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Exclusive of the stockmarket and the protection of business from any contagious slump, three factors entered into the making of this tax cut plan: 1) Budget estimates which tentatively fixed next year's expenditures at $3,830,000,000, a reduction of $111,000,000 below this year's amount, indicative of a surplus at least equal to the size of the reduction in revenue; 2) A secret report from General Charles Pelot Summerall, Chief of Staff, showing effective methods of Army economy; 3) A political campaign in 1930 in which Republican Congressional candidates could derive the same benefits from tax reduction as they did from similar cuts preceding the campaigns of 1924, 1926, 1928."
1%-0ffTime.com
Monday, Nov. 25, 1929
SourceOn the day last week's stockmarket plunked to the bottom President Hoover let his Secretary of the Treasury, Andrew William Mellon, make an announcement which the President had been saving up as the Big-News-Item for his own first message to Congress next month, an announcement of immediate tax reduction.
Quickly the stockmarket bounded up somewhat from its depths. As if surprised at this reaction, Secretary Mellon feebly protested that his new tax program had not been proclaimed to boost drooping security values. He explained that, long in the making, the reduction was offered as a demonstration of the Government's confidence in the stability and future prosperity of U. S. business and industry. But so inescapable was the circumstantial connection between the market and tax news that few would believe the Secretary's official protestations. On all sides the new program was joyfully accepted as President Hoover's reply to demands that he "do something" about Wall Street's debacle.
In the atmosphere of a mystery-melodrama was the tax announcement framed. First President Hoover held an early morning White House conference with Secretary Mellon, Undersecretary of the Treasury Ogden Livingston Mills, Governor Roy Archibald Young of the Federal Reserve Board. So early in the morning was it and so unprepared were newsmen for such a development that Governor Young, unrecognized, entered and left the White House without being caught and catechized.
Later, into the Treasury trooped Senators Smoot, Reed, Simmons, Harrison— potent majority and minority members of the Senate Finance Committee. At their heels followed Speaker Longworth, Chairman Hawley of the Ways & Means Committee. Democratic House Leader Garner. They listened to Secretary Mellon explain, nodded their heads in unanimous approval. After dark Undersecretary Mills went over to the White House with a sheet of paper. President Hoover read it, also nodded assent. Mr. Mills returned with it to the Treasury. Already tardy, Secretary Mellon hurried off to keep a dinner engagement at his home with New York bankers. Into the hands of eager pressmen went the Mellon announcement:
"The Secretary of the Treasury considers the [Budget] estimates have reached the point where tax reduction should be recommended to the Congress at the coming session. . . .
"The indications are that business profits, dividends, interest and wage payments in 1929 will considerably exceed those of 1928. . . . The Secretary of the Treasury, with the approval of the President, will recommend tax reduction to Congress. The form . . . probably will be a 1% reduction of the normal tax on the incomes of individuals and corporations applicable to 1929 incomes payable in 1930. . . . The total reduction in taxes . . . will amount to approximately $160,000,000."
Secretary Mellon explained how the reduction would work: The present normal tax of 1% on the first $4.000 of taxable income would shrink to ½% of 1%. The 3% tax on the second $4,000 would be cut to 2%; the 5% tax on the balance of the income would go down to 4%. A married taxpayer with a $4,000 income would save $3.75, with an $8,000 income, $37.50, with a $15,000 income, $98.75. Surtax rates (applicable above $10,000) would be unaffected by the reduction. Total estimated savings for individual taxpayers: $60,000,000.
The corporation tax today is 12%. Its reduction to 11% would save U. S. business approximately $100,000,000 per year.
Secretary Mellon hoped that the reductions could be accomplished, not by a revision of the Revenue Act of 1928 (the last income tax law) but by a joint resolution in Congress, thus avoiding tax tinkering on the legislative floors. The reduction would apply only to 1929 incomes and would lapse, unless renewed, thereby leaving the present basic tax rates effective on 1930 incomes.
Exclusive of the stockmarket and the protection of business from any contagious slump, three factors entered into the making of this tax cut plan: 1) Budget estimates which tentatively fixed next year's expenditures at $3,830,000,000, a reduction of $111,000,000 below this year's amount, indicative of a surplus at least equal to the size of the reduction in revenue; 2) A secret report from General Charles Pelot Summerall, Chief of Staff, showing effective methods of Army economy; 3) A political campaign in 1930 in which Republican Congressional candidates could derive the same benefits from tax reduction as they did from similar cuts preceding the campaigns of 1924, 1926, 1928.
Democrats in Congress dropped their plan for a $300,000,000 tax reduction to join with Republicans in promises to pass the Mellon proposal, if possible, before Christmas. Even Chairman Smoot of the Finance Committee, long an outspoken opponent of immediate tax reduction, swung into line, pledged prompt action.
Declared Congressman Garner, chief Democratic member of the House Ways & Means Committee and minority leader of the House: "I look at the proposal from the point of view of the good of the country and I shall support it. . . . Even though a business crash might aid in placing the Democratic party in power, the price would be too great to pay for party success."