Ukraine is fighting a war of survival; how is the war being paid for? We know that Ukraine is actively looking for funding from the West, but is it also funding the war with income tax increases? For context, what did the US do in past wars? Below I show that the US dramatically increased ordinary income tax rates on middle and (especially) high incomes during wars, while Ukraine has only recently made a 3.5% increase in its flat income tax.

The first income tax in the US was put in place by the Union during the Civil War (the Confederacy opted for bonds and struggled to fund the war). The blue curve below shows the difference in effective (average) income tax rates from before the war 1860 to 1866 in 2024 dollars (since there were not income taxes in 1860, this curve also shows tax rates in 1866). After the Civil War the income tax was ended, and not reinstated until right before World War 1, when after intense debate the passage of the Sixteenth Amendment allowed a federal income tax. The red curve shows the dramatic increase in US income tax rates from 1915 to the end of the war in 1919. These tax increases were most dramatic on annual incomes between $1M and above (in inflation-adjusted dollars); the tax increased an eye-opening 50% on ordinary incomes of $10M! During World War 2, income tax rates also increased (though from a higher base, more on that later), as shown in the green curve; the increase were much larger for middle incomes during WW 2 than for WW 1. The data for US income tax in the figures below come from taxFoo.jl and does not include FICA (social security and Medicare) payments, tax credits, capital gains tax, or state taxes. Incomes in the plot below are shown on a logarithmic scale.

So, what has Ukraine done during the current war with Russia? Until last month there had been zero increases in the income tax. Finally in October 2024 the Ukrainian government raised the military tax on income 3.5% (for 2025 taxes), retaining its flat nature. In sharp contrast, one hundred and fifty years ago the US raised taxes 10% on the wealthy (with no taxes on low incomes) to fund a (somewhat similar) internecine war, and raised taxes even more on high incomes during the world wars. Many post-communist countries in Europe and Asia also have flat taxes; Ukraine appears to have made zero steps towards a western-style progressive tax structure, even during a war of survival. Of course such taxes would be more complex, and are not a panacea. Raising taxes on the wealthy is a common tool used by Western countries during war; is it too much to think that Ukraine should do so?

The final figure (below) shows effective tax brackets for the US at the end of the US Civil war and the two world wars, and the current US and Ukrainian tax rates. As before, all incomes are inflation-adjusted to be in 2024 US dollars, with no purchasing-power-parity calculations. Social security (pension) payments are not included, nor are tax credits; when including these US taxes remain progressive, while Ukrainian tax rates become regressive. While the Ukrainian income tax will be 23% in 2025, in the US at the end of World War 1 the top marginal rate was 73%, and was 94% at the end of World War 2 (these are the values which the red and green curves are asymptotically approaching at high incomes).

Ukraine has been asking the United States and other western countries with progressive tax structures to send military and financial aid, while it keeps a relatively low tax on high incomes. An opponent of the war in the US might say “The wealthy and middle class in the US are funding this war, while the most wealthy in Ukraine are paying a low rate! Why should the US fund this war when the wealthy in Ukraine are not willing to sacrifice like the wealthy in the US did during the US Civil war or the world wars?” I support continued funding from the US for Ukraine, yet I have some sympathy for this critique. I would like to see Ukraine explicitly put more of the burden of financing this war on residents with higher incomes via a more progressive income tax. This would be a wonderful signal to the world that Ukraine wants to move towards self-sufficiency, are interested in Western institutions, and want to minimize oligarchy. Such progressive taxes could be continued after the war, where they would induce more trust in government, reduce inequality, and even make more people willing to pay taxes.

I support Ukraine. I want Ukraine to win this war. I hope the tax change listed above will be considered by Ukrainians as a mechanism to help win the war and also win the subsequent peace.