Andrew Mellon - Part 2
Time I feel to revisit the late great Andrew Mellon and the effects of his tax cut under Presidents Harding & Coolridge.
Firstly let�s address his base line assumptions. In summary, Mellon believed that as tax rates rise, taxpayers reduced their taxable income by working less and retiring earlier. Seems reasonable, no one is going to burn the midnight oil if it all goes in taxes (Note to Gordon tax & waste Brown � smell the blue mountain on this one).
The effect on companies is similar, they tend to scale back investment plans and spend more time and money on accountants / tax avoidance schemes. (N.B. Anything that puts money in the accountants� pockets isn�t good).
Mellon knew that high taxes caused the tax base to contract. Now socialists trying to justify their pernicious & punitive taxation regimes are always bleating that tax cuts only benefit the rich. Not so whiney-butts! Take the time to look at IRS data from the 1920s. As taxes were cut for those earning more than US$100,000 p.a. from 60% to 25% the taxes paid by that group of people grew from US$300bn p.a. to US$700bn p.a. The share of taxes paid by that group grew from 1/3 in 1920 to 2/3 in 1929.
Mellon�s tax cuts allowed the US economy to grow strongly between 1922 � 1929. The average annual rate of growth 4.7% p.a. and unemployment fell from 6.7 to 3.2%. As the Cato Institute so correctly states,
�The Mellon tax cuts restored incentives to work, save, invest and discouraged the use of tax shelters.�
You really cant say fairer than that
Comments
Encouraging numbers, and I hate taxes with the white hot intensity of a thousand suns. But jeez, those numbers lead right up to the big crash. Not saying that the tax scheme caused it, but anybody with half a brain equates 1929 with a worldwide economic depression. So we have unprecedented gains in wealth for eight years and then a crash. There's got to be more to the story. What was Mr. Mellons take on the depression?
Posted by: lenf | December 13, 2005 5:53 PM
I think the Wall Street crash was more caused by the interest rate policies of the Fed under one Ben Strong. A bit like Greenspan he kept interest rates artificially low, which led to a stock market bubble. The stupidity of politicians in passing protectionist legislation ensured that a stock market crash became a great depression. FDR then made sure that big government was the beneficiary of the depression caused by governmental stupidity. C'est la vie.
Posted by: John K | December 13, 2005 7:09 PM