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Saturday, May 17, 2008

Taxes During Wars

What do you think of this? It's the Introduction to a book from the Urban Institute, War and Taxes. The argument is that in criticizing the Bush administration for its policies regarding financing the war, "we should be careful not to compare today’s policies to some cardboard cutout version of an imagined past."

But this administration does, in my view, deserve special recognition for reasons not mentioned in the Introduction. What's different in the current case is not that the administration tried to avoid raising taxes to help finance the war effort. As noted below they weren't the first to do that, and the argument is usually based upon the (mostly incorrect) notion that the wars will be short and not very costly, and can thus be easily subsumed into the existing budget. What's different is the argument that no financial sacrifice was necessary for this or future generations - by cutting taxes revenues would actually go up (and it just so happened that the taxes that supposedly had this effect were mostly paid by the wealthy supporters of those making the arguments). Anyone paying attention knew these arguments were wrong, that there was no empirical support for the idea that the Bush tax cuts would miraculously be self-financing, but people made the arguments anyway, and those on the right who knew better, those in a position to stand up and protest loudly and make a difference instead fell silent and allowed this fraud to be perpetuated. The inclination to minimize the political fallout from wars by taking a rosy view of the necessary budgetary implications is one thing. Dishonesty, willful ignorance, and enabling by silence is quite another:

War and Taxes, by by Steven A. Bank, Kirk J. Stark, Joseph J. Thorndike, Urban Institute: Introduction In the early summer of 1967, veteran Washington journalist Peter Lisagor met with a senior Republican senator to discuss the deteriorating situation in Vietnam. The war had divided the country, triggering massive antiwar demonstrations in several major cities, and the senator agreed to talk only on condition of anonymity. But the topic of discussion was not troop levels or moral arguments over the U.S. presence in Indochina. Rather, the senator wanted to talk about something more mundane: taxes. As Lisagor later explained in a Los Angeles Times article, “Absence of Sacrifice at Home Spurs Guilt Feeling over War,” the GOP senator considered taxes a question of conscience. “I went to the beach with my son and his children a few weeks ago,” the senator explained, “and there we were, enjoying ourselves as if we didn’t have a care in the world. We had no sense of a war, no sense of sacrifice. Yet this war is already bigger than Korea. I’ll go for a tax increase now.”

A generation later, the senator’s question of conscience has resurfaced in public debate. On March 19, 2003, the Bush administration launched Operation Iraqi Freedom, a military campaign to overthrow dictator Saddam Hussein. Administration officials defended the action as part of a broader “war on terror,” including Operation Enduring Freedom in Afghanistan, which began shortly after the al Qaeda attacks of September 11, 2001. From that point forward, the United States has been actively waging a costly overseas military operation. Within six years, the Department of Defense had confirmed a total of 4,018 U.S. fatalities in Iraq and Afghanistan. And according to estimates from the Congressional Budget Office, by 2007, the budgetary cost of operations in the two countries exceeded $500 billion.

Yet despite the country’s great loss of blood and treasure, there is little sense of sacrifice on the home front. Indeed, in its first six years, the Bush administration has requested, and Congress has approved, a series of major tax cuts. Lawmakers have lowered and flattened rates for the individual income tax, initiated a repeal of the estate tax, eased the burden on capital gains and corporate dividends, reduced the so-called marriage penalty, and enacted a slew of new deductions, credits, and other special-interest provisions. When combined with a steady increase in military, domestic, and entitlement spending, these cuts have turned a projected $5.6 trillion surplus over the 10-year budget window into a $2.7 trillion deficit.

This contrast—between an active war effort on one hand and substantial tax cuts on the other—has no precedent in American history. Beginning with the War of 1812, special taxes have supported every major military conflict in our nation’s history. Moreover, many levies have outlasted the wars they financed. Politicians like to talk about their plans for revamping the country’s tax system, but important tax reform usually happens when it must, not when it should. 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.

Enactment of the Bush tax cuts has called into question the once-axiomatic relationship between war and taxes. The historical incongruity of Congress reducing taxes while increasing spending on the war in Iraq has provided fodder to administration critics who, like the anonymous Senator calling for increased taxes to pay for the war in Vietnam, have wondered publicly if the country has betrayed its tradition of wartime fiscal sacrifice. As one pundit declared in a typical statement, “in his determination to cut taxes even while waging war in Iraq, President Bush is bucking history.” Yet another bemoaned, “since 9/11, our government has asked no sacrifice of civilians other than longer waits at airplane security. We’ve even been rewarded with a prize that past generations would have found as jaw-dropping as space travel: a wartime dividend in the form of tax cuts.”

Underlying these comments is an inescapable fact: the United States has a strong tradition of wartime fiscal sacrifice, and the Bush tax cuts mark an abrupt departure from that tradition. As we hope to illustrate, however, America’s history of wartime taxation is not quite the heroic tale that many Bush critics seem to imply. Although taxes have typically gone up during times of war, the claim that “we have always accepted heavier burdens as the price those at home pay to support those under fire on the front” misses much of the complexity of American history. Indeed, as a nation, our commitment to wartime fiscal sacrifice has always been uneasy—and more than a little ambiguous. In some wars, political leaders have asked Americans to accept new taxes as the price of freedom and security. But in others, they have tried to delay, deny, and obscure the trade-off between guns and butter. And even when Americans have embraced the call for sacrifice, their elected representatives have often made room for self-indulgence, easing burdens for some constituents while raising them for others.

Exaggerating the American tradition of wartime fiscal sacrifice is understandable but unfortunate. History is most usable, at least for politicians, when it can be recast as a morality play. But it is most valuable, at least for the rest of us, when it honestly probes the inconvenient truths of human nature and political struggle. In our search for the historical context of current debates, we should be careful not to compare today’s policies to some cardboard cutout version of an imagined past. [...continue reading...]

    Posted by on Saturday, May 17, 2008 at 01:17 PM in Budget Deficit, Economics, Fiscal Policy, Iraq and Afghanistan, Taxes | Permalink  TrackBack (0)  Comments (19)


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