September 5, 2012
Former President Bill Clinton is highlighting today’s speakers at the Democratic National Convention in Charlotte. Liberals often attribute the strong American economy during the 1990s to Clinton’s tax hikes. But this just isn’t historically accurate.
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…From 1993 until 1997, the economy grew at 3.3 percent per year. 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.
Dubay warns that if President Obama persists in his plans to increase taxes, our country should expect continued economic stagnation:
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.
The kicker? The economy really began to expand in 1997 after Congress passed a tax cut:
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, 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.
Clinton’s tax hikes managed to slow the momentum of an economy that had everything going for it. Clinton came to office at the end of the Cold War during a leap in technological productivity. It was a time of technological innovation, including the Internet, low energy prices, and a low inflation rate. The economy grew despite his tax hikes, not because of them.
What do you think the president’s proposed tax hikes will do to our already hurting economy?