How Was the Spanish American War Financed?
By Patrick McSherry
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How was the Spanish American War funded,
or, in other words, how did we pay for the Spanish American War? This
article addresses the means used to finance the cost of the Spanish
So exactly how does a nation finance an event like the Spanish
American War? Does it take out a mortgage on some already paid-off
battleships? Call Quicken Loans or Lending Tree? Hold a very large bake
sale? Sell the war’s film and television rights as is done to help pay
for the Olympics? Hope that an unknown relative passes away and leaves
the country a large inheritance? No, none of these will meet the needs,
though the latter may help indirectly as we will see below.
Snarky comments aside , how does the government usually finance a war?
The answer is obvious - through taxation and loans. The larger
questions are really who gets taxed and how is the decision to tax made
palatable to the nation.
Only five days after war was declared, the necessity of how to fund it
was taken up by the U.S. Congress. More specifically, on April 26, the
House of Representatives Ways and Means Committee took up debate on a
bill proposed by the head of the committee, Maine Congressman Nelson
Dingley Jr. Newspapers noted that the debate did not have the
partisan rancor which had been common as both sides agreed for the need
for funds to prosecute the war effort. As always, the challenge was to
determine how it could be done with the least political backlash.
Nelson Dingley, Jr., Chairman of the House Ways and Means Committee, who
introduced the War Revenue Act. Dingley was a former governor of Maine. He died in
1899, and did not see the repeal of the Act (Source: Library of Congress)
After two days of debate, the bill was sent to the U.S. Senate’s
Finance Committee, and then to the Senate itself. Eventually, after
twenty days of debate, the amended bill passed the Senate and went back
for reconciliation with the House of Representatives.
On June 13, 1898, as the Fifth Army Corps was already embarking on
transports to depart for the invasion of Cuba, Congress passed “An Act
to Provide Ways and Means to meet War Expenditures, and for Other
Purposes,” more commonly known as the “War Revenue Act of 1898” The
plan of the tax act was a six-pronged effort to raise taxes, but to
simultaneously avoid taxing individuals directly to make the bill more
palatable. The six-pronged approach was based on the following:
1. Tax manufacturers and suppliers of vices
2. Tax manufacturers and suppliers of luxuries.
3. Require official documents to have a purchased
4. Institute a graduated estate tax or “death tax.”
5. Tax manufacturers of a few essentials
6. Loans and the issuing of war bonds
When looking at the amount of the taxes, it may be useful to keep in
mind the value of a dollar in 1898 is roughly equivalent to 30.98
dollars in 2020.
Taxes on Vices
First, some vices were targeted for taxation, as if often done. Beer,
lager, ale , cigars, snuff, and cigarettes were taxed. However, rather
than taxing the end user directly, the manufacturers and sellers of
these items were taxed. The politicians were in the clear as the
manufacturers had to decide whether to pass the costs along to the
public or not – the ‘ol “we didn’t raise your taxes, we raised taxes on
the evil big businesses” ploy.
Brewers of beers, ales, lagers, and other fermented beverages were
taxed at a rate of two dollars for a standard thirty-one gallon barrel.
Manufacturers of tobacco products were taxed at a rate of twelve cents
per pound. Cigars manufacturers were taxed at a rate of $3.60 per
thousand cigars that weighed more than three pounds per thousand, and
only one dollar per thousand for cigars weighing less than three pounds
per thousand. Cigarette manufacturers were taxed at a rate of $3.60 per
thousand. In addition, those dealing in tobacco products were
Bowling alleys and billiard halls were also taxed, at a rate of five
dollars per alley or table respectively.
Taxes on Luxuries
Imported tea was taxed at a rate of ten cents per pound.
Some of the small luxuries of life were also taxed, adding to the cost
of a family outing. The proprietors of theaters, museums and concert
halls in cities with a population of over twenty-five thousand people
were required to pay one hundred dollars. Proprietors of circuses –
which were defined as buildings or tents where feats of horsemanship,
acrobatic sports or theatrical performances were held – had to also pay
one hundred dollars. And if the circus moved to a new location in
another state, it would have to pay again in that state. Also, it was
unclear that if a circus used more than one tent if they had to pay the
tax for each tent.
Should a person decide to go to the local pawnbroker in an effort to
pawn something to get some cash to pay for their increased costs, they
may have found themselves getting slightly less than expected as the
pawnbroker was faced with a tax of twenty dollars.
Telephones were new at the time, and few people had them. The War
Revenue Act taxed the luxury of phone calls. Telephone calls costing
fifteen cents or more were taxed one cent.
A cartoon from 1898 suggesting a new tax - taxing signle men to
suppport those who fight the "war of matrimony" (Source Library of Congress)
Revenue Stamp Taxes
Revenue stamps were introduced. The stamps, which had to be purchased
from the government were required on all sorts of documents, such as
bonds, stocks, insurance certificates, conveyances and deeds,
telegrams, certificates of deposits, patents, trademarks, letters of
credit, wills, bills of lading, liens, powers of attorney and even
tickets for ocean travel to foreign countries. In short, any kind of
official paperwork required the purchase of a stamp, the cost of which
varied by the type of document.
Also requiring stamps were any type of packet, box or vial of pill,
lozenge, liquid or medical preparation. Perfumes and cosmetics also
fell under this requirement as did chewing gun and wine. Of course, the
stamps had to be purchased by the manufacturers of these items. The
manufacturer could pass that cost along to the customer or take a loss
Estate Taxes (“Death tax”)
Though estate taxes – better known as “death taxes” - existed
previously, the War Revenue Act instituted a system whereby those
receiving an inheritance – a portion of a deceased person’s money,
property, stocks, etc. – paid a tax on the inheritance with the amount
of tax depending on how closely the person receiving the inheritance
was related to the deceased, as follows:
1. If the person was a lineal descendant of the
deceased, or was the brother or sister of the deceased, the person paid
a tax of $0.75 per $100 inherited.
2. If the person was a descendant of the deceased’s
brother or sister, the tax paid was $1.50 per $100 inherited.
3. If the person was an aunt or uncle of the
deceased, or the descendant of the aunt or uncle, the tax paid was
$3.00 per $100 inherited.
4. If the person was a great aunt or great uncle of
the deceased or the descendant of the great aunt or uncle. The tax paid
was $4.00 per $100 inherited.
5. For anyone not listed above, the tax paid was to
be $5.00 per $100 inherited.
6. If the deceased’s spouse inherited part or all of
the estate, no tax was to be paid on the portion the spouse inherited.
Taxes on Necessities
The War Revenue Act taxed those engaged in the production or packing of
“mixed flour” – defined basically as any flour that was not purely
wheat flour – at the rate of twelve dollars per year, plus between one
and four cents per barrel of flour, depending on barrel size.
Sugar refiners who had gross receipts of more than $250,000 were
subject to a tax of 0.25% on the gross sales.
The same requirements were put on oil refiners and on anyone “owning or
controlling any pipeline for transports oil or other products.” Again,
those companies that had gross receipts of more than $250,000 were
subject to a tax of 0.25% on the gross sales.
Again, the larger companies were taxed, and they could decide to pass
that amount along to customers or not.
War Bonds and Loans
The War Revenue Act allowed for the government to issue certificates –
bonds – that would bear an interest rate of three percent. The number
of bonds issued could not exceed $400,000,000 in total. It appears that
$198,792,660 in bonds were issued. The bonds matured on August 1, 1918.
As of October 31, 1918, $60,878,560 had yet to be redeemed. By October
31, 1919, that amount had decreased to $858,600.
In addition, the Secretary of the Treasury was permitted to borrow up
to $150,000,000 as needed.
Some portions of the War Revenue Act had to be clarified and eventually
were taken to court, including the Supreme Courts. Some of the
issues included whether the revenue stamps requirements applied to
certain life insurance policies, patents, trademarks, and certain
drugs. There were issues on such diverse topics as the use of leaf
tobacco, livestock sales, etc.
The War Revenue Act was gradually repealed over the following four
years. On July 1, 1901, the revenue stamp requirements were repealed
except for certain specific sections. On July 1, 1902, the remainder of
the War Revenue Act was repealed, with the exception of the estate tax,
In spite of what has often been stated, the tax on telephone calls was
repealed in 1902. In later years, it was reinstituted, but the more
recent taxes were not left over from the War Revenue Act of 1898, but
from later acts of taxation. The tax that did remain, in one form or
another, was the graduated estate tax.
Did the War Revenue Act do What it Was Intended to Do?
The goal of the act was to raise funds to pay off the debts incurred by
the war. A look at the annual deficit or surplus should indicate if the
debts were alleviated. In the fiscal year of 1897 to 1898, the country
had a deficit of $38,000,000, which rose to $89,000,000 in the 1898 –
1899 fiscal year. By 1899, the situation changed. In the 1899 – 1900
fiscal year, the country ran a surplus of $79,000,000, followed in the
1900 – 1901 fiscal year by a surplus of $77,000,000. By the fiscal year
of 1901 – 1902, the surplus had risen to $92,000,000.
The growing surpluses indicated that enough taxes had been raised to
offset the war-incurred debts. The surpluses caused a public outcry
which led to the repeal of the War Revenue Act.
Bibliography:Annual Report of the Secretary of the
Treasury on the State of Finances for the Fiscal Year Ended June 30,
1918. (Washington: Government Printing Office, 1919) 77.
Annual Report of the
Secretary of the Treasury on the State of Finances for the Fiscal Year
Ended June 30, 1919. (Washington: Government Printing Office,
1920) 113 – 114.
“Are Exempt,” Buffalo
Commercial. (Buffalo, NY), February 13, 1899, 10.
“In Supreme Court,” Chattanooga
Daily Times. October 13, 1899, 1.
Republican Text Book for the
Campaign of 1898, Published by the Authority of the Republican
Congressional Committee. (Philadelphia: Dunlap Printing Co.,
1898), 373 – 381.
“Taxes on Life Insurance,” The
Dispatch (Moline, IL). August 5, 1898, 8.
“Chap. 448 – An Act To Provide Ways and Means to Meet War Expenditures,
and Other Purposes,” The
Statutes at Large of the United States of America from March, 1897 to
March, 1899. (Washington: Government Printing Office, 1898). 448
“Uncle Sam’s Balance Sheet,” The
Davenport Times. (Davenport, IL), July 5, 1902, 6.
“Value of $1 from 1898 to 2020”
“War Revenue Bill,” The Los
Angeles Times. April 28, 1898, 9.
“War Tax Soon to Go,” Sioux
City Journal. June 18, 1902, 3.