Lessons From The Great Depression And One Of The Biggest Tax Hikes In US History

The chart above shows the highest marginal individual income tax rates from 1925 to 1945, using data from the IRS. The highest income tax rate was increased from 25% in the early 1930s, to 63% in 1932, and then to 79% in 1936. If you want to turn a recession into a depression with perverse fiscal policy, there’s probably no better, more effective way to accomplish that outcome than by more than tripling marginal tax rates from 25% to 79% in the face of an economic slowdown. Talk about an “economic buzzkill”….

Perhaps the new administration and Congress should seriously reconsider whether 2009 would really be a good time to raise taxes. If you want to turn an economic slowdown into a recession, or an average recession into a severe recession, or a severe recession into a depression, raising taxes would surely help make that happen. It surely helped turned the recession of 1929-1933 into the Great Depression.

Posted in Categories: Contributor, Economy, External Research, USA.

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Comment by jlounsbury59

2008-11-09 23:21:45

According to the Tax Policy Center, the Obama tax plan would raise the taxes on a couple with two children making $1,000,000 by 3.8% (and if making $2,000,000, 5.5%). It is disingenuous to compare this to the tax increases you cite for the 1930’s and 1940’s, especially when couples making less than $200,000 get a tax cut under the same plan.

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