Revenue Act of 1926 Slashes Top Tax Rate to 25%, Abolishes Gift Tax in Full Mellon Plan

President Calvin Coolidge signs the Revenue Act of 1926, the crowning achievement of Treasury Secretary Andrew Mellon’s multi-year campaign to restructure federal taxation in favor of the wealthy. The act slashes the top marginal income tax rate from 46 percent to 25 percent on incomes over $100,000, cuts the maximum estate tax rate from 40 percent to 20 percent on estates over $10 million, completely abolishes the gift tax enacted in 1924, and ends the requirement for public disclosure of tax returns. The House approves the legislation by an overwhelming 355-28 vote on February 23, reflecting Republican dominance and the political power of Mellon’s supply-side arguments. Mellon expresses extreme satisfaction that the 1926 act, unlike the compromised 1921 and 1924 versions, fully implements his vision for taxation.

The legislation also increases personal exemptions from $1,000 to $1,500 for individuals and from $2,500 to $3,500 for married couples, reducing taxable income for middle-class Americans—a political sweetener that obscures the massive benefits flowing to the wealthy. The combination of slashed income taxes, halved estate taxes, abolished gift taxes, and eliminated public disclosure creates ideal conditions for dynastic wealth accumulation and tax avoidance. The top marginal rate has now fallen from 73 percent in 1921 to 25 percent in 1926, a reduction of 48 percentage points in five years, fundamentally transforming the progressive tax system established during World War I into a regressive structure that accelerates inequality.

The 1926 Revenue Act’s impact extends far beyond immediate revenue effects, establishing ideological and structural templates for conservative tax policy that persist through the Reagan era and beyond. Mellon’s “supply-side” theory—that cutting taxes on the wealthy stimulates investment and economic growth—becomes Republican orthodoxy despite contrary evidence. The act contributes directly to the speculative bubble of the late 1920s by freeing enormous capital for stock market gambling rather than productive investment. When the bubble bursts in 1929, the hollowed-out tax base leaves government unable to respond effectively to the Great Depression. Mellon’s dominance over three presidential administrations (Harding, Coolidge, Hoover) from 1921-1932 represents the apotheosis of Treasury capture by financial interests, with one senator’s quip that “three presidents served under Mellon” capturing the inversion of democratic accountability.