How To Make a Weak Economy Worse: Raise Taxes
"Mr. Obama might want to stick to a moderate approach. FDR's war against business played to the crowd, but it hurt the economy. While monetary policies impeded recovery in the late 1930s, it was the administration's assault on companies and capital that ensured the Depression's duration. By 1935, FDR decided that firms, especially big firms, were impeding recovery. They must now redeem themselves and save the economy by sacrificing—or else.
The attacks started with taxes. In 1935, well before the "hatred" speech, FDR led Congress in passaging a law that replaced a flat rate on corporate income with a graduated rate—itself a penalty on larger firms. Personal income taxes went up, as did other rates (see charts above). In 1936 FDR signed into law the undistributed profits tax, which aimed to force reluctant firms to disgorge cash as dividends or by paying higher wages. This levy too was graduated, with a top rate of 27%.
The result of it all was the Depression within the Depression of 1937 and 1938, when industrial production plummeted (see chart below) and unemployment climbed back into the higher teens.
The 1930s story suggests not that any individual reform is wrong per se. It reminds us rather that frustrated presidents are inconsistent, that antibusiness policies are cumulative, and that hostility yields more damage than benefit. Presidents can choose between retribution and recovery. They cannot have both."
MP: In other words, the 1930s story suggests that if you want to have an unhappy ending, a "double-dip" recession, and stalled economic growth there's one sure way to do it: raise taxes during a fragile period of economic recovery. Like 2010.