Harding appointed Charlie Dawes, known for being an effective financier, as the first director of the Bureau of the Budget. Dawes reduced government spending by $1.5 billion his first year as director, a 25% reduction, along with another 25% reduction the following year. In effect, the Government budget was nearly cut in ˝ in just two years. Harding believed the federal government should be fiscally managed similar to the private sector having campaigned "Less government in business and more business in government." "Harding was true to his word, carrying on budget cuts that had begun under a debilitated Woodrow Wilson. Federal spending declined from $6.3 billion in 1920 to $5 billion in 1921 and $3.3 billion in 1922. Tax rates, meanwhile, were slashed—for every income group. And over the course of the 1920s, the national debt was reduced by one third."
On March 4, President Harding assumed office while the nation was in the midst of a postwar economic decline, known as the Depression of 1920–21. By summer of his first year in office, an economic recovery began.
President Harding convened the Conference of Unemployment in 1921, headed by Secretary of Commerce Herbert Hoover, that proactively advocated stimulating the economy with local public work projects and encouraged businesses to apply shared work programs.
Harding's Treasury Secretary, Andrew Mellon, ordered a study that claimed to demonstrate that as income tax rates were increased, money was driven underground or abroad. Mellon concluded that lower rates would increase tax revenues. Based on this advice, Harding cut taxes, starting in 1922. The top marginal rate was reduced annually in four stages from 73% in 1921 to 25% in 1925. Taxes were cut for lower incomes starting in 1923.
Revenues to the treasury increased substantially. Unemployment also continued to fall. Libertarian historian Thomas Woods contends that the tax cuts ended the Depression of 1920–1921 — even though economic growth had begun before the cuts—and were responsible for creating a decade-long expansion. Historians Schweikart and Allen attribute these changes to the tax cuts. Schweikart and Allen also argue that Harding's tax and economic policies in part "... produced the most vibrant eight year burst of manufacturing and innovation in the nation's history." The combined declines in unemployment and inflation (later known as the Misery Index) were among the sharpest in U.S. history. Wages, profits, and productivity all made substantial gains during the 1920s.
Warren G. Harding - Wikipedia, the free encyclopedia