Editing Warren G. Harding (section)

====Mellon's tax cuts====
Treasury Secretary Mellon also recommended that Congress cut income tax rates, and that the corporate [[excess profits tax]] be abolished. The [[House Ways and Means Committee]] endorsed Mellon's proposals, but some congressmen wanting to raise corporate tax rates fought the measure. Harding was unsure what side to endorse, telling a friend, "I can't make a damn thing out of this tax problem. I listen to one side, and they seem right, and then—God!—I talk to the other side, and they seem just as right."{{sfn|Murray 1973|pp=52–55}} Harding tried compromise, and gained passage of a bill in the House after the end of the excess profits tax was delayed a year. In the Senate, the bill became entangled in efforts to vote World War I veterans a soldier's bonus. Frustrated by the delays, on July 12, Harding appeared before the Senate to urge passage of the tax legislation without the bonus. It was not until November that [[Revenue Act of 1921|the revenue bill]] finally passed, with higher rates than Mellon had proposed.{{sfn|Murray 1973|pp=55–58}}{{sfn|Dean|p=108}}

[[File:AWMellon.jpg|thumb|left|Secretary of the Treasury [[Andrew W. Mellon]] advocated lower tax rates.]]
In opposing the veterans' bonus, Harding argued in his Senate address that much was already being done for them by a grateful nation, and that the bill would "break down our Treasury, from which so much is later on to be expected".{{sfn|Dean|pp=107–108}} The Senate sent the bonus bill back to committee, but the issue returned when Congress reconvened in December 1921.{{sfn|Dean|pp=107–108}} A bill providing a bonus, though unfunded, was passed by both houses in September 1922, but Harding's veto was narrowly sustained. [[World War Adjusted Compensation Act|A non-cash bonus]] for soldiers passed over Coolidge's veto in 1924.{{sfn|Trani & Wilson|pp=78–79}}

In his first [[State of the Union|annual message to Congress]], Harding sought the power to adjust tariff rates. The passage of the tariff bill in the Senate, and in [[conference committee]] became a feeding frenzy of lobby interests.{{sfn|Trani & Wilson|pp=74–75}} When Harding signed the [[Fordney–McCumber Tariff]] Act on September 21, 1922, he made a brief [[signing statement|statement]], praising the bill only for giving him some power to change rates.{{sfn|Dean|p=104}} According to Trani and Wilson, the bill was "ill-considered. It wrought havoc in international commerce and made the repayment of war debts more difficult."{{sfn|Trani & Wilson|p=74}}

Mellon ordered a study that demonstrated historically that, as income tax rates were increased, money was driven underground or abroad, and he concluded that lower rates would increase tax revenues.<ref>{{cite book|first=Andrew.W.|last= Mellon|title=Taxation|url=https://books.google.com/books?id=8UMRAwAAQBAJ&pg=PA16|page=16|publisher=Macmillan|location=New York|isbn=9785879551631|year=1924}}</ref><ref>{{cite book|first=Joel|author1-link=Joel Slemrod|last=Slemrod|title=Does Atlas Shrug?: The Economic Consequences of Taxing the Rich|url=https://books.google.com/books?id=3mpiqxjB9AgC&pg=PA48|year=2000|publisher=Harvard UP|pages=48–49|isbn=9780674001541}}</ref> Based on his advice, Harding's revenue bill cut taxes, starting in 1922. The top marginal rate was reduced annually in four stages from 73% in 1921 to 25% in 1925. Taxes were cut for lower incomes starting in 1923, and the lower rates substantially increased the money flowing to the treasury. They also pushed massive deregulation, and federal spending as a share of GDP fell from 6.5% to 3.5%. By late 1922, the economy began to turn around. Unemployment was pared from its 1921 high of 12% to an average of 3.3% for the remainder of the decade. The misery index, a combined measure of unemployment and inflation, had its sharpest decline in U.S. history under Harding. Wages, profits, and productivity all made substantial gains; annual GDP increases averaged at over 5% during the 1920s. Libertarian historians Larry Schweikart and Michael Allen argue that, "Mellon's tax policies set the stage for the most amazing growth yet seen in America's already impressive economy."<ref>{{cite book|first1=Larry|last1=Schweikart|first2=Michael|last2=Allen|title=A Patriot's History of the United States|publisher=Penguin|year=2004|location=New York|page=536}}</ref>