Since today is Tax Day (ugh), I wanted to give you something to think about. Here’s a quote from a speech Calvin Coolidge (the 30th President of the United States) gave back on February 12, 1924 where he discussed his proposed bill to slash certain taxes that was pending before Congress.
But this post isn’t about the politics of cutting tax rates–the speech really gave insight into the relationships of tax rates, the economy and Federal revenues. As a disclaimer, this is NOT a political talking point on my end; it’s a reasoned economic argument that rarely gets mentioned these days. I hope you enjoy it!
“In taxation, like all else, it is necessary to test a theory by practical results. The first object of taxation is to secure revenue. When the taxation of large incomes is approached with that in view, the problem is to find a rate that will produce the largest returns. Experience does not show that the higher rate produces larger revenue. Experience is all in the other way.
“When the surtax on incomes of $300,000 and over was but 10%, the revenue was about the same as when it was at 65%. [Note: $300,000 back in 1924 is the equivalent of $3.8 million today.] There is no escaping the fact that when taxation of large incomes is excessive, they tend to disappear. In 1916 there were 206 incomes of $1 million or more; then the high rate went into effect. The next year there were only 141, and in 1918, but 67. In 1919, the number declined to 65. In 1920 it fell to 33 and the next year it was reduced further to 21.
“I am not making the argument with the man who believes that 55% ought to be taken away from the man with $1 million income, or 68% from a $5 million income; but when it is considered that in the effort to get these amounts we are rapidly approaching the point of getting nothing at all, it is necessary to look for a more practical method.
“I agree perfectly with those who wish to relieve the small taxpayer by getting the largest possible contribution from the people with large incomes. But if the rates on large incomes are so high that they disappear, the small taxpayer will be left to bear the entire burden. If, on the other hand, the tax rates are placed where they will get the most revenue from large incomes, then the small taxpayer will be relieved.”
I like this speech because it’s based on facts and figures and experience, not on political talking points. Incidentally, Congress did pass Coolidge’s tax bill, reducing the top tax rate to 25%, and the economy and people’s incomes indeed boomed during the roaring 1920s, before the Great Depression took hold. Just something to chew on!
Hi, Mike…. “it’s a reasoned economic argument that rarely gets mentioned these days.”
Good golly Mike, it’s the “Laffer Curve” argument. A fair argument it may be, but rare it is not.
You note that “the Great Depression took hold” just a few short years after Congress passed Coolidge’s tax bill. But are you suggesting there is some causal factor operating, or are you ignoring that possibility?