Herbert Hoover and Andrew Mellon
Andrew Mellon served as Secretary of the Treasury in the cabinet of three Presidents. He was appointed by President Warren G. Harding in 1921. He served as Treasury Secretary for ten years and eleven months and his service continued through the Coolidge and Hoover administrations. During the first two administrations, Mellon and Hoover served in the same cabinets together, with Hoover holding the position of Secretary of Commerce. The two men had a mutual admiration and developed a friendship. Prior to that, both had performed extensive fundraising and relief work to comfort the suffering as a result of the first world war.
President Harding promised a revision of the tax system and the creation of a federal budget system. These were policies Hoover and Mellon strongly supported. Mellon's considerable experience as a banker qualified him to quarterback these programs. As a conservative Republican and a financier, Mellon disliked the manner in which the government's budget was maintained, with the failure of income or revenues to keep pace increasing expenses and with the lack of savings. Hoover was also frustrated by government inefficiency.
Mellon came into office at a time when the nation had a huge federal debt from World War I. To reduce this, he needed to increase the federal revenue and cut spending. He believed that if the tax rates were too high, people would avoid paying them. He wrote: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." His theory was that by lowering the tax rates across the board, he could increase the overall tax revenue. This is similar to the Laffer curve, a theory later embraced by Ronald Reagan.
By 1926 65% of the income tax revenue came from incomes $300,000 and higher, whereas five years earlier, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million. Mellon's policies helped reduce the overall public debt from $33 billion in 1919 to about $16 billion in 1929.
When the Depression hit in 1929 it caused the national debt to rise again because of reduced revenue and increasing spending. Hoover and Mellon became unpopular with the onset of the Great Depression. Mellon's advice to Hoover was to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Mellon also recommended to Hoover a policy of "weeding out weak banks" as a necessary step to the recovery of the banking system. This was accomplished by refusing to lend cash to banks and by refusing to put more cash in circulation. Hoover and Mellon also advocated spending cuts to keep the federal budget balanced, and were opposed to fiscal stimulus measures. From 1929–31, Hoover sent Mellon to Europe to negotiate for repayment of European war debts from World War I.
In January 1932, near the end of Hoover's term, the two men suffered a break in their relationship. In that month, 25,000 jobless men from Pennsylvania, a group known as Cox's Army, marched to Washington to petition Congress and Hoover to start a job program. Hoover believed that communist agitators were behind the movement, and he ordered an investigation into the march. The investigation discovered that the march was financed by Mellon. It is unclear what Mellon's motives were, but the action undermined Hoover's faith in his Treasury Secretary. This resulted in Mellon's resignation.
In the same month of January 1932, Representative Wright Patman, a Texas Democrat, and an F.D.R. New Deal supporter, introduced articles of impeachment against Mellon, and hearings were held before the House Judiciary Committee at the end of the month. After the hearings were over, but before the scheduled vote on whether to report to the full House, Mellon accepted an appointment to the post of Ambassador to Great Britain and resigned as Treasury secretary in February. He served for one year as ambassador and then retired to private life.
That wasn't the end of Mellon's problems. President Franklin D. Roosevelt had an intense dislike for Mellon. Roosevelt's tax officials conducted an investigation into Mellon's personal income tax returns. The US Justice Department empaneled a grand jury, but the jury declined to issue an indictment. A two-year civil action beginning in 1935, known as the "Mellon Tax Trial", eventually exonerated Mellon, but the remedy came too late for Mellon. He had already died on August 26, 1937, in Southampton, Long Island, New York.
President Harding promised a revision of the tax system and the creation of a federal budget system. These were policies Hoover and Mellon strongly supported. Mellon's considerable experience as a banker qualified him to quarterback these programs. As a conservative Republican and a financier, Mellon disliked the manner in which the government's budget was maintained, with the failure of income or revenues to keep pace increasing expenses and with the lack of savings. Hoover was also frustrated by government inefficiency.
Mellon came into office at a time when the nation had a huge federal debt from World War I. To reduce this, he needed to increase the federal revenue and cut spending. He believed that if the tax rates were too high, people would avoid paying them. He wrote: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." His theory was that by lowering the tax rates across the board, he could increase the overall tax revenue. This is similar to the Laffer curve, a theory later embraced by Ronald Reagan.
By 1926 65% of the income tax revenue came from incomes $300,000 and higher, whereas five years earlier, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million. Mellon's policies helped reduce the overall public debt from $33 billion in 1919 to about $16 billion in 1929.
When the Depression hit in 1929 it caused the national debt to rise again because of reduced revenue and increasing spending. Hoover and Mellon became unpopular with the onset of the Great Depression. Mellon's advice to Hoover was to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate. It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people." Mellon also recommended to Hoover a policy of "weeding out weak banks" as a necessary step to the recovery of the banking system. This was accomplished by refusing to lend cash to banks and by refusing to put more cash in circulation. Hoover and Mellon also advocated spending cuts to keep the federal budget balanced, and were opposed to fiscal stimulus measures. From 1929–31, Hoover sent Mellon to Europe to negotiate for repayment of European war debts from World War I.
In January 1932, near the end of Hoover's term, the two men suffered a break in their relationship. In that month, 25,000 jobless men from Pennsylvania, a group known as Cox's Army, marched to Washington to petition Congress and Hoover to start a job program. Hoover believed that communist agitators were behind the movement, and he ordered an investigation into the march. The investigation discovered that the march was financed by Mellon. It is unclear what Mellon's motives were, but the action undermined Hoover's faith in his Treasury Secretary. This resulted in Mellon's resignation.
In the same month of January 1932, Representative Wright Patman, a Texas Democrat, and an F.D.R. New Deal supporter, introduced articles of impeachment against Mellon, and hearings were held before the House Judiciary Committee at the end of the month. After the hearings were over, but before the scheduled vote on whether to report to the full House, Mellon accepted an appointment to the post of Ambassador to Great Britain and resigned as Treasury secretary in February. He served for one year as ambassador and then retired to private life.
That wasn't the end of Mellon's problems. President Franklin D. Roosevelt had an intense dislike for Mellon. Roosevelt's tax officials conducted an investigation into Mellon's personal income tax returns. The US Justice Department empaneled a grand jury, but the jury declined to issue an indictment. A two-year civil action beginning in 1935, known as the "Mellon Tax Trial", eventually exonerated Mellon, but the remedy came too late for Mellon. He had already died on August 26, 1937, in Southampton, Long Island, New York.