This week President Barack Obama is offering his plan to solve America’s debt problem. The president’s approach will include tax increases.
Republicans will huff that the Grand Old Party will never raise taxes. They will tell the president that they want to be like Ronald Reagan or Calvin Coolidge or Andrew Mellon, the Treasury secretary from 1921 to 1932. Mellon, who cut income tax rates to 25% from 73% in the 1920s, is the tax- cutters’ deity. His anti-tax manifesto, “Taxation: The People’s Business,” is so hot that a first edition sells for $1,250.
Yet several years into the Great Depression experts concerned with widening deficits went to the Treasury Department, demanding tax-rate increases, levies on autos and radios and even a creepy tax on checks.
Did the legendary Treasury secretary tell those wonks to take a hike? He did not. Mellon duly trashed his own legacy and pushed the top tax rate right back up, to 63%.
What caused Mellon’s humiliating surrender? Timing. By December 1931, it was too late for him to do anything else but raise taxes.
Mellon was trapped by errors made in preceding years, at home and abroad. His own Republican Party had pushed through a nasty tariff, Smoot-Hawley. Investors had pushed stock prices too high. The US was on the gold standard, and people feared that gold and dollars would flow overseas if the deficit deepened too much.
The best move for anyone of either party who wants even a shot at blocking tax increases before it’s too late ought to line up behind House Budget Committee Chairman Paul Ryan like a recruit at basic training.
Ryan’s proposal is imperfect, but the plan is at least ready. The US has to show it realizes it is confronting an existential threat. This past weekend Ryan said, “we need a clean break” with old history. True enough. But those who can’t remember Mellon’s past are condemned to repeat it.
From Bloomberg