Stop me if you've heard this one: Inequality is on the rise in the U.S.
Most Americans know this. The rich are getting richer. The poor are just kind of stuck. Figuring out what to do about it is the problem. One idea lots of people seem to like is to just force rich people to pay higher taxes. A Gallup poll released earlier this year found that 52% of Americans now believe the government should redistribute wealth by heavily taxing the rich.
Even some politicians have come around on the idea. Both Bernie Sanders and Donald Trump have talked on the campaign trail about their desires to raise taxes on the rich.
But that doesn't mean it'll happen. Historically, democratic societies have rarely imposed massive taxes on the rich. And when they did, it was almost always in the middle of a mass war.
I first came across the research on this during a conference on wealth inequality at the University of Michigan earlier this year. One of the presenters was Kenneth Scheve, a political scientist from Stanford who, along with David Stasavage of NYU, studied two centuries' worth of tax data from 20 nations.
Scheve and Stasavage focused their attention on the top income brackets in each country, and how they changed over time. One hypothesis on taxation had been that, as societies became more democratic, taxes would become more progressive. The theory was that when more people at the bottom of the economic heap had a say in the direction of the country, they'd be more likely to force changes that would result in higher taxes for the rich. But Scheve and Stasavage found almost no support for that theory. Even as voting rights spread to larger groups of people in the 20 nations they studied, tax rates for the rich didn't seem to budge.
Then World War I happened.
Scheve and Stasavage wrote of the tax implications in a 2010 paper:
In the United States the top marginal rate of income tax rose from 7% at the outset of the war to 77% by the end.26 A very similar pattern of events took place in Canada which first established a federal income tax in 1917 with a top rate of 21.9% and which subsequently raised this rate to 72.5% by 1920.27 In France, a national income tax was first implemented in 1915 with a top statutory rate of 2%. By 1919 the top rate had risen to 50%.
Meanwhile, in countries that were either neutral, or where the mobilization of troops wasn't as massive, top tax rates didn't rise as much.
And it wasn't just that countries trying to mobilize a mass army needed the money. Of course, they did need the money, but they could have raised the same funds with a much flatter tax scheme. Instead, Scheve and Stasavage found that political debates around the time emphasized the need for shared sacrifice. Because those fighting the war tended to be younger and less wealthy, many people thought it was fair for the wealthy to contribute in their own ways.
When the war was over, top tax rates dropped back down for a bit, then rose again during World War II.
During his talk in Ann Arbor, Kenneth Scheve argued that most people in a democratic society want citizens to be taxed "as equals," then he noted: "Debates about tax fairness are primarily debates about what as equals means."
When millions of people from the lower classes are sent off to die in war, societies have clearly shifted their priorities about what fair taxation means for the rich. But if the rule is true – that war is the only event capable of significantly altering the debate over fair taxation – it's telling how big the exceptions are.
An estimated 2.7 million Americans fought in Vietnam during the Vietnam War. Yet, taxes for the rich didn't skyrocket as they had during the two World Wars. The wars in Iraq and Afghanistan were carried out after massive tax cuts for the wealthy in America.
When I asked Scheve about this, he told me these more recent wars did not involve massive mobilizations on the same scale as what occurred during the World Wars. And since many people in the lower and middle classes weren't touched by the wars, there was less support for redistribution.
Scheve and Stasavage made this same caveat in their 2010 paper:
Our argument does not apply to all wars — it applies to conflicts of mass mobilization in which a substantial proportion of the population are required to fight the war. In cases where a war is instead fought with a small portion of the population, potentially with individuals drawn primarily from groups lower down the socioeconomic ladder, there will be fewer people likely to demand policies that equalize the burden of a war. Further, it will be more difficult to claim that there should be heavy taxation of the rich, because only a small portion of the middle classes may have served.
This is likely to be the case in future wars as well, since technological advancements have reduced the need for the kind of massive armies that fought in the World Wars. If war is going to exist, it's at least preferable that fewer people have to go fight in them. That's an unquestionably good thing.
And it's not as if tax changes can't happen without a war. If you're one of the 52% of Americans who support higher taxes on the rich, Scheve and Stasavage's work doesn't mean it won't happen. It just means we probably won't see huge tax increases on the rich. Not unless we get into another World War. And no one wants that.
