NCPA - National Center for Policy Analysis

Post Cold War Tax Increases Depart from History

October 9, 1997

Following each of America's wars during the Twentieth Century, war-time federal budget deficits were reduced to the point of becoming surpluses in peace time. But that hasn't happened in the post-Cold War 1990s, economists point out.

  • In the post-World War I era, the government experienced a budget surplus by 1922 of $700,000, after running a deficit of $13.4 billion in 1919.
  • After World War II, an $11.8 billion surplus was achieved in 1948, following a deficit of $47.6 billion in 1945.
  • The Korean War saw a deficit of $6.5 billion in 1953 followed by a surplus of $3.9 billion by 1956.
  • Following the Vietnam War, a $3 billion deficit in 1969 was followed by a $23 billion surplus in 1972.

We come to the end of the Cold War and policies change. As those efforts were about to wind down, the federal government spent $152 billion more in 1989 than it took in. Rather than collecting more and spending less, the deficit had risen to $290 billion by 1992.

The post-Cold War era is also unique in that this is the first time that tax rates have been raised -- in 1990 and 1993 -- after a war has ended. And this year's tax cut only recaptures about 20 cents on the dollar of the 1990 and 1993 increases, economists point out.

So, fiscally speaking, what's gone up, hasn't come down.

Source: Stephen Moore (Cato Institute), "Trimming Taxes and the National Debt," Washington Times, October 9, 1997.


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