The upper basin of the River Somme, before it reaches the English Channel, carves a winding trench through the chalky white soil of northern France. The ground is made for such trenches, as the Germans discovered when they dug fortifications in the summer of 1916. When the British artillery started pummeling them on the first of July, their deep concrete recesses resisted the attack.
The British kept at it, tearing up the ground and raining the ditches with blood. By November, they had lost 420,000 soldiers and gained very little ground.
It has been called “the greatest military disaster in their history.”
A month later, having lost the confidence of Parliament, the prime minister resigned. The new leader, David Lloyd George, rose to address the House of Commons.
“There are hundreds of thousands who have given their lives,” he said, “there are millions who have given up comfortable homes and exchanged them for a daily communion with death; multitudes have given up those whom they love best. Let the nation as a whole place its comforts, its luxuries, its indulgences, its elegances on a national altar consecrated by such sacrifices as these men have made.”
He called on his government to tax the rich accordingly.
Lloyd George was not alone. Throughout Western Europe and North America, belligerent nations demanded compensation from the fortune few who escaped the treacheries of the front lines — and who, in fact, often profited from the concurrent demand for war materiel. It was only fair, they argued, for the rich to sacrifice in wealth what they did not risk in body or spirit.
Their argument worked. All across the developed world, top income tax rates rose to unprecedented heights, most of all in countries that mobilized for war. After decades of pleading in vain, progressives only found public support for their cause when universal conscription showcased the privilege of the wealthy in terms of life-and-death. It was not enough to speak of “fairness” or “ability to pay.” People needed to feel the weight of their unequal burden.
That feeling seemed to return, briefly, with the COVID-19 pandemic. Once again, the rich were not on the front lines. The “essential workers,” as they were called, disproportionately came from lower-to-middle-income households. They were more likely to suffer in the service of a country hobbling along through the worst recession since the Great Depression.
Their sacrifice was not lost on the wealthy. In July 2020, some of the richest individuals in the world banded together to ask their governments “to raise taxes on people like us. Immediately. Substantially. Permanently. We are not restocking grocery store shelves or delivering food door to door. But we do have money, lots of it. Money that is desperately needed now.”
Their plea was reminiscent of Gallup surveys in the 1940s, revealing that high-income individuals wanted their taxes to be doubled to help pay for the war. And so they were.
This, too, could have been a turning point. Instead, the largest fiscal stimulus in world history was paid for with so much borrowed money that our national debt has risen to unprecedented levels that now concern experts across the political spectrum.
Raising taxes also could have stemmed the rise in inflation, reducing pressure on the Federal Reserve to raise interest rates. Whereas taxes are a scalpel to be wielded on fortunes that can afford it, interest rates are a blunt instrument that affect us all — and exacerbate the growing debt by demanding more funds for greater interest payments.
Which brings us to another potential turning point. As we stare down these high debt levels projected to last for years to come, we also face the expiration of the most expensive provisions of the Tax Cuts and Jobs Act in 2025.
Like 1986, the moment is once again ripe for tax reform. If it results simply in higher tax rates, history suggests that the transformation is likely to be short-lived and easily undermined. If it closes loopholes, on the other hand, it is likely to be viewed as fairer — and its fruits more abundant — for longer.
We know the money exists. Whether we put it to public use, or whether we continue to leave it hiding in the shadows, will reveal much about the society we have become and the legacy we care to bequeath.
“People think taxation is a terribly mundane subject,” the IRS Commissioner Sheldon Cohen once said. “But what makes it fascinating is that taxation, in reality, is life. If you know the position a person takes on taxes, you can tell their whole philosophy. The tax code, once you get to know it, embodies all the essence of life: greed, politics, power, goodness, charity. Everything’s in there. That’s why it’s so hard to get a simplified tax code. Life just isn’t simple.”
But then, nothing worthwhile ever is.
This is the seventh and final installment in a series of Substack posts that have shown how the United States can raise trillions of dollars in revenues to reduce inequality. To read them in their entirety, you can download a PDF compendium on SSRN.