According to the original Treasury Department estimates, the Clinton
tax hike was to raise federal revenues by 0.36% of GDP in its first year
and by 0.83% of GDP in its fourth year, when all provisions were in
effect and timing differences associated with near-term taxpayer
behaviours had normalised. Tax receipts were relatively static in 1993
and 1994, so I wouldn’t read that as a positive created by the 1993 tax
rises. 1, 2.
Since World War II, tax receipts have averaged around 18.1 percent of GDP. Receipts have fallen due to the recession,
but as the economy recovers, they will rise above the historical average level
by the end of the decade, even if all the 2001 and 2003 tax cuts are made
permanent.
PERCENTAGE OF GDP
Sources: Office of Management and
Budget and Congressional Budget Office (Alternative Fiscal Scenario).
In the four years following the Clinton tax hike (from 1993 through 1996):
* The economy grew at an average annual rate of 3.2% in inflation-adjusted terms; 6
* Average real hourly wages rose a total of five cents per hour (BLS, average hourly earnings, non-supervisory employees);
* The net effect of trade in the 1990s was to slow the U.S. economy, with
the trade deficit almost quadrupling to $408.7 billion; and
* Total market capitalisation of the S&P 500 rose 78% in inflation-adjusted terms.9
Taxes per Household Have Risen Dramatically
INFLATION-ADJUSTED DOLLARS (2011)
Sources:
U.S. Census Bureau and Office of Management and Budget.
Economic growth was solid, but hardly spectacular in the years
immediately following the 1993 tax increase. This is not really that
surprising. The rule is “the deeper the recession, the stronger the
growth in the post-recessionary period.“ Compared with the economic
performance after the 1981-1982 recession, it was very mild, indeed. Job
growth was strong, as expected. The stock market performed well, but
real wage growth was nearly non-existent. The economy was still growing,
but GDP growth had started to slow at the end of 1994 and early 1995
and by the end of the year, GDP had nearly returned to its 1993 level.
Additionally, nervous about inflation, the Federal Reserve raised
interest rates to “soften the landing.”3 In 1995, the annual report
of the United States Trade Representative was already claiming that
“[T]he United States market has hard limits on its growth; we have a
mature economy and economic growth is beginning to slow.” 9
* Industrial production—output of factories, mines, and utilities—leveled off. 3
* October industrial production index barely exceeded its January 1995 value. 3
* Payroll employment in manufacturing decreased by an average of 16,500 jobs per month. (BLS, total non-farm payroll, payroll survey)
* Business inventories rose relative to sales.
* Production slowed due to excess inventory and soft sales figures. 1
* Real GDP was down to 2.0% down from 4.1% the previous year. 5.
* The net effect of trade in the 1990s was to slow the U.S. economy, with the trade deficit almost quadrupling to $408.7 billion. 4
The real economic boom occurred in the latter half of the decade, after
the 1997 tax cut. In addition to the data below, one example of this
boom is explosion in the amount of venture capital invested.9 In
1995, the first year of data, the total amount of venture capital
invested was $8 billion. By 1998, the first full year in which the lower
capital gains rates were in effect, venture capital activity reached
almost 28 billion, more than a three-fold increase over 1995 levels, and
by 1999, it had doubled yet again.
The 1997 Tax Cut & Its Affect On Taxable CG Income (billion dollars):
1993: 36…..(emergence from recession)
1994: 36
1995: 44
1996: 66
1997: 79
1998: 89
1999: 112
2000: 131….(Dot-com bust, 10 March 2000 and recession begins followed by 9/11.
1994: 36
1995: 44
1996: 66
1997: 79
1998: 89
1999: 112
2000: 131….(Dot-com bust, 10 March 2000 and recession begins followed by 9/11.
* The economy averaged 4.2% real growth per year from 1997 to 2000–a
full% point higher than during the expansion following the 1993 tax
rise. 5
* Employment increased by 11.5 million jobs, which is roughly
comparable to the job growth in the preceding four-year period. (BLS, total non-farm payroll, payroll survey)
* Real wages, however, grew at 6.5%, which is much stronger than the 0.8% growth of the preceding period. (BLS, average hourly earnings, non-supervisory employees)
* Total market capitalisation of the S&P 500 rose an astounding 95%.
* In 1998, the CBO attributed only 1 percentage point of that extra tax
revenue to the 1993 budget-tax rise deal. The rest, it said, came from capital
gains.10
* Between 1994 and 1999, realised capital gains nearly quadrupled,
the CBO concluded, with taxes on those gains accounting for about 30% of
the increased growth of individual income tax liabilities relative to
the growth of GDP. 11
I do not believe in unified budgeting. It is a gimmick where the
government borrows from trust funds to cover its deficit spending, but
let’s go with “Clinton had a surplus” and see what the Washington Post
has to say:
“…The Clinton plan was never intended to achieve a balanced budget.
After the bill’s passage, the Congressional Budget Office estimated that
the deficit would decline modestly — from 290 billion in 1992 to 200
billion in 1998. In the phrase of the era, there were still “deficits as
far as the eye could see.”
Indeed, the Clinton budget plan was actually slightly smaller, on an
inflation-adjusted basis, than the deficit-reduction package signed into
law in 1990 by President George H.W. Bush (770 billion versus 830
billion). Many Republicans also opposed that deal — which Boxer
supported — because it included higher taxes.
Fast forward to 1995. The Democrats lost control of the House and the
Senate, largely because of bruising budget battle. Clinton’s fiscal
year 1996 budget again proposes 200 billion deficits every year for the
next five years. So, again, the target in 1998 (when “surpluses” later
emerged) was a deficit of 196 billion.
But Republicans immediately set the goal of achieving a balanced
budget within seven years. After resisting for a few months, Clinton
shocked many fellow Democrats by announcing that he, too, would embrace
the idea of a balanced budget.
As The Washington Post editorial page put it at the time, Republicans
had forced Clinton’s hand: “Mr. Clinton’s new position on the budget is
much better than the old one. He should have taken it six months ago.
The Republicans have driven him to say that he too wants, if not to
balance the budget, at least to get the deficit into the neutral zone.”
From 1992 to 1997, CBO estimated, revenue increased at an annual
average of 7.7 percent in nominal terms, or about 2.4 percentage points
faster than the growth of the gross domestic product, the broadest
measure of the economy. CBO Deputy Director James L. Blum in 1998 ATTRIBUTED ONLY 1% POINT OF EXTRA REVENUE BETWEEN 1993 AND 1998 TO CLINTON’S 1993 TAX INCREASES. The rest, he said, came from capital gains.
Between 1994 and 1999, realized capital gains nearly quadrupled, the
CBO concluded, with taxes on those gains accounting for about 30% of the increased growth of individual income tax liabilities
relative to the growth of GDP.
There were other factors as well, such as lower than expected health
costs that reduced an expected drain on the budget. Clinton’s
predecessor also had kicked in motion a huge decline in defense spending
(which Clinton accelerated) and also had overseen a painful
restructuring of the banking industry. Even a potential shock, such as
the Asian financial crisis in 1997, brought the silver lining of lower
oil prices that bolstered the U.S. economy.
Credit Clinton with this, however: When the prospect of budget
surpluses (due to Social Security monies) emerged in 1998, he adroitly
blocked GOP demands for a tax cut by forcing a bidding war on how much
to reserve for Social Security — a political maneuver that likely
prevented the (Social Security) surpluses from disappearing as quickly
as they appeared. We all know what happened after Clinton left office.
For claiming that Bill Clinton was for a balanced budget
from the beginning, the Clinton tax hikes were responsible for the
majority of increased revenues,and led to the booming economy, etc., Sen
Boxer got the dreaded 3 Pinocchios from the WP.
THE MYTH OF THE CLINTON SURPLUSES
The claim is generally made that Clinton had a surplus of $69
billion in FY1998, $123 billion in FY1999 and $230
billion in FY2000. Also, Clinton claimed
that the national debt had been reduced by $360 billion in his last
three years, presumably FY1998, FY1999, and FY2000--though, interestingly, $360
billionis not the sum of the alleged surpluses of the three years in
question (69B + 123B + 230B = 422B, not 360B).
While not defending the increase of the federal debt under
Bush, it's curious to see Clinton's record promoted as having generated a
surplus. It never happened. There was never a surplus and the facts support that
position. In fact, far from a $360 billion reduction in the national
debt in FY1998-FY2000, there was an increase of $281 billion.
Verifying this is as simple as accessing the US Treasury
website where the national debt is updated daily and a history of the debt
since January 1993 can be obtained. Considering the government's fiscal year
ends on the last day of September each year, and considering Clinton's budget
proposal in 1993 took effect in October 1993 and concluded September 1994 (FY1994),
here's the national debt at the end of each year of Clinton Budgets:
As can clearly be seen, in no year did the national debt go
down, nor did Clinton leave Bush with a surplus that Shrub subsequently turned
into a deficit. Yes, the deficit was almost eliminated in FY2000 (ending in
September 2000 with a deficit of "only" $17.9 billion --- Oh, what we would not do to have a deficit like that!!!), but it
never reached zero--let alone a positive surplus number. And Clinton's last
budget proposal for FY2001, which ended in September 2001, generated a $133.29
billion deficit. The growing deficits started in the year of the last
Clinton budget, not in the first year of the Bush administration.
The surplus deception is clearly discernible in the
statistics of national debt. While the spenders are boasting about surpluses,
the national debt is rising year after year. In 1998, the first year of the legerdemain
surplus, it rose from $5.413 trillion to $5.526 trillion, due to
a deficit of $112.9 billion.
And, don't take my word for it:
"So the table itself, according to the figures issued
yesterday, showed the Federal Government ran a surplus. Absolutely false. This
reporter ought to do his work. This crowd never has asked for or kept up with
or checked the facts. Eric Planin--all he has to do is not spread rumors or get
into the political message. Both Democrats and Republicans are all running this
year and next and saying surplus, surplus. Look what we have done. It is false.
The actual figures show that from the beginning of the fiscal year until now we
had to borrow $127,800,000,000.”
"Of the $142 billion surplus projected by the end of
2000, $137 billion will come from excess Social Security taxes."
"The surplus deception is clearly discernible in the
statistics of national debt. While the spenders are boasting about surpluses,
the national debt is rising year after year. In 1998, the first year of the
legerdemain surplus, it rose from $5.413 trillion to $5.526 trillion, due to a
deficit of $112.9 billion. The federal government spends Social Security
money and other trust funds which constitute obligations to present and future
recipients. It consumes them and thereby incurs obligations as binding as those
to the owners of savings bonds. Yet, the Treasury treats them as revenue and
hails them for generating surpluses. If a private banker were to treat trust
fund deposits as income and profit, he would face criminal charges."
- Hans F. Sennholz, The Surplus Hoax, Ludwig von Mises Institute, 30 November 2000
"In the late 1990s, the government was running what it
-- and a largely unquestioning Washington press corps -- called budget
"surpluses." But the national debt still increased in every single
one of those years because the government was borrowing money to create the
"surpluses."
"An overall "downsizing" of government and a virtual
end to the arms race has contributed to the surplus, but the vast majority is
coming from excess Social Security taxes being paid by the workforce in an attempt
to keep Social Security benefit checks coming once the "baby-boomers"
start to retire."
- http://usgovinfo.about.com/library/weekly/aa101500b.htm
"When these unified budget numbers are separated into
Social Security and non-Social Security components, however, it becomes evident
that all of the projected surplus throughout this period is attributable to Social
Security. THE REMAINDER OF THE BUDGET WILL REMAIN IN DEFICIT THROUGHOUT THE
NEXT DECADE."
- Kilolo Kijakazi and Wendell Primus, Would Using the Budget Surplus for Tax Cuts or Entitlement Expansions Affect Long-Term Social Security Solvency?, Center on Budget and Policy Priorities, 13 March 1998
"Despite a revenue shortfall, full benefits are
expected to be paid out between 2017 and 2041. The system will draw on its
trust fund, a collection of special-issue bonds from the government, which
borrowed prodigiously from the program's surplus over the years. But since the
country is already running a deficit, the government will have to borrow more
money to pay back its debt to Social Security. That's a little like giving with
one hand and taking away with the other."
- Jeanne Sahadi, The Only Way To Fix Social Security, CNN Money, 20 August 2008
You can check all of this out at treasurydirect.gov, too.
Moreover, take a look at the MTS (MTS = Monthly TREASURY
Statement of the Federal Receipts and Outlays of the United States Government)
from September 2000. You will see that during
the time of the so-called "surpluses," $246.5 billion weas taken out
of the "Trust Funds" of Social Security, Civil Service Retirement
Fund, Federal Supplementary Medical Insurance Trust Fund, Federal Hospital
Insurance Trust Fund, Unemployment Trust Fund, Military Retirement Fund,
Transportation Trust Funds, Employee Life Insurance & Retirement Funds, and
other alleged "Trust Funds".
See: Table 6 Schedule
D of the MTS for September 2000, http://fms.treas.gov/mts/mts0900.pdf
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