Use a tax to fight terror

Reprinted with permission of the Times Union, Albany, N.Y.

Public would back targeted surcharge

By JULIAN ZELIZER, Special to the Times Union
First published: Sunday, November 18, 2001

The federal government needs a progressive, one-time tax surcharge to finance homeland security. Recently, the Congressional Budget Office predicted that the budgetary surplus will vanish by the end of 2002. At the same time, congressional decisions about homeland defense are being constrained by the budget. In short, Congress does not have the funds needed to implement the security measures our nation calls for.

Although Congress passed an airline security bill Friday that would raise about $2.5 billion through small fees on travelers and an airline industry contribution, industry officials say that's not enough money to implement all the necessary measures, such as using costly X-ray machines, required to guarantee safe travel. The airline business, moreover, is only one area that needs improved security. Congress is working on legislation to deal with bioterrorism, while all levels of government are grappling with other vulnerable areas, ranging from tunnels to nuclear power plants.

Unfortunately, Republicans and Democrats have only been focusing on stimulative tax reductions. But what is needed right now is a progressive, one-time tax surcharge that would be earmarked for homeland defense. Of course, this would require that the parties scale back the amount of tax relief that citizens will receive.

Fortunately for the politicians, the American government has been successful at raising federal taxes during war. At those times, citizens understand the connection between the taxes they pay and the services the government provides. Moreover, many Americans have been persuaded that paying taxes is a minimum form of sacrifice one can make as soldiers are risking their lives.

Although ratified in 1913, the federal tax system came of age during World War I and World War II. During the First World War, the government raised rates to sufficient levels so that the tax had a real effect on the economy. The war introduced the federal estate tax and began the first substantial taxation of corporate profits and incomes. Not more than 6 percent of the population had ever been required to pay federal income taxes before the 1940s, but during World War II the federal government created a mass tax system that collected money from more than 44 million workers.

To be sure, some wartime tax efforts have been controversial. At the height of the Vietnam conflict, President Johnson proposed a temporary tax surcharge to finance the battle and to stop inflation. The legislation bogged down in Congress as southern conservative Democrats insisted on spending cuts in exchange for the taxes. And given the controversy surrounding the war and Great Society programs, the proposed tax surcharge did not have broad-based support.

Despite a bitter two-year conflict, Congress in 1968 passed the surcharge, which raised more than $10 billion. Given the wide support for the current war and the desire for government activism, both at home and abroad, a tax surcharge probably would find much broader favor now.

Not only have Americans been willing to pay more taxes during war, but they have usually supported taxes that are earmarked for particular programs, such as Social Security, highway construction and airport maintenance. Congress and President Bush should promise to earmark the funds for homeland defense, which is in dire need of revenue, has strong public support and would bolster our economy. Congress could create a federal trust fund to handle the accounting so that citizens could see the link between the tax revenue and the programs.

As war and security are consuming the American psyche, this is the time for the federal government to act. The tax surcharge will become harder to pass as the war drags on. There are no indications that the public is clamoring for massive tax reductions right now.

The major argument against a tax surcharge is that it will have a harmful effect on a declining economy. Yet the one-time cost to each taxpayer does not have to be that extravagant to have a collective impact. A progressive tax, moreover, would fall hardest on those who have most enjoyed the past decade of economic growth. The money would still circulate through the economy because the government would have to spend the funds on this crucial domestic project.

Just as important, homeland defense is essential to restoring consumer confidence, a key challenge in our current economic crisis. Democrats and Republicans must calm their obsession with tax reductions now that we are facing a historic and grave military crisis. What Americans need most is to be confident that their streets and homes are safe. To do so, the reality is that this government needs more money.

Julian Zelizer is an associate professor of history and public policy at the University at Albany. He also is the author of "Taxing America,'' winner of the Lyndon Baines Johnson Foundation's 1998 D.B. Hardeman Prize and the Organization of American Historians' 2000 Ellis Hawley Prize.