Andrew Mellon, who was considered the best Secretary of the Treasury since Alexander Hamilton, served in the presidential administrations of Warren G. Harding, Calvin Coolidge, and Herbert Hoover. Prior to his service as Secretary of the Treasury, Mellon was a successful financier and businessman. He understood sound fiscal policy and helped advance policies that lowered tax rates, reduced spending, and paid down the national debt.
Mellon, like Harding, Coolidge, and Hoover, was a budget hawk, meaning that he believed in the necessity of a balanced budget. This is why, even before cutting tax rates, Mellon argued that spending must be reduced. Balancing the budget and paying down the public debt, Mellon argued, were “two guiding principles” for the administrations he served.
“It is the utmost importance that expenditures should be kept down to the minimum requirements of the government and that the budget should balance,” wrote Mellon. Limiting spending was just as important as lowering tax rates, and “Mellon’s tax policy was coupled with a spending reduction program which drastically reduced federal outlays.”
Mellon outlined many of his economic ideas in his 1924 book, Taxation: The People’s Business. As a result of World War I, income tax rates soared to as high as 77 percent on top incomes. Mellon argued that tax policy must take into consideration three main factors:
It must produce sufficient revenue for the government; it must lessen, so far as possible, the burden of taxation on those least able to bear it; and it must also remove those influences which might retard the continued steady development of business and industry on which, in the last analysis, so much of our prosperity depends.
Mellon understood that tax rates matter and that they influence how individuals and businesses behave within the economy. For example, he argued that high tax rates encourage fraud and tax avoidance strategies. “Mellon never tired of emphasizing the profoundly counterproductive nature of high tax rates—that they undermine the central objective of taxation—to collect sufficient funds to finance government operations,” noted a staff report from the United States Congress Joint Economic Committee that analyzed the Mellon tax plan.
Further, Mellon rejected using tax policy for the redistribution of income or for socioeconomic engineering. “Taxation should not be used as a field for socialist experiment, or a club to punish success, but as a means of raising revenue to support the government,” stated Mellon.
“I have never viewed taxation as a means of rewarding one class of taxpayers or punishing another,” wrote Mellon. Further, Mellon argued that the danger of a class-warfare tax policy would mean the end of “the traditions of freedom, justice and equality of opportunity…”
Mellon was also critical of the belief that high tax rates result in more revenue for government. “It seems difficult for some to understand that high rates of taxation do not necessarily mean large revenue to the government, and that more revenue may be obtained by lower rates,” wrote Mellon. In addition, Mellon argued that high tax rates not only lead to less revenue but also discourage economic activity.
“The most noteworthy characteristic of the American people is their initiative,” argued Mellon, referring to their entrepreneurship and work ethic. Excessive taxation, he maintained, was detrimental to economic growth. “Any one at all in touch with affairs knows of his own knowledge of buildings which have not been built, of businesses which have not been started, and of new projects which have been abandoned, all for the one reason—high surtaxes.”
Finally, Mellon argued that high taxation impacts the prosperity of an entire country or region:
High taxation, even if levied upon an economic basis, affects the prosperity of the country, because in its ultimate analysis the burden of all taxes rests only in part upon the individual or property taxed. It is largely borne by the ultimate consumer. High taxation means a high price level and high cost of living. A reduction in taxes, therefore, results not only in an immediate saving to the individual or property directly affected, but an ultimate saving to all people in the country.
In 1928, Mellon summarized the economic accomplishments of the Harding and Coolidge administrations when he stated:
Under the present administration taxes have been materially lowered on four occasions. Expenditures have been cut. The public debt has been reduced so that it is no longer a heavy burden on the taxpayers. The nation has been given the benefit of a protective tariff; and during the entire period the country has moved steadily forward, getting further and further away from the unsettled conditions which prevailed in 1921, when the present Republican administration took office.
In our current era, many policymakers have become obsessed with formulas to solve policy problems. When the Iowa legislature gavels back into session on January 12, 2026, reforming property taxes will be one of the top priorities.
Mellon can offer direction on how to reform Iowa’s property tax system. First, Mellon would recognize that government spending and debt are driving the high property tax burden. This means that local government spending must be limited.
Further, he would argue that property tax relief should benefit all taxpayers rather than being targeted toward select groups. He would also remind policymakers that high property taxes are hurting economic growth and discouraging business investment and entrepreneurship.
If local governments are interested in promoting economic growth, they should welcome a lower property tax burden. High property tax burdens not only deter economic growth but do not necessarily lead to more revenue.
As Secretary of the Treasury, Andrew Mellon helped shape a decade of economic policies that led the nation out of severe depression and into an extended period of economic growth. Mellon’s principles are proven and tested. Iowa leaders should make sure to take note of them.
Print a PDF