Yes the U.S. Government Did Raise Taxes Alongside the Smoot–Hawley Tariff Act of 1930 and the Results were Catastrophic

the staff of the Ridgewood blog

Ridgewood NJ, the Smoot–Hawley Tariff Act of 1930 is widely known for raising U.S. tariffs on thousands of imported goods, triggering retaliatory trade wars and deepening the Great Depression. But what many people don’t realize is that tariffs weren’t the only form of revenue the U.S. government relied on during this turbulent time. So, did the government also raise taxes in this period? The answer is yes—significantly.

Tariffs and Taxes: A Dual Economic Strategy During Crisis

The Smoot–Hawley Tariff Act: Protectionism Gone Wrong

Passed in June 1930, the Smoot–Hawley Tariff Act raised tariffs to historically high levels, affecting over 20,000 imported goods. It was meant to protect American farmers and manufacturers from foreign competition during the economic downturn.

However, instead of boosting domestic industries, the law sparked retaliatory tariffs from U.S. trade partners, which caused exports to plummet and global trade to contract sharply.

The Revenue Act of 1932: One of the Largest Tax Increases in U.S. History

Just two years later, in response to skyrocketing federal deficits and worsening economic conditions, the U.S. government passed the Revenue Act of 1932, under President Herbert Hoover.

Key Tax Increases in the Revenue Act:

• Top income tax rate rose from 25% to 63%—a dramatic increase aimed at the wealthiest Americans.

• Corporate income taxes were also raised.

• Excise taxes were introduced or increased on goods like gasoline, alcohol, and telephone service.

• Estate and gift taxes were increased to bring in more federal revenue.

This tax hike occurred during a shrinking economy, which many economists now view as a misstep that likely deepened and prolonged the Great Depression.

Why Raise Taxes During a Depression?

The federal government was facing a growing budget deficit due to:

• Collapsing tax revenues from falling incomes and profits.

• Increased spending on relief efforts.

• Falling customs revenue due to the collapse in international trade (thanks in part to Smoot–Hawley).

In the absence of modern tools like large-scale borrowing or monetary stimulus, policymakers turned to tax increases as a way to balance the budget—a move that proved harmful during a time of economic contraction.

Economic Impact: A Double Blow to Recovery

The combination of:

• High tariffs (Smoot–Hawley), and

• High taxes (Revenue Act of 1932)

…created a double drag on the U.S. economy.

• Consumers had less disposable income due to higher taxes.

• Exports collapsed because of retaliatory tariffs.

• Businesses struggled with lower sales and higher tax burdens.

Unemployment soared to 25% by 1933, and the U.S. economy contracted by nearly 30% between 1929 and 1933.

Key Takeaway: Tax Policy and Trade Policy Both Matter

While the Smoot–Hawley Tariff Act is more infamous, the revenue-raising tax policies of the early 1930s also played a significant role in worsening the Great Depression. Policymakers’ attempts to balance the budget with higher taxes—during a time of severe economic downturn—are now viewed as counterproductive by most modern economists.

Conclusion: Lessons for Modern Fiscal and Trade Policy

The early 1930s offer a powerful economic lesson: protectionism and high taxation during a downturn can deepen the crisis. Today, governments are more cautious about raising taxes or implementing restrictive trade policies during recessions, using deficit spending and central bank tools to stimulate growth instead.

Understanding the historical context of both tariffs and taxes in the Great Depression helps us appreciate the delicate balance needed in economic policymaking—especially during times of crisis.

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