Prohibition and Taxes
6 October 2007
Editor, Reason
I enjoyed Jackson Kuhl's review of books on alcohol prohibition ("Eight Million Sots in the Naked City," November). Greater wartime centralization of power in Washington, along with hostility to the Irish and Italians, surely helped fuel Uncle Sam's willingness in the 19-teens to declare alcohol verboten.
But the spark that ignited prohibition goes unmentioned by Mr. Kuhl and, apparently, also by the authors whose books he reviews. That spark was the national income tax. Prior to the 1914 creation of this tax, taxing alcohol was second only to taxing imports as a chief source of federal revenue. So when, during WWI, the income tax proved to be a revenue-gathering megastar, Congress finally could afford to cave in to the dry lobby. Sacrificed liquor-tax revenues were by 1919 only a tiny portion of the budget.
By 1933 - the year Congress successfully proposed repeal of the prohibition amendment - the revenue situation was reversed. In that Depression year, income-tax revenues had toppled by more than 60 percent from their 1930 level. Addicted to revenue, Uncle Sam ended prohibition so that he could again tax alcohol.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Editor, Reason
I enjoyed Jackson Kuhl's review of books on alcohol prohibition ("Eight Million Sots in the Naked City," November). Greater wartime centralization of power in Washington, along with hostility to the Irish and Italians, surely helped fuel Uncle Sam's willingness in the 19-teens to declare alcohol verboten.
But the spark that ignited prohibition goes unmentioned by Mr. Kuhl and, apparently, also by the authors whose books he reviews. That spark was the national income tax. Prior to the 1914 creation of this tax, taxing alcohol was second only to taxing imports as a chief source of federal revenue. So when, during WWI, the income tax proved to be a revenue-gathering megastar, Congress finally could afford to cave in to the dry lobby. Sacrificed liquor-tax revenues were by 1919 only a tiny portion of the budget.
By 1933 - the year Congress successfully proposed repeal of the prohibition amendment - the revenue situation was reversed. In that Depression year, income-tax revenues had toppled by more than 60 percent from their 1930 level. Addicted to revenue, Uncle Sam ended prohibition so that he could again tax alcohol.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Posted by Don Boudreaux on
Saturday April 5, 2008 at 2:37pm