Bush Breaks With 140 Years of History in Plan for Wartime Tax Cut

Old question: What did you do in the war, Daddy?

New answer: I pocketed a large tax cut, honey.

Pause.

And then I passed the bill for the war onto you.

That, essentially, is the generational transaction established by the sweeping tax cut President Bush proposed last week. The proposal commits Bush to a goal unprecedented in U.S. history: cutting taxes in wartime.

Forget guns and butter: Bush is now offering bombs and caviar.

That’s an odd combination, as Bush demonstrated last week when he announced his plan. First he emphasized the threat that international terrorism poses to U.S. security and somberly declared that this is a “time of war.”

Then he proposed a good-time economic plan that would shower Americans with $674 billion in tax breaks over the next decade -- at a time when the federal budget has fallen back into deficit and faces irresistible demands for more spending on defense and homeland security. The unavoidable result will be bigger federal deficits and a larger national debt, which amounts to shifting the cost of defending the nation onto our children.

With this push to slash taxes during wartime, Bush broke from 140 years of history under presidents of both parties. In every major conflict the United States has fought since the Civil War (and some minor ones), Washington has raised taxes to pay for the war.

Americans are never particularly happy about tax increases. But we have always accepted heavier burdens as the price those at home pay to support those under fire on the front. One World War I-era economist wrote: “Patriotism can often be translated into dollars and cents -- in fact, the material side of patriotism is often quite as important as the spiritual side.”

The income tax and the inheritance tax (which Bush is trying to eliminate) were signed into law by Abraham Lincoln, the first Republican president, to help pay for the Civil War. As journalist Steven R. Weisman recounts in his engaging recent book, “The Great Tax Wars,” by the time the war ended, Congress had imposed a top income tax rate of 10% on all incomes over $5,000. The inheritance tax, he writes, “passed Congress with little debate because of the widespread demand in the North for sacrifice, especially from the wealthy.”

After the war, both taxes were eventually allowed to lapse. But to pay for the Spanish-American War, President McKinley -- also a Republican -- signed into law an excise tax on petroleum and sugar companies and reinstated the inheritance tax.

To fund the country’s entry into World War I, President Wilson -- a Democrat -- massively increased the number of Americans subject to the income tax and raised the top rate from 7% to 77%.

Congress cut taxes during the 1920s. But when the nation fought World War II, Americans reached into their pockets again. Once more, the number of Americans subject to the income tax soared (from 4 million to nearly 43 million) and the top rate rose to 91%.

Taxes increased again to fund the Korean War; even in the Vietnam War, President Johnson belatedly imposed a war surtax on incomes.

The war against terrorism or a possible return match against Iraq won’t demand nearly as many resources as World Wars I or II, or even Vietnam and Korea. But these tests will still impose significant burdens on the government.

By 2005, Bush wants to spend at least $100 billion a year more on defense than President Clinton proposed in his final budget; a war in Iraq would add to that bill. Bush has also proposed to spend $38 billion on homeland security this year. And even those commitments, the administration concluded in a homeland security plan last summer, “must be viewed as down payments to cover the most immediate security vulnerabilities.”

As Weisman writes, when Wilson urged higher taxes in World War I, he stressed the nation’s obligation to avoid burdening future generations with the war’s cost through excessive borrowing: “The industry of this generation should pay the bills of this generation,” he said. Bush seems to be ignoring that lesson.

By proposing large new tax cuts when Washington is already in deficit and facing growing costs for defense, Bush is threatening an explosive growth in the national debt. When Bush took office, the nonpartisan Congressional Budget Office said Washington would eliminate the publicly held national debt by 2008 -- as long as the government fulfilled the pledge Bush and Al Gore each made in the 2000 presidential campaign to apply the surplus temporarily accumulating in Social Security toward paying down that debt.

But Bush abandoned that promise under the pressure of recession, the war on terrorism and the cost of his $1.35-trillion, 10-year tax cut of 2001. Even before Bush’s new proposals, the CBO had estimated that Washington would need to divert more than $2 trillion from the Social Security surplus to operate the rest of government through 2012. With that money no longer available for debt reduction, CBO projected the debt would rise to $3.8 trillion by 2008.

The further tax cuts Bush proposed last week will only deepen that hole. Because the operating side of the federal budget is already deeply in deficit, every penny of Bush’s new tax cut would have to come from taxes raised for Social Security or by increasing the national debt. The Democratic staff on the Senate Budget Committee has estimated that if the new Bush tax cut plan passes, as well as the prescription drug plan for senior citizens he has endorsed, the national debt will balloon to $4.8 trillion in 2008.

More debt means higher interest costs for the government, which means higher taxes on future generations. It all amounts to Americans voting themselves a tax cut and letting their children pay for defending the country through a larger national debt. Surely Woodrow Wilson better captured the nation’s spirit when he said, as the bullets flew in World War I, that Americans “know ... the war must be paid for and that it is they who must pay for it, and if the burden is justly distributed ... they will carry it cheerfully and with a sort of solemn pride.”

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Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: www.latimes.com/brownstein.