But wait! Wasn't the war for independence a war against taxes? Aren't taxes created by weakness, while militarism generates wealth? Isn't it the effeminate socialists and pacifists who oppose wars?
"War has been the most important catalyst for long-term, structural change in the nation's fiscal system. Indeed, the history of America's tax system can be written largely as a history of America's wars."
Alexander Hamilton argued in Federalist No. 30, as he and his allies argued elsewhere, for the federal power to tax precisely because the federal government might need to fight wars. Between 1789 and 1815, tariffs produced 90 percent of government revenue. But taxes were needed for wars, including wars against protests of the taxes -- such as President Washington's quashing of the Whiskey Rebellion. A property tax was put in place in 1789 in order to build up a Navy (some people in what is now Libya allegedly needed killing for the good of humanity, oddly enough). More taxes were needed in 1798 because of the troublesome French. But taxation really got going with the War of 1812.
Remember, this was to be an easy cakewalk kind of war with Canadians welcoming us as liberators. But mistakes were made, as they say, and the bill grew hefty. Congress passed a tax program in 1812 that included a direct tax on land, and excise taxes on retailers, stills, auction sales, sugar, bank notes, and carriages. And in 1815, our representatives added a new direct tax and restored that controversial whiskey tax as well, plus taxes on all kinds of items, luxurious and otherwise. The idea of an income tax was raised but rejected.
But with the end of war came the end of support for taxes, and the income tax and the inheritance tax lapsed temporarily in 1872. Taxation returned to primarily regressive forms, taxing consumption rather than taxing incomes at various levels. Advocacy remained strong in the country, its newspapers, and in Congress in the following years to restore the income and inheritance taxes. Major change would not come, however, until World War I and its army of patriotic propagandists:
"The transition from an almost exclusive reliance on customs duties to a substantial reliance on internal revenues, such as the income tax, the estate tax, and excise taxes, could not have occurred without the demand for fiscal sacrifice that accompanied wartime politics."
What a bargain: we stop taxing foreign goods in order to tax ourselves, and we do that in order to go kill the people who make the foreign goods -- unless they kill us first. What's not to like?
"But this process did not flow naturally from the public mood in support of the war. Rather, for the first time, the notion of wartime fiscal sacrifice was cultivated, marketed, and sold to the American public."
New taxes were created in 1914, 1916, 1917, and 1918. The income tax was now back in a big way, along with the estate tax, a munitions tax, an excess profits tax, and other heavy taxes on corporations. The munitions and profits taxes were results of an ongoing debate through most of U.S. history over how to tax war profiteering. Until the current century, profiting financially from war was widely considered unacceptable. The draft again served as an argument for taxing the wealthy. Even the U.S. Chamber of Commerce claimed to be "undismayed at the prospect of great taxes," and pledged "its full and unqualified support in the prosecution of the war." The 1917 legislation drew 74% of its revenue from taxing the wealthy and another 13% from taxing luxuries.
Following World War I, various taxes were no longer needed. In 1921 and 1924 Congress repealed the excess profits tax but left the income tax in place, rather than adopting a sales tax favored by business groups. The top rate of taxation on income was reduced from 77% to 25%, but that was still more than double where it had been before the war. Meanwhile, the estate tax remained in place, and corporate taxes were actually increased during the 1920s. Taxation and progressive taxation survived the outbreak of peace.
"The personal income tax, long confined to the upper strata of American society, became mainstream. Between 1939 and 1945, Congress lowered exemptions repeatedly, converting what had long been a 'class tax' into a full-fledged 'mass tax.' . . . [B]y 1945, more than 90 percent of American workers were filing income tax returns. At the same time, lawmakers significantly increased tax rates, with marginal tax rates peaking at 94%. . . . By the war's end, the tax was raising 40% of total federal revenue, making it the largest source of federal funds."
Corporate taxes were increased as well, with a top statutory rate of 95%, and generating almost a third of wartime revenue. An excess profits tax came within a month of the draft. A shift to the sales tax was still successfully resisted. But a relatively progressive tax system was still a tax system, with many Americans were forced to pay up for the first time. This required a new round of sweet smelling Donald Duck droppings, otherwise known as propaganda. Taxes were renamed "the Victory Tax." In a Disney cartoon, the narrator warned Donald Duck that "It takes taxes to beat the Axis!" An Irving Berlin song was titled "I Paid My Income Tax Today." Among the lyrics: