US Congress House Servicemen’s Federal Income Taxes Questions and Answers

The Roosevelt administration sought to finance fully half the war effort with taxes, but at 45% fell a little short of its goal. Government revenues increased from $14.6 billion in 1942 to $45.2 billion in 1945. The brunt of the first increases were borne largely by corporations. In 1943, for example, corporate taxes accounted for 43% of revenues, income taxes just 30%. (The rest came from tariffs and excise taxes.) In the last two years of the war, however, the biggest gains came from the income tax. In 1945, income taxes accounted for 40% of revenues and corporate taxes just 33%.

Income tax revenues soared because by 1945 the government had expanded the tax base to 60% of the workforce (from just 13% of the labor force during World War I), transforming what had been a “class tax” into a “mass tax” that hit over 42 million Americans by war’s end. The government also increased receipts by increasing marginal tax rates on the rich and by increasing compliance through direct payroll deductions. (Previously, workers paid their taxes quarterly.) The high war profits taxes of World War I were disdained because class tensions had eased as Americans united to fight a two-front war against dangerous foes. At the same time, income taxes on working Americans were encouraged as a means of keeping inflation in check by reducing workers’ net income (the number of dollars in their pay packets).