fis200_week1_reading3 (1)

Was a violent drop in prices and wages of about 35

Info icon This preview shows pages 17–19. Sign up to view the full content.

was a violent drop in prices and wages of about 35 percent in the brief but intense recession of 1920–1921. The recession was exacerbated by high wartime tax rates, which had not been lowered after the return to peace. The top tax rate of 7 percent in 1913 had gone to 77 percent during the war. Total fed- eral debt had increased from $1 billion to $24 billion, at the time a staggering amount. In his 1919 State of the Union address, President Wilson argued for a lowering of wartime tax rates: The Congress might well consider whether the higher rates of income and profits taxes can in peace times be effectively produc- tive of revenue, and whether they may not, on the contrary, be destructive of business activity and productive of waste and ineffi- ciency. There is a point at which in peace times high rates of income and profits taxes discourage energy, remove the incentive to new enterprise, encourage extravagant expenditures and pro- duce industrial stagnation with consequent unemployment and other attendant evils. 2 Wilson did manage a small cut in taxes in 1919, and the top rate fell to 73 percent. However, in the 1920 election Wilson’s Democratic Money in America 55
Image of page 17

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Party stuck with keeping the rates high to pay off war debts, while Wilson’s tax-cut message was picked up by the Republican Party. Warren G. Harding won the presidency in a landslide on a platform of “return to normalcy” for the tax system, but managed only a reduction to 57 percent in the top rate and the elimination of the excess profits tax in 1921. It wasn’t much, but it was enough to help bring the economy out of recession. Rates were lowered again in 1923 and 1924, which brought the top rate to 46 percent. The eco- nomic boom of the Roaring Twenties began to be felt. The architect of the economic boom of the 1920s was Andrew Mellon, a wealthy industrialist who helped establish Alcoa, Gulf Oil, Union Steel, Pittsburgh Coal, and many other ventures. He became Treasury secretary under Harding in 1921. In April 1924, he pub- lished a wonderful little book, Taxation:The People’s Business , which explained in detail how Mellon would put the U.S. economy into high gear. The book begins with this passage, which is quoted at length to give a flavor of Mellon’s economic strategy: The problem of Government is to fix rates which will bring in a maximum amount of revenue to the Treasury and at the same time bear not too heavily on the taxpayer or on business enterprises. A sound tax policy must take into consideration three factors. 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. . . .
Image of page 18
Image of page 19
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern