Commentary: How Gary Cohn and Andrew Mellon Both Failed America
No one rich and famous on Wall Street ever goes to Washington, D.C. to make money. They go to help make history, or so their flacks assure us.
Banker and industrialist Andrew Mellon, America’s third-richest man a century ago, moved to Washington in 1921. As treasury secretary and the top economic adviser to three consecutive Republican presidents, Mellon made his history cutting taxes.
Gary Cohn came to Washington last year as Donald Trump’s top economic adviser. Cohn, a former number two at Goldman Sachs (GS), set out to make his own tax-cutting history. Just like Mellon, he reached his goal.
Both Mellon and Cohn won tax cuts that amazed and delighted the GOP donor class. In the process, they both failed America.
Mellon’s tax cuts unleashed a speculative frenzy that greased the nation’s way into a decade of Great Depression. Cohn’s may yet do the same, and have already set the stage for a GOP-led assault on suddenly “unaffordable” social safety programs.
Mellon at least had the excuse of ignorance. Cohn has none.
Like Cohn, Mellon entered Washington as a key player in a Republican administration taking power after eight years with a Democrat in the White House. Mellon’s Democrat, Woodrow Wilson, had signed into law the first income tax in modern American history—and then let Congress hike the top marginal rate north of 70%.
Such high rates, Mellon argued, made it impossible for businesses to productively invest. Lower rates, he pronounced, would benefit everyone. It took until 1926, but Mellon finally overwhelmed his opposition and shoved the top tax rate all the way down to 25%.
Mellon’s tax cuts on the rich did not usher in broad prosperity. They ushered instead exactly what Fiorello LaGuardia, then a progressive Republican member of Congress, had predicted: an “accumulation of enormous fortunes” that distorted the economy and ultimately left it in shambles.
In 1932, the year a disgraced Mellon finally exited Washington, Congress began undoing his tax cuts. By 1944, America’s rich were facing top marginal tax rates that stretched to over 90%.
Top tax rates hovered near that level for the next two decades, but the U.S. economy did not collapse, as Mellon once warned. Americans instead saw a broad-based prosperity that turned the United States into the world’s first mass middle-class nation.
Cohn, who also served a Republican following a two-term Democrat, ignored this history. He did his best to brush off any concerns Americans might have about giving away the store to America’s rich. That task took dissembling of the highest order.
“Wealthy Americans are not getting a tax cut,” Cohn claimed in his initial defense of the Trump administration’s plans for America’s tax code.
That claim brought Cohn widespread ridicule. He rhetorically retreated. “It’s not our intention to give the wealthy a tax cut,” Cohn told CNBC.
On the tax cut’s impact on federal revenues, a similar sequence. “We care about revenue,” Cohn announced early on. “We’re going to have to be deficit neutral over a 10-year period.” Cohn cavalierly dismissed the abundant analyses that detailed how the Trump tax plan would leave the nation well over $1 trillion short on the revenue side.
The tax cuts, Cohn insisted, would stimulate enough economic activity to pay for themselves. But he also dismissed clear signals from business leaders that they weren’t going to play along.
Cohn argued that CEOs would surely use corporate tax savings to hire people and benefit workers. But last November, at a Cohn confab with The Wall Street Journal CEO Council, the moderator asked the assembled business chiefs to raise their hands if they planned on reinvesting their tax-cut proceeds. Few hands went up.
“Why aren’t the other hands up?” Cohn asked.
The “why” has become obvious. For corporate chiefs, shareholders—not workers—always come first. Early this year, Morgan Stanley (MS) analysts estimated that 43% of corporate tax savings will be going to share buybacks and dividends, and another 19% to mergers and acquisitions.
As of the end of January, the HR consulting firm Willis Towers Watson reported that only 4% of firms with at least 1,000 workers were using their tax cut to give employees wage increases. Still another analysis, from JUST Capital at the end of February, found that only 6% of tax-related corporate income is benefiting workers.
Now Cohn is leaving Washington—honored, he says, to have enacted “pro-growth economic policies to benefit the American people, in particular the passage of historic tax reform.”
Some pundits do still see the departing Cohn as a “competent” professional who fought the good fight against the chaos of the Trump White House. But Cohn essentially exits with his reputation cratered. John Bogle, the founder of the Vanguard group, has labeled his tax cut a “moral abomination.”
Others are pointing to a more personal moral abomination. To keep his prized tax-cut initiative on track last summer, Cohn made only the meekest of protests when his boss Donald Trump saw some “very fine people” among the anti-Semitic white supremacists who marched in Charlottesville, Va.
In short, there will be no future Hamilton-style musical about Cohn.
Cohn did, on the other hand, make himself a good bit of money. The tax cut will save him many millions in the years ahead.
Mellon’s tax cut saved him millions, too—a rush of new fortune that would, years later, underwrite the political hobbies of his heir Richard Mellon Scaife, a fervid ideologue who expended hundreds of millions of dollars creating the infrastructure of America’s contemporary right wing. These millions helped turn the Mellon tax-cut orthodoxy of the 1920s into the not-ever-to-be-challenged conventional wisdom of today’s Republican Party.
That tax cut-obsessed party stands as Mellon’s legacy. What will Gary Cohn bequeath us?
Institute for Policy Studies associate fellow Sam Pizzigati co-edits Inequality.org. He is the author of The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press). His latest book, The Case for a Maximum Wage (Polity), will appear this June.