Mellon Plan

Definition

The Mellon Plan was a series of tax reduction policies implemented during the 1920s under the Republican administration of President Calvin Coolidge. Proposed by Secretary of the Treasury Andrew Mellon, the plan aimed to stimulate economic growth by lowering tax rates for high-income individuals and businesses.

5 Must Know Facts For Your Next Test

1. The Mellon Plan was named after Andrew Mellon, who served as Secretary of the Treasury under Presidents Harding, Coolidge, and Hoover.
2. The primary goal of the Mellon Plan was to stimulate economic growth by reducing the tax burden on high-income individuals and businesses, based on the principles of trickle-down economics.
3. The Mellon Plan resulted in a series of tax cuts, including reductions in the top marginal income tax rate from 73% to 25% by 1925.
4. The Mellon Plan also aimed to reduce government spending and create a budget surplus, which could then be used to pay down the national debt.
5. The Mellon Plan was a key component of the Republican Ascendancy during the 1920s, as it aligned with the party's pro-business and limited government policies.

Review Questions

• Explain the key principles and objectives of the Mellon Plan.
  • The Mellon Plan was based on the principles of trickle-down economics, which held that reducing taxes on the wealthy and businesses would stimulate economic growth that would ultimately benefit the broader population. The primary objectives of the Mellon Plan were to lower tax rates, particularly on high-income individuals and businesses, in order to encourage investment, job creation, and economic expansion. The plan also aimed to reduce government spending and create a budget surplus that could be used to pay down the national debt.
• Analyze the relationship between the Mellon Plan and the Republican Ascendancy in the 1920s.
  • The Mellon Plan was a key component of the Republican Ascendancy during the 1920s, as it aligned with the party's pro-business and limited government policies. The tax cuts and reduced government spending proposed by the Mellon Plan were consistent with the Republican Party's emphasis on promoting economic growth through the private sector and minimizing the role of the federal government. The success of the Mellon Plan, which was credited with contributing to the economic prosperity of the 1920s, helped to solidify the Republican Party's political dominance during this period and bolster its reputation as the party of business and economic growth.
• Evaluate the long-term impact of the Mellon Plan on the US economy and the role of government.
  • The long-term impact of the Mellon Plan on the US economy and the role of government is a subject of ongoing debate. Proponents argue that the tax cuts and reduced government spending stimulated economic growth and prosperity during the 1920s, while critics contend that the plan exacerbated income inequality and failed to provide sustainable economic benefits. The Mellon Plan's emphasis on trickle-down economics and limited government intervention has also been criticized for contributing to the economic conditions that led to the Great Depression in the 1930s. Ultimately, the Mellon Plan's legacy reflects the broader ideological tensions between those who favor a more active role for government in the economy and those who prioritize the primacy of the private sector and free market forces.

Related terms

Trickle-Down Economics: The economic theory that reducing taxes on the wealthy and businesses will ultimately benefit the broader population through increased investment, job creation, and economic growth.

Revenue Act of 1921: A law that reduced the top marginal income tax rate from 73% to 58% and introduced a series of other tax cuts, laying the foundation for the Mellon Plan.

Budget Surplus: The excess of government revenue over government expenditures, which the Mellon Plan sought to achieve through tax cuts and reduced government spending.