Responding to Bruce Bartlett on the Clinton tax hikes and the 1990s boom


Bruce Bartlett on the “Clinton tax challenge” for Republicans in the NYT:

Republicans are adamant that taxes on the ultra-wealthy must not rise to the level they were at during the Clinton administration, as President Obama favors, lest economic devastation result. But they have a problem – the 1990s were the most prosperous era in recent history. This requires Republicans to try to rewrite the economic history of that decade.

On August 10, 1993, President Bill Clinton signed the Omnibus Reconciliation Act of 1993, a law which did the following:

– created 36% and 39.6% income tax rates for individuals in the top 1.2% of the wage earners.

– created a 35% income tax rate for corporations

– repealed the cap on Medicare taxes

– raised transportation fuels taxes by 4.3 cents per gallon

– raised the taxable portion of Social Security benefits was raised.

I’m not a Republican, but I will take up the issue of explaining why the 1990s were prosperous despite the Clinton 1993 tax hikes. Some thoughts, in no particular order:

1. When Clinton signed that bill, the economy had been growing for 9 straight quarters, including by 3.4% annually over the previous six quarters. So the economy had built up a head of steam. Today’s economy, by contrast, rose less by less than 2% last year and may end up doing no better that this this year or next.

2. The decade saw a big drop in oil prices, from $23 a barrel in 1991 to $12 in 1998, boosting real disposable incomes.

3. Government spending declined — meaning fewer resources as a share of the economy were being used unproductively by Washington — from 22.3% in 1991 to 18.2% in 2000.

4. There were really two 1990s. After the 1990-91 recession, the economy grew by an average of 3.1% a year from 1992 through 1995. That’s exactly how fast the economy grew from 1965-1991.

But from from 1996-2000, the economy grew by a spectacular 4.4% a year. This is the period that defines the decade in the mind of many people. Those years saw …

– a big tax cut, lowering the top capital gains tax rate to 20% from 28%;

– a big surge in private investment, particularly in the software and business equipment category which contributed a full point to GDP during those years. Did the Clinton tax hikes cause that or was it a combo of the Internet Bubble, Year 2000 preparations, the cap gains cut, and the beginning of a computer networking and communications revolution?

I guess I look at this issue holistically. The U.S economy entered the 1990s after undergoing a huge revamp in the 1980s: marginal tax rates were lowered from 70% to 28%, the inflation menace slayed, regulations reduced, and businesses got restructured and way more efficient. Then in the 1990s, government spending and debt were reduced, investment taxes cut, and a technological revolution kicked into high gear. Plus the Soviet Empire collapsed and the cloud of possible nuclear holocaust was lifted. Market capitalism was on the march. People were optimistic as heck about the future. Recall that The Matrix came out in 1999 and call the era “the peak” of human civilization.

And in the midst of all that, taxes were raised in 1993. So that means taxes should be raised now — and Obama wants to do so in the most economically harmful and inefficient ways — in a time of economic stagnation and pessimism? Not seeing it.

7 thoughts on “Responding to Bruce Bartlett on the Clinton tax hikes and the 1990s boom

  1. You might want to consider Harry Dent’s population demographics, The Coming Boom Ahead. His theroy also explains the “business cycle”

  2. Bartlett, for whatever reasons he chose, decided to become a token handmaiden of the left.

    To assume that economic growth is variable dependent only on a single independent value (top marginal income tax rates) is nonsense. To make the further assumption that the relationship is inverse simply insane, but economic insanity goes hand-in-hand with tax-grabbers, statists and politicians in general

    • Exactly! Word is, like a few other conservatives, Bartlett soured on Bush over Iraq. This lead to Bartlett unleashing all manner of harsh attacks on Bush’s spending (not unjustified, though even with two wars Bush never got near early-Reagan spending as a % of GDP), while he routinely apologizes for Obama’s obscene spending that makes Bush a piker by comparison. He is now constantly knifing old friends in the back, and is even a part of “the stimululs should have been larger” chorus in rationalizing Obama’s slow economy.

      I have zero respect for turncoats, especially intellectually dishonest ones.

    • They absolutely do have the right to prteost, which is a big part of the irony here. The very system they are bucking against is unique in the fact that it even allows prteosts of this nature. Under most social structures, even if this prteost had any significant merit, it would have been pelted with tear gas, ran over by tanks, and dragged out back and shot before the first week was out.Just as they have the inalienable right of prteost, those of us with a little sense and some real world experience have the inalienable right to admonish them for their foolishness.I’ll grant that there may (and I use the word generously) be some reasonable demands floating around out there. But what tiny shred of logic and reason that may exist is monumentally insignificant compared to the rest of the drivel that oozes forth. You’ve all seen the list of demands, I take it? I know, I know, shame on use for picking one or two isolated extremist points that exist in a sea of reason, right?Crony capitalism and government bail-outs are a scourge on true capitalism. Every hard-working, red-blooded patriot knows and agrees with this. I was and still am the first to cry foul whenever another giant car manufacturer, or bank, insurance company, or (LOL!) alternative energy conglomerate has billions of hard-earned tax dollars given to them in order to save them from their own poor business practices. This point (quite possibly the only point), I do agree with. The difference between me and the lazy, socialist imbeciles camping out on Wall Street is, I, as a free-thinking, educated, INFORMED American, know where the true source of corruption is concerning this issue. And it’s not the corporations accepting this money. It’s the bloated marxist government establishment that currently exists in Washington.Leveraging advantages is at the core of capitalism, and just like any other organizational entity, there will always be a select few who will attempt to take unfair advantage of a situation (gee, where I have heard that select few line before, hmm?). When the government stops posting bail outs and leaving these businesses to succeed (or fail) according to their own devices, only then will this once great country return to its former glory.If you really want things to be good again, then what you should do is start supporting a return to the constitution. The founding fathers’ vision was brilliant and timeless. I agree, the current state of affairs is dismal. I agree the government has gotten too big for its breeches. I agree that taxes are too high. I agree that corruption should not be tolerated.What I don’t agree with is conducting what amounts to a riot, for essentially no other reason than to be part of a moment. What I don’t agree with is taking a dump on the hood of a car to make a point. What I don’t agree with is demanding that the debt I freely and unwisely chose to run up be forgiven just so I don’t have to pay back what I rightly owe. What I don’t agree with is the distribution of wealth. What I don’t believe in is a living wage. I guess the point I’m trying to make is, I don’t agree with is the philosophy of a bunch of whiny, lazy, trust fund drama queens who have never worked a day in their lives.

  3. The luxury boat tax put in place by Bush and the Democrat Congress in 1990 devastated all kinds of boat and boat related industries. The luxury boat tax was also repealed in August 1993. What effect did this have on negating the tax increase of 1993?

  4. So, how does the formation of an ENTIRE NEW INDUSTRY (the personal computer revolution) impact this growth? Bartlett is a fool to dismiss that any harm done by Clinton was more than overwritten by the surge of investment in this promising new industry and all its fall out industries.

    On the other hand, I see that the the “personal” Laffer curve (I forget the name of the woman who did the paper on this). I know multiple people who are in their mid 50′s, great jobs, no chance of layoffs, who have decided that due to the combination of tax hikes and increased health care costs (don’t underestimate this – ours are now starting to go through the roof, and a lot of people will be doing their medical opt ins in Oct/Nov) that they are better off retiring now, reducing their salary level, and reducing their consumption.

    The liberals are communists. Like all other communists, they think that “this time we can do it right…” Obama is no different from the rest of the mindless lemmings…

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