The Value of Violence by Benjamin Ginsberg

Author:Benjamin Ginsberg
Language: eng
Format: epub, mobi
Publisher: Prometheus Books
Published: 2013-07-28T16:00:00+00:00

REVENUE EXTRACTION

The construction of America's new standing army and other national security institutions would require the nation to bear, on a permanent basis, levels of military spending previously seen only during wartime emergencies. Stated in constant dollars, President Truman's 1952 defense budget of more than $46 billion represented a 20-fold increase over America's defense spending in 1940 and approached World War II spending levels. And, the nation was expected to sustain these outlays into the indefinite future. To accomplish this Herculean task, however, Truman could rely upon the tremendous extractive capabilities of the federal tax system developed by the Roosevelt administration during World War II. The Second World War marked a watershed in U.S. government finance. First, the Revenue Act of 1942 substantially broadened the nation's tax base, increasing the number of households subject to the income tax from 13 million to 28 million. By 1944, tax rates began at 3 percent on incomes between $500 and $2,000, rose to 20 percent for incomes above $2,000, and climbed steeply to reach a nominal rate of 91 percent on income over $200,000.52 The second important innovation associated with the war was the enactment of the Current Tax Payment Act of 1943. Before 1943, federal income taxes were to be paid quarterly in the year after the income was received. This system depended heavily upon the honesty, goodwill, and foresight of individual taxpayers. Under the terms of the 1943 Act, however, employers were required to withhold 20 percent of wages and salaries and to remit these to the government as the income was earned. The 1943 Current Tax Payment Act partially freed the government from its historic dependence upon the support and integrity of the individual taxpayer. It made the collection of income taxes automatic and involuntary from the perspective of the taxpayer and, together with higher rates, increased federal income tax revenues from slightly more than $1 billion in 1940 to more than $45 billion by 1945. At the end of World War II, of course, there was considerable political pressure to cut taxes, and Congress did enact a tax cut over the president's veto in 1948.53 The outbreak of the Korean War, however, produced a series of temporary tax increases that, in many instances, became permanent, leading to $65 billion in revenues in 1955 and beginning the march toward today's $2 trillion in federal income tax receipts.

To make this tax burden more palatable to millions of ordinary Americans, the government relied upon the principle of progressivity. Progressivity, enshrined in American tax law since the Revenue Act of 1862, was a concession to the popular sense of justice. According to tax historian Sidney Ratner, progressivity accompanied the extension of new and relative high rates of taxation to citizens with small incomes.54 In principle, at least, the handful of wealthy Americans had to be taxed at even higher rates in order to convince tens of millions of their less prosperous fellow citizens that the tax system was fair and that they should comply with its demands.

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