The Price of Civilization: Taxation for Depression and War, 1932-1945

World War II transformed the American federal tax system. Under the fiscal pressure of “total war,” lawmakers broadened the personal income tax, transforming it from a class tax to a mass tax. They also imposed steep new levies on corporate income and rejected plans for a national sales tax. The resulting tax regime — which also featured a range of narrow consumption taxes and a flat-rate wage tax to fund Social Security — proved remarkably durable. Indeed, it remained the foundation of federal finance for the rest of the twentieth century.

The war’s fiscal watershed arose from a confluence of factors, including politics, conviction, and necessity. Historians have emphasized the last, giving the story a functional cast. But while necessity was certainly the mother of this fiscal invention, ideas and institutions were vital, too.

This dissertation makes three principal claims. First, it argues that fairness concerns shaped tax policy throughout the 1930s and 1940s. Members of the Roosevelt Administration differed among themselves over the best way to promote fiscal justice; advocates of “high-end progressivity” wanted to raise taxes on the rich, while proponents of “low-end progressivity” wanted to cut taxes on the poor. But Administration officials agreed on the importance of progressive reform. With active support from President Roosevelt, they kept fairness at the center of every tax debate, helping ensure that wartime reforms had a distinctly progressive cast.

Second, I argue that experts played a vital role in shaping tax reform. Wartime revenue revision reflected more than decade of careful planning by the Treasury Department and its tax experts. The Administration’s store of expertise gave it a distinct advantage in struggles with a reluctant Congress.

Third, I argue that taxation was not simply a question of expedience — not during the New Deal and not during the war. In the mid-1980s, New Dealers tried to use taxation as a means of fundamental economic reform, convinced that “social taxation” might be used to remake society. Political and economic realities ended the experiment. But for a brief stretch, tax reform was a key item on the New Deal agenda. Later, World War II made taxation a vital tool for managing the economy. Spurred on by the Keynesian revolution, federal officials recognized the utility of countercyclical tax policy.

Digitization of this thesis was made possible by a generous grant from the Jefferson Trust, 2015.