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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 American War.

The Article:

 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.

Congressman Nelson Dingley, Jr.
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 revenue stamp
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 additionally taxed.

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 suggesting a tax to support those engaged in Matrimony
A cartoon from 1898 suggesting a new tax - taxing single men to
support 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 in profit.

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.

The Aftermath

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, which remained.

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 -470.

“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.

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