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Taxes in the Age of Terrorism: Echoes

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By Joseph J. Thorndike

Since the Sept. 11 attacks, the U.S. has been waging a different kind of war. It’s been both smaller and longer than previous wars, taking less money to fight and more time to win. It’s also been the nation’s first war to be fought entirely on credit.

For almost a decade, military operations -- first in Afghanistan and later in Iraq -- have been the most visible front in the War on Terrorism. Taken together, they are not yet the nation’s longest war; Vietnam still holds that title, having claimed American lives from 1961 to 1975.

Nor have they been the most expensive. Measured as a share of gross domestic product, the current conflicts have actually been cheap. During World War I, war spending peaked at 13.6 percent of GDP, according to the Congressional Research Service. In World War II, it reached 35.8 percent.

By contrast, the cost of fighting in Afghanistan and Iraq peaked at 1.2 percent of GDP. Even Vietnam -- one of the nation's cheaper wars, in these terms -- was nearly twice as expensive, reaching 2.3 percent of GDP in 1968.

The limited cost of the wars in Afghanistan and Iraq has given rise to another historical anomaly: They are the first major conflicts to be financed entirely by debt.

For years, war critics have insisted that George W. Bush was the first president to reduce taxes during wartime. This charge lets Congress off the hook too easily. It also ignores President John F. Kennedy's tax cuts, which were enacted before the Gulf of Tonkin Resolution in 1964 (often used as a marker for American involvement in Vietnam) but well after the first American casualties.

Still, once the fighting intensified in Vietnam, major tax cuts were off the table. And Vietnam eventually got its own dedicated tax increase: a special 10 percent surcharge levied in 1968.

Such war taxes have traditionally been surrounded by ample talk of shared sacrifice, much of it genuine. As soldiers lay dying on the battlefield, calls for higher taxes have been rightly cast as a moral necessity.

In 1917, Representative Edward Little, a Republican from Kansas, reminded his colleagues that conscription should apply to both men and dollars. If young Americans were going to risk the ultimate sacrifice, then wealthy taxpayers could at least offer cash. "Let their dollars die for their country, too," he declared.

We shouldn’t exaggerate the patriotism of past politicians, or the voters who elected them. Lawmakers have generally enacted new taxes because they thought they had to. Advised by economists about the perils of inflation, they were determined to limit the federal government's red ink.

War finance in the age of terrorism has been different. Political leaders in both parties -- with a few notable exceptions -- have consistently ignored calls for any sort of special war tax. Instead, they've borrowed to finance the fighting, even as total federal debt has continued to grow (and with it, the handwringing of supposed fiscal hawks).

If today's wars were once small enough to responsibly finance with debt, that time has long since passed.The Congressional Research Service estimated last year that spending on the two wars had reached $1 trillion. All of this money was borrowed. War spending shouldn't be ignored as Americans struggle to resolve their long-term fiscal crisis.

A dedicated war tax has much to recommend it, even in the midst of an economic slowdown. It doesn’t need to be large. Just big enough to hit the radar of both policymakers and voters: When it comes to taxes, visibility is generally a good thing. Obscure the cost of a government function, and people will want (or at least tolerate) more of it. How can we judge the value of a war if we don’t pay attention to what it costs?

Which is not to say that the wars in Afghanistan and Iraq aren’t worth their cost. Maybe they are. But if they're worth fighting, they’re worth paying for. And if they’re not worth paying for, then how can they be worth fighting?

(Joseph J. Thorndike, a contributor to the Echoes blog, is the director of the Tax History Project at Tax Analysts and a visiting scholar in history at the University of Virginia. The opinions expressed are his own.)

To contact the author of this blog post: Joseph J. Thorndike at

To contact the editor responsible for this blog post: Timothy Lavin at

-0- Sep/07/2011 17:58 GMT