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  • Print publication year: 2016
  • Online publication date: July 2016

4 - The World War I Regime

Summary

As World War I began, the nation was poised for a decisive swing away from the Civil War tax regime. Democratic pressures had mounted for the federal government to shift its tax system to conform to the criterion of “ability to pay” and, in the process, to address the growing inequality in the distribution of income and wealth. Meanwhile, mature industrialization, which included the proliferation of modern corporations and sophisticated financial intermediaries, had fostered much of the organizational capability necessary for implementing a direct tax on the incomes of corporations and wealthy individuals. Even so, the federal government would have been slow to adopt income taxation without the play of historical contingency. Without the intervention of the United States in World War I and the management of that intervention by the leaders of the Democratic Party, the development of federal taxation would have proceeded far more incrementally. It almost certainly would have relied much more heavily on the taxation of consumption.

The World War I crisis, as well the next wartime crisis less than a generation later, forced political leaders to reexamine all of the nation's financial options. In so doing, leaders faced issues that went far beyond the financial problem of meeting war demands to increase government spending. Each crisis involved the meaning or survival of the nation and stimulated debate over national values. Each crisis intensified ideological and distributional divisions within American society. Because wars required the sacrifice of lives as well as treasure, each was a powerful stimulant of social division. The resulting political conflicts often centered on issues of taxation; tax politics was always an important vehicle for the expression of both national values and the underlying social and ideological conflicts that the emergencies only intensified.

Within the conflicted politics of World War I, the leaders of the federal government worked to persuade Americans to accept new taxes. During the war the architects of national mobilization made taxation part of larger strategies of persuading Americans to accept sacrifice. New tax programs were designed both to implement sacrifice and to convince the mass of taxpayers that their sacrifices were fair. The progressive impulses of the general public were so strong that the framers of tax policy launched major initiatives – most notably the rigorous taxation of corporate excess profits – that were designed to democratize production and finance.