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Max Boot has written that the wars “celebrated in countless books, movies, and documentaries” are typically large-scale wars like World War II, total wars in which the country invested all of its blood and treasure and an unconditional enemy surrender was achieved. Those, he notes, are the “American way of war”—the reliance on advanced technology and commitment from the public to achieve total victory. It turns out that such wars are more the exception than the norm, even in American history; in the first part of the 1800s the United States engaged in dozens of small-scale military ventures, sometimes for debt repayment, sometimes to stabilize insurrections, at other times to protect American citizens or property.¹⁹ These small wars were in the backdrop of the political landscape for decades, and the public would have been forgiven for not knowing that the US had carried out another incursion against the American Indians, or even a marine landing in North Africa (the Barbary Wars).

Yet as technology changed, the scale and costs of war grew, bringing an increasing need for extraction as an efficient and indeed equitable—since taxation could be done progressively as a function of economic means—way to finance conflict. The great utility of an income tax was that the government could now extract the fruits of most production in the society. Earlier forms of taxation were either greatly regressive (such as sales taxes) or susceptible to evasion (like most extant forms of direct taxation).

This section describes how these revenue needs produced the first income tax in the Civil War, steeply progressive tax rates in both world wars, and a nod in the same direction at the outset of the Korean War. With its fiscal resources invested in the conflict, the public scrutinized the conduct of these wars in ways that percolated to the leadership and imposed a particular pace on the war. As Bruce Bueno de Mesquita shows, the decision to tax a democratic body meant that the state needed to be more selective, to wage wars where the odds of victory were higher and the speed of victory was swifter, in order to provide the public good of security for the state and its populace.²⁰ In fact this period produced the empirical finding that democracies picked their wars and fought harder during them, consequently winning in the vast majority of cases.²¹

This finding is consistent with the civic militarism and triumphalism outlined by Hanson. He cites “the idea of a free citizenry voting to craft the conditions of its own military service through consensual government.”²² Indeed, the reciprocal nature of foisting the burdens of war onto the backs of a democratic citizenry through extraction while providing compensation by way of greater liberalism and rights in the wake of war, in a system enabling democratic voting for the leaders who made decisions about war and peace, appeared to be a recipe for fighting harder and more successfully, if sometimes over-zealously.

A significant enabler of this cycle was the move from indirect to direct taxes. As the name suggests, indirect taxes are applied to the sale of items. Direct taxes are those that individuals pay directly to the government, the most obvious of these being the income tax. An indirect tax, though a small percentage of each item, can add up in ways that have prompted revolts, including the one that started the American Revolution as well as the later Whiskey Rebellion in the 1790s. Direct taxes are far more visible, in part because the amounts add up far more quickly but also because they cannot be shifted to others—for example by opting out of buying tea, whiskey, luxury goods, or whatever other item is being taxed.

The British were the first to successfully implement an income tax, in preparation for the Napoleonic Wars. During the government of William Pitt the Younger at the dawn of the nineteenth century, the tax brought in a respectable amount of revenue. Only incomes above £60 were taxed, starting at a mere 1/120th of taxable income; this rate progressively increased to 10 percent for incomes above £200. Self-disclosure of incomes was only required at the tax commissioner’s discretion. After a brief period of wavering between imposition and suspension, the tax had become a permanent feature of British society by 1842, under the prime ministership of Robert Peel. It must be noted that most individuals were exempt, as only wealthier households were taxed, a feature of the system throughout the West at the time.²³ War taxes were seen as efficient and equitable, as William Gladstone put it in his role as Chancellor: “an engine of gigantic power for great national purposes.”²⁴ With the coming of the Second Industrial Revolution in the later nineteenth century, both the amount of wealth and the ease with which wealth could be identified, assessed, and extracted had all increased markedly. Factories—the mainstay of industrialization in the West—established consistent payroll records; accounting practices that were developed for private entities would then serve for government auditors and tax commissions. Income taxes become a significant and necessary tool that was already widespread by the time of the two world wars. (Indeed, World War I would force the British government to increase its top rates from 8 to 50 percent.)

In the United States too, one of the key features of the period between the Civil War and the Vietnam War is the significant increase of extraction in wartime via an increasingly bureaucratized state, redistribution of wealth through war, and a tendency to maintain the wartime tax levels in the postwar period. Bureaucracies developed during wartime to collect and implement the taxes remained in place in peacetime, creating a so-called “ratchet effect” linking spending and institutions.²⁵

One of the notable features of the Civil War is that the North resorted to direct taxes relatively early on, legislating the first American income tax in 1861. This provided confidence to the financial community, including those providing loans, with regard to the government’s solvency. Property taxes were direct taxes, which were at that time a violation of the US Constitution. However, since an income tax did not tax property, it could technically be considered indirect and thus not subject to constitutional prohibitions. The first income tax was 3 percent on incomes over $800, which in fact excluded many wage earners. The Revenue Act of 1862 was also progressive but included more citizens in its net; it exempted the first $600 and became steeper as income increased. This was further reinforced by the 1864 Internal Revenue Act. The Union created a national banking system and a revenue service to collect these taxes. By contrast, the Confederacy relied far more on printing money and debt, creating enormous levels of inflation—9,000 percent by the end of the war—that eroded the value of its currency and financial solvency.²⁶

The two world wars followed a similar extractive strategy to that of the Union in the Civil War. In their research on progressive taxation in World War I, Kenneth Scheve and David Stasavage show the independent effect of mass warfare in creating the conditions for the fair distribution of war’s burdens, contrasting tax rates for non-participants with the far more progressive rates of the participants. Underlying these differences were changing public attitudes about taxation driven by mass mobilization, and in particular the war-driven sense of fairness—that the conscription of men should produce the conscription of wealth at the upper end of the economic ladder.²⁷

As noted above, one of the virtues of the massive extraction in the world wars was that it connected the public to the conduct of the war. Even in the context of a war where the stakes were seen as existential, World War II tax proposals received considerable scrutiny. Although it seems an unlikely place to uncover evidence for the scrutiny and accountability-inducing effects of war taxes—since by all accounts it was a war with overwhelming support from the populace—archival material from the Roosevelt administration reveals folder after folder of letters to President Roosevelt about the 1943 proposal for a pay-as-you-go withholding tax. Vitriolic letters, fan mail, talking points from the Treasury Secretary to Roosevelt: to read the archival material is to read a fiscal epiphany, one infused with partisan and class politics. One of the first materials in the tax policy binder was a 1935 Confidential Report to President Roosevelt, which delves into great detail in deriding the “wealth-destroying taxation.” The near-hyperbole continues throughout the report. One passage suggests that taxes are tantamount to telling people “don’t produce” even though “the nation starves for credit.” The report describes taxation as like a burning barn that “prevents the enjoyment of life.” It then goes into great actuarial detail about the amount of credit destroyed by taxation, also referred to as “national fakery, posing as a benefaction.” Only by modifying the tax structure can the US “effect the economic emancipation of the nation.” That the rates would rise to 79 percent by 1937, from 63 percent in the year the report was written, suggests that the report’s admonitions went unheeded.

As this correspondence suggests, even in the context of existential war the debate on war taxes produced massive outrage and claims of class warfare, despite all the efforts of the political elites who had given considerable thought both to the framing of the tax itself and to the withholding. After months of debate, the House Ways and Means Committee concluded that calling the tax a “war tax” would elicit a sense of patriotic sacrifice. “Victory tax” was an even more “euphonious name.” At almost every turn, the president had to answer to his own party, the opposition, labor, churches, and corporations about the nature of the tax and decisions about war. And while the causal connection with the pace of war is difficult to pin down, it is clear that the political costs of extraction were not trivial and at least created incentives for decisive victory, as open-ended extraction would have been politically untenable.

Beyond accountability, the increase in extraction led to greater liberalization, something of a quid pro quo between the sacrifices and the societal advances, marking a rise of civic militarism in the United States. The Civil War, for example, produced an enormous expansion of veterans’ benefits that ultimately spilled over into broader investment for the elderly, the working class, and families.²⁸ To be sure, these wars also periodically produced illiberal outcomes—for example, the suspension of habeas corpus in the Civil War and limits to free speech—but by and large liberalism increased in the wake of war: voting rights for African Americans after the Civil War and for women after World War I. As Paul Starr concludes, “liberal democracies fought and won wars, which led to further democratization, which helped to protect individual liberties once the war emergencies ended.”²⁹

The cycle of extraction, mass mobilization, and liberalism produced an uncomfortable tension. The liberal community had disdain for war and affection for progress. The military community’s business is war, including a willingness to fight and win large-scale conflicts. How might these competing values be reconciled? Through progressive taxation, which would distribute the costs of war equitably, through decisive victory, which would end war quickly and produce public goods for the populace, and through the delivery of liberal rights, which would come in war’s wake.

The cycles of ever-expanding liberalism, however, were not inevitable. More recent wars have moved away from extraction and severed the link between the public and the conduct of conflict, thereby eroding the notion of civic militarism, constraints imposed on war, and efficient paths to democratic victory in war.