The Social Origins of the Texas Tax Club Movement, 1924–1925

On October 30, 1924, G. H. Colvin, vice president of the Farmers and Mechanics National Bank of Fort Worth, invited a group of fourteen local businessmen to a protest meeting against heavy taxes on the rich. The purpose of the meeting was to demand a reduction in estate taxes and in the highest marginal rates of income tax. The assembled citizens denounced these taxes as “a serious handicap in financing development enterprises necessary to the progress and growth of our section of the country.” After discussing the evils of high tax rates and the merits of the tax cuts proposed by Treasury Secretary Andrew Mellon, they voted to urge Mellon to consider even deeper income tax cuts for the rich—a maximum surtax rate of 15 percent would be ideal, they agreed, instead of the current 40 percent, or Mellon’s preferred 25 percent. They then elected a resolutions committee that would draft petitions communicating their demands to the Treasury and to their Congressman, Fritz Lanham, who had voted against the Mellon tax cuts the previous spring. They also delegated a group of “leading taxpayers and most active business men” of Fort Worth to meet with Lanham and deliver their message in person. “[W] hile we may not be able to convert him to our way of thinking,” Colvin wrote after the meeting had adjourned, “we will at least deliver our souls and discharge our responsibility as citizens to our government.” With that, the first Texas tax club had formed. ¹

Within three months, there were more than two hundred such clubs in cities and small towns throughout the state, and within a year G. H. Colvin was the chairman of a statewide league of dues-paying Texas tax clubs with its own letterhead that was sending grassroots delegations to Washington, D.C., to lobby for the so-called Mellon Plan, which targeted tax cuts to the richest Americans. ² Both contemporary observers and subsequent scholars have credited the Texas tax clubs with swaying Congress, and Representatives William Green (R-Iowa) and John Nance Garner (D-Tex.) in particular, in favor of the Mellon Plan, and thereby bringing about the tax cuts in the Revenue Act of 1926—which included the steepest cut in top marginal tax rates in American history. ³

But who were these tax club activists, and why did they mobilize a grassroots movement in support of the Mellon Plan? The tax club movement appears to present a sociological anomaly—a movement demanding collective benefits for people richer than themselves. Few of the activists could have expected to receive a tax cut if their demands were granted. Almost no one in Texas owed income tax at the top rates. The income of the United States was heavily concentrated in the cities of the industrialized Northeast, and generations of agrarian radicals had fought for the progressive income tax precisely because it favored the sectional interests of the rural South and West. ⁴ Most observers in the 1920s would have assumed that a steeply progressive federal income tax was good for Texas.

Previous scholars have attempted to explain this anomalous movement by depicting the Texas tax clubs as puppets of an eastern industrial and financial establishment. Most accounts of the Mellon Plan focus on “corporate elites” or “financiers and industrialists” who used their financial power to create a “vast propaganda machine” on behalf of the tax plan. ⁵ The implication is either that the tax clubs were hired or that they were misled. I will argue instead that the tax club activists knew what was in the Mellon plan and supported it because they believed it dovetailed with interests of their own. The tax clubs were organized by mortgage bankers who saw income tax cuts as a way to deprive their competitors of capital. In particular, they reasoned that cutting the top rates of income tax would deprive the newest entrants into the farm mortgage market—the so-called land banks—of a valuable tax exemption.

The Politics of Mortgage-Backed Securities

The land banks were a new category of lending...