Much of the economic debate in Washington revolves around the silly Keynesian notion that politicians can stimulate an economy by borrowing money from the private sector and using the funds to make government bigger. That didn’t work for Hoover and Roosevelt during the 1930s, Japan during the 1990s, Bush in 2008, or Obama last year and this year, but the theory is convenient for politicians seeking ways to justify their natural tendencies. There are other factors that impact economic performance, however, and Amity Shlaes explains in the Washington Post that Obama is making the same mistakes as Roosevelt in some of these other areas. Here’s a blurb from her column, comparing Obama’s class-warfare tax agenda with FDR’s disastrous “soak the rich” law.
By fixating on the debt and stimulus plans, Obama and Congress are overlooking challenges to the economy from taxes, employment and the entrepreneurial environment. President Roosevelt’s great error was to ignore such factors — and the result was that sickening double dip.
…Income taxes, the dividend tax and capital gains taxes are all set to rise as the Bush tax cuts expire. The Obama administration portrays these increases as necessary for budgetary and social reasons. …The administration and congressional Democrats are also striving to ensure that businesses pony up.
…Roosevelt, too, pursued the dual purposes of revenue and social good. In 1935 he signed legislation known as the “soak the rich” law. FDR, more radical than Obama in his class hostility, spoke explicitly of the need for “very high taxes.” Roosevelt’s tax trap was the undistributed-profits tax, which hit businesses that chose not to disgorge their cash as dividends or wages. The idea was to goad companies into action.
The outcome was not what the New Dealers envisioned. Horrified by what they perceived as an existential threat, businesses stopped buying equipment and postponed expansion. They hired lawyers to find ways around the undistributed-profits tax. In May 1938, after months of unemployment rates in the high teens, the Democratic Congress cut back the detested tax. That bill became law without the president’s signature.
