Tag Archives: Great Depression

Herbert Hoover and Spending

I often read claims that President Hoover threw the American economy and people into the abyss of the Great Depression by reducing federal government spending: see here, here, here and so on.

As far as I can tell it is simply not true. While the President is not the only participant in regards to the budget, he certainly has some power. Indeed, there was some big spending under Hoover.

Year Nominal Billions 2010$
1929 3.127 39.87
1930 3.320 43.35
1931 3.577 51.31
1932 4.659 74.15
1933 4.598 77.12
Hoover 38.49% 77.90%
Comparison 47.04% 93.42%

Hoover was President from March 4 of 1929 through the same of 1933. Because the fiscal years during his time in office were July 1 of the previous year to June 30 of the numbered year, the budgets under Hoover are roughly 1930 to 1933. This means that under Hoover there was a 38.49% nominal increase to federal spending and a 77.90% real increase. When compared to the last Coolidge budget of 1929, federal spending was 47.04% higher in nominal terms and 93.42% higher in real terms.

That certainly isn’t a shrinking government.


Herbert Hoover and Taxation

Sylvia Nasar has an animated guide out to her book Grand Pursuit: The Story of Economic Genius. At 2:08 she says:

1931: President Herbert Hoover responds to the Great Depression with tax cuts. . .

As far as I can tell there are three significant pieces of legislation concerning taxation under Hoover: the Joint Resolution No. 133 of 1929, the Smoot-Hawley Tariff of 1930 and the Revenue Act of 1932.

It is true that there was a one year tax cut under Hoover. The Joint Resolution No. 133 of 1929 reduced the total marginal individual and corporate income tax rates by 1 percentage point for one year.

Though, there were also shocking tax increases. The most visually shocking changes due to the Revenue Act of 1932 were the increases to the total marginal rates, such as the bottom going up by a factor of more than 10 times and the top going up by a factor of more than 2.5 times. It seems to have also increased the number of tax brackets from 23 to 55.

It also permanently increased the corporate tax rate from 12% to 13.75%, with it being temporarily higher at 14.5% for 1932 and 1933. There were also excise tax increases that were prominent in revenue effects, such as a 2.5% tax on all manufactured articles.

As well, the personal exemption for single persons was reduced by $500 and $1,000 for married couples. In regards to purchasing power, $500 in 1932 has the same as $7,958.25 in 2010, and of course the adjusted $1,000 is double that. Also, an earned income credit which reduced tax liabilities by 25% for some definition of lower incomes was eliminated.

There is also the Smoot-Hawley Tariff of 1930, though there appears to be confusion as to the actual extent of the increase to the tariff level.

I am unsure of why Nasar’s video promotes her book in regards to Hoover in this way. While she is technically and narrowly correct, it ignores that it is dwarfed by the rest of what happened under Hoover concerning taxation. After all, clearly the time of President Hoover is prominent in the history of federal taxation in America not for a tiny and temporary tax cut but instead for large and long-lasting tax hikes.