The United States should pay for war through a combination of bonds and taxes. War is extremely expensive and puts great strain on both the government and the economy, yet sometimes it is unavoidable. That leaves the question of how to pay for war. Governments usually don’t have billions of extra dollars to throw away, so they need to find a way to raise money. There are two main methods that have been put into use, and these are bonds and taxes. Both have their upsides and downfalls. War should be paid for.
A war bond, or liberty bond, is a loan that citizens and companies give to the government for the purpose of financing war. Word War 1 cost over 22 billion dollars to the United States government, ( hubpages, 10/12/10) and it needs a way of acquiring that money. Bond’s are a good way to get money into the government’s pockets quickly. They increase nationalism by getting citizens involved in the war effort, and it decreases inflation by removing the amount of money in circulation. They also are a stable investment, but the interest is below standard market values, which means they aren’t the most lucrative form of investment. The problem with war bonds is that they put the country into debt. Eventually taxes and government investments will just be used to pay back the bonds. The government shouldn’t just postpone all the payment for the war, which is why bonds shouldn’t be the only means of finance used.
Taxes are the staple source of revenue for our government, but more often than not the money can’t come fast enough in times of war. That means that if taxes are primarily used to pay for war there will either be a steep rise in tax rates, or harsh budget cuts on other essential things such as education and infrastructure. Taxes however are better than war bonds in some aspects. Taxes don’t put the nation into debt. Taxation doesn’t require an entire campaign, and it also doesn’t require public support of the war effort. World War’s one and two would have been impossible without public support through bonds, and taxes eliminate the need for said support. Taxes funded 1/3 of world war 1, but that was after the lowest tax rates were raised from 1 to 2 percent, and the highest were pushed up to 15 percent(U.S. Treasury, 10/12/10). This increased the federal budget so much that the 1917 budget was almost equal to the total budget from the year 1791 up until 1916( U.S. treasury, 10/12/10). That however was still not enough money. Tax rates were greatly increased again and exemptions were lowered. The general public was upset, but due to a booming economy after the war during the 1920’s revenues greatly increased allowing taxes to be cut which further strengthened the economy. An increase in taxes is a good way to fund the war, but all the extra money was still not enough to fund the war. Taxes alone cannot support the war effort.
That is why a combination of taxes and bond’s must be used to fund the war. Bond’s are a great rallying point and a very good way to support the war effort. During world war one there were four sets of bonds issued, and after the first fell far short a public outreach was greatly increased(Wikipedia, 10/12/10). Famous movie stars such as Charlie chaplain publicly supported bonds (The old Sea dog, 10/12/10), and there were many rallies and speeches given in support of bonds. It worked and money flooded in, allowing the US to have a larger role in WW1, bringing the end of the war about much sooner. Taxes however are also an essential part of the equation. The government must raise the taxes enough to increase revenue substantially, while still keeping the public happy. The government also cannot draw too much from other spending, because government agencies cannot function without revenue from the treasury department. War bonds produced a total of 21 million dollars of revenue during World War 1(Wikipedia. 10/9/10) which was an essential aspect. Taxes produced the rest of the money, and I think the government handled the financing of WW1 very well.
The US government should pay for its war in a combination of bond’s and taxes. Taxes play an essential role in funding war, but the government cannot deviate it’s spending too much from non war spending. The government needs to raise taxes to increase revenues, well also pulling money through bonds from citizens and corporations. Then higher taxes for a period after the war can pay back the debt from the bonds. The best way to fund war is through a combination of raising taxes and selling bonds.
