Sunday, September 9, 2012

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

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

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.
(Excerpt) Read more at confoundedinterest.wordpress.com ...

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