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Bruce Bartlett Gives Clinton Too Much Credit

By JLP | July 5, 2012

I picked up a copy of Bruce Bartlett’s The Benefit and The Burden: Tax Reform-Why We Need It and What It Will Take. I’m only into the first chapter (A Brief History of Federal Income Taxation) but am already finding interesting things to point out. Check this out:

Reagan’s tax cut, enacted in 1981, reduced the top rate from 70 to 50 percent and the bottom rate from 14 to 11 percent. Reagan also supported the Tax Reform Act if 1986 (See also the Google landing page for Tax Reform Act of 1986 for other articles), which raised the bottom rate to 15 percent but reduced the top rate to just 28 percent. His successor, George H. W. Bush, agreed to a budget deal in 1990 that raised th top rate to 31 percent. Not only did this action undermine his conservative support in 1992, but it also poisoned the well for future tax reforms. The 1986 act was a deal in which the wealthy gave up their tax preferences in return for a lower top rate, but when the top rate was increased in 1990, the preferences were not restored.

Having broken the deal that underlay the 1985 reform, Bush made it easier for Bill Clinton to go back to the same well and raise the top rate to 39.6 percent in 1993. However, it is seldom noted that Clinton raised the threshold for the top rate from $86,500 to $250,000 ($500,000 for couples), equivalent to $375,000 ($750,000 for couples) today.

Although Republicans predicted an economic apocalypse from the 1993 tax increase, the opposite occurred, and a period of exceptionally rapid growth followed. Also, contrary to Republican predictions, that the new reenue would be spent and not reduce the deficit, speding and th edeficit both fell. federal outlyas from from 22.1 percent of GDP in 1992 to 18.2 percent of GDP in Clinton’s last year in office; revenues rose from 17.5 percent of GDP to 20.6 percent of GDP. The deficit went from 4.7 percent of GDP to a surplus of 2.4 percent of GDP over the same period, a remarkable improvement of 7.1 percent of GDP. the, ironically, a liberal Democrat turned out to be America’s most fiscally conservative president since Calvin Coolidge.

…a period of exceptionally rapid growth followed.

Was that “period of exceptionally rapid growth” due to the tax increase? Statements like that make it sound like it was. I have said it many times: the “period of exceptionally rapid growth” we experience during Clinton’s time in office came from two things: Y2K preparedness and the internet boom (stock speculation and online trading). That’s it! Check out these two charts that show the increase in capital gains taxes during the 90s.

It’s a real shame that Clinton gets all this praise heaped upon him for being “fiscally conservative” and people fail to mention that he spent much of his presidency with a Republican Senate and Congress to deal with.

That said, I’m looking forward to reading this book. I think it will be interesting. My first impression so far is that Bartlett is a closet liberal (or perhaps he’s trying so hard to be “fair” that he’s making himself sound liberal). Regardless, this should be an interesting read.

Topics: Economics, Politics, Taxes | 23 Comments »


23 Responses to “Bruce Bartlett Gives Clinton Too Much Credit”

  1. bob Says:
    July 5th, 2012 at 4:51 pm

    “Fiscally conservative”? Not likely. But a hell of a lot more pragmatic than most in Congress today. THAT, more than the “ideological purity” the extreme ends of both parties demand, is what we need.

  2. Squeezer @Personal Finance Success Says:
    July 5th, 2012 at 10:27 pm

    Also when Clinton passed his taxes in 1993, there were significant taxes on luxury items which started to hurt the economy (millionaires stopped buying yachts which led to luxury boat builders laying off workers, etc). The republican congress in 1994 repealed his taxes which led to economic growth.

  3. BG Says:
    July 6th, 2012 at 9:50 am

    “It’s a real shame that Clinton gets all this praise heaped upon him for being “fiscally conservative” and people fail to mention that he spent much of his presidency with a Republican Senate and Congress to deal with.”

    I agree with that. You need Congress / POTUS / and SCOTUS to be mixed across policy lines to have good government. When one party (either party) has total control, then you will see government run amuck.

    However, Clinton should be praised because he was effective with working with the Republican congress (of the time). The Republican representatives of today seems hell bent on doing anything and everything possible to make the economy suck (and hence make Obama look bad), instead of doing what is right for the country. Legislation that Republicans used to support, they are against because Obama supports it.

    If Obama said the sky is blue, House Republicans would argue that it isn’t.

  4. Valkyrie Frost Says:
    July 6th, 2012 at 11:36 am

    “Although Republicans predicted an economic apocalypse from the 1993 tax increase, the opposite occurred, and a period of exceptionally rapid growth followed. Also, contrary to Republican predictions, that the new revenue would be spent and not reduce the deficit, speding and the deficit both fell.

    I have said it many times: the “period of exceptionally rapid growth” we experience during Clinton’s time in office came from two things: Y2K preparedness and the internet boom (stock speculation and online trading). That’s it! ”

    The real point here is that federal income taxes do not actually effect the national economy. Raising taxes in 1993 did not prevent the internet boom. Like the ending in the story “The Grinch Who Stole Christmas”, it came just the same and the Republicans (who represent the wealthy predicting disaster for the economy) were simply wrong.

    Lowering taxes in 2003 and 2005 did not boost the economy and pull the US out of the Dot-Com created recession. It was the housing boom that started in 1998 and historic easy home loans that boosted the economy to unsustainable heights. Those lower tax rates did nothing to save the economy from recession when the housing bubble burst.

  5. Valkyrie Frost Says:
    July 6th, 2012 at 11:42 am

    Squeezer, the 10% luxury tax and millionaires not buying big yachts did not harm or slow the US economy. Boat sales all across the spectrum were in decline from their 1988 high point. It was the 1990 recession and the Iraq War (Desert Storm) that stalled many luxury yacht orders. After the war, those sales picked up and provided better employment that pre-recession levels even though there was a 10% tax on those purchases.

    See this article from the 1991 NYT: http://www.nytimes.com/1991/07/21/nyregion/new-luxury-tax-trimming-boat-sales.html?pagewanted=all&src=pm

    Fact is, when you’re rich like Paris Hilton, the 10% luxury tax is an annoyance, but it does not change your spending habits. Buying a million dollar luxury yacht or a $120,000 Ferrari is not for the common man.

  6. Valkyrie Frost Says:
    July 6th, 2012 at 11:51 am

    JLP, have you read Bruce Bartlett’s other books? If so, what is your take on them?

  7. JLP Says:
    July 6th, 2012 at 1:23 pm

    Working on it right now, Valkyrie.

  8. Jack Says:
    July 7th, 2012 at 3:52 pm

    Well, BG, here’s one the Demonrats slipped in to kill some jobs at the behest of the tobacco lobby:
    http://www.lvrj.com/business/roll-your-own-cigarette-operations-to-be-snuffed-out-161539845.html

  9. BG Says:
    July 7th, 2012 at 6:55 pm

    More republicans voted FOR that bill than against it. Sure a sleazy senator snuck in some legislation to scratch their corporate overlords back — they all do.

    Having said that, a FLAT tax with no loopholes would have prevented this. Cigarettes have insanely high taxes and these RYO operators were allowing people to dodge those sales taxes (much like Amazon helps people dodge sales taxes for online purchases).

    When the online sales tax loopholes are closed, are you going to blame that bill’s sponsor for the Amazon layoffs?

  10. Valkyrie Frost Says:
    July 8th, 2012 at 12:17 pm

    Jack, this is just another shining example to show you that large corporate interests play both sides of the aisle to pass favorable legislation. If Republicans had apposed the amendment, it would never had made it out of committee. Fact is, Republicans (at least those here in the South) are just as opposed to the RYO business model as large tobacco firms.

    Regardless, the high taxes on tobacco is just fueling the tobacco black market.

  11. Jack Says:
    July 8th, 2012 at 9:18 pm

    It’s an excise tax, BG, and has nothing to do with income taxes.

    There is no online sales tax “loophole.” States tax online sales, too. (And it has nothing to do with the feral government.)

  12. Jack Says:
    July 9th, 2012 at 12:04 pm

    Val, you do know that the Democrats control the Senate, right?

  13. BG Says:
    July 9th, 2012 at 1:09 pm

    I see nothing wrong with layoffs happening at firms whose sole-existence is a market driven by tax avoidance.

    As for income -vs- sales -vs- excise taxes: all income should be subject to the same tax rate, with no exceptions. All sales should be subject to the same sales-tax (and/or excise tax) rate, with no exceptions.

    Cigarette sales shouldn’t be charged higher taxes than non-tobacco goods — that is what created the RYO black market in the first place.

    “Val, you do know that the Democrats control the Senate, right?”

    Jack, you do know that more Republicans voted FOR the bill than against it, right?

  14. BG Says:
    July 9th, 2012 at 1:14 pm

    “There is no online sales tax “loophole.” States tax online sales, too. (And it has nothing to do with the feral government.)”

    It is by definition “Interstate Commerce” — and has absolutely everything to do with the federal government because it is “interstate”. It is just a matter of time before the Fed Gov solves the problem of uncollectable state sales taxes (due to inability for states to enforce the collection of those taxes today).

    So again, once this problem of online sales-tax avoidance is solved (going to happen at the federal level), are you going to blame the bill’s sponsor for the Amazon layoffs?

  15. Jack Says:
    July 11th, 2012 at 9:48 am

    1) I have a problem with laws designed to kill legal enterprises.

    2) The RYO businesses were not “black market” — they were completely legal.

    3) The committee of which she wrote is a SENATE committee. The House did not vote separately on the amendment.

    4) Why are you worried about state sales taxes? All states have online retailers, and they get corporate income taxes from those businesses. There is no real loss of revenue.

    5) If those layoffs happen, yes, I will blame the bills sponsors.

  16. BG Says:
    July 11th, 2012 at 11:07 am

    1) Corporations are legal entities because of the laws, not despite the laws. Corporations aren’t natural, they only exist because our laws created them (primarily giving their owners liability protections).

    2) The RYO market existed because of a loophole in the (tax) laws allowing them to sell cigarettes practically un-taxed. The new law eliminates that loophole. So yes, they were ‘completely legal’, and they STILL ARE — but their products will now be taxed at the same rate as Phillip Morris and other cigarette manufactures. It is up to the RYO business owners to decide if there is still a market for RYO now that the tax-loopholes are closed (playing field has been levelled).

    And reading your article, it is plain to see that there is no RYO market now that the tax playing-field has been levelled (proving that the market only existed BECAUSE of the tax-loophole).

    3) If Republicans were so against the amendment, they could have voted the bill down — instead more Republicans voted FOR the bill than AGAINST it. Obviously they didn’t think the issue is as bad as you make it out to be.

    4) It’s a loop-hole (and not even a legal one like the RYO) — online retailers are aiding and abetting state sales/use tax cheats. A federal law requiring online retailers to report out-of-state purchases to the recipients state’s taxing-authority would be all that is needed (dollar amount and shipping address).

    5) Did you do the same when Reagan started the “War on Drugs” and put a bunch of drug-dealers out of business?

    As I said before, cigarettes are taxed at extreme levels compared to non-tobacco products, and that is not fair. There should be a single tax-rate for everything (otherwise it is social engineering via the tax code). Having said that, if one manufacturer (Philip Morris) is forced to pay higher taxes than RYO business owners selling an equivalent product, that also is not fair.

  17. Valkyrie Frost Says:
    July 11th, 2012 at 11:27 am

    The latest tobacco tax hikes were earmarked for the State Children’s Health Insurance Program. Bush vetoed the measure twice, but it was signed by Obama in 2009.

    Clearly the Democrats want to punish smokers to fund other programs. The higher taxes have helped to curb the number of smokers over the passed 20 years, but it raises the age old question of using taxes to change social policy/choices.

    Federal taxes should be flat, even and without earmarks.

  18. Jack Says:
    July 11th, 2012 at 2:00 pm

    1) Corporations ARE natural, because co-operation is natural. They are no more unnatural than governments are.

    2) What do you call a “loophole”? Are you saying that Congress erred in writing the tax law, and they meant to tax these businesses and screwed it up?

    3) They took the bad with the good. It’s called compromise. That does not make the amendment good.

    4) Again, define “loophole”? A loophole in WHAT LAW?

    5) Drug dealing was not outlawed by Reagan.

    6) The RYO shops are NOT selling an equivalent product. Selling reloading supplies in not the same as selling ammunition, and selling loose tobacco, paper, etc., is not the same as selling packaged cigarettes.

    —————————————-

    Agreed, Val. I would submit, however, that corporate income should NOT be taxed. They act as tax collectors only — getting the money from employees (lower wages and benefits), stockholders (lower dividends), or customers (higher prices). Instead, the income should all be taxed at the personal level.

  19. BG Says:
    July 11th, 2012 at 2:40 pm

    1) Corporation Definition: “A corporation is created under the laws of a state as a separate legal entity that has privileges and liabilities that are distinct from those of its members.”

    Hence, it is the law that allows them to exist (or not) — they are not “natural” (as a person is).

    2) Yes, they erred in the original tax-law and they recently fixed that error. There are many more errors yet to be dealt with.

    3) Fair enough.

    4) loophole was the wrong term here, as people not paying use-tax for online sales is already illegal. The problem is there is no enforcement.

    5) You get my point though — it is “the law” that keeps would-be drug dealers unemployed. So, do you blame Reagan for enforcing those laws with his “War on Drugs”? Same as the federal government enforcing (or allowing states to enforce) the use-tax laws for online purchases from Amazon.

    6) Yes they are sell equivalent products: a carton of smokes. People are walking out of the door with a carton of cigarettes: why should one person be charged an extra $20 in taxes if it is bought at a gas station, and not be charged those same taxes if bought at an RYO shop?

  20. Valkyrie Frost Says:
    July 12th, 2012 at 4:22 pm

    The reason to tax corporations, or any business, has to basic principles. First, to favor or disfavor a given industry through tax shelters. Second, to tax income made on the exportation of goods.

    When the US Govt want to favor corn, they tax it less and give it subsidies. When they want to discourage corn, they increase the tax on corn.

    When the US was a big importer, the US utilized large tariffs to protect developing US industries. Once the 20th century arrived, US industries were power houses and tariffs revenues were falling at the same time the federal govt was continuing to grow. So, income taxes came to the table.

    Enough history for one day. I agree with Jack that corporations simply should not be taxed.

    However, I suspect both Dames and Reaps would bulk at that idea. The Dames would claim corporations are paying their “fair share”, but we all know taxes, if any, are paid by consumers and not be the corporations themselves.
    The Reaps would be afraid that all the corp tax credit subsidies would be repealed with the corp tax. That would end up costing some large corporations more money than the status-quo of today.

  21. Jack Says:
    July 12th, 2012 at 5:01 pm

    1) It is natural for people to organize. The government’s creating a definition does not change that fact. The government can create a definition of marriage, but that does not make coupling unnatural.

    6) Because in this case, the purchasers choose the tobacco and the paper, and put them in the machines themselves. The paper does not have the nasty (unknown) chemicals that Phillip Morris puts in to keep the cigarettes burning even when you don’t puff.

  22. Jack Says:
    July 12th, 2012 at 5:38 pm

    In short, Val, it will not happy because our politicians want POWER, and the ability to manipulate the tax code gives them power.

  23. Jack Says:
    July 12th, 2012 at 6:21 pm

    Edit: “happy” -> “happen”

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