Revenue Act of 1921 Begins Mellon Tax Cuts for Wealthy

Treasury Secretary Andrew Mellon secured passage of the first Republican tax reduction following the 1920 landslide, dropping the top marginal rate from 73 to 58 percent while introducing preferential treatment for capital gains at 12.5 percent. The act repealed the excess profits tax imposed during World War I and dramatically lowered the threshold for the top rate, benefiting wealthy individuals and corporations. Mellon argued tax reduction would “spur economic expansion,” establishing the supply-side doctrine that cutting taxes on the wealthy stimulates growth. Democrats and Progressive Republican Robert La Follette denounced the plan as “a device to relieve multi-millionaires at the expense of other taxpayers.” The act initiated a series of tax cuts in 1921, 1924, 1926, and 1928 that concentrated wealth at the top and contributed to the speculative bubble that preceded the 1929 crash. Mellon would serve three presidents from 1921-1932, with one senator quipping that “three presidents served under Mellon.”