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MELLON, ANDREW W. 1855-1937

SECRETARY OF THE TREASURY, 1921-1932

Millionaire Cabinet Secretary

As President Warren Harding's secretary of the treasury, Andrew Mellon, a Pittsburgh multimillionaire, molded the relationship between government and business during the 1920s, a relationship that influenced politics throughout the decade. Before entering government service, Mellon had an exceptionally successful career as a financier in various businesses, including oil and aluminum. Harding appointed Mellon as treasury secretary on the advice of Philander Knox, a prominent Republican senator from Pennsylvania and a longtime friend of Mellon. Mellon's age, wealth, career banking experience, and conservative Republican connections suggested he would probably endorse traditional, old-line conservative policies, and he did.

Mellon's Economic Philosophy

Committed to retrenchment and economy in government, Secretary of the Treasury Mellon reduced federal spending vigorously. He consistently opposed the veterans' bonus bill and the McNary-Haugen farm bills. But even more central to Mellon's financial vision than spending reduction was tax reduction, especially for the rich. Mellon rejected the progressive philosophy of taxation that insisted those Americans most able to pay should pay more taxes. Instead the he articulated a philosophy later known as "trickle-down economics." Taxing the rich, Mellon argued, inhibited their investment ability, thus impeding job growth and the entire economy. Without a heavy tax burden, the wealthy would invest, create jobs, and ultimately all participants in the economy would become beneficiaries of investors' tax-free profits as prosperity filtered down to workers and farmers, Mellon argued.

Mellon's Tax Program

Republicans eagerly returned America to a peacetime budget, dramatically reducing government spending that had grown substantially during World War I. Mellon complemented these spending reductions with major tax revision. Mellon proposed that Congress repeal the excess-profits tax, which taxed corporate profits above 8 percent, and that it reduce the surtax on income from 65 percent to 40 percent and steadily lower it to 25 percent, (The surtax was an additional tax on existing taxes for wealthy Americans.) These reductions applied only to wealthy Americans, and Congress balked. While blunting Mellon's extreme cuts, Congress did, however, approve substantial tax cuts in 1921. This was the first of many tax reductions enacted during the decade at Mellon's instigation, as he was reappointed secretary of the treasury during both Coolidge's and Hoover's administrations. During Coolidge's administration a Nebraska progressive commented that "Mr. Mellon himself gets a larger personal reduction than the aggregate of practically all the taxpayers in the state of Nebraska." Mellon eventually convinced Congress to eliminate gift taxes, to cut estate taxes by 50 percent, and to reduce the maximum income-tax rate from 40 percent to 20 percent.