"We Have To Tax Something Somewhere"

There is much talk these days about the Great Depression. Amity Shlaes's book The Forgotten Man couldn't be timelier although there are places where it is not being enthusiastcally embraced, or even read (hint: in the Office of the President Elect).

I'm not going to wade into this massive subject, but I do want to highlight a little known aspect of Depression Era policy that doesn't get enough attention (and thus opprobrium) - the check tax. Read here for some background (and to discover that the title of this post was a quote from a then member of the Great Sausage Factory). The details of the debate are worth your time but here is the quick summary: Congress and the Hoover administration levied a tax on checks, so people pulled their cash out of banks in order to transact. Why pay your $2 milk bill via check if you get hit with a tax to do so? Same went for paying employees. Turns out that paying employees via check was a relatively new concept too, and Congress was warned that a check tax might encourage "going back to the old way" of handing out cash on payday. Well, the logic represented by the quote in the title of this post carried the day and we got a check tax. Guess what happened? People took cash out of the banking system. Muliplier effect? We got it in reverse.