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Checkpoint Washington
Posted at 07:57 AM ET, 08/18/2011

When a ‘luxury tax’ paid the way for war

Lawmakers might not want to levy a war tax to pay for the conflicts in Iraq and Afghanistan, but their predecessors have always been willing to do so.

One tactic: Tax the rich.

Earlier this week, the Fine Print column noted that the conflicts in Iraq and Afghanistan are the first American wars since the War of 1812 to not have been financed, at least in part, by a special tax. Since then, several readers have pointed out that the congressionally approved tax to pay for the Spanish-American War was considered a “luxury tax” on the wealthy.

In fact, it was a one-cent tax on any long-distance telephone call costing more than 15 cents, but it got its name because at the time phones were owned primarily by the well-to-do.

That particular tax was ended in 1902 after a halt in American fighting in the Philippines that had arisen out of the Spanish-American War. But the long-distance telephone tax was revived and increased in 1917 because of World War I.

“Fifteen cents worth of telephone conversations, after today, will cost 20 cents, the extra nickel being the war tax under the new revenue law,” according to The Washington Post at that time.

In 1919 the tax edged higher, and for the first time, lawmakers used graduated rates: five cents on every call costing between 14 cents and 50 cents, and 10 cents for calls above that amount. Those taxes expired in 1924.

The long-distance calls excise tax was revived, along with some other such taxes, in 1932 to cover federal government needs during the Depression. Along with other war taxes, by 1943, the telephone excise tax rose to 15 percent on local calls and 25 percent on long-distance calls above 24 cents.

These taxes were supposed to end six months after World War II ended, but they didn’t. In fact, Congress extended them indefinitely in 1947.

Ironically, one element of the war tax, a 3 percent excise tax on long-distance phone calls, was ended under the George W. Bush administration.

The tax was lifted in 2006 – five years after the Sept. 11 attacks and the beginning of the war on terrorism, and three years after the start of the Iraq war.

It had amounted to roughly $5 billion or more a year for the federal government.

By  |  07:57 AM ET, 08/18/2011

 
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