Scientific Taxation

While Andrew Mellon and presidents Warren G. Harding and Calvin Coolidge are rightly credited with proposing and shepherding through Congress tax reform legislation in the 1920s that radically reduced marginal tax rates on wealthy individuals from WW I highs, it is less well known that a similar change very likely would have occurred even under Democratic administrations. Basically, the Mellon plan was originally authored by former and holdover Treasury officials from the Wilson administration, who fully intended to formulate a permanent peacetime taxation system that would best serve a modern industrial society.

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A champion of the people

Mellon (front row left) seated with president Coolidge (front row center) and Chief Justic Taft (front row 2nd from right) at a 1927 Smithsonian regents' meeting

Mellon (front row left) seated with Secretary of State Kellogg (2nd from left), President Coolidge (front row center) and Chief Justice Taft (front row 2nd from right) at a 1927 Smithsonian regents’ meeting. Looks like someone didn’t get the dress code memo! (thanks to reader T.S. Schurk for that observation)

 

I’m piggybacking here (and a few days late at that) on another excellent blog post by the always enjoyable Burt Folsom. Next to Calvin Coolidge, there is hardly a politician dearer to my heart than Andrew Mellon (ol’  Andy Mellon, as Coolidge is supposed to have referred to him; not to his face, one assumes). Folsom neatly and briefly encapsulates Mellon’s accomplishments; for anyone interested in the full account, the substantial biography by David Cannadine is highly recommended. Taxation to Mellon was “the people’s business” and with the full support of presidents Harding and Coolidge, he strove to reduce the tax burden on all except the very rich while reducing the onerous debt burden left over from WWI. There is some poignancy in that Mellon’s life, while outwardly a huge success story, was tinged with failure and sadness on the personal and relationship levels – and, as Folsom mentions, the final years of his life were marred by the politically motivated campaign waged against him by FDR. He deserves to be remembered with respect and admiration.

Less taxes! More millionaires!

Uncle Moneybags character copyright Hasbro, Inc.

Stephen Moore, a member of the Wall Street Journal’s editorial board, lays out the case for lower tax rates, yes, even for millionaires, and argues that the only sensible way to make millionaires pay more in taxes is… to create more millionaires. He evaluates the various 20th century presidents who cut taxes (surprise – not counting those blissful years before the income tax was instituted, we never had it so good as during the Coolidge 20s).

As I Knew Them – Part I

From the memoirs of Sen. James E. Watson, “As I Knew Them” (1936, Bobbs-Merrill).

In this June, 1926 picture, Sen Watson is seen at the left of Pres. Coolidge, with the Indiana State Republican Committee

I do not know of anyone at all who thought it possible for Calvin Coolidge to be nominated in the event of Harding living out his term. In fact, it was very much bruited about that he would not even be nominated for the vice-presidency again with Harding, if that gentleman weathered the presidential storms of the first four years. There was a decided movement to have Coolidge run for the senatorship of Massachusetts, because everybody believed that he could carry that state against any and all comers. But these things were all set at naught when President Harding died and Coolidge assumed the first position in the country.

Even up to the time he delivered his first message to Congress, it was not seriously believed by many politicians anywhere that he could be nominated for the presidency. But, after that first deliverance to the House and Senate in joint session, there was never the slightest doubt about his nomination. He argued the question of taxation, which was very close to the public heart at that time, with such force and cogency that we all knew he had sounded the keynote for the next campaign and defined the issue for that struggle.

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Dateline Northampton, Feb. 23, 1931

Poring over the draft of his daily newspaper column on Feb. 23, 1931, Calvin Coolidge settled on a topic always near and dear to his heart – taxation. And his comments again seem strangely timely even today:

One of the most astounding spectacles is the complacency with which people permit themselves to be plundered by extravagant government expenditure under the pretense of taxing the rich to help the poor. The poor are not helped but hurt. Taxes have to be collected by the rich before they are paid. They are collected from all people. A higher tax means real wages are lower. The cost of living is higher. The chance to work is less. Every home is burdened. Its value is decreased. The quality of the food, clothing and shelter of the children is reduced.

The Congress and the legislatures know these results of extravagance. The people may not fully realize them but they suffer from them. Legislators do not want to be extravagant. Minorities drive them to it. The people who pay and suffer give little vocal support to economy. They make no threat of political retaliation against those who are taking their money, increasing their cost of living, removing their chance to work. Those who demand appropriations inspire all the fear. Aggregate state and town debt, national and local taxes are increasing enormously. Unless the people resist vigorously and immediately they will be overwhelmed.

 

Dateline Northampton, Dec. 9, 1930

Well, this time I’m getting an early start! Eighty years ago tomorrow, Calvin Coolidge wrote his daily “Calvin Coolidge Says” column about a subject near and dear to his heart, and also somewhat pertinent to our day and age – taxation:

The Congress has before it two distinct problems which in their solution conflict with each other. One is the necessity of providing revenue to meet obligations already incurred, or any new commitments for relief. The other is to do what it can to encourage business. The obligations must be met. But that requires taxes and perhaps more taxes. That will retard business. The answer may lie in temporary borrowing to meet temporary emergency. The danger there is extravagance.

It would seem perfectly clear that business will not be improved by spending tax money. Taxes are already too high. With all the national reductions, states and municipalities have raised taxes until the grand total is about  $13,000,000,000.

Nothing would so encourage business than a reduction of this local and national burden. In 1921 it was particularly the drastic cuts in Federal expenses and taxes that brought economic revival.

While relief must be provided, those who now advocate higher taxes may be meeting the Treasury requirements but are postponing prosperity. Those who seek to improve our economic position by spending more tax money are going in the wrong direction. Rigid governmental economy would finally solve both problems.

Interestingly for those who now approvingly quote Coolidge (or Mellon) policies, it is clearly apparent that Coolidge was not of the “deficits don’t matter” school. As Joe Thorndike has only recently pointed out, Coolidge was for tax reduction when accompanied by rigid government economy, and certainly not in favor of extravagant borrowing – I’m positive he would be aghast at today’s levels of national indebtedness.

Coolidge on taxes

In a statement given at the 7th meeting of the Business Organization of the Government on June 30, 1924, Calvin Coolidge laid out a few basic principles that are well worth remembering today, even if our situation is vastly different (for one thing, he points out elsewhere in the speech that “We are often reminded that we are in the best financial condition of any of the great powers, and we are” — which was true at the time but very likely is not true anymore today).

“There is a most urgent necessity for those who are charged with the responsibility of government administration to realize that the people of our country can not maintain their own high standards, they can not compete against the lower standards of the rest of the world, unless we are free from excessive taxes.

With us economy is imperative. It is a full test of our national character. Bound up in it is the true cause, not of the property interests, not of any privilege, but of all the people. It is preeminently the source of popular rights. It is always the people who toil that pay. (…)  Public service is entitled to a suitable reward. But there is a distinct limit to the amount of public service we can profitably employ. We require national defense, but it must be limited. We need public improvements, but they must be gradual. We have to make some capital investments, but they must be certain to give fair returns. Every dollar expended must be made in the light of all our national resources, and all our national needs.”

Calvin Coolidge close up