Clinton “Miracle” Was Really Spending Slowdown (Gingrich Revolution) and Tax Cuts of 1997

Confounded Interest ^ | 09/09/2012 | Anthony B. Sanders

[whitedog57]

President Clinton loves to mention how he raised taxes in 1993 and generated a positive budget balance (in 1998, 1999 and 2000).

But let’s take a closer look at the link between Clinton’s tax increase and the later budget surpluses.

In 1993, President Clinton signed a massive tax increase that included:

– An increase in the individual income tax rate to 36 percent and a 10 percent surcharge for the highest earners, thereby effectively creating a top rate of 39.6 percent.

What is not mentioned by President Clinton is the 1997 Tax Cut. The Republican-led Congress passed a tax-relief and deficit-reduction bill that was resisted but ultimately signed by President Clinton.

In addition, what is not mentioned by President Clinton is the stabilization of government outlays as a percentage of GDP after “The Republican Revolution” in November 1994. Note the stabilization of outlays as a percentage of GDP in 1995-2000.

Also noteworthy is the massive increase in government outlays from 2008 to 2009 (20.8 to 25.2). Outlays as a percentage of GDP have remained around 24.1-24.3% during President Obama’s first term in office, far above the 18% at the end of President Clinton’s 2nd term in office.

The other Clinton “Miracle” or myth was the Clinton paid down the Federal debt. This is both true and false. The Federal government debt was reduced under Clinton, but the OFF BALANCE SHEET debt of agencies and the Government Sponsored Enterprises (Fannie Mae, Freddie Mac, Federal Home Loan Banks, etc.) grew at a faster rate so that the aggregate Federal debt still grew at its historic speed.

So, the Clinton budget surpluses of 1998, 1999 and 2000 coincided with decreasing spending as a percentage of GDP AND the Republican led tax cuts of 1997.

[whitedog57]

This economist posted this earlier today, but I just awoke in the failed state of California, three hours behind EST. Great analysis of the Clinton MYTHS!

[DIRTYSECRET]

Simple facts and TRUE. Doesn’t matter. Too complicated for TOO MANY voters.

[Arthurio]

Don’t forget the dotcom bubble.

[Reaganite Republican]

[Luigi Vasellini]

BTTT

[Shethink13]

There are a couple of other issues that contributed to the appearance of a falling deficit during the Clinton years.

One was the fact that during the budget impasse between the Republican Congress and Clinton (1995-96), there was a period of several months where the Federal spending levels were at 80% of the previous years budget while the two sides battled out a budget agreement. Did anyone even notice that we all survived just fine with this huge budget cut?

The other is that Clinton refinanced the debt with short-term, lower interest rate loans, which lowered the interest payments on the debt, thus lowering the deficit. This made him look good and had the added effect of making whoever followed him look bad when the loan term ended and the debt had to be refinanced.