As Americans consider potential tax reform measures recommended by the Bush White House and congressional majority in 2006, it might be worth reviewing the measures undertaken in 1926 under Calvin Coolidge's Secretary of Treasury Andrew Mellon. Here's an excerpt from Robert S. McElvaine's book, The Great Depression: America, 1929-1941 (Three Rivers Press, New York 1993) (formatting edited slightly).
"Mellon [was a] Pittsburgh banker and industrial magnate who was secretary of the Treasury in the administrations of all three Republican presidents of the twenties. One of the richest men in America, Mellon strived unstintingly toward his major goal: the reduction of the tax 'burden' on the rich. Until 1926 progressives in Congress were able to block Mellon's most generous proposals for his own class. Of Mellon's bill Senator George Norris said without much exaggeration, 'Mr. Mellon himself gets a larger personal reduction than the aggregate of practically all the taxpayers in the state of Nebraska.'"
"Under Mellon's Revenue Act of 1926, a person with an annual income of $1 million had his taxes lowered from more than $600,000 to less than $200,000. Mellon's own income was considerably higher, and he benefited even more from his own program. Small taxpayers received minimal reductions. Nor did Mellon's munificence end there. He and the few people in his income bracket also enjoyed clandestine administrative refunds of taxes. Mellon was generous in granting tax credits, abatements, and refunds. Between 1921 and 1929 (when his activities were exposed by House Speaker John Nance Garner), $3.5 billion was granted to corporations and individuals friendly to the Republican party."
"In the twenties, however, helping the rich was not a partisan issue. Pierre S. du Pont, president of E.I. du Pont de Nemours & Co., was--for understandable reasons--of the opinion that the rich should not bear the burden of taxation. Taxes, du Pont reasoned, ought to be paid by the working class, not the 'productive' class (which he defined as large employers). This view was shared by John J. Raskob, an executive of Du Pont, General Motors, and other corporations. In seeking a way to bring about their objectives, these two eminent gentlemen, along with some wealthy associates, hit upon a brilliant scheme. They would seize control of the Democractic party and commit it to the repeal of prohibition. When this was achieved, they would place a tax on beer, the workingman's drink. Estimates indicated that such a levy could raise $1.3 billion. This would allow a further 50 percent cut in corporate and individual taxes. In short, Du Pont and friends would give workers beer, and with it they would also give them half the tax burden of the rich. It seemed to them to be a reasonable trade-off."
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"Thus by the end of the twenties, Raskob seemed to be close to the mark when he said the only difference between the two parties was that the Democrats were wet and the Republicans were dry. He might have added that Republicans favored shifting taxes from the rich to the poor by means of a national sales tax (an idea that Mellon had been pushing since 1920), while the Democrats would try to achieve the same end by taxing beer. The conservative era had reached its zenith--or its nadir, depending upon one's point of view."
Like Mellon's Republicans, today's Republicans are again pushing enormous tax cuts for the wealthy and sales taxes for ordinary Americans. Today's tax cut advocates push the same worn argument about protecting those who are "productive"--they argue that capitalists are the entrepreneurs who must be protected from taxes so that they can fuel economic growth. The greatest benefit of the tax cuts goes to the elite class that passes them--the millionaires in Congress and the owners and managers of corporate America who wine and dine them. We seem to be in a kind of time warp, reliving the worn ideas from the twenties that fed the Great Depression.
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