Friday, April 22, 2011

A Unified Theory of War and Taxes

A Unified Theory of War and Taxes
By David Swanson

If you hate taxes but dutifully cheer for wars, it's lucky you also oppose school funding sufficient to produce historical literacy. Taxes are a byproduct of wars. Were it not for wars and war propaganda, this country would have never begun paying taxes. If we were to end wars, and only if we were to end wars, we could consider ending taxes too.

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 and Taxes" is the title of an excellent book by Steven Bank, Kirk Stark, and Joseph Thorndike. These guys are historians of taxes. (How many children aspire to join that profession?) They lay out the history of U.S. taxation, the debates, the votes, the legislation, the compliance and evasion. Here are all the details in clear chronological order. It turns out that "war and taxes" have a lot more in common than "death and taxes." War and taxes are both optional and are joined at the hip. Or, as these authors put it:

"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.

The income tax was brought to you courtesy of that glorious act of mass stupidity that began 150 years ago this month: the Civil War. The North began an income tax in 1862, and the Confederacy in 1863. This was after the routine promises of a cheap and easy war had worn out their welcome. Both sides were forcing men to leave their homes to kill and risk death, but effectively excusing the wealthy from that duty. Thus arose popular pressure to compel the rich to "sacrifice" financially. Both sides enacted progressive, graduated income taxes, and other taxes as well. The North taxed everything in sight, including inheritances and especially corporations. The financial cost of the Civil War was astronomical, and the veterans' pension program was our first major social welfare program. It required massive funding.

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.

Then came the most glorious war of all, and with it massive taxation for all. World War II spending, taxation, and -- of course -- the draft, were off and running long before Pearl Harbor. And by the end of this worst catastrophe in human history government funding had been transformed:

"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:

"You see those bombers in the sky?
"Rockefeller helped to build them,
So did I!"

In 1943 Congress overrode a presidential veto to shift the tax burden more heavily onto working people. Corporations would never again to this day shoulder the share of public funding that they had in the early years of World War II.

Taxes were reduced again after the war. But again, they were not returned to pre-war levels. The 1948 reduction was the only time taxes have been cut by overriding a presidential veto. President Truman was envisioning a permanent military state while millions of other Americans were hoping war had ended at least for a while.

But in 1950 and 1951, Congress passed new tax bills, including an excess profits tax, to pay for war in Korea, and to return the tax system to roughly what it had been during World War II. There was support for "sacrifice" in the air at the start of the Korean War that later fizzled.

The Vietnam War was a different story. In the earlier years of its major escalation, President Lyndon Johnson avoided raising taxes, apparently largely out of fear that talking about the financial strain of the war would lead to cuts in domestic programs. Or, as LBJ delicately put it:

"I knew from the start that I was bound to be crucified either way I moved. If I left the woman I really loved -- the Great Society -- in order to get involved with that bitch of a war on the other side of the world, then I would lose everything at home. All my programs. All my hopes to feed the hungry and the homeless. All my dreams."

Of course, he would also kill huge numbers of human beings, most of them Vietnamese, and destroy any dreams held by anyone in that country. And he did so. But the war grew unpopular at home, as did the idea of sacrificing financially to pay for it. Nonetheless, the tax bill that was passed in 1968 was the largest single-year increase since World War II. On March 25, 1969, just days after secretly beginning to bomb Cambodia, President Nixon began lobbying Congress for more taxes.

And then came George W. Bush. War as a joint sacrifice was out the window. Wars would be fought by the poor and the privatized. Mercenaries and contractors would outnumber troops. Massive spending would be dedicated to recruitment. Those recruited would meet lower standards and be held for longer periods of "service." Everyone else would benefit from war. There would be patriotism, entertaining news coverage, and major tax cuts, instead of increases. Out as well was progressive taxation, the notion that the wealthy should pay at a greater rate than those who actually need their money. So, something new arose on the horizon of U.S. history: major and repeated regressive tax cuts during an immensely expensive pair of simultaneous wars.

This pattern has essentially continued during President Obama's tenure. Military spending continues to increase, while taxes continue to decrease. The result has been a huge budget deficit. And the impact of these and related policies on the economy has been disastrous, leading to an even huger budget deficit. A lot of ideas have been proposed to solve this problem: cut back or eliminate self-funding programs that are doing fine financially, such as Social Security or Medicare; or cut back or eliminate basic goods provided through our government, such as schools or healthcare or environmental protection. The fact that over half of our income tax goes to the military and wars, and that a majority of us want those wars ended and that military reduced -- such obvious solutions are not discussed in corporate media.

The fact that wars created the taxes, and that the taxes have now been cut back as the wars expanded -- such insights would require a knowledge of history. One solution would be to give everyone a copy of Bank and Stark and Thorndike's book, "War and Taxes."

No comments: