Mellon’s Principles of Taxation
Andrew Mellon, Secretary of the Treasury under Presidents Warren
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, engineered a series of sound
economic policies that reduced taxes, federal spending, and the
deficit. Mellon’s principles on taxation, which he wrote about
in 1924, should be utilized and applied to tax policy by all
levels of government.
argued three essential elements to a sound tax policy:
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
understood that a large tax burden would cause unnecessary harm
to the economic livelihoods of both individuals and businesses:
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.
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,” wrote
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:
noteworthy characteristic of the American people is their
initiative. It is this spirit which has developed America, and
it was the same spirit in our soldiers which made our armies
successful abroad. 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.”
Republicans under the direction of Warren Harding won the White
House and began to cut away at the progressive policies that
dominated the administration of President Woodrow Wilson. In
fact Harding and Coolidge cut government expenditures by an
estimated 40 percent.
Mellon continued his policy of tax, spending, and deficit
reduction in the Coolidge administration. Robert Sobel, the
noted economic and business historian, stated that Coolidge’s
“goal was to hold the line on spending, and if possible roll it
back, while at the same time reducing taxes, for he expected
that this would result in greater personal freedom, continued
prosperity, and a more moral population.”
implemented his ideas of sound tax policy and his ideas received
a warm welcome from the presidential administrations that he
served, especially Harding and Coolidge. Historian Burton Folsom
has noted that “Coolidge in fact, had the lowest misery index
(3.3% average unemployment and 1 percent inflation) of any
president in the twentieth century.”
In addition, Folsom stated that “when the Harding-Coolidge
administration came into office in 1921, the tax rate on top
incomes was 73 percent; when Coolidge left the presidency eight
years later it was 25 percent. The rates on the lowest incomes
were also slashed.”
market approach to taxation resulted in the economic prosperity
of the 1920s. It resulted in the reduction of tax rates,
government spending, and the deficit. Mellon understood that
lower taxation will result in more revenues for the government
and applying that with reducing government expenditures will
result in a healthy economic policy. “Between 1922 and 1929,
real gross national product grew at an annual average rate of
In addition, as Cal Thomas wrote, “[Coolidge] cut taxes four
times and reduced the national debt by one-third while
maintaining a surplus every year in office.”
economic record speaks for itself, and it is a blue print for
policy leaders to use to create economic prosperity. The income
tax is inefficient, but political reality suggests that it may
be awhile before the income tax is seriously reformed by a flat
tax or abolished altogether with a national sales tax. In the
meantime, Andrew Mellon has left an economic plan which consists
of cutting taxes, cutting government, and reducing the deficit.
Mellon never made an investment without knowing the relevant
facts; his business success demonstrated his grasp of financial
situations. In similar fashion, modern politicians, businessmen,
and historians would do well to learn the facts of American tax
history before they try to plot its future,” noted Folsom.
A good starting point would be studying Mellon’s career and
reading Taxation: The People’s Business.
John R. Hendrickson is a
Research Analyst at Public Interest Institute.
The views expressed herein are
those of the author and not necessarily those of Public Interest
Institute or Tax Education Foundation. They are brought to you
in the interest of a better-informed citizenry.
Andrew Mellon, Taxation: The People’s Business,
New York: The MacMillan Company, 1924, p. 9.
Paul Johnson, A History of the American People,
Harper Perennial, New York, 1997, p. 708.
Robert Sobel, Coolidge: An America Enigma,
Regnery, Washington, D.C., 1998, p. 391.
Burton Folsom, Progressives and Leviathan, Speech
given at Hillsdale College’s Free-Market Forum,
September 27-30, 2007.
Veronique de Rugy, Tax Rates and Tax Revenue: The
Mellon Income Tax Cuts of the 1920s
Tax & Budget Bulletin, No. 13, CATO
Institute, February 2003.
Cal Thomas, The Wit & Wisdom of Cal Thomas,
Promise Press, Uhrichsville, Ohio, 2001, p. 115.
Burton W. Folsom, The Myth of the Robber Barons: A
New Look at the Rise of Big Business in America,
Third edition, Herndon, Virginia, Young America’s
Foundation, 1996, 120.