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How Calvin Coolidge Saved the Income Tax: Echoes

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By Joseph J. Thorndike

For Calvin Coolidge, taxes were a necessary evil. And they were most evil when they weren't necessary.

“The collection of any taxes which are not absolutely required, which do not beyond reasonable doubt contribute to the public welfare, is only a species of legalized larceny,” he declared in his first inaugural address.

As a business president, Coolidge was adamant that taxes should be designed to foster growth and prosperity. “The method of raising revenue ought not to impede the transaction of business,” he said, “it ought to encourage it.”

In practical terms, this dictum implied tax cuts. When Coolidge became president in 1923, many of the high taxes imposed during World War I were still on the books. Coolidge wanted to cut them drastically.

“High taxes reach everywhere and burden everybody," he said after taking office. "They bear most heavily upon the poor. They diminish industry and commerce. They make agriculture unprofitable. They increase the rates on transportation. They are a charge on every necessary of life."

But for Coolidge, the most serious problem with high taxes was moral, not material. High taxes were a threat to freedom. “A government which lays taxes on the people not required by urgent public necessity and sound public policy is not a protector of liberty, but an instrument of tyranny,” he declared. “It condemns the citizen to servitude.”

Distributive justice, moreover, was no excuse for raising taxes above the bare minimum. After all, even the rich had rights. “We can not finance the country, we can not improve social conditions, through any system of injustice, even if we attempt to inflict it upon the rich,” Coolidge said.

Notably, however, Coolidge was not a foe of the individual or corporate income tax. In fact, with a conservative's appreciation for the tried-and-true, he shielded the income tax from the attacks of its enemies and the aspirations of its friends.

In the wake of World War I, some conservative Republicans were eager to replace the income tax with a national sales tax, insisting that the former was un-American and economically dangerous. Democrats and progressive Republicans, meanwhile, were eager to make the income tax an instrument of social and economic control, curbing corporate power and redistributing personal wealth.

In 1921, Treasury Secretary Andrew Mellon led the charge against repealing the income tax, promising instead to cut rates dramatically. Over the course of the 1920s, he helped a series of Republican presidents, including Coolidge, make good on that promise, creating a flatter, less progressive, but altogether less threatening tax.

Ultimately, rate cuts robbed income-tax opponents of their best argument for repeal. This made Coolidge, like Mellon, an unlikely savior for the nation’s most progressive tax.

(Joseph J. Thorndike, a contributor to the Echoes blog, is the director of the Tax History Project at Tax Analysts and a visiting scholar in history at the University of Virginia. The opinions expressed are his own.)

To contact the author of this blog post: Joseph J. Thorndike at jthorndike@thorndike.com.

To contact the editor responsible for this blog post: Timothy Lavin at tlavin1@bloomberg.net.

 

-0- Jul/06/2011 21:01 GMT

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