Question

Discuss the following 3 categories of World War II finance. How and why were each of these methods successful: bond drives (3 points), taxes (4 points), and seignorage (3 points)?

Answer 1

• During world war 2 taxation specialists stated that the tax on income was the fairest & the most effectual method to draw on the middle class’ spending power . As it was formerly the domain of the rich class alone, it would have to be widened to be applicable to the American citizens earning an average income. In 1942, Congress lessened income taxation exemptions & implemented sharply graduated rates. Estate & gift taxes were also widened. A graduated taxation on excess corporate earnings added to the progressive character of the taxation construct. Excise taxes on alcohol , tobacco, gas increased dramatically also.
• The World War I mechanism of promoting war bonds via posters/ pamphlets/ rallies was used & expanded during World War II. To reach persons with the lowest earnings, the treasury made the procurement of bonds much simpler.
• During war governments usually use seigniorage to obtain revenue. One reason is that military expenditure increases; at the same time the taxation base, aid influxes & the possibility for borrowing have a tendency to contract. Seigniorage may be considered as revenue for the government when the funds which are created are worth more than the associated costs to produce. This revenue is usually utilized by governments to fund portions of their expenses without having to use collection of taxes.