In the spring of 1939, the financial preparations for war took concrete form. On May 30, a variety of suggestions were put forward, and the Finance Ministry promised to work them up into a coherent set of proposals within ten days. One state secretary, whose authority extended to general economic affairs, had an intriguing idea. He suggested using “anticipated postwar revenues as a way of financing wartime expenditures.” An accompanying position paper explained that doing so would make it unnecessary to cover the national debt during wartime. The Finance Ministry proposed levying an additional 25 percent tax on all “natural” persons and all profits earned by corporate entities. That would increase revenues from wage and income taxes by 5 billion corporate tax revenues by 1.7 billion reichsmarks. The Reichsbank endorsed the proposal.
55
But as of late May, the political leadership had already come to favor an alternate course, the one that would eventually prevail: “In order to cover the costs of the Wehrmacht, we must enlist the economic potential of the Protectorate of Bohemia and Moravia and those territories to be conquered in the course of the offensive.”
56
One Reich strategy, then, was to shift responsibility for funding the Nazi war machine to the citizens of conquered lands—while continuing to spare the majority of its own populace any increased tax burden. Repeatedly over the course of the spring and summer of 1939, civil servants tried to raise tax rates, only to find themselves undercut by the Nazi leadership, which intervened to protect lower- and middle-income Germans. This procedural give-and-take is evident in the work of the Ministerial Council for the Defense of the Reich, which was formed on August 30, 1939, to draw up a blueprint for wartime taxation. Five days later it published a draft of the Wartime Economy Ordinance
(Kriegswirtschaftsord-nung
, or KWVO).
57
Paragraph 22 of the ordinance imposed an additional wartime tax of 50 percent on all wages, but it also promptly excluded all but the wealthiest Germans, those with annual incomes over 2,400 reichsmarks. In practice that exempted 70 percent of the German population. An additional 26 percent—those earning between 2,400 and 6,000 marks annually, incurred only minor additional charges.
58
In the end only 4 percent of the population paid the full 50 percent surcharge.
59
Significantly, the KWVO rejected the proposed across-the-board surcharge of 50, and later 25, percent on general income tax.
60
Broadly targeted taxes were discarded in favor of a system that placed major burdens only on Germany’s highest earners, while moderately affecting the next wealthiest 25 percent of society. The shift in policy conformed to Hitler’s 1935 directive that “upper-level incomes should be limited during war . . . either through the compulsory purchase of war bonds or a progressively graduated tax on profits.”
61
Nazi propaganda promoted the KWVO as ensuring that “the burden of war was justly distributed and spending power held in check.”
62
The German leadership created and maintained a kind of wartime socialism aimed at attracting the loyalty of ordinary citizens. “We have to prevent individuals from profiting,” wrote economist Jens Jessen, “while others are sacrificing their lives.”
63
Hitler formulated the matter in similar terms: “When the soldier is fighting on the front, no one should be profiting from war. When the soldier is dying on the front, no one at home should be shirking his duty.”
64
Because the KWVO temporarily suspended extra pay for overtime and for night, Sunday, and holiday labor, the take-home income of working-class Germans decreased at the onset of the war.
65
But employers were not the ones who profited: they were required to pay an equivalent sum to the state. Through this regulation, the state took the relatively insignificant total sum of 270 million reichsmarks from the pockets of the working classes.
66
Eent 20 percent hike in taxes on tobacco, spirits, beer, and sparkling wine, which was put in place on September 4,1939, did not represent a significant burden.
67
These indirect war taxes—the only consumer tax increases imposed by the Nazis—were raised to 50 percent in November 1941.
68
But even then the regime was careful to formulate its regulations so as not to breed popular discontent. For example, in the beer-loving “southern German consumer regions,” the tax was kept at 50 reichsmarks per 100 liters, while it was raised to 70 reichsmarks elsewhere. In 1940, the surcharge on a liter of beer (that “mood enhancer,” as Goebbels called it) was 14 reichspfennigs in Hamburg and Dresden, compared with only 10 in Munich and Vienna—30 percent less. A tax on wine was never instituted for fear that it would “directly hurt winemakers, whose general economic situation is unfavorable.”
69
Many workers found the loss of overtime compensation a hardship, and the Reich Defense Council reinstated it on November 15, 1939, for work in excess of ten hours a day. Night, Sunday, and holiday pay was also restored.
70
The general prohibition on vacations was revoked, while the ban on extra pay for nine- and ten-hour workdays remained in place. Extra pay did not count toward the wartime surcharge’s personal exemption and was taxed at the normal income tax rate.
71
Many bureaucrats were upset at the loss of income. Economists at the council proposed lowering the annual deductible for the wartime surcharge from 2,400 to 1,800 reichsmarks. Their aim was to restrict consumer spending, but the proposal was rejected by the party hierarchy “on political grounds.”
72
The financial experts argued “that the only truly effective means of redirecting spending power lies in increased appropriation of private income for political consumption, i.e., higher taxation.” Schwerin von Krosigk voiced his support: “There will be grumbling, but the people will understand.”
73
That enraged Goebbels, who railed against the “sterile bureaucrats” in the Finance Ministry for lacking the stuff of “creative statesmen.” He dubbed their efforts to strike “at the very subsistence” of the German people “truly pathetic!”
74
By June 1940, the general consensus among economists was that there was “no chance whatsoever” of getting “any tax measures past Field Marshal Göring or the Führer.”
75
On the contrary, bucking all wartime financial logic, the political leadership reinstituted overtime pay for nine- and ten-hour workdays in August 1940. This was a purely populist move taken without any outside pressure. In addition, in December 1940, Armaments Minister Fritz Todt succeeded in declaring income derived from overtime, night, Sunday, and holiday labor exempt from tax and social benefits contributions.
76
As a result, take-home pay rose significantly. Moreover, just in time for the holidays, Christmas bonuses were also declared exempt from the war tax.
The top officials in the Finance Ministry were normally too realistic to approve such handouts. But in the wake of Germany’s triumph over France, they convinced themselves that they could afford to be generous, “provided,” as Deputy Finance Minister Fritz Reinhardt wrote to his colleagues, “the war ends in 1940.” Reinhardt continued: “It will surely make a strong public impression in Germany and abroad if we can do without war taxes in a gigantic war such as this.”
77
The government treated the interests of German farmers with similar benevolence. For Reichsbank director Bernhard Benning, agriculture represented “a special tax oasis,” the only branch of the economy that throughout the war “has been given special favors in price-control and tax policies.” Agricultural tax revenues remained constant at 700 to 800 million reichsmarks during the war years, “while the state,” according to Benning, “simultaneously handed out billions in price subsidies to farmers.” Indeed, the prices producers were paid for milk and potatoes were raised by 25 to 35 percent in the course of the war.
78
In 1943, German farmers possessed more than 10 billion reichsmarks in liquid assets held by banks and an even larger amount of ready cash. Their financial security resulted from the preferential treatment given farmers in the KWVO. As early as December 1939, a high-ranking financial administrator complained that the privileging of farmers “is in many cases so grotesque that it can scarcely be kept secret from the rest of the populace, segments of which are being called on to make real sacrifices. To put the matter mildly, it infuriates other people.”
79
IN 1941, for reasons similar to the ones motivating tax breaks for farmers, the government raised pensions. The increase was intended both to compensate for the slight inflation during the war and to make up for some of the emergency pension cutbacks imposed from 1930 to 1932. The biggest beneficiaries were small-time pensioners, who received a lump sum rather than a percentage-based hike. Retirees enjoyed an additional 6 reichsmarks per month, while pensioners’ widows were given 5, and their orphaned children 4. That represented an average increase of 15 percent. The new pension law also relaxed standards for eligibility. Recipients no longer had to prove, for example, that they or their spouse or parent had paid in contributions during the economic chaos that followed World War I. The pension reform produced, at least in the short term, “visible satisfaction and great joy” among retirees. Three months’ worth of arrears were paid out in a single installment, increasing support for the Führer among a group of Germans who frequently held “the opinion that National Socialism had no time for the elderly and physically weak and wanted them to die off quickly.”
80
The 1941 pension reform also introduced mandatory health insurance, the lack of which had been considered a “persistent societal shortcoming threatening the welfare of pensioners.” Monthly contributions were set at one reichsmark with exemptions for widows and orphans.
81
Previously, retirees had had to apply for state relief assistance or take out private insurance, which few of them did. The new regulations took effect in August and November 1941.
But not all efforts to expand social programs met with equal success. A further pension reform suggested by the Labor Ministry, for example, which would have gone much further than that of 1941, was blocked by opposition from the finance minister. The proposition by Goebbels in 1944 to raise benefits and lower bureaucratic costs by generally paying lump-sum pensions also ran into resistance.
82
In 1940, the man Labor Front failed to push through a radical reform that would have doubled pension levels overnight and pegged them to the cost of living. The front had hoped to rein in consumer spending and increase its own popularity by providing prosperous retirements for all. But because the reform would have required substantial increases in contributions, the Nazi leadership feared that it would unduly burden average income earners. The finance minister added that wartime sacrifices should not be tied to “promises that no one knows whether we can keep.” “The people,” he argued, “would view them as a ‘populist ploy’ rather than a serious pledge for the future.”
83
Significantly, the will to achieve social reform was strongest among those leaders within the Nazi Party who were also the most actively involved in pushing forward the agenda of ethnic genocide. The idea of a huge pension increase in 1944 was budgetary insanity. Yet some within the Nazi hierarchy supported it for the “psychological dividends it would pay among our working ethnic comrades
[Volksgenossen]”
They called for “blue- and white-collar workers to be put on equal footing” to give them a preliminary taste of the harmonious future to come, which would be achieved through a “generous reform of the social welfare state in the interest of working people.” The finance minister objected, as did the economics minister, the Reich Chancellery minister, and the Reich’s plenipotentiary for the employment of labor. But they had powerful opponents: Martin Bormann, Albert Speer, Heinrich Himmler, and Food and Agriculture Minister Herbert Backe voted in favor of the budget-busting proposal.
84
(Goebbels, Göring, Hitler, and the gauleiters never got involved in the debate.)
On the other hand, the German Labor Front was able to shoot down a planned third hike in tobacco taxes, noting with satisfaction that it had previously prevented further increases in beer, mineral water, and coal taxes.
85
In spring 1943, the finance minister failed to push through a proposed 25 percent tax surcharge on lower-income workers, who thanks to the Nazis’ wealth redistribution policies were now comparatively well-off. Göring dismissed the surcharge proposal categorically, and Hitler declined to intervene, citing “demands placed on my time by urgent military matters.”
86
In an internal memo on March 3,1943, Martin Bormann, the head of the Party Chancellery, noted: “The Führer emphasized that (1) it would be best to do without tax increases during the war and instead to impose levies on wartime profits afterward, (2) if taxes must be raised during the war, then only
income tax
, maintaining a deductible of 6,000 marks, (3) limiting spending power: the Führer repeatedly stressed that wealthy people’s income has little effect on purchasing power. The only prices that rise are those on art objects and the like, and that is completely harmless. The spending power of the broad masses is what’s important! It is directed toward procuring everyday necessities: food, clothing, etc.”
87
Two weeks later, the writer Fritz Nonnenbruch wrote a lead article in the main Nazi newspaper, the
Völkischer Beobachter
, opposing the tax hike planned by the Finance Ministry on the grounds that “doubts have to be raised, particularly from a National Socialist standpoint, about increasing taxation on incomes under 5,000 to 6,000 reichsmarks.”
The policies of socially equtable, progressive taxation achieved the desired results. “The economic situation of the populace is positive,” wrote one leading Frankfurt court official in March 1943. “People meet their financial obligations, mortgages are paid off, and court-ordered repossessions are on the decline. The civil divisions of municipal courts are increasingly involved in cases between tenants and landlords and in support claims. Bailiffs are mostly involved in estimating the value of household effects.”
88
The author of the report also described how the household belongings of deported Jews were used to supplement compensation payments to those who had lost their homes in Allied bombing raids—and suggested that the value of personal effects destroyed in the aerial bombardments, and not just the homes themselves, should be included in rough loss estimates.