Washington was convulsed by accusations of spying, self-dealing and hypocrisy. Investigations multiplied.
It was 1924, and at the center of the anger and suspicion — fueled by government dysfunction and wealth inequality as gaping as it is in 2019 — were two millionaires.
One was the treasury secretary, Andrew W. Mellon, a financier and philanthropist and forerunner of Steven Mnuchin, a former Goldman Sachs executive who became President Trump’s treasury secretary.
Mnuchin is now the face of the administration’s quest to keep Trump’s tax returns from Congress. In a letter on Monday, he told House Democrats that he would not comply with their request to turn over the material, in a move that experts say could be contrary to a 1924 law stipulating that the secretary “shall furnish” such records to congressional committees. Mnuchin maintained that the request served no “legitimate legislative purpose.”
The story behind the 1924 law reveals how the currents creating chaos in present-day America reach back to the period before the Great Depression.
The law at issue in the strife over Trump’s taxes arose from a bitter dispute between Mellon and Sen. James Couzens (R-Mich.), a deep-pocketed adversary on Capitol Hill, over the lawmaker’s investigation of the IRS.
The tax feud became linked to the Teapot Dome Scandal, a bribery incident beginning in 1921 in which President Warren G. Harding’s interior secretary gave a political friend access to oil leases without competitive bidding.
Before Watergate, Teapot Dome was the benchmark for political scandal. The turmoil engulfed Congress. Sixteen special committees investigated possible misconduct involving the Interior and Justice departments, the Veterans’ Bureau and the U.S. Navy.
The congressional inquiries all ultimately concerned the question of how to control the powerful — how to erect a firewall between their financial interests and the work of governing the country.
Few men were more powerful than Mellon, a paragon of the prosperity that seemed to know no limit in the Roaring Twenties. He was a major donor to the Republican Party and served as treasury secretary in three GOP administrations.
In 1924, Mellon became involved in a bitter dispute with Couzens, a Republican lawmaker and former treasurer of the Ford Motor Co. The senator allied with the progressive wing of the Republican Party, which opposed the effort by Calvin Coolidge, who took over as president upon Harding’s death in 1923, to slash taxes.
Making his case against the administration’s plans, Couzens disclosed he had escaped a heavy tax burden by investing much of his wealth in tax-exempt securities, a practice that Mellon sought to limit by reducing surtax rates. But Couzens argued the treasury secretary’s fiscal strategy would “help the rich.”
Mellon seized on the senator’s revelation about his taxes to accuse him of hypocrisy for paying so little while seeking to block efforts to lower duties on other Americans. As he wrote to Couzens, “Must a system of taxation which permits a man with an income of over $1,000,000 a year to pay not one cent to the support of his Government remain unaltered?”
From the query, Couzens inferred — and some in Congress shared his view — that the treasury secretary had snooped around, consulting the senator’s tax returns. How else could he know his precise income?
The senator’s suspicion was highly consequential, prompting him to propose an investigation of the Bureau of Internal Revenue, later renamed the Internal Revenue Service, that yielded the Joint Committee on Taxation in 1926.
So, too, the inquiry helped lead to a change in tax law that could compel Trump to surrender his tax returns.
At the time, Mellon dismissed the investigation as an opportunity for Couzens to “vent some personal grievance,” according to a biography of the senator. Coolidge himself weighed in, complaining the Treasury Department had become the “victim of vague, unformulated and indefinite charges.”
As the investigation continued, it was thwarted by the inability of congressional committees to obtain tax returns. As a Republican congressman noted of the treasury secretary, “He, of course, had access to all the income returns and he used the information and made it public. Why give him any more rights in making these facts public than the rest of the people of the United States?”
Ensuring that Congress had equal access to the information was a way to address a perceived imbalance between the two branches, as George K. Yin, a law professor at the University of Virginia, noted in a 2016 article in the peer-reviewed Tax Lawyer journal.
An initial proposal to make tax returns fully accessible to the public was rejected in favor of more modest legislation allowing congressional committees to secure the information — a compromise designed to balance congressional authority with the privacy rights of individuals.
Today, that balancing principle could bear on Mnuchin’s argument to House Democrats that handing over Trump’s tax returns would open him up to potential privacy violations.
The legislative debate in 1924 was replete with reasons for congressional access to tax returns, which could similarly bear on the present standoff. Mnuchin argues the request by the House Ways and Means Committee lacks a legislative purpose.
Both the Teapot Dome Scandal and the conflict between Mellon and Couzens figured in House debates over granting Congress the power to compel the treasury secretary to hand over tax information.
Rep. John Nance Garner (D-Tex.), known as “Cactus Jack,” set forth a hypothetical situation that, in his telling, made plain the illogic of the existing rules. The House could request the records of one of its own members — say, himself — and be unable to obtain them without the approval of the president. “Now, I think the House of Representatives ought to have the power to ask the Secretary of the Treasury for these returns and get them,” he told his colleagues during the debate.
A fellow Democrat, Rep. Ralph. F. Lozier (Mo.), sounded a more populist note. To applause, he argued that the wealthy required scrutiny.
“The country has the right to know whether or not the tax returns made by the idle rich and by the gigantic corporations are fair and reasonable or based on evasion, fraud, and circumlocution,” he said. The provision, he promised, protected both “the rights of the ordinary citizen and ordinary corporation.”
Mellon, in hearings on the measure, pressed lawmakers to create guardrails for the dissemination of the information, including by examining the material in executive session and barring it from being discussed in floor debate or printed in the Congressional Record. The legislation limited which types of committees could receive the information but provided for these panels to submit certain information to the full chambers.
The provision was included in the Revenue Act of 1924, signed into law on June 2 of that year.
Further limits on the disclosure of tax returns were added in 1976, following revelations by the Watergate investigations about how President Richard M. Nixon and his associates had aimed to turn the tax agency into a tool of partisan warfare.
Changes made to the tax code over the past century have aimed to create a reasonable pathway for Congress to obtain tax returns — precisely when the president is not inclined to sign off on the disclosure.
The result is an unambiguous requirement that the treasury secretary furnish records to the appropriate committees.
With the Trump administration unmoved by that requirement, which Yin notes has never been tested in the courts, the states are stepping in to exert pressure. California last week became the latest state to advance a bill requiring presidential candidates to submit at least five years of tax returns to appear on the ballot.
Nearly 20 other states have done the same, taking a fight formed from a disagreement between two millionaires to the ballots of millions of voters.
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