The (non) logic of the income tax.
Derek McDaniel

Specifically, it is not effective as a tool for rationing and managing the distribution of resource claims, or ensuring private interests are subject to proper and sufficient public obligations, which is its supposed logic.

FDR changed the “perception” of taxation, and in so doing changed how we account for it. During WWII we had very conflicting events that threatened to crash the economy. Everyone who was available and able to work had a job, and the wages were good. However, there were few good and services available for sale, as they were mostly destined to the war effort overseas. Price controls and rationing were put into place and taxes were increased, but inflation still kept raising its ugly head, threatening black markets and making it much more expensive to wage war.

The government already had an effective media presence (propaganda) in place to recruit volunteers and workers in the effort to rout Hitler and his allies from Europe, and the administration found further use for it in controlling the economy. Small denomination Treasury bonds were created and sold via a media campaign to give the impression that citizens could help “fund” the war effort with the purchase of the bonds. While the monopoly issuer of the currency has never needed to fund its spending, the false impression that taxes and bonds served that purpose was promoted very successfully and even school classrooms were engaged in “War Bond” drives that collected spare money from students to purchase the special bonds. It became the “patriotic” thing to do.

Of course, the money raised by the effort was trash canned by the Treasury when each bond was issued, becoming nothing more than a ledger entry to track who paid what, but a large amount of excess currency was removed from the economy so it couldn’t compete in bidding up prices of scarce goods. While this misdirection of “purpose” accomplished its intended goal, its effects weren’t easily reversed and the general perception of taxes and bond sales as “revenue” for government’s spending persists even today. Of course, this perception found usefulness in political discourse and we began thinking in terms of what government could “afford” in the mid sixties. Small minds found comfort in rhetoric that was supported by “common knowledge” obtained from their own experiences with finance since they got their first allowance and they, via the democratic process, have shoehorned our government’s fiscal policy into their limited understanding, even when the processes involved don’t work in their perception of reality.