This is not inside-baseball economics stuff – don’t be afraid. Arthur B. Laffer at the Wall Street Journal has a good historical review of the Great Depression and what happened with tax rates during the period.
Laffer defines the beginning of the problem, the Smoot-Hawley tariff implemented in 1930.
It was the largest single increase in taxes on trade during peacetime and precipitated massive retaliation by foreign governments on U.S. products. Huge federal and state tax increases in 1932 followed the initial decline in the economy thus doubling down on the impact of Smoot-Hawley. There were additional large tax increases in 1936 and 1937 that were the proximate cause of the economy’s relapse in 1937.
The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I’d give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s.
You can take Laffer with a grain of salt if you’d like as we remember his 2006 show-down with Peter Schiff (video below), but you can not argue with his fact in today’s WSJ piece.
There’s not much I can add, I’d just suggest you read it and absorb, and please do add your comments below.
Bonus video for the heck of it…