A Tea Party for Calvin Coolidge?
Joseph J. Thorndike
Every dog will have his day, and Calvin Coolidge is having his. Two years ago, Franklin Roosevelt took his star turn in the spotlight of contemporary politics. But today, thanks to the Tea Party — and political commentator Glenn Beck in particular — Coolidge is getting his moment in the limelight.
Historical figures can make useful heroes, but movements should be careful about whom they idolize. Modern-day politicians don’t always fare well in comparison with their predecessors. When measured against FDR, for instance, Barack Obama has often come up short. (What, no Hundred Days? No New New Deal?)
Similarly, many of today’s resurgent Republicans may come to regret a comparison to Coolidge. While Silent Cal shares some ideals with Tea Party politicians — especially a commitment to limited government — he was more consistent and less self-indulgent in his pursuit of that ideal.
Hero in the Making
Coolidge’s appeal to modern Republicans is understandable. “At a time when government expansion is viewed as the answer for social and economic problems, a president who believed the opposite looks interesting,” notes Coolidge biographer Amity Shlaes. “The Tea Party people care about taxes, they understand that tax rates have something to do with recovery, and they’re concerned taxes will go up. Likewise, Coolidge understood that low taxes tend to produce more productive growth than growth produced by spending.”
Hot Talk and Cold Policy
In his 1925 inaugural address, not-so-silent Cal made some of the most famous (or perhaps notorious) comments on taxation:
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. Under this republic the rewards of industry belong to those who earn them. The only constitutional tax is the tax which ministers to public necessity. The property of the country belongs to the people of the country. Their title is absolute.1
Strong words, especially from a reserved man. The vehemence of Coolidge’sSounds a lot like tyranny to me. And to Coolidge, too. “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 in June 1924. “It condemns the citizen to servitude.”2
Coolidge insisted that excess taxation posed a real and present danger to political freedom — perhaps as much as any foreign aggressor. “One of the first signs of the breaking down of free government is a disregard by the taxing power of the right of the people to their own property,” he said. “It makes little difference whether such a condition is brought about through the will of a dictator, through the power of a military force, or through the pressure of an organized minority. The result is the same. Unless the people can enjoy that reasonable security in the possession of their property, which is guaranteed by the Constitution, against unreasonable taxation, freedom is at an end.”
Taxes in the 1920s
For all his strong talk, however, Coolidge was hardly a radical when it came to tax policy. To be sure, sweeping tax cuts were the order of the day during his tenure in the White House. The president considered such reductions an economic and moral imperative. But the effect of those cuts was paradoxical, at least for anyone eager to roll back progressive taxation (of whom there were more than a few in the 1920s). As I’ve noted before, if Woodrow Wilson made the world safe for democracy, then Calvin Coolidge made it safe for income taxation.3
Taken together, the Revenue Acts of 1921, 1924, 1926, and 1928 lightened the tax burden on almost everyone. Corporations successfully championed repeal of the excess profits tax — the most progressive, productive, and burdensome revenue innovation to emerge from World War I. Major cuts in the estate tax further eased the burden for wealthy taxpayers, as did rate reductions for the individual income tax (the top marginal rate dropped from 77 percent during the war to just 24 percent in 1925). Overall, the effective income tax rate for the top 1 percent of households fell from 15.8 percent in 1920 to just 8.1 percent in 1929.4
Meanwhile, millions of well-to-do-but-not-quite-rich taxpayers got a special reward: complete exemption from the income tax. These people continued to pony up a large share of federal revenue, paying a host of consumption taxes on items of mass consumption. But lawmakers dramatically narrowed the scope of the income tax, raising exemptions even as they reduced rates. As a result, the nation’s premier revenue tool ended the decade much flatter and narrower than it had begun it.
The architect of these tax changes was Andrew Mellon, Treasury secretary from 1921 to 1932. It’s been said that “three presidents served under Mellon.”5 Coolidge was certainly one of them. Indeed, of the three Republican presidents elected during the 1920s, Coolidge was the most ideologically and personally compatible with the Treasury titan. (It was said that the famously taciturn pair “conversed in pauses.”) And when it came to taxation, Coolidge and Mellon were of the same mind.
In his 1924 book on tax policy, Taxation: The People’s Business, Mellon wrote that steep tax rates stifled incentive and fostered tax evasion. “Any man of energy and initiative in this country can get what he wants out of life,” Mellon optimistically declared. “But when initiative is crippled by legislation or by a tax system which denies him the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.”6
Worse yet, high rates didn’t even raise money, Mellon argued. By encouraging both legal tax avoidance and illegal tax evasion, they eroded the tax base and reduced overall revenue. Coolidge agreed. “I am convinced,” the president said in 1924, “that the larger incomes of the country would actually yield more revenue to the Government if the basis of taxation were scientifically revised downward.”7
Tax Favoritism
Mellon’s case for tax reduction was consistent, passionate, and politically compelling. Even skeptics were impressed. “There was a mystical righteousness about tax reduction,” recalled Randolph Paul, a leading Treasury official in the Roosevelt administration.8 That sense of righteousness extended, however, beyond general tax reduction to a series of specialized tax breaks and loopholes. The revenue laws passed during the 1920s included a variety of narrow provisions designed to benefit specific industries or corporations. In 1921, for instance, lawmakers enacted oil and gas percentage depletion allowances, much to the delight of those extractive industries. It was a generous gift from lawmakers, although hardly a selfless one. Such tax breaks conferred power on policymakers, who could use them to reward friends and political allies.9
Lawmakers weren’t the only ones trying to win friends (and pave the way for private-sector employment) during the 1920s. Officials at Treasury and its Bureau of Internal Revenue cut sweetheart deals with well-connected corporate taxpayers, too. “There has been a great deal of evidence tending to show that it is the policy of the bureau to fix taxes by bargain rather than by principle,” complained a Senate investigating committee. “The best and most persistent trader gets the lowest tax and gross discrimination is the inevitable result of such a policy.”10
The Moral Imperative of Tax Reduction
Tax favoritism gave the Mellon Treasury something of an image problem, at least on Capitol Hill, where critics (including some Republicans) were quick to point the finger of suspicion. But tax favors also flouted a key element of Coolidge’s personal tax philosophy. One of the signal virtues of a tax cut was the breadth of its good effect, Coolidge maintained. Tax reductions — as opposed to many kinds of spending increases — worked to the benefit of the common good, not just a particular class or interest. “High taxes reach everywhere and burden everybody,” Coolidge explained in his first State of the Union message. “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.”11 In reducing such charges, lawmakers could confer a blessing on the nation as a whole.
For all his tax cutting zeal, however, Coolidge was never single-minded in his pursuit of lower taxes. He and Mellon were all about rate reduction, but they were both cautious when it came to structural reform. “It would not seem either wise or necessary to change from our present system of taxation to new and untried plans,” Mellon told Congress. “The income tax is firmly embedded in our system of taxation and the objections made are not to the principle of the tax but only to the excessively high rates.”12 Mellon understood the economic and political realities of his day. His version of fiscal conservatism, like Coolidge’s, was methodical and cautious. These were not men to support abrupt breaks with the past, especially when reform might threaten the stability and adequacy of federal revenue. They accepted the old saw that an old tax is almost always a good tax. Proven revenue tools were never to be abandoned lightly.
Coolidge and Mellon also shared at least one distinctly progressive tax idea. They argued that “earned” income from wages and salaries should be taxed more lightly than “unearned” income from investments. “The fairness of taxing more lightly income from wages, salaries, or from investments is beyond question,” Mellon wrote. “In the first case, the income is uncertain and limited in duration; sickness or death destroys it and old age diminishes it; in the other, the source of income continues; the income may be disposed of during a man’s life and it descends to his heirs.”13 Coolidge endorsed this sentiment in his first State of the Union message.
The earned income preference was a striking proposal, especially coming from one of the richest people in America and from a presidential champion of business, industry, and investment. But it was not out of character for either man. Both believed that some degree of progressivity was necessary to forestall more radical attacks on capital. Such an argument — known to historians as “corporate liberalism” — did not sit well with many Republicans of the 1920s, who longed to eliminate income taxes entirely (possibly replacing them with a general sales tax). But Mellon and his presidential champion remained committed to taming, not destroying, the income tax, saving progressive taxation from the excesses of its more ardent supporters, as well as its most bitter critics.
Tax Cuts and Spending Cuts
Perhaps the most striking element of Coolidge’s tax cut philosophy — at least in comparison with current politics — is his linkage between tax cuts and spending cuts. Unlike many of today’s most ardent champions of tax reduction, Coolidge never suggested that tax cuts would “pay for themselves.” To be sure, lower rates might eventually raise additional revenue by encouraging economic growth. But generally speaking, Coolidge always assumed that tax cuts had to be paid for with spending cuts.
This might seem obvious, and in rhetorical terms, it remains an article of faith even among today’s fiscal hawks. But for Coolidge, the need to pair tax cuts with spending reduction was indisputable. “Everyone desires a reduction of taxes, and there is a great preponderance of sentiment in favor of taxation reform,” he pointed out in 1924. “Anybody can reduce taxes, but it is not so easy to stand in the gap and resist the passage of increasing appropriation bills which would make tax reduction impossible. It will be very easy to measure the strength of the attachment to reduced taxation by the power with which increased appropriations are resisted.”14
Clearly, Coolidge understood the dynamics of congressional lawmaking, where the pull to spend is intensely powerful. And whatever one may think of Coolidge’s insistence that government should not rush to correct every failing of the free market, you cannot accuse him of hypocrisy. By and large, he walked the walk of limited government.
Coolidge’s veto of the veteran’s bonus — proposed to reward those who had fought in World War I — was a case in point. Like FDR a decade later, Coolidge considered the bonus excessive and unaffordable (not to mention factional, since it benefited only a certain class, not the nation as a whole). To some degree, the bonus can be viewed as a sort of pre-modern entitlement. Indeed, historians have taken to viewing veterans benefits as just this sort of precursor to the modern welfare state. In that respect, Coolidge’s veto stands as a profile in courage when compared with the reticence of contemporary politicians to wrestle with the soaring cost of modern entitlements, especially Medicare.
Taxation for Depression
As Coolidge left office in early 1929, he must have been pleased with his tax record. Rates on personal income had fallen dramatically, and while the estate tax never disappeared, its rates were relatively modest. All in all, the 1920s were happy years for fiscal policymakers, who had the enviable task of choosing among various tax cuts. As FDR later pointed out, “It was all very merry while it lasted.”15
The Great Depression brought an end to this era of fiscal largesse. By 1930, a dour Mellon was warning Congress that declining revenues would produce a soaring deficit. Ultimately, the administration of Herbert Hoover dealt with this sad reality by engineering a major tax hike in 1932. Ever since, Hoover has been vilified for his shortsighted fidelity to fiscal austerity.
The 1932 tax increase may have been unwise, but it was not Hoover’s folly. Rather, it was a thoroughly bipartisan mistake endorsed by a comfortable majority of both parties. Expert opinion was not quite unanimous, but many economists believed large deficits would deepen the Depression and weaken the dollar.16 While a few proto-Keynesians demurred, Hoover had ample support from experts, business leaders, and even most Democrats.
What would Coolidge have done if still in office in 1932? Almost certainly, he would have cut spending. Throughout the early 1930s, Coolidge continued to insist that retrenchment was the only permanent solution to the government’s fiscal woes.17 “Almost all our governmental units have been taxing, borrowing and spending beyond the means of the people to pay,” the ex-president said.18 Unless lawmakers closed the spigot of public spending, high taxes would ruin the nation.
But Coolidge also acknowledged that new taxes might be necessary. In the short run, he wrote, heavy taxes on the rich might be a reasonable stopgap. Ultimately, however, lawmakers soaked the rich only at the nation’s peril. Foisting the tax burden disproportionately on the fortunate few would stifle growth and might even encourage the development of a political overclass, willing to pay heavy taxes only if granted overweening political power.19
If new taxes were unavoidable, then they should be paid by every American, not just the rich, Coolidge reasoned. During debate over the 1932 revenue act, Coolidge championed a broad-based tax on consumption. Such a levy would raise money while avoiding the dangers of a tax system too dependent on payments by the rich, he contended. “The levies on tobacco and gasoline produce a very large revenue which is not burdensome to the consumer,” he wrote. “The extension of such a system to many other commodities would seem to be in complete harmony with the spirit of a self-governing people.”20
Calvin’s Tea Party?
So what are we to make of Calvin Coolidge? Is he an apt poster boy for today’s Tea Partiers? Not really. To be sure, his devotion to limited government jibes with most Tea Party manifestos. But his commitment to fiscal austerity doesn’t quite fit. It seems likely that Coolidge would never have championed tax cuts in the face of soaring deficits.
Indeed, when the nation faced exactly that situation in mid-1931, Coolidge was quick to point out that too many tax cuts would have imperiled federal debt repayment in the 1920s — one of his proudest achievements. “By retiring and refunding its debt the National Government is saving nearly half a billion dollars annually in interest,” he pointed out. “The only other courses would have been more extravagant spending or reduction of taxes. Either one of these would have aggravated the present serious situation of the Treasury.”21
Coolidge, then, was no fanatic when it came to cutting taxes. He was a man of hard truths, many of them fiscal. Solid, responsible government required taxes — low ones, when possible, but adequate ones at every juncture. And like the good Vermont farm boy that he was raised to be, he never put the cart before the horse. If tax cuts were the goal, then spending cuts were the means: They had to come first.
Are the Tea Partiers ready to make extension of the Bush tax cuts contingent on compensatory spending cuts? I suspect not. Coolidge would be unimpressed.
FOOTNOTES
1 John T. Woolley and Gerhard Peters, the American Presidency Project [online], Santa Barbara, Calif. Available at http://www.presidency.ucsb.edu/ws/?pid=25834.
2 John T. Woolley and Gerhard Peters, the American Presidency Project [online], Santa Barbara, Calif. Available at http://www.presidency.ucsb.edu/ws/?pid=24174.
3 Tax Notes, Sept. 1, 2003, p. 1201, Doc 2003-19534, 2003 TNT 170-30.
4 W. Elliot Brownlee, “Historical Perspective on U.S. Tax Policy Toward the Rich,” in Does Atlas Shrug?, ed. Joel B. Slemrod (New York and Cambridge: Russell Sage Foundation and Harvard University Press, 2000), p. 45.
5 The Mellon witticism is widely attributed to Sen. George Norris. See, for example, Randolph E. Paul, Taxation in the United States (Boston: Little Brown, 1954), p. 125.
6 Andrew W. Mellon, Taxation: The People’s Business (New York: Macmillan Co., 1924), p. 12.
7 John T. Woolley and Gerhard Peters, the American Presidency Project [online], Santa Barbara, Calif. Available at http://www.presidency.ucsb.edu/ws/?pid=29565.
8 Paul, supra note 5, at p. 125.
9 On the political utility of granting such tax breaks, see W. Elliot Brownlee, Federal Taxation in America, pp. 73-75. See also Ronald King, “From Redistributive to Hegemonic Logic: The Transformation of American Tax Politics, 1894-1963,” Politics and Society (1983): pp. 1-52.
10 Senate Select Committee on Investigation of the Bureau of Internal Revenue, 69th Congress, 1st Session, Report No. 27, “Investigation of the Bureau of Internal Revenue: Partial Report,” pp. 7-8.
11 John T. Woolley and Gerhard Peters, the American Presidency Project [online]. Santa Barbara, Calif. Available at http://www.presidency.ucsb.edu/ws/?pid=29564.
12 Treasury Department, Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1921 (Washington: Government Printing Office, 1922), p. 25.
13 Mellon, supra note 6, at pp. 56-57.
14 Woolley and Peters, supra note 7.
15 “The Text of Governor Roosevelt’s Speech to 30,000 in Pittsburgh Baseball Park,” The New York Times, Oct. 20, 1932.
16 On the arguments for budget balance — at least over a period of years, if not annually — see Herbert Stein, “Pre-Revolutionary Fiscal Policy: The Regime of Herbert Hoover,” J. of Law and Econ. 9 (1966).
17 Calvin Coolidge, “Calvin Coolidge Says,” The Washington Post, May 12, 1931, p. 6.
18 “Coolidge Urges More Economy,” Los Angeles Times, Mar. 23, 1932, p. 7.
19 Calvin Coolidge, “Right to Own Property,” The Washington Post, July 16, 1932, p. 6.
20 “Coolidge Urges Sales Tax Plan,” Los Angeles Times, July 15, 1932, p. 7.
21 Calvin Coolidge, “Calvin Coolidge Says,” The Washington Post, June 20, 1931, p. 6.