What Happened When FDR Did What Obama Is Doing?

by Burt on September 20, 2011

Presidents Roosevelt and Obama both wanted to raise taxes in the midst of high unemployment and hard times. President Obama’s latest proposal is a $1,500,000,000,000 tax hike, mainly on rich people and corporations. They need to pay their “fair share,” Obama insists, although what that fair share is, he won’t say. Currently, million-dollar-earners make up 0.2% of the population and they now pay 21% of all U.S. income taxes. But apparently their fair share is more than that.

With the House of Representatives in Republican hands, President Obama is unlikely to get his tax hike. But in the mid-1930s, FDR had control of both houses of Congress, and when he proposed tax hikes on the rich, he got his way. He raised the top income tax rate to 79% on multimillionaires. Then he was able to pass a second tax on corporations that prevented them from reinvesting their profits. He also slipped in a luxury tax on jewelry.

Did FDR’s high taxes raise money and help balance the budget? No, the budget deficit persisted, and in fact grew larger. Investors quit investing and rich people put less capital in corporations and jewelry. But since federal spending tended to rise during the 1930s (except for a 0.7% decline in 1937), the national debt ballooned and doubled during FDR’s first seven years in office.

In May 1939, as unemployment again surpassed 20 percent, the Secretary of Treasury Henry Morgenthau announced, “We have tried spending money. We are spending more than we have ever spent before and it does not work. . . . I say after eight years of this Administration we have just as much unemployment as when we started. . . . And an enormous debt to boot!”

President Obama is trying the same tax and spend strategy but is expecting a different result. Some say that is the definition of insanity, but President Obama is hoping it is the definition of re-election.

Comments on this entry are closed.

Previous post:

Next post: