Before the income tax, the progressive expansion of government had been built on a hypocrisy that reformers had denounced. A better world was being built with whiskey money, some of it, though far from all of it, coming out of the slums where the new immigrants worked and died. Afterward all that whiskey money went to a mob built out of the worst elements of the slums while the government fattened itself on a new source of tax revenue.
But the income tax was not nearly enough. The Federal government had been running shocking deficits in the 1930s. The budget deficit hit $903,000,000 in 1931, and then more than doubled in 1932 to $2,472,000,000. A 2.4 billion dollar budget deficit might not attract much attention today, but that same year revenues stood at only 1.9 billion dollars making the deficit larger than the revenues. A comparable budget deficit today would not be our usual trillion dollar booms, but something in the range of three trillion dollars.
With the Great Depression underway and the ultimate progressive Democrat with a big government agenda in the White House, the liquor taxes were sorely missed. Republicans lost 100 seats in the 1932 congressional election and with FDR in the White House, it was time to put an end to Prohibition and put all the lost revenue from liquor sales to work funding the New Deal.
By 1935, revenues had jumped to 3.6 billion dollars, nearly double what they had been only a few years earlier, but the budget deficit had gone up to 2.8 billion dollars because spending had surpassed 6 billion dollars reaching nearly 10 percent of the country’s Gross Domestic Product. It would eventually reach 24 percent of GDP, a figure only matched by another Democrat. Obama.
Roosevelt’s New Deal had drunk deeply of liquor taxes, but kept spending money like a drunken sailor, and even with the income tax and legal liquor sales, and a variety of other revenue raising gimmicks, the government had dug itself into a deeper fiscal hole than ever.
Social Security was born two years after the end of Prohibition. One of the creators of Social Security was Senator Pat Harrison of the Cullen-Harrison Act which legalized the sale of low alcoholic beer as a trial balloon for ending Prohibition. What had been thought a sin by progressive Unionists had become the salvation of progressive New Dealers who were less interested in moral reform and more interested in building the institutions that would give them permanent political power. And if those institutions had to run through the saloon, so be it.
The expanding government had gotten a heady taste of how good steady revenues from sin taxes could taste, and from that day on it was hardly ever sober again, imbibing greater and greater quantities of the stuff. One tax led to another and then another. The more the tax revenues rolled in, the faster they were spent on creating and funding the bigger and bigger institutions of the perpetually expanding system of infinite progressive government.
Prohibition proved to be less about morals than about economics and the ways that governments try to make the unworkable policy keep on going just a little longer. That could be taken as a reference to the prohibition of liquor, but it applies equally well to the economic infrastructure of tax and spend policies. Prohibition had less to do with morals than it did with political power, immigration and taxation.
On a social level, temperance had less to do with liquor and more to do with attempts to reform a country whose cities were becoming unrecognizable megalopolises packed with immigrants who were building the modern vision of the world of tomorrow and threatening the world of today. Prohibition became a reminder that modern technology and techniques were ultimately no match for the will of the people. It was the first real destructive test of the modern government’s abilities and it failed socially and economically, forcing the government to go wet to finance its own operations.
Prohibition is long gone but the consequences of it, including the cat and mouse game between organized crime and national law enforcement, the personal income tax and the budget deficit, the pressure group that forces the will of the minority on the majority and the promise that the government can perfect the men it rules over and the national orgy of hypocrisy that follows are still with us today.