Evening star. [volume] (Washington, D.C.) 1854-1972, 1929-06-13

| United States has paid on more than
| S6 600, 100000 of its war debt.
When Mr. Mellon took Office, in
March of 1921, the country was suffer-
ing business depression, taxes were
! still at war levels and the unemploy-
ment situation was serious. The re-
! firing Secretary of the Treasury, David
| F.. Houston, said in his last report:
Forces of broad sweep and intensity
have operated. They have been world
wide and consequently beyond the pos
sibility of control by any industrial
group, or even by nations. During the
war forces were set in motion which no
government could or did control. The
Nation has immense liabilities: it has
great debts; but it has enormous re-
sources, and the only question Is
whether it will utilize and direct them
wisely. The need of the exercise of
plain common sense, of patience, OF the
effective realization that burdens of war
do not end with the fighting, Of hard
work, Of thrift and Of economy private
and public, Federal, State, county and
municipal, is SO obvious as to render
emphasis and discussion Of 1t unneces-
sary."
Taking the helm in this situation,
Secretary Mellon moved directly at
three basic purposeS-to effect econ
as possible of the public debt
into shape for quick refunding as
the various Liberty loan bonds fell
due, so as to avoid strain on public
credit and private resources, and to
make possible reductions in interest
rates; to reduce tax rates, both to re-
lieve industry of burdens and to bring
into play the Mellon theory that lower
tax rates on industry would stimulate
more industry, and hence actually bring
in more money than the higher rates.
For the year ending June 80, 1920,
the Government spent $1,000 ,0O0, 900.
For the year ending June 80, 1921, this
was reduced to $500, 100000. Under
the Mellon economy program the rate
OF reduction from the wartime peak of
expenses was expedited, so that for the
year ending June 80, 1922, the outlay
had been brought below $4,0o0,0Oo, 900.
Refunding Began in June, 1921.
The refunding operations may have
been said to start on June Is, 1921.
when the first short-term Treasury
notes were issued. They amounted to
$3l1 100000 carried SPA per cent in
terest, and ran for three years. This
FIRST step did not effect any direct saw
ing, but was necessary because war
time obligations were already falling
due, and the interest rate everywhere
was high. Within few years, however,
Treasury notes were being freely sub
scribed at less than per cent, and
finally at less than 4 per cent. At
every opportunity the Treasury has
called in high-intereSt obligations and
issued low-interest paper. AS the debt
has gone down in volume, the interest
rate has also been steadily reduced
ho II ,1sR laI To-
by the successful sale of the first note
issue, attention was conferred on reduc-
ing tax levieS. The act of November
%, 1921, was based on the knowledge
that expenses for the current year
would come below the four billion mark
Internal revenue rates were cut to an
extent which would reduce the Govern
ment collections by about $500, 900 600
The real battle of tax reduction is
yet ahead, the Mellon plan has yet to be
fought out. Opposed to his belief that
the high surtaxes should be reduced so
as to encourage industry and increase
the total volume of taxable business,
was the apparently more simple idea
Of tax the millionaifes" Advocates
Of this plan to lay. the heaviest sort
Of tax rates on the higher incomes re-
fused to see that they simply, drove
big money out of business activity and
into tax-exempt securities and other
non-productive channels. The high
surtaxes made plenty Of money avail
able to lend TO States, cities, road dis
tricts or other public bodies which
wanted TO borrow. Such loans were
tax free. They made very little money
available for new business efforts which
would be heavily taxed.
To reduce the tax rate on the rich
appeared to be unpopular, and hence
poor politics. That reduced rates would
really produce more taxes from the
rich was what Mellon, a man of long
and large business experience, under
stood, but which smaller political minds
could not or would not grasp. In the
end the Mellon theory prevailed, and
proved itself economically sound
CToworrow-The Budget System.)