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Class War -- The Calvin Coolidge Response

America no longer enjoys a peacetime economy.

I speak not of Iraq or of Afghanistan.

I speak of the class warfare economy officially imposed on the nation in Barack Obama’s Osawatomie speech.

I say “officially” because this speech is merely a logically outgrowth of Obama’s long-held redistributionist ideology, finally manifested in the “spontaneous” “Occupy Wall Street” movement—the  phony rage aimed at “one percenters” who fail to “pay their fair share in taxes”—phony, because if it were real, it “Occupy Wall Street” would move uptown and become “Occupy General Electric.”

Such class warfare is much older than Obama or OSW or Osawatomie. It has been practiced worldwide—from Bolshevik Russia and Maoist China to Huey Long’s Louisiana to Evita Peron’s Argentina to Hugo Chavez’s Venezuela to the bankruptcy of contemporary Greece

It has been tried everywhere. And has failed everywhere. It leads to the guillotine—and, ultimately, back to the poor house.

It is demagoguery built on resentment and envy and ultimately further impoverishes the poor, while enriching leaders who claim to hate the rich.

The leveling impulse has marched steadily onward with few interruptions since the Progressive Era. Its greatest retrenchment came in the 1920s under an unlikely figure: President Calvin Coolidge.

Coolidge understood economics. He understood government’s limitations. He understood the real cost and burdens of taxation.

And he understood what high marginal tax rates can—and cannot—accomplish.

Even then, relentless pressure existed to “soak the rich.” Coolidge not only resisted it. With his Secretary of the Treasury Andrew J. Mellon, Coolidge succeeded in lowering income tax rates that had skyrocketing during the wartime Wilson administration. A booming economy resulted. Inflation and unemployment nearly vanished. The budget was balanced. The national debt reduced.

Coolidge addressed the issue repeatedly, most famous in budget messages and in a February 1924 address to the National Republican Club, an address that decades later economist Jude Wanniski called, “the most lucid articulation of the [supply-side] wedge model in modern times.”

Said Coolidge in 1924:

If we had a tax whereby on the first working day the Government took 5 per cent of your wages, on the second day 10 per cent, on the third day 20 per cent, on the fourth day 30 per cent, on the fifth day 50 per cent, and on the sixth day 60 per cent, how many of you would continue to work on the last two days of the week? It is the same with capital. Surplus income will go into tax-exempt securities. It will refuse to take the risk incidental to embarking in business. This will raise the rate which established business will have to pay for new capital, and result in a marked increase in the cost of living. If new capital will not flow into competing enterprise, the present concerns tend toward monopoly, increasing again the prices which the people must pay.

Much more widely ignored, however, are Coolidge’s comments in his formal acceptance speech for the 1924 presidential nomination. It is one of the most remarkable conservative documents of the twentieth century, and its remarks on taxation—and the self-defeating folly of class envy—hit the mark.

“Every student knows that excessively high rates defeat their own purpose,” said Coolidge. “They dry up that source of revenue and leave those paying lower rates to furnish all the taxes.”

Coolidge went on to explain:

"Only about 3,500,000 people pay direct income taxes. The remainder pay, but pay indirectly, in the cost of all purchases, from a pair of shoes to a railroad ticket. This country has at least 107,000,000 of these indirect taxpayers. I am not disturbed about the effect on a few thousand people with large incomes because they have to pay high surtaxes. They can take care of themselves, whatever happens, as the rich always can. What concerns me is the indirect effect of high surtaxes on all the rest of the people. Let us always remember the poor. Whatever cry the demagogue may make about his ability to tax the rich, at the end of the year it will always be found that the people as a whole have paid the taxes. We should, therefore, have a system of taxation under which the people as a whole are most likely to be prosperous. Our country will be better off if, disregarding those who appeal to jealousy and envy, it follows in taxa­tion and all else the straight path of justice."

That, in part is what Jeb Bush spoke of in his recent Wall Street Journal op-ed. “[W]e must choose between the straight line promised by the statists and the jagged line of economic freedom,” noted the former Florida governor, “The straight line of gradual and controlled growth is what the statists promise but can never deliver. The jagged line offers no guarantees but has a powerful record of delivering the most prosperity and the most opportunity to the most people. We cannot possibly know in advance what freedom promises for 312 million individuals. But unless we are willing to explore the jagged line of freedom, we will be stuck with the straight line. And the straight line, it turns out, is a flat line.”

Unfortunately, that is where Gov. Bush gets it wrong. Right now, in today’s redistributionist, housing-bubble, green-energy-scamming, not-in-my-backyard economy, a flat line economy  would look good.

And a new Calvin Coolidge would look great.

David Pietrusza, the author of 1948: Harry Truman’s Improbable Victory and the Year that Transformed America and the editor of Silent Cal’s Almanack: The Homespun Wit & Wisdom of Vermont’s Calvin Coolidge.