Did Herbert Hoover Cut Spending?

Nathaniel Ward — Wed, 04 Feb 2009 04:34:24 +0000

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?

Nathaniel Ward » Hoover

Did Herbert Hoover Cut Spending?