In 1944 big dance bands were all the rage. They were so popular that to gain additional revenue for World War II, the federal government enforced a 30 percent "cabaret tax" on the gross receipts of any "public place where music and dancing privileges... except instrumental or mechanical music alone, are afforded the patrons in connection with the serving or selling of food, refreshment, or merchandise."
While on paper the "cabaret tax" appeared as if it would be a revenue maker, an unintended consequence of the tax was that it made the hiring of big bands cost-prohibitive. The tax forced venues away from big band dance music and fueled the growth of smaller instrumental groups that were emerging with a new style of jazz called bebop.
The cabaret tax undoubtedly dealt a major blow to the economic viability of live big band music. But other social and historical factors contributed to the decline of big bands and the rise of small groups as well. Read more here.