“Does cutting taxes really shrink government?”

“Does cutting taxes really shrink government?”

Three weeks before the passage of the Revenue Act of 1928, the President was analyzing the results of his administration’s formula: cut taxes, enforce constructive economy and retire debt with surplus. The President was not pleased, however. The reason was not in making the case for cuts and shrinking expenditures. The reason was not in retiring the national debt, which would be reduced $5.4 billion over the course of five and a half years, a feat not replicated since. Had the rate of reduction been constant, the debt would have been eliminated in just over fifteen years. The reason was in the incessant temptation by those around him to spend the “surplus revenue.”

The administration’s plan had worked beyond everyone’s expectations. It had worked so well that Congress was eager to start spending all that extra money. The President wanted it returned in cuts and put toward the debt. It was becoming increasingly clear that tax cuts were going to be tougher and tougher to sell as surpluses grew larger and larger. Ironically, thanks to Coolidge being “too successful,” spending would be even harder to restrain in the future than it was in the present.

The fiscal year would yield a surplus of $398,000,000, well beyond even the President’s initial figures. But as Coolidge lists all the projects Congress wanted, it not only made future tax reductions impossible but would have overturned them with increases to cover government profligacy: the flood bill, $500 million, the farm bill, $400 million, the Boulder Dam bill, $125 million, the pension bill, $15 million, the salary bill, $18 million, the Muscle Shoals bill, $75 million, the Post Office pay bill, $20 million, a reduction of post payments costing another $38 million, the corn borer, $7 million, and $6 million for “vocational training,” just to name a few. Meanwhile, the President observed, tax reduction between $203 and $289 million remained before Congress as he spoke. “If all these bills went through and became law I should think it would not only endanger tax reduction at the present time, but would make necessary the laying of additional taxes.” This was an impermissible step backward, not forward. As the President reminded reporters early the following month, “the surplus was secured, of course, by very careful management of expenditures…” not by spending it all away. 

The size of the surplus and the urge to spend it, however strong, did not make indulging the desire any more responsible with the people’s money than in lean years. Government, not unlike children, has to learn self-control. The existence of “more somewhere” does not free government to find it and spend it with impunity.

“We must have no carelessness in our dealings with public property or the expenditure of public money. Such a condition is characteristic either of an undeveloped people, or of a decadent civilization…We must have an administration which is marked, not by the inexperience of youth, or the futility of age, but by the character and ability of maturity. We have had the self-control to put into effect the Budget system, to live under it and in accordance with it. It is an accomplishment in the art of self-government of the very highest importance. It means that the American Government is not a spendthrift, and that it is not lacking in the force or disposition to organize and administer its finances in a scientific way. To maintain this condition puts us constantly on trial. It requires us to demonstrate whether we are weaklings, or whether we have strength of character” — President Coolidge, June 30, 1924.

Amity Shlaes’ thought-provoking piece recalls that even good policies can carry unintended side effects that have the potential to destroy the gains made. Tax cuts are but one part of the whole. President Coolidge knew this firsthand and if trends back toward expansive government are to be checked, it will demand from us, informed and engaged citizens, the same unwavering self-restraint and courage he demonstrated. The times also require statesmen, mature men and women, who take the whole task seriously of restoring limited government, not merely one element of tax policy. Tax cutting without the people’s determination for making government shrink can be cast aside when expediency calls it time to spend. Such was the bitter pill of the Reagan years. When what is easy is allowed to prevail over what is right, self-government suffers and liberty loses.

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