Domestic Economic Policy

Throughout the '20s, the government's pro‐business policies were reflected in tax cuts, a reduction in federal spending, and high tariffs. Under Secretary of the Treasury Mellon, who served all three Republican presidents, the maximum rate on personal income was significantly lowered, as were estate taxes and taxes on excess profits. Mellon's tax program directly benefited the rich based on the assumption that they would invest their money and stimulate the economy. The economy was also aided by the decrease in government expenditures; Mellon managed to balance the budget, and his programs helped to lower the national debt by nearly $10 billion between 1919 and 1929. The government also tried to shield domestic interests from foreign competition through the Fordney‐McCumber Tariff (1922) which increased rates, removed items from the free list, and raised duties on farm products. However, high tariffs had several unintended consequences. They made it more difficult for Europeans to pay their war debts to the United States, and farmers, while protected from foreign imports, found themselves paying more for their machinery.

Regulatory enforcement was lax during the 1920s, but the government did promote new industries. Civil aviation, for example, was helped by the government's putting U.S. airmail contracts up for private bids (1925). The Air Commerce Act of 1926, which included federal funding for airport construction, also aided the expansion of this new form of transportation.

Agriculture did not share in the prosperity of the rest of the economy. The boom years for farmers came to an end in 1920, when grain and commodity prices fell sharply. The cause of the crisis was the same as it had been in the late nineteenth century — overproduction. The McNary‐Haugen Bill, first introduced in 1924, attempted to deal with the problem by proposing that the government purchase farm surpluses of such staples as corn, cotton, and wheat, and either keep them off the market until prices rose or sell them on the world market. Congress finally passed the legislation in 1927, but President Coolidge vetoed it twice. Neither the McNary‐Haugen Bill or the more modest Agricultural Marketing Act of 1929 provided farmers with incentives to limit production, which later experience would show to be the only way out of the price spiral.