Financial History Issue 114 (Summer 2015) | Page 27
At the war’s onset, the United States
maintained a strict foreign policy of neutrality. Americans had no appetite for
intervention in a foreign war, and President Woodrow Wilson vowed to keep it
that way. As the war progressed, however,
events began to change public and political
opinions. On May 5, 1915, a German U-Boat
sank the British ocean liner RMS Lusitania.
Of the nearly 1,200 passengers on board,
128 of them were American citizens.
The Central Powers did not want the
United States to enter the conflict, and
Germany pledged that neutral ships and
passenger vessels would be off-limits. However, in 1917, Germany resumed a policy
of unrestricted submarine warfare. This,
coupled with the famous Zimmermann
Telegram (an intercepted German diplomatic cable proposing a military alliance
with Mexico against the United States),
pushed America into the war. In April of
1917, the US declared war on the German
Empire, and by the end of the year, the
Austro-Hungarian Empire as well.
To finance America’s participation in
the conflict, President Wilson turned to
his Treasury Secretary, William Gibbs
McAdoo. McAdoo had limited options
in raising the needed revenues to finance
the war, namely domestic bond sales and/
or changes in tax policy. Both options had
strong support and opposition in various
political circles. Ultimately compromise
prevailed, and a combination of both policies was undertaken.
Through a series of three Revenue Acts
beginning in 1916, Congress raised individual and corporate tax rates. The lowest
individual tax bracket went from a net
income level of $20,000 and above in 1916
to a level of $5,000 and above by 1918. The
highest tax rate paid on individual income
jumped from 13% to 65% in the same
period. Furthermore, corporate taxes
increased and Congress implemented a
Elsa Ruiz
Great War were varied: the political assassination of Archduke Franz Ferdinand of
Austria, colonial and territorial disputes
involving the European powers and the
difficult political landscapes of those very
same nations. To be sure, the July Crisis
of 1914, which resulted from the assassination of the Archduke (heir to the throne
of the Austro-Hungarian Empire) by a
Serbian was the match which began the
conflagration.
When the Kingdom of Serbia refused
the politically untenable Austro-Hungarian ultimatums, war was declared. Two
great alliances would face each other: the
Allies, composed of the British Empire,
France and Russia, and the Central Powers, composed of Germany and the Austro-Hungarian Empire. Other nations
would soon entire the conflict, notably the
Ottoman Empire joining with the Central
Powers in late 1914, and Italy joining with
the Allies in 1915.
“For Victory, Buy More Bonds” Fourth Liberty Loan poster on view at the Museum of American Finance.
www.MoAF.org | Summer 2015 | FINANCIAL HISTORY 25