During World War II the U.S. economy was experiencing unparalleled rates of growth. From 1940-1945 the U.S. economy doubled in size, and the GDP experienced an obscene increase of 38%.
The effects that World War II had on the U.S. markets were historical and influential in changing the world’s landscape. Following the war, the United States emerged as the world’s lone super power.
Over the subsequent 30 years, America’s GDP grew at an astonishing rate of 3.5% annually. Simultaneous to the economy’s boom was an equal surge in the country’s population. To sustain America’s perpetual growth, the U.S. tax system had to be altered to meet the needs of a rapidly expanding society.
To properly fund the war, the federal tax system enforced a top tax rate of 91% on America’s wealthiest individuals. Americans who received the lowest rates of pay were still taxed at high levels-18%. This federal tax rate was the highest in U.S. history and accounted for nearly 22% of our country’s GDP. Tax rates remained high in the 1950s and 1960s, but began to diminish throughout the subsequent decades.
From the end of the war to present day, the federal tax rate has steadily increased over time. As the federal government expands it needs to increase taxes to properly fund its projects. With inflation adjusted, the average American is taxed at about 18 cents per dollar. To meet the needs of a developing super power, both the federal and local tax rate needed to remain at increased levels.
Shortly after World War II the American lifestyle drastically changed. Many soldiers and individuals involved in the war effort, moved back to the States to start a family and settle down outside of the cities. As our nation became industrialized, and our economy boomed, individuals decided to purchase homes. Communities sprouted throughout the country and demand for homes swelled to unparalleled levels.
The increase in demand and population lead to a drastic shift in state taxes. In order to provide for the needs of an expanding population, state governments needed to raise property taxes. Local governments realized their land was precious, and subsequently rose property taxes to increase revenue.
The increased rate of property tax created a strain between land owners and state governments. State tax increased annually beyond inflation and wages, forcing many Americans to sell their homes due to the mounting levy. This relationship has been greatly altered since the Baby Boom. Local governments realize the importance of property taxes, and have attempted to sustain such increases through the implementation of property tax caps and other progressive methods.
Taxes are the main source of revenue for governments in the United States. When the population is growing, the governing bodies need to tax its citizens to properly provide public services for them. As communities developed and populations swarmed to the suburbs, local governments raised state taxes out of necessity. When a city, county, or village goes through a population boom a greater demand for certain public services will invariably follow:roads, schools, law enforcement, fire fighters, and parks are all examples of public services that have a demand proportional to the population.
Schools are a prime example of this directly proportional relationship. More individuals in a community will lead to an increased demand for public education. More buses will be needed to accommodate more students, more teachers will need to be hired, increased food, space, energy etc. The state tax rate, like the federal version shifts to meet certain demands of the country. The only difference between the two rates, is that the state tax shifts to meet local demands, while the federal tax rate adjusts to meet the macro needs of our country.
Following World War II, the U.S. tax system, both locally and federally, was primarily used as a means of financing. Local governments, directly or indirectly, deliver services through levying taxes or subsidizing through tax reductions.
Although the local tax history in America varies greatly based on state; the relationship between population and the amount of tax levied is singular throughout the nation. The history of state taxes is directly proportional with state needs, and the population shift of the particular jurisdiction. State taxes are not a singular force, but instead, a stream of revenue that shifts along with other economic or societal factors.