Posted on 09/08/2012 7:01:46 AM PDT by Son House
President Obama argues that President Clinton’s economic record is proof that the current economy would grow if Congress passed the tax hikes he has long proposed. The American public should not fall for this misleading argument.
The historical record is clear: The economy grew slower than it should have in the years after Clinton’s 1993 tax hike. The strong economic growth that is associated with his presidency occurred only after he agreed with Congress to cut taxes in his second term.
President Obama’s cursory and errant analysis of recent history has serious implications for policymaking today. If Congress raises taxes based on the faulty notion that tax hikes have no ill effects on economic growth, it will impede the still-struggling recovery and keep millions of Americans on the unemployment rolls far too long.
Unexceptional Growth
A favorite liberal argument is to attribute the U.S. economy’s strong performance during the 1990s to President Clinton’s economic policies, chief among which was a huge tax increase.
Clinton signed his tax hike into law in September 1993, the same year he took office. It included an increase of the top marginal tax rate from 31 percent to 39.6 percent; repeal of the cap on the 2.9 percent Medicare tax, applying it to every dollar of income instead of capping it to levels of income like the Social Security tax; a 4.3 cent increase in the gas tax; an increase in the taxable portion of Social Security benefits; and a hike of the corporate income tax rate from 34 percent to 35 percent, among other tax increases.[1]
The economic defense of the Clinton tax hikes does not hold up against the historical facts. The economy did exhibit economic growth during the 1990s, but it was well below potential. Moreover, rapid growth did not occur soon after the tax hike—it came much later in the decade, when Congress cut taxes. After the 1993 tax hike, the economy actually slowed to a point below what one would expect, considering the once-in-a-generation favorable economic climate that existed at the time.
As for the overall economic recovery, it started well before President Clinton took office. In January 1993, the economy was in the 22nd month of expansion following the recession from July 1990 to March 1991.
In addition to coming into office in the midst of an economic expansion, Clinton also benefited from a very unusual confluence of events that created a remarkably favorable environment for rapid economic growth:
With these factors clearing the way, the economy should have displayed spectacular and accelerating growth in the years immediately after Clinton entered the White House, but growth of that magnitude did not materialize until later in the decade.
From 1993 until 1997, the economy grew at 3.3 percent per year.[4] While solid, this growth was certainly not exceptional. During that same time, real wages declined, despite the perception that the 1990s were an era of unmitigated abundance.[5]
It was not until after a 1997 tax cut, passed by Congress—a tax cut President Clinton resisted but ultimately signed—that the spectacular growth kicked in. While small in static revenue impact, the 1997 cuts included a reduction of the capital gains rate from 28 percent to 20 percent. This opened the capital floodgates necessary for entrepreneurs to develop, harness, and bring to market the wonders of the new information technologies.
Business investment skyrocketed after the tax cut,[6] and the economy grew at an annualized rate of 4.4 percent—33 percent faster than after the Clinton tax hike—from 1997 through the end of the Clinton presidency. Real wages reversed their downward trend and grew 1.7 percent per year during the same time.
Altogether, how much worse did the economy perform because of the Clinton tax hike? The data from the period do not provide a clear answer. What is clear is that the economy performed well below reasonable expectations given the favorable conditions existing in the years after the tax hike—and took off after the oft-forgotten tax cut.
Lessons for Today
President Obama defends his tax hike desires by pointing to the Clinton tax hikes as evidence that the economy can withstand higher taxes. But if the Clinton tax hikes were powerful enough to slow an economy that had everything going in its favor, what would tax hikes today do to an economy that has everything working against it?
Economic growth is slow and declining. The unemployment rate remains stuck over 8 percent, and there appears to be little hope for it to fall in the near future.[7] The President should not be looking for policies that the economy can withstand but for policies that will encourage it to grow.
At best, tax increases would slow the already stalled recovery and, at worst, would reverse it altogether. A slowed recovery or double-dip recession would further reduce the chances that the more than almost 13 million Americans currently looking for work would find jobs in the near future. To make matters worse, President Obama’s tax hikes would add even more Americans to that already-too-large figure.
Clinton and Obama both want to be credible, yet when you look at the details of what they are trying to present, it is clearly evident they don't have a grasp of the Economic Policy cause and effect.
Obama cries for details from Romney's, but don't understand the ones behind what he is talking about. He couldn't even manage the details of cutting the expenses he promised when he said he would cut the deficit in half, yet thinks he can and has managed the economy for the better...
Even if everyone's goal is to be in the Middle Class, and the Middle Class standard is lowered, it doesn't work, just ask the East Germans how that turned out.
Thank you for posting this... LONG OVERDUE STORY to refute the crapola being put out by Bubba, the Dem Media, and the Obama liars. Thanks to Clinton’s tax hike (retroactive to Jan. 1, 1993, before he was sworn in), the economic recovery (which began around a year before the election despite “it’s the economy stupid” media meme) was quite muted by the standards of the previous decade. It wasn’t until the GOP took over Congress in 1995 and the passage of the reduction in the cap gains tax rate (which poured in over $100 billion in tax revenues each year in the late 1990’s) that growth took off and the budget was balanced. At the beginning of his term, Bubba’s budget deficits were always over $200 billion “as far as the eye can see.”
The other key to the Clinton era prosperity was the earlier (1980’s and early 1990’s) investment in technology (networking, the internet, computers, cellphones) and biotech that came to fruition and maturity in the 1990’s. Clinton was a lucky recipient of all of that capitalist productivity.
Our side needs to do a hell of a lot more killing the media narrative and continuing to fight old battles over the Reagan years, the Clinton years, and the Bush 43 years.
We let these opinions form and then fight the battles on the other team’s terms. The fact that Bill Clinton is ‘international super hero’ and GWB is in hiding is a terrible disservice to the ideas of conservationism.
Logic alone tells you the higher the expense, the lower the prosperity.
Stealing your GREAT comment for my FB.
There is a video (sorry I don’t have the link, Hillary debate, I think) of 0bama answering a question on the topic of taxed. Someone points out to him that revenues increased when taxes were lowered and gives specific examples.
0bama’s response was that he didn’t want to cut taxes to increase revenues because that wouldn’t be “fair.”
I think this should be played over and over and over as a campaign ad. To me, this is classic 0bama. Damage the country because it fits with your idea of what is “fair” (soaking the rich and destroying America).
But Clintoon had to do it as soon as possible so the "news" media could cover it up (not mention it) and the sheeple would forget about it by the next election.
Bump
The Clinton era that everyone seems so nostalgic for is really two eras: pre-Newt and post-Newt. Pre-Newt we had increased taxes, an attempt to pass Hillarycare, the planting of the seeds of the subprime crash through the strengthening of the Community Reinvestment Act, and slow growth. Post-Newt, i.e. after the 94 midterm elections, Clinton was compelled finally to accept welfare reform and tax reductions and we had fast growth and a budget that was "balanced" if you ignore federal borrowing from the Social Security System. Newt saved Clinton's Presidency.
bm
“Lies, damn lies, and statistics.” Never been said better.
Another Duhbama moment. Thanks Son House.
Every FReeper should be emailing this out. We’ve given the grifter Clintons an easy pass. Remember Waco, Elian Gonzalez, Vince Foster, etc. These people are smiling vipers and their daughter is being groomed for a leading role on the plantation.
Clinton effectively conceded Heritages' claim.
Reagan reduced taxes and growth took off.
But pros/libs/dems have drumbeat for decades how evil he was.
So if you point this out they spew.
Everyone should Google JFK’s “Tax Cut Speech”, learn it, quote
it, print it and hand it to dems and ask them to explain it
and the history behind it. Make them repudiate their own hero.
Sadly, they will spin and deny history.
I would add this- not only did Clinton's tax hikes slow growth, but they did next to nothing for helping unemployment rates. Under the BLS numbers, official unemployment was 6.4% when he signed the tax hikes in September, 1993. By January, 1994 unemployment jumped to 7.3%. We didn't see numerous months of 4% unemployment until... yep, you guessed it 1997, the year of the tax cuts.
Do they think this won’t get out before the election. In other words, how stupid could they be to not know the detailed cause and effect of the policies during Clinton’s time as President, or try to present something that isn’t even subjective, it’s wrong, except if Clinton is given credit for the Fed lowering interest rates and the Republican tax cuts.
So how did that work out?
Ick.
Republicans never used it.
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