In December of 1923 President Coolidge and Treasury Secretary Andrew Mellon worked to lower the top tax rates from the fifties to the twenties. Mellon convinced Coolidge that these cuts might result in additional revenue. (Could leaders today learn something from this?)
This practice was referred to as "scientific taxation," an early formula of the Laffer Curve. "Experience does not show that the higher rate produces the larger revenue. Experience is all the other way," Coolidge said in 1924. "When the surtax on incomes of $300,000 and over was but ten percent, the revenue was about the same as it was at 65 percent."
Unfortunately, the Secretary and the President did not win all they sought. The top rate of the final law was in the forites. Even this reduction, though, yielded results: more money flowed into the Treasury. This suggested that "scientific taxation" worked. By 1926, Coolidge was able to sign legislation that brought the top marginal rate down to 25 percent, even doing it retroactively.
Why is it that we refuse to do what works, thinking that, despite our own poor results, we know better?
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