Freeman

ARTICLE

Clinton versus Cleveland and Coolidge on Taxes

Americans Should Work Less for the Government and More for Themselves

JULY 01, 1999 by LAWRENCE W. REED

In a post-State of the Union speech in Buffalo, New York, on January 20, 1999, President William Jefferson Clinton was asked why Americans shouldn’t get a tax cut since the federal budget is in surplus and the share of personal income taken by the federal government is at a post-World War II high. Is this what he said in response?

When more of the people’s sustenance is exacted through the form of taxation than is necessary to meet the just obligations of government and the expense of its economical administration, such exaction becomes ruthless extortion and a violation of the fundamental principles of a free government.

No, unfortunately, Bill Clinton didn’t say that—but how refreshing it would have been if he had! Another Democratic president of long ago, Grover Cleveland (who, ironically, got his start in politics in Buffalo) said it in his second annual message to Congress in December 1886. What Bill Clinton did say was this:

“We could give it all back to you and hope you spend it right.”

He went on to say he wanted to keep the surplus for such government programs as Social Security, and he concluded by tossing a question back to the audience: “I want every parent here to look at the young people here and ask yourself, ‘Do you really want to run the risk of squandering this surplus?’ ”

Bill Clinton is not the only American president who couldn’t trust the people with their own money. Nor is Grover Cleveland the only president among the 41 we’ve had who wanted the people to keep more of what they earned. Clinton’s audacious remarks harshly contrast with the perspective of another chief executive more recent than Cleveland: Calvin Coolidge. “Silent Cal” is one of my favorites and a man who would undoubtedly spurn Clinton as a mouthpiece for an arrogant, statist elite. Let me use this opportunity to share with readers what America’s 30th president thought about taxes and the people who worked hard to pay them.

“I want the people of America to be able to work less for the government and more for themselves,” declared Coolidge in his inaugural address on March 4, 1925. “I want them to have the rewards of their own industry. That is the chief meaning of freedom. Until we can re-establish a condition under which the earnings of the people can be kept by the people, we are bound to suffer a very distinct curtailment of our liberty.”

This flinty, frugal New Englander, who grew up respecting the hard-earned property of others, believed that the strength of the American nation was not centered in Washington, D.C. Once, as governor of Massachusetts, he asserted, “In a free republic a great government is the product of a great people. They will look to themselves rather than government for success. The destiny, the greatness of America lies around the hearthstone. . . . Look well to the hearthstone; therein all hope for America lies.”

Bill Clinton has raised taxes in many forms, several times, and once called taxes “contributions.” As one wag put it, “Clinton never saw a tax he didn’t like—and hike.”

Not Calvin Coolidge. As vice president, he strongly supported the steep reductions in income tax rates proposed by President Warren Harding’s treasury secretary, Andrew Mellon. From the time he became president after Harding’s untimely death in August 1923 until he left office in March 1929, Coolidge kept Mellon on the job and strengthened his own reputation as a committed tax cutter by urging Congress to enact further reductions. In the 1920s, the top income-tax rate fell from 73 percent to 24 percent. Americans with the lowest incomes benefited even more when the rate at the other end fell from 4 percent to one-half percent.

Between 1921 and 1929, the economy grew by nearly 60 percent, the national debt was reduced by a quarter, and the federal budget was consistently in the black. The depression that came later resulted not from tax cuts, but from unwise monetary policies of the Federal Reserve and destructive interventions by Congress, particularly in the years 1930–33.

Moreover, Coolidge understood that people respond positively to incentives, and negatively to disincentives. He knew that marginal rates of taxation made all the difference in the world in terms of economic behavior. In that sense, he was an early supply-sider—with an important difference. While today’s supply-siders support tax cuts as a means to increase government revenue, Coolidge wanted to leverage tax cuts into major spending reductions. Here’s what he told an audience on February 12, 1924:

If we had a tax whereby on the first working day the government took 5 percent of your wages, on the second day 10 percent, on the third day 20 percent, on the fourth day 30 percent, on the fifth day 50 percent, and on the sixth day 60 percent, how many of you would continue to work on the last two days of the week? It is the same with capital. Surplus income will go into tax-exempt securities. It will refuse to take the risk incidental to embarking in business. This will raise the rate which established businesses will have to pay for new capital, and result in a marked increase in the cost of living.

Coolidge told a press conference on October 11, 1927, that he and others “interested in tax reduction ought to be first of all bending their energies to see that no unwise expenditures are authorized by the government, and that every possible effort is put forth to keep our expenditures down, and pay off our debt, so that we can have tax reduction.” There was no Coolidge counterpart to Clinton’s call for tens of billions of dollars of additional spending in his State of the Union speech last January.

According to Americans for Tax Reform (ATR), the average family today pays more in taxes than it spends on food, clothing, shelter, and transportation combined. The Census Bureau reports that the average household pays $9,445 in federal income taxes alone—twice what it paid just 14 years ago in 1985. The federal tax code is made up of four huge volumes that are each thicker than the Bible, and the tax code is over seven million words long. And ATR reports that if Congress were to adopt the fiscal 2000 budget President Clinton proposed in January, federal bureaucrats will spend more in one second ($56,000) than the average taxpayer earns in a year ($28,000).

Where is Calvin Coolidge when we really need him?!


Filed Under : Taxation

ASSOCIATED ISSUE

July 1999

ABOUT

LAWRENCE W. REED

Lawrence W. (“Larry”) Reed became president of FEE in 2008 after serving as chairman of its board of trustees in the 1990s and both writing and speaking for FEE since the late 1970s. Prior to becoming FEE’s president, he served for 20 years as president of the Mackinac Center for Public Policy in Midland, Michigan. He also taught economics full-time from 1977 to 1984 at Northwood University in Michigan and chaired its department of economics from 1982 to 1984.

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