In 1924, Andrew Mellon, who served as Secretary of the Treasury under Presidents Warren G. Harding, Calvin Coolidge, and Herbert Hoover, published Taxation: The People’s Business, a small, but eloquent, analysis of the principles of taxation. Mellon, with his business and financial background, helped formulate a series of sound economic policies that reduced taxes, federal spending, and the national debt.
Regarding taxation Mellon argued three essential elements to a sound tax policy: “It must produce sufficient revenue for the Government; it must lessen, so far as possible, the burden of taxation on those least able to bear it; and it must also remove those influences which might retard the continued steady development of business and industry on which, in the last analysis, so much of our prosperity depends.”
Mellon understood that a large tax burden would cause unnecessary harm to the economic livelihoods of both individuals and businesses. As Mellon wrote: “Any man of energy and initiative in this country can get what he wants out of life, but when that initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.”
Mellon not only understood that the power to tax is the power to destroy, but he also understood that high rates of taxation did not translate into more revenue for the government. “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the Government, and that more revenue may often be obtained by lower rates,” stated Mellon.
Mellon also argued the “politically incorrect” view that government should be administered just as a business. “The Government is just a business, and can and should be run on business principles,” noted Mellon. He also understood that at the heart of the economy was individual initiative. As Mellon explained: “The most noteworthy characteristic of the American people is their initiative… If the spirit of business adventure is killed, this country will cease to hold the foremost position in the world. And yet it is this very spirit which excessive surtaxes are now destroying.”
Under Secretary Mellon’s leadership, the high tax rate of 73 percent under President Woodrow Wilson’s administration fell to eventually a low 24 percent by the close of the decade. Mellon did not just encourage low tax rates, but also a fiscal policy of reducing spending and paying down the national debt. Secretary Mellon was a budget hawk and his philosophy was shared by Presidents Warren G. Harding and Calvin Coolidge.
It is often forgotten that when Mellon assumed office with President Warren G. Harding the nation was faced with a severe economic depression with high unemployment. President Harding’s policies of slashing tax rates, eliminating regulations, reducing spending, and paying down the national debt not only led to a quick recovery, but also a period of economic expansion. These policies were continued by President Calvin Coolidge.
Andrew Mellon was considered the best Secretary of the Treasury since Alexander Hamilton, and policymakers would be wise to learn from Mellon’s economic principles. Our economy is beginning to dig out of the “new normal” non-existent economic growth under President Barack Obama. President Donald Trump’s is moving in the right direction by unleashing the private sector from regulation, but Republicans need to help support his policies by enacting meaningful tax reform. Perhaps the most difficult policy objective for President Trump and the Republican Congress will be to cut spending and begin the process of paying down the $20 trillion national debt.
President Trump and Republicans in Congress should follow the example of Andrew Mellon. The best way to create economic growth and a stronger economy is to lower tax rates, reduce spending, pay down the national debt, and reduce the regulatory burden. This is in addition to implementing a trade policy that places American interests first. These are all policies that were advocated by Secretary Mellon. Hopefully, policymakers can learn from the wisdom of Andrew Mellon.