, Congress raised a significant amount of revenue by expanding income taxes (establishing very high rates for the wealthiest Americans), inheritance taxes, and war profits taxes on businesses. Debt, however, still covered most of the war’s costs.

World War II witnessed the most massive mobilization in U.S. history -- military and fiscal. The U.S government spent some $200 billion on the war; by 1945, military expenses equaled over 37 percent of GDP and nearly 90 percent of federal spending. The government held large public bond drives, and the number of Americans paying income taxes grew dramatically as the threshold for income taxes was lowered and as the implementation of the withholding tax assured payment.

During the Korean War, House Speaker Sam Rayburn, a Democrat from Texas, insisted that the United States should not finance the war with debt. “I think the boys in Korea would appreciate it more if we in this country were to pay our own way instead of leaving it for them to pay when they get back,” he said. Republican leaders such as Senator Robert Taft and Congressman Richard Nixon agreed, and Congress approved President Harry Truman’s war tax. In 1968, a bipartisan congressional vote also supported a surtax when President Lyndon Johnson belatedly asked for taxes to pay for the war in Vietnam. Johnson’s aversion to this tax was part of his reluctance to ask for any sacrifices for the Vietnam War -- except from the disproportionately blue-collar army that was fighting it.