“I am an old man and I have known a great many troubles, but most of them never happened.”

Mark Twain

I doubt Mr. Twain spent any time worrying about the statutory debt limit, but the issue appears to be a concern in both Washington and Wall Street. Prior to 1917, Congress directly authorized the size of each borrowing. After the debt limit was enacted, it effectively shifted the power to borrow on the public credit, from Congress to the Treasury. So, Mark Twain is off the hook with this “trouble”, having passed away in 1910. Over the years, the two parties have maintained great flexibility on the debt ceiling, with comments and positions on the issue that are largely the result of which party holds the White House. In 2011, the debt ceiling resulted in a bipartisan negotiation that was led by then Vice President Joe Biden. As of this writing (last Friday, April 21), no negotiations have taken place between Speaker of the House Kevin McCarthy and the White House.

I have included the Raymond James April 21, 2023, “Weekly Headings: Thoughts of the Week”, by Raymond James’ Larry Adam, Chief Investment Officer, Private Client Group. Please contact me at your convenience if you would like to discuss.

I recently read “Taxes Have Consequences: An Income Tax History of the United States,” written by Arthur B. Laffer, Brian Domitrovic, and Jeanne Cairns Sinquefield, and published October 18, 2022. The book is a detailed history of the income tax in the United States and its effect on the economy. During World War I, Wilson and his administration admitted the high rates had exceeded their productivity. Andrew Mellon, Treasury Secretary for Presidents Harding and Coolidge, successfully moderated tax rates and published an important book on the income tax in 1924, “Taxation: The People’s Business.” In the book he pushed for lower rates and argued the current system led to massive tax avoidance. Mellon remained Treasury Secretary for President Hoover for several years, but after the Democrats won control of Congress in 1930 he was hounded out of his position when, in early 1932, Congressman Wright Patman initiated impeachment proceedings against Mellon. He left to be Ambassador to the United Kingdom in early 1932. The Smoot-Hawley Tariff Revenue Act of 1932 and tax increases under Hoover and later President Roosevelt extended the depression. State property tax revolts in the 1930s are also highlighted in the book.

The relationship between tax rates and revenue is a major theme to the book. Very simply, higher rates have consistently led to greater energy by taxpayers to avoid taxes. Today we have record federal, state and local tax revenues and record debt, as well as a resurgence of inflation. While the subject may sound tedious, the book was a very interesting and a surprisingly entertaining history of income taxes in the United States.

Thanks for reading and please contact me with any questions or comments.

Regards,
Frank R. Hampton
Financial Advisor