After the 1920s Tax Cut, the Rich Paid a Bigger Share
Low earners went from paying 15% of income taxes to less than one quarter of 1%, and the history is widely misremembered.
Hoover Institution · Thomas Sowell on the Myths of Economic InequalityAfter Washington cut the top income tax rate in the 1920s, high earners paid a much larger share of income taxes than before.
Economist Thomas Sowell points to official records from the Internal Revenue Service, the agency that collects federal taxes. When the top rate was 73%, Americans making over $100,000 a year, equal to a couple million dollars today, paid 30% of all income taxes. After the rate fell to 24%, they paid 65%.
The pattern at the bottom ran the other way. People making under $5,000, a solid income at the time, paid 15% of all income taxes before the cut and less than one quarter of 1% after it.
Textbooks describe then Treasury Secretary Andrew Mellon, who backed the cuts, as pushing tax cuts for the rich on trickle-down grounds. Sowell says reading what Mellon actually wrote shows he said the exact opposite, and urges students to check Mellon’s words and the tax data themselves.
Questions people ask
Why would a lower tax rate leave the rich paying a larger share?
When rates are very high, high earners have a strong reason to report less taxable income, use deductions and shelters, invest in tax-exempt bonds, or simply work and invest less. A lower rate reduces the payoff from sheltering income, so more income shows up on taxable returns and is taxed.
Who was Andrew Mellon?
Andrew Mellon was a banker and industrialist who served as Treasury secretary from 1921 to 1932 under three presidents. He argued that high surtaxes drove money into shelters and hurt growth, and he pushed Congress to cut rates and simplify the code.
Does this mean cutting top rates always makes high earners pay more?
No. The result depends on the starting rate, the rules for deductions and shelters, and how strongly people change their behavior. Economists generally say cuts from very high rates are more likely to broaden reported income than cuts from already low rates.