The Man and the Reason for the Crash of 1929

The Man and the Reason for the Crash of 1929
William G Burmer


Andrew William Mellon (1855-1937) in 1924 complained, like Reagan, that the income tax was part of a Socialist---Communist Conspiracy. Mr. Mellon was well known as Secretary of the Treasury under Calvin Coolidge, Herbert Hoover, and Warren G. Harding. He was a Republican and very conservative. “While Mellon talked about helping the poor and the middle class, and about the need to encourage economic growth---as would others years later---there was but one objective: dramatically reducing taxes on the rich . . .’


“. . . With a big assist from the nation’s largest newspapers, which championed lowering rates for the wealthy---another pattern that would be repeated decades later---he gradually built a base of support for his plan.’


“When Calvin Coolidge succeeded Harding, who died in 1923, he embraced Mellon’s theories and campaigned for re-election on them in 1924. As for Mellon, he came up with a new strategy to enlist support for his cause---a loftier motive than merely reducing taxes.


The real problem, he said, “is not so much one of tax reduction as of tax reform.’ ‘This was one of the first times---if not the very first---that the phrase “tax reform” was used to justify a tax cut for the affluent. It would not be the last. Other secretaries of the Treasury, other Presidents, other lawmakers, would adopt the same tactic, especially in the 1970s’ and 1980s’. Over time, much of the debate concerning tax rates would boil down to two phrases. Tax legislation that would increase the rate on the wealthy was called “class warfare.” Tax legislation that would reduce the rate on the wealthy was called “tax reform . . .’ Emphasis Added.


“Mellon collected his thoughts on taxes and the need for lower rates in a little book called Taxation: The People’s Business. Lobbying organizations, like the American Bankers League, distributed thousands of copies to businessmen. They responded predictably. Albert H. Wiggin, president of Chase National Bank in New York, wrote Mellon: ‘We were fortunate in seeing an advance copy of your {book}, and were so enthusiastic over it that we could not resist the impulse to distribute quite a large number of copies to customers and friends of the Chase National Bank. The men to whom copies of your book were sent included presidents and other officials of larger banking institutions throughout the country, treasurers of important business concerns, stockholders of this bank and many other influential and intelligent men among our clientele.’


“Mellon had carefully targeted his audience, focusing on persons who could exert influence on the legislative process. When an admirer suggested distribution of one million copies to the public at large, he rejected the idea, saying that “the subject is one which might not appeal to the ordinary working man, and I am not certain that there would be any real demand for the book from this class of readers.” Weighty matters like taxation, Mellon believed, were beyond the understanding of the average person.’


A comment here: When I asked a prominent Bank Authority to critique this portion of my book, his only comment to me was “I do not think most people will understand what you are saying.” It is true that we as a nation are ignorant of the inner workings of the banking industry. In any event we should do all we can to learn how our money is produced and how banks work. If you would like as clear an explanation there is, with regards to banking in America, an excellent treatise on the subject; I would encourage you to read G. Edward Griffins’ book (The Creature from Jekyll Island; A second Look at the Federal Reserve.)


“Mellon’s persistence paid off. On February 26, 1926, President Coolidge signed the Revenue Act of 1926 . . .’ “. . . The legislation, sold as “tax reform,” slashed the maximum individual rate from 46 percent to 25 percent on all taxable income above $100,000. It cut the maximum estate tax from 40 percent to 20 percent on estates of more than $10 million. It abolished gift taxes; At the other end of the income scale, the reform legislation nudged down the bottom rate from 2 percent to 1.5 percent on the first $4,000 of taxable income.’


“America’s wealthiest citizens profited handsomely. J.P. Morgan, the financier who frequently complained about high taxes, saved a quarter-million dollars. Mellon himself saved more than $800,000. Henry Ford saved $1.1 million. John D. Rockefeller, Jr., saved $2.8 million, thus acquiring an extra $54,000 a week in spending money.’


“All seemed to be going according to Mellon’s grand scheme . . .’ “But something was amiss. The money was not trickling down as predicted. The $5,000 jobs were not materializing as Mellon had promised. The number of persons reporting incomes under $10,000 went down, plummeting from 7 million in 1920 to 3.7 million in 1928---a 47 percent decline . . .’


“. . . Mellon’s tax cuts pumped too much money into too few hands. That money, in turn, fueled a frenzied speculation in the stock market. Wall Street loved it. Bankers, brokers, and businessmen formed pools. They sold securities among themselves, forcing prices up, and then unloaded the stocks at inflated values.’


“It all ended in the great Wall Street crash, followed by the Great Depression. With America sinking deeper, Mellon set sail for Europe as ambassador to Great Britain---and to escape a looming congressional impeachment inquiry on an array of charges. Among them: Mellon-owned companies received millions of dollars in tax refunds while he was Treasury secretary. And his Pittsburgh bank peddled bonds for $98 that turned out to be worth pennies.’


“Reality had discredited Mellon’s’ theory of low rates . . .’ “Soon everyone, not just the affluent, would be concerned about rates. For the tax system Americans know today was created in World

War II, when the income tax was transformed from one that applied only to the affluent to one that touched virtually every working person. In World War I, well-to-do individuals and corporations picked up a large share of the cost. World War II would require taxes from most everyone.’


“With passage of legislation in 1940, 1941, 1942, and 1943, the bottom tax bracket was cut in half, from $4,000 to $2,000. The personal exemption for married couples was sliced from $2,500 to $1,200. The bottom rate shot up from 4 percent to 19 percent. The maximum rate was kicked up to 81 percent and then 88 percent. The income level at which that top rate kicked in was cut from $5 million to $200,000.’


“For most Americans, the greatest change came in 1943, when payroll withholding was instituted. Never again would the average worker receive a full paycheck.” 10. This type collectivistic mind set is frightening to discover in our government. The IRS considers themselves elitists who would deny men the opportunity to deal one with another by voluntary means, and settling disputes by rational persuasion. It declares that we ought to be dictated to by an omnipotent state.


10. America: Who Really Pays the Taxes? pp. 64-68



Next: The Duping of the American Tax Payer




“WE THE PEOPLE”

And The American Constitution

WILLIAM G. BURMER

Available at www.xlibris.com