Crises and controversies involving Iran and North Korea have dominated the foreign affairs news recently, so it is all too easy to forget that the United States remains involved in the two longest — and costliest — wars of its history: Afghanistan and Iraq.
The war in Afghanistan started in 2001 and continues to this day. The Iraq War, begun in 2003, still involves between 5,000 and 9,000 American troops. Those conflicts have cost a combined $2 trillion, or by some estimates more than $5 trillion, which would make them the most expensive wars in American history, except for possibly World War II.
What explains the American tolerance for such open-ended, seemingly never-ending wars?
One view is that the light footprint of modern warfare — drones, small numbers of special forces, and cyber, as opposed to large deployments of troops — is a chief culprit. This approach to conflict removes a barrier to war because it does not inflict casualties on American troops that would draw attention to and drain support for the enterprise.
This is surely a contributing factor. But I argue that the most crucial difference between these wars and those of the past is how they have been financed. Contemporary wars are all put on the nation’s credit card, and that eliminates a critical accountability link between the populace and the conduct of war.
Past wars, in contrast, were nearly synonymous with taxes
Leaders from Alexander Hamilton to Abraham Lincoln to Harry Truman subscribed to the idea that sound finances were part and parcel of any ambitious military venture. Sound finances meant controlling the debt, which in wartime meant generating revenue through taxes.
The economist Adam Smith recognized how war taxes curbed the public’s appetite for war hundreds of years ago. Observing the variation in how European governments paid for the wars of the 1600s and 1700s — debt or taxes — he wrote: “Every new tax is immediately felt more or less by the people. It occasions always some murmur, and meets with some opposition.” Given that opposition, Smith recognized that leaders intent on war would be tempted to shy away from taxes and instead rely on borrowing.
For much of American history, it was unthinkable to wage war without raising taxes for reasons of intergenerational equity. During the Mexican-American War, the Alexandria Gazette, one of the nation’s first newspapers, urged war taxes because “borrowing the deficit at a sacrifice when we are abundantly able to bear Taxes, is the extreme of reckless improvidence — a dishonest shifting of burdens from the back of the present generation upon that of the next.”
President Woodrow Wilson, at the outset of World War I, made a similar argument: “Borrowing money is short-sighted finance … we should pay as we go. The industry of this generation should pay the bills of this generation.” In short, war taxes were viewed as responsible, accountable, and equitable.
In some respects, the United States had learned this the hard way. Under the Articles of Confederation, Congress lacked the power to tax. The onset of the Revolutionary War made manifest what a woeful deficiency this was, as soldiers went months without pay and threatened mutiny while Congress amassed large volumes of debt.
After the war, the first secretary of the Treasury, Alexander Hamilton, introduced new taxes to pay down the national debt but learned that postwar taxes are politically problematic because the public is asked to foot the bill after the sense of urgency has passed. Hamilton introduced a “whiskey tax” that immediately inspired rebellion from disgruntled farmers who distilled the beverage. In 1798, when war with France looked likely, Hamilton called preemptively for war taxes, lest he make the same mistake again. (In the end, that war didn’t happen.)
Larger wars, larger taxes
The Civil War again confronted the United States with an extraordinary need for revenue. Four months into the war, the Union passed a revenue act that imposed the nation’s first income tax, a flat tax of 3 percent on incomes over $800 (just under $15,000 in current dollars). Taxes climbed two more times during the war. The Union would ultimately fund 20 percent of its military activities with tax revenues, putting it on a more solid financial footing than the Confederacy, which taxed late and anemically, paying for just 4 percent of the war in taxes.
In the 1898 Spanish-American War, the United States once again passed a war revenue bill even though the war costs never reached much more than 1 percent of GDP.
In the two unprecedentedly expensive world wars, the United States levied a series of income taxes. World War II, whose cost peaked at 36 percent of the nation’s GDP, led to a 1,000 percent increase in the tax base: 3.5 million Americans paid income tax at the beginning of the war, yet 42.7 million contributed by the war’s end. Public opinion polls consistently showed the willingness to pay even higher taxes than those proposed in Congress.
In the Korean War, Harry Truman tried “pay as you go” war finance, although his series of three tax increases became a political liability. Both parties in Congress resisted additional tax increases unless all-out war broke out, and Truman’s advisers counseled against 1952 election-year tax proposals given that bipartisan sentiment.
Perhaps with that example in mind, President Lyndon B. Johnson resisted war taxes in Vietnam as long as he could, aware that a debate about war taxes could threaten his prized social programs. Rebuffing his economic advisers’ calls for a war tax, Johnson held out until 1968, when the nation passed its last war tax, a 10 percent surtax on incomes (which, however, exempted low-income taxpayers).
In recent wars, proposals for war taxes have been relegated to lonely voices. Periodically during the Iraq War, Rep. Charles Rangel (D-NY), now retired, advocated for a war tax that would be automatically levied whenever Congress authorized the use of military force. Invoking his own experiences in the Korean War, Rangel said, “The entire nation shared the sacrifices through the draft and increased taxes. But today, only a fraction of America shoulders the burden.” Most other Democrats, and all Republicans, have shunned proposals like these, seeing them as politically toxic.
Rangel rightly observed that the Korean War marked a clear inflection point in how the United States pays for wars. Two key things changed. First, nuclear weapons had a deterrent effect on conflict; nuclear-armed states avoided escalation and fought limited or proxy wars.
But whereas large-scale wars posed a stark choice — make a financial sacrifice or potentially experience total defeat — limited wars fail to create the same palpable stakes.
That was the case in Korea. And, more recently, counterinsurgency operations in Afghanistan illustrated the same conundrum. In debates about the Afghanistan surge, Gen. Stanley McChrystal, who directed forces in Afghanistan from 2009 to 2010, reportedly stated that his goal was “a minimum level of governmental competence” in that country — not exactly a rallying cry for fiscal sacrifice among Americans.
Our current high-tax regime makes additional taxes politically unpalatable
Second, whereas taxes historically spiked in wartime and receded in peacetime, post-World War II taxes never returned to prior levels. High peacetime tax rates had become necessary to service the burgeoning social welfare state. At the beginning of the 1900s, government expenditures were under 3 percent of GDP, same with taxes. Those levels spiked during the world wars but remained high in the wake of World War II, with expenditures today just over 35 percent of GDP and taxes (federal, state, local) about 26 percent of GDP.
The historically high peacetime tax levels have created a psychological ceiling that makes further increases politically unpalatable. In a survey of 350 Americans I conducted on the topic of war taxes in 2014, one respondent said: “We already pay for the military with our tax dollars. We would be getting double-taxed.” Another, rejecting the idea of a war tax, said, “Let’s have a breathing tax, walking tax, enough!”
These features of the political landscape are likely here to stay. Although great power rivalries remain, the specter of nuclear weapons makes it less likely conflicts will escalate into all-out war. The types of low-intensity conflicts we’ve seen since Korea will contain the number of casualties, which is all for the good, but they will not galvanize the public or dislodge the collective resistance toward fiscal sacrifice.
Moreover, the commitment to costly social programs remains unwavering, and therefore taxes will remain high by historical levels to support them.
But without war taxes, the country is left with mounting debt — and left, too, with wars without accountability. If the public fails to experience the “inconvenience” of taxes, paraphrasing Adam Smith, there is no incentive for voters to push for a course correction.
When no citizen feels a financial pinch during wartime, open-ended wars like those in Afghanistan and Iraq are likely to become the norm, not the exception.
Sarah Kreps, an associate professor of government and adjunct professor of law at Cornell University, is the author of the new book Taxing Wars: The American Way of War Finance and the Decline of Democracy.
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