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Destructive of business activity and productive of

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Unformatted text preview: 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 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. . . . 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 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...
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destructive of business activity and productive of waste...

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