Did Herbert Hoover Cut Spending?
Paul Krugman makes an astounding assertion in the New York Times:
Remember, Herbert Hoover … slash[ed] spending and raise[d] taxes in the face of the Great Depression. Unfortunately, that just made things worse.
Hoover “slashed spending”? Um–no. He was hardly a model of fiscal restraint, laissez-faire or anything of the sort.
Federal spending, 1929 (last Coolidge budget) to 1933 (last Hoover budget)
| Year | Federal spending ($ billions) |
|---|---|
| 1929 | $3.8 |
| 1930 | $4.0 |
| 1931 | $4.1 |
| 1932 | $4.3 |
| 1933 | $5.1 |
That’s a 55% increase in nominal spending during Hoover’s term in office, which was a period of marked deflation. Put another way, spending increased from 4% of GDP to 9% of GDP–a doubling of spending in four years.
Krugman’s not wrong on one thing: Hoover sure did raise tax rates on income.
Federal tax revenue, 1929 (last Coolidge budget) to 1933 (last Hoover budget)
| Year | Revenue from taxes ($ billions) | Top tax rate |
|---|---|---|
| 1929 | $4.2 | 24% |
| 1930 | $4.2 | 25 |
| 1931 | $3.4 | 25 |
| 1932 | $2.5 | 63 |
| 1933 | $3.0 | 63 |
Nominal tax revenues collapsed even with Hoover’s higher tax rates (by today’s progressive definition, that means that from 1931 to 1932 he enacted a 25% tax cut). Even with the 160% higher rates, the percent of GDP taken increased just 25%, from 4% to 5% of GDP. Could there be a link between higher tax rates and reduced economic activity and reduced revenue?