The great depression of 1929-1939 was the longest economic slowdown in most of the developed western countries. In the US, it started in late 1929 after the American stock market crashed. The crashing of the stock market had serious ramifications in the US since most investors lost huge amounts of cash. Consequently, there was a reduction in consumer and investment spending this, in turn, led to a decline in output and high unemployment. This paper critically discuss the most important factor that led to the end of the great depression.
The end of the great depression was brought about by changes in the tax regime. The changes in tax regime were aimed at reducing the taxes and, therefore, encouraging entrepreneurs to create more jobs for veterans returning from the Second World War and the unemployed citizens. Initially, the taxes were too high, and businesses needed more incentives to enable them to expand. Taxes were as high as 94% on all income over $200000 while corporate tax was as high as 40% on other profits.
The US Congress repealed the tax regime to reduce the corporate tax and marginal income tax to a maximum of 38% and 82% respectively between 1945 and 1948 (Folsom, 01). The reduction in taxes relayed the message to the businesses that they could keep much of the profits they made. Reduced taxation brought about certainty and investors knew they could invest again and be allowed to make and keep their profits.
The change in tax regime also brought about more free markets, balanced budgets and reduced taxation to the investors’ profits (Folsom, 01). Consequently, unemployment was cut down to around 4% and persisted at that level for the rest of the decade. This signified the end of the great economic depression