ASHINGTON, March 8 — In his determination to cut
taxes even while waging war in Iraq, President Bush is bucking history.
With the exception of the war against Mexico in the 1840's, taxes
have been increased for every war the United States has fought, ever
since most colonies increased property taxes to raise money to fight the
British in the American Revolution.
Some of the most fundamental changes in American tax policy have
occurred in wartime.
The first discussion of an inheritance tax occurred in the War of
1812, and such a tax was enacted in the Civil War. The first national
income tax was imposed, on the wealthiest 10 percent or so of Union
households, during the Civil War. The income tax was expanded in World
War II, so that for the first time most citizens became taxpayers, as
they are today.
In the current situation, the Bush administration argues that a war
against Iraq is bound to be short and relatively inexpensive, so there
is no risk in cutting taxes.
"The cost of the war will be small," Treasury Secretary John W. Snow
told the House Ways and Means Committee this week. "We can afford the
war, and we'll put it behind us."
W. Elliot Brownlee, a tax historian at the University of California
at Santa Barbara, chuckled when he was told of Mr. Snow's remark.
"That's what might have been said at the outset of almost any of the
significant wars," Mr. Brownlee said.
For instance, after the attack on Fort Sumter started the Civil War,
most experts predicted that the war would last a few months at the most,
and President Abraham Lincoln's Treasury secretary, Salmon P. Chase,
estimated that the war would cost $320 million.
In fact, the war lasted four bloody years and cost $5 billion, more
than 15 times Chase's forecast.
In the early days of the military buildup in Vietnam, Presidents John
F. Kennedy and Lyndon B. Johnson also thought they could safely cut
taxes and meet military expenditures. Business taxes were cut in 1962,
and income taxes were cut across the board in 1964.
But as the United States' commitment in Vietnam grew, budgetary
strains mounted.
In in his State of the Union Message in 1967, Johnson asked Congress
for a tax increase to keep the budget deficit "within prudent limits and
to give our country and our fighting men the help they need in this hour
of trial."
Congress balked for a time. But in 1968, a 10 percent surcharge was
imposed on individual and corporate income taxes. Under President
Richard M. Nixon, taxes were raised again in 1969.
The history of wartime taxes in this country can be found in
Professor Brownlee's book "Federal Taxation in America: A Short History"
(Woodrow Wilson Center Press and Cambridge University Press, 1996); in
"The Great Tax Wars," by Steven R. Weisman (Simon & Schuster, 2002);
and in a 2002 Library of Congress report, "Financing Issues and Economic
Effects of Past American Wars," by Marc Labonte.
To help pay for the War of 1812, Congress enacted excise taxes, sales
taxes and a requirement that states raise property taxes and forward the
money to the federal government.
In the Civil War, in addition to imposing the first inheritance and
income taxes, the government raised business taxes and taxes on spirits
and tobacco and imposed higher tariffs. The principles of tax
withholding, mortgage deductions and the rich paying at a higher rate
than the poor were more or less established then.
And some of the tax complications that exist today, like the
distinctions between gross and net income, between earned and unearned
income and between regular income and capital gains, first appeared
during the Civil War.
To help pay for the Spanish-American War, excise and inheritance
taxes and tariffs were raised.
In World War I, the personal income tax and taxes on corporate
profits were increased significantly. The first permanent estate tax was
enacted, and taxes were imposed on the production of munitions.
Federal spending during World War II rose to 43.6 percent of the
national economy in 1943, from 9.8 percent in 1940. In addition to
expanding the income tax so that it became a broad tax on most
households, the government increased the corporate tax and excise taxes,
created a 5 percent "victory tax" to be repaid in a tax credit after the
war, and raised to 90 percent what was called an excess profits tax on
companies.
In the Korean War, income tax rates were raised to the levels of
World War II, and a new excess profits tax was enacted.
The 10 percent surcharge on personal and corporate income taxes
imposed during the Vietnam war resulted in a budget surplus in 1969, the
last until 1998.
Taxes were not increased during the Persian Gulf war in 1991, but
that was the year the tax increases of 1990 first took effect.
In many cases, most notably the Civil War and World War I, Mr.
Brownlee said, a motive for raising taxes in wartime was to "respond to
some sense of shared sacrifice" and head off criticism that poor
soldiers were fighting a rich man's war.
In that respect, too, President Bush is breaking from the past,
holding that the best way to improve the economy for everyone is to cut
the taxes of the most affluent.
"In this time of high-tech warfare and a volunteer Army," Mr.
Brownlee said, "there is no longer the concern with equalizing
sacrifice."
