Tax Analysts®Tax Analysts®

Article Archive

December 3, 2009
News Analysis: Sacrifice and Self-Indulgence on the Home Front
Joseph J. Thorndike

Full Text Published by Tax AnalystsTM

It's become a commonplace of American politics to say that George W. Bush was the first president to endorse a tax cut during wartime. And generally speaking, it's true. Over the centuries, there have been other wartime tax cuts. But most were approved after a series of wartime tax increases, and none approached the scale of the cuts enacted during the wars in Iraq and Afghanistan.

Still, it's important not to exaggerate the fiscal heroism of past generations, especially as we evaluate recent proposals for a special war tax to fund the fighting in Afghanistan. While Americans have generally been willing to put their money where their men go, they have not always flocked to the tax man, open wallets at the ready. Amid the stoic sacrifice, Americans -- and their political leaders -- have made room for a little self-indulgence.

Consider, for instance, the War of 1812, which many Americans considered both unwise and unnecessary. While war hawks banged the drum of fiscal necessity, skeptics dragged their feet. It took Congress so long to enact new war levies that some observers warned darkly of catastrophe. "The public credit must be supported," cried one critic, "or you put at hazard the best interests of the country -- you hazard, indeed, the very existence of the government."1

Eventually Congress bit the bullet and passed a series of tax measures. But not before strolling the precipice of economic disaster.

Similarly, the Vietnam War did not prompt a rush to fiscal sacrifice. Neither Congress nor the White House showed much initial interest in special war levies. President Lyndon Johnson, in particular, was reluctant to jeopardize his domestic agenda by pushing through an unpopular tax increase. As he declared in his 1966 State of the Union address:

    There are men who cry out: We must sacrifice. Well, let us rather ask them: Who will they sacrifice? Are they going to sacrifice the children who seek the learning, or the sick who need medical care, or the families who dwell in squalor now brightened by the hope of home? Will they sacrifice opportunity for the distressed, the beauty of our land, the hope of our poor?

    Time may require further sacrifices, and if it does, then we will make them.

    But we will not heed those who would wring it from the hopes of the unfortunate here in a land of plenty.

    I believe that we can continue the Great Society while we fight in Vietnam.2

Under pressure from fiscal hawks in Congress, Johnson eventually agreed to a special income tax surcharge to help finance the war in Vietnam. But his embrace of fiscal sacrifice was notably reluctant, born of necessity and not conviction.3

The lesson from 1812 and 1966 seems clear: It's hard to sell the tax before you sell the war. Unpopular wars have been the occasion for most departures from the tradition of fiscal sacrifice -- present wars included.

Still, it's one thing to oppose a tax hike in the middle of a war. It's another thing entirely to propose a tax cut. Yet we have seen those, too. In World War II, for instance, President Franklin Roosevelt felt compelled to veto the Revenue Act of 1943, declaring that it was "not a tax bill but a tax relief bill providing relief not for the needy but for the greedy."4 Other measures in other wars have also offered tax relief for a lucky minority.

But such departures from the tradition of wartime sacrifice have been relatively minor. Most wartime tax cuts have been small, and all occurred in a larger context of wartime tax increases. Relief from wartime tax burdens has been a feature of American fiscal history, but the crucial point remains: Burdens went up in the first place. The tax cuts of the last decade mark the single exception to this rule.

The Good War

When champions of a new Afghan war tax reach for historical precedent, they usually turn to World War II. And with good reason -- presidential vetoes notwithstanding, the war gave rise to the purest version of fiscal sacrifice in American history. In the face of "total war," lawmakers agreed to a series of dramatic tax increases. Between 1939 and 1945, they cut income tax exemptions repeatedly, increasing the number of returns filed almost sevenfold.5 Simultaneously, they raised rates across the board and especially at the top of the income scale. The top marginal rate eventually peaked at 94 percent, and effective rates for the richest 1 percent of taxpayers neared 60 percent.6 Together, such changes made the income tax a fiscal workhorse, boosting revenue from $1 billion in 1939 to $18.4 billion in 1945. By war's end, the tax was raising 40 percent of total revenue, displacing excise duties as the leading source of federal funds.7

One element of the World War II tax regime deserves special mention, for symbolic as well as substantive reasons. In 1942, as lawmakers were revamping the personal income tax, they also created the victory tax, a flat 5 percent levy on "victory tax net income." The tax allowed fewer deductions than the regular income tax, giving it a broader reach. Indeed, according to Randolph Paul, a leading architect of the wartime tax system (although not of the victory tax), this special wartime fiscal tool introduced 13 million Americans to the joys of income taxation.8

As its name suggests, the victory tax was linked explicitly with the war. It was designed with a variety of pragmatic goals in mind, including additional revenue and inflation prevention. But it also reflected -- in both rhetoric and design -- a conviction that war taxes should be broadly shared. While almost all Americans were already paying a variety of narrow excise taxes, the architects of the victory tax believed that it was politically and morally important for Americans to share the nation's marquee fiscal burden: the income tax. The victory tax was an instrument of fiscal policy, to be sure. But it was also an instrument of civic engagement during a moment of civic crisis.

Why No War Tax Today?

If the American tradition of wartime taxation is so strong, then why no war tax today? Why have lawmakers avoided fiscal sacrifice at home even as the nation's soldiers have paid a mortal sacrifice overseas?

Waning political support for both wars can explain part of the anomaly, although not the initial reluctance to establish a war tax in the immediate aftermath of 9/11. The wars of the last decade share the problematic politics of 1812 and 1966, and as a result, they share the fiscal problems, too.

The limited scope of our current wars has also been important. Small relative to the size of the American economy, they haven't sparked fears of serious inflation; such fears have figured prominently in the enactment of almost every war tax of the 20th century. Historically speaking, politicians vote for tax increases when they must, not when they should. Absent an economic imperative, they have always been slow to act.

The absence of a draft may also have played a role. In the past, the forced sacrifice of lives on the battlefield has prompted calls for fiscal conscription on the home front. By contrast, an all-volunteer army may well have lessened the imperative for home-front sacrifice.

Finally, tax politics have changed fundamentally over the past 40 years. Republicans of the modern era -- and to a lesser extent, Democrats too -- are not constrained by the rigid fiscal ideology of their predecessors. As historian W. Elliot Brownlee has noted:

    During the Iraq war, George W. Bush and the Republican leadership in Congress were able to implement a fiscal strategy based on their reading of the historic legacy of wartime finance. They were determined to break out of a historic process . . . the upward ratcheting of taxing capacity, domestic spending, and tax progressivity associated with the financing of the world wars of the twentieth century. They did not want the Iraq war to disrupt their effort to increase the downward fiscal pressure on entitlements and other domestic spending, and to shift the base of taxation toward regressive consumption taxation. Their strategic effort required muting or countering traditional calls for "shared sacrifice" via taxation.9

Brownlee is correct, even if he does seem to give Democrats a pass. For my money, liberals must share some of the responsibility for abandoning the cause of wartime fiscal sacrifice -- their recent support of special war taxation is laudable, but it's been a long time coming.

What does the history of wartime taxation tell us about the future? Not much. In Washington, as on Wall Street, past results are not an indicator of the future. Still, the scent of change may just be discernible. Growing unease about the federal debt has begun to constrain plans for all kinds of spending, including the most politically sensitive; if cost worries can limit Medicare, will they eventually limit military action? Maybe. Policymakers may finally be facing the sort of economic imperative that prompted previous generations to opt -- however reluctantly -- for war taxation. We may be approaching the end of the anomaly.

But current proposals for a war tax are anomalous in their own right. Traditionally, war taxes have been framed as instruments of victory. Today's proposals, by contrast, seem designed to encourage withdrawal (or what war supporters might call capitulation).

As lawmakers ponder the politics of such a tax, they might take comfort in the words of a GOP icon: Adam Smith. If lawmakers would pay for wars with taxes rather than debt, all sorts of good things would ensue:

    Wars would in general be more speedily concluded, and less wantonly undertaken. The people feeling, during the continuance of the war, the complete burden of it, would soon grow weary of it, and government, in order to humour them, would not be under the necessity of carrying it on longer than it was necessary to do so. The foresight of the heavy and unavoidable burdens of war would hinder the people from wantonly calling for it when there was no real or solid interest to fight for.10

1 Donald R. Hickey, The War of 1812: A Short History, Urbana: University of Illinois Press, 1995, p. 50.

2 Lyndon Baines Johnson, State of the Union address, Jan. 12, 1966, text and video available at the Miller Center of Public Affairs at the University of Virginia,

3 For more on the Vietnam surcharge, see Joseph J. Thorndike, "Historical Perspective: Sacrifice and Surcharge," Tax Notes, Dec. 5, 2005, p. 1222, Doc 2005-24241, or 2005 TNT 233-6.

4 Franklin D. Roosevelt, veto of a revenue bill, Feb. 22, 1944, reproduced by John T. Woolley and Gerhard Peters, the American Presidency Project [online], Santa Barbara, CA, available at For more on the 1943 veto, see Joseph J. Thorndike, "Wartime Tax Legislation and the Politics of Policymaking," Tax Notes, Oct. 29, 2001, Doc 2001-27249, or 2001 TNT 209-4.

5 U.S. Department of the Treasury, Statistics of Income for 1947, Washington, D.C.: United States Treasury Department, 1950, Part 1, pp. 55-60.

6 On marginal rates, see Tax Policy Center, Historical Top Tax Rates, available at On effective rates for the nation's richest taxpayers, see W. Elliot Brownlee, "Historical Perspective on U.S. Tax Policy Toward the Rich," in Does Atlas Shrug? ed. Joel B. Slemrod, New York and Cambridge: Russell Sage Foundation and Harvard University Press, 2000, pp. 60-61.

7 Office of Management and Budget, Historical Tables, Budget of the United States Government for Fiscal Year 2005, Washington: Executive Office of the President, Office of Management and Budget, 2004, p. 31.

8 For more on the victory tax, see Dennis J. Ventry Jr., "The Victory Tax of 1942," Tax Notes, June 16, 1997, p. 1549, Doc 97-17470, or 97 TNT 115-79.

9 W. Elliot Brownlee, review of War and Taxes, EH-Net, May 2009, available at

10 Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Book Five, Chapter III, available at