Herbert Hoover Dramatically Increased Government Spending; Budget Surpluses Became Deficits; Taxes Were Raised; the Smoot-Hawley Tariff Was Imposed

Hoover also dramatically increased government spending during the depression. The federal government went from surpluses to deficits from 1930 to 1931. Since the government is a consumer, as I discussed in chapter 2, any increase in consumption beyond its appropriate bounds—beyond the protection of individual rights—detracts from the ability to produce wealth.

In addition, taxes were raised in 1932 to help pay for the additional spending. The tax increase was more onerous for high-income earners. The tax rate on the highest income earners was raised from 25 to 63 percent. Higher taxes on the wealthiest income earners are particularly destructive. First, they are immoral because they sacrifice the rich to the poor by redistributing income from the former to the latter. Second, higher taxes on the wealthy take money away from the most productive individuals in the economy and redistribute it to the least productive individuals. As discussed in chapter 2, this reduces the productive capability and standard of living.

Hoover also raised tariffs dramatically and effectively banned immigration. The Smoot-Hawley Tariff that was passed in June of 1930 effectively imposed a tax rate of 60 percent on more than 3,200 products and materials imported into the United States. The tariff did not cause the depression, as is sometimes believed, but it did make the depression worse. The Smoot-Hawley Tariff did not cause the Great Depression because it was imposed about a year after the depression had already begun.

—Brian P. Simpson, Money, Banking, and the Business Cycle, vol. 1, Integrating Theory and Practice (New York: Palgrave Macmillan, 2014), 206-207.