How Was the Spanish American War Financed?
By Patrick McSherry
Please Visit our Home
Page to learn more about the Spanish American War
General:
How was the Spanish American War funded, or, in
other words, how did we pay for the Spanish American War? This article
addresses the means used to finance the cost of the Spanish American
War.
The Article:
So exactly how does a nation finance an event like the Spanish
American War? Does it take out a mortgage on some already paid-off
battleships? Call Quicken Loans or Lending Tree? Hold a very large bake
sale? Sell the war’s film and television rights as is done to help pay for
the Olympics? Hope that an unknown relative passes away and leaves the
country a large inheritance? No, none of these will meet the needs, though
the latter may help indirectly as we will see below.
Snarky comments aside , how does the government usually finance a war? The
answer is obvious - through taxation and loans. The larger questions are
really who gets taxed and how is the decision to tax made palatable to the
nation.
Only five days after war was declared, the necessity of how to fund it was
taken up by the U.S. Congress. More specifically, on April 26, the House
of Representatives Ways and Means Committee took up debate on a bill
proposed by the head of the committee, Maine Congressman Nelson Dingley
Jr. Newspapers noted that the debate did not have the partisan
rancor which had been common as both sides agreed for the need for funds
to prosecute the war effort. As always, the challenge was to determine how
it could be done with the least political backlash.
Nelson
Dingley, Jr., Chairman of the House Ways and Means Committee, who
introduced the War Revenue Act. Dingley
was a former governor of Maine. He died in
1899, and did not see the repeal of the
Act (Source: Library of Congress)
After two days of debate, the bill was
sent to the U.S. Senate’s Finance Committee, and then to the Senate
itself. Eventually, after twenty days of debate, the amended bill passed
the Senate and went back for reconciliation with the House of
Representatives.
On June 13, 1898, as the Fifth Army Corps was already embarking on
transports to depart for the invasion of Cuba, Congress passed “An Act to
Provide Ways and Means to meet War Expenditures, and for Other Purposes,”
more commonly known as the “War Revenue Act of 1898” The plan of the tax
act was a six-pronged effort to raise taxes, but to simultaneously avoid
taxing individuals directly to make the bill more palatable. The
six-pronged approach was based on the following:
1. Tax manufacturers and suppliers of vices
2. Tax manufacturers and suppliers of luxuries.
3. Require official documents to have a purchased
revenue stamp
4. Institute a graduated estate tax or “death tax.”
5. Tax manufacturers of a few essentials
6. Loans and the issuing of war bonds
When looking at the amount of the taxes, it may be useful to keep in mind
the value of a dollar in 1898 is roughly equivalent to 30.98 dollars in
2020.
Taxes on Vices
First, some vices were targeted for taxation, as if often done. Beer,
lager, ale , cigars, snuff, and cigarettes were taxed. However, rather
than taxing the end user directly, the manufacturers and sellers of these
items were taxed. The politicians were in the clear as the manufacturers
had to decide whether to pass the costs along to the public or not – the
‘ol “we didn’t raise your taxes, we raised taxes on the evil big
businesses” ploy.
Brewers of beers, ales, lagers, and other fermented beverages were taxed
at a rate of two dollars for a standard thirty-one gallon barrel.
Manufacturers of tobacco products were taxed at a rate of twelve cents per
pound. Cigars manufacturers were taxed at a rate of $3.60 per thousand
cigars that weighed more than three pounds per thousand, and only one
dollar per thousand for cigars weighing less than three pounds per
thousand. Cigarette manufacturers were taxed at a rate of $3.60 per
thousand. In addition, those dealing in tobacco products were additionally
taxed.
Bowling alleys and billiard halls were also taxed, at a rate of five
dollars per alley or table respectively.
Taxes on Luxuries
Imported tea was taxed at a rate of ten cents per pound.
Some of the small luxuries of life were also taxed, adding to the cost of
a family outing. The proprietors of theaters, museums and concert halls in
cities with a population of over twenty-five thousand people were required
to pay one hundred dollars. Proprietors of circuses – which were defined
as buildings or tents where feats of horsemanship, acrobatic sports or
theatrical performances were held – had to also pay one hundred dollars.
And if the circus moved to a new location in another state, it would have
to pay again in that state. Also, it was unclear that if a circus used
more than one tent if they had to pay the tax for each tent.
Should a person decide to go to the local pawnbroker in an effort to pawn
something to get some cash to pay for their increased costs, they may have
found themselves getting slightly less than expected as the pawnbroker was
faced with a tax of twenty dollars.
Telephones were new at the time, and few people had them. The War Revenue
Act taxed the luxury of phone calls. Telephone calls costing fifteen cents
or more were taxed one cent.
A
cartoon from 1898 suggesting a new tax - taxing single men to
support those who fight the "war of
matrimony" (Source Library of Congress)
Revenue Stamp Taxes
Revenue stamps were introduced. The stamps, which had to be purchased from
the government were required on all sorts of documents, such as bonds,
stocks, insurance certificates, conveyances and deeds, telegrams,
certificates of deposits, patents, trademarks, letters of credit, wills,
bills of lading, liens, powers of attorney and even tickets for ocean
travel to foreign countries. In short, any kind of official paperwork
required the purchase of a stamp, the cost of which varied by the type of
document.
Also requiring stamps were any type of packet, box or vial of pill,
lozenge, liquid or medical preparation. Perfumes and cosmetics also fell
under this requirement as did chewing gun and wine. Of course, the stamps
had to be purchased by the manufacturers of these items. The manufacturer
could pass that cost along to the customer or take a loss in profit.
Estate Taxes (“Death tax”)
Though estate taxes – better known as “death taxes” - existed
previously, the War Revenue Act instituted a system whereby those
receiving an inheritance – a portion of a deceased person’s money,
property, stocks, etc. – paid a tax on the inheritance with the amount of
tax depending on how closely the person receiving the inheritance was
related to the deceased, as follows:
1. If the person was a lineal descendant of the
deceased, or was the brother or sister of the deceased, the person paid a
tax of $0.75 per $100 inherited.
2. If the person was a descendant of the deceased’s
brother or sister, the tax paid was $1.50 per $100 inherited.
3. If the person was an aunt or uncle of the deceased,
or the descendant of the aunt or uncle, the tax paid was $3.00 per $100
inherited.
4. If the person was a great aunt or great uncle of the
deceased or the descendant of the great aunt or uncle. The tax paid was
$4.00 per $100 inherited.
5. For anyone not listed above, the tax paid was to be
$5.00 per $100 inherited.
6. If the deceased’s spouse inherited part or all of the
estate, no tax was to be paid on the portion the spouse inherited.
Taxes on Necessities
The War Revenue Act taxed those engaged in the production or packing of
“mixed flour” – defined basically as any flour that was not purely wheat
flour – at the rate of twelve dollars per year, plus between one and four
cents per barrel of flour, depending on barrel size.
Sugar refiners who had gross receipts of more than $250,000 were subject
to a tax of 0.25% on the gross sales.
The same requirements were put on oil refiners and on anyone “owning or
controlling any pipeline for transports oil or other products.” Again,
those companies that had gross receipts of more than $250,000 were subject
to a tax of 0.25% on the gross sales.
Again, the larger companies were taxed, and they could decide to pass that
amount along to customers or not.
War Bonds and Loans
The War Revenue Act allowed for the government to issue certificates –
bonds – that would bear an interest rate of three percent. The number of
bonds issued could not exceed $400,000,000 in total. It appears that
$198,792,660 in bonds were issued. The bonds matured on August 1, 1918. As
of October 31, 1918, $60,878,560 had yet to be redeemed. By October 31,
1919, that amount had decreased to $858,600.
In addition, the Secretary of the Treasury was permitted to borrow up to
$150,000,000 as needed.
The Aftermath
Some portions of the War Revenue Act had to be clarified and eventually
were taken to court, including the Supreme Courts. Some of the
issues included whether the revenue stamps requirements applied to certain
life insurance policies, patents, trademarks, and certain drugs. There
were issues on such diverse topics as the use of leaf tobacco, livestock
sales, etc.
The War Revenue Act was gradually repealed over the following four years.
On July 1, 1901, the revenue stamp requirements were repealed except for
certain specific sections. On July 1, 1902, the remainder of the War
Revenue Act was repealed, with the exception of the estate tax, which
remained.
In spite of what has often been stated, the tax on telephone calls was
repealed in 1902. In later years, it was reinstituted, but the more recent
taxes were not left over from the War Revenue Act of 1898, but from later
acts of taxation. The tax that did remain, in one form or another, was the
graduated estate tax.
Did the War Revenue Act do What it Was Intended to Do?
The goal of the act was to raise funds to pay off the debts incurred by
the war. A look at the annual deficit or surplus should indicate if the
debts were alleviated. In the fiscal year of 1897 to 1898, the country had
a deficit of $38,000,000, which rose to $89,000,000 in the 1898 – 1899
fiscal year. By 1899, the situation changed. In the 1899 – 1900 fiscal
year, the country ran a surplus of $79,000,000, followed in the 1900 –
1901 fiscal year by a surplus of $77,000,000. By the fiscal year of 1901 –
1902, the surplus had risen to $92,000,000.
The growing surpluses indicated that enough taxes had been raised to
offset the war-incurred debts. The surpluses caused a public outcry which
led to the repeal of the War Revenue Act.
Bibliography:Annual Report of the Secretary of the Treasury
on the State of Finances for the Fiscal Year Ended June 30, 1918.
(Washington: Government Printing Office, 1919) 77.
Annual Report of the Secretary
of the Treasury on the State of Finances for the Fiscal Year Ended June
30, 1919. (Washington: Government Printing Office, 1920) 113 –
114.
“Are Exempt,” Buffalo
Commercial. (Buffalo, NY), February 13, 1899, 10.
“In Supreme Court,” Chattanooga
Daily Times. October 13, 1899, 1.
Republican Text Book for the
Campaign of 1898, Published by the Authority of the Republican
Congressional Committee. (Philadelphia: Dunlap Printing Co.,
1898), 373 – 381.
“Taxes on Life Insurance,” The
Dispatch (Moline, IL). August 5, 1898, 8.
“Chap. 448 – An Act To Provide Ways and Means to Meet War Expenditures,
and Other Purposes,” The
Statutes at Large of the United States of America from March, 1897 to
March, 1899. (Washington: Government Printing Office, 1898). 448
-470.
“Uncle Sam’s Balance Sheet,” The
Davenport
Times. (Davenport, IL), July 5, 1902, 6.
“Value of $1 from 1898 to 2020”
https://www.in2013dollars.com/us/inflation/1898?amount=1
“War Revenue Bill,” The Los
Angeles Times. April 28, 1898, 9.
“War Tax Soon to Go,” Sioux
City Journal. June 18, 1902, 3.
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