Tuesday, October 25, 2011

The 1913 Income Tax Enabled Stark Increases to Government Revenues to Pay for WWI














Revenues went up by a factor of 6 in three short years, and dramatically reversed federal reliance on tariffs, excises and other taxes of one kind or another to finance the preponderance of government spending. Note the overnight reversal between 1917 and 1918 in the income tax share of the federal revenue. The analogy today would be like going from $3 trillion in revenues to $18 trillion.

Excises on alcohol started disappearing in 1920 with enactment of Prohibition. Such taxes had routinely accounted for 20-40 percent of all federal revenues from the War Between The States until that time. Over the course of a decade from 1920 through 1932 alcohol excises dropped in the end by a factor of 10, but instantly surpassed their 1920 levels with Repeal in 1933, a year in which everyone desperately needed a drink.