Do We Need a War Tax?

By Megan McArdle

Liberal doves are in favor of a plan put forward by Congressman Obey for a "war surtax" to fund our further adventures in Afghanistan.  Opposition to it in Congress--including from Democrats--means it's unlikely to get to the floor, much less pass.  Most of the conservative bloggers I've seen hate it.  But it strikes me as an entirely sensible idea, with one modification.

To reiterate a point I've been making quite a lot over the past few months, we've got a gigantic structural deficit headed down the pike.  We should do as much as possible to keep the damn thing from getting any bigger.  Raising a new tax to cover a new outlay of revenue is sound fiscal policy, especially when you're talking about spending another $30 billion per annum.

However, to reiterate a point Paul Krugman has been making quite a lot over the last few months, right now, we want to do everything possible to stimulate the economy.  Contractionary fiscal policy is not a sound plan when unemployment is up over 10%, and looks set to grow even further.  So if you're going to do a war surtax, you want to delay it a little.  Make it take effect in 2011, and sunset a year after the last troops are withdrawn.  (Or fall below some reference level; we don't want to keep a "war tax" because we've got 20 military advisers still in country.)

I'm not quite sure what the objection is.  It's one thing to finance World War II on massive deficit spending; the volume of expenditures was such that it couldn't really have been financed any other way.  But while $30 billion is a large enough sum that we should try to keep from adding it to our deficit, it is not such a large sum that we can't finance it out of current cash flow.  I can see arguing with the structure of the tax--indeed, I might be prepared to do so.  Or worrying that it wouldn't sunset, since we only recently repealed a telephone tax enacted to finance the Spanish American War.  But the basic concept of raising the taxes necessary to cover extra spending seems like something we should all be able to agree on.

This article available online at:

http://www.theatlantic.com/business/archive/2009/12/do-we-need-a-war-tax/31170/