Leftist Thomas Piketty, Another Economist Who Gets Historical Facts Wrong. President Herbert Hoover Raised Top Rate to 63% in 1932 Which Keynesian Economist Gets Wrong Hurting His Argument.

Leftist economist Thomas Piketty , is yet another of a long line of economists , who know nothing about history. Economist Robert Murphy busts Piketty for his wrong take on American economic history. Here's Thomas Piketty from his book Capital in the Twenty-First Century pages pages 506-507:

[T]he Great Depression of the 1930s struck the United States with extreme force, and many people blamed the economic and financial elites for having enriched themselves while leading the country to ruin. (Bear in mind that the share of top incomes in US national income peaked in the late 1920s, largely due to enormous capital gains on stocks.) Roosevelt came to power in 1933, when the crisis was already three years old and one-quarter of the country was unemployed. He immediately decided on a sharp increase in the top income tax rate, which had been decreased to 25 percent in the late 1920s and again under Hoover’s disastrous presidency. The top rate rose to 63 percent in 1933 and then to 79 percent in 1937, surpassing the previous record of 1919.

Economist Robert Murphy explains:

(1) The top rate was lowered to 25 percent in 1925, not exactly “the late 1920s” and certainly not by Herbert Hoover. (I think the brief 24 percent rate in 1929 was a one-off adjustment in the surtax, but I am not certain and I’m not going to go look it up right now.)

(2) The top rate was jacked up to 63 percent in 1932, not 1933, and it was done by Herbert Hoover, not by FDR. (Note that the 63 percent rate applied to the 1932 tax year, so we can’t rescue Piketty by saying he was referring to the first year of impact rather than the passage.)

(3) The top rate was raised to 79 percent in 1936, not 1937. (If you want to cross-reference another source, this page also agrees that the 79 percent rate kicked in in 1936.)

Now if there had just been one instance of Piketty being off by a single year, I would excuse it by saying maybe he got mixed up in interpreting how US tax laws work. But to say (or did he merely imply?) that Hoover was the one to lower tax rates to 25% is just crazy; Hoover wasn’t inaugurated until March 1929, and the top rate was lowered to 25% back in 1925.

Furthermore, notice that this isn’t an “arbitrary” screwup on Piketty’s part: On the contrary, it serves his narrative. It would be really great for Piketty’s story if the right-wing business-friendly Herbert Hoover slashed tax rates to boost the income of the 1%, thereby bringing in a stock bubble/crash and the Great Depression. Then FDR comes in to save the day by jacking up tax rates. Except, like I said, that’s not what actually happened.

Here's the tax code down below.



As Megan Mcardle reminds us:

Hoover did not tighten up on spending. According to the historical tables of the Office of Management and Budget, spending in 1929 was $3.1 billion, up from $2.9 billion the year before. In 1930 it was $3.3 billion. In 1931, Hoover raised spending to $3.6 billion. And in 1932, he opened the taps to $4.7 billion, where it basically stayed into 1933 (most of which was a Hoover budget). As a percentage of GDP, spending rose from 3.4% in 1930 to 8% in 1933--an increase larger than the increase under FDR, though of course thankfully under FDR, the denominator (GDP) had stopped shrinking.

Herbert Hoover: the father of the New Deal, no matter what your tenured professor tells you.