Customer Reviews

War and Taxes

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While acknowledging the Bush tax cuts marked an "abrupt departure" from our tradition of wartime fiscal sacrifice, the authors of War and Taxes demonstrate that such sacrifice hasn't always been all that willing. (Typically, business interests have patriotically chest-thumped while acting sub rosa to minimize any tax effect.) Now often, the Civil War serves to open our tax history, with the establishment of the Bureau of Internal Revenue and the imposition of a recognizable income tax, but the authors appropriately focus on the War of 1812 in pushing the nation toward increased reliance on internal taxation, as opposed to tariffs and loans, thereby placing war finance on a sound footing. The contrasting fiscal strategies of the Union and Confederacy are clearly laid out. Further, the recurring relationship between conscription and taxes is well introduced in the Civil War chapter. (One frequent populist refrain: Draft wealth, not just boys of 18.) The authors deserve particular credit for sorting through the various iterations of the excess profits tax proposals in both world wars, as well as for highlighting the tax forgiveness feature of the Current Tax Payment Act of 1943, which was effectively a wartime tax cut. Naturally, we learn the critical impact of World War II in laying the foundation for our current tax system, especially withholding, but also how close we came to a national sales tax. Hardly a dry text, the Vietnam chapter, for example, is almost sad to read as Lyndon Johnson's presidency unravels from a tax/budgetary perspective. War and Taxes is an important contribution to this field of study and one that succeeds in ably interweaving decisive historical events (e.g., the New York Draft Riot, unrestricted submarine warfare in 1915-17, Chinese entry into the Korean War) with the contemporary legislative atmosphere and the pertinent technical tax issues.

There are so many books that dissect how and why we fight wars, but this is the only book I have found that analyzes the other half of war: how we pay for it. This is not an academic issue, because ordinary citizens can change the course of a war by deciding to pay for it or to not pay for it. War and Taxes provides a fascinating history of how our country has paid for its wars, and it disproves the myth I was taught in high school that wars must lead to higher taxes. This is the first time that a book on taxes has made my summer reading list, but this book is very timely and eye-opening.

The authors of this thoughtful work begin with the proposition that there is no precedent for the expenditure of blood and treasure for the last six years of warfare in the Middle East while cutting taxes at the same time. Then, by going all the way back to the War of 1812, they candidly demonstrate that Americans have not always been especially willing to pay higher taxes to finance the nation's wars. Only with the two World Wars and the Korean War were most Americans readily prepared to make the financial sacrifices required to pay for these major wars. Implicit, but not as explicit as it might have been, is the conclusion that citizens are more easily persuaded to pay for wars involving national survival than limited wars with more ambiguous aims.

One of the authors' central themes is explaining how the income tax assumed a role of primacy among the various other forms of revenue raising. They note how during the Civil War a perception arose that the income tax was the fairest means of financing that war in response to complaints the rich were exempt from sacrifice. Even after the income tax was legitimized by the Sixteenth Amendment just before the United States entered World War I, it remained a tax imposed on upper income citizens until World War II. This book includes a good description of FDR's successful resistance to a national sales tax to pay the skyrocketing costs of that war in favor of a broader use of the income tax. The authors also provide excellent background on how withholding and the standard deduction first appeared at this time.

In the interest of a balanced view, there appears to be an error on page 95. The percentages of the income tax as a share of total revenue match exactly the dollar figures in the next sentence. After half an hour of attempting to trace the vaguely cited source in the footnote, I abandoned the effort. On page 109, the fine quotation should be attributed to Speaker, not Senator, Sam Rayburn. Then there's the cover art. This is a book about American wars and American taxes. The WWII vintage tank appears to be a Sherman, but the ship silhouette is unquestionably one on the Royal Navy's King George V class, and the plane looks like an RAF Mosquito.

These minor flaws should not deter anyone from reading this book. The information is generally quite sound and the analysis is very informative. The time spent reading it will be rewarding.

Joe Thorndike is a genius. This is the best book on war and taxes yet! Bravo.

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.

--skip a few wars --

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."