Taxing wars the american way of war finance and the decline of democracy

Bearing the Financial Burden of WarPartisan Politics in the Early Wars: Conflicts of 1798, 1812, and 1898 The “Liberty Bond” Approach to War Finance: World Wars I and II From Taxation to

TAXING WARS

TAXING WARS

The American Way of War Finance and the Decline of Democracy

SARAH E KREPS

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Bearing the Financial Burden of War

Partisan Politics in the Early Wars: Conflicts of 1798, 1812, and 1898

The “Liberty Bond” Approach to War Finance: World Wars I and II

From Taxation to Borrowing: Declining Fiscal Sacrifice in Korea and Vietnam

“Hide-and-Seek” Wars: The Afghanistan and Iraq Wars

Cross-National Survey Evidence from the United States, the United Kingdom, and FranceConclusion

Appendix

Notes

Index

During graduate school, I worked as a US Air Force reservist at the National Reconnaissance Office(NRO) The NRO had obtained mythical status in my mind because it dealt with space, satellites,oodles of secret money, and spooks from the Central Intelligence Agency

One of the first people I met working at the NRO was a former non-official cover officer As hequickly told me, he was the kind of CIA agent who would be killed without question if anyone in thefield discovered his identity And as with most people in the intelligence business, he wasdispositionally paranoid One clear manifestation was that he came to work every day with ten $100bills rolled and squirreled away in various parts of his body and clothes It was a habit, he said, that

he had picked up in case he needed to bribe his way out of a dangerous situation He had been unable

to shed the practice even though we worked in the leafy suburbs of northern Virginia

A somewhat more useful nugget he dispensed to his amateur colleague was how to evade questionsabout the classified nature of his work He said that when people asked what he does, he said he is atax specialist The response would shut down further questions because no one would ever want totalk more about any intricacies of taxes I nodded in agreement, because I thought for a long time thatpeople didn’t want to discuss taxes I no longer agree, and I hope that the reader of this book does noteither

Taxes, I realized, are not just an economic tool They are inherently political Of course, I hadknown this as early as grade school when we were taught about the Tea Party Massacre and theorigins of the American Revolution, but as an adult, it seemed like taxes were simply somethingonerous we dealt with in April of every year

I started to reevaluate this belief one day when I was talking to a Cornell colleague of mine incomparative politics, Gustavo Flores-Macías He was studying the security taxes levied in Colombia

to fight the guerrilla war, and I started to dig into the United States experience It turned out the UnitedStates had not levied a war tax since the Vietnam War, and I wondered why that practice had changedand what the consequences might be

My colleague and I collaborated on a couple of articles on war taxes, one of which appeared in the

American Political Science Review and another in the Journal of Conflict Resolution, but it seemed

like a book manuscript was in order that would allow me to write more systematically about theAmerican experience with paying for its wars This book is the product of that research It was a longtime in coming, as I briefly detoured to write a couple of books on drone warfare, which I came torealize was actually a related story The United States has increasingly worked to shield itspopulation from the costs of war not just in blood, through the use of drones, but also in treasure, byavoiding war taxes and financing its conflict through debt A long-established tradition of democratictheory suggests that a key difference between democracies and non-democracies is that a democraticpopulace bears the direct costs of war in blood and treasure The more directly they bear those costs,the more incentives they have to pressure leaders to keep wars short and low cost

My normative concern with this project was the inverse of this logic If individuals no longer sawthe costs of war, would they be less politically engaged with the cost, duration, and outcome? The

study suggests that the answer is yes Beginning in 2001, the United States began a war against Qaeda that morphed into a war against unrelated militants in east Africa, north Africa, and Yemen.President Obama campaigned on winding down the wars in Afghanistan and Iraq, only to wind themback up In 2014, he began a war against the Islamic State in Syria and Iraq Legislators have beenrelatively silent on each of these fronts because their constituents are silent The constituents aresilent because they are shielded from the costs of war Accountability linkages have correspondinglyunraveled Debt levels rose as the sense of fiscal propriety that characterized prior wars failed toemerge from the public, quite a different attitude from the one expressed by Woodrow Wilson:

Al-“Borrowing money is short-sighted finance We should pay as we go The industry of this generationshould pay the bills of this generation.”

As I worked through the research on the book, I incurred a number of—pardon the pun—my owndebts I am grateful for funding from the Institute for Social Sciences at Cornell, which funded anearly experiment I conducted with Gustavo Flores-Macías The Koch Foundation provided agenerous grant that allowed me to do fieldwork in the United Kingdom, Italy, and Germany to expand

my cross-national perspective The generous Appel fellowship allowed me to spend my sabbaticalyear in Spain while I finished drafting and editing the manuscript

I also appreciate the feedback I received on various aspects of the research, including commentsfrom participants in seminars at the University of California-Berkeley, Binghamton University, DukeUniversity, North Carolina State University, Rutgers University, and the University of North Carolina

at Chapel Hill I would also like to thank participants at the Costs of War workshop at Cornell, asthey helped move along the ideas for the book in its early stages, and my own book workshop, also atCornell, whose participants helped finesse the argument and empirics toward the final stages

A number of individuals provided helpful feedback along the way In particular, I would like tothank those who took the time to provide written or verbal comments: Mariel Barnes, Richard Bensel,Marc Blythe, Jon Caverley, Malcolm Chalmers, Debak Das, Nisha Fazal, Peter Feaver, GustavoFlores-Macias, Ben Fordham, Lawrence Freedman, Aaron Friedberg, Jonathan Kirshner, PeterKatzenstein, Tamir Libel, Paul MacDonald, Paul Newman, Dan Reiter, Condoleezza Rice, StenRynning, Elizabeth Saunders, Ken Schultz, John Schuessler, Nic Van de Walle, Karin von Hippel,Kyle Wolfley, Amy Zegart, and Micah Zenko My thanks also go to Dave McBride at Oxford whoheard an early pitch of the book several years back, had thoughtful suggestions about the argument,and then helped shepherd the work to its final publication

Last, none of this would have been possible without the support and love of my family: my parents,Gustavo, and my kids, Luke and Sebastian I dedicate this book to them, but especially to my dad,who died suddenly as I finished final edits and until that last day thought his taxes were too darn high

TAXING WARS

1 Introduction

IN THE DAYS AFTER the attacks of September 11, 2001, President George W Bush famously stood inNew York City in the rubble of the destroyed World Trade Centers, held a bullhorn, and said, “I canhear you, the rest of the world hears you, and the people who knocked these buildings down will hearall of us soon.”1 In the days that followed, he also urged Americans to “get down to Disney World inFlorida take your families and enjoy life, the way we want it to be enjoyed.”2 Americans, heurged, should not hunker down and make gestures of sacrifice but return to normalcy Consistent withthis tone, the government cut taxes; and efforts to introduce a “share the sacrifice” war tax to pay formilitary action in Iraq in 2007 and Afghanistan in 2009 in response to the attacks were restricted topolitical theater of renegade anti-war members of Congress.3 Responding to these war tax proposals,Representative Jerry Lewis (R-CA) said that Americans were “already being taxed to death”4 andwould be hostile toward any type of new tax, including a war tax Democrats themselves “ran awayfrom this idea as fast as you can say the words ‘Republican majority.’  ”5 The result is that thegovernment has financed the wars in Iraq and Afghanistan entirely through borrowing

Financing these recent wars through debt could not have been more different from earlierexperiences when wars meant taxation In 1914, three years before America’s direct involvement inWorld War I, President Wilson urged war taxes as a way to fund defense preparations: “Borrowingmoney is short-sighted finance We should pay as we go The industry of this generation should paythe bills of this generation.”6 Despite trying to gain the American people’s acquiescence to enter thewar and later to maintain their support throughout the war, the Wilson administration levied a series

of war taxes before, during, and after the war, amounting to about one-third of the war’s costs.7 Thepublic was no less deterred from the war or war taxes at that time than they had been in the Spanish-American War, when editorials proclaimed that the populace would “cheerfully pay the cost” in wartaxes.8

Why, when Wilson was aiming to recruit support for the war from a reluctant public, did heintroduce measures such as a hefty war tax that recent leaders have considered politically toxic? Whywas the public so magnanimous in its willingness to contribute its own resources? By contrast, whydid recent leaders not use the crisis of war,9 often employed as the entrée for introducing war taxes,

in the aftermath of 9/11 to extract resources from the populace in a way that had been customary in thepast? More generally, what explains shifting attitudes toward bearing the financial burden of war,moving away from war taxes—and the consequences of that shift?

In this book, I argue that the starkly different approaches are the result of public attitudes towardwartime fiscal sacrifice that vary depending on the underlying type of war and state-society relations,

in particular the role of taxation in the nation’s social and political life (discussed in more detail in

chapter 2).10 As Scarlett O’Hara said in Gone with the Wind: “Death, taxes and childbirth! There’s

never any convenient time for any of them.” But there are less inconvenient times than others Thatinnate antipathy toward the inconvenience of taxation can be dislodged by certain types of wars and

state-society relations When these factors combine to make the public cost sensitive, leaders havepursued forms of war finance that anticipate opposition and minimize constraints on the way they useforce In the post-1945 world, the public has become almost uniformly unforgiving of fiscal sacrifice,which explains leaders’ increased tendency to rely on less visible forms of finance such asborrowing Leaders have, in turn, increasingly operated without the decision-making constraints thatwere in play in many earlier wars when individuals were more directly involved in the costs of war.

It is no surprise that American wars since that shift in the latter half of the twentieth century havebecome increasingly costly and protracted, an observable implication of the unraveling link inaccountability between legislators’ decision making and the public’s financial burden that democratictheorists have long believed distinguishes democracies from non-democracies when it comes to theconduct of war

War Finance and Democratic Accountability

The direct connection between the populace and the burdens of war underlies many of the theoreticalchecks and balances thought to characterize democratic restraint in conflict Immanuel Kant suggestedthat

if the consent of the citizens is required in order to decide that war should be declared (and in this constitution it cannot but be the case), nothing is more natural than that they would be very cautious in commencing such a poor game, decreeing for themselves all the calamities of war Among the latter would be: having to fight, having to pay the costs of war from their own resources.11

As bearing the costs of war should constrain the public and in turn its leaders, this lies at the heart

of institutional arguments associated with the democratic peace: Since “the people ultimately pay theprice of war in higher taxes and bloodshed,”12 they are more sensitive to the costs, in turn curbingleaders’ ambitions in conflict The statement about the costs of war and the populace is grounded inseveral assumptions: that the direct, visible costs of war are passed along to the citizenry in ademocracy; that bearing the costs of war is generally unpopular and will make the people judiciousabout the use of force; and that they have electoral recourse and can register their displeasure with aparticular policy—for example, if a leader carries out a costly war—at the ballot box Theimplication is not that democracies will not engage in war It is that since individuals bear the burden,they are sensitive to those costs and put pressure on leaders to keep wars short and low cost Coupledwith the electoral checks embedded in a democracy, the costs of war contribute to, as Michael Doylelabeled the Kantian claim, “republican caution—Kant’s ‘hesitation’—in place of monarchicalcaprice.”13 The cost-sensitive democratic populace will tend to moderate leaders’ ambitions in theconduct of war

Such institutional constraints are not a given, however Democratic leaders have found ways tosidestep or minimize cost-related public opposition that would check their conduct in war Forexample, although the public is thought to be averse to casualties, 14 other arguments suggest thatpeople are willing to tolerate high casualties for the prospect of a successful war.15 Elite discourse,then, can go some way toward mitigating the adverse effects of casualties, emphasizing the prospect

of victory and potentially relaxing some of the checks and balances that were thought to be embedded

in democratic institutions.16

Perhaps more fundamentally, leaders have found ways to minimize the cost in blood altogether.They have eliminated conscription, thus creating far more localized rather than diffuse consequences

of casualties.17 They have turned toward greater reliance on airpower and unmanned aerial vehicles(drones) to reduce dramatically the likelihood of casualties suffered by allies.18 Leaders have alsoshifted away from a labor-intensive military in favor of a capital-intensive military that is financiallycostlier but poses a lower risk of casualties.19 As evidence of this shift, while the Vietnam Warincurred over 58,000 fatalities at a financial cost of about $750 billion in 2010 dollars, the combinedwars in Iraq and Afghanistan—also roughly a decade in duration—resulted in around 6,000 fatalitiesbut at a cost of about $1.5 trillion.20

If democratic accountability mechanisms require individuals to bear the burdens in blood andtreasure, shifting the cost from blood to treasure need not affect the theoretical linkages betweenleaders’ conduct in war and the populace The reason is that taxation, for example, confrontsindividuals with the financial burden of war more directly than debt As Charles Tilly argued,taxation “constitutes the largest intervention of governments in their subjects’ private life.”21 Taxation

is onerous, and when citizens bear the burden of war in taxation, this creates tighter institutionallinkages between the public and leaders’ conduct of war, as taxpayers have more incentives to holdleaders accountable for how the resources are being used

In contrast, borrowing shields the public from the direct costs and insulates leaders from heavyscrutiny; in turn, it undermines the institutional checks and balances that separate a democracy fromthe caprice of a non-democracy To the extent that leaders turn to borrowing as a form of war finance,rather than taxation, the gap between their actions and public scrutiny—an accountability gap—widens, reducing the decision-making constraints in ways that affect the allocation of domesticresources as well as initiation and termination of interstate wars.22

The Contemporary Shift from Taxation

War taxes were once a mainstay of American war finance As Thomas Paine said back in 1787, “War has but one thing certain, and that is to increase taxes.”23 As Table 1.1 shows, for a long time, andduring Paine’s time, this was a true statement Taxes featured prominently in every major Americanwar through World War II, as well as many of the minor wars such as the 1798 Quasi-War and the

1898 Spanish-American War, producing a finance strategy I call “Liberty Bond” wars in whichleaders resorted early and often to war taxes as a form of war finance Liberty Bonds, of course, were

a way in which the public financed the government’s debt and were not a tax.24 The label I use heredraws the spirit of the initiative—asking the public for fiscal sacrifice—rather than the technicality inwhich the government accrued debt

Contrary to Paine’s assertion, since 1945, the United States has increasingly engaged in Seek” wars Leaders have shied away from asking the populace for fiscal sacrifice, therebyanticipating and sidestepping public constraints on their conduct of war by avoiding war taxes andseeking less obvious forms of war finance, especially borrowing As Chapter 5 discusses in detail,President Truman introduced three war taxes early in the Korean War (two in 1950, another in 1951)but was rebuffed later in the war, withdrawing plans for additional war taxes in 1952 Leaders sincethen have either reluctantly imposed or altogether eschewed war taxes The last war tax levied in theUnited States was a Vietnam surtax in 1968, which President Johnson reluctantly endorsed almostfive decades ago.25

“Hide-and-To put this trend in context, while the costs of recent wars tend to be lower today than many earlierwars, conflicts comparable in size to those of today were once financed through war taxes For

example, in 1798, the United States levied a war tax for tensions with France—the Quasi-War—eventhough the tensions never actually reached the threshold of a war and defense spending was just0.83% of GDP In 1914, the first year of the World War I tax, defense spending was 0.71%, where itroughly remained until 1918, after three waves of war tax legislation In 1940, the year the UnitedStates passed two sets of war taxes, defense spending was just 1.55% of GDP Compare these figureswith contemporary spending, which has approached 5% for recent wars, as Table 1.1 shows In thepast, such revenue demands were grounds for war taxation Today, leaders finance those warsthrough borrowing.

To be sure, major wars produced major taxes, with the largest historical increases in income taxesassociated with the largest revenue needs: during the Civil War, World War I, and World War II But

I submit that paying for wars is analogous to what Aaron Friedberg argues about financing defense ingeneral: “In terms of simple bookkeeping arithmetic, there is obviously no single solution” but

instead, it “is therefore a matter of societal choice; it is a political issue rather than, in any sense, a

‘purely’ economic one.”26 It becomes political since a nation can generate revenues in a number ofways: through borrowing, printing money, or taxing Which of these it pursues becomes inherentlypolitical, a product of interactions between the war and the society in which those choices are made.Tax increases that would and indeed did, lead to revolt during peacetime have sometimes beentolerated during wartime The reason for acceptance of taxes during conflict is that “wars seem to becapable of generating whole new political universes”27 and are able to open “windows” for majorpolicy shifts.28 While some wars in the past opened these policy windows, causing individuals to

“accept levels of taxation in a period of war that would be regarded as intolerable in quietertimes,”29 leaders in contemporary wars have shunned war taxes altogether, opting instead for lessvisible forms of finance, such as borrowing At issue, then, is why the politics of wartime taxation haschanged The next section outlines the basis for that change, speaking to the sources of publicwillingness to bear the financial burden of war and the way those attitudes have shaped leaders’strategies toward how they pay for war

The Argument in Brief: When Leaders Tax

Just because wars are capable of generating new political universes—by raising the public’stolerance for taxation—does not mean that they invariably can or do The Stamp Act of 1765 thatKing George III levied on the American colonies to pay for the French and Indian Wars became theraison d’être for the Revolutionary War and American independence Alexander Hamilton’s tax topay for the 1798 Quasi-War led to the Fries Rebellion, extinguished by the militia that the Federalistsdeployed in response Conclusions about wars opening policy windows derive, in part, from thepropensity to focus on large-scale wars.30 But the modal war, at least for the United States, has notbeen wars of a large, existential nature, but rather smaller-scale wars such as the War of 1812 or theAfghanistan War, neither of which reached the intensity of a World War II that consumed nearly 50%

of GDP at its peak, suggesting that theories of democratic accountability and state-building shouldregister the impact of these more frequent yet smaller military overtures

Taking into account how the broader experience of conflict affects democratic accountability, Ifirst argue that individuals do harbor the sensitivity to war costs that democratic theorists haveidentified, but that the degree of sensitivity is shaped both by the type of war and underlying state-society relations The second aspect of the argument is that leaders, seeking to minimize constraints inwar, pursue strategies that both anticipate and deflect opposition that would arise from the public’s

sensitivity That means they turn to less visible or onerous approaches such as borrowing rather thanimposing war taxes when individuals express little appetite for fiscal sacrifice in wartime.

To elaborate further, the first part of my argument acknowledges that individuals are likely to holdsome baseline-level of antipathy toward any taxes The direct effect of taxation on individuals canproduce dissatisfaction among the same people whose support is needed for the war (and for theleaders’ political longevity) I identify two main factors that can ease that dissatisfaction One isengaging in a major war versus a limited war Large-scale wars create new political universesbecause they clearly delineate the choice between fiscal sacrifice and total defeat The trappings ofmajor war—including mobilization, rationing, repurposing civilian industries for military effort, andclear markers of success and failure—help impress upon the public the impact and stakes of the war

By contrast, limited wars are less likely to convey the same palpable stakes, since by definition, theyhave narrower objectives that allow the state’s politics, economics, and society to carry on withoutinterruption.31 Indeed, typical objectives of such wars—goals in Afghanistan, for example, includedreducing corruption, educating larger percentages of women, and making it easier to obtain a driver’slicense32—are often more likely to resemble foreign aid than military objectives The more removedthose goals are from Americans’ sense of security, the less likely Americans are to think that fiscalsacrifice is warranted as it was in major wars that presented clear and important stakes

Another factor that affects the public’s propensity for fiscal sacrifice in wartime is the set of society relations underlying the war, a consideration that refers both to the level of taxation and theportfolio of services individuals expect from their government.33 After World War II, levels oftaxation never returned to previous peacetime levels, which has made the public loath to pay specificwar taxes, expecting peacetime taxes to be sufficient for both the expanded social welfare state andalso for defense Thus, the postwar politics of taxation has generally favored borrowing overtaxation, implying that individuals have had a lower propensity for fiscal sacrifice for the morecontemporary wars How these two factors interact, detailed in Chapter 2, affects the tendency forfiscal sacrifice among the populace

state-The second part of the argument suggests that these attitudes shape leaders’ approaches to warfinance: Leaders will favor the revenue approach that mirrors anticipated public attitudes in order tominimize their decision-making constraints In the context of passing along the costs of war to thepublic, this means that leaders shy away from war taxes when they know the citizenry has no desirefor personal fiscal sacrifice and they will turn instead to borrowing as a way to shield the public fromthe costs of war The costs of borrowing are both diffuse and deferred compared to the direct andimmediate impact of taxation Taken together, the argument visualizes leaders as informed by publicattitudes but seeking to avoid opposition, and therefore acting to limit public exposure to the costs ofwar as a way to minimize constraints on their potential decision making.34

That cost sensitivity is not static but conditional on underlying circumstances challenges two sets ofalternative arguments about the connection between bearing the costs of war and democraticaccountability in war The first consists of two relatively immutable views of cost sensitivity AdamSmith observed that leaders looking for ways to generate revenue for war would always find it “moreconvenient to defray this expense by misapplying the sinking fund than by imposing a new tax Everynew tax is immediately felt more or less by the people It occasions always some murmur, and meetswith some opposition.”35 Smith’s suggestion about the onerous nature of taxation actually led him toadvocate taxes as a way to pay for war, as it would close the distance between individuals and thewar’s burdens, but he nonetheless predicted that exposure to the costs of war through war taxes

would have the tendency of “offending the people, who, by so great and so sudden an increase oftaxes, would soon be disgusted with the war.”36 The implication is that individuals are naturally costsensitive, and bearing the fiscal burden would invariably tarnish their support for war.

A contrasting but equally immutable view of the public’s relationship with the financial burdens ofwar suggests that the public is relatively cost insensitive To the extent that victory is a function of theresources the state can commit to the war,37 citizens will be willing to make economic sacrificesduring wartime, seeing higher taxes as a vehicle for strengthening the military and increasing thelikelihood of winning Neither the view that individuals are cost sensitive or cost insensitiveconsiders the possible variability of cost sensitivity and the circumstances that would give rise tosuch conditionality

The argument also challenges both bottom-up and top-down views of democratic accountability.The bottom-up view portrays leaders as having hard and fast constraints in the form of publicopinion.38 Instead, my argument gives agency to leaders who can strategically pursue policyinstruments that anticipate public opinion consequences and minimize the prospect of political falloutwith respect to their tenure or the war I argue that leaders may both be responsive to public opinionand also seek to reduce the way this opinion constrains their foreign policy options The need forpublic consent is exactly what causes leaders to craft their policies in ways that anticipate publicattitudes so as to deflect opposition and prop up support for wars

It similarly challenges the top-down notion that leaders can manufacture public consent throughelite discourse,39 outright deception or lying,40 or simply through information asymmetries that enablethem to sell the public on the use of force, all of which effectively allow leaders to sidestepinstitutional constraints.41 The public does find ways to push back against unpopular policies, andleaders have learned to preempt opposition by structuring policies in ways that minimize theconstraints that come from dissent The second part of the argument thereby stakes out a middleground between those who suggest that leaders are captives of the public’s institutional checks42 andthose who believe that leaders can altogether shunt major decisions about war and peace away fromthe public’s gaze.43

Research Design

The book examines the argument that public attitudes about fiscal sacrifice depend on the type of warand state-society circumstances underlying the war and that these attitudes have influenced howpolitical elites pay for wars In developing the argument, I draw on the democratic accountabilityliterature but focus my theoretical and empirical analysis primarily on the United States While it isjust one state, it is one that subscribes to many institutional characteristics that mark it as ademocracy, such as electoral checks and freedom of expression My empirical evidence thereforefocuses primarily on the American experience with war, although the last empirical chapter examinescross-national evidence from the United Kingdom and France, with briefer reference to Israel andIndia, to examine whether similar patterns hold in other democracies that have different types ofthreats and fiscal traditions

The first part of my empirical strategy involves case studies, which are especially helpful intracing the argument about changing attitudes toward fiscal burdens of war and the way leadersstructure their war finance decisions with those preferences in mind Each case study brieflydiscusses the historical background of the war and the form of war finance The analytical part of the

chapter evaluates the source of public attitudes toward war and the degree to which public attitudesaffected the turn to taxes or less visible alternatives.

To assess public opinion, I probe “the public mood,” which is defined by “the notion that a ratherlarge number out in the country are thinking along certain common lines.”44 While public opinionpolls are most helpful in assessing the mood, they are not widely available before World War II.Thus, in addition to polls, I also use other measures: newspaper editorials, individual or collectivemovements lobbying for a particular policy position, and political conventions that make publicdeclarations in favor of particular policies As these measures show, there is not always one publicmood but rather different constituencies with different attitudes toward war and war taxes

To interrogate the linkages between those attitudes and war finance strategies, I turn to primarysource communications between political elites I also use congressional hearings and debates on wartax legislation, and secondary source material such as biographies of wartime presidents or diaries ofaides to these presidents Another way of exploring the linkages between public fiscal sacrifice andapproaches to wartime finance is through the design of tax legislation itself, since historical evidencemay not always point to the effect of public opinion on policy decisions Of course, an absence ofevidence that public opinion weighed on leaders is not evidence of its absence Indeed, in leaders’conduct of foreign policy, “attention to public attitudes [is] so ingrained in their working habits that itwas unnecessary to make constant references to it”45 in historical records To the extent possible, Iaccess the ways leaders referenced the explicit effect of public opinion, but I also analyze congruencebetween the structure of public opinion and the design of particular policies in a way that, givenpublic attitudes, would generate maximum consent and minimize opposition.46

The attention to policy design follows the assumptions embedded in arguments about dynamicrepresentation According to this perspective, “elected politicians sense the mood of the moment,assess its trend, and anticipate its consequences Changes in opinion will lead politicians torevise their beliefs about future election opportunities and hazards Such strategic adjustment will drive policy through rational anticipation.” 47 Leaders, perceiving the national mood, will bringpolicy into line with these preferences to minimize the political risk This means not just electoralrisk to their tenure but in the case of wars, declining consent that is at the root of legitimate conduct ofconflict Particular policy changes then, based on these assumptions, are the effect of perceptiblechanges in public attitudes Since leaders may not make explicit reference to the constraining effects

of public opinion and how their proposed policies intend to anticipate opposition, I look to thepeculiarities of tax legislation itself To the extent that particular legislation creates winners andlosers that map onto the individuals or groups expressing particular preferences on tax legislation,then we can draw inferences about the connection between the public inputs and policy outcomes.Indeed, in a number of instances, the peculiarities of particular tax legislation were so congruent withpublic attitudes that alternative explanations are difficult to surmise.48

A second part of the empirical strategy brings survey evidence to bear on the argument This part ofthe study explores contemporary attitudes in the United States both through surveys probing supportfor a war tax to finance the 2009 surge in Afghanistan and through experiments that help drawinferences about the support for war conditional on its being financed through taxes The surveys alsouse open-ended questions to probe the reasons for contemporary hostility toward war taxes I also usesurveys to investigate whether the trends observed in the United States apply to other advancedindustrialized democracies such as the United Kingdom and France An original experimentconducted concurrently in the United Kingdom and the United States allows for these direct

comparisons, and follow-up personal interviews help tease out some of the peculiarities of theBritish experience despite the experimental evidence pointing to the similar ways in which Americanand British respondents dampen their support when faced with the prospect of paying for war throughtaxes versus borrowing In addition, to see whether there might be an exception to the public’sunwillingness to be taxed in the service of war, I carried out an original survey in France inNovember 2015 Conducted days after the deadliest attack against France since World War II—declared “un acte de guerre” (“act of war”) by President Hollande—the context should have been amost likely case for fiscal sacrifice Yet the evidence further corroborates the argument thatcontemporary audiences in advanced industrialized democracies view their peacetime taxes asadequate for covering a range of services, including spending on defense, and they see as little reasonfor the war taxes implemented in previous wars as they would for an “air tax.”

In short, through a combination of historical case studies and survey evidence, I provide empiricalsupport for the argument that compared to the past, when either the war or state-society relationscould make taxation a palatable approach to paying for wars, contemporary audiences are decidedlyaverse to bearing the direct financial burden of wars The turn to borrowing, essentially now apermanent feature of contemporary wars, serves as a way to minimize public opposition and reduceconstraints on leaders’ decision making in these recent conflicts Shrouding the cost of war may giveleaders institutional slack but it also unravels the mechanism underlying wartime restraint in ademocracy Without bearing visible burdens, individuals will have fewer incentives to scrutinize theway leaders conduct wars, and democratic constraints in wartime will no longer operate in the waytheorized from Adam Smith to Immanuel Kant all the way up to contemporary scholars ofinternational relations The reason that a democratic populace scrutinizes leaders’ decisions in war isbecause they as taxpayers bear the burden This analysis suggests that the unraveling of thoseaccountability linkages explains why wars beginning in the latter half of the twentieth century arelonger, culminating with the ongoing wars in Iraq and Afghanistan fifteen years after their inception.Given the trends identified in the book, the recent past—the two longest wars in US history—is alsolikely to be prologue

TABLE 1.1 The Cost of American Wars*

War Years Total

Cost (Constant FY2001$)

War Cost

% GDP in Peak Year

of War

Total Defense % GDP in Peak Year of War

GDP Ratio Prior to War

Tax-to-War Tax Years

Finance Strategy

LibertyBond War

LibertyBond War

LibertyBond War

LibertyBondWar≈Hide-and-Seek WarVietnam 1965–

1975

1968

Seek WarPersian

* For a complete coding of war taxes, see Gustavo Flores-Macías and Sarah Kreps, “The Political Economy of Death and Taxes: A

Study of American War Finance, 1789–2010,” American Political Science Review 107, no 4 (November 2013), 833–848.

Source: Based on Stephen Daggett, Costs of Major US Wars (Washington, DC: Congressional Research Service, 2010), 1–2.

2 Bearing the Financial Burden of War

IN 2008, NOBEL LAUREATE JOSEPH STIGLITZ and his co-author Linda Bilmes published a book called The

Three Trillion Dollar War 1 The book documented the costs of the Iraq War but clearly had anadvocacy agenda: to expose the costs of war to the public The implication was that if the Americanpeople knew the war’s costs, they would turn against the war While the logic nominally built ondemocratic theory—that bearing the burdens of war will cause individuals to put pressure on leaders

to keep the costs low and bring wars to an expedient end—the assumption was that individuals would

be sensitive to costs in debt the same way they would if those costs were passed along in highertaxes

This chapter shows that, all things being equal, bearing the financial burden in debt is unlikely toconfront the populace with the costs of war nearly as directly as bearing the burden in higher taxes.Even with exposure to taxes, however, the effect is not a constant As I argue theoretically, first,individuals’ sensitivity to the costs of war varies as a function of the nature of war and prevailingstate-society relations, which have changed over time The interaction of those factors affectsindividuals’ tolerance for bearing the burdens of war

Second, in making decisions about how to pass the costs of war to the public, leaders are sensitive

to the public’s attitudes and look for ways that will have the least consequences and constraints onthem, the leaders They turn to borrowing when the public has limited appetite for fiscal sacrifice

By way of advancing the two related propositions associated with the argument, the chapter firstbroadly discusses the way wars introduce revenue demands and how passing along those costscreates theoretical accountability linkages between leaders and the populace It then turns to adiscussion about why the public’s sensitivity to costs manifests itself differently as a function of thenature of war and the state Last, the chapter shows how changes in those conditions have shaped thepolitical process through which leaders have chosen to pass along the fiscal costs of war to the publiceither directly through taxes or indirectly through borrowing.2

The Costs of War and Democratic Accountability

Wars create enormous revenue needs Studies of government spending shocks in the United Statesinvariably point to the impact of wars,3 which are characterized by large, urgent revenue needs ratherthan the smoother expenditures experienced during peacetime Figure 2.1 illustrates this point,mapping periods of war onto US government expenditures since 1789 and showing the often-massiveincreases in spending that accompany war

Driven in part by these revenue needs, the history of taxation bears a close resemblance to thehistory of war.4 The United Kingdom, for example, levied its first income tax in 1799 to support theNapoleonic Wars Prior to 1799, “the cost of war had drained Britain’s resources, and run up aconsiderable national debt The army was starving, and poor conditions in the navy in 1797 had led tomutiny.” The government levied an income tax to provide “aid and contribution for the prosecution of

the war.”5 Although this tax was quickly repealed after the war, the government again levied anincome tax in the Crimean War In World War I it increased the top rates from 8% to 50%, then byWorld War II it had tripled the tax base and created a permanent tax system War taxes were seen asefficient and equitable, and as Chancellor William Gladstone stated, they were “an engine of giganticpower for great national purposes.”6 The British experience of wars as the basis for taxation wasmirrored in a number of other democracies, with mass warfare creating mass, progressive taxes,7 acondition that included the American experience until recently.8

Liberal theory views bearing the financial costs of war as an asset of democracies The logic isthat if the populace bears the burden of war in higher taxes, it will be discriminating in terms of theconsent it gives to leaders in initiating and conducting war.9 Recognizing the directness of taxationand the legal relationship between the populace and its government, Adam Smith endorsedprogressive taxes as an equitable way to generate revenue in a democracy and impose necessarydecision-making constraints on leaders in wartime: “The people feeling, during the continuance of thewar, the complete burden of it, would soon grow weary of it, and government, in order to humourthem, would not be under the necessity of carrying it on longer than it was necessary to do so.”10Austrian economist Joseph Schumpeter drew a more subtle link between the fiscal demands of warand attitudes toward war, suggesting that the costs of war caused states to go “begging to the estates”for tax revenues, but in return for the unpopularity of extraction, those estates earned moreaccountability from the princes undertaking the wars.11 Paired with his work on capitalism,suggesting that individual entrepreneurs are “democratized, individualized, rationalized,” and

“vigorously anti-imperialist,”12 Schumpeter’s conclusion was that the liberal state, one whereindividuals bear the burdens of war and have levers for registering disapproval, exercises powerfulrestraint in its foreign policy

By contrast, autocracies are sometimes unable to borrow because potential lenders do not trustthem to repay (either because the borrowers are seen as less likely to win the war or honor thedebt).13 In these cases, the autocracy might pass along the direct costs of war through taxes, but thetaxpayer-government relationship would be quite different from that in a democracy In his study ofNazi war finance, Otto Nathan writes that one Nazi Treasury official said that “the obligation to pay

taxes was based not upon a legal relationship between the taxpayer and the Treasury but upon a

power relationship.”14 Taxpayers had no influence on the nature of tax legislation passed, andpoliticians were not beholden to constituency interests The double-edged sword of a democracy wasthat these interests could capture the state, but the state had some obligation to be responsive to thoseinterests In wartime, this would translate into clearer accountability between the taxpaying publicand the leaders who were deciding how the tax money was being used, particularly in conductingmilitary operations

The democratic accountability logic has intuitive appeal The reason is that taxes represent “apermanent transfer of purchasing power by the taxpayer to the government.”15 It is for this reason thatthe “history of state expansion is a history of violent struggles over taxes,” according to Tilly 16

Taxes are typically onerous They are also visible For example, the Washington Post described

World War I taxes as bringing “daily, almost hourly, reminders to the people of the United States ofthe burden that is entailed in the prosecutions of a just and victorious war The average citizen feelsthe effect of the war tax when he arises in the morning he is reminded of it the last thing at nightwhen he puts on his tax-assessed pajamas.” 17 At the least, these reminders would give individuals

incentives to scrutinize the use of those resources, constraining leaders’ freedom of action.18 At theextreme, the reminders would cause individuals to reevaluate their support for the war and for theleader himself As one editorial concluded pithily at the beginning of World War I, “increased taxesare never a good political expedient.”19

By comparison, borrowing creates a more indirect connection between leaders’ conduct of warand the populace First, borrowing reduces the need to impose higher tax rates contemporaneously,20instead transferring the cost to a future cohort that does not affect the current leader’s prospects ofreelection Second, wars are just one contribution to the debt Thus, even if public is concerned withdebt issues, the war will not be a single target, as it sits alongside numerous other debt sources.21

Debt repayment of American wars illustrates both points For most wars, repayment is a long process accompanied by many other changes that muddle the role of war finance policies Forexample, the United States began to repay its World War I debt during the 1920s, a period ofdeflation that increased the real value of the debt The 1930s further complicated the debt picture, asthe gap between expenditures and revenues grew because of the Depression.22 Rancorous politicaldebates about how to pay down the peacetime debt made no specific reference to World War I orPresident Wilson—by then only part of the debt problem.23

decades-To be sure, borrowing may increase the level of debt so that legislation is required to raise thedebt ceiling, and this can introduce a contentious set of debates In practice, two factors minimize anypolitical costs associated with these debates One is that despite the fanfare, Congress invariablypasses legislation to increase the debt ceiling As a former director of the Congressional BudgetOffice testified, “Most analysts view the statutory limit of federal debt as archaic [V]otingseparately on the debt is hardly effective as a means of controlling deficits [B]y the time the debtceiling comes up for a vote, it is too late to balk at paying the government’s bills.”24 Indeed, thelegislation often becomes “must pass” legislation and a vehicle for passing other measures.25 A moreimportant reason that the political costs of this legislation are relatively low is that the issue oftenreaches such a level of complexity that the public is uncertain whom to blame During the 2011 debtceiling debates, only 18% of Americans claimed to understand the issue Among those who didunderstand, political costs did not have a clear directionality; almost as many people were concernedabout not raising the debt limit (42%) as raising it (47%).26 Moreover, for about two-thirds ofpeople, the negotiations had no effect or even increased their support for the president and theSpeaker of the House, political figures at the center of the debate.27

In short, borrowing obscures the cost of war relative to taxation While it adds to the overall debt,

it is one of many sources, and the ultimate repayment takes place long after the leader who initiatedthe war has stepped down and the war has ended, reducing the political costs to the leader and of the

war In the run-up to the Spanish-American War, the Chicago Daily Tribune anticipated that such

political expediency would drive decisions about war finance The editors noted derisively,

“Legislative demagogues always favor the borrowing method They think high taxes will beunpopular with their constituents.”28 As the later discussion will show, different types of taxes canfavor particular sections or constituencies, creating heterogeneous political costs and benefits, but ingeneral, it is a well-founded proposition that taxes are likely to be unpopular

As a result of the burden of war, individuals are sensitive to the costs of war and more judicious inhow they consent to the use of force The democratic accountability logic suggests that rather thanabsorb untold and unnecessary costs, a democratic populace tends to scrutinize the way its resourcesare used and withdraws support when the costs mount Leaders are sensitive to how they allocate the

populace’s resources, knowing that a dissatisfied populace can threaten their tenure as well as theirability to carry out a war.29

The logic could plausibly explain decision-making constraints in wartime as well as the postwardividends paid out to the populace for the sacrifices made during war James Sparrow points to acorresponding sense of “fiscal citizenship” during World War II where individuals were willing tocontribute tax payments not just out of a sense of patriotism but as a quid pro quo for the benefits thatthe government conferred through the New Deal (and later the Fair Deal) entitlement programs.30 Thenotion of the “extraction-coercion” cycle—in which leaders extract resources for war and mustprovide accountability and public goods in exchange for the coercive act of taxation—is basedentirely on the assumption that individuals are “recalcitrant” and generally not easily persuaded togive up their own resources.31 Leaders have electoral reasons to heed the public’s preferences foreconomizing on those resources by keeping wars short and low cost, but they also have to compensatecitizens later for the sacrifices they made, co-opting public loyalty in the wake of war by providingadditional political and economic rights—for example, broader enfranchisement, advances in publichealth, and children’s rights—to the populace.32 Leaders need not even wait until the end of war toconfer those rights In June 1944, President Franklin Roosevelt signed the Servicemen’s ReadjustmentAct that offered the GI Bill for veterans of the war, providing them with funds for college,unemployment, and housing.33

An alternative view of accountability also considers costs but suggests that leaders and thepopulace are more interested in the outcome and are willing to bear the costs if doing so produces amore favorable result Since democratic polities see the benefits of war distributed in the form ofpublic goods, they have incentives to pay the higher taxes that would strengthen defense in wartimeand increase the odds of victory.34 Some strands of this argument go further and turn the unpopularity

of taxes into a democratic advantage Benjamin Goldsmith, for example, suggests that taxpayers arelikely to believe that leaders “will only levy greater taxes for legitimate reasons.” 35 The willingness

of democratic leaders to suffer the political costs of introducing war taxes is a signal of thelegitimacy of the war, which in turn should boost public support and provide leaders with theresources to put forth an “all-out effort” in war.36

If it is the case that the people are prepared for fiscal sacrifice based on the prospect of greaterbenefits from victory, then these prospects should also increase their willingness to absorb costs.Greater expected payoffs mean greater propensity to expend resources and greater propensity forfiscal sacrifice Applying the logic to the relationship between bearing the financial burdens of war inhigher taxes and support for conflict, this argument would expect war taxes to have little effect onpeople’s attitudes toward war, with the public rallying around the fiscal flag in times of need

Both of these perspectives focus on the relationship between the public and the costs of war but arebased on two different assumptions The first assumes a cost-sensitive, fair-weather publicdiscouraged by high-cost wars, therefore exerting pressure on leaders to keep the costs low Thesecond takes the public to be relatively cost insensitive, more interested in winning than how much itcosts to do so Both perspectives are relatively static, assuming instead that cost sensitivity isconstant even if the two perspectives diverge in terms of what that sensitivity looks like Instead, Iargue that at least in the American context, public attitudes toward fiscal sacrifice are quitecontingent, sensitive to the nature of conflict and conditioned by underlying state-society relations

The Visceral, Calculating Public

Before turning to the argument about how both the nature of war and the state shape the public’spropensity for fiscal sacrifice in wartime, I reflect on what makes citizens tick when it comes to theirattitudes about public policies The public plays a central role in this story because leaders areinvariably looking for the public’s endorsement and finding ways to shape policies that will helpthem sidestep or at least loosen public opposition and constraints Outlining what moves the public istherefore foundational for the argument as a whole.

Americans have long been criticized for being ignorant of politics Decades ago, journalist WalterLippmann portrayed the mass public as uninformed, wrong at every turn, and, unfortunately in hisview, “a critical veto upon the judgments of informed and responsible officials,” with the public oftentoo pacifist when war was needed and vice versa.37 Adding to this somewhat cynical perspective,Gabriel Almond pointed to the public as having unstable moods that would simply distort thedecision-making process were leaders to heed the public’s perspectives, creating “cyclicalfluctuations” that would “stand in the way of policy stability.”38

Scholars have since provided many correctives to this view of an unreflective public and seem tohave settled on the assumption that at the least, “voters are not fools.”39 This view does not hold anyillusions about the public’s political knowledge—for example, whether the average member of thepublic can find Ukraine on a map.40 Rather, it suggests that the public is rational and has preferencesthat are generally stable, coherent, and logical in that its attitudes reflect underlying values andrespond in predictable ways to international events, embracing a fairly consistent decision-makingcalculus.41 Attitudes about taxation lend credence to this perspective

As Larry Bartels suggests, “Most ordinary citizens are remarkably ignorant and uncertain about theworkings of the tax system and the policy options under consideration, or actually adopted.”42 Butthey do not need to know these intricacies of the tax system to fundamentally feel that they would liketheir taxes to be lower Since World War II, Gallup has asked the question “Do you consider theamount of federal income tax you have to pay as too high, about right, or too low?” Figure 2.2 showsresponses to that question plotted against top marginal tax rates, which generally reflect trends in taxrates for other brackets As the figure shows, the public has consistently seen its taxes as too highalmost irrespective of tax rates, consistent with the view that people have a visceral aversion totaxes, much as Adam Smith had suggested

General antipathy toward taxation does not mean that the public’s attitude cannot be moved.43 Infact, while individuals will invariably believe that their taxes are too high, they are nonethelessalways engaging in a cost-benefit calculus—even if a crude one—that weighs what they are receiving

in return for their financial contributions Indeed, the whole premise of the “fiscal contract”—inwhich citizens provide their money to the state in exchange for services—speaks exactly to that cost-benefit relationship Studies suggest that the more heavily states tax the rich (as a percentage of GDP),the more they protect property rights, which are more likely to affect wealthy segments of thepopulation; the more states tax lower-income populations, the more public services they provide.44 Inexchange for taxation, states are expected to provide social prerogatives, a quid pro quo between thefiscal investment and the benefit derived from that tax, a finding that is well established in the publicadministration literature.45 The dynamic intimates that the relationship between taxation and politicalbehavior may be more complicated than the simple expectation that taxation provokes hostility

When it comes to fiscal sacrifice in the context of conflict, the public can be persuaded to “pay anyprice, bear any burden,” as President Kennedy suggested in his inaugural address,46 but its sense of

sacrifice is conditional Two main factors shape the ledger in ways that can nudge the public awayfrom its instinctive aversion to taxes: the nature of the war and the nature of state-society relations.

The Nature of War

The first factor builds on the dynamic of a fiscal contract in which in exchange for benefits, the public

is willing to bear some costs Intuitively, the more significant those benefits, the higher the costs theyare willing to bear—again, this is Kennedy’s “bear any burden” formulation When it comes to the

“benefit” of war, not all wars are created equal, and the differences between and among them hasimportant implications for the differences in fiscal sacrifice they elicit from individuals

The study of war tends to dichotomize wars into limited wars and absolute wars, a distinction that

is relevant for this discussion Limited war is “one in which the belligerents restrict the purposes forwhich they fight to concrete, well-defined objectives that do not demand the utmost military effort ofwhich the belligerents are capable,” and typically one that “demands of the belligerents only afractional commitment of their human and physical resources,” meaning that the basic functioning ofthe state can “continue without serious disruption.”47

Absolute war observes no limits and intends to achieve the complete destruction and disarmament

of the opponent.48 To this end, states engage in the massive mobilization of their political system,society, and economy, to the extent that civilians and their infrastructure become part of the overallwar effort, contrary to the limited war where the civilians are divorced from these experiences.Articulated in this way, the wars that Adam Smith referred to may have been limited wars, as hereferences civilians reading about the wars in the newspaper, with amusement Total, or absolute,war (the terms are often used interchangeably) would unlikely leave civilians on the sideline (oramused) in this same way

The differences in the types of wars states fight are important from the standpoint of fiscalsacrifice Total wars naturally require more resources, so by sheer revenue needs they are moreintensive The fiscal sociology literature more general tends to focus on these types of wars, whichmay be why it assumes that states invariably engage in taxation in wartime.49 Another key difference

is that these large-scale wars are associated with mass mobilization.50 Mass mobilization meansasking a large percentage of the population to sacrifice in blood The compensatory theory of taxationsuggests that under these conditions, a sense of fairness kicks in and the populace urges conscription

of wealth to remedy the inequalities that arise from the conscription of men, namely that those withhigher incomes were far less likely to be conscripted than the less affluent.51 While fairness may be acomponent of why mass mobilization elicits a sense of sacrifice, mass mobilization is also importantbecause of what it makes manifest: a sense of emergency in which fiscal sacrifice becomes

instrumentally valuable Countries only mobilize to that degree under conditions of duress, suggesting

to the public that the alternative to fiscal sacrifice may not be fiscal sacrifice but rather somethinggraver like one’s country losing a war, independence, or the ability to provide for one’s security

Advocating taxes in the Civil War, the New York Times also connected taxes with winning the war,

suggesting that “battles are won by the last dollar” that can be extracted.52 By 1864, the Times again

linked its advocacy for taxation with the outcome of the war: “The only plan consistent with safety orhonor, is to tax and raise men.”53

Absolute wars, however, have not been the modal war, but the exception Indeed, LawrenceFreedman writes that Clausewitz actually attempted to revise his observations about war—which had

emphasized absolute war because of his experiences witnessing the Napoleonic war firsthand—having noted that not all wars were total and that Clausewitzian theories might not be relevant forlimited wars.54 In the American experience, absolute or total wars were represented by the CivilWar, and World Wars I and II, which created palpable costs of not engaging in fiscal sacrifice Butfar more typical were the so-called small wars against insurgents Iraq and Afghanistan are merelythe modern manifestation of a long tradition of such wars, with the early incarnation being warsagainst the Barbary pirates in the early 1800s, Haitians in the 1900s, and, roughly concurrently, theMexicans under Pancho Villa.55

Whereas these smaller-scale conflicts were previously interspersed with larger-scale ones, thelatter have essentially vanished from the landscape, as great power wars, if not obsolete, have at leastbecome remarkably rare One explanation is that modern society has become “kinder and gentler.” 56Another is that the world wars of the first half of the twentieth century were sufficiently destructivethat they deterred subsequent conflict 57 Perhaps the most prominent explanation for the decline ofmajor war is the advent of nuclear weapons, which transformed the character of war by making itscosts so high that the victor would probably suffer as much destruction as the vanquished.58

Deterred by the prospect of high costs, and decreasingly equipped to fight large-scale conventionalwars, democracies such as the United States increasingly avoided the types of high-cost wars ofattrition that had been common in earlier eras The reluctance of countries to engage in high-cost totalwars that had plagued the preceding century is no doubt a positive development,59 but the second-order effects may be less salutary While contemporary wars have been lower cost than great powerwars of the past, they are also by their nature less important to the citizens of these countries and lesslikely to unleash any, or at least lasting, rallies around the fiscal flag

Indeed, because limited wars do not disrupt “economic, social, and political patterns of

existence,” the average member of the public could be excused from not knowing that such a war waseven being conducted.60 Even for a well-informed member of the public, the objectives of these warsoften seem more like exercises in foreign aid or nation-building and are therefore quite removed fromthe types of military goals individuals might associate as having significance for national security.Measures of progress in the Afghanistan war, for example, were often non-military—for example,rates of capital flight, budget execution, and percentage of officials who buy bureaucratic positions;all of these may seem like goals with tenuous connection to the security of the American domesticaudience.61 Indeed, the Army’s Counterinsurgency (COIN) Manual itself implies that these types ofgoals might not exactly whet a democratic public’s appetite for financial sacrifice.62 As StephenBiddle puts it, the concern dealt with “the willingness of democracies to afford the cost of effectivecounterinsurgency (the manual warns that COIN is slow, labor-intensive, and very expensive in livesand treasure)”63—or rather the public’s unwillingness

In short, states have been deterred from major war, but wars themselves have not gone away; theyhave been replaced with smaller-scale wars, often fought in or over countries that were not clearlyassociated with core national security interests Such wars lack the gravity of stakes that would bepatently obvious in a great power war that requires the vast mobilization of the populace and itsresources These contemporary wars might see an initial surge of support—for example, evenVietnam had reasonably high levels of support early in the war—but the sustainability of that support

is likely to be fragile as the populace does not experience the full mobilization that would make thewar seem meaningful and worthy of fiscal sacrifice.64

Changes in State-Society Relations

A second factor that shapes the public’s propensity for fiscal sacrifice in wartime is state-societyrelations, which refers to the “interactions and interdependency between the state and society.” 65 Insome respects, this definition does more to confuse than clarify because of its circularity With an eyetoward explaining what state-society relations actually means, some scholars have focused on therelationship among political parties, elections, and policymaking; others have examined aspects ofgovernance such as devolution of authority to state and local governments; and yet others have studiedtrends toward privatization or regulation But another key aspect consists of a governmentresponsibility that might otherwise seem pedestrian: taxation Without revenue, governments cannotsatisfy the basic needs of welfare or defense, so taxation is fundamental to both the state and thecitizens that reside therein.66 It was for these reasons that Joseph Schumpeter suggested in his essayabout the tax state that “the spirit of a people, its cultural level, its social structure, the deeds itspolicy may prepare—all this and more is written in its fiscal history.” The study of fiscal sociologythus took root as Schumpeter and his successors shone a light on taxation, specifically the levels ofextraction, the public goods for which those resources are dedicated, and individuals’ attitudes aboutboth.67

Political science scholars followed but focused more on the state’s tax levels and institutionserected to help collect the taxes and also administer the public goods that result from extraction.Viewed in this way, taxes—typically tax revenues as a percentage of gross domestic product—represent a key measure of state capacity, since they refer to the resources available for the provision

of public goods as well as the apparatus in place to carry out the tax collection 68 My argumentengages the perspectives of both sociologists and political scientists, focusing on state-societyrelations through the study of tax revenues (state capacity) by way of understanding the fiscal contractbetween the people and its government.69 I therefore refer variously to taxation, state capacity, andstate-society relations as variations on the same theme

Wars have an outsized influence on all of these themes Famously, Charles Tilly linked wars withstate-building: “War made the state, and the state made war.”70 The mechanism underlying thisrelationship had to do with taxes Historically, wars created revenue needs, which led to increasedextraction that would respond to those revenue needs.71 Extractive capacity then contributed to statecapacity more broadly since it created the need for tax collection agencies, courts, and police thatcould enforce extraction policy 72

If wars created states, then large-scale wars created particularly capacious states The typicalcausal story underlying state-building suggests that “large effects are the product only of largecauses”73 and that those effects from large causes become quasi-permanent Once governments haveinvested large amounts of resources into tax collection apparatus, they are less likely to dismantle theenterprise, with the observable implication being that tax collection remains high and state capacitydoes not return to its antebellum levels.74 The consequence is a so-called ratchet effect.75

Certain aspects of the US experience would be quite compatible with the large effects, large causestheory of state-building As suggested in Figure 2.3, extraction increased significantly during the CivilWar, World War I, and World War II, and the consequences of World War II were significant enough

to have represented a ratchet effect in which peacetime tax levels never returned to prewar levels

By focusing primarily on structure (war), the ratchet effect theory of state-building captures wellthe postwar permanence of the state By leaving out agency, however—in particular, the role of

leaders, partisanship, and interests—it misses important insights about the way societies welcomed

or resisted changes in tax levels, as well as the distribution of services toward which those resourceswere employed The next section fills in those gaps by tracing the development of the American fiscalstate, focusing first on taxing and then spending; the ways in which wars, individuals, andpartisanship shaped both core aspects of state development; and how those changes in American statecapacity shaped the willingness of the country’s citizens to engage in fiscal sacrifice during war

The Development of the American Fiscal State

By most accounts, the United States was essentially “stateless” until the nineteenth century,76 asauthority was largely devolved to the states rather than the federal government Under the Articles ofConfederation, Congress did not have the authority to collect taxes, which meant that the countrycould not pay its soldiers, let alone maintain a military The arrangement was an obvious byproduct

of a founding that had been based on antipathy toward imperial rule, but it had obvious problems.During the Revolutionary War, high-level officers faced a mutiny because Congress had nomechanism for paying the troops.77 Having had its hand forced by the ongoing crisis of unpaidsoldiers in the time of the Revolutionary War, Congress adopted a revenue system consisting ofimposts that would enable the government to pay the soldiers 78

Much as the Articles of Confederation had been written in response to imperial rule, efforts to draft

a new constitution were debated largely in reference to the incapacity and incompetence of theConfederation.79 The Federalist Papers, which staked out a philosophical position that corroborated

the contours of the new constitution, insisted that “energy in the executive is a leading character in thedefinition of good government”80 while still recognizing the separation of powers—into the judicial,legislative, and executive—as crucial for preventing tyranny At the time George Washington became

president in 1789, the political philosophies that unified behind the Federalist Papers and

Constitution remained intact But soon, divisions began to emerge As Thomas Jefferson wrote in

1798, “Two political Sects have arisen within the U.S The one believing that the executive is thebranch of our government which the most needs support; the other that like the analogous branch in theEnglish Government, it is already too strong for the republican parts of the Constitution.”81 Theformer, he noted, could be called Federalists, Aristocrats, or Tories The latter were Republicans,Jacobins or Anarchists

Beliefs about the strength of government, with attendant differences in attitudes about the fiscalstate, were the main fulcrum for division Federalists continued to believe that “the vigor ofgovernment is essential to the security of liberty.”82 For proponents such as Hamilton, this meant astrong central government A capacious central bank, taxes, and a standing army were important forthis vision since it meant the nation had the ability to mobilize resources and defend the country as awhole.83 For Hamiltonian Federalists, taxes were not simply an economic measure but were apolitical tool used to help advance their vision for a strong central government.84 It was exactly forthis reason that anti-Federalists were leery of taxes that would arm the central government withrevenues Their worst-case scenario was a monarchy against which the United States had revolted,and taxes would be a move in that direction

Sectional interests, referring to the differences in social structures, means of employment, wealth,and political values of the North and South, mapped onto and reinforced the existing philosophicaldifferences on taxation in two main ways The South was agricultural, rural, and slave-owning and

perceived a strong federal government as a threat to its autonomy, an outcome more likely if thegovernment was armed with tax revenues The North, which consisted of largely industrialist, urban,manufacturing interests, favored a strong central government since the levers of power (including thecapital itself early on, which was in New York) were dominated by the well-connected economic andpolitical interests in the North It therefore favored reinforcing the central government with higher taxrevenues.85

Sectionalism also insinuated itself into partisan debates about the fiscal state because before theSixteenth Amendment introduced income taxes in 1913, taxes meant protective tariffs The tariff issuewas a highly contentious source of division between the two major parties “because the tariff sostarkly redistributed wealth between the sections and because the socio-economic bases of the twoparties almost exactly divided the electorate into winners and losers under protection.”86 Theostensible winners, in the case of protective tariffs, were the manufacturing sectors becauseprotective tariffs would make domestic manufacturing more attractive The losers of protective tariffswere thought to be agricultural sectors, since they produced a plurality of American exports and paidthe price for high trade barriers.87

Hamiltonian Federalists (and later Republicans) were therefore pro-tariff, not just because theirunderlying political philosophies favored a stronger central government but because they drewsupport from the Northeast and Great Lakes regions These areas would benefit directly because themanufacturing sector concentrated in those regions would gain from protective tariffs; they wouldalso benefit indirectly from consolidating political power in the northeast Conversely, Jeffersoniananti-Federalists had anti-centralizing instincts as they drew their support from agrarian interests in theSouth and West; they were wary of a system that would allow the Northeast to siphon off politicalpower from the South and that would impose tariffs that would disadvantage agricultural output.88

In this early period, the tax issue, and therefore state capacity, was defined by an oscillationbetween leaders on the Right (Federalists and later Republicans) who levied tariffs to generaterevenue, reassured by the expectation that at least their constituencies would support the move, andthose on the Left (Democrat-Republicans and later Democrats), who would work to reverse the levy,

a move supported by their constituencies Indeed, the congressional voting patterns bear this out, withRepublicans voting overwhelmingly for tariff increases in the period between 1821 and the CivilWar When they could, the Left acted to repeal or reduce those tariffs.89 The net effect was that thestate institutions that early founders had tried to establish with the Constitutional Convention eitherlay fallow or had deteriorated by 1860, and resembled a “mere shell” of what the founders hadenvisioned, “a government with only a token administrative presence in most of the nation and whosesovereignty was interpreted by the central administration as contingent on the consent of theindividual states.”90 Administrative tasks were limited to fighting wars, appropriating new territory,and carrying out international diplomacy, all through a modest bureaucracy Periodic wars, especiallythe Civil War, however, eventually contributed to national consolidation Enormous revenues wereneeded to fight this war, the first income tax was levied, bureaucracies were created for obtainingthose revenues, and the state developed more capacious institutions and a stronger sense ofgovernment sovereignty.91

After the Civil War, the Left, now the Democrats, increasingly tried to own the tax issue Whereasthe Right, now the Republicans, had favored tariffs as a way to protect the trade and industry intereststhat supported their party, Democrats, led by the Populists and Progressives, turned to a reformistagenda in the form of a progressive income tax that would appeal to farmers and augment the

Democrats’ support among constituents in the West and South.92 Advancing the populist reformposition as a member of the House Ways and Means Committee, William Jennings Bryan advocatedthe income tax as a more effective and progressive form of revenue than taxes on trade In thesedebates, Bryan proposed that a progressive tax was a more equitable way of financing thegovernment: “Why should not those sections pay most which enjoy most?” he asked.93 Congressionaldebates culminated in the Wilson-Gormon Tariff Act of 1894,94 which briefly levied an income tax of

2% until 1895, when the Supreme Court, in Pollock v Farmers’ Loan & Trust Co , ruled that parts of

the tax bill were unconstitutional on the grounds that they were direct taxes “not apportioned amongthe states according to their respective populations”95 as required under the Constitution Theprogressive movement, however, continued to advocate the income tax on the basis of a “burden-redistributing argument”96 culminating in the Sixteenth Amendment that authorized the income tax andwas passed in 1913

Although the initial surge for support for the income tax drew from Democrats and Progressives,regional and sectional interests were decreasingly salient in these debates, since the questions ofredistribution had less to do with industrial interests, for example, than about shifting resourcesacross socioeconomic groups In this sense, the income tax upended the political constituencies thathad formed around the tariff debates Southerners, who had railed against protective tariffs, hadnegative associations with the liberal projects for which the income tax revenues were used, seeingthat “the years of liberal progress have been also years of financial madness and pillage.”97 Thetwentieth-century liberal’s antipathy toward the agricultural South was mutual.98 On the other hand,being relatively less affluent than people in the North, southerners argued in favor of the income tax,

as they paid far less as a proportion of their income than taxpayers in the northeastern states Citizens

in many of the southern states in 1916 were paying less than $1 per capita, compared to $4 per person

in a state like Pennsylvania or more than $10 in a state such as New York, suggesting that the highesttaxes were concentrated in the Northeast and the lowest in the South 99 By contrast, the South, inaddition to the West, had paid a disproportionate amount of the tariffs, so it is not surprising that thePopulist and Progressive movements both based their campaigns in the South, Middle West, and FarWest, and led the charge for the income tax.100

In general, however, while Democrats were still more likely to favor the redistributive potential ofincome taxes, the introduction of the income tax marked the gradually declining salience of partisanpolitics surrounding extraction, culminating in the second half of the twentieth century when neitherparty wanted to be seen as “pro tax.” The first measure enacted after ratification of the SixteenthAmendment was the 1913 Revenue Act that introduced a 1% bottom marginal rate and 7% topmarginal rate,101 with income taxes quickly eclipsing the revenues of ad valorem taxes to become themain source of revenue for the federal government.102 During World War I, the Wilson administrationlevied a series of four war taxes, including three major income tax increases and several consumptiontaxes, producing a set of steeply progressive tax rates throughout the war In the earliest years of theincome tax, “commitment to equality was modest, and real progressivity came only with the winds ofwar,” which meaningfully tilted the tax structures in favor of redistribution.103

As the winds of war quieted, the commitment to redressing inequality lost steam; on the contrary, abipartisan consensus emerged that income taxes should become both lower and less progressive inthe absence of war Top marginal rates decreased from 77% to 24% and even President Wilson, whopresided over four tax increases, wondered about the sustainability of the wartime tax levels: “The

Congress might well consider whether the higher rates of income and profits taxes can in peace times

be effectively productive of revenue and whether they may not, on the contrary, be destructive ofbusiness activity and productive of waste and inefficiency.”104 His treasury secretary, DavidHouston, had admitted that the high tax rates had led to tax evasion by the wealthy As AndrewMellon, who served as treasury secretary for three consecutive presidents (Harding, Coolidge, and

Hoover), observed about tax reductions in his treatise called Taxation: The People’s Business ,

“recommendations for such reductions have not been confined to either Republican or Democraticadministrations,” and he pointed to members of the Wilson administration who had embraced hisvision of lower taxes He argued that “tax revision should never be made the football either ofpartisan or class politics” or “a means of rewarding one class of taxpayers or punishing another.”105

By some accounts, his tax proposals suggested that in fact “big business was in the saddle,” but it wasclear that there was a bipartisan consensus in Congress favoring tax reductions that went beyondMellon’s proposals In other words, had Democrats remained in power, tax levels would also likelyhave declined in the post–World War I period, given the reduced revenue demands and extraordinarylevels of wartime taxes.106

The same, in reverse, is likely the case for the period of the Depression In his last testimony toCongress in 1931, Andrew Mellon proposed a retreat of the tax legislation of the 1920s, eliminatingthe major tax reductions of 1926 and 1948, proposing new excise taxes and increasing the estate tax.Here again, there was consensus in Congress that new revenues had to be generated to address anincreasing deficit, and the Republicans’ last legislation prior to becoming a shadow government forthe next fourteen years called for an increase in taxes and for those taxes to be more progressive thanthey had become over the preceding decade.107

Even with Democrats coming into the White House and both houses of Congress in the 1930s,changes to the level and progressivity of tax rates were mild and even glacial in their pace of change.Mobilization for World War II created ever-steeper tax rates, however, eventually moving the excessprofits tax to 95%, increasing the tax base by 1,000% in a five-year period by raising marginal taxrates at all levels In 1944, top marginal rates had grown to more than 90%, and bottom rates oftaxation were at historic highs of over 20%

With nearly all Americans paying taxes by the end of the World War II, the class tax had become amass tax and would remain that way after the war, lending support to the story of a ratchet effect afterWorld War II, in which state capacity, measured by the tax to GDP ratio, 108 would never return topre-tax levels.109 To be sure, national capacity did decline sharply after the war but never returned toprewar levels, and rarely fell below 15% The vast majority of these revenues came from federalincome tax, which had only become constitutional in 1913—but by the time of the war had becomethe major source of revenue.110

While the public accepted the reality that peacetime taxes would not return to prewar levels,

individuals did appear to become more sensitive to tax increases beyond the baseline levels whose

new normal was higher than before In 1944, at peak levels of taxation, 90% of Americans expressedthe attitude that their tax levels were fair By 1946, only 60% of Americans would agree with thatstatement.111 Individuals who felt that their tax levels were gravely unjust mobilized a grassroots anti-tax movement in the 1950s, which culminated in twenty-five state legislatures endorsing aconstitutional amendment that would put a 25% ceiling on federal tax rates.112 The preamble to the

1952 Republican party platform cited “crushing taxation.”113 One of the first-ever television ads

featured Eisenhower in a spot called Eisenhower Answers America; this ad featured “everyday

Americans” asking Eisenhower pressing questions about their high taxes, to which he promised that

he would “answer” those questions as president by lowering taxes.114 High taxes continued to be animportant issue even after Eisenhower’s election, in part because the high peacetime tax ratescontinued Indeed, the 91% marginal tax rate that held between 1944 and 1951 increased to 92% for

1952 and 1953, although it reverted to 91% between 1954 and 1963 when it finally dropped to 77%,and in 1955, 70% of Americans had come to express a preference for a 25% tax ceiling.115

A bipartisan elite consensus emerged that responded to these public preferences While tax levelsthat were previously unseen during peacetime were now part of the fiscal landscape, both parties had

a vested interest in being seen as anti-tax, catering to the simmering unrest about high levels ofpeacetime taxation.116 The Democratic Party, which had previously been dominated by Progressivesfavorable to redistributive income taxes, now had more influential voices in individuals such asWilbur Mills, a fiscally conservative chairman of the House Ways and Means Committee TheKennedy-Johnson tax cuts of 1964 embodied the shift “away from democratic statism and towardcorporate liberalism”117 shared by both major parties With these tax cuts, many of the partisandifferences on taxation were minimized; Democrats still favored progressive social programs butarrived instrumentally at the notion that to win elections that would allow them to institute theseprograms, they had to keep taxes relatively low “The president [John F.Kennedy] finally decided thatonly a bold domestic program, including tax cuts, would restore his political momentum” and heproposed cuts ranging from 14% to 65%, down from 20% to 91%.118

The key factor that drove high peacetime tax rates was the emergence of the social welfare state,whose development was non-linear, punctuated by war Just as wars created the grounds for taxes,they established the infrastructure for nascent social policies, with social benefits being the dividendpaid for the burdens imposed by war One of the earliest examples of something resembling socialspending is the resolution of the near mutiny when the government could not pay soldiers in theRevolutionary War Consistent with theories pointing to the provision of social services in a war’swake—as a quid pro quo for the services rendered—the mutiny was resolved in part by providingsalaries for soldiers, but also by providing benefits to veterans Similarly, after the Civil War, thefederal government expanded benefits for veterans and their families Individuals across the politicalspectrum were unified in their view that, as the Republican Party platform stated in 1888, “Thelegislation of Congress should be so enlarged and extended as to provide against the possibilitythat any man who honorably wore the Federal uniform shall become the inmate of an almshouse, ordependent upon private charity.”119 As the Civil War generation died, however, many of theseprograms died as well

The Progressive movement, consolidated under Democratic President Woodrow Wilson duringWorld War I, ushered in a new wave of social advancements Just as women’s suffrage emerged “asAmerican soldiers fought overseas to make the world safe for democracy, the administration ofWoodrow Wilson worked feverishly to create a wartime model for a peacetime progressive utopia,”marking a victory for progressivism; however, “World War I was also its death knell.” The rise ofanarchism followed and the interest in state-building at least temporarily took on a particularlypartisan flavor.120

In the interwar period, Republicans tended to be leery of consolidating state power and engaged in

an “anti-bureaucratic” approach resembling an “adhocracy” rather than an institutionalizedbureaucracy that Wilson had tried to assemble.121 With tax levels depleted after the war, there werefew resources for building government institutions That dynamic began to change as President

Franklin Roosevelt implemented the New Deal’s job creation and social welfare programs.Ultimately quite partisan and controversial, the New Deal engaged fundamental debates about the role

of government in the life of an individual As Roosevelt said in his Second Inaugural in 1937, “Werefuse to leave the problems of our common welfare to be welfare solved by the winds of chance andthe hurricanes of disaster.”122 Arguably, his landslide victory of 1936 helped create thesecontroversies, since many New Deal advocates saw the election as a mandate for more aggressivepolicies However, this fervor for ambitious new social benefits exposed historical divisions evenwithin the Democratic Party, between liberal factions, the more mainstreamly liberal president, andthe southerners and westerners who were dispositionally more cautious—and of course fromConservatives who pushed back, often quite feebly given their limited numbers in Congress, againstthe growth of government.123

What had been a matter of acrimonious debate in the 1930s—the size of the welfare system—wasessentially off the table by the end of World War II Intervention in the wartime economy had beenenormous, consisting of aggressive price controls and rationing, and tax rates were astronomical Inshort, “the basic role of government had changed and with it government spending patterns Thegovernment’s responsibility for the economy and the basic well-being of its citizens wasestablished.”124 Federal intervention both for corporations and individuals was, according to the pro-

business US News and World Report , “no longer vulnerable as a principle.” 125 It was the newnormal Political elites could tweak “the scope and degree and quality”126 at the margins, but thepublic, beguiled by the prospect of full employment and social prosperity, had essentially come toexpect a large role for government For countries in Europe that had not experienced anything alongthe lines of the New Deal, a robust fiscal state that provided medical care, social security, and themaintenance of interstate highways became an “institutional vehicle” by which countries couldstabilize democracy, minimize the disruptive nature of economic cycles, and pass along an array ofsocial rights that elicited loyalty from the public.127

TABLE 2.1 Provision of Rights over Time

Civil Rights Political

Sources: Thomas Marshall, Sociology at the Crossroads (London: Heinemann, 1963), 70–74; Christopher Pierson Beyond the

Welfare State (Cambridge: Polity 2006), 25.

The consolidation of the social welfare state completed the march of modernization that hadaccompanied advanced industrialized democracies from the eighteen through the twentieth centuries

As Thomas Marshall shows in his study of modernization in the United Kingdom, which tracksclosely with the US experience, each century was associated with a different defining principle, andall of the rights were cumulative, so that by the time of the twentieth century, society had accruedindividual rights, political freedoms, and social welfare, a historical expansion of citizenship over

time (see Table 2.1).128 Many of these rights followed in the war’s wake, producing one of the fewsilver linings of war, in that democracies would reward the citizens with additional rights practically

as compensation for their wartime sacrifices.129

Despite concerns on the left that the Reagan Revolution (and the Thatcher equivalent in the UnitedKingdom) might produce retrenchment in the social welfare state, reports of its demise wereultimately greatly exaggerated The reason is that the welfare state had cultivated constituencies thatwere invested in the perpetuation of particular social programs.130 At the peak of the Reaganrevolution in the 1980s, polls showed that three-quarters of the American public opposed cuttingsocial programs, and support for defense spending had declined relative to commitments to aspects ofthe welfare state.131 Both President Reagan and Prime Minister Thatcher ran headlong intoconstituencies that were fiercely attached to public social programs, making it nearly impossible toimplement radical cuts.132 Indeed, as Hugh Heclo concluded in his study of the Reagan years, “Much

as F D R and the New Deal had the effect of conserving capitalism, so Reaganism will eventually

be seen to have helped conserve a predominantly status quo, middle-class welfare state.”133 EvenPresident Trump’s promise of a “deconstruction of the administrative state,” a euphemism forderegulation,134 has consisted mostly of symbolic cost measures such as cutting the budget of theEnvironmental Protection Agency while leaving entirely the social programs that constitute the vastmajority of federal spending on social programs: Social Security, Medicare, and Medicaid.135

Alongside these robust social services, defense began to slip as a spending priority relative tosocial welfare in the 1970s.136 In an ideal world of unlimited resources, individuals might want both.Required to pay for them, however, individuals indicated that they were more inclined to trade offdefense for social programs Already in 1963, this trade-off was manifesting itself among the public,

as a majority of individual respondents to a survey registered preferences for more spending oneverything from helping older people and needy people, providing more education, improving cities,and improving hospital and medical care; but nowhere close to a majority favored these increases if

it meant that taxes had to be raised.137 Americans valued many of the public services the governmentprovided, favoring even more of those, but not at a cost to themselves Halfway down the list ofimportant spending priorities was defense and rearmament (at 47% favoring more spending), justabove support for small businesses and highway construction; but only 30% suggested they stillfavored more defense if it meant higher taxes.138 Fiscal frugality in the form of tax aversion has been

a fairly consistent theme for the contemporary American populace, with two exceptions for social

programs: 58% of the public has suggested they would be willing to pay more taxes for health care

for all, and 65% for early childhood education.139

Data from the Office of Management and Budget offers compelling evidence that spending has beenconsistent with these preferences As Figure 2.4 suggests, defense spending constituted 49.2% of thefederal budget in 1962 and entitlements 31%, but the relationship was inverted by 2012, withentitlements reaching 61.9% and defense accounting for 18.7% of the budget.140 The trend, as oneobserver put it in 1976, constituted the “waning of the warfare state” giving way to the consolidation

of the welfare state.141

The trend in the United States is consistent with spending in other advanced industrializedcountries, where support for military power, measured by fiscal outlays, declined sharply between

1970 and 2015, although declines have been sharpest in the United States Seemingly paradoxically,party support for military power, measured by the Manifesto Project, which provides information on

political parties’ policy positions, has remained relatively constant in these countries, and has evengone up in the United States.142 The two measures of spending and party support for defense mayactually be inversely related; the more spending has dropped, the more parties assume a defensivecrouch to protect the military they do have In any case, greater party support has not translated intogreater material support, and the downward trend is unmistakable.

Taken together, this discussion points to a dramatic postwar shift in state-society relations afterWorld War II, particularly with respect to partisan differences, public attitudes, and in turn, policies

on both taxing and spending This suggests that in the wake of World War II, the commitment tosociety’s social well-being had become a nearly irrevocable feature of the state, and the highpeacetime levels of taxation would create a sense among the populace that the state had the resourcesneeded to provide these services At the same time, those tax rates meant the public would beresistant to additional increases

The overall public preferences for both lower taxes and the government’s provision of bothdefense and social benefits created electoral incentives for both parties to preserve social programsand keep tax levels relatively low However, these incentives led to structural dynamics that pushedtoward massive deficits, abetted by the prominence of the dollar as the world’s reserve currency thatallowed the United States to borrow easily.143 A number of historians have fretted about theconsequences of these structural forces, including Paul Kennedy, who compared Americanoverextension to similar spending in empires such as Britain and Rome earlier David Calleo hassimilarly written at length about the American decline, using the overextended budget as the point ofdeparture for his claim.144 The consequence, depending on one’s ideological persuasion, is either that

“democracy has been subverted by narrowly selfish tax-eaters or captured by capitalists or agents ortransmogrified by the excessive grind of competitive interest groups.”145 In short, democratic politicshave created a frenzied rush to embrace lower tax rates and allowed for interest groups that help craftconvenient loopholes in the tax code, with unsustainable consequences

While seemingly comprehensive in their handwringing, these analyses miss another important

consequence of how the fiscal state has evolved over time Prior to 1945, the onset of major war or

partisan constituencies could make taxation a politically viable option In the years since World War

II, against a backdrop of high peacetime tax rates dedicated to financing an array of prized socialprograms, war-specific taxes have essentially come off the table as a policy option Leadersincreasingly structure the costs of war to minimize the impact on the populace, which may serve toanticipate and deflect public opposition to war but in turn does violence to democratic accountability

The Effect of Changing Public Attitudes on Democratic Accountability

In this chapter, I presented two existing sets of views about public sensitivity to the costs of war—one that paints the public as cost sensitive, the other as cost insensitive—then critiqued both in favor

of a set of attitudes that has evolved over time, driven in part by changes in the nature of war andreinforced by changes in the nature of the state A second set of critiques, and the basis of the secondpart of the argument, deals with the way these existing arguments take financial costs as a given andimply that leaders then must react to the set of constraints presented by the public, an account that Itake to be flawed or at least incomplete

Indeed, whether the public reacts tolerantly or intolerantly to the financial costs of war, the existingaccounts characterize leaders as reactive or captive of their political environments: either able toundertake an all-out war with public backing or having to bring an expeditious end to war because of

the public’s diminishing consent 146 Almost all of this literature minimizes leaders’ political agencywith respect to these costs, however One exception is Joanne Gowa, who notes in her study ofconscription, that “the structural-constraint explanation casts would-be renegade leaders as myopic,passive actors In doing so, it exaggerates the ability of formal constraints to abridge the freedom ofaction of leaders This is so because farsighted leaders will attempt to anticipate and preemptopposition” 147 by structuring decisions in ways that minimize resistance Gowa gives the example ofcertain conscription institutions that reduce political constraints on leaders using force abroad,finding ways to create escape hatches for segments of society that would likely oppose the use offorce.148

Leaders have analogous options when it comes to the financial costs of war The view of ademocratic populace choosing direct fiscal sacrifice—that is, war taxes—over defeat sets up a falsechoice As implied earlier, the state need not generate resources through taxation or lose the warbecause of insufficient resources It can pursue non-tax alternatives that alleviate a leaders’ decision-making constraints Whether leaders pursue Liberty Bond Wars or Hide-and-Seek Wars depends onthe two factors developed above: the nature of the war and the nature of state-society relations Each

of these has changed over time in ways that have created a different political game of constraints andopportunities 149

First, as the previous discussion suggests, the changing character of war after 1945 conditioned theway individuals felt about the legitimacy of fiscal sacrifice and therefore shaped the politicalpalatability of taxes for leaders concerned about alienating public support for war Prior to 1945, theUnited States had fought some small-scale and some large-scale wars, but after 1945 it would nolonger fight large-scale wars While this trend was not irreversible, large-scale was increasinglyunlikely, and so therefore was the public’s propensity for fiscal sacrifice, thereby decreasing thelikelihood that leaders would reach for war taxes

Second, the changing nature of state-society relations—in particular the rise of the post–WorldWar II welfare state and high peacetime levels of taxation or state capacity—meant that socialprograms would most often be preferred to defense commitments, to the extent that the public wasunwilling to cut social programs in favor of defense It was also reluctant to pay war-specific taxesbecause of the high peacetime levels of extraction, thus making it politically expedient for leaders toborrow instead of tax to pay for wars as the welfare state became consolidated Figure 2.5 brings thetheoretical discussion about democratic accountability into conversation with the discussion of timingand sequence of the two main political events outlined here, resulting in four different quadrants thatare analytical but map onto different temporalities

Quadrant one, high state capacity with large-scale wars is a null-set After World War II, society relations became well developed, and state capacity relatively high, with peacetime tax-to-GDP levels never returning to prewar levels and commitment to social programs becoming a stronglyheld public preference that made increasing taxes or defense commitments more difficult But afterWorld War II, there have been no major wars and in fact, my argument suggests that major wars might

state-be unlikely state-because of high state capacity and advanced state-society relations Indeed, the United

States increasingly considers major war unlikely As one individual at the Air War College put it,

“No one talks about an invasion of the Chinese mainland”; instead, the military plans for a less costly,more cautious approach that is more in line with the public’s—and the government’s—low appetitefor engaging in high-cost wars.150 Deterred by the prospect of an expensive, high-casualty conflict,the US military has dropped its Air-Sea-Battle language that implied a great power conflict in Asia,

turning instead to plans for a high-tech war involving cyberspace and automation.151

Beyond the northwest quadrant of the figure, the argument suggests that the major wars in the earlystate-society relations (quadrant two) create high incentives for war taxes early and often, or what Iclassify as the Liberty Bond war These wars mobilize the whole state apparatus and make manifestthe stakes of the war, increasing the appeal of fiscal sacrifice For example, in the Civil War, the

historically anti-tax Chicago Tribune suggested in 1862, “Taxation is, to every government, what

food is to the human body—the supply of the motive power for every undertaking [L]evy the tax,and the war will go on!”152 During the Civil War, the public was more galvanized toward fiscal

sacrifice than legislators themselves Even after tax increases, the New York Times wrote the

following:

The reluctance which the House has evinced to take up the tax bill has been owing to a shameful distrust of the people The feeling has prevailed that the people would become disaffected with the war, if their burdens were increased; and that it was the true policy to make things as pleasant for the time as possible, even at the cost of any amount of suffering after the war is over.

As new congressional elections are soon to come, congressmen have had a nervous apprehension, too, that if they taxed, the people would fly into dudgeon, and snuff them out of existence Now all this is delusion The people are not the dolts they have been taken for They have not been deceived in the least by these attempts to make the war seem dog-cheap It was an insult to them to imagine that they require to be reconciled in any such fashion to the continuance of the war The people from the beginning have been more determined than the public men—have been more earnest, more patient, more ready for any effort or sacrifice This war against the rebellion is the people’s war, just as the rebellion itself strikes at the people’s government Having accepted the war, the people are prepared to accept all its sacrifices, whether they be of blood or of money They well understand that it would be just as foolish to attempt to keep up the war by sham battles as by sham money; and that all paper money is sham unless it draws vitality from living, present, values The people are too sensible and practical to put up with any such pennywise and pound foolish policy They are immovably determined to prosecute this war to its successful consummation; and they are just as fully prepared to meet any liability that justly belongs to it 153

The sentiments strike at the way the war’s importance kindled a strong sense of fiscal sacrifice,consistent with the evidence from World Wars I and II In all of these wars, the democratic populacewas willing to engage in fiscal sacrifice, anticipating public goods—both security but also social,political, and economic benefits—in return for their magnanimity

Adding to the way the war contributed to fiscal sacrifice was the low state capacity underlyingthese wars Unlike post-1945 wars, when leaders increasingly confronted a tax ceiling because ofhigh peacetime tax rates—while also benefiting from large revenues that made it easier to reallocatedollars from one area to another—leaders presiding over wars in the pre-consolidated state couldmore legitimately make the case for extraction For one, the $100 million in foregone customs revenue

in 1914 because of the European war had a comparatively large effect on the government’s meager operating budget Another is that the “we are being taxed to death” trope that opponents ofwar taxes trotted out in both 1950 and 2007 simply had no credibility in an era in which most peopledid not pay taxes In 1914, tax to GDP ratio was 1.98%, compared to 13.43% and 18.26% for 1950and 2007, respectively Thus, while taxes are never welcome, leaders would have a more credibleand persuasive case to make in a low state capacity era, particularly against the backdrop of a majorwar

still-As quadrant three suggests, low state capacity mapped onto smaller-scale war opened up thepolicy space and engendered a dynamic of partisan politics-as-usual Wars in this quadrant were notresource-intensive, but neither were resources flush in what were quite limited national budgets.Since the sense of existential stakes was absent, making war taxes unpopular on average, the decision

to levy taxes as a way to generate revenue for a war was possible for leaders with politicalconstituencies that supported taxes, offsetting the potential for opposition as a whole Before 1913,

with taxes being tariffs that produced clear winners and losers for the party on the Right, Federalists(later Republicans) would be quicker to reach for war taxes, and the Left, Republican-Democrats(later Democrats), would be more reluctant to introduce war taxes After 1913, with taxesincreasingly taking the form of the income tax, Democrats, in principle, would be more likely to reachfor war taxes even for small-scale wars In practice, no small-scale wars took place between theintroduction of the income tax in 1913 and 1945 when the temporal changes related to war and thestate crossed key junctures and eroded partisan differences regarding the fiscal state in either wartime

or peacetime.154

Quadrant four is the clear hide-and-seek quadrant that corresponds with small-scale wars and therobust post–World War II state capacity environment After the fiscal state consolidated followingWorld War II, leaders found themselves with more constraints, minimizing the partisan differences inhow leaders passed along the costs of war Since taxes did not return to prewar levels, highpeacetime levels of taxes created a “ceiling effect” in the minds of the public, an unwillingness to paymore and a belief that the levels they were paying should cover both guns and butter Whereas before

1945, individuals in wartime could be moved to bear the direct burdens of war, after 1945, theywould increasingly express befuddlement about the very notion of a war tax Equally important,leaders had reached more of an obvious ceiling in terms of the ways they could expand citizenship inreturn for sacrifices in wartime If citizenship had experienced a dramatic historical expansion andconsolidation by the middle of the twentieth century,155 then what carrots were left to dangle?Moreover, with the wars being small-scale, limited wars, the goals would be less likely to resonatewith the populace in terms of eliciting fiscal sacrifice

In the post–World War II environment characterized by bipartisan aversion to being tarred with thehigh-tax label, both Republicans and Democrats would increasingly avoid the political backlash—against the war or their own electoral prospects—that would come about through war taxes In thisenvironment, leaders would have a higher evidentiary standard for raising taxes during wartime thanthey did in earlier periods When it comes to these smaller-scale wars, they would increasingly haveincentives to bury the additional financial costs of war rather than introduce yet an additional set oftaxes Leaders would not only ask for little fiscal sacrifice but would find other ways to diminish thecost side of the ledger, whether by ending conscription so that individuals would select into sacrifice,

or by using technologies such as drones that reduced the civilian toll altogether This would beespecially true for wars comparatively small relative to the overall size of the economy, and withprospects for borrowing seemingly unlimited for countries like the United States whose dollar is theworld’s major reserve currency In this sense, the Vietnam and especially Korean Wars mark thetransition between the large-scale war/low state-capacity world where taxing was obvious to theHide-and-Seek wars of the most recent period where leaders were instinctively in favor ofborrowing to minimize the apparent cost of the wars

In short, the argument explains first, the attitudes toward fiscal sacrifice in wartime and second, theway those attitudes inform whether leaders pass along the financial costs of war through war taxes orless visible non-tax alternatives such as debt It also suggests that attitudes constrain policies but thatleaders are not captives of those attitudes Leaders do have agency They can carry out policies thatcircumvent the constraining effects of unpopular opinion Much as leaders have structuredconscription institutions to minimize broad societal impact and reduce the likelihood of casualtiesthrough drones to reduce the visibility of costs, they can minimize the apparent financial cost of thewar in order to anticipate sources of opposition The turn to debt finance therefore points to theimplicit influence of and accountability to evolving public preferences and the way that leaders

respond to these political pressures This argument therefore occupies a middle ground between

arguments assuming that leaders can sidestep checks and balances in the conduct of war or that they

are constrained by public attitudes.156

The argument also suggests that partisanship regarding how to pay for war, influential in the earlyperiod of the American state, has become less salient Leaders are always “strategic politicians”157but at least for taxation and fiscal sacrifice, the politics vary considerably depending on the timeperiod In an earlier context, the nature of both the state and types of taxation opened up partisan

“cross-pressures and trade-offs”158 that would favor war taxation either for large-scale wars orsmaller-scale, Republican-led wars that could provide an excuse for protective tariffs Partisandifferences were quite salient in terms of how leaders paid for wars But no longer does the UnitedStates carry out large-scale wars, and high levels of peacetime taxation have created ceiling effectsand expectations that the government can provide both guns and butter under the same fiscal heading.Despite vast partisan polarization along many other dimensions, partisan differences when it comes topaying for recent wars have become negligible

Case Selection

The theory advanced above drives the case selection discussed below, with one empirical chapterdedicated to cases in each quadrant, plus the transitional cases of Korea and Vietnam The chaptersare organized to show how the two main factors—aspects related to the nature of war and state-society relations—affect attitudes about fiscal sacrifice and in turn decisions about how to pay for thewar Despite the structural similarities of the chapters, they do exhibit some observable differences.The main reason is that as this chapter has chronicled, what war and the state mean for the UnitedStates has changed since its founding Early in its history, however, with state capacity low, thegovernment did not have a mechanism for reliably providing guns or butter, and certainly not butter.Social welfare was distant on the horizon and militias were raised by state-level governments andthen only during wartime Discussing how the public engaged with public goods would be lessapplicable in this period Debates about guns versus butter were not part of the story until the post–World War II cases, when these types of trade-offs became meaningful

In addition, partisanship plays a larger role in earlier cases than later ones because of theinteraction between small-scale war and low state capacity that created room for politicalmaneuvering, particularly compared to later periods that experienced bipartisan convergence in theantipathy toward taxes Thus, the case studies do exhibit some differences insofar as the way eachfactor changes over time, but all are oriented around investigating how the nature of the war and stateshaped how society thought about bearing the burdens of war, and how leaders passed along thoseburdens to its public by way of propping up support for the conflict

The first set of case studies, Chapter 3, investigates early conflicts that fall under the heading oflow state capacity and small-scale wars Of the four wars in this quadrant, the chapter includes onewar carried out by a Federalist (President John Adams in the 1798 Quasi-War) who mightcorrespond to a member of today’s right-of-center party, but I consider this conflict merelysuggestive, since the political parties at that time predated the modern party system It issupplemented by a study of war carried out by a Republican (President William McKinley in theSpanish-American War) and one by a Democrat (President James Madison, then considered to bepart of the Jeffersonian Republican party: the War of 1812) to show the partisan room formaneuvering that existed under these particular circumstances In both the 1798 Quasi-War, which

only ended up being a preparation for conflict, and the 1898 Spanish-American War, also a scale conflict, the leaders on the right used the opportunity of crisis to call for their preferred tariffs.

small-In the War of 1812, carried out by leaders on the left, the United States engaged in a Hide-and-Seekwar, shying away from fiscal sacrifice both because the sense of stakes would discouragemagnanimity on the part of the populace and because their constituencies on the left were anti-tariffand would oppose the move These cases illustrate that when taxes meant tariffs, Republicans weremore likely to reach almost instinctively, and often preemptively, for war tariffs, guided by theirpartisan preferences, and the Democrats were loath to do so until or unless fiscal necessities forcedtheir hands

Chapter 4 addresses two emblematic Liberty Bond wars—World Wars I and II—in which thepopulace showed relative insensitivity to the financial costs of wars, allowing leaders to imposeunprecedented taxes It explores the nature of those attitudes, both in reference to attitudes toward thewar in general and war taxes in particular It also investigates the turn to war taxation, showing thatleaders carried out unprecedented tax increases with no adverse consequences for war support ortheir decision-making constraints due to the relative cost insensitivity of the populace These wars arealso a reminder that the public is always a consideration Even when the people generally supportboth the war and fiscal sacrifice, as during these wars, there was a ceiling on the propensity for fiscalsacrifice, and leaders invariably designed tax strategies that anticipated these attitudes in order tominimize their possible decision-making constraints

The third major set of case studies in Chapter 5 investigates the Korean and Vietnam Wars TheKorean War maps onto the post–World War II changes to the nature of war and state and therebyhelps trace the source of changing attitudes toward fiscal sacrifice With growing reluctance to bearfiscal burdens came the shift in finance strategy from a Liberty Bond war to a Hide-and-Seekapproach later in the war The within-war variation helps tease out the timing and source of publicattitudes and the way those attitudes shaped decisions about war finance Vietnam furtherconsolidates that move away from exposing the costs of war to individuals by borrowing despiteJohnson’s economic advisers urging otherwise Only later in the war did the United States levy a wartax, and by that point the war was well entrenched, even if the tax became a lightning rod onto whichopposition to end the war focused its energies

Chapter 6 addresses contemporary wars that fall under the heading of Hide-and-Seek wars Itfocuses on the most recent wars—Afghanistan and Iraq—and specifically the way in which shiftingpublic perception of wars and fiscal sacrifice have affected incentives for less obvious forms of warfinance, in particular borrowing These wars have virtually eliminated any partisan differences, andleaders on both sides of the aisle have avoided war taxes altogether The case studies documentpublic attitudes about the war and fiscal sacrifice and how those attitudes informed leaders’unwillingness to finance the war through taxes They also trace the consequences of that shift,providing evidence that leaders were conscious of likely opposition and that by shifting the burden toless visible forms of sacrifice they were able to give themselves room to act more freely This movehas had implications not just for the duration of these recent wars but also the onset of new warsagainst Syria, for example, where the vast majority of Americans does not think that the United States

is even “at war” despite the intensity exceeding that in Afghanistan

Chapter 7 presents not just survey evidence from the United States but also cross-national evidencemeant to evaluate whether the argument travels beyond the United States Central to the argument isthe observation that the welfare state has waxed while the warfare state has waned, and that thesedynamics have shaped both the propensity for fiscal sacrifice in wartime and leaders’ strategies for

how to pay for war In principle, this argument should explain the behavior of other advancedindustrialized democracies whose leaders face accountability checks and balances when they carryout conflict; have seen a consolidation of the social welfare state through high peacetime levels ofextraction; and are (nuclear weapons) states unlikely to conduct major war I therefore rely on theUnited Kingdom and France for cross-national evidence in Chapter 7 If the publics in these countriesexhibit similar hostility to fiscal sacrifice in wartime, and leaders have taken war taxes off the table

in favor of either incurring debt or cutting defense, then the argument likely travels to other countriessimilarly positioned, including those in Europe, Australia, and Japan As I discuss in the conclusion,countries that are not democracies, that have lower state capacity, or are fighting civil wars instead ofinterstate wars fall outside the scope of the argument and should be the subject of future research(discussed in the last chapter)

Having proposed that attitudes are conditioned by underlying circumstances related to the nature ofthe war and state-society relations, the following chapters evaluate the relationship between thepublic’s cost sensitivity and decisions about how to pay for the war The empirical analysis beginswith the next chapter, which illustrates the early experiences of the inchoate state and small-scalewar, highlighting how this combination opened the door to partisanship in ways that became lesssalient either in the presence of major war or in the post–World War II period of high state capacity

FIGURE 2.1 US government expenditures, 1789–2010

FIGURE 2.2 American attitudes about tax levels and top marginal tax rates*

* Public attitudes about tax rates available from the American Enterprise Institute, 2011; top marginal tax rate data from Thomas Piketty,

Capital in the 21st Century (Cambridge, MA: Harvard University Press, 2014), available at

https://www.quandl.com/data/PIKETTY/TS14_1-Top-marginal-income-tax-rate-in-rich-countries-1900-2013

FIGURE 2.3 Changes in military personnel, defense spending, and state capacity over time