Any man of energy and initiative in this country can

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Any man of energy and initiative in this country can get what he wants out of life. But when that initiative is crippled by legisla- tion or by a tax system which denies him the right to receive a rea- sonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its con- tinued greatness depends. This condition has already begun to make itself felt as a result of the present unsound basis of taxation. The existing tax system is GOLD: THE ONCE AND FUTURE MONEY 56
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an inheritance from the war. During that time the highest taxes ever levied by any country were borne uncomplainingly by the American people for the purpose of defraying the unusual and ever-increasing expenditures incident to the successful conduct of a great war. Normal tax rates were increased, and a system of sur- taxes was evolved in order to make the man of large income pay more proportionately than the smaller taxpayer. If he had twice as much income, he paid not twice by three or four times as much tax. For a short time the surtaxes yielded a large revenue. But since the close of the war people have come to look upon them as a busi- ness expense and have treated them accordingly by avoiding pay- ment as much as possible. The history of taxation shows that taxes which are inherently excessive are not paid. The high rates in- evitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into other channels which yield neither revenue to the Government nor profit to the people. 3 Mellon’s plan was adopted by Calvin Coolidge in the 1924 elec- tion. Coolidge proposed to reduce the top income tax rate to 25 per- cent. The lowest rate, which had been 6 percent in 1918, would fall to 1.125 percent. Coolidge’s plan became reality in 1925, with Mel- lon continuing as Treasury secretary, and once again the U.S. econ- omy went into a high-growth mode. The Dow Jones Industrial Average had spent the previous four years moving sideways, but as Coolidge put his pro-growth plans into action, the market picked up. The index reached 120 at the end of 1924, 159 in 1925, 167 in 1926, 202 in 1927, 300 in 1928, and peaked at 381 in September 1929. Mellon was hailed as the greatest Treasury secretary since Alexander Hamilton. The whole economy grew alongside the stock market. Automo- bile sales more than doubled during the decade, and between 1923 Money in America 57
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and 1929 industrial electricity use rose 70 percent. The United States was producing more electric power than the rest of the world combined. Corporate earnings surged, and as investors forecast more earn- ings growth in the future, trailing price-earnings multiples expanded from around 12 at the beginning of the decade to around 20 at the market’s peak in 1929. Radio Corporation of America, the era’s pre- mier growth technology stock, enjoyed one of the highest price- earnings multiples. RCA’s stock price was $101 on September 3,
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