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Historical Perspectives on the Federal Income Tax










Victory Tax
The Anti-inflation Tax
            See Also:
Social Welfare
Social Security
Enforced Savings
Victory Tax

 “Mr. Chairman, The Treasury Department, in outlining its plan for the 1943 revenue bill, proposed a program that called for increased contributions from all but the substandard groups in the country.  The Treasury held that the tax bill must satisfy three principles.  First, it must be designed to check inflation.  Secondly, it must be designed to curb unnecessary expenditures, with a proviso, as the Secretary of the Treasury stated, that we must not “economize on the health and strength of our underprivileged for that is no economy at all.”  Thirdly, the tax bill must be fair, nondiscriminatory, and imposed in accordance with the ability to pay.  In this connection the Treasury flatly rejected a general sales tax and stated that one of the aims of the bill must be to recapture undue profits.”

 In a time of war it would be unreasonable to argue with such a mandate, for all should contribute to the preservation of our Country.  However, it is this tax, or the continuation of the tax, that proved to be detrimental to the preservation of our Constitution.  Yes, we won the War, but we lost our freedom.

 The Victory Tax, as it was called, was implemented in an effort to stop inflation.  The inflation being created by the injection into the economy of billions of dollars of new money made necessary by the war.  This “money” was created by the commercial banks however, through “bookkeeping methods” which exchanged “credit” for interest bearing bonds.  This “credit” was then used to pay for the materials and machinery necessary for the war.

 This “new money”, so to speak, was transferred from the government to the contractors through the banks and then from the contractors to the suppliers again through the banks.  The only real cash was used to pay “wages”.  These “wages” then, because of the increased employment and high profit motives of the contractors and suppliers, also increased.  Well, at least for a few at the top, but it did increase the number of people employed, therefore the amount of “wages” paid.  It was for that purpose, that the Victory Tax was implemented.  The wealthy and the upper middle class were already paying an “income tax”, it was the millions of common laborers that held the potential for inflation.

Congressman Downey of California explained it this way:
 “The bill passed by the House was designed to raise $23,000,000,000 a year.  Of this total, 43 percent was to be paid by corporations and this 43 percent could in no sense be called an inflation preventing tax.  Thirty-four percent was to be paid by personal income taxes on the rich individuals, which also was not a good method of preventing inflation.  Seventy-eight percent of the taxes to be raised by the House bill was practically no effect on the prevention of inflation.  The principle anti-inflation provision was that of excise taxes….
 …Without the Victory Tax the present bill would not reach the source of consumer spending which is the real source of inflation danger…
 …It has been stated that families earning less than $2,000 a year spend all their income.  If they had to pay income taxes they would have less money left to spend.  Such taxes would be anti-inflationary.  (Congressional Record-House, Volume 88, October 20, 1942, pages 8479-80)

 In order to make this Victory Tax effective it had to involve everyone and it also had to be easy to administer.  What easier way than to follow the method used by the Social Security Act.

  “This withholding-at-the-source program is designed along the same lines as the social security program, and all the employer will have to do will be to add another column to his records for his employees, and that will be sufficient for him to take care of this tax.” (Congressional Record-House, Volume 88, July 16, 1942, page 6265.  Congressman Cooper)

 “The reason I raise the question is because of the social security tax.   A great many employees get the idea that this is really a wage reduction and not a tax.” (Congressional Record-House, Volume 88, July 16, 1942, page 6265.  Congressman Case of South Dakota)

 “Believing as I do, in an extensive compulsory savings plan which would reach into the low-income groups, I have seen no plan suggested by the Treasury or anyone else which would do the job as efficiently and thoroughly as would the plan proposed by the Senator from Connecticut.”  (Congressional Record, October 9, 1942, page 7992, Senator Brown of Michigan)

“In order to raise the large amount of additional revenue required, it is necessary to levy taxes on those in the lower income group, and in doing so the Victory Tax, in my opinion, is fair and equitable and one which does not subject to taxation the barest necessities of life, as each taxpayer is allowed $624 free of taxation.”  (Congressional Record-House, Volume 88, October 20, 1942, page 8467.  Congressman Doughton, Chairman of the House Ways and Means Committee)

 “It was though by the committee that $624 would cover the cost of food to the average family, and perhaps a little more; but it felt that $624 was low enough to reach by any special added tax, such as the Victory Tax; and so that exemption is given, and, of course, the exemption is available to every taxpayer.” (Congressional Record-Senate, Volume 88, October 6, 1942, page 7799-7800)

 “The Victory Tax, I believe, as I have read the newspaper statements emanating from our Finance Committee, has been measured out partially to check inflation, and I have heard the distinguished and able senior Senator from Georgia, who has the pending bill under his charge, say repeatedly that the great danger of inflation came from the fact that we were pouring out into this Nation tens of billions of dollars without any counterbalancing consumers’ goods and services…. I take it that the principle reason for the Victory Tax and for taxes from now on is to gather into the control of the Federal Government the excess purchasing power of the Nation” (Congressional Record-Senate, Volume 88, October 9, 1942, page 7986. Senator Downey of California)

 “2. It places an unfair and dangerous share of the increased tax burden upon the lower-income groups, encroaching upon subsistence standards of living and in effect taxing bread out of the people’s mouths… Studies of consumer income indicate that any tax program, which bears down upon individuals and families receiving incomes of $1,500 or less, encroaches upon subsistence standards of living.  The tax dollars collected from taxpayers of these lower-income groups are dollars that would otherwise be spent for food, shelter, and the bare necessities of life.  In these income groups are to be found approximately 43 percent of the Nation’s population, but in the current year it is estimated they are receiving only 16 percent of the aggregate consumer income. (Congressional Record-Senate, Volume 88, October 10, 1942.  Senator La Follette of Wisconsin)
 
 
 
 

            See Also:
Social Welfare
Social Security
Enforced Savings
Victory Tax





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