A year after the United States entered the Second World War the federal government needed additional revenues to pay for the war effort. Congress had given away much of the government’s usual means of financing itself, printing its own money, when it created the Federal Reserve in 1913. A voluntary income tax had been in place for 29 years, but for Constitutional reasons, fewer than 11 percent of Americans had to pay the income tax at that time. As a result, Congress enacted into law the Victory Tax Act of 1942, which included concurrent law for automatic wage withholding. The Victory Tax was a direct tax on income. However Article 1, Section 2, Clause 3 of the U.S. Constitution requires that direct taxes be apportioned to the several states, not citizens directly, and therefore it was unconstitutional. The government attempted to legitimize these new laws by citing Article 1, Section 5, Clause 2 of the Constitution: "To support Armies but no apportionment for money to that use shall be a longer term than 2 years."
The new legislation gave Henry Morgenthau, then Secretary of the Treasury, two voluntary income taxes to which he needed the voluntary compliance of US citizens. In December 1942, Morgenthau came up with a brilliant idea to encourage Americans to volunteer to pay by making the income tax a patriotic duty. To help implement this idea, Morgenthau ordered John J. Sullivan, a Treasury Department official, to contact Walt Disney.
Remember there was no television in the early 40s. The only visual medium the government could use to reach the public were films at movie houses. Going to the movies was a popular pastime, and citizens usually attended nearly every week. Walt was asked to fly to D.C. to discuss an urgent special request. At first, Walt was reluctant, but Sullivan insisted. Sullivan did not disclose the purpose of this meeting, and Walt assumed it had to do with the promotion of War Bonds. The next day, when Mr. Disney arrived to meet with Morgenthau and Internal Revenue Commissioner Guy Helvering, it was announced that the U.S. wanted him to "help us sell people on paying the income tax." Confused, Walt questioned why the government just didn't jail people who did not pay the income tax. Mr. Helvering retorted, "Walt, we want people to be enthusiastic about paying their taxes." Walt did not know that an unconstitutional income tax could not be used to jail American citizens for non-payment. That was then.
Walt headed back to California with a six-week deadline to make a short film and get it into the theaters in February of 1943. Production on other projects was dropped, and a full time work force labored around the clock on the new film. When the preliminary storyboards were completed, Walt headed back to Washington to preview them to Morgenthau.
Let’s all go to the movies…
It was a movie leader, much like a newsreel or preview, added to nearly every movie in the midst of World War II. The story started with Donald Duck, a patriotic little fellow reluctant to pay income taxes. Listening to a radio broadcast about taxes, Donald gradually realized that paying the income tax would help win the war. With a whole new attitude, Donald quickly goes to work filling out his income tax return, and so enthusiastic about paying the tax that he races from California to Washington to submit his tax return in person.
Walt had finished his presentation. There was a brief silence and Morgenthau's secretary spoke out that she hated Donald Duck. An aide stated that he expected to see "Mr. Average Taxpayer." Mr. Morgenthau made no comment. Insulted and very angry, Walt defended his project and argued that using Donald Duck was like MGM loaning the talents of Clark Gable to the film project, The New Spirit because Donald was Disney's biggest star at the time. In addition, brother Roy in a memo to Walt had pointed out that since the short was being given to theaters free, the theaters that already had booked Disney shorts would cancel and replace it with the free short. (The Disney Company eventually lost over $40,000 in bookings when theaters cancelled. This was a harsh blow since the Disney Studio started the fiscal year over a million dollars in debt.)
Mr. Morgenthau eventually reluctantly approved the short. Since income tax payments were due March 15 (back in those days), the Disney Studio had to rush to put together the short in record time since the Treasury Department had not contacted the studio until December 18, l942 Walt later sent a wire to the Undersecretary of the Treasury stating: "From time story was phoned from Washington to completion date and into laboratory totaled only four weeks. This is fastest time ever made on any cartoon production and the fastest service Technicolor has ever given."
Donald's shout of "Taxes to beat the Axis" underscored the patriotic need to pay taxes. Walt ordered a full-scale publicity campaign to coincide with saturation bookings at theaters. The New Spirit was an instant success and Walt had agreed to make it "without profit" as he had for all the war related work the Disney Studios did. The Treasury Department estimated that 60 million Americans saw the film, and a Gallup Poll indicated that voluntary submission to the income tax increased 37 percent. A Treasury official summarized the tax explosion to Congress in 1943:
Up until 1941 we never received as many as 8,000,000 individual income-tax returns in a year. In 1941 that number increased to 15,000,000; in 1942 it increased to 16,000,000. This year we expect 35,000,000 taxable individual income-tax returns
According to tax historian John Witte, “In 1939 about 15% of the people paid income tax. That’s all, period. At the end of the war, we had 80% of our families paying income tax.” Along with Der Fuehrer's Face, another Donald Duck propaganda film The New Spirit was even nominated for an Academy Award in documentary short subjects in 1943!
After the Treasury Department collected billions of dollars in new revenue, Walt Disney submitted his bill for $80,000. ($40,000 for the cost of producing the short and $40,000 for print costs. In fact these sums didn't even cover the production costs, merely some of the overhead.) The Treasury Department did not actually have these funds and Morgenthau had to submit a request for the money to Congress in a defense appropriations bill. Walt was accused in Congress of being a war profiteer. The House of Representatives disagreed and disapproved the appropriation on a vote of 78 to 63.
The newspaper coverage stirred public furor and the Disney Studio was flooded with negative letters often with the phrase "Not a dime for Disney". The Disney Studio was forced to write off the venture as a loss. In 1943, the Treasury Department again approached Walt to make another short cartoon to encourage Americans to pay their taxes. The purpose of this piece was to encourage Americans to save for their quarterly estimated tax payments to fund the war effort. This brilliant propaganda piece played upon the emotions and the sensibilities of Patriotic Americans to forgo self and contribute to ultimate victory - winning the war. Entitled The Spirit Of '43 the short shows Donald torn between a thrifty patriotic duck (who resembles an early Scrooge McDuck) and a spendthrift, zoot-suited duck obviously with Nazi leanings. They are battling over what Donald should do with his paycheck. Donald eventually smacks the free spender and runs off to pay his taxes. This time the Treasury Department asked Congress first and they approved $20,000. That sum was not enough to make a new cartoon so some elements from the previous The New Spirit were reused.
The Spirit Of ‘43 makes no mention of the impending "withholding" from workers' paychecks, yet it is quite obviously intended to promote the desirability of withholding, if be it responsibly by oneself until quarterly payment came due. Beardsley Ruml, Chairman of the Federal Reserve Board of New York would later introduce pay-as-you-go tax withholding in the work place so citizens would never again be "caught short" on tax day.
The Same Voluntary Tax Remains Today.
The Victory Tax Act was renewed in 1944 and was to expire when the war was over, yet remains in effect today, codified under the Internal Revenue Code at code section 3402 in subtitle C - Wage and Employment Tax, not the "Income" Tax. When WWII was over, Washington simply could not let go of its newfound riches - the payroll tax the public had been conditioned to accept. The constitutionality of the Victory Tax Act was never challenged by the people of the United States. The psychology and influence [propaganda] developed in The Spirit of '43 through its use of surreal imagery and feelings of National Patriotism and civic duty to - as the narrator puts it... " pay your taxes gladly and proudly" to fight an evil and powerful enemy, "The Axis" of Germany and Japan, accomplished its goal to get Americans to pay this voluntary tax. Any citizen questioning the tax might as well be considered the enemy by the end of this film clip. This should provide you some insights into how we have progressed to this modern state of voluntary complacency about our tax burden when our government tells us it is for our own good. And most of us are not even legally required to pay taxes. We have been convinced to pay taxes by practices that evolved out of cartoon propaganda and a sense of war-time patriotism. Careful examination of the law will show that the meaning of income is not legally defined to mean your income. Most people only become a taxpayer by volunteering to file a tax report or withholding form. And the IRS won't tell you otherwise. No part of the Federal Government is constitutionally permitted to levy such a direct tax on citizens of States and no amendment to the Constitution has changed that, not even the 16th amendment.
So as you volunteer to struggle with your tax forms each year, remember that Donald Duck talked you or your parents into volunteering your taxes. And the idea of volunteering to pay taxes for which you are not required by law to pay is lost in the mists of history.
Craig Goodrich in Rant Magazine, June 1998
The first 1040 was attractive in its simplicity. No accountants or computers were needed for its easy calculations and substantial exemptions. One's personal loss was minimal (and minimized), especially since this modest tax applied only to the very wealthy and only if you earned your income from certain sources. A ONE PERCENT TAX was no huge loss - a mere tenth of what tycoons tithed churches for a cooler space in the afterlife.
| Tax Rate
||1913 Income Level
||Adjusted for Y2K Dollars
|| Up to $20,000
||Up to $341,819
||$341,819 to $854,546
||$854,546 to $1,281,819
||$1,281,819 to $1,709,091
||$1,709,091 to $4,272,728
||$4,272,728 to $8,545,455
Source: American Institute for Economic Research Cost of Living Calculator c/o Steven M. Adelson
Last year there were over 480 different tax forms, each with a trail of instructions - 33 pages just for the "we'll make it simple for you" EZ-1040 short form. Tax Law mutated from 11,400 words in 1913, to 7,000,000 words in 1999. (For comparison, the King James Bible is about 773,000 words.) Almost 300,000 trees were chopped to render the 8,000,000,000 pages of forms and instructions that the IRS sent out. We paid for all the government postage, of course. We also paid for the accountants and computer calculation programs - since U.S. tax forms are written to be ridiculously complicated, and taxpayers are penalized for not figuring them out. Of those who called the IRS info hotline, less than half the callers got through, and of the advice they received, half of it was wrong. America's taxpayers spent 5,400,000,000 man-hours just to complete last year's Federal Tax forms.