free market. If the government had not pursued a policy of price controls or rationing, the war industries would have had to bid resources away from civilian uses by paying higher prices. The budget deficit would have been even larger, and because the Federal Reserve had pledged to keep interest rates constant, the additional financing needs of the government would have led to greater money creation and ultimately higher prices (Williams, 238).Another result of WWII was the expansion of the federal government. As Bailey states, By 1945 the government had instituted itself into virtually every phase of the nations life (181). The federal government grew from 1 million employees to 3.8 million in 4 years. In addition, the federal budget soared to a staggering $98.4 billion, more than 10 times the $9 billion budget of 1939 (Bailey 181).With an expanding bureaucracy and a costly war, the government needed to raise revenue. In 1945, the annual deficit was about $95.2 billion (Finkelstein 32). Perhaps the best index of the economic gains was the increase in the number of Americans who had to pay income taxes. In 1940, 7.8 millionin 1945, 48 million (Bailey 145). To pay for the war, taxes and borrowing were both raised to new highs. Between 1940-1945, the Congress passed a large number of revenue bills, and each one raised more money for the costs of war by increasing the tax rates and broadening the tax base (Finkelstein 32). One of the most important innovative features that resulted from these revenue bills was the withholding feature of the Revenue Act of 1943. Passed to raise an additional $16 billion, the act adopted a 20% withholding tax on personal income.The year 1945 saw the end of World War II. In the summer of 1945 Americans stood at the dawn of a new era with their wallets bulging (Williams 247). Because of rationing and the shortage of automobiles and other consumer durables not produced during the war, consumers had few outlets...
