I’m sure you remember that today marks the 70th anniversary of the bombing of Pearl Harbor. Causing the United States to “officially” enter into World War II. The consequences of that day still reverberate today, in dozens of unseen ways — including how you pay the taxes that support the national security apparatus that works to prevent such an attack from ever happening again.
World War II has been called the single most significant event in world history. So it’s no surprise that financing the war led to some of the most significant taxes in history.
The Roosevelt administration had been gearing up to support the war effort long before the attack. When bombers struck on December 7, 1941, taxes were already high by historical standards. There were a dizzying 32 tax brackets, starting at 10% and topping out at 79% on incomes over $1 million, 80% on incomes over $2 million, and 81% on income over $5 million.
Just a few short months after the attack, in April, 1942, President Roosevelt proposed a 100% top rate! At a time of “grave national danger,” he argued, “no American citizen ought to have a net income, after he has paid his taxes, of more than $25,000 a year” (roughly $300,000 in today’s dollars). Patriotic Americans were eager to pay more to support the war effort — starlet Ann Sheridan, known as Hollywood’s “Oomph girl,” even famously announced “I regret that I have only one salary to give for my country.”
Roosevelt never got the 100% rate. However, the Revenue Act of 1942 raised top rates to 88% on incomes over $200,000. (It also introduced the first deductions for medical expenses and personal investment expenses.) By 1944, the bottom rate had more than doubled to 23%, and the top rate reached an all-time high of 94%.
World War II also marked the introduction of payroll withholding, which is the “dirty little secret” that makes today’s “voluntary” tax system work. Traditionally, the government had collected taxes “in arrears,” when taxpayers filed their returns. But as the war accelerated, the government couldn’t wait. That created a problem — how could Americans afford to pay their 1942 taxes at the same time employers were withholding tax on 1943 income? To solve that problem, the Current Tax Payment Act of 1943 actually cancelled 75-100% of the lower of 1942 or 1943 individual tax liability.
Tax rates remained high for decades following the war. It wasn’t until President Reagan took office in 1981 that the top rate dropped below 70%. Today’s top rate of 35% is actually low by historical standards — and tax collections are at post-war lows as well.
Seventy years after that sunny Sunday morning on Pearl Harbor, the world is once again safe for democracy. Yes, we face real threats to our security, ranging from Iran’s pursuit of nuclear weapons to China’s growing economic might. But none threaten us so directly as did World War II’s Axis powers. Military spending, which reached 42% of Gross Domestic Product in 1942, has fallen to just 6% today — even accounting for wars in Iraq and Afghanistan.
What would the Greatest Generation, those who made such awesome sacrifices think of today’s tax debates? Would they side with those who feel “taxed enough already”? Or would they side those who call for more sacrifice from the wealthiest Americans to help support today’s peacetime needs? What do you think?
Thank you to all who served then, serve now, or have ever served in The United States Armed Forces.