War, Taxes, and Income Redistribution in the Twenties: The 1924 Veterans' Bonus and the Defeat of the Mellon Plan

Abstract

In the twentieth century, two world wars transformed the federal tax system. Before World War I, the federal income tax imposed low rates and raised little revenue; the federal government relied primarily on regressive tariffs and excise taxes to raise the modest revenue needed to fund its limited domestic agenda. But two major wars accelerated the growth of federal fiscal capacity via the progressive income tax. By the end of World War II, the federal income tax raised billions of dollars to fund a large federal government with an expansive domestic mission.