One of a group of businessmen and bankers who influenced, maybe even dominated, American policy in the 1920s, S. (for Seymour) Parker Gilbert left his mark on cornerstone tax policy as well as on foreign policy. I’ll devote a set of 3 posts to this little-known man who crammed a lot of service into his short life.
Part 1: Mastermind of tax reform
Born in New Jersey in 1892, Gilbert studied at Rutgers before graduating from Harvard Law School in 1915. He then joined the prestigious New York City law firm of Cravath and Henderson. With the entry of the U.S. into World War I, Gilbert joined the war loan staff at the Department of Treasury, then led by William G. McAdoo, where he served until appointed assistant secretary of the Treasury for fiscal affairs at the age of 27. A Republican, he was a close friend and associate of Russell C. Leffingwell who preceded him in the fiscal affairs position.
When Warren G. Harding became president in 1921, newly appointed Treasury Secretary Andrew W. Mellon retained Gilbert, who became a lifelong associate, in the newly created position of undersecretary of the Treasury. Gilbert (not yet 30 at the time) stressed the importance of reducing surtax rates to Mellon almost immediately following Mellon’s appointment. On March 12, 1921, he sent a lengthy memo to Mellon in which he argued for the revision of income tax laws “both from the point of view of the fiscal position of the Treasury and from the point of view of business conditions throughout the country.” Mellon agreed, and president Harding called a special session of Congress on tax-reform legislation as early as April 1921. However, progressive Republicans (led by Sen. Robert M. LaFollette of Wisconsin) and the farm bloc, led by Sen. William Kenyon of Iowa, marshaled opposition to surtax rate reductions, and the tax reformers were unable to overcome the popular assertion that marginal rate reduction on top incomes benefited the wealthy at the expense of ordinary citizens.
The tax reformers regrouped, however, working on a complete statutory revision throughout the summer of 1923. Gilbert then decided that the time was ripe for the incoming Congress to reconsider tax reform. He argued:
“To accomplish anything, the program for tax revision will have to take definite shape rather soon and be launched some time after the opening of Congress. This would have the double advantage of securing advance publicity for the tax program and arousing substantial support for it throughout the country while the members of Congress are still at home and hearing from their constituents, and, at the same time, of giving the new bill enough of a start before the actual convening of Congress to assure it early attention in the legislative session.”
He urged Mellon to make an announcement soon, and have Ways and Means Committee chairman William Green follow up with a promise of prompt committee action, and urged Mellon to confer with both Coolidge and Green to ensure they were in agreement. After Gilbert returned to law practice in the autumn of 1923, his successor as undersecretary, Garrard B. Winston, closely followed the program and strategy laid out by Gilbert.
On November 10, 1923, Mellon sent an open letter to Chairman Green, making specific recommendations for comprehensive tax reform just as drafted by Gilbert. A grass roots as well as a media campaign soon began trumpeting the Mellon “plan for scientific taxation,” culminating in a National Tax Reduction Week (the week of April 7, 1924). The proverbial washtubs full of correspondence supporting the Mellon Plan inundated the Treasury Department’s post office between January and April 1924. In April, Mellon’s book, Taxation: The People’s Business (probably written by Parker Gilbert and Garrard Winston) was published – a brillant promotional vehicle that framed the central question underlying tax policy thus: Should taxation raise revenue as efficiently as possible, or should it change the distribution of wealth in society? Mellon (and Gilbert) strove to convince ordinary people that letting the rich get richer was not objectionable and could in fact be good for society and good for them.
The team of Gilbert and Mellon had introduced the plan in late 1923 knowing full well that it would be difficult to secure passage in the upcoming session of Congress. The calculation was that a defeat on tax reform would be a powerful issue in favor of Republicans in the 1924 presidential election. A more pliant congressional majority would enact the Mellon Plan in 1926 (in fact, the public pressure stirred up by the campaign resulted in greater surtax rate reduction than had been proposed in the original Mellon Plan).
By late 1924, Gilbert had left this area of achievement and entered the second phase of his career, when he was named to succeed Owen Young as Agent General for Reparations, a crucial post in the efforts to reconstruct the economies of Europe, particularly Germany. More on that in Part 2 of this mini-series!