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March 2003, Volume 54, Number 10

March 2003, Volume 54, Number 10
» Notes from the Editors

In the 1920s Andrew Mellon, who served as secretary of the treasury under Presidents Harding, Coolidge, and Hoover (it was sometimes said that they served under him), introduced a series of gargantuan tax cuts culminating in what was known as the Mellon Plan. This consisted of a huge cut in the income tax rates of the rich along with reductions in other taxes paid by the wealthy. High income tax rates, Mellon claimed, “tend to destroy individual initiative and enterprise and seriously impede the development of productive enterprise.” When Mellon’s foes, such as the great Progressive Senator Robert La Follette, declared that Mellon was trying to “let wealth escape” its fair share of taxation, he sought to turn the tables on them by charging that they were engaging in class warfare. “The man who seeks to perpetuate prejudice and class hatred,” the treasury secretary stated, “is doing America an ill service. In attempting to promote or defeat legislation by arraying one class of taxpayers against another, he shows a complete misconception of the principles of equality on which the country was founded.”

Congress passed the Mellon Plan in February 1926. As a result of this and other tax cuts Mellon succeeded in releasing billions of dollars a year to the captains of industry and Wall Street at a time when the entire federal budget was around $3 billion. Not only was the top individual tax rate lowered from 77 percent in 1921 to 25 percent in 1928, there was also a huge cut in the estate tax, which dropped from 40 to 20 percent. The excess-profits tax and the gift tax were both repealed. (Mellon, who was reportedly the richest man in America at the time, benefited enormously from these cuts saving hundreds of thousands of dollars a year.) Yet, rather than inducing the investor class to expand productive capacity and generate soaring economic growth, the tax cuts fed rampant speculation. The Stock Market Crash came three years after the passage of the Mellon Plan, ushering in the Great Depression and a dismal end to Mellon’s career as treasury secretary. (See Harvey O’Connor, Mellon’s Millions, and Kevin Phillips, Wealth and Democracy.)

Today the Bush administration is again proposing massive tax cuts for the wealthy, including the elimination of the tax on most stock dividends, ostensibly in order to free up capital and promote economic growth. Taking a leaf from Mellon’s book, the administration coupled its tax plan with the charge that all those opposing it on the grounds that it will primarily benefit the wealthy are guilty of “class warfare.” Thus on January 9, President Bush declared in his own inimitable fashion: “You hear a lot of talk in Washington, of course, that this benefits so-and-so or this benefits this, the kind of the class warfare of politics” (New York Times, January 10, 2003).

If the charge of class warfare was meant primarily to intimidate Democrats, the tactic no doubt succeeded. Not only was the accusation designed to separate the Democrats from the support of the business class, on which they no less than the Republicans depend, it was also intended to confer a sense of “un-Americanism” on anyone who should raise the issue of class inequality in a society where business ideology has become the public ideology. But behind all of this political and ideological maneuvering, there also lurks a genuine fear on the part of the powers that be that events—including their own greed—will conspire to resurrect the old ghost of class revolt. The history of the late 1920s and 1930s is not entirely forgotten—least of all by those at the top of the economic pyramid.

What makes the situation so perilous at present for the capitalist class is that the economy is stagnating with no visible way out. The tax cuts, if carried out, will add enormously to the economic surplus already at the disposal of the capitalist class in this country. But this is unlikely to stimulate investment in the present period of economic stagnation and vanishing investment opportunities. Instead the cuts in taxes for the rich can be expected to touch off new rounds of speculation on Wall Street. All of this is happening, moreover, when millions are unemployed and drastic reductions in Medicare and other public services are taking place. “It is class warfare and they have declared it,” Charles B. Rangel, the ranking Democrat on the House Ways and Means Committee said, in reply to Bush’s accusation of “class warfare.” He added: “Here the president kicks the hell out of the poor and tells us we’re guilty of class warfare.”

The truth is that the ruling interests have every reason to be worried. Not only is the economy in bad shape, but there is also the possibility that their looting of the public purse to fill their private coffers will help to realize their worst fear—a popular revolt somewhat on the scale of the 1930s. If so, it will be about time.

Monthly Review is sponsoring a special one-day conference on the topic of Imperialism Today in Burlington, Vermont on May 3, 2003. The conference is being held in honor of MR Co-editor Harry Magdoff’s ninetieth birthday.

MR will sponsor two panels at the Socialist Scholars Conference, to be held March 14–16, 2003 at the Cooper Union for the Advancement of Science and Art in New York City. The panels will focus on the economy, and imperialism and war. Speakers will include Bill Fletcher, Jr., Gilbert Achcar, Barbara Epstein, David Kotz, and John Bellamy Foster, among others.

BAs we go to press, we are pleased to report that MR Press will be publishing Behind the Invasion of Iraq by the research unit for political economy, based in India. This is a concise, first rate analysis of what is needed to understand the Iraq crisis. in order to give this important text the widest possible audience, we have priced the book at $10.00 (plus $4 shipping and handling). Advance orders are welcome; we anticipate its availability in late march.

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