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Take the Deal

President Obama has increasingly reminded us that tax rates were higher during the Clinton presidency and had little negative impact on the economy. For example, today’s top marginal federal income tax rate is 35% while under Clinton it was 39.6%. I’d also remind you that many more poor people paid federal income taxes under Clinton than do today. Would someone on the left support a move in that direction?

Consider the following. The Clinton Administration was surprised by the surpluses it ran, and I’d remind you that it did not run surpluses until 1998. Remember, he was elected in ’92 and inaugurated in ’93. So let’s look at two years during his Presidency, 1995, when the budget was $164 billion in deficit (about $240 billion in today’s dollars) and then again in 2000 when the budget was in surplus by $236 billion (about $306 billion in today’s dollars).

In 1995, total federal expenditures were (in 1995 dollars) $1.5 trillion ($2.2 trillion in today’s dollars). In that same year, GDP was $7.415 trillion. Thus, federal spending was 20.44% of GDP.

In 2000, total federal expenditures were (in 2000 dollars) $1.8 trillion ($2.3 trillion in today’s dollars). In that same year, GDP was $9.952 trillion. Thus, federal spending was 17.98% of GDP.

Presumably folks would point to 2000 as a particularly successful year as this was the year of maximum budget surpluses and very low unemployment. Would those who support a return to Clinton era economic policies agree? I don’t care what tax RATES say they are, it is entirely sensible to return to a federal government tax and spending agenda like we saw in 2000. With spending at 18% of GDP instead of the current 26% THAT is effectively a much lower tax on people of all income levels, including the rich. Is President Obama really and truly offering us a return to these halcyon days? Or does he merely plan on returning to those levels of taxation? If the former, then the right is simply not smart enough to understand that tax rates are not the same thing as tax burdens. I suspect there is truth in that observation. How much, by the way, would spending have to be cut to get us back to Clinton era fiscal responsibility? How about $1 trillion.

One Response to “Take the Deal”

  1. Harry says:

    By 1993 the economy had recovered from recession for over a year, even though the election had been about the economy, stupid. One of the first things the Clinton administration did, along with raising tax rates was to announce a Keynsean stimulus (Laura Tyson).

    Until 1995 we had slow growth but no recession. Interest rates for corporate and municipal bonds peaked just before the 1994 election.

    We can give Clinton credit for lowering capital gains, though. This unlocked a ton of capital that had been sitting around

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