Saturday, March 16, 2013

My Favorite President (?)

Okay, maybe not my favorite president.  I'm not exactly a presidential scholar.  It's hard to top George Washington, walking away from power the way he did.  But I love Calvin Coolidge's attitude.  Absolutely love it.

This piece is adapted from a talk at Hillsdale College, by Amity Shlaes, author of Coolidge.
"Calvin Coolidge and the Moral Case for Economy"

An alternative model for conservatives is Calvin Coolidge. President from 1923 to 1929, Coolidge sustained a budget surplus and left office with a smaller budget than the one he inherited. Over the same period, America experienced a proliferation of jobs, a dramatic increase in the standard of living, higher wages, and three to four percent annual economic growth. And the key to this was Coolidge’s penchant for saying “no.” If Reagan was the Great Communicator, Coolidge was the Great Refrainer.
In doing research for my new biography of Coolidge, I reviewed his presidential appointment books and found a clue as to why he was able to be so consistent: sheer discipline. Coolidge and his budget director met every Friday morning before cabinet meetings to identify budget cuts and discuss how to say “no” to the requests of cabinet members. Most presidents give in after a time—Eisenhower being a good example—but Coolidge did not, despite the budget surpluses during his presidency. He held 14 meetings with his budget director after coming to office in late 1923, 55 meetings in 1924, 52 in 1925, 63 in 1926, and 51 in 1927.
The key here, in my opinion, is to understand the true reason for tax cuts.  If you're doing it to get more government revenue then you're doing it for the wrong idea.
Speaking of tax rates, in December 1923, Coolidge and Treasury Secretary Andrew Mellon launched a campaign to lower top rates from the fifties to the twenties. Mellon believed, and informed Coolidge, that these cuts might result in additional revenue. This was referred to as “scientific taxation”—an early formulation of the Laffer Curve. And Coolidge passed the word on: “Experience does not show that the higher rate produces the larger revenue. Experience is all the other way,” he said in a speech in early 1924. “When the surtax on incomes of $300,000 and over was but 10 percent, the revenue was about the same as it was at 65 percent.” 
Mellon and Coolidge did not win all they sought. The top rate of the final law was in the forties. But even this reduction yielded results—more money flowing into the Treasury—suggesting that “scientific taxation” worked. By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25 percent, and to do so retroactively. 
Today’s Republicans tend to take pleasure when the Laffer Curve is vindicated and more money flows into government as a result of tax cuts. Indeed, this idea of “scientific taxation” is often used to attempt to get Democrats to go along with tax cuts, as if those cuts are an end in themselves. By contrast, the specter of increased federal revenue rendered Coolidge anxious, personally and politically—so much so that he considered foregoing the rate cuts: “While I am exceedingly interested in having tax reduction . . . it can only be brought about as a result of economy,” he said at one point. He would not put tax cuts before budget reduction, insisting on twinning the two goals.
In short, Coolidge didn’t favor tax cuts as a means to increase revenue or to buy off Democrats. He favored them because they took government, the people’s servant, out of the way of the people. And this sense of government as servant extended to his own office. Senator Selden Spencer once took a walk with Coolidge around the White House grounds. To cheer the President up, Spencer pointed to the White House and asked playfully, “Who lives there?” “Nobody,” Coolidge replied. “They just come and go.”
Did you catch those last two paragraphs?  Tax cuts are to be pursued because they get government out of the way. Not because they result in more government revenue.  Never forget that.
A second lesson concerns how we look at tax rates. When tax rates are set and judged according to how much revenue they bring in due to the Laffer Curve—which is how most of today’s tax cutters present them, thereby agreeing with tax hikers that the goal of tax policy is to increase revenue—tax policy can become a mechanism to expand government. The goals of legitimate government—American freedom and prosperity—are left by the wayside. Thus the best case for lower taxes is the moral case—and as Coolidge well understood, a moral tax policy demands tough budgeting.