Tuesday, February 19, 2013

The Coolidge Lesson on Taxes and Spending


The Wall Street Journal
http://www.wsj.com
February 19, 2013


Only Reagan could fix this.
That's the intuitive reaction to the surge of spending and budgetary challenges in Washington today. It's hard to think of another Republican with the fortitude to push back against the outlays, to make government smaller, to lower taxes. And to show that such moves can yield prosperity.
The "only Reagan" assumption is too narrow—especially when it comes to the fiscal challenge. For while Reagan inspired and cut taxes, he did not reduce the deficit. He did not even cut the budget. But if you look back, past Dwight Eisenhower and around the curve of history, you can find a Republican who did all those things: Calvin Coolidge.
A New Englander and former Massachusetts governor, Coolidge came to Washington as vice president and moved into the White House only in 1923 after the sudden death of President Warren Harding. He later won the office himself and served until 1929. The 30th president cut the top income-tax rate to 25% (lower than the 28% of the historic Reagan cut of 1986). Coolidge reduced the national debt and balanced the budget. When he departed the White House for his home in Northampton, Mass., he left a federal budget smaller than the one he found.
Three factors gave Silent Cal the ability to cut as he did, each suggesting a governing approach that would be useful today.
The first advantage was a gift from his predecessor, President Harding: the Budget and Accounting Act of 1921. Theretofore, the president had enjoyed no general oversight of the budget. Bills came to the chief executive's desk like requests crafted by clever children, hard to turn down. Under the Accounting Act, the executive branch gained the authority to present a unified budget and a research staff in the form of the Budget Bureau, a forerunner to today's Office of Management and Budget. The executive also had the authority to impound money already appropriated.
Associated Press
Calvin Coolidge, the 30th president of the United States.
The second advantage was one Coolidge himself supplied: the discipline to use budget tools, new and old. Harding had dramatically cut the budget, still bloated from World War I, but he lacked the stamina to keep up the work. Harding also made bad appointments of profligates or outright criminals, whose corrupt agencies undermined his savings drive. By the time Harding died, Congress was already weary of postwar austerity and confident it could squeeze more spending out of Coolidge, who might only hold office until elections the next year.
But Coolidge came in like a lion, determined to make austerity permanent. Coolidge met with his budget director, Gen. Herbert Lord, on his first day in office and routinely thereafter. The two men soon announced that they would deepen planned cuts in two politically sensitive areas: veterans and on District of Columbia public works. "I am for economy, and after that I am for more economy," Coolidge told voters—who gladly kept him in the White House when he ran in 1924.
Against Congress, Coolidge also moved boldly. The jovial Harding had vetoed only six bills. Coolidge vetoed 50. "It is much more important to kill bad bills than to pass good ones," Coolidge once advised his father. Coolidge proved a maestro of the pocket veto. He twice vetoed farming subsidies and he stopped government entry into the utilities industry by killing a project to operate the old wartime plant at Muscle Shoals in Alabama.
Coolidge's third advantage was insight into what might be called fiscal trust. The president understood that ambitious budget cuts would be accepted if he could "align" them with ambitious tax cuts. The press wondered how two such taciturn men as Coolidge and his Treasury secretary, Andrew Mellon, managed to chat long enough to plot a tax crusade. But the two shared an outlook and "conversed in pauses," as was written at the time.
After congressional resistance compromised their first legislation so badly that an editorial in this newspaper assailed lawmakers for "hazing the president," Coolidge and Mellon redoubled their effort. Finally, in 1926, Coolidge won his 25% tax rate.
Coolidge and Mellon carefully underscored the technical evidence, and there was plenty, that greater revenues might follow tax rate cuts. But they still insisted on twinning tax cuts with budget cuts, so voters and markets would never be betrayed. When an admirer in South Africa sent two lion cubs to the president, Coolidge named them Budget Bureau and Tax Reduction to emphasize the linked approach.
President Reagan recognized Coolidge's achievement, and upon taking office in 1981 he had a neglected Coolidge picture restored to a place of honor near Lincoln and Jefferson in the Cabinet Room. It is too much to hope that President Obama would take Coolidge's example to heart. But those who are even now pondering presidential runs for 2016 would do well to heed Silent Cal's deeds.
Ms. Shlaes is the author of "Coolidge," just published by HarperCollins, and the director of the Four Percent Growth Project at the Bush Presidential Center.
A version of this article appeared February 19, 2013, on page A13 in the U.S. edition of The Wall Street Journal, with the headline: The Coolidge Lesson on Taxes and Spending.

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