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Bureaucracy and Bi-partisanship in Taxation: The Mellon Plan Revisited

Published online by Cambridge University Press:  11 June 2012

Lawrence L. Murray
Lawrence L. Murray
Affiliation:
Assistant Professor of History, St. John's University
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Abstract

One of the most durable stereotypes of recent American history is that of the 1920s as “a conservative Republican interlude between the progressive Democratic administrations of Wilson and Roosevelt.” An important feature of this stereotype is the “Mellon plan” for tax reform. Professor Murray demonstrates that there was remarkable unanimity among Republicans and Democrats on the policy issues addressed by the “Mellon plan,” and finds continuity, rather than contrast, between the tax plans of the Wilson, Harding, and Coolidge administrations. As Secretaries of the Treasury came and went between 1918 and 1921, staff assistants cultivated the plan which Mellon later adopted.

Type
Research Article
Information
Business History Review , Volume 52 , Issue 2 , Summer 1978 , pp. 200 - 225
Copyright
Copyright © The President and Fellows of Harvard College 1978

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References

1 Shanon, David, Between the Wars: America, 1919-1941 (Boston, 1965), 58Google Scholar; Warren, Harris Gaylord, Herbert Hoover and the Great Depression (New York, 1959), 54Google Scholar; Schlesinger, Arthur M. Jr, The Crisis of the Old Order (Boston, 1957), 61–63Google Scholar: Paul, Randolph E., Taxation in the United States (Boston, 1954), 125Google Scholar and Taxation for Prosperity (Indianapolis, 1947), 30Google Scholar; Murray, Robert K., The Harding, Era (Minneapolis, 1969), 183Google Scholar; Hicks, John D., The Republican Ascendancy, 1921-1933 (New York, 1960), 53Google Scholar; Leuchtenburg, William E., The Perils of Prosperity, 1914-1932 (Chicago, 1958), 98Google Scholar; and Ingle, H. Larry, “Dangers of Reaction: Repeal of the Revenue Act of 1918,” North Carolina Historical Review, XLIV (July, 1967), 72Google Scholar. Besides myself, the only historian to disagree with the universal condemnation of the Mellon Plan has been Rader, Benjamin, “Federal Taxation in the 1920s: A Re-Examination,” The Historian, XXXIII (May, 1971), 415–435CrossRefGoogle Scholar, an interpretation that has been ignored by specialists and textbook writers alike.

2 Quoted in J. Bart Campbell, “What Are the Chances of Lower Taxes?,” Collier's, June 13, 1925, 9.

3 A. W. Mellon to J. W. Fordney, April 30, 1921, Tax (General) Folder, Official Correspondence of the Secretary of the Treasury, Box 160, Record Group 56, National Archives, Washington, D.C. Hereafter cited as NA, RG 56.

4 The most extended description of the Mellon Plan and the reasoning behind it is contained in Mellon, A. W., Taxation, the People's Business (New York, 1924)Google Scholar. The book, a comprehensive expression at various public statements by Mellon, originated in a suggestion from a presidential assistant to generate popular support, and was written by the Secretary's special assistant. C. N. Hitchcock to A. W. Mellon, January 18, 1924 and D. E. Finley to G. Winston, April 11, 1924, Tax-Mellon Tax Reduction Plan Folder, NA, RG 56/Box 208.

5 New York Times, May 28, 1918.

6 W. G. McAdoo to W. Wilson, May 18, 1918, Wilson Correspondence, William Gibbs McAdoo Papers, Box 525, Library of Congress, Washington, D.C. Hereafter cited as McAdoo Papers.

7 New York Times, May 28, 1918. McAdoo later conceded that such fears were “well founded” and that the unpopularity of the revenue bill “was undoubtedly the most potent factor in the defeat of the Democrats.” McAdoo, W. G., Crowded Years (Boston, 1931), 412Google Scholar.

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9 A recent evaluation contends that “naive judgment was typical enough for McAdoo” and that if he “ever formulated any clear ideas about the ills plaguing the United States in 1910-1920, his correspondence does not reveal them.” Noggle, Burl, Into the Twenties, the United States from Armistice to Normalcy (Urbana, 1974), 193Google Scholar.

10 Annual Report of the Secretary of the Treasury, 1918, 46-49.

11 W. G. McAdoo to W. Wilson, November 14 and 21, 1918, Wilson Correspondence, McAdoo Papers, Box 525.

12 W. G. McAdoo to F. Simmons, November 14, 1918, Ibid., Box 213. Reprinted in Annual Report, 1918, 50-53.

13 Memorandum, June 17, 1919, Secretary of the Treasury, 1912-1932, Folder, and W. G. McAdoo to C. Glass, January 29, 1919 and February 10, 1919, W. G. McAdoo Folder, Carter Glass Papers, Bones 7 and 145, University of Virginia, Charlottesville, Va. Hereafter cited as Glass Papers.

14 Clipping, The Official V. S. Bulletin, December 16, 1918, Secretary (Glass) Folder, NA, RG 56/Box 250.

15 R. C. Leffingwell to C. Glass, February 29, 1924, Carter Glass, 1920-1932, Folder, Russell C. Leffingwell Papers, privately held. Hereafter cited as Leffingwell Papers.

16 Clipping, Yonkers Herald, January 29, 1919 and Appointment to the Treasury Folder, assorted correspondence, May, 1917, Leffingwell Papers and Swaine, Robert T., The Cravath Firm and Its Predecessors (2 vols., New York, 1948), II, 17–18 and 209-210Google Scholar.

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18 C. Glass to R. C. Leffingwell, February 14, 1924, R. C. Leffingwell Folder, Glass Papers, Box 283.

19 R. C. Leffingwell to G. Cooksey, October 15, 1919, Tax (General) Folder, NA, RG 56/Box 160.

20 Annual Report, 1919, 23-24.

21 C. Glass to A. B. Williams, March 10, 1920, Taxation and High Cost of Living Folder, Glass Papers, Box 224.

22 New York Times, December 6, 1919 and B. C. Leffingwell to J. P. Tumulty, November 26, 1919, Secretary (Glass) Folder, NA, RG 56/Box 2SO.

23 C. Glass to B. C. Leffingwell, February 2 and November 29, 1920, B. C. Leffingwell Folder, and C. Glass to W. G. McAdoo, December 11, 1919, W. G. McAdoo Folder, Glass Papers, Boxes 283 and 141.

24 W. G. McAdoo to C. Glass, December 8 and 13, 1920, W. G. McAdoo Folder, Ibid. and W. G. McAdoo to R. C. Leffingwell, December 21, 1918, Treasury Folder, Leffingwell Papers. Glass had previously raised McAdoo's political ire by appointing Thomas Lamont, a partner of J. P. Morgan and Co., as financial advisor to Wilson in Paris, but found him “enthusiastic” when the Secretary offered Chicago banker Charles Gates Dawes a seat on the Federal Reserve Board. Apparently McAdoo was less concerned about party affiliation and occupation, both bankers were solid Republicans, than he was about their place of business. W. G. McAdoo to C. Glass, January 24 and 31, 1919, W. G. McAdoo Folder, Glass Papers, Box 141. Leffingwell's daughter contends that her father never belonged to either party, that he styled himself as mugwump “with his mug on one side of the fence and his wump on the other” Lucy Pulling to author, September 7, 1976.

25 J. P. Tumulty to C. Glass, January 14, 1920, Joseph P. Tumulty Folder, Glass Papers, Box 141 and Noggle, Into the Twenties, 203.

26 Notes, McAdoo's Impressions of Famous People, McAdoo Papers, Box 574.

27 R. C. Leffingwell to C. Glass, January 29, 1920 and W. Wilson to R. C. Leffingwell, February 4, 1920, Appointments to the Treasury Folder, Leffingwell Papers.

28 P. D. Cravath to R. C. Leffingwell, January 30, 1920, Paul D. Cravath Folder, Leffingwell Papers. Cravath was responsible for Leffingwell's original appointment to the Treasury. P. D. Cravath to W. G. McAdoo, May 6, 1917, Ibid.

29 D. F. Houston to Albert R. Rathbone, February 4, 1920, R. C. Leffingwell Letter-books, Box 14, 332-333, Library of Congress, Washington, D.C. Hereafter cited as Leffing-well Letterbooks. Statement by D. F. Houston, February 2, 1920, Secretary (Houston) File, NA RG 56/Box 250.

30 R. C. Leffingwell to D. F. Houston, March 30, 1920, Leffingwell Letterbooks, Box 15, 272.

31 R. C. Leffingwell to B. Strong, January 22, 1921, Benjamin Strong Folder, Leffingwell Papers.

32 New York Times, March 5, 6, and 9, 1920.

33 W. G. McAdoo to R. C. Leffingwell September 19, 1919, Tax (General) Folder, NA, RG 56/Box 160. Carter Glass also was annoyed at McAdoo's about-face. C. Glass to F. A. Delano, March 18, 1920, Taxation and High Cost of Living Folder, Glass Papers, Box 224.

34 R. C. Leffingwell to D. F. Houston and D. F. Houston to W. G. McAdoo, March 5, 1920, Tax (General) Folder, NA, RG 56/Box 160.

35 W. G. McAdoo to D. F. Houston, March 3 and 7, 1920, McAdoo Papers, Box 213.

36 New York Times, March 11, 12, and 26, 1920 and Annual Report, 1920, 362-373.

37 R. C. Leffingwell to Edmund Platt, December 22, 1920, Revival of War Finance Corporation Folder, Leffingwell Papers.

38 R. C. Leffingwell to C. Glass, May 22, 1920, C. Glass Folder, Ibid.

39 New York Times, March 12, 1920.

40 D. F. Houston to J. W. Fordney, March 7, 1920, Tax (General) Folder, NA, RG 56/Box 160. Reprinted in Annual Report, 1920, 362-373.

41 R. C. Leffingwell to C. Glass, April 14, May 22 and 29, and June 19, 1920, Carter Glass Folder, Leffingwell Papers.

42 R. C. Leffingwell to C. Glass, July 1, 1921, Ibid. and R. C. Leffingwell to Federal Reserve Board of Governors, July 3, 1920, Leffingwell Letterbooks, Box 16, 123. Houston had become so dependent upon his subordinate that he asked him to take a month's vacation rather than resigning. Leffingwell briskly declined, and the Secretary accepted his departure “with a conviction that future historians will be obliged to take special note of your admirable work in the field of the nation's finances in the critical period through which we passed.” R. C. Leffingwell to D. F. Houston, May 27, 1920, and D. F. Houston to R. C. Leffingwell, July 3, 1920, Appointment to Treasury Folder, Ibid. See also D. F. Houston to R. C. Leffingwell, July 8, 1920, David F. Houston Folder, Ibid.

43 Porter, K. H. and Johnson, D. B., National Party Platforms, 1840-1960 (Urbana, 1961), 215–216Google Scholar.

44 New York Times, August 8, 1920.

45 O. L. Mills to A. W. Mellon, September 10, 1923, Tax (General) Folder and A. W. Mellon to R. M. Washburn, July 15, 1926 and Herbert W. Strauss, March 24, 1927, Secretary - Requests for Publications Folder, NA, RG 56/Boxes 160 and 255. As Chairman of the Advisory Committee on Policies and Platform, Mills expected preferential treatment in committee assignments when he assumed his newly won seat in the House. O. L. Mills to Will Hays, March 21, 1921, Will Hays Papers, Box 2, Indiana State Library, Indianapolis, Ind.

46 Porter and Johnson, Party Platforms, 234, Parker Gilbert would assure his Republican superior that the Mellon Plan was in “full accordance” with the platform. S. P. Gilbert to A. W. Mellon, August 23, 1921, Tax (General) Folder, NA, RG/Box 160.

47 R. C. Leffingwell to C. Glass, June 19, 1920, Carter Glass Folder, Leffingwell Papers and press release, September 30, 1920. Secretary (Houston) Folder, NA, RG 58/Box 250.

48 New York Times, July 4, 19, and 23, August 1, and September 25, 1920.

49 Ibid., July 24 and August 4, 1920.

50 Annual Report, 1920, 25-27 and 36-38.

51 Ibid., 28-44.

52 Summary of Recommendations Upon Taxation December 27, 1920, Tax (General) Folder, NA, RG 56/Box 160; New York Times, February 8, 1921; and D. F. Houston, “Treasury's Plan for Federal Taxes,” Review of Reviews, January, 1921, 53-57.

53 D. F. Houston to L. N. Williams March 6, 1920, R. C. Leffingwell Folder, Glass Papers, Box 283 and D. F. Houston to B. V. Harrison, March 17, 1920 and to G. L. Bishop, March 24, 1920, Leffingwell Letterbooks, Box 15, 171 and 231.

54 R. C. Leffingwell to S. P. Gilbert, July 3, 1920, Leffingwell Letterbooks, Box 16, 124; S. P. Gilbert to R. C. Leffingwell, October 15, 1919 and D. F. Houston, November 30, 1920, Secretary (Houston) Folder, NA, RG 56/Box 160; and R. C. Leffingwell to S. P. Gilbert, S. Parker Gilbert Folder, 1920-1921, Leffingwell Papers.

55 Three folders of correspondence are contained in the Leffingwell Papers. Most of them can also be found in the Official Correspondence where they were filed according to subject matter.

56 R. C. Leffingwell to Eugene Meyer, April 1, 1929, Revival of War Finance Corporation Folder, Leffingwell Papers.

57 R. C. Leffingwell to C. Glass, February 24, 1933, Carter Glass Folder, Ibid. Leffingwell also tried to affect government financial policy through his regular correspondence with Glass, but the Virginia Democrat did not always defer to him, as Gilbert did, in spite of the fact that they usually agreed. See Carter Glass Folder, Leffingwell Papers and R. C. Leffingwell Folders, Glass Papers, Boxes 4, 144, 146, 147, and 283.

58 New York Times, December 9-10, 1920.

59 Murray, L. L., “Andrew W. Mellon, The Reluctant Candidate,” Pennsylvania Magazine of History and Biography, XCVII (October, 1973), 511–531Google Scholar.

60 R. C. Leffingwell to B. Penrose, February 8, 1921 and B. Penrose to R. C. Leffingwell, February 24, 1921, Name File (Leffingwell), NA, RG 56/Box 6 and R. C. Leffingwell to B. Strong, January 22, 1921, Benjamin Strong Folder, Leffingwell Papers.

61 R. C. Leffingwell to B. Strong, January 22 and 24, 1921 and B. Strong to R. C. Leffingwell, January 21, 24, and 25, 1921, Benjamin Strong Folder, Leffingwell Papers.

62 B. Strong to W. Hays, January 26, 1920, Hays Papers, Box 1.

63 R. C. Leffingwell to D. F. Houston, July 3, 1920, Leffingwell Letterbooks, Box 16, 133.

64 R. C. Leffingwell to S. P. Gilbert, November 1, 1920, Parker Gilbert Folder, 1920-1921, Leffingwell Papers; Macmahon, Arthur W. and Millett, John D., Federal Administrators (New York, 1939), 183–196 and 338-340Google Scholar; and Swaine, Cravath Firm, II, 209-223 and 324-326. Thirteen members of the firm served in civilian administrative capacities in Washington during World War I, with most in the Treasury. See also R. C. Leffingwell to Carter Glass, February 18, 1921, Carter Glass Folder, Leffingwell Papers and Kelley, Nicholas, The Reminiscences of Nicholas Kelley (Columbia University, Oral History Research Office, 1957), 54–62Google Scholar.

65 R. C. Leffingwell to W. G. McAdoo, September 26, 1918, Secretary (McAdoo) Folder and R. C. Leffingwell to D. F. Houston, March 30, 1919, Secretary (Houston) Folder, NA, RG 56/Box 250. See also R. C. Leffingwell to C. Glass, February 18, 1921, Carter Glass Folder, Leffingwell Papers.

66 R. C. Leffingwell to B. Strong, February 20, 1924, and B. Strong to Leffingwell, February 19, 1924, Benjamin Strong Folder, Ibid. Leffingwell and McAdoo had discussed the propriety of employing New Yorkers in 1918, but the issue was never resolved. R. C. Leffingwell to W. G. McAdoo, September 26, 1918, and W. G. McAdoo to R. C. Leffingwell, September 27, 1918, Secretary (McAdoo) Folder, NA, RG 50/Box 250. For a full discussion of personnel policies during the war, see an address by Leffingwell to the Association of the Bar of the City of New York, November 8, 1922, Unpublished Manuscripts, Leffingwell Papers.

67 W. L. Mellon and Boyden Sparkes, Judge Mellon's Sons (privately published, 1948), 412.

68 Clippings, Chicago Tribune, March 10, 1921 and Pittsburgh Dispatch, May 22, 1921, Mellon Historical File — Andrew W. Mellon, Library, Mellon National Bank, Pittsburgh, Pa. Gilbert would grow exceedingly angry at the facility of newsmen to take advantage of the “Secretary's natural frankness and diffidence and his lack of experience with reporters” to confuse and misrepresent what Mellon said as well as to reveal his ignorance of Treasury affairs. S. P. Gilbert to R. C. Leffingwell, May 25, 1921, Constitutional Amendment Abolishing Tax-Exempt Securities, Leffingwell Papers.

69 A. W. Mellon to W. G. Harding, March 7, 1921, Presidential Papers of Warren G. Harding, microfilm edition, reel 145, frame 0005, Ohio Historical Society, Columbus, Ohio.

70 R. C. Leffingwell to S. P. Gilbert, February 26, 1921 and S. P. Gilbert to R. C. Leffingwell, March 1, 1921, S. Parker Gilbert Folder, Leffingwell Papers.

71 Some 160 Republican Congressmen petitioned Harding in 1922 for the removal of all Democrats from the Treasury, not realizing that those at a policy making level were Republicans. The appointment as assistant secretary in December, 1921 of Elmer Dover, former secretary to Mark Hanna and Harding's West Coast campaign manager, has been interpreted as an attempt by the “Ohio Gang” to introduce the spoils system in the department. Dover quickly clashed with Commissioner of Internal Revenue David H. Blair, and Mellon had the spoilsman removed. Murray, Harding Era, 303-304.

72 See Secretary, Memoranda to. Folder, NA, RG 56/Box 262 for the hundreds of items that Gilbert forwarded between March, 1921 and November, 1923.

73 Mellon was quoted as saying: “Of all my Assistant Secretaries of the Treasury, Parker Gilbert is the only one whose letters I never have to go over. I just sign them. I couldn't trust any of the rest of them, but when he writes a letter, I know it's all right. I never bother to look at it.” Harriman, F. J., The Reminiscences of Florence J. Harriman (Columbia University, Oral History Research Office, 1950), 35.Google Scholar

74 R. C. Leffingwell to S. P. Gilbert, March 5 and 15, 1921, S. P. Gilbert to A. W. Mellon, March 26, 1921 and A. W. Mellon to J. W. Fordney, April 30, 1921, Tax—Ex emption of State and Municipal Bonds Folder, NA, RG 56/Box 188.

75 R. C. Leffingwell to S. P. Gilbert, April 9 and 12, 1921, S. Parker Gilbert Folder, Leffingwell Papers.

76 S. P. Gilbert to A. W. Mellon, April 13, 1921, Tax (General) Folder, NA, RG 56/Box 160.

77 S. P. Gilbert to R. C. Leffingwell, August 6, 1921, Constitutional Amendment for Abolishing Tax Exemption Folder, Leffingwell Papers.

78 S. P. Gilbert to A. W. Mellon, March 14, 1921, Tax (General) Folder, NA, RG 56/Box 160. See also memoranda of, March 12, 20, and 31 and April 4 and 5, 1921, Ibid.

79 A. W. Mellon to J. W. Fordney, April 30, 1921, Ibid. Reprinted in New York Times, May 1, 1921 and Annual Report, 1921, 349-355.

80 A. W. Mellon to C. Coolidge, May 10, 1924, Case File 21, Treasury Department, Presidential Papers of Calvin Coolidge, microfilm edition, Library of Congress, Washington, D.C.

81 R. C. Leffingwell to S. P. Gilbert, July 3, 1920 and March 29, August 1, and December 2, 1921, S. Parker Gilbert, 1920-1921 Folder, Leffingwell Papers and S. P. Gilbert to A. W. Mellon, March 31 and July 29, 1921, Tax (General) Folder, NA, RG 56/Box 160.

82 S. P. Gilbert to R. C. Leffingwell, May 2, 1921, S. Parker Gilbert, 1920-1921, Folder, Leffingwell Papers.

83 R. C. Leffingwell to S. P. Gilbert, June 23, 1923, S. Parker Gilbert, 1923-1928, Folder, Ibid.

84 R. C. Leffingwell to S. P. Gilbert, April 29, 1921, S. Parker Gilbert, 1920-1921, Folder, Ibid. Glass and Houston have already been cited on the wasteful expenditures of lower income people that should be taxed and Leffingwell's attitudes can also be found in R. C. Leffingwell to B. P. Blackett, March 2, 1920, Leffingwell Letterbooks, Box 15, 51.

85 Historical Statistics of the United States, Colonial Times to 1970 (2 vols.: Washington, D.C., 1975), II, 1110.Google Scholar

86 R. C. Leffingwell to S. P. Gilbert, May 3, 1921, S. Parker Gilbert, 1920-1921, Folder, Leffingwell Papers.

87 R. C. Leffingwell to C. Glass, July 1, 1921 and February 20, 1924 and C. Glass to R. C. Leffingwell, February 25, 1924, Carter Glass Folder, Ibid.

88 “Where Our Taxes Go and Why,” September, 1921, 480-487; “What You Need to Know About Federal Taxation,” October, 1921, 586-589; and “Taxes - Which and Why,” November, 1921, 103-107. The editors agreed to publish the series because “Mr. Houston's views on taxation have been adopted by his successor, Mr. Mellon.”

89 D. F. Houston to A. W. Mellon, December 18, 1923, Mellon Tax Reduction Plan Folder, NA, RG 56/Box 203.

90 Houston, D. F., Eight Years with Wilson's Cabinet, 1913 to 1920 (2 vols., Garden City, 1926), II, 100–102Google Scholar.

91 C. Glass to John M. Miller, December 6, 1923, to R. C. Leffingwell, February 25, 1924, and to C. E. Marshall, February 26, 1924, Tax Reduction — Secretary Mellon Folder, Glass Papers, Box 229.

92 “Address By Hon. Carter Glass,” attached to a letter from J. A. Arnold to G. B. Winston, July 15, 1925, Name (Glass) Folder, NA, RG 56/Box 6.

93 Unfitted speech, June 15, 1925. Ibid.

94 C. Glass to F. Roberts, March 19, 1925, Tax Bill — 69th Congress Folder, Glass Papers, Box 248.

95 W. G. McAdoo to C. Glass, June 20, 1921, W. G. McAdoo Folder, Ibid. Box 5.

96 S. P. Gilbert to A. W. Mellon, October 31 and November 31, 1922, Name (McAdoo) Folder, NA, RG 56/Box 7.

97 W. G. McAdoo to J. N. Garner, January 5, 1924, to F. N. Simmons, January 11 and 22, 1924, to D. C. Roper, January 7 and 11, 1924, and to George Anderson, January 11, 1924, McAdoo Papers, Box 290.

98 Winston, G. B., The Reminiscences of Garrard B. Winston (Columbia University, Oral History Research Office, 1949), 6–7.Google Scholar