In a sense, war itself is becoming a shelter for would-be tax shelters. When World War II broke out, public and congressional skepticism still reflected the role of finance in the 1929 Wall Street crash. Taxes on the dividend income of the rich were high, so, as war profits flowed in, many companies cut dividends and used the capital to pump up their stock prices. The higher prices would translate into capital gains, which were taxed at a lower rate. The partial remedy was to tax excess corporate profits, but critics said that even this did not reach subtly retained income.
Instead of becoming a spur to rein in excess profits, flying bullets have become covering fire for political opportunism: Bill Clinton's 1998 cruise missile attacks on Sudan and Afghanistan timed to divert attention from his personal peccadilloes, Republican willingness to wag the dog to take the focus off class-driven economics. Meanwhile, no wartime excess-profits tax has been imposed on corporate America since the United Nations endorsed and launched the Korean War in 1950, and we can assume that the Bush administration will not request one if the international body signs off on an invasion of Iraq. Rather, the administration is seeking to gut the dividend tax under the dubious pretense of stimulus and long-term growth -- possibly even in the name of making the United States a nation worthy of the men and women in uniform who may be fighting and dying in the Middle East (as Congress weighs this fiscal shamelessness).
Will the Democrats, who in recent years have baa-baaed around Washington like clueless sheep on an Idaho hillside, somehow turn and swing this issue like a political power saw? They show some movement, but they have displayed too little knowledge of their own history -- Thomas Jefferson's fear of the money power; Franklin D. Roosevelt's bold use of the inheritance tax; Harry S. Truman's lambasting of Wall Street -- to assume that they can call up a memory of the Republican fiscal heritage, however vulnerable.
Yet, the vulnerability is potentially huge. As Bush fiscal policy suns itself in the mentality of Coolidge-Hoover-era Treasury Secretary Mellon, it disdains the better legacies of other GOP presidents. Dwight D. Eisenhower favored taxes on excess wartime profits; Richard Nixon signed legislation imposing a higher top tax rate on unearned, rather than earned, income; Ronald Reagan's 1986 tax reform insisted on equal top rates for earned versus stock-market income, eliminating the preference for capital gains. The first President Bush was the succeeding president who cried incessantly to restore capital-gains favoritism to investors. We should also mention Theodore Roosevelt, who called in peacetime for the progressive tax on large inherited fortunes that George W. Bush works to eliminate in wartime; and Abraham Lincoln, whose wartime taxes covered dividend income.
The Lincoln-Roosevelt-Eisenhower-Nixon-Reagan viewpoint still commands a fair minority of the Republican rank and file, if not among its Bush-era leadership. The only major Republican voice speaking for the old party, however, is that of McCain, who said in December, "We probably need to have tax cuts directed at lower-income Americans, such as payroll-tax reductions. ... [L]ow-income Americans in totality bear a much higher tax burden than wealthy Americans do; therefore, there is a growing gap between the wealthiest and poorest Americans." He scoffed at the notion that Bush's tax policy embodies compassionate conservatism. McCain's father and grandfather were four-star admirals; he learned a different tradition than that of the tax-shelter salesmen.
It is probably too much to expect Republican McCain to lead the fight against the kind of arrogant misprioritization that earmarks $364 billion, out of a $674 billion economic "stimulus" program, for ending the taxation of stock market dividends. But surely the Democrats must. If they're afraid to fight under the old Democratic banners of Jefferson, Jackson, FDR and Truman, this time they can invoke the Republican fiscal precedents of Lincoln, Teddy Roosevelt, Eisenhower, Nixon and Reagan.