Amity Shlaes has a really interesting article in the Pittsburgh Tribune-Review today:
Harding appointed Mellon as Treasury secretary, and Mellon adroitly rescheduled the debt; Harding and Mellon also passed a round of tax cuts. Harding was not a “naysayer” by temperament. He disliked using the veto on his old Senate colleagues. He appointed friends, rather than professionals, to key posts. Their corruption tainted his reforms and aborted them.
Few reckoned that Coolidge could continue or complete what Harding had started. Voters figured Coolidge was a lame duck, “the accident of an accident.” The real Republican candidate would emerge in 1924. Coolidge’s colleagues in Washington didn’t expect much either: “Coolidge had little about him that was regal,” recalled George Wharton Pepper, a senator of Pennsylvania.
Still, Coolidge pushed forward where Harding had hesitated. He and Mellon sought and received several more rounds of tax cuts, bringing the top marginal income tax rate down to 25 percent, a level even lower than Reagan’s. In his years observing railroads, Mellon had noted that when you cut the toll for a rail line, you might get more business. An owner charged, as Mellon put it, “what the traffic will bear.”
Mellon thought the same principle might apply to tax rates. Perhaps lower rates would permit more business activity and therefore bring higher revenues. Today we call this philosophy “supply-side economics.”